AS Tallinna Sadam (TSM1T) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. Welcome to webinar, where we are going to introduce Q1 results from Port of Tallinn. My name is Valdo Kalm and our CFO, Andrus Ait will be also on stage. Main events. What we had in Q1, we got again a contract for Botnica. For this summer, Botnica is in good shape, in good condition and preparing to leave to Canada. And at the same time, we're also running negotiations for the next period. And just to inform that demand is there from Canadian client. But yes, first of all, let's make this summer happen. We also signed a compromise agreement with Tallink in Q1 and we already covered this and it's compromise what is, so to say, with all parties. We had change in management board. Andrus Ait came as a Board member and CFO. Also, Andrus now the member of Supervisory Board of the subsidiaries. Welcome, Andrus again, and good luck for future.

Thank you.

There are some recognition for cruise terminal, maybe one of the biggest was bricks to the Annual Architecture Award 2021. Cruise terminal also very active in offseason also. Now of course, he started to serve cruising customers also, but cruise terminal is really fully booked and the revenue is coming from the events during the Q1, during the winter, covering totally the cost. Therefore, this second plan B or business model works very well. Then we would like to notice that we signed a partnership on Baltic Sea, green transport corridor between Tallinna, Gdynia and Rotterdam to establish green fuel, but also other on-source power supply possibilities for the ships that means that in the future, we will have really a green corridor also for cargo ships. And we started such a first test, we first building title agreement in Old City Harbor, that's [indiscernible]. And that's really the model what we would like to establish here for real estate business that was signing long-term rental or title agreement, and then we'll call on tenders that investors to build here houses offices. In this case, [indiscernible] will be the restaurant building and the investor will invest and build that. Therefore, it's really the test and the first tender was very successful. Let's see how we will continue maybe just good news that we had quite recently a very important meeting with the government to move on with the detailed planning thesis to make them public. That's very important step, how to really fix the detailed planning in 4 areas in Old City Harbor. Main trends in our businesses. The passenger business made a steep price in terms of numbers and revenue. Of course, last year basis was very low. But honestly, it shows very good development. That's of course, especially Tallinn-Helsinki, but also we got increase from Stockholm and it's good news that it continues even in April. And we really got from Q1 with this increase from EUR 1 million to the EBITDA directly. Therefore, that's a good trend. On the cargo side, despite of decline in volumes, we had a stable revenue, even small increase and this volume went down from liquid bulk and from virtualizers, but we had good growth from ro-ro and containers. And yes, first time ro-ro catched liquid bulk volumes. That means there is some structural change also in revenues and in EBITDA. On ferry business -- sorry, just comment on cargo side, that in March, we had sanctions on Belarus liquid bulk and then virtualize the terminal in Muuga that, of course, continues. And now we're waiting more concrete sanctions on liquid bulk. There are no concrete sanctions yet, but they will come over the year. It's not clear. But as we heard from EU, then definitely, there will be up to October, some sanctions on our liquid bulk. Now moving on with ferry business. We also had revenue growth coming mainly from indexation and additional trips. And Botnica made very stable Q1, reached stable revenue and then profits. All-in-all, we call Q1 quite successful because in all the segments, we had the increase of revenues, but we will come back to that later on. Here are the volumes. We basically covered that plus 0.5 million passengers. Cargo I already mentioned that minus 8%, but some structural changes on revenue side. Here, you see shipping volumes on our [indiscernible], more passengers, more vehicles and on revenue side indexation and Botnica made very stable period. Then again, we have to still talk about the factors in our strange time or crisis time. We see a recovery from COVID-19, but still impact from passenger businesses is there. Hopefully, we will see quite a good spring and summer. It's very difficult to say what will happen in autumn, but at least, as I already mentioned in April, the trend continues. There are more and more tourists and also cruising season opened quite successfully and we already had a couple of huge cruises in our port. Sanctions against Russia and Belarus also I mentioned that Belarus, they are already effective on Russian ships flags, they're active. We follow these sanctions definitely. But bigger impact will be, I guess, in a coming period from liquid bulk, but that's not clear when exactly. Total impact is clear. We calculated in the beginning of the year already that maximum effect or impact is about EUR 6 million in terms of revenues and a little bit less than in EBITDA. Of course, energy prices and climate change is ongoing trends. We are working on that also. We are very active on green agenda, how to say and use this turnaround for our business also. And of course, on energy side, we were working with hybrid solutions on our shipping company plus we would like to use this momentum and more into wind energy business. But that's totally different story, and we will discuss it later on. All right. Then please, Andrus, floor is yours.

