AS Tallink Grupp (TAL1T) Earnings Call Transcript & Summary

I am the Investor Relations Manager at Tallink. Joining me today are Peep Jalakas, Chairman of the Management Board; and Harri Hanschmidt, member of the Management Board. Peep will begin with an overview of the quarter and the key insights to the quarter, after which Harri will take you through the financial results in more detail. Following the presentation, we will open the floor for questions. We have received a few questions in advance, but please feel free to submit additional questions using the Q&A function of the webinar. It would be helpful if you could include your name when submitting the questions. But with that, I will now hand over to Peep.

Thank you, Anneli, and good afternoon also from my behalf, and welcome to Tallink Grupp Q2 '26 results webinar. As Anneli said, I am Peep Jalakas and in a role of Chairman of the Management Board. So if to give one sentence for Q2, then I would say that Tallink delivered stable financial results in unstable world. But the 3 key highlights that I would bring out. First of all, demand environment remained challenging, but we delivered the same top line as last year. Second, I would point out that cost base increased due to Middle East crisis and put additional pressure on fuel cost. And costs were also impacted by full implementation of ETS emission system. So all in all, that impacted profitability. The EBITDA was down 8%. At the same time, we delivered net profit at the same level as last year. And thirdly, Tallink continued to have a strong balance sheet, decreasing leverage and ample liquidity position. Tallink Grupp remains the leading European provider of leisure and business travel and sea transportation services in Baltic Sea region. We have strong brands, Tallink and Silja Line, plus a growing club loyalty program membership. At the end of Q2, we had 11 vessels in total, 5 regular Baltic Sea routes, 3 vessels operating in charter, 1 vessel being in layup. 4 hotels. Express Hotel was under renovation also partly in Q2 where we renovated hotel rooms and public spaces. We also operate 20 Burger King restaurants. And in total, we currently have 3.6 million Club One members. And Q2, when we are already in high season, then the employee amount has increased up to 5,000 employees. And our diversified business model, combining passenger transport, cargo, hospitality retail and charter operations remains a key strength. Now if we look at the fleet composition and deployment then our fleet consists high-speed shuttle vessels, cruise ferries and RoPax ferry. The Estonia, Finland shuttle route continues to be operated by Megastar and MyStar and also supported by Victoria cruise vessel. Cruise operations continued in Helsinki-Stockholm, Turku-Stockholm and Tallinn-Stockholm routes. Two vessels, Silja Europa and Galaxy remain in charter, generating stable income and optimizing fleet utilization. Romantika returned from charter early March and was in layup during Q2. But since early July, until mid-August, Romantika operates on the Tallinn Stockholm route as a second vessel in addition to Baltic Queen. And the vessel also makes 2 special cruises on the Bay of Tallinn. For the Paldiski-Kapellskär route, the last day of operations for Superfast 9 before she headed out to the charter was April 30. The vessel is now called St. Patrick and is on a 3-year charter and operating between Ireland and France. Fleet optimization and discipline continue to be important topic also during 2026. And now I will give over the word to Management Board member, Harri Hanschmidt, who will give more detailed overview of Q2 financial results.

