AS Tallink Grupp (TAL1T) Earnings Call Transcript & Summary

Good afternoon, all of you who have joined us today at Tallink Grupp investor webinar introducing the financial results for the second quarter of 2025. My name is Anneli Simm, and I'm the Investor Relations Manager at Tallink. Today, we have here members of the management board, Harri Hanschmidt and Margus Schults, who will walk you through the presentation on the operations of Tallink Q2 financial results as well as the key takeaways. After the presentation, the CEO of Tallink Grupp, Paavo Nogene, will take your questions. We have already received a number of questions, but I encourage you to ask your questions through the Q&A function of this, and it would be also nice if you would also identify yourself when asking the question. But enough said, I will now hand the microphone over to Harri Hanschmidt.

Thank you, Anneli. Hello. Good afternoon. My name is Harri Hanschmidt, I'm a Management Board Member for Tallink Grupp. I will start with the second quarter and the first half year presentation, after which I will give the word to our CFO, Margus Schults. And later you can ask questions from our CEO, Paavo Nogene. The Tallink Grupp is the leading European provider of leisure and business travel and sea transportation services in the Baltic Sea region. We offer passenger transportation, also cargo transportation and all sorts of RoRo transportation in the Northern Baltic Sea area. We own and operate a fleet of 13 vessels, which 2 of them are cargo vessels and these currently are in lay-up. We have 5 regular routes on the Baltic Sea. Three of our vessels are chartered out, 2 in the Netherlands, the Silja Europa and Galaxy. And our Romantika is currently operating in Algeria as a chartered vessel. We have 2 strong brands, Tallink and Silja lines, and a growing Club One members program that has 3.4 million members. We also operate 4 hotels, 3 of them in Tallinn and 1 in Riga and also 20 Burger King restaurants throughout the Baltic states. We offer shopping on board, onshore, online and the Tallink Grupp has about 5,300 employees in different countries. When we take a look at the fleet by routes and when you are reading our quarterly results, I think it's quite important to understand throughout the years there are some changes on the routes that also affect the capacity and also the result. To very briefly go over, Megastar and MyStar are tailor made and built for the Tallinn-Helsinki route that offer daily shuttle services. Victoria I is this year also on the Tallinn-Helsinki route. Last year, she was in June, July, August as a supporting vessel on the Tallinn-Stockholm route. This year, this is not the case anymore. Also, there has been a change on the Paldiski- Kapellskar route where the 2 cargo vessels, Regal Star and Sailor are now in lay-up and replaced by Superfast IX. And there is a change in business model. As with Regal Star and Sailor, they were dedicated cargo vessels, but Superfast IX also offers a possibility for passenger car travel. Baltic Queen is on the Tallinn-Stockholm route. Silja Symphony and Silja Serenade on the traditional Helsinki-Stockholm route. And Turku-Stockholm route is run by one vessel, Baltic Princess. And as mentioned, Galaxy and Silja Europa are Romantika are chartered out. Also, we sold the vessel, Star I, in April. The vessel Star was built for the Tallinn-Helsinki route and was replaced in 2022 by MyStar. The vessel was after that chartered out and now sold. So it was a replenishment of a new-generation vessel -- the new generation [ LNG ] vessel coming to the route. So if you take a look at the revenues for the second quarter and the statistics, we can see that the passenger number grew slightly. So we ended up transporting almost 1.5 million passengers. And the cargo numbers went down. We ended up with 67,000 cargo units. Passenger cars were up. And we transported almost 213,000 passenger cars in the second quarter. The revenues were EUR 207 million. We can see that there was a strong accommodation and ticket revenue as well stable onboard sales. But these results were offset by a decline in cargo revenues and also a decrease in charter revenues as there were less vessels in charter. Also the profitability through the second quarter and also during the first half year was impacted by the vessels that were lay-up. Fortunately, we have only now 2 vessels in lay-up, we had 4. So the future in that perspective will be more efficient. We ended up with a EUR 37.4 million positive EBITDA, but you had dividend tax that was recorded in the second quarter. And because of that, we ended -- and the previously mentioned effects, we ended with a EUR 2.5 million loss in the second quarter. We had EUR 8.4 million CapEx. Also in the first quarter, we did -- results for first and second quarter altogether were about EUR 22 million that we invested in the vessels. Mainly bigger investments were Baltic Princess and Silja Serenade. Baltic Princess was in dry dock and received a facelift. So we keep the whole fleet technically in good shape, but also gradually invest into the bulk areas when necessary, do upgrades, facelifts, so forth. We will, on the next slide, also show -- a little bit show this. So there was about over EUR 7 million investment into the vessel, Baltic Princess, that operates between Turku and Stockholm. The vessel received upgrades in restaurant and shop areas. The whole shop area got a facelift. The tax-free area received self-service kiosks and the [ relaxation ] corner, there are wider doors to the perfumery and cosmetic shops and better connections to the gift stores and children's store. The 400-square meter restaurant, Grill House, received a facelift as well. And the piano bar received a club-style upgrade. When we go over to the sales and results by geographical segments, we can see that the result was very similar to last year. But as I mentioned, there were different capacity changes on different routes that need to be accounted for. But from an overall perspective, Estonia-Finland revenue was at the same level. Estonia-Sweden dropped by EUR 2.9 million. Finland-Sweden increased by EUR 1.8 million. And we ended up with EUR 207 million as segment sales. On the segment results level, Estonia-Finland was -- declined by EUR 4.5 million. Finland-Sweden increased by EUR 0.4 million. We ended up with EUR 27 million as a segment result. And if you look at the revenue structure, this is quite typical for our business that 49% of the sales come from restaurant and shop sales, 29% from the ticket, 10% from cargo, 6% from charter, also accommodation sales were 3%. And here, we can clearly see that restaurants and shops were on the same level as last year. Ticket sales improved. But there was EUR 4.3 million drop in the sales of cargo transportation and also a EUR 3.1 million drop from income of the charter of the vessels. And we ended up with EUR 207 million. When we look at the dynamics of the seasonality, first quarter is always a low season. Second quarter is already picking up. Now we are in the third quarter, but as we can see, first quarter was 1 million passengers, second was 1.5 million, typically third quarter is more. This also reflects in revenue, but especially affects the bottom line. So we are hard at work to do a good third quarter. Cargo is throughout the year less affected by the seasonality. So the first half year, we ended up with a loss of EUR 36 million. But we have done different steps by chartering out vessels, selling vessels that were not working or they're burdening the company. And we should have a much better picture and have been doing some different decisions to make that business more efficient. Now I will give word to our CFO, Mr. Margus Schults.