Thank you, Valdo. Good morning from my side as well. As we look at the financial results, we see that we were able to increase the revenue, just EBITDA and profit and taking into account all the circumstances, it is quite a good result from our point of view. The revenue increased by 7.1%, which is almost EUR 1.8 million. And this was mainly driven by a higher number of passengers. But it's also important to mention that we managed to increase the revenue in all our segments and also almost in all our revenue streams. Only exception was vessel dues due to the lower cargo volumes. Adjusted EBITDA has increased by 3.5%, which is almost EUR 0.5 million. The revenue increased more than the cost. But we also had a good result in our joint-venture company or associate company, Green Marine, which is handling waste management services. And so far, also, this had also a positive impact to adjusted EBITDA. Adjusted EBITDA lowered a bit from 52% to 50%. Operating profit remain at the same level as in the first quarter 2021. We didn't have any income tax because we didn't pay out any dividends in the first quarter. The dividend payment will be made on May 12. This is day after tomorrow and similar to the last year, and we will report income tax on the second quarter. Profit for the period increased by 5% or more than EUR 300,000 and it was more positive than the operating profit change because of lower interest costs due to the lower debt level. On the bottom line, we see investments. We had increased investments by almost 30%, which is more than EUR 1 million. In the first quarter in 2021, we had relatively low investment level. And this year, we invested mainly in Old City Harbor, where we play construction to surrounding area of passenger terminal. We also improved the vessel service equipment. And in Muuga Harbor, we improved the cargo and ro-ro service capacity. By segment-wise, as I already mentioned, we see an increase in all our increase of revenue in all our segments. The best increase was in passenger segment. And as I mentioned, it was driven by higher number of passengers. In cargo segment, we also increased the revenue by EUR 100,000. Despite the drop in cargo volumes, we were able to increase the revenue. And just to explain that, the cargo charges for liquid bulk and for dry bulk are lower than corporate charges of ro-ro and containers. And therefore, we managed to increase the revenue despite of the drop in cargo volumes. In the ferry segment, as Valdo already mentioned, the revenue increased, and this was mainly due to the indexation and also our partner transportation, administration ordered more trips and therefore also the revenue increased. In the segment Other, which contains the operations of Icebreaker Botnica, we also see a slight increase compared to the first quarter last year in revenue. And this was caused mainly by indexation. When we look at the EBITDA figures, we see that EBITDA has increased in passenger cargo segment and ferry segment remain at the same level in the second quarter and decreased in the cargo harbor segment. In the cargo harbor, costs was impacted by higher energy prices. And we also made a bit more repair works in this segment and therefore the EBITDA has decreased. In the ferry segment, the increase in EBITDA is impacted by mainly 2 factors. First is that we made more trips and we had this indexation in dues, but in last year or in the first quarter, the weather conditions were also a bit tougher, was more rising and therefore also fuel costs per chip were higher than in this year. And in the segment other, as I mentioned, the EBITDA remains at the same level. Here, we also made a bit more repair works. And when we take this out, the EBITDA would be also EUR 100,000 positive in this picture. Moving on with cash flow and financial position. We don't see any significant change here on cash flow statement. Cash from operating activities has a bit decreased as cash sits from sale of goods and services has increased a bit less than payments to suppliers, but this change is very, very little. Cash used in investing activities reflects the higher, in fact, the investment and has, therefore, increased by -- negative cash flow has increased by almost EUR 600,000. Free cash flow was EUR 9.5 million, which is EUR 700,000 less than in the first quarter last year, but it mainly reflects the impact of investments. Cash used in financing activities has a bit decreased due to the lower debt level and therefore we paid less interest cost. And net cash flow was in the first quarter, EUR 6.2 million compared to the EUR 6.7 million last year and the decrease reflects mainly this impact from investing activities. Net debt at the end of the period has decreased by EUR 15.8 million due to the loan repayments, reimbursement of bonds and also we have more cash in our bank accounts. On financial position, here we also consider any significant change compared to the year-end period. The cash on accounts as in banks has a bit increased and at the same time, the debt level has decreased. But with that, we will conclude our presentation. We have also some extra slides here about revenue generation and EBITDA generation by segment price, but this can translate if you have -- you should have any interest about more detailed information. And now we will make a chart to the break. You can send us questions by title. On the right-hand side, you can see the question mark by question, you can send us questions. And we will be back in a few minutes to answer your questions.

