AS Tallinna Sadam (TSM1T) Earnings Call Transcript & Summary

Good morning. Ladies and gentlemen, welcome to our webinar. My name is Valdo Kalm. And Andrus Ait, our CFO, we are presenting Q2 results. And as usually, after the presentation, there are a possibility to ask questions. But I will start and then Andrus will take over. Q2 generally was quite active and a quite good quarter in terms of numbers also, and our main events or actions are there. I guess it was quite an important decision, what we made together with our council or Board of Directors to invest to Paldiski South Harbour around EUR 50 million for wind park maintenance and the installment port. I guess it's a very important investment for the future, for future growth because wind parks in offshore or in sea will come. That's not the question. The question is when and the timing. And I guess to be, how to say, leader in our region is very important. We also already signed a couple of MOUs with development -- developers. And we also got funding from EU military mobility fund around EUR 20 million. Therefore, the investment is supported by EU funding also. Therefore, there is a business case in a table, and we really believe to this long-term business and growth possibility. On Q2 and also in 6 months, we had record volume of ro-ro cargo. That's good news because we still see the decline from liquid bulk due to the war. And it's very good that we see the growth of ro-ro and also containers. Then also good news for us that there was termination of Worldwide Cargo Establishment's contractor penalty lawsuit, what we had during the 3 years already, and that was positive for us. State or transport department ordered additional trips for Regula for summertime, also gives extra revenue and profits. And then we had a virtual AGM or voting of general meeting resolutions, including the new Supervisory Board in Q2. And of course, we -- or our -- one has made the dividend decision, and we paid out dividends on a level of EUR 25.5 million. But I guess also a good sign that even in difficult times, we have possibility with our good cash flows, pay out good dividends and, of course, continue with our investment plan. And then we signed one MOU with Port of Gdynia for hydrogen solutions. Before, we had already cooperation in Hamburg, but now, additionally, Gdynia is interesting for us that we will have, in this region, know-how and more complex solution for the future hydrogen [ panic ]. Hence, in Q2 by business segments. Our Q2 was strong in our Passenger business. Honestly saying, the growth was bigger than we expected in Q2. That means in passengers numbers, some 200% or 3x more passengers than the last year. And of course, we see -- we saw good revenue growth, and it affects our EBITDA level. Then some growth in rental fees. But on passenger side area, that's not only the regular rides, that's also the cruise business, what is recovering a little bit better than we expected, and that continues. On Cargo side, we saw a decline in volumes by 20%. But it comes mainly from liquid bulk and also dry bulk, it's fertilizers, as you know. But the good news is that our revenue stayed on a level from last year, and that's due to the good growth on ro-ro and containers. That means that the growth of ro-ro and containers basically compensating the decrease from liquid bulk. Sanctions to Russia are valid. And it's quite difficult to say what will happen in the end of the year, but I will come back to that. On Ferry business, we have seen good growth also in Q2. It comes from additional trips from Regula and from indexation. And under the Other segment, we're reporting our Botnica activities, also revenue growth from indexation and stable utilization rate. And Botnica working now in Canada, as usually, and everything goes as we planned. Then to the volumes. As we already mentioned, we had strong Q2, tripled our passenger numbers. Mainly, it comes, of course, from Helsinki route, but also, last year, we didn't have at all passengers from Stockholm and cruise passengers. Therefore, this year, we have both. And if you see the 6 months, then also the recovery shows quite promising. Again, it's difficult to predict what will happen in autumn. It all depends on our COVID situation. But so far, we see quite a huge interest of tourists, mainly from Helsinki, but also cruise is back quite well. That means the number of cruise passengers and the number of ships are higher than we prognosed, honestly. On Cargo side, as I already mentioned, liquid bulk and dry bulk going down. But the ro-ro and containers increasing, that shows, in one hand, quite strong import/export situation in Estonia; but in the other hand, already, when we reported Q1, we show the same trend that there are some new ro-ro and containers coming to our ports. That means there are really new cargo and new cargo flows. And that means they found our ports in Muuga and in Paldiski, and it's definitely new cargoes flowing mainly from and in Scandinavia. Shipping volumes, we described that there is also good recovery on passenger side and on vehicles. And on Botnica, we have had a very stable picture. Here, you see the charter days and utilization rate, but it's very stable. About future. And here, we're really talking about this year's future outlook. It's very difficult to have very long visibility. And as we mentioned, Passenger business recovered better than expected, but it's still autumn in front of us, and it's difficult to say. We hope that there will be no such a total closed situation as we had previous year. And of course, we have very good cooperation with our shipping operators also on state level to avoid such a total shutting down. And therefore, we hope that we will have better situation, but last autumn, but still difficult to predict. And about the sanctions to Russia, Belarus sanctions are already in force. It's all about the total embargo to Russia. If there will be total embargo by the end of the year or in the end of the year, then, of course, we see the future decrease, and we reported already the maximum effect, the effect of that. But if there will be some kind of different decisions on Russian cargo, I mean, mainly, it's now liquid bulk, that's the main category, then we will have more better visibility for the next year. And of course, there are mega trends on rising input costs, that's energy and then labor mainly. And of course, we have our efficiency plan in place. We're working with other sources of energy, and that's definitely ongoing. All right. That's very brief. Here, I would like to give word to Andrus about the numbers.

Thank you, Valdo. Here are the financial results for the group, both for the second quarter and for 6-month period. As Valdo already mentioned, the first half of 2022 turned out to be successful, especially in Passenger harbour segment. We had almost 3x more passengers. And cargo -- however, at the same time, the Cargo volumes decreased, but the positive effect from Passenger harbour were higher than the negative impact from Cargo harbour. And in the second quarter, the revenue increased by 25.2% and amounted to EUR 30.3 million. The growth was mainly supported by higher number of passengers, but we had also cruise ship calls this year in the second quarter. In the last year, we didn't have any cruise ship calls in first half of the year. And this has also helped to support the growth in revenue. And also in Ferry segment, there was growth due to the indexation. Adjusted EBITDA increased in the second quarter by 38.2% to EUR 15.4 million. The growth was more than EUR 4 million and was supported by Cargo -- sorry, by Passenger harbour segment and by Ferry segment. And in a lower extent, also there was a good result from our joint venture company, Green Marine. Adjusted EBITDA margin rose from 42% to 50.7%, and operating profit grew by 75% and amounted to EUR 9.1 million. Similar to the last year in the second quarter, we paid out dividends, but the dividend payout was EUR 5 million higher than last year, and therefore, the income tax to dividends increased by 25.5%. Profit for the period was, in the second quarter, 3x higher than last year in the second quarter, mainly due to the good results in Passenger harbour segment. And the investments remained at the same level as last year. When we look at the results of 6 months of 2022, we see quite similar results. All the main figures has increased. Revenue increased by 16% and amounted to EUR 57.1 million. Adjusted EBITDA growth was 20 -- almost 20%. Operating profit was EUR 16.3 million, and the growth was 31.3 million -- 31.3%. And profit for the period increased by 44.1% and amounted to EUR 12.2 million. Investments was -- investments were EUR 1 million higher than last year, the first half of the year, and the main projects were made mainly in Old City Harbour, where we reconstructured -- when we -- where we are reconstructing the surrounding area of Terminal D. This project should be completed in the middle of September. And we also, in Muuga Harbour, improved the ro-ro service capacity. As we look at the results by segment-wise, we see that Passenger harbour is the one where the most growth has taken place. But the revenue grew in all our segments, even in Cargo harbour segment. But in Passenger harbour segment, the revenue growth was supported by a higher number of passengers, therefore, we had more passenger revenue from passenger fees. But also, cruise ship