Good afternoon also from my side. My name is Margus Schults, and a few more comments about Q2 results. So like already said, we had in Q2 revenue EUR 207 million, which is about EUR 3 million less than Q2 last year. But this EUR 3 million is basically reflecting the amount of less charter revenues what we got this year. And also, when you look to our traffic bulletins, which are published monthly, then you can see that there is a positive pickup towards June, end of Q2, both in terms of absolute numbers and also in terms of comparison to last year same period. We have been able to keep our costs under control. So the cost of sales increase basically reflects increased number of passengers. Other costs are very stable level. We have paid also over EUR 11 million -- EUR 11.4 million income tax related to our dividends. And this year, dividend income tax was somewhat higher, EUR 2.5 million higher than a year ago. And this is reflecting the internal dividends paid from our subsidiaries to parent companies from different countries. So last year, we just could get more benefit from those dividends. And EBITDA, like I already said, was by the end of quarter, EUR 37.4 million. Like already mentioned, the improvement for June is quite clear. And EBITDA margin, 18.1%, is definitely lower than our record year in 2023. But it's quite comparable to Q2 margin in 2019 when we had last, let's say, normal operations. In cash flow, we had EUR 60 million coming from our operations, and this is a little bit better number than a year ago. And we had some one-off items, which I already mentioned. We had sales of Star, and from these proceeds, we used part to pay back our long-term debt as Star was one of our collateral vessels in this debt. And also, we had significant investments done in Q1 to Silja Serenade and Baltic Princess and cash flow impact of these investments is in Q2. So this is EUR 8 million, and the total docking days in this year had been 69 comparing only 6 last year. So therefore, it's also investments are larger. And net debt financing is EUR 90 million -- minus EUR 90 million, of which loan payments and the interest -- normal loan payments and interest and extraordinary payment related to sales of Star is EUR 54 million. So it's quite a rapid decrease in the loan down payment. And dividends already, as you know, are announced, but we have paid in the second half of this year in July and in November. In our balance sheet, no major changes. Our assets are still our vessels. And our liabilities is both in equity and about half and other long-term commitments, bank loans about half. Our equity ratio is still very strong, 49%. And net debt-to-EBITDA is at the end of quarter 3.6x, which is somewhat over -- higher than in end of '24. But this is not maybe so much a matter of net debt, but it's trailing EBITDA, which is somewhat lower. And as you may remember, perhaps in Q1 2024 we had extraordinary income from sales of Isabelle. And our liquidity is on healthy level, EUR 128 million, including cash and overdrafts. And this is really improvement of EUR 57 million during the second quarter. And our book value, EUR 0.94 per share, basically reflects that we are traded below book value quite significantly. And in our loan portfolio, also no major changes. We have still 3 loans, one for MyStar, one for Megastar and one syndicated loan. Some of those loans are fixed rates, some of them are on floating rate. And our aim is to continue reduction of loan portfolio in order to make room for potential new investments in the future. So at the end of the quarter, our long-term loan portfolio was about EUR 405 million and used overdraft was EUR 8 million. And like I said, net debt-to-EBITDA of 3.6 is something which we are very comfortable. It's on good healthy level. Thank you.

Thank you, Harri and Margus. Before we start the Q&A session, Paavo Nogene will say a few words.

