AS Tallink Grupp (TAL1T) Earnings Call Transcript & Summary

Good afternoon, everyone, and thank you for joining us today. During today's webinar we'll take you through Tallink's financial results from the third quarter of 2026. My name is Anneli Simm. I'm the Investor Relations Manager at Tallink. Joining me today is Peep Jalakas, Chairman of the Board, who will guide you through the presentation, starting with the overview of the quarter and its key highlights, followed by a closer look at the financial results. Following the presentation, we will move on to a Q&A session. We have already received several or actually a number of questions in advance, but please feel free to submit additional questions using the Q&A function during the webinar. It would be helpful if you could also include your name while submitting your question. But with that, I will now hand it over to Peep.

Thank you, Anneli, and good afternoon, and welcome one more time to Tallink Grupp's Q3 '26 results webinar. The third quarter is our most important seasonal period. And today, I will cover the operational performance, profitability, cash flow and financial position for both Q3 and the first 9 months of 2026. And I will then take your questions afterwards. So let me first begin with 3 main takeaways from the quarter. First, the summer season delivered revenue and volume growth. Revenue increased by almost 6% to EUR 247 million. Passenger volume grew by 2.8% to 1.8 million and cargo volume was up by close to 8%. And that despite the closure of the Paldiski-Kapellskar route in May 2026. Second, operating profitability was resilient, but under clear cost pressure. Fuel cost increased by more than EUR 9 million in Q3 compared to the Q3 '25. EBITDA was, therefore, EUR 68 million, EUR 1 million below last year. The full phase-in of EU ETS from 70% of emissions in '25 to 100% in 2026, added further pressure to the cost base. So Q3 compared to last year, Q3 increase in ETS cost was EUR 2.3 million. But despite that, net profit increased to EUR 43.8 million, which is EUR 3 million higher than Q3 2025. And thirdly, our financial position remains solid. Net debt decreased by EUR 11 million during the quarter and is now below EUR 400 million. Net debt-to-EBITDA improved to 3x and total liquidity remained above EUR 100 million. Overall, Q3 demonstrated the resilience of demand and the value of disciplined fleet and balance sheet management in a difficult cost environment. Tallink Grupp remains a leading provider of leisure and business travel and sea transportation services in the Baltic Sea region, supported by Tallink Silja brands and the growing Club One loyalty program. At the end of Q3, we had 11 vessels, 9 passenger vessels and 2 shuttle vessels. Like previous quarter, we operated 4 regular Baltic Sea routes, had 3 vessels on charter and 1 vessel, Romantika, is laid up at the quarter end. Our broader ecosystem includes 4 hotels, 19 Burger King restaurants, approximately 3.7 million Club One members and around 4,500 employees. The business model remains diversified across passenger transport, cargo, onboard and onshore retail, hospitality and then charter income. This slide is familiar for you and shows how the fleet was deployed at the end of the quarter. Megastar, MyStar and Victoria served the Estonian-Finland market, Baltic Queen operated Tallinn-Stockholm, Silja Symphony and Serenade operated Helsinki-Stockholm, while Baltic Princess served Turku-Stockholm route. 3 vessels were chartered out. Galaxy I and Silja Europa remained in the Netherlands and have been there since 2022. St Patrick, formerly Superfast IX, has been on a 36-month charter since 1st of May '26 with the extension and purchase options. Romantika was used actively during the summer period. It operated as an additional vessel on Tallinn-Stockholm route in July and early August and then was temporarily chartered to Italy for accommodation and catering services during the Mediterranean Games. And then afterwards, it returned and has been laid up at the end of the quarter. Now looking at the key figures. Q3 passenger volume reached to 1.8 million and was up close to 3%. Cargo units increased by 7.8% to almost 65,000, while passenger car declined slightly by 1.1%. Revenue grew close to 6% up to EUR 246.7 million. Gross profit increased to close to EUR 70 million. EBITDA was at EUR 68 million and then EUR 1 million below last year, primarily then reflecting the EUR 9.2 million increase in fuel cost and EUR 2.3 million increase in ETS cost. Net profit increased by EUR 3 million to EUR 43.8 million. For the first 9 months, revenue increased by 4.5%, slightly above EUR 600 million. EBITDA rose to EUR 104 million and net profit increased to EUR 19.4 million. Capital expenditures were EUR 3.4 million in Q3 and in first 9 months, the total amount was EUR 25 million, largely in line with the previous year's figures. And capital expenditures were mainly related to vessel maintenance, repairs, interior upgrades and IT systems. During Q3, we paid EUR 20.6 million of loan principal and interest. Dividend and related income tax payments totaled EUR 28.4 million. And even after these payouts, the net debt fell to below EUR 400 million and liquidity was above EUR 100 million. Revenue growth was led by our 2 largest geographical segments. Estonia-Finland revenue increased by EUR 5.3 million to EUR 100 million. Passenger volume on Estonian-Finland route increased by 1.5% and cargo units close to 16%. The segment result was stable at EUR 30 million. Finland-Sweden, revenue