AS Tallinna Sadam (TSM1T) Earnings Call Transcript & Summary

Good morning, dear investors, and welcome to our webinar and we are ready to report Q4 and 12-month results. I would like to introduce first our new CFO, Andrus Ait, and then with us will be here also Marju Zirel, Head of Investor Relations. But please, Andrus, floor is yours.

Thank you, Valdo. Hello, everyone. My name is Andrus Ait, and I'm the new CFO and member of the Management Board of Port of Tallinna. I took office since the beginning of last week. Previously, I was working for state-owned real estate company named Riigi Kinnisvara or state -- Real Estate Estonia, which is one of the biggest real estate owners in our country. And my position there was member of the Management Board and the CFO, quite similar as the Port of Tallinna. And I also hope that my background in real estate can be contributive and useful for Port of Tallinna, taking into account the potential of real estate development projects at the company. And I'm very glad to be a member of the team of Tallinna Sadam and looking forward to give the best effort to success of the company. But yes, taking into account that my career has lasted only 1 week, I would give it back to Valdo and Marju, please.

Thank you, Andrus, and welcome on board. And then we will continue with Marju. And of course, starting first of all, the events from the year 2021. The year was quite challenging, although we reached record cargo volumes and got quite a good position among other ports in the Baltic Sea. Then, couple of most important events. Katoen Natie extend their terminal in Muuga and also developing some new technologies. That's not only the warehousing. It's more already such a logistic hub. I guess, one of the biggest in Estonia after this extension. Then, for us, extremely important that HHLA, the container terminal, brought new cranes to Muuga that give possibility to really serve bigger container ships in Muuga. Also, we got 10-year agreement with the state for the Botnica. There was official international tender, and TS Shipping won the tender. Unfortunately, there was incident with ferry Tõll. Of course, we recovered quite quickly, but the incident caused us some extra cost. In business side and in passenger business, the good news is that cruise ships returned to our new terminal and there was 46 cruise ships that was good start after the pandemic. Then, Stockholm line reopened, and we finalized our investment with cruise terminal and promenade in summer. Then, also we opened the Admiral Bridge to interconnect 2 parts of the port. And also, we opened parking house in passenger terminal D. Then, we got a dispute with Tallink over their port dues but already in February this year, we made a compromise. And I can comment it later on, but basically, I guess that was really give us possibility to go on with future developments and try to, how to say, recover from the COVID period. There were some changes in Management Board. Our Commercial Officer, Margus Vihman got prolongation for 3 years. And then, also in the TS Laevad, we prolonged agreement for Guldar Kivro. And then CFO, Marko Raid left company in November. I would like to focus also on CSR events because green agenda is more and more important, and we as a port, acting on that not only the -- showing the nice slides, therefore, from the beginning of last year, we're using only green electricity for our own needs in all our ports. Then, we made some strict environmental measures for the vessels in Old City port here in Tallink. Automated mooring in Old City port is in a service for all 3 operators, I mean, Viking Line, Tallink and Eckerö Line, all using now automated mooring. And also, all the ships in 5 quays is connected to the ops or its onshore power supply system to reduce really the CO emission here, specifically in a very city of Tallink. Then we started reporting in carbon disclosed project platform and we managed to reduce our CO emission by 10% over the year. We got some recognitions for us. It's very important, especially in COVID time. This is honor to have investor of the -- Investor Relations over the year, and we got this NASDAQ Baltic Award last year. Then, some awards for responsible business. Cruise terminal got quite a lot of attention and some awards and same, Admiral Bridge. And then some environmental awards also. Then, to the business. And as we're reporting Q4 then some most important trends from last quarter. On passenger business, we really saw a quite a strong increase of passenger numbers. And that's due to the travel restrictions lift. We immediately saw the growing interest. Even in absolute figures, we got some 600,000 passengers additionally in last quarter coming mainly, of course, from Tallink, Helsinki link, but also from cruises. On Cargo side, in last quarter was decline, although we have finalized the year with 5 percentage growth. But especially in Q4, there was a decline mainly from liquid bulk and some decline from dry bulk. But mainly, we got it from Belarus and then partly from Russia. Also, we had impact by higher energy prices. Therefore, there was a decline in profitability in last quarter. Ferry business shows growth and quite a stable development still. And under the other, we had revenue growth due to the high utilization rate by Botnica. That means we had growth in chartered days. Here are the figures. As I commented, Q4 was very good. Honestly, we see a third development also in Q1. But it's really difficult to predict what will show the year. On Cargo, I already described the decrease from Q4. Full year was positive. And we will see basically growth in all the types of Cargo. Shipping volumes, more passengers in Q4. And if you compare the years also, we see the growth and also Botnica shows better utilization rate. I would like to describe a bit future outlook because there are many crises ongoing and definitely, we see continuing pandemic influences. And definitely, that affects us on the passenger business, although as we described, we will see quite a good development in Q4 that continues in Q1, but it's really difficult to have a better visibility, what's going on. And definitely, from here, I would like to move to sanctions against Russia and Belarus. Definitely, we will see here certain more concrete sanctions. It now depends, are the sanctions more valid for the import to Russia or export from Russia. If it's import, then for us, it's quite a small impact or defect. If we're talking about export sanctions, then we will see certain effects for transit what is nowadays a little bit below 30% from our total cargo. And we are talking about some EUR 6 million on revenues for that, if there will be straight sanctions on export, but let's see, the nearest future shows that. Of course, definitely, there will be increase in energy prices. We have to consider that. And climate change needs the resources. But as we're already acting on that, then we believe that there is possibility to turn this climate change topics also in favor of the business. Now I would like to give floor to Marju and here are the figures.

