AS Tallinna Sadam (TSM1T.TL) Earnings Call Transcript & Summary

Good morning, dear investors. My name is Valdo Kalm, and our CFO, Andrus Ait, is there, and we are ready to introduce our Q3 and 9-month results.

Good morning.

As usually, we will start from main events. Overall, Q3 was quite okay. And the good news is that we had increased cargo volumes, around 8%. Also, the passenger numbers showed tiny, but still the growth. Important is that the Cruise business doing quite well. We had in Q3, 8 new cruise vessels -- I mean, there was their first visit, and then, we had 1 new operator, Ritz-Carlton. They are, of course, the hotel chain, but they're also running their cruise business. In our own Vessel business in [indiscernible] shows a stable number of passengers. We had slight growth in cars, and then, we had also slight growth in revenues. Icebreaker Botnica started a little bit later to offshore project to Canada, but profitability was better than last year because last year, we had some maintenance and repairing costs. Therefore, all in all, Botnica did well, and he's back from Canada preparing for the winter job. Then we had 2 court cases, maybe more important is MPG AgroProduction bankruptcy case, where we are quite positive or optimistic that we are getting land and permission to the land back during Q1. It's quite a big plot in Muuga Harbour. And we celebrated 60 years anniversary of Tallinn-Helsinki route. By business segments, in Q3, as I mentioned, it's a continuous growth in passenger numbers, and important that we had more cruise vessels than last year. All in all, increase of revenues around 4%. Cargo growth gained big due to the grain, due to the travels in Rail Baltica project, and container shows definitely improvement of export-import in Estonia. Ferry business is stable. And under the Other, we see the decrease of revenues, but profitability increased in this segment quite well. There are also more precise numbers on passenger volumes in Q3 and 9 months. We also see the growth of passenger numbers, but also important that we have had more vessels during the 9 months, especially on cruise side. It's mainly coming from cruise side. It's around 20% more vessels on Cruise business. In Cargo, as I mentioned, Q3 was quite strong. And also, we have some 5% decrease in 9 months. And important that there is also increase of vessels, around 3%. That's our ferry segment, shows stable numbers in volumes and also in profits and income, and there is Botnica, as I mentioned, we had low utilization rate. But again, profitability was quite good in Q3. About future, we believe that the passenger -- increase of passenger numbers will continue, mainly this year, supported by Cruise because it's really the first time that we have also visits in November and December, about 10 ship calls in Q4. Then, we're just now running campaign for our industrial parks, and especially in Muuga, there are 2 plots available, Klaukse Street 4 and 6. It's quite a reasonable size, 3, 4 hectares per plot, excellent infrastructure in place. And we believe that we will have certain interest and results by the end of the year. That's continuous work, but we really would like to see new operators at this time, more and more in production site. Last year, we also had a similar campaign, and we succeeded to sign the contract with JetGas for bioLNG terminal, and they already got the building permit. And if everything goes well, they will start investment this year. We carry on with the multifunctional key in Paldiski. Everything goes as planned, and we're preparing to be ready in Q1 next year to be ready really for multifunctional duties or jobs to serve onshore, offshore wind farms. We still have negotiations and interesting discussions with different developers. Also, it's an excellent key to serve better our general cargo and ro-ro and military. Therefore, if it will be ready and in use, then definitely, we are going to utilize it in the first half of the year. And we finalized preparation of our real estate business. If you remember, then we were work on 5 detailed plans and 2 of them are really ready for fixing, and it depends now from the new city government, when they are ready, because basically, we are ready to start with tenders immediately if we will give certain documentation and fixing the papers from city government. And then, of course, efficiency is on the table all the time. We succeeded this year to lower our cost level. We decreased also number of employees, and it's still topic on the table for coming quarters and for coming years. With that, I would like to give floor to Andrus.

