AS Tallink Grupp (TAL1T) Earnings Call Transcript & Summary

Good afternoon, and welcome to all participants joining us for this investor webinar, during which we will present Tallink's financial results for the third quarter of 2025. My name is Anneli Simm, and I'm the Investor Relations Manager at Tallink. Margus Schults, the member of the Management Board, who is here with me, will walk you through the presentation covering Tallink's operations, the Q3 financial results and the key takeaways. He will also take your questions after the presentation. We have already received a number of questions, but do not hesitate to send any more questions using the Q&A function. It would be great if you also could mention your name when submitting your questions. And with that, I will conclude my introduction. I will now hand the microphone over to Margus.

Thank you, and good afternoon to everyone from my side. If I can start by borrowing some comparison to the seas, then basically, the year has started quite in severe conditions. There were strong headwinds from the economy to all of us. Consumer confidence has been in the beginning of the year quite low and we have struggled, as you know, with our Q1 result quite heavily. But now during Q2 and even more in Q3, we can see that the sea is calming down. There are sunshine sometimes already seen from the sky. So our Q3 results have been quite delightful for us, and we can say that perhaps we have been able during the Q3 to find the most sunny spots on the sea. But I will walk through to the results now. So our key numbers have not changed too much. We have currently 12 vessels in the fleet as of end of September. But as you know, we have been able to sell already 2 vessels: Star in the springtime of this year and Regal Star during Q3 of this year; and we have also signed a sales agreement for Sailor. So this vessel will be delivered during the October month and, after that, we will have 11 passenger vessels and no cargo vessels in the fleet. Then also we have still 3 vessels in charter: 2 charters are Netherlands already several years, and one charter was prolonged recently during Q3 for next 1 year period. So Galaxy will stay in charter until October 2026. But we have also new charters since a couple of months ago, and our vessel, Romantika, is now in Algeria traveling from Mediterranean Sea between Spain, France and Algeria. Other key numbers are remaining the same. We have 4 hotels, 20 Burger Kings, about 4,700 employees. And what is also delightful is that we have a Club One membership, where the number of members is constantly increasing, so now reaching almost 3.5 million. And yesterday, we published a press release where we also told that at the end of this months, we will renew quite substantially the Club One program. And we hope that after that, there will be even more members. On the fleet, just a reminder that we have Megastar and MyStar as shuttle vessels between Tallinn-Helsinki and then on top of the 22-hour cruise vessel, Victoria, on Tallinn-Helsinki. Then in Tallinn-Stockholm, we continue with 1 vessel, Baltic Queen, departing every second day. Paldiski-Kapellskär, we have a vessel, Superfast, servicing mostly cargo clients but also passengers who have passenger cars with them. But what we have done during the autumn time, we have reduced schedule of frequency for Superfast. So if you compare numbers to last year, then the schedule is different. On Helsinki-Stockholm, Silja Symphony and Silja Serenade are still there with a normal schedule. On Turku-Stockholm, also Baltic Princess is there on regular route. And then we have 3 chartered vessels, as mentioned: Galaxy and Silja Europa in Netherlands, and Silja Europa now prolonged until October 2026; and then Romantika in Algeria on Mediterranean Sea. And then here, it's still the end of Q3, we have a lay-up, 1 vessel, Sailor. But as already mentioned, it's sold. So as already said, we have been able to find the sunny spots from the sea quite luckily and we have been able to improve our results from Q3 2024 quite well. The number of passengers increased by 3%, and it's basically summer months which showed improvement. Maybe September, as you know, there was a small decline. But we are very happy that July and August of this year were very strong in terms of passenger growth. Then cargo units decreased in Q3 by 10%, but we can see that the decline is slowing down. As you know, in September, we published also the traffic volumes. And in September, the volumes of cargo decreased by 7%. So we hope to see now that the negative trend is slowing down and, with the improvement of economy, turns into positive. In revenue, we made EUR 233 million revenue in Q3, which is EUR 1.2 million or 0.5% higher than a year ago. We had very strong ticket revenue. We had also relatively strong onboard revenue. And then obviously, we had less lay-up vessels than a year ago and we had also more charter revenues than a year ago. And as charters normally produce maybe not so much revenue but quite a substantial improvement of bottom line, then our EBITDA improved by EUR 0.5 million during Q3 comparing last year or less than 1%. But then net result improved almost EUR 4 million, more than 10% from last year. And obviously, our net debt is continuing to increasing. So we are paying back loans every month. And obviously, we have now reached the level of EUR 433 million. What is also good to highlight from the previous webinars is that this year, we had exceptionally long docking days, so totaling during 9 months, it's 73 days comparing a year ago, 11 days. So especially in Q1 but also a little bit in Q2, we had long dockings, which obviously worsened