Hello from my side as well. And I would like to introduce the financial side. So we have had a strong fourth quarter, both in profitability and revenue, and this was mainly driven by the passenger side. As Valdo said, we have had 93% rise in passenger volumes and this was due to lifting of restrictions. But also, we saw revenue growth from Botnica as the Canadian partner ordered longer period or the charter days were longer this year than the last year. And also, from ferry side. In Cargo settlement, the revenue was declining a bit because the Cargo volume dropped. On the profitability, the margins fell because we have had -- all year long, we have had pressure on our operating costs, services, energy prices, personnel costs. And also, we had a lower cost base in 2020 because we held back some investments or repairs that we could at the beginning of pandemic. And also, there were some austerity measures of personnel costs, which were not in place this year. And this year, we also had some cruise ship calls, which was, of course, very good news on the revenue side, but it also meant that cost base was higher due to ship waste and related costs to the cruise ships. And also, we had some sales of assets in Vuosaari and in Muuga, and the profit from those actions was higher in previous year than it was in 2021. Therefore, there's a decline also from that. Also, we had some maintenance works this year connected to ferries about ferry main engines and also some harbor-related maintenance. And therefore, this cost was growing in 2021. Regarding this income tax fall, this was due to lower dividend in 2020. So also the tax was higher than. And investments also fell in 2021 by 60% as we finished our main investments last year and some of them in the middle of the year, like cruise terminal and Admiral Bridge, and we didn't have any new big investments planned for 2021. And also this -- we had planned for sixth ferry, but this was also -- this is not happening because the state decided not to order this from TS Laevad then build it theirselves. For segments, as I already explained, Q4 for passengers was pretty good due to return of the passengers. And at the full year level, it's -- the revenue stayed the same as last year and even showed some growth, about EUR 30,000. So that means that all segments in the full year showed growth in revenue. But as explained earlier, the profitability fell a bit. So this means that as we see the signs that passenger harbors hopefully will start picking up after the pandemics, the first time in Q4. And -- but still this is in decline, and it's a long way to the 2019 levels ahead. Also, we had, in passenger side, cruise ships returning. Katoen-Stockholm line reopened. This also helped in the full year to reach these levels of revenue. In Cargo side, we have had a rise in Cargo volume at the full year but the profitability fell. This was mainly due to liquid bulk and high competition. And we did some discounts because -- to gain this Cargo volumes that we have. So Cargo revenue stayed mainly at this 2019 levels or prepandemic levels. So this we have managed to keep. In the Ferry side, we have had increased due to indexation and rental fee. And we -- as I said, we had some planned repair costs for the ferries, therefore, the profitability fell a bit. And in other segments, we had Botnica revenue because of the longer charter period in the end of the year. So at the financial position side, it -- the picture is the same as it was in last year. Nothing significant has changed here. And in the cash flow, we have accomplished a better net cash flow position and improved also the net debt at the same level. So this is mainly due to lower investments that we did in 2021, as explained earlier. And this also leads to the profit, almost EUR 26 million this year, which means that we can keep our dividend promise and keep this and even pay more maybe than last year. But this will be decided further on as the -- these are the earlier and unaudited results. So we will announce it later. And here, you can see the revenue generation of quarters, if someone is looking into that, and also the EBITDA. It shows that last quarters were stronger. And now it's time for questions, and you can type them in. We have had some questions sent to us by e-mail. We will answer them first and see you in a few minutes.

All right. There are some questions before webinar room, and the first one concerning the link compromise agreement. Why did you fix consumer price index at 2% level when the costs are rising more rapidly? Here, I would like to explain that, actually, we consider this compromise balanced. And one part of this compromise was to take consumer price index to the real action, that means that even in good years, I mean, 2018, 2019, we didn't manage to use a consumer price index because of competition and our operators were against that. And with this compromise now we fixed that, and therefore, this 2% is quite okay if you consider a bigger picture. Second question, how does the Management Board ensure profitability and dividend with the institutions? As we described the influence of the compromise, then it's under the EUR 2 million. And with that, there is actually no doubt to stand behind our dividend policy and dividend promise. And of course, we also control it with investments in coming 2 years. There are no such a big project in front of us, therefore, I guess, we will control and manage it quite well. Third one, how is real estate development going at Old City Harbour? There are developments. And now we hope that in Q1, we will have a decision together with the city government that we can open for the comments, our 4 areas of detailed planning. And that's a necessary step to really fix the detailed planning, hopefully, next year. Before that, we also made one such a test site or we're finalizing agreement with one developer. We had tender for one smaller plot. And we, first time, using the model, what we would like to use in bigger plots, to really rent out the plot for 50 years and then investor will invest and operate that. Therefore, in coming weeks, we will fix that and then we'll see how that really works in a smaller plot. And then how much has Tallinna Sadam own real estate value grown in the recent year? I guess it's quite stable still. We hope with detailed plans, we will see the new valuation. Please, Marju?