increased by EUR 5.8 million, close to EUR 80 million. Passenger volumes grew by 5.3% and cargo units above 20% -- at the same time, the segment result declined by EUR 1 million, reflecting the impact of higher fuel costs and higher fuel cost on the longer route. Estonia-Sweden revenue declined slightly to EUR 26 million, and the segment result was EUR 400,000 below last year result. Passenger volumes increased, but cargo volumes fell significantly because the Paldiski-Kapellskar route was closed after St Patrick entered the chartering agreement. The other segment performed strongly. Revenue increased to EUR 42.6 million, and the segment result improved by EUR 4.8 million to EUR 14.8 million, and that was supported by charter activity and lower costs following the disposal of idle vessels in 2025. Our estimated passenger market share were 48% on Estonia-Finland and 38% on Finland-Sweden, and we remain the only passenger operator between Tallinn and Stockholm. Now revenue growth was broad-based across the operational segments. Restaurant and shop sales remained our largest revenue category, accounting for approximately 45% of Q3 revenue. Ticket sales contributed around 34%, cargo 9% and charter income around 7%, with accommodation and other sales making up the rest. Compared with Q3 last year, onboard and onshore restaurant and shop sales increased by EUR 4.2 million, ticket sales by EUR 2.4 million and cargo sales by EUR 3.7 million. Charter revenue rose by close to EUR 3 million. The key point is that growth did not rely on a single revenue stream. Passenger traffic, cargo and charter activity all contributed. This slide illustrates the seasonality of our business. Q3 is the strongest quarter for passenger volumes, revenue and earnings. The EBITDA comparison shows the effect of cost inflation. Despite higher revenue and activity, the fuel cost increase and full EU ETS implementation limited the conversion of growth into operating profit. The quarterly net result profile shows the importance of the summer season. Q3 generated a net profit of close to EUR 44 million compared with EUR 41 million last year. For the first 9 months of 2026, net profit was EUR 19.4 million compared with EUR 5.1 million in the same period last year. This improvement reflects stronger operating results over the 9-month period and lower depreciation following the alignment of estimated useful lives for cruise vessels and also disposal of idle vessels last year. At the same time, the chart reminds us that the fourth and first quarter are structurally softer. We, therefore, continue to manage low season capacity costs and fleet deployment actively. Q3 sales increased by EUR 13.6 million, as stated before. Cost base was inflated by fuel and ETS costs. Rest of the costs were rather stable. 9-month EBITDA is EUR 2 million above 2025 result and net profit is impacted by lower depreciation and also slightly by financial costs in 2026. Operating cash flow in Q3 was close to EUR 40 million. After capital expenditure of EUR 3.4 million, free cash flow was around EUR 36 million. Financing cash outflow included EUR 29.2 million net effect from debt financing, EUR 4.9 million of interest and other financial items and EUR 22.3 million of dividend payment. The issue of shares under the option program generated EUR 2.5 million positive cash flow. As a result, cash decreased by EUR 18 million during the quarter to EUR 21.8 million. This movement should be viewed together with the unused overdraft facility and the significant scheduled payments during the quarter. For the first 9 months, operating cash flow was EUR 104 million and free cash flow EUR 79 million. The balance sheet remains solid. At the end of Q3, total assets were EUR 1.3 billion and shareholders' equity EUR 728 million. The equity-to-asset ratio improved to 55% -- interest-bearing liabilities decreased to EUR 420 million. Net debt declined by EUR 11 million during the quarter and stood slightly below EUR 400 million. Net debt (sic) [ net debt-to-EBITDA ] as I said already before, was at 3x. Cash was EUR 22 million and unused overdraft facility, EUR 81 million, giving total liquidity of EUR 102.8 million. And this financial flexibility is important as we enter the lower season period, continue scheduled debt service and prepare for the second dividend installment in November. At the quarter end, long-term bank loans amounted to EUR 332.3 million. We had 3 loan agreements outstanding, the syndicated loan and 2 shipbuilding loans related to MyStar and Megastar. The portfolio includes both fixed rate and EURIBOR-based floating rate financing. During the quarter in September, we amended the syndicated loan and extended its maturity by 2 years until December 2030 with option for 2 further 1-year extensions. And this reduces the refinancing risk and improves the maturity profile of our debt. Unused overdraft facilities increased to EUR 81 million, while the drawn overdraft balance was close to EUR 19 million. During Q3, loan principal and related interest payments totaled EUR 20.6 million. Debt reduction remains an important priority and balanced with maintaining sufficient liquidity and shareholder distributions. So thank you for your attention. Then to summarize, then Q3 delivered growth in passengers, cargo and revenue. Profitability remained resilient despite the fuel cost and ETS cost increase. We continue to reduce net debt while maintaining liquidity above EUR 100 million. We will now move to the Q&A session, and I will be pleased to answer your questions.