our results in the beginning of the year. If you look sales results by geographical segments, as I said, increase of revenue is not so much changed. But what has been changed is that last year, we had the vessel, Victoria, traveling as second vessel between Estonia and Sweden. And this summer, the Victoria was -- or between Estonia and Finland. So you can see that in terms of revenue, then the Estonia-Sweden segment suffered and Estonia-Finland improved. But then if you go to the bottom line level, then we can see that even the revenue was lower between Estonia and Sweden since the bottom line improved. And it basically tells that consumer demand is still not on the level as pre-COVID. We do think that 1 vessel on that route is the right decision and is more profitable comparing 2 vessels. And this summer showed very clear that with less revenue, we can make more profit. And segment, Other, basically includes vessels which are in lay-up and in charter. And obviously now this year, we have more vessels in charter and less in lay-up. So the improvement is quite significant. If you look on the operational segments. Then basically, the major improvement is coming from the ticket sales. Obviously, we can say that it's a higher number of passengers during summer. We have also been able with our dynamic pricing to improve ticket revenue from the high-demand departures. So basically, the improvement is coming from ticket sales. As mentioned already, onboard consumption have not decreased. It's more or less stable per passenger. But obviously, since consumer confidence is not strong in none of our home markets, then we are competing with land prices, land prices of shops, land prices of restaurants. And we have not been able so much to improve revenues from onboard sales as on the ticket side. The dynamics of seasonality is very much as it has been. So obviously, we have a little bit more passengers in summertime. We have a little bit less cargo in summertime. But then obviously, on bottom line level, it's a major improvement in summertime since also increased number of passengers are going down to the net profit level. So you can see that, again, we have cumulatively 4.2 million passengers, 185,000 cargo units during 9 months' period. The revenue was in 9 months EUR 580 million almost, and then EBITDA, EUR 102 million. And then last 4 years developing on the net profit level is that we had, yes, very good summer, EUR 4 million higher net profit than last year. We were not able to repeat the 2023 result. But I remind everyone that 2023 was all-time high net profit since we had also 7 vessels in charter in different places. So comparing 2023, we had severe beginning of the year. But now like I said, we've already been able to find good sunny spots and improve the result. And in consolidated income statement, maybe not too much to add. Yes, you can see the 9 months and Q3 numbers in comparison to last year. So in sales level, not too many changes in 2024 9 months results. We have in Q1 also sales of Isabelle, so this other operating items. But we don't have any major extraordinary items during this year, neither in Q3. And since we are paying now dividends, then we are also reflecting the dividend income tax in our 9 months result, but this was already taken into account in Q2 after shareholders' meeting decided the size of dividends. So in Q3, even we pay dividends in July and in November, then the income tax is already in our books from Q2. And EBITDA margin has been also slightly improving since last year, and net profit margin, even more. On cash flow statement. We have a good cash flow, EUR 55 million from our operations. We had also cash flow from the sales of Regal Star, EUR 6 million. So we improved free cash flow, which was EUR 6 million better than last year in Q3, totaling EUR 51 million. And then we had obviously debt financing and interest rates. And the lower interest rate is a combination of two things: a lower loan balance, which is decreasing from quarter-to-quarter; and then also lower interest rates, lower Euribor. And dividends paid. Last year, we paid dividends in whole amount in Q3. But this year, we decided, as our parent company, Infortar, to split dividends into two parts. So we paid half of dividends, EUR 0.03 per stock in July, and then the other part will be paid in November. So it will be in Q4 cash flow. In our balance sheet, no major changes. We have still vessels which, according to amortization schedule, are going -- which is going to be down according to amortization schedule. And then on liability side, we have loans which are also paid down according to loan amortization schedule. So we have a very strong balance sheet where we have already equity ratio of 54%. And it obviously means that since we do not have in coming years the need to have a very big investment, we have a normal annual maintenance investment in size of EUR 25 million to EUR 30 million, then we concentrate mostly now for paying dividends in the coming years. And we have a solid liquidity situation. So by end of quarter, we had cash and unused overdraft totaling in the amount of EUR 132 million. And we do not have any changes in our loan portfolio structure. We have still now in last couple of years 3 loans, 1 syndicated loans and 2 project loans, which are related to building of MyStar and Megastar. The maturity is between 3 and 9 years. And some of loans are euro -- some of them are Euribor floating rate loans and some fixed, but all are related obviously to euro. And on top of that, we have EUR 100 million overdraft in it which was not in use at the end of this quarter. But this is a short introduction of Q3 results. Thank you.

