AS Tallink Grupp (TAL1T) Earnings Call Transcript & Summary

Good afternoon, all of you who have joined us today. Welcome to Tallink Group Investor Webinar introducing the financial results of the first quarter of 2025. My name is Anneli Simm. I'm the Investor Relations Manager at Tallink. And today, we have here a member of the Management Board, Mr. Margus Schults, who will walk you through the presentation on the operations of Tallink, first quarter financial results as well as the key takeaways. After the presentation, Mr. Paavo Nogene, the CEO of Tallink Group, will take your questions. And we have already received a few questions, but I encourage you to ask your questions also through the Q&A function of this webinar. And it would be nice if you would also identify yourself when asking the questions. But enough said, I will now hand the microphone over to Margus.

Thank you, and good afternoon also from my side. Q1 results are published now on stock exchange. And as we already wrote there, Q1 was quite a difficult quarter for us as well as for whole economy. The results of Tallink were impacted by maybe 4 major effects. First of all, of course, economic slowdown in all our home markets. We can see that the wallet of spend on free time is lower for households. And therefore, the number of passenger is affected. And also the economic slowdown means that there is less cargo between countries. Secondly, for us, of course, 4 idle vessels have impacted our results negatively because idle vessels do not produce any revenue but have quite substantial costs. Thirdly, Easter. Last year, the Easter was at the end of March. This year, Easter is in April or was in April. And obviously, Q1 results are affected by the movement holiday because we know that during Easter, there is always more people traveling. And last but not least is also the results are affected by quite long dockings. We had 2 Finnish Swedish vessels, Silja Serenade and Baltic Princess in a dock quite a long time, made improvement on technical side and as well on passenger side. So these docks are also affecting our Q1 result when you compare to 2024. But our key facts are very much the same. We have 14 vessels at the end of Q1. I will come back to the events which have happened during April on next slide. And out of these 14 vessels at the end of Q1, 2 vessels were chartered to Holland as accommodation vessels. Where we are very happy is that our Club One, our loyalty program members continue to grow. So now we have reached already 3.4 million Club One members, and this is obviously our assets when we make marketing and sales promotions. And also, we have a small adjustment in our minor businesses. We have one stand-alone restaurant now less and one Burger King restaurant less. Our fleet as of end of Q1 2025 is presented here. Just a reminder that we have on Tallink Helsinki Route 3 vessels, 2 shuttle vessels and 1 cruise vessel. Then on Helsinki Stockholm, we have daily departures with 2 cruise vessels Tallink Stockholm and Turku Stockholm, we have 1 cruise vessel operating, then we have also Paldiski-Kapellskär operated by Star by the end of March and then 2 vessels in charter. And as mentioned, at the end of the quarter, we had 4 layup vessels, which affected our result in a negative way. But during April, we had 2 major changes. First, we sold our vessel Star to Irish Ferries. And as a result of that, the cost of superfast ferry, which was laid up, started to operate on Paldiski-Kapellskär and obviously started to generate revenue. So today, we have 1 vessel less in our fleet and vessel less also in layup. So the numbers in summary are here. So basically, we had in Q1 a little bit less than 1 million passengers, which is about 12% lower number than a year ago. As mentioned already, one reason to compare this minus is the movement of Easter to April. Second is the stocking of Silja Serenade and Baltic Princess. Where we are very happy is that our international passengers, i.e., passengers coming outside of home markets are continuing to grow. So this is a positive trend. But obviously, this absolute amount of these passengers is lower than from home market. So totally, the number is a little bit more than 100,000 lower than in 2024. Cargo units are also down, reflecting the economic slowdown. And the total revenue for Q1 ended up with EUR 137 million. EBITDA was slightly negative, minus EUR 4 million and net profit was EUR 33 million. Where I also would like to highlight is that our capital expenditure was quite high, EUR 13 million. And out of that, the biggest investment was done in Baltic Princess, where we had quite a big renovation both on technical side, but also we renovated all our shops and restaurants. So it's quite a big improvement during the dock. And we can see that the passengers have basically very well received this, and we see positive trends during now springtime. And also, I would like to highlight that in Q1 2024, we had sales of our Isabelle vessel. And of course, both in terms of the result and EBITDA, Q1 2024 includes extraordinary profit. If we go by segment, then you can see that all the geographical segments had negative impact. So the biggest negative impact came from Estonia Finland segment, mostly due to the impact of cargo, but also, like already mentioned several times, docking impacted negatively the sales on Finland-Sweden segment. And in segment Other, we reflect other like hotels, but also the charter vessels. And since we had less charter vessels, the segment was also negative. And if you look segment results, then you can see also that the biggest impact was almost EUR 8 million came from chartering of the vessels but also between a Sweden Finland result segment result was negative by EUR 7 million and Finland Sweden result was in relative terms had lower impact negative impact because during docking period we our costs were obviously lower. If we go to the operational segments then also basically all operational segments on-board sales, ticket sales are reflecting lower volumes which are coming from lower number of passengers and then also the economic slowdown reflects the sales of cargo negatively by EUR 4 million. The proportions between different segments are still very much the same about half of revenues is coming from on-board sales about one quarter is coming from ticket sales and then the remaining is divided basically between cargo and charter revenues and this is long-term trend the last 6 years. The number of passengers cargo units