Thank you, Peep. As usual, I will read out the questions that we have received earlier as well as those which have been posted to the Q&A section, and Peep will answer them. Due to -- some of the questions repeat each other, we have combined them and group them together based on similar topics. But let's start with the first question. You have increased your market shares between Finland and Sweden and your profit has increased despite increasing costs. Your competitors claim that you have been more aggressive. What is it you have done? Is it lower prices on tickets or onboard or just increased marketing?

I think the quick answer is a combination of everything, but we have focused on strengthening our core routes through targeted sales and marketing activities, then competitive offerings and also maintaining a high-quality customer experience, including relevant onboard offerings in our shops, restaurants and entertainment -- the growth in passenger and cargo volumes reflects the continued demand for our services. We continuously adjust our commercial activities to market conditions. But clearly, our objective is not simply to increase the volumes, but at the same time, focus also on profitability. So that's this profitable growth is still our key target.

What is your mix of fuel at the moment?

When it comes to our cruise ferries, then we primarily operate on marine diesel oil or MDO, while our shuttle vessels use liquefied natural gas, LNG or then the biomethane. But they -- as they are dual fuel vessels, then they also can operate on marine gas oil or marine diesel oil. If the shuttle vessels operate primarily on LNG, which has been the practice in last quarters, then fuel mix is close to 75-25 between marine diesel and LNG. And this is then based on today's schedule and routes.

Thank you. How will this affect last quarter, the fuel mix basically fuel prices?

Yes. So fuel costs remain one of our important operating expenses. That's for sure. The impact on the fourth quarter will depend on the fuel price development, consumption levels and our ability to manage the costs. We continue to monitor the situation closely and then focus on improving the operational efficiency.

Thank you. Is there a risk that you will temporarily cancel routes, for example, Helsinki-Stockholm? If so, when do you see this coming? Is there a special fuel price when it gets critical?

Just to remind, then we closed Paldiski-Kapellskar route in May, but that was mostly due to -- related to chartering out the vessel. But we actually analyze constantly different options how to utilize the fleet in most efficient way. However, at this stage, we do not have any plans to suspend further routes. And I'm not in a position to give any specific fuel price levels where that situation might change. But the environment is dynamic, and we constantly assess the situation.

Romantika is back in Tallinn. What is the near future for her? Is there a possibility that she will be temporarily put in traffic like this summer? And what is your evaluation of Romantika's summer traffic?

First, we continue to evaluate potential chartering opportunities and alternative uses for Romantika. I would say it is unlikely to put Romantika in traffic during the low season and especially with the current fuel price environment. The vessel's deployment during the summer demonstrated the flexibility of our fleet and our ability to use vessels for different commercial opportunities. Romantika attracted new passengers during July and early August in Tallinn-Stockholm route and then had the successful chartering in Italy late August, early September as an accommodation vessel.

Thank you. You have recently warned about changing flags due to announced lower government support. Where are you currently in these plans? And what flags and what ships would be most attractive for a change of flag if you take this further?

Thank you. First, just to clarify, there was a support during COVID years in Estonia for a partial refund of employment taxes paid by Tallink. In government budget strategy for 2027, 2030, it was first put back. And now during the budgetary talks actually taken away in actual 2027 budget. Now overall, the competitiveness of the Estonian maritime sector is an important issue for us. Different national support schemes and employment-related costs can create significant differences in operating costs of vessels sailing under different flags. -- we have experience operating in Finland, Sweden and Latvia in addition to Estonia. And all these countries, except Estonia, then have more favorable employment taxation. So 2027 government budgetary process in Estonia is currently ongoing, and we are actively monitoring the developments and also explain our viewpoints. -- our priority is to maintain competitive and sustainable operations, but any potential changes to vessel registration would require a comprehensive assessment of financial operational and regulatory implications. So we have not announced any decision regarding specific vessels or alternative flags. So this process will continue.

Thank you. To what extent do you expect the industry to pass on the increased fuel prices on to customer ticket prices?

As it was said, then fuel costs represent an important part of our operating expenses and sustained increase inevitable put pressure on profitability. We continuously review our pricing in response to market conditions, but our ability to pass on higher costs depend on customer demand, competition and price sensitivity. We aim to maintain a balance between competitive pricing, passenger volumes and profitability. Therefore, we cannot assume that all increases in fuel costs can be fully passed on to customers. And we also bet that we can partly cover the additional fuel cost with actual increased volumes.

Thank you. As Armin Penner started recently as CFO, should we expect any changes to group reporting or capital allocation priorities?

Armin Penner joined the Tallink team mid-October or early last week. I believe he will bring fresh perspectives and valuable insights into how we can further strengthen our financial management, improve efficiency and optimize the use of our financial resources, but no immediate changes are planned when it comes to the reporting.

Perhaps you could give an update on the chartering outlook for Silja Europa and Galaxy I. Is the base case to extend the chartering during next year? Or is it more likely they will be chartered to new clients?