Thank you, Valdo. So on the slide, you can see the financial results of the group for the third quarter and 9-month period. The results were positively impacted by the increase -- continuous increase in volumes, in passenger volumes and cargo volumes. Also, positive effect came from the higher tariff rates, and also, the fact that we managed to charter out Botnica from 10th of September this year, has supported the results positively in the third quarter. So revenue increased by 1.5% and margin to EUR 31.7 million. And the growth is mainly attributable to higher revenues from vessel cues and also from passenger fees. The revenue items, which decreased, were the charter fee because Botnica was charted out by less -5 less days than last year in the third quarter, and also, sale of electricity was a slight lower because of lower volumes, especially in cargo ports. But the changes in all other revenue streams were quite minor, so they didn't impact the results so much. Adjusted EBITDA increased by almost 17% and amounted to EUR 15.5 million. The growth in euros was EUR 2.2 million. It was impacted mainly by Botnica operations. Last year, in the third quarter, we had one-off repair costs. If you remember, the Botnica had the technical incident. After that, we had to sail to the shipyard and fix the problem. So, therefore, we had one-off repair costs in the amount of EUR 1.5 million. And the cost items, which decreased in Q4 were fuel costs. Botnica's fuel costs decreased because all the costs were covered by charterer, and ferries -- the fuel cost of ferries also were lower because of lower price, and also, the cost of electricity decreased. Adjusted EBIT margin reached 49%, and the increase was 6.3 percentage points. We estimate the result -- this result quite good. Operating profit increased by 33% to EUR 9.6 million, and the growth on operating profit level was similar as on EBITDA level. We didn't pay any income tax as the dividend payment was in the second quarter. And profit for the period was EUR 8.6 million, and the increase on this was 54%. And it was also supported by lower net financial costs, which decreased by EUR 800,000 because of lower Euribor rates. All our debts are with floating interest rate. And we invested, in the third quarter, EUR 8.8 million, which is quite similar as last year, a slight increase here. The main investment project is the key construction in Paldiski South Harbour, which will be completed in the first quarter next year. We also made some upgrades in other keys -- 4 other keys in our cargo ports in Muuga and Paldiski South Harbour. Our 9-month period revenue decreased by 1.4%, mainly because of the impacts from the segment Other of Botnica operations. Botnica wasn't chartered out in the second quarter this year, so, therefore, the utilization rate was lower, and revenue decreased, but it was offset by better results from cargo and passenger ports mainly. And, therefore, the decline here was lower than decline in the segment Other. So adjusted EBITDA increased by 11%. And in addition to the impacts from the third quarter, there was also -- on a 9-month period, we received the indemnity payment from insurance company in connection with repair works last year. This impact was EUR 900,000. In addition to that, we sold the land in Muuga Harbour for the construction of right terminal of Rail Baltica -- for the Rail Baltica, and this impact was also EUR 900,000. And in addition, we had some cost items, which decreased fuel costs in the first quarter 2024, there was a limited level of fuel costs in the Ferry segment. This year, we didn't have this impact. So it also supported the results when we compare the results between 2 years. So there was -- there were some positive effects also from sale of -- from electricity costs, which decreased because of lower consumption. And adjusted EBIT margin reached over the 50%. The growth there was 5.6% on a 9-month period. Income tax minus was EUR 5.4 million compared to the EUR 3 million last year. The dividend payout remained stable, but this year, we didn't have this exception for the regularly paid dividends. Last year, we had lower tax rate for those dividends. This year, this exception was abolished, and therefore, the costs were higher. And the profit for the period increased by 27% on a 9-month period and amounted to almost EUR 19 million. And net financial costs decreased because of lower Euribor. And during the 9-month period, we invested EUR 20.8 million, EUR 15 million of that was made in Paldiski South Harbour to construct a multifunctional key there. We also had dry docking for our -- 2 of our ferries, and also, regular dry docking for Botnica in May. And also, we improved one container key in Muuga Harbour to serve better the container ships, and also, made some IT investments. These are the results of our business segments or the results by segment wise. In the third quarter, we see that revenue increased in 3 segments out of 4. In Passenger segment, the increase in revenue is attributable to higher vessel cues because of the higher tariff rates, and also, passenger fees increased. And the increase in EBITDA level was similar. So the growth was transmitted to the EBITDA level, which means that the costs were quite flat. Cargo Harbours revenue increased by 3% or by EUR 200,000, mainly because of higher Cargo volumes. But the growth on EBITDA level was even higher because we had lower costs, especially personnel expenses because of our efficiency measures, which already gave us the results in the third quarter. In the Ferry's segment, revenue increased a bit, but there was different impact. Some part of the contractual fee is indexable based on consumer price index. This part increased, but the other part is indexable based on the fuel index, and this part decreased. So they kind of level out each other. And therefore, there wasn't any big change in revenues in the third quarter. EBITDA decreased a bit. We had one of costs, development costs and research costs, to achieve better efficiency of the ferries in the future. And also, the personnel expenses increased because of the agreement of -- with labor unions. And in segment Other, revenue decreased a bit because of the fact that the charter period was 5 days shorter, but profitability increased significantly, as we didn't have this year the one-off repair costs. In addition, last year, we had to rent special equipment for the summer charter project. This year, we didn't have to rent any additional equipment. So this also helped to decrease the costs this year. And on the 9-month period, the results are quite similar, I would bring out the cargo harbor where the growth in -- on EBITDA level was also supported by the sale of the land in Muuga Harbour. This impact was EUR 900,000. In passenger harbours, revenue increased on 9-month period, also due to the higher number of cruise ship vessel calls. We have had 115 calls this year. Last year, it was 100 calls during the 9 months. So this also supported strongly our results. In Ferry segment, results are quite similar as in the third quarter so that the explanations are also the same. And in segment Other, revenue decreased by EUR 4 million. This is due to the lower charter period, especially in the second quarter, but despite the revenue decrease, EBITDA increased because of lower repair costs, because of lower rental costs and because of the fact that we got indemnity from insurance. So all in all, EBITDA increased by EUR 400,000. On cash flow side, cash from operating activities increased by EUR 3 million because the receipts from the sale of services increased. There was some negative effect on this row from the income tax, which increased, but all in all, cash from operating activities increased. Cash used in investing activities was plus EUR 10 million. To explain that in the first quarter this year, we got EUR 22 million from deposits, which we -- this money we placed in the deposit at the end of last year and in the first quarter this year, we never received it back. Therefore, the one-off impact from the -- in addition, the investments this year were EUR 13 million lower than last year, and also, sale of land in the amount of EUR 4.8 million supported positively this growing in cash flow. Okay. Free cash flow was EUR 53 million, and cash used in financing activities was minus EUR 26 million compared to EUR 1 million -- compared to the EUR 15 million last year. Last year, in May, we took the new loan, and therefore, there was some positive cash flow from there. But at the same time, this year, the loan repayments and interest payments have been lower because lower interest rate and some loan agreements come to an end -- came to an end during the last year. Net cash flow was plus EUR 27 million, and net debt at the end of the period was not positive. At the same time, the outstanding loan was similar, and the positive effect comes from the fact that we had more cash on bank accounts. And on financial position, there is now big changes. There are no big changes compared to the year-end period. Cash and bank accounts increased a bit because of positive cash flow. Noncurrent assets increased a bit because we invested more than depreciation and amortization, and other current assets increased because the noncurrent assets held for the sales decreased as we sold the land in Muuga Harbour. Equity is quite similar because the profit of the period was similar to the dividend with the dividend payout and debt decreased because of loan repayments, and other liabilities are a bit higher because amount of accounts payable was bigger in connection with investments. So with that, we will conclude our presentation. Like always, we have some extra slides. If you have any deeper interest, you can browse them later. And now, we will take a short break. We have got some questions upfront, those questions we will address at first, and then, we will answer the questions, which you can submit through the Teams. So we will be back in a couple of minutes.