Okay. I can answer the next one. There's a question about Botnica charter days. And why Botnica's charter days and utility rate data in Q4 report is different from earlier operating volume data? This is actually a mistake. We have already corrected this. And at our web page, there is a correct data and note for this as well. So this is just -- this was a mistake.

Have you fully stopped all liquid bulk cargoes from Belarus by now? And what is the expected impact of total Cargo volumes? Not yet. There are still incoming flow because of the contracts. And from 1st of March, we can't take new cargo. We can, not us, but our operators, operator, specifically one operator can and have only possibility to carry out the cargo. The impact from that for this year is not big, under the EUR 1 million in terms of revenue. Therefore, that's not the big stake or part of our transit -- I mean, from Belarus. Are cargo vessels under the Russian flag banned in our ports now? No such restriction yet. Of course, we will follow the instruction from our regulatory body, from the state, but there are no such concrete message yet.

How should we look at your planned capital investments in 2022? Could we expect an increase compared to '21?

As I already mentioned, there is no big project in front of us this year and probably even next year. Therefore, the investment level will stay quite similar for this year. And that, again, secures our dividend promise.

Could you please confirm that you are considering to pay higher dividend than in '21? Well, as I said, this will be -- proposition will be announced soon, but no exact amount yet. Any news on the real estate development? This is for Valdo? You covered already...

I covered. And yes, again, I would like to repeat that we will have now one such first test bed or test site to really test the model. A bit smaller plot.

Please describe again what could be the financial impact if Russia and Belarus transit cargo is fully stopped going forward?

I already mentioned that it depends what kind of sanctions will be there, export or import. If there will be export from Russia or real transit, what we serve just now, then we're talking about EUR 6 million on revenue level.

And this affects mainly liquid bulk and fertilizers as connected to Russia and Belarus, this was another EUR 2 million on top of that.

Under the EUR 2 million, yes.

Yes. But of course, you have to consider that all liquid bulk in this region is connected to Russia. That means that all supply chain of this oil business will be restructured, and it cannot be said that everything will go away and nothing will come to Muuga. Something will stay and something will be reorganized to service this region from other parts of the world, but it's too early to say how this will be managed. But in our ports, about 50%, 60% of ship calls are Russian tankers. So not all of the liquid bulk is Russia related or Belarusian.

That means, yes, we really have to follow now the concrete sanctions in coming 6 months, we don't know.

This affects everybody, not only at speaking. If swift sanctions on Russia remain, is it reasonable to expect that any of the Russian and Belarus cargo, direct or indirect, would flow through your port? Swift sanctions, it's hard to say because we do not have any direct financial connections with these clients. Our clients are operators and they are fully Estonian-registered companies, limited liability companies. So our transactions are in euros. But -- and through Estonian and Scandinavian banks. But operators, clients might be related to Russian banks, but we do not have overview, how many of them or in which currency they do the transaction. So this, we can't really say.

Assuming passenger traffic returns to close to pre-pandemic levels at this stage, what is the full impact of the recent compromise for the passenger vessels? It's -- if we're talking about a record year 2019, and then the first question marks, are we reaching these levels and when? The most important question, when. We hope that we will reach. But the question is and our visibility shows that it takes a little bit more time than we thought autumn last year. And if we take 2019, then we're talking effect around EUR 3 million on a revenue level. How do you estimate the impact of Russian sanctions on cruise business in the Baltics? I guess that we will see certain impact and that may be due to the American visitors or tourists. Otherwise, I hope that we will see quite a nice number. Cruises here this summer, because there are many companies known by German, Italian owners. And definitely, they don't see here such risks as Americans. But there probably will be certain minor effect.

Okay. We have a last question. Do you anticipate any impact of sanctions against Russia in the passenger segment as our main passenger flows are between Finland and Estonia? This probably, we hope will not affect or we don't see any such risks there. St. Petersburg line has been closed for 2 years already temporarily because of the COVID. So there are not so many effects on that.

But then thank you for your questions. We feel as in a good shape. As we said, we hope that there will be, and we see the trend recovery in passenger business. And we described the risks on Cargo side, and then we see and we have better visibility on our local shipping business. And also, we're planning future developments for the company. And definitely, we're standing behind our dividend policy and promise. Thank you.

Thank you. Good day.