AS Tallinna Sadam (TSM1T) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. Nice to meet you again. My name is Marju Zirel, I'm Head of Investor Relations in Tallinna Sadam. And with me is Mr. Valdo Kalm, who is our CEO, and we will be presenting Port of Tallinn Q3 and 9 months results today. So I will give the floor to Valdo, please.

Thank you, Marju. And here we go. First of all, I would like to present main events from Q1. A couple of important events on Cargo business. Our customer, Katoen Natie, made the extension in terminal Muuga. Then HHLA brought new cranes, container cranes to Muuga hub that allows to take bigger containerships and serve them. It's great news. And hopefully, we will see the effect of these 2 projects even in the nearest future. Then we opened our new cruise terminal. And -- but it's already in operation this year. And during the winter time, we use the terminal for events to cover the cost. It's a new gray building with very low cost, that means that we're heating and cooling the whole building with water cooling/heating system. Also, we then got some award to a cruise terminal. And also we opened the Admiral Bridge to connect D terminal area with A terminal area that gives possibility to better serve customers, but also it's really good for the whole area in Old City port. Then we had, unfortunately, incident with ferry Tõll in July. And Tõll is a hybrid vessel. And of course, sometimes, if you're launching new technology, then there is a risk for certain incidents. But we know the reason, and Tõll is back on operation quite quickly, thanks to good reaction from BLRT shipyard. Therefore, now we're learning from this incident, we will move further. Definitely, the electrification is the right direction of ferries. We already see effects on cost side. That means some 20%, 25% lower cost on hybrid system, therefore, effect is there. And then we had Investor Day in our new cruise terminal. About the trends in main business areas in Q3. There is still -- we see the decline in Passenger numbers, 16%, and in revenues, 4%. Although we managed to open Cruise again, as a model, and we've got almost 40 cruise ships to Tallinn. That is, we consider, as a good opening because we did better than other cruise ports in Baltic Sea, and then also stock online reopened in Q3. On Cargo, we had very strong quarter, with strong growth in volumes, 23%, coming mainly from liquid bulk, but also from ro-ro. Ferry business and Other segment, that means mainly Botnica, shows stable revenues and stable profitability. As we all know, COVID still plays an important role in our life, our business life. And although we opened the cruise and the Stockholm line, there is the decrease from Helsinki. But this is positive that this ro-ro keeps -- RoPax vessels moving on cargo side, continuous growth. Even we see positive impact from COVID, some new customers find our route or corridor. And on ferry and other, we don't see any significant impact. We continue with investments. Of course, we're motivating our employees to vaccinate. And our vaccination level in Tallinn Port Group is 87%. That means that we achieved quite a good level already. Very briefly, our passenger volumes. I already described that on 9 months, it still declined, comes mainly from Helsinki-Tallinn route. Hopefully, next year will be better. We're just now working with a prognosis for the next year. Definitely, we hope to the recovery. The question mark, how long it takes now? And that's under the consideration. On cargo side, I mentioned that Q3 was a very strong month, supported by growth on liquid bulk and ro-ro. But on 9 months, we see the growth in all our cargo areas. That's really good that all the areas are growing. Shipping volumes are there, and Botnica charter days are very stable. Botnica doing well, now returning from Canada and, hopefully, we'll finalize quite a good season again. And to the financials, Marju, please take over.