All right. We are back. Some questions and some additional from current seminar, but I will start from a previous seminar that we had in Estonia language. What is the outlook for Botnica charter days for Q4 and next year? Botnica is back. Botnica returned at the end of last week, and now, we start a regular project in the -- from the middle of December as an icebreaker here in Estonia. Therefore, everything as planned. And we're -- if we are talking about the charter days, then it's quite similar to the last year. For the next year, we are already working on that. We have negotiations with 5, 6 different companies. And it's really a very competitive landscape. Offshore business fluctuating a lot. But, of course, we're already preparing for the next spring/summer season.

The second question was regarding the fuel cost of Botnica in the third quarter. And was it the one-off practice that fuel costs were fully covered by the charterer in the third quarter 2025? No, this is a regular practice actually that the charterer covers the fuel cost. But last year, the ship or vessel had to sail to the dock -- to the shipyard and -- due to that, we had elevated level of costs last year. So this is the explanation for the fuel cost of Botnica.

What is the size of square meters of the 2 detailed plans that are awaiting acceptance or fixing? All right. We're planning to introduce or open tender in a very first stage for 20,000 square meters on this one detailed plan plus another 30,000, altogether then 50,000 square meters, but it really depends on next year's market situation. All in all, we are planning to have some 300,000 square meters in this area. Then, next question from current webinar. What is your financial target for Paldiski investment? In more detail, what is the return of investment ROE expectations for the new key or for the new harbor? Our expectation is quite similar when we made the business plan. I would like to remember that it's very multifunctional key. And our average ROE is around 8% -- from 6% to 10%, even more, it depends on a key. But here, with this investment project, we're weighting the average the similar ROE.