revenues and EBIT and the blocks in each year reflects quarters so obviously our first quarter is the most slow business and this year we served 1 million passengers and transported 58,000 cargo units and EUR 138 million in revenues and made EBIT minus EUR 4 million but if you look long-term trend comparing 2019 then you can see that approximately the number of passengers. So the numbers in summary are here so basically we had in Q1 little less than 1 million passengers which is about 12% lower numbers and a year ago as mentioned already one reason to compare this to compare this minus is the movement of Easter to April second is the talking of Silja Serenade and Baltic Princess where we are very happy that our international passengers coming outside of whole markets are continuing to grow so this is a positive trend but obviously this absolute amount of these passengers is lower than from whole markets, so totally the number is little bit more than 100,000 lowers and in 2024 cargo units are also down reflecting economic slowdown and the total revenue for Q1 ended up with EUR137 million EBIT was slightly negative minus 4 million and net profit was EUR 33 million where I also would like to highlight is that our capitalist expenditure was quite a high EUR 13 million and out of that the biggest investment was done in Baltic Princess where we had a quite a big renovation or posts on technical side but also renovated all our shops and restaurants so it's quite a big improvement during dock and we can see that the passengers have basically very well perceived this and we see positive trends during now springtime and also I would like to highlight in Q1 2024 we had sales of our Isabelle Vessel and of course both in terms of the result and every day Q1 2024 includes extraordinary profit If we go by segments and you can see that all the geographical segments had negative so a negative impact so the biggest negative impact came from a Finland segment mostly due to the impact of cargo, but also like already mentioned several times docking impacted negative this is sales on Finland Sweden segment and in segment other we reflects our other like hotels, but also the charter vessels and since we had less charter vessels the segment was also negative and if you look segment results and you can see also that biggest impact was almost EUR 8 million was came from chartering of the vessels but also between a stone and Finland result segment result was negative by EUR 7 million and Finland Sweden result was in relative terms had lower impact negative impact because during docking period we our costs were obviously lower. If we go to the operational segments then also basically all operational segments onboard sales ticket sales are reflecting lower volumes which are coming from lower number of passengers and then although the economic slowdown reflects the sales of cargo negatively by 4 million. The proportions between different segments are still very much the same about half of revenues is coming from onboard sales about one quarter is coming from ticket sales and then the remaining is divided basically between cargo and charter revenues. And this is long term trend the last 6 years the number of passengers cargo units revenues and a BTA and the blocks in each year reflects quarters so obviously our first quarter is a most slow business and this year we served 1 million passengers and transported 58,000 cargo units and EUR 138 million in revenues and made EBIT minus EUR 4 million. But if you look long term trend comparing 2019 then you can see that approximately the number of passengers have been in recent periods after COVID about minus 40% lower comparing pre-COVID time but the revenue is minus 20%. So we have been able to get better revenue per passenger and every day if you look a long-term trend has been so far quite comparable to pre-COVID times. On net profit these are the numbers on net profit level so basically the first quarter is this year-ended up with minus EUR 33 million but if you compare to 2019 we cut off to fit everything on screen we cut off 2 COVID years from this slide but if you compare to 2019 and adjust this minus EUR 33 million with the negative result of 4 idle vessels then basically we made a little bit better result than in 2019 so we can see that results are in 2019 and 2025 quite comparable adjusted to the idle vessels. On income statement, already most of numbers have come through. Sales EUR 137 million. The other operating items in 2024 included sales of one vessel. So basically, from operating activities, the result was minus EUR 27 million and the EBITDA and net profit already announced minus EUR 4 million and minus EUR 33 million, respectively. On cash flow, more or less the same comments, what we had previously. We had quite a high capital expenditure because of the sale of the docking of 2 our vessels, quite a long period. We are missing this first quarter the income from disposal of assets, i.e., sales of Isabelle. So therefore, our free cash flow is also negative, minus EUR 22 million in Q1. And yes, basically, change of cash is quite neutral considering all these changes. Our Balance sheet have not been changed. Our assets are still the vessels. So basically, now the value of vessel in our balance sheet is EUR 1.35 billion. And on loan side, we are paying back every quarter our loans. So basically, now the net debt is now EUR 569 million. Some of our loans are scheduled in the way that second half of the year, the principal payments are higher than in first half year. Therefore, the down payment schedule is not even during the year. And equity ratio, very strong, still even in spite of the first quarter negative result, 51%. And our loan portfolio, we have long-term loans in the amount of EUR 454 million as end of March. Three loan agreements, nothing changed. Two of those are related to our newest vessels, MyStar and Megastar and syndicated loan for general corporate purposes. Maturity dependent on loan are 4 to 10 years and all our loans are euro denominated, but some of those have a fixed interest rate and some of those have Euribor-related interest rate. And last but not least, in the beginning of the week, we announced also the Annual General Meeting timetable and also the proposal for general meeting decisions. So this meeting will take place on 20th of May and all the decisions are public now. You can see that the agenda is quite ordinary as it has been in the previous years. But I thank you for your attention.