Thank you, Valdo. So for the financial results, as you can see, there are no big surprises there, considering what is going on in the world at the moment. Our revenue is still under pressure of this pandemic influence, and this comes mainly from the first quarter of 2020 because the restrictions on passenger movements started in March 2020. But we are happy to see that our 9 months revenue is almost reached the level of 2020, which is, of course, not as normal as 2019 was, but still, the second and third quarter improved the results. As for adjusted EBITDA and operating profit, these have still declined, both in Q3 and 9 months, and this comes from several things. So first thing, we are under pressure of operating costs rise because the services and personnel costs and energy, especially in Q3, the prices are rising. And also, there is a lower cost base in 2020, especially in 9 months, because we have had repair costs in 2020, which were pushed forward. And also, we have had some several cuts in personnel cost bonuses system, which we didn't have in 2021. And of course, in 2020, we had a onetime influence from sales of assets in Paljassaare and Muuga, which was about EUR 2 million. So this explains the decrease quite well, I think. As for the income tax decrease, this comes from the lower dividend payment in 2021. And we are happy to say that, due to our several business fields and diversification, we are still in strong profit, both in Q3 and 9 months. And as the investments in this year have decreased as well, and this is not that we have cut anything. We have just completed things we have planned. This leads us to a strong position to pay out dividends this year as well. As for the segments, Passenger harbour is still most influenced from the pandemic restrictions, both in Q3 and 9 months as well. And in 2021, we have -- as Valdo said, we had cruise calls and passengers, which we didn't have in 2020. But this also means that we have higher costs for cruise ship calls, for ship waste management and mooring. And this also explains the slight decline in adjusted EBITDA investing to the segments. But in Cargo harbours segments, for the 9 months, as I explained, we had the improvements in adjusted EBITDA of the onetime sale of assets, which leads to lower EBITDA number. But we also have the growth in ro-ro, which means that there are no additional ship calls, but there is more load on the ships calling us. So this means that the revenue is not -- and profit is not rising at the same level as the volumes. And also, as Valdo said, we had the most rise in volumes coming from the liquid bulk. And for liquid bulk, this is a very competitive area, and we have to make some discounts to keep the volumes. And therefore, the profitability is in decline. For the Ferry segment, the revenue has increased in Q3, and this is due to indexation and also the rental fee. But the adjusted EBITDA has declined a bit, and this is due to rise in fuel prices overall influence, but also there's still the incident. And of course, we have had some main influence coming from main engines repairs, which were planned costs for this year, and they continue also in the fourth quarter. For the Other segment, this is very stable. And as the Botnica has lower costs, the adjusted EBITDA has improved. And EBITDA is also improved because the Green Marine, our joint venture, is more profitable and doing better. And this is due to higher fuel prices. As for the cash flow statement, our net cash flow position has improved by EUR 16 million. And this comes from -- I'm sorry, there's a mistake here. It should be cash from operating activities, EUR 3.8 million here. And this increase comes mainly because, in 2020, we paid out the coal terminal deposit, which we held during the dispute, which we didn't have in 2021. So we had less cash used in investing activities as the investment costs were lower and, therefore, the free cash flow has improved by EUR 17 million. And as the net debt is also in decline, and the net cash flow is in better position, I would -- can say that we are very able to pay out dividends for this year results. Here, you can see, just for information, how the revenue by segments and quarters is generated and also the EBITDA. This is just for information. And now, please take a chance to ask questions from Valdo and me. You can use the question box on your right-hand side to type them in. We will take a short break, a few minutes to -- for you to type them in and for us to prepare the answers. So see you soon. [Break]

Okay, then to the questions. First question. In Cargo segment, you are facing strong growing cost pressure. Is it temporary or are there long-term trend? And if, second scenario, how do you plan to transfer it to the customers' tariffs. If we're talking about the Cargo segment costs, then we don't see very heavy pressure. There are some costs, what we really carry on mooring. But we see biggest growth on energy, and that's we transfer to the customers. Therefore, the biggest part of the cost, what is energy, we can transfer to our operators.

I'll take the next question, which is how much did the Tõll incident cost to the company? Actually, some of the bills we have not received yet, so it's still not very clear. But we have had, so far, about EUR 200,000 of repair costs due to this incident. Plus, we have had some additional personnel costs because we had to do some additional trips on Regula and switch persons. But -- and also, there is a cost from fuel because we had to switch still Tõll to use diesel, not run as a hybrid ship on electricity. So there is some influence there. But it's not yet fair to say how much it costs. And also, some of the -- or most of the costs will be hopefully returned to us from the insurance company because the vessel was insured. The next question is, are you hedging fuel prices? If the main fuel influence comes from the ferries, and we are not especially hedging fuel prices, but it is hedged by the contracts that we have with the transportation administration. Because for fuel costs, this quarter, we get it compensated and indexed on the next quarter. So it's hedged by the contract.

Yes, there is a question, how often the changes in fuel prices can be adjusted in the service contract? Then, basically, Marju...

Yes, it's a quarterly basis.

It's quarterly basis, as Marju said. What is the status of real estate development project? When investors can expect news? Right. On real estate, we have -- we plan to have a couple of bigger steps. And hopefully, hopefully, by the end of this year, beginning next year, we will introduce. That's, of course, together with -- I see the government, the detailed planning as phases or first draft of our areas. We are talking about the 4 areas. I mean all the areas will be published in a first phase. And after that, of course, detailed planning moves on. It takes, hopefully, hopefully, next year. And then after that, I guess, we will be ready to invite investors to the tenders for development. Because if you remember, then we are not going to be the developers. We will be -- we will announce the tenders for developers. Yes, please?

Yes, I can take that.

Okay.

Please explain again why the personnel costs increase -- increased rapidly, 17% year-on-year? I think this meant 9 months. And now, it's third quarter. So -- and the explanation is because we had to use extra workforce due to the Tõll incident, and there is an increase. And of course, as I said, the cost base for 2020 was lower overall because we then had some cuts on the bonus system, which we didn't have in 2021. So...

Plus we decreased personnel costs last year, therefore, we had lower basis.

Yes, yes.

There are, yes, many elements. Just a moment. As your statistic features on your website seem to probably -- please indicate the number of RoPax vessels operated from Cargo harbours during Q3. If you're talking about cargo volumes, then we have -- yes, its first volume was 13% up. If you're talking about vessels, then we had a little bit a decrease because of one Tallink vessel was in a dock in Q3. That means RoPax vessels calls were some, maybe, 15% lower. I don't have exact figure. But due to the one dock off [ sea then ] there is lower cost.

Please send me an e-mail so I can answer you by e-mail, this question.

Right.

I think that we have answered all your questions. If you should have any more questions, please feel free to write us. Or if you want some follow-up meetings, we are available for you. So thank you, and meet you next quarter.

Thank you for attention.