Thank you, Margus. And we will now proceed as usual with the Q&A. I would read out the questions received and Margus Schults will provide the answers. Due to a high number of questions received and some of those are quite similar, we have grouped them. So if you feel like your question is not answered, it is still answered. And let's kick off with the list now. What are the company's dividend expectations for 2026? And are there plans to consider a more progressive dividend model to reflect future earnings growth?

Tallink wants to be a good and reliable dividend provider for investors. And we have a dividend policy, which says that we pay at least EUR 0.05 per share of dividends if our economic situation allows that. As I said already, we do not plan any large-scale new investments in the coming years. So therefore, we are paying more dividends. And this year, it was decided to pay EUR 0.06 per share, EUR 0.03 and EUR 0.03 accordingly. Next year dividends, we are planning to publish together with 2025 results, Q4 results and whole year results in February. So then we will decide also the next year dividend amount.

Are you considering a share buyback program? And if so, under what conditions might it be initiated? And how does the company view buybacks relative to dividend payouts?

Our Board of Directors have a mandate from shareholders' meeting to buy shares, but this kind of mandate has been there already for decades and renewed every third year when it's needed. But we do not have today any plans to repurchase our own shares.

Is Tallink considering strategic partnerships to strengthen its market position and expand its route network or services?

We cooperate, of course, with different companies in our home markets regarding the sales and marketing activities. But regarding some kind of strategic partnership, we do not see in the near future this kind of need. So we want to be, in the coming years, an independent and strong listed company.

Are there any planned enhancements to the Club One loyalty program or new initiatives such as subscription-based travel passes, partnerships with public transport systems or discounted business passes?

We have already, like I said, 3.5 million Club One members. And obviously, since this is our strong asset for marketing and sales activities, so we want to increase the number. And one of the activities we are doing is now to renew the Club One program in coming weeks. You will probably find in coming weeks more information about improvements of the program in our website. But we concentrate in our Club One program mostly to our own activities and then maybe add business with our partners and so on. But the key is to drive this ourselves.

Thank you. Are there plans to upgrade the fleet with hybrid or low-emission vessels? And has Tallink set specific CO2 reduction targets for 2030?

We have 2 LNG-powered vessels, Megastar and MyStar, and we obviously decrease CO2 emissions by a number of activities. We are doing it every year. So we are optimizing our energy systems. We are using different graphite paintings under the bottom of vessel in order to reduce water resistance, et cetera, et cetera. So there is no one silver bullet to reduce CO2 emissions but a lot of small, but each cumulatively, of course, increase CO2 emissions. And we have a goal to reduce CO2 emissions by 2% per year. The baseline in EU and the IMO, International Maritime Organization, is 2008. So basically from 2008, we have been able to reduce CO2 by 60%, 6-0, already. And we are continuing according to the requirements with a path of at least 2% per annum.

Is Tallink considering launching new routes? And are there plans to enhance the booking app or website?

Our core strength and core knowledge is relying on our three core markets. It's Estonia, Finland and Sweden. And of course, we are monitoring constantly different potentials and new ideas, but we do not have any potential plans or specific plans currently on the table.

How does the company plan to stay competitive with the Viking Line?

Of course, it's good that we have competitors. And we are actually constantly investing to the improvement of our vessel quality, I mean, the quality not only in technical side but also on the passenger comfort. Good example was Baltic Princess, where we made EUR 8 million investments to improve the facilities, which are for our passengers in Turku route. But yes, it's actually more -- it's still more cushion that we compete with, home sofa and all other alternatives to spend free time like maybe Netflix or Nintendo or maybe daily spa in [indiscernible]. So this is where the real competition takes place. And we try with different offers and also emotions, which people hopefully get positively on board on our vessel, to encourage for people to come for cruising.

Thank you. What is the average annual occupancy or load factor of Tallink's main routes? And are there any plans to optimize underperforming routes or internal operations for better cost efficiency?