Thank you, Margus. Before we start with the Q&A session, I'll give the microphone over to Mr. Babanogan for a few words.

Yes. Good afternoon also from my side. As Margus already told, the quarter was quite difficult. We need to understand where we live, there are war in Europe. There are difficult economical situation in our core markets, I mean, in Finland and Sweden, mainly Swedish economy starting to increase slowly. In Finland, the government made yesterday important decisions to lower the income tax for the citizens and enterprises. So definitely, these will have the positive impact for the future. But all in all, as also Margus said, if we take off from the negative result to the 4 laid-up vessels result, then we ended the quarter in similar result as the 2019, but also between 2019 and '25, a lot of change. If you take the number of passengers, example, that the same result was achieved with a much lower number of passengers, et cetera, et cetera. So Tallink as the company is still the slim fit. This helps us in these difficult situations and definitely, when the economy is starting to grow and geopolitical situation getting better, then there are also the positive outlook for the Tallink future. But let's start with the questions.

Thank you. So as usually, we will follow the approach that I will be reading out the questions and Paavo will be addressing those. And I'll start with the questions we have received prior to this meeting. Two questions about our hotel operations. Is Tallink not terminating a clearly unprofitable and unpromising project because the hotels belong to Inforter? And the second one goes, is Tallink planning to burn more of the investors' money in this company?

Yes. Thank you for this question. Tallink has made hotel development decisions by looking at the customer journey as a whole from purchasing a ferry ticket to staying at our hotels, and there are no plans to change this strategy at this time.

Would it be possible to quantify the Easter effect on profits?

It's not possible to quantify it in the profits currently. But what I can say is that the Easter week had 50,000 passengers more compared week before. So the Easter impact is significant anyway.

Please give an update on the state of the market for selling ships.

As we just signed and delivered the star to the new owner, Irish Ferries, then the market is active. Yes, we have 3 laid-up ships today. We're working to find work or to sell them. Market is active, but always the question is that what is the price we offered and we're trying to find a good balance between the lay up the ship or sell the ship or charter her out.

Please comment if there was a fuel price effect compared to Q1 last year, also if you hedged some fuel going into the high season quarters.

We haven't hedged the fuel currently and not also the LNG. And the question about the price effect compared to last year, it was plus/minus EUR 1 million.

Thank you. Next question, please analyze the decline of traffic volumes on the Estonia, Finland route regarding competition, market situation and how you are positioned towards the Estonian and Finnish markets?

We feel strong. We definitely have a different product compared to our good competitors here. We allocate our product as the premium product. If you take a look also the pricing, what we can get, we allocate our product as the premium product. If you take a look also the pricing, what we can get, if you read the report and find out the ticket prices, then you can see that it's different from competitors. So this is our strategy currently, and we don't see any big problems if someone's market share is maybe getting 1% or 2% better from us because the ticket price difference is just balancing it well.

Thank you. How are you reporting your carbon credits and the cost of them? Where do we find information about the cost for 2024 and Q1 2025? And are you buying them on the go or not?

We're buying them monthly. And you can find the 2024 cost from our annual report, Note 12 that are the cost for full year. We are not going to publish the quarter-based cost to also the reason of the competition.

Thank you. Could you tell me more about the effect so far on the updated Baltic Princess?

Baltic Princess is doing well. The renovation went really well. It has had a lot of good. Yes, it is successful. Customers are happy. We are happy. We got a lot of good PR also in the media. So everyone are very welcome on board. She looks amazing. And definitely, this investment was for next 10 years. She haven't had so big investment since launching the Baltic Print 16 years ago. So definitely it was needed, and we are happy that we were able to do it before coming up high season.

Thank you. I will continue now with the questions in our Q&A section of this webinar. Does Inforter have the lockup period as no activity in the market since buyout was finished?

No, they don't have a lockup period.

Don't you think dividend proposal is too aggressive looking at current cash flows?

We promised we will pay out this year EUR 0.06. We do it in 2 parts, first part beginning of July, second part in November, and we are confident we can do it as promised.

What are your plans regarding remaining 3 ships in layup? What will be effect on P&L of sale of Star?

About Star, you can read from second quarter report as it's happened in April. Free ships layup, we're trying to find work or sell. Let's see. Hopefully, there will be some news already in coming weeks about some of these vessels.

Thank you. And it seems to be the last question now. Your market share is constantly decreasing in favor of peaking line. What are your action points to scope with this trend? Is it a matter of the pricing?

I think I already answered this question before that we are not worried about 1 or 2 or decreasing market share. One thing I don't know which route you are talking because if you take the Helsinki, Stockholm, our market share is better than Wikingline. So we need to go route by route and take a look also what is the effect of the ticket price, what is the onboard spending and look at everything together. So definitely, to sell the premium product during the crisis period is more difficult, but we have done it quite well in last 5 years, we have been in different crisis, and we are confident that we will do it well also in coming months and years.

Thank you. Since no more questions, we thank everybody for attending this webinar and for your questions, definitely. We wish you all a very good rest of the day and hope to see you back on a webinar for reporting our second quarter results in July 2025. Thank you, and goodbye.