Thank you for questions. I will repeat them and then we will start answering. First one. I understand correctly that currently, the Port is still handling Russian oil or liquid bulk, just not serving Russian vessels. And what would be the decline in annual volumes if total cargo will disappear. Yes. The first answer is yes and we really don't serve Russian vessel owned or under the Russian flag, but Russian liquid bulk is still there. And if that will disappear, then we're talking about 6 million tonnes, what is in correlation with EUR 6 million. That's totally if all the Russian transit or transit cargo will disappear.

We have also question about investments. Is the investment level seen in the quarter represented for the remaining quarters of the year. Thank you for the question. The answer is the ongoing or next quarters, the investment level should be on the same level as it was on the first quarter, maybe we see a little or slight decline in the last quarter because remaining investment projects has related to terminal surrounding area project, which should be completed by the end of -- on course or in the middle of September. So the total investment cargo to should be somewhere between EUR 12 million to EUR 15 million.

Next question, is the mentioned EUR 6 million possible negative impact of cargo revenues from sanctioned for this year. What would be the full year impact in case of trade embargo with Russia and Belarus in 2023. Yes, the first answer is yes. That's the EUR 6 million again possible negative impact. Just explain that when we made the prognosis, then we already had significantly lower numbers on vertilizers. Therefore, we still consider that this EUR 6 million will cover all the sanctions. If we talk about 2023, then it's really difficult to say. First of all, we don't know yet the impact for this year. It depends on concrete decisions from EU and we follow very carefully these rules. And we already see that there are possibilities for new cargoes, especially, for example, on vertilizers, if one our terminal is under the sanction, then of course, on a market, there is a need for vertilizers. And that means that our other operators have the capabilities to serve also vertilizers. They have done it before. And for example, in Muuga, we have 3 dry bulk operators. Therefore, honestly, it's really difficult to describe what will happen next year because there are also possibilities for new cargo.

Okay. We have also one question about cruise ships. What is the current outlook of the cruise ship. Is it of the year, agreement [indiscernible] still prevailing or some operators are returning.

Yes, okay. You can start and then I can add.

We see that we have estimate 170 cruise ship per visit for this year. And some of the ships are already here. Definitely, there is impact from the world because the number of tourists on the ships has decreased per ship, but there hasn't been any significant change in the last weeks. So we are positive and hope that this number of cruise ships visits will be here during the summer period.

Yes. Just comment that in the beginning of the year, we thought that maybe biggest tourists comes from America or from American tourists and American cruising companies. But now last week, we had first American company's huge cruise ship here. That's a positive sign that Americas is still with us in this business. Therefore, if we will fulfill this number, what Andrus described, 170, then it's a very good result. Next question. I understand correctly if there are no major objections from the public to the detailed plan, the tender for real estate developer would be launched this year. Thank you for the question. Let's put it through that that's maybe too optimistic. What I say that to -- we started with one plot because we already separated this plot before. We had a detailed plan and permission to build a little bit earlier. If we talk about bigger plots, then this year, what will happen. That's the public discussion or opening for the discussion, the detailed plans. That's a very important step for fixing the detailed planning. But that doesn't happen yet. That's not happening this year yet. Therefore, this year, we don't have any tenders. First of all, we have to fix the detailed plans for the area. All right. Then thank you for the questions. Thank you for listening to us and trust us and all the best.

All the best. Goodbye.