We do not measure this kind of annual occupancy as maybe in the airlines or maybe in hotels, and this is because our choice of offers is much more complicated. We have different cabin categories. We have passengers with cars and without cars. And therefore, sometimes maybe if one cabin category is sold, people maybe postpone the trip just to get their desired cabin category. So we do not monitor that. But obviously, we are constantly monitoring the developments in our main routes and optimizing the pricing and trying to maximize the bottom line. And obviously, we are working on the routes in cost efficiency and profitability maintenance. And again, reminder that this year, we have been able to sell 3 vessels, which is definitely reflecting full-time positive effect in 2026 results. So it's double effect. We do not have negative result or negative cash flow from lay-up and then we have positive cash flow this year from the sales, or in case of Romantika, we will have also hopefully positive cash flow from the charter revenues.

Thank you. The amount of cargo units in the routes between Finland and Sweden have been notably decreasing for a while. Is it due to economic uncertainties? Or could the increased competition and less Tallink vessels on the route play a role? Do you have any plans to try to increase the amount of cargo in the route?

Cargo is one of the operational segments, which is clearly in correlation with the GDP development in our home markets. So we can see that since now the GDP is improving slightly or the negative GDP numbers are becoming less, we can see also that the cargo volumes have been starting to improve step-by-step, but it will take time. Between Finland and Sweden, it's obviously also the capacity which has been added. So we know that our competitor, Finnlines, have bought between Naantali and Sweden 2 new vessels, which have a bigger car attic. So it's a combination of economic uncertainties and also increased competition on that route. And cargo is also something where the contracts are normally done for annual basis. So in consumer side, the changes in market can be more fast, and on cargo side, it takes time. And normally, this is now -- autumn is a time when the next year contracts are done. So we hope that we can be better during 2026.

Assuming Euribor stays around current levels, is the Q3 interest expense a good indicator for coming quarters? Or perhaps there are more loans up for adjustment?

We are not able to assess what will be the Euribor level in the future. So basically, as I said, you can see the interest expense which is in Q3 2025. And then we are making down payments of loans, which, of course, means that the residual balance is constantly decreasing. But what will be the Euribor in the Q4 or 2026, I'm not able to say.

Seems like profitability on the Estonia and Swedish route improved significantly in Q3 '25. What is behind this improvement?

As mentioned then, basically, instead of 2 vessels last year, we had now 1 vessel there. And as we already mentioned, we do not see that there is enough demand for 2 vessels on that route, at least not in '25, perhaps also not in 2026. Then we can see that 1 vessel is doing basically a better result on bottom line levels and 2 vessels. And the reason is that with 2 vessels, we have a double of the cost but we are not able to -- with a maybe not so good consumer confidence conditions, we are not able to double the revenue. So revenue is less than double with 2 vessels but costs are doubled. And therefore 1 vessel, which means that the fulfillment rates are better, we can ask also for better price from tickets. We make a better result.

Can you comment on the fuel price effect in Q3 '25 versus last year, if any, and also your fuel price strategy for 2026 with regards to hedging?

Yes. So we are buying fuel from spot. And the market as it is, it's quite volatile. Price is going up and down. Also somewhat it depends, the total cost, whether we buy for Megastar and MyStar gas oil or LNG. But basically, we are continuing with spot purchase of fuels and we are not planning to hedge for time being.

Would it be possible to quantify the expected annual savings from having less ships in lay-up in 2026 versus 2025?

We have been saying that, very roughly, 1 big vessel, 1 cruise vessel is making loss EUR 1 million per month while staying lay-up in [indiscernible]. So cargo vessels, I mean, Regal Star, which is sold and Sailor, which will be also delivered, obviously make a little bit less losses than big cruise vessels. But you can see in our quarterly report segment Other, obviously the segment Other also includes charter income. But yes, you can very roughly say that at EUR 1 million per month for big cruise vessel in lay-up and then a little bit less for cargo vessel.

How do you see Finnish consumer confidence developing over the next 6 months? What is your expectation?

We are not publishing any macroeconomic views in our reports, but we can see that there is some kind of light. We can see, if reading media in Finland, that spending, for instance, in credit cards is somewhat increasing. But still consumers are very careful. And even if there is no any direct economic needs, also the savings in banks are on record high levels. So yes, there is probably some kind of light in the tunnel, but it's hard to say how sharp is the light and how quickly it's approaching us. But we hope that the worst is over.

What could most influence Tallinn-Helsinki route's ability to increase profitability?