Thank you, Peep. Good afternoon, and thank you for joining us today. My name is Harri Hanschmidt. I'm a Board member for Tallink Grupp, and we will continue with the presentation, after which questions will be answered by our Chairman of the Management Board, Peep Jalakas. So we first take a look at the second quarter highlights. Unfortunately, second quarter globally was characterized by negative news as we saw an increase in fuel prices because of the Middle East crisis that is still continuing. But despite this, we managed to more or less match the last year results. So in the second quarter, we transported over 1.4 million passengers. It was a slight drop by 2.2%, but we had more cargo units on board of our vessels, altogether, 69,000 and almost a 3% rise. The passenger car levels saw a slight decline by 6.5%. Revenue stayed exactly on the same level as in the same period the year before, although we had one less route as the Paldiski-Kapellskär route is currently suspended. There were also maybe smaller factors. For example, there were very many concerts with world famous bands performing in 2025. And this year in Tallinn, there were less of those events, and we could also see this somewhat on the passenger level. EBITDA reached EUR 34.3 million. It's EUR 3 million less than last year same period. If we think that the fuel prices were considerably higher, here, we can see that through effective operations and also by introduction of fuel surcharge, we were able to offset this effect by somewhat. And net loss was the same as EUR 2.5 million as last year same time. CapEx was EUR 7.3 million. This mainly covered the maintenance works of St. Patrick, formerly Superfast IX and the full renovation of the Tallink Express Hotel that is now already again operational. Interest-bearing debt remained on the same level of EUR 449 million, but net debt decreased by EUR 28.1 million to a total of EUR 409.6 million. And total repayment of loans and related interest expenses was EUR 16.3 million in the second quarter. We also had altogether EUR 27.3 million overdraft. Overdraft sometimes is necessary coming out from the low season. And as we have steady dividend payments, we generate more cash in the third quarter. So second quarter -- first and second quarter, we have used some overdraft. But our liquidity remains at a very sufficient level of EUR 112 million. Lower depreciation expense following the revised useful life estimates also positively impacted the bottom line results in the second quarter. In the same period last year, we had 2 vessels idle, Sailor and Regal Star. This year, we had one vessel idle Romantika. And in the events after the balance sheet, it's also -- you can see that Romantika went for the high season to operations between Tallinn and Stockholm, supplying capacity -- additional capacity for the high season on the side of Baltic Queen. The difference is Romantika does not make a stop in Åland Islands in Mariehamn. If you look at the sales and results, -- on the geographical level, we can see we maintain a strong market position, 48% market share in Estonia-Finland passenger traffic, 37% in Finland-Sweden, and we are the only operator between Estonia and Sweden. The second quarter performance was affected by the suspension of Paldiski-Kapellskär route and also savings from the idle vessel disposals on a year-over-year -- we also saw stable passenger demand in the core routes as is expected in the second quarter and higher fuel costs impacting especially the longer routes. We can see the Finland-Sweden route segment result is quite strongly affected by this and cargo sales improved. If you look at the revenue by operational segments in second quarter, we see quite a familiar picture. 49% of the sales came from restaurant and shop sales, 29% from ticket sales, 11% from cargo sales, 6% from charter, 2% from accommodation. And as revenue was quite flat, here, we can also see that most of the segments are quite flat, but we see added revenue from cargo to transportation. If you look at the dynamics of the seasonality, we are also pretty much in the same spot as last year with 2.5 million passengers transported, cargo units slightly higher, revenue, 356 million and EBITDA, EUR 36 million in the first 6 months. The quarterly results always have a clear pattern. The first quarter is the low season. This we also use to repairs, upgrades, stockings for the vessels. Second quarter, we see a pickup in passenger numbers and passenger cars. And the third quarter, the next quarter will be the high season. But here, we can see that in -- if you look at the 6 months of this financial year, we are about EUR 10 million ahead of the last year's result on the bottom line. If you look at the income statement, the sales were on the last year's level. There was lower depreciation, stable revenue and controlled operating expenses and operational efficiency remains a priority, although the second quarter was maybe slightly weaker compared to the same period last year, almost on every line, we see improvement on the 6-month result. And if we look at the cash flow position, operating cash flow was positive. Capital expenditure, EUR 7.3 million; free cash flow, EUR 42.9 million and the debt financing net effect, EUR 10.2 million with interest EUR 4.9 million and change in cash positive EUR 27.9 million. Interest was lower because we have paid back debt and last year sold the vessel Star. So there is a positive development on that. If you look at the financial position, the net debt decreased to EUR 409.6 million, and we continue the deleveraging track. Net debt to EBITDA improved to 3.1x. And we can say that this is a comfortable level, but we do keep deleveraging while at the same time, having a steady dividend policy and making the necessary CapEx for the vessels and the IT systems and so forth. The equity ratio was affected by the dividend payout and is 50.4% and in a comfortable position. If you look at the loan portfolio, the long-term bank loans amounted to EUR 349 million with maturities between 3 and 9 years. We have both fixed and floating interest structure. About half of our loans are with fixed interest rate. Debt reduction remains a strategic focus, and we do keep deleveraging, as mentioned before. Annual General Meeting decided to pay out EUR 0.06 of dividend. This payment is done in 2 parts. With dividend dates, first one was 17th of June and the next one is 12th of November. So anybody who has shares on those dates will receive dividends from both of the dividend payout. And this is all from me. Thank you very much. And I will now give the word to Peep Jalakas, who will start answering questions. Thank you.

Thank you, Harri . I will -- before Peep will respond to questions, I will just give you a few -- just an insight how we do it. As usual, I will read out the questions we have received and then Peep will answer them. And if we have received similar questions, then I will combine them. And I will start with those which have been sent by mail earlier today. So the first one is about the loan principal repayments for 2026 and 2027. What will be the loan principal repayments?

Yes. When it comes to the loan agreements, then we haven't made any major changes there. So the repayment profile continues to be as it has been and the principal payment is around EUR 55 million to EUR 60 million per annum.

Thank you. A few questions about investments. Again, combined, what are the approximate annual maintenance investments given the recent year's inflation and ship divestments?

Yes. Thank you. We -- internally, we agree on the investment program as part of the annual budgeting process. And this is currently in process when it comes to the 2027. So I can't give much guidance there. When it comes to the 2026, then first half total investments amounted to EUR 21.5 million, which is largely in line with 2025 first half investments. And for Tallink, due to our seasonality, then majority of our maintenance investments are done first half of the year. So second half is less active when it comes to CapEx.

Could Tallink consider launching a share buyback program? This would be more tax efficient than paying dividends?

When it comes to the buyback program, then we continue to follow the dividend policy that has been approved and been in place since 2018. And in current stage, we don't consider to make any changes there, including introducing the share buyback program. So that's not in the pipeline as of now.

Is it possible to say how many days fuel inventory do you keep during the high season or if it is bought at spot price daily?

Yes. There is a small inventory on board of the ships, but it is less than 1 week consumption. So that is the -- more or less the guidance. And then when it comes to the price arrangements, then maritime diesel or MDO is bought with the spot price and LNG price 1 month ahead price that we use.

Thank you. And we will continue now with the questions from the Q&A section of the webinar. Are you planning to reopen any routes?

Not immediately. Of course, we are analyzing different options. And as we already pointed out then for a bit more than a month, we didn't open a new route, but we brought new vessel to the Baltic Sea operations, Romantika. But at today's overall demand, then no immediate plans to open new routes.