Yes, good afternoon also from my side. As colleagues already mentioned, the first half of year has been challenging, mainly due to the lack of the -- lay-up vessels. Four vessels laid up in the first quarter and now still 2 vessels who [ follow ] the work and this is having a significant impact to our net result because the lay-up costs are significant to the asset price due to the crew on board 24/7 plus fuel and maintenance in the vessels. So this has been our challenge this year. But picture is getting better, as already mentioned. One vessel is sold, one is chartered out to Algeria. And we are working hard to find a new future for the cargo vessels. But summer has started kind of well. As we also said today somewhere in the press that June was a bit better than last year, which is a good sign. And July is going also well. So let's hope that the summer, which came this year quite late, will last longer than usual, and it hopefully will benefit our third and fourth quarter as well. Thank you.

Thank you. We follow the usual approach, meaning that I will read out the questions received and then Paavo will be addressing these questions. And I will start with the ones that were sent before this webinar. Last year, you had 2 ships on the Tallinn-Stockholm route during the season. This year, only one. What are your experience so far from this? Is the Kapellskar-Paldiski route covering the demand?

One ship between the Tallinn and Stockholm is more economically efficient and we'll see what the future will bring. But Paldiski-Kapellskar, there are more capacity than demand. This is the short answer.

Looking at your competitors, this week the Stockholm-Turku line is partly -- fully booked. Have you considered a second ship on the routes at least during high season?

No. And the reason is that it's not possible to finance the shipyard [ around ] costs in 1 summer month.

The canceled short route from Kapellskar to Mariehamn is always a topic on Åland. Have you ever considered to open this route? What are the cons and pros?

Yes, if your own Åland company stopped providing this service, it was probably for a reason.

What are the main reasons behind the decline in profitability on the Finland-Estonia routes? Has onboard consumption dropped in restaurants or shops?

On the one hand, there are impacts from lower revenue from cargo. On the other hand, some overcapacity in terms of the number of ships. Not enough passengers for everything to ensure the same efficiency. If you compare before the COVID time in Tallinn-Helsinki route, here were around 9 million passengers. Now it's around level 7-plus million. But there are more capacity than earlier because Star is replaced by MyStar. And also the pressure on ticket prices in the form of the additional European Union taxes, environmental taxes. And onboard spending, rather the pressure is on stores and certain product groups where the price differences have become less attractive to consumers due to the tax policies in Estonia or Finland.

Thank you. What are the main factors behind the decline in cargo operations? Are they economic situation or -- is this the economic situation or competition in the markets?

The main problem in freight transport is the slow recovery of export markets, meaning that there is more supply than demand for transport on the market.

Thank you. Perhaps you can comment on the gross margin. Was the Q2 difference versus Q2 last year mainly due to ships in lay-up or any other main reasons?

Yes, a significant impact from lay-up vessels, but also certainly some overcapacity on the Tallinn-Helsinki route and in general an increase in European Union environmental taxes. As you probably remember, last year, it was in the level of 40%. This year, it's in level 70%. We need to buy the CO2 quotas and next year it will be 100%. So this having also impact because this pressures the ticket price generally as in some routes it's difficult to add 100% the environmental tax on top of the ticket price without lowering the base of the ticket.

Thank you. Please give an update on the 2 vessels in lay-up. What is the annual cost for having them in lay-up? And is the base case to wait until market improves or to divest them?

We are working to find them new work. The cost of lay-up depends on the size of the crew, fuel prices, et cetera. So we will not disclose this information in detail.

Q2 restaurant and shop sales increased slightly. After 4 consecutive quarters of year-on-year decline, have you noticed the bottoming out of consumer sentiment?

We would like, but we cannot confirm that this will be the case that we have seen the bottom. Much will depend on the mix of the passengers onboard and also on the overall share of cruise passengers in revenue where consumption per passenger is higher.

And now we'll continue with the Q&A from the webinar. From 0 to 100%, how positive you are for business success in this 2025 year?

Question is that what we could name as the business success during the economical crisis and war in Europe. So difficult to answer. But we have had a challenging year as several companies in Europe and in our regions. So let's hope that the economy in our main market, which is Finland, will start to increase. Then most probably we'll see also more passengers and also more cargo transported between Estonia and Finland.

Can you provide more color on negative trends on cargo volumes? What is the effect of lower market volumes versus the effect of increased prices?

It is a combination, but month by month it's getting better in that sense that the difference between the transported numbers lowering, and at the same time, we have earned more money based on every lane meter. So the gap is closing and I believe that the future will be more bright. But this means when cargo transportation is starting to increase again, it's in the autumn because summer period is playing also a seasonality role in the cargo transportation.

Last year, you had 2 ships on the Tallinn-Stockholm route during the high season. This year, only one. What are your experiences so far from this? Is the Kapellskar-Paldiski route covering the demand?

Yes, I believe that I already answered this question and also the next one, which is written here. So once more, Tallinn-Stockholm with one vessel is economically more efficient and Paldiski-Kapellskar route, there are more capacity than demand and -- yes.

That seems to be the last question. We thank everybody who joined us today for this webinar, and for the questions you sent either by email or presented here in the chat function. We all have -- wish you a good rest of the day, and we're looking forward to have you back during our third quarter results, which will be published in October 2025. Thank you again, and goodbye.