AS Tallinna Sadam (TSM1T) Earnings Call Transcript & Summary

Hello. Good morning, ladies and gentlemen, and thank you for joining the Port of Tallinn webinar. My name is Marko Raid. I'm the CFO of Port of Tallinn. And today, I'm together with Valdo Kalm, who is our -- the Chief of Management Board. We will present last year's fourth quarter results and also the full year results. [Operator Instructions] We will address all the questions at the end of the presentation, but you can freely insert them as we are presenting the results or then after it. And with this, I will give the floor to Valdo to start with the highlights for last year and fourth quarter.

Thank you, Marko. Good morning, everybody, and let's move to highlights from last year. Yes, roll up. Last year was definitely quite challenging due to the pandemic and due to the restrictions, but although we achieved a 5-year record in cargo in terms of volumes. That means in our business area, Cargo, we had very good year. Then we renovated passenger Terminal D and the parking house. Also, we built new check-in for cargo in Muuga Port. Then we had dredging works in Paldiski Harbour to get bigger vessels. And also, there was start of Rail Baltica freight terminal design in Muuga. Moving on with the events or highlights from last year, our Hybrid ferry Tõll started service. So far, we already have seen quite good results in terms of efficiency, also of an emission definitely. That means still in operation and in very good move. Then we had first ship connected to the onshore power supply and also we mapped our ecological footprint. That means we know what is CO2 emission in all our ports. And we had quite many environmental campaigns. That means that the sustainability and environmental topics are very important in our agenda. Then we had, despite of coronavirus, Investor Days, what we had in physical mode. They were very successful during the Q3. And also, of course, we had virtual investor meetings. And first, in our history, we have electronical AGM. And elections went also well. And then we got some recognitions. We are very pleased. And then thank you all investors that we've got Investor Relation of the Year from Nasdaq Baltic. And then also from Estonia Digital Construction Cluster, we got Act of the Year. And also, our association of logistics and supply chain, we've got Supply Chain Maker from last year. But then to Q3 by segments, as you all know that the biggest drop comes still from Passenger business. And it's important -- I'm sorry, I didn't push the button. From the Passenger business, we see still continuous decline in passenger numbers. And in average, we had last year minus 60%. But in Q4, it was even around 70%. Therefore, definitely, we got biggest influence of COVID from passenger area. On Cargo, we had also growth in Q4 and not only in volumes, but also in revenue, although some lower margins, but the growth is there. And Ferry business was very stable. And under the Other segment, we are calculating our Botnica actions, but shorter summer period declined a little bit the revenue there. But all in all, it was quite a stable quarter. Back to the impacts from COVID. As I mentioned, the Passenger business is under the pressure. And of course, there are some positive signs also that overall, cargo and vessels are keeping a stable flow. That means vessels are there, they're carrying ro-ro but there are very few passengers. On Cargo, we already mentioned, despite of COVID, we've got very good volume, and we made 5 years record. Also important to mark that on ro-ro side, we see stable volumes, and also we had some temporary lines in Paldiski. On Ferry business, no significant impact because of the structure of the contract with the state. And under the Other segment, from virus, no significant impact to Botnica, but there are drop in Green Marine profitability. We continued with our investments, and we had quite efficient cost-cutting program in repairing works and also on personnel costs. To the volumes. First Q4 on Passenger side, 73% down. If you take full year, then it's 60 % Of course, there are slower decrease in revenue, it's around 40% if you take full year. But yes, we're still facing quite a heavy, heavy drop. On Cargo side -- just a second, we try to change the slide. On Cargo side, as we mentioned on Q4, we had also increased, and that's not only the liquid bulk, even we saw increase in containers and ro-ro. If you take full year, then the 7% increase, we had biggest increase in terms of volumes in Baltic Sea. And of course, the biggest player was the liquid bulk but we had also increase on ro-ro. Shipping volumes. On Ferry side, we're reporting with lower passenger and weaker numbers due to the pandemic, but the positive news is that the profitability is very good. And even on Q4, we improved a bit profitability on EBITDA level due to the efficiency in operations. And on Botnica side, we had a little bit less charter days than previously, but in terms of profitability, quite stable. Now Marko, let's move to the financials.