I mean it's like everyday work. So obviously, we can generate more demand for that because on Tallinn-Helsinki, we have obviously people who are traveling on some kind of needs, for work or to visit relatives or for some kind of event. But then we also have a cruise vessel, Victoria, which is basically the 22-hour product to spend free time. And one way obviously is to create more demand by having attractive offers, having attractive marketing, more targeted offers for people more specific for individual needs. And obviously what we are doing really in many years is that also to have even more demand-based or dynamic pricing in our ticketing. So we can generate maybe more people to come when the demand is lower by having a little bit better prices. But then on very high demand departures, we can again maybe add a few euros.

Who is currently the main passenger on the Tallinn-Helsinki route, a weekend tourist arriving from Finland or a commuter?

We do not measure or we do not know what is the purpose of traveling with us, is it spending weekend in Tallinn for work. Obviously, comparing long-term trend, we can see that with economic slowdown, there are less frequent commuters. But it's very hard to say why the commute, what is the purpose for that. And since we have over 3 million passengers annually on that route, then we obviously need everyone who we can find. But there are different sales and marketing techniques and channels to attract them. But we are basically working with passengers from A to B.

Question about Finland-Sweden route. Does this product segment have a future?

Yes. So we think that the product has a future. We can see, if you look at the long-term trend over decades, amount of passengers has been very stable. There is no decline in spite of all kind of crisis, what we have had during the decades. But we are also confident that especially in lower season, the offering or the capacity has been too high. So now we can see in the moments when we have less vessels between Finland and Sweden that the profitability has been improving. So yes, we think that the future there, but we are not assuming that capacity will return to pre-COVID levels.

Could Tallink gain more additional revenue from freight traffic related to the construction of Rail Baltica?

Potentially, yes. But obviously, we do not do any speculations regarding the timing or the future of Rail Baltica. So we can probably be more wise when the years are going and the potential opening of Rail Baltica will be approaching. But potentially, yes, but we do not speculate on that item.

Looking ahead to 2026, what is the biggest risk? And where could growth come from in the coming years?

We have listed our risks in our quarter report. So all the risks are there. Obviously, as for everyone, probably the biggest risk is related to geopolitical developments in the whole Europe or Eastern part of Europe. But also, obviously, risk is how the home market economies are doing. We do not plan -- like I said, currently, we do not have on table any major new growth plans. We are concentrating to operate our current routes and hotel operations as efficiently as we can. And if we can have a small increase of number of passengers, number of cargo, then already this will lead to the improvement on bottom line because additional volumes go directly to the bottom line level as they do not need too much any variable additional costs.

Thank you. And we are now moving to the questions submitted via Q&A function. And I hope Silver doesn't mind that I will not ask the questions which have already been answered. Do I understand correctly that you have recorded the cost of carbon quotas, which you have been required to submit for year 2024, in Q3 cost of goods? And the cost of quotas you have to submit for this year will also be submitted and recorded in cost during Q3 2026, or how does the dynamic exactly work? And when are the costs reflected in your P&L?

The quotas are reflected on monthly or quarterly. So basically, we know already like online how much emissions we produce every month. And we buy the quotas on monthly basis and the costs are reflected on a monthly basis. Then the delivery of quotas to respective states in Finland, in Estonia and in Latvia is done once in a year, annually. So in September '25, we delivered the quotas to Estonia, Finland and Latvia, but the cost was already booked in '24. And respectively, the cost of quotas in '25 is already every monthly in our results, but '25 quotas will be delivered to the states just as a transfer in September 2026.

Could you quantify investment needs for current fleet in Q4? And what are the plans' needs for financial year '26?

We do not specify the investment needs in quarterly. Typically, if you look at our investment profiles, and our investments are around EUR 25 million, a little bit plus/minus EUR 25 million per year, mostly the investments are concentrating on Q1, maybe a little bit Q2 because this is a time we are making our dockings due to the maybe weakest demand of the market. Some investments are done sometimes in Q3, Q4. And out of this investment, I would say, more than 3 quarters are related to vessels and the improvement of either technical condition of vessels or maintenance or improving passenger comfort, and then maybe less than 25% of investments are also IT investments. So this is, of course, more stable during the year.

Have fuel costs been a tailwind for Q3 cost base? Could you quantify the year-on-year change in fuel costs for either Q3 or 9-month period?

We are publishing the split of costs on annual level, so it will be after the Q4. But since as I said, we are buying fuel from spots, and everyone can make own conclusions from looking what is the price of fuel on the market.

Thank you, Margus. And that was the last question for today. We would like to thank everyone for attending and for your questions, and we wish you a pleasant rest of the day. Our fourth quarter results will be published in February 2026. And thank you, and goodbye.