Yes. Thank you, Valdo. Starting from the group level figures, so we can see that the revenue has decreased both in the fourth quarter and the whole year. The decrease is quite similar, around 16% to 18%. And this mainly comes from the big drop in the Passenger harbours segment, where we have had a big decrease in the number of passengers, but also in the number of vessel calls. Due to the increase in revenue, also the adjusted EBITDA has decreased percentage-wise a little bit more because we have not been able to offset the drop in revenues by cost cutting and therefore, also the EBITDA margin has a little bit decreased. And the same reasoning goes for the change in the operating profit. All in all, we ended the year with EUR 28.5 million profit. That is 36% less and corresponds to change in EBITDA roughly. Investments, we had the highest volume over past years, EUR 37.1 million, a 26% increase. This was due to long-time planned investments into the Old City Harbour and mainly passenger, servicing, infrastructure. As Valdo mentioned, we finished the reconstruction of Terminal D. We built a new parking house. We started the investment for cruise ship terminal. We also started the investments to build a passenger bridge over the Admiralty Basin. So despite the COVID situation, we do believe that there will be recovery, and we have continued our investments. Looking forward, of course, this is an elevated level of investments. So for this year, we, at least on the Passenger harbours business, see that the investment volume would drop down to what we originally have estimated being the annual average of around EUR 20 million. On the Ferry side, the biggest question mark at the moment on investments is the sixth Ferry. We don't know yet from the Estonia Republic if their state would like us to build it or not. So depending on that, this year's investments amount could increase or not that. But definitely, it will be lower than last year. Moving forward to cash flow statement. We can see that cash from operating activities also has decreased. That's due to the decrease in operating revenues. And cash used in investing activities has stayed almost at the same level, increased less than the investments. That's due to the impact of prepayments for this year's or 2020 investments that were made at the end of 2019 at around EUR 5 million to EUR 6 million. So these show up on the cash flow statement under 2019. So therefore, these figures are not comparable to the investment volumes. And free cash flow, therefore, as well, due to the decrease in revenues, has decreased in 2020 of more than EUR 15 million. Altogether, the net cash flow has remained negative, but on the range of 2019. And as you can see on the right-hand side, for the financial position, the dark blue shows the cash balance. So the cash balance has decreased from EUR 35 million to EUR 27 million. And net debt at the end of the period last year was EUR 185 million compared to EUR 173 million, and the change largely being attributed to the change in the cash balance. So going forward to business segments. We can see basically the same story here continuing into the fourth quarter. So the Passenger harbour revenues are down almost by half. And this impacting almost directly the segment EBITDA as well. As Valdo said, Cargo harbours had a very good year. We managed to increase the volumes and increased also the revenue due to cost cuttings and one-off returns from the sale of assets. The adjusted EBITDA for Cargo harbours has quite significantly increased. Ferry business, despite the drop in the volumes, has been very stable. As we have said before, the Ferry segment business model is largely based on the fixed fees. Therefore the changes in the operational volumes don't impact so much the end result. We have benefited from the low fuel prices this year. And for the full year result, Ferry segment ended with a EUR 14.1 million EBITDA, which is over time best result so far. So we are very happy with those 2 segments which have been very resilient and a little bit also decreased the negative impact on Passenger harbours. The Other segments, there we have 2 main components. One is the icebreaker Botnica, which to a large extent performed as in 2019, on the similar levels with the difference that the summer time charter; the Baffinland Iron Mines was about 2 weeks shorter than in 2019, impacting a little bit on the revenue side. But the main impact into EBITDA actually comes from our joint venture, Green Marine, which is a company managing waste and also collecting all the waste from the vessels visiting our ports. So they had -- due to the large decrease in the number of passengers, but also because the cruise season was basically canceled, we had no cruise ship calls. Their operational volumes dropped to a large extent because the passengers on the regular lines and cruise ships are by far the biggest customers for Green Marine. They have the largest waste volumes. And this impacted the revenue so that instead of generating a profit, they fell into a net loss for last year, and this shows under the Other segment and is impacting adjusted EBITDA. So altogether, we are very happy given the circumstances. As I said, Passenger harbours were the reason behind the overall drop. Cargo harbours and Ferry segments performed very well, beyond our expectations. And as much as possible, we have taken also measures to cut costs and by that, a little bit alleviate the impact of decrease in revenues. But with that, we'll end the presentation and go into Q&A session. [Operator Instructions] And we'll have a few minutes break, so that you can enter your questions, and we will start answering them after that. Thank you. [Break]

First question, here it is. Suppose the financial result for the year 2021 will be dissimilar to the year 2020, how will it affect the dividend payments in '21 -- 2020? Yes, we suppose also that this year will be similar or a little bit better. And what we can say, that we're still standing behind our dividend policy. Second question, do the government intend to keep subsidies for ro-ro vessels? That's open question mark. What is already official that there will be a certain change in maritime use. But they will -- I mean, government will keep it in a lower level. Now they are on a level 0 basically, free of charge. They will increase it, but they will increase it to the reasonable level. That means that's good news. About the concrete support decisions, they are not decided yet, but I know they are negotiating that.

But we know that the Finnish government is also supporting the ro-ro lines between Tallinn and Helsinki, so this is continuing.

What are the latest...

What -- I will take the next question about cruise operators. What are the latest indications regarding starting operations? Will they be ready right away if travel restrictions are lifted in the summer? And then -- and I also answered the question about the status and bookings for this year. So basically, we have a quite similar situation as we had last year. We have a substantial amount of bookings. These bookings, of course, can be canceled without penalties, so -- which we saw last year happening. As we know, the cruise lines are following closely the situation with the pandemic. And if cruise traveling ease and will be allowed for the summer, they are definitely ready to start the service. We also are ready. And by that, I mean, the cruise terminal is planned to be finished also in the beginning of summer, June. When it's ready, we have much better opportunities if any testing or other services are needed to be provided for the cruise passengers. So all the cruise ships and companies are thinking about the ways how they can increase the security measures and keep everyone healthy during the trip. We are doing also that. And when traveling -- cruise traveling becomes possible, we are very optimistic that it will start this summer. But that depends on the virus situation, of course.

Will the pandemic postpone the Old City Harbour real estate investment plans? Generally, we are behind our plans what we made with the master plan. Of course, if you take this year, next year, I guess it's not very wise to hurry with investments to real estate, especially for the offices. Therefore, we're using the time, I mean this year, next year, for detailed planning. And where we are with that? We hope that in Q1, we will have all the detailed planning -- detailed plans for the Old City Harbour in, how to say, opening phase. That means that we're introducing these plans, that's first phase of detailed planning. And then, of course, next step takes a bit time. But at least, so far, we're moving as we planned. Future development really depends on virus situation and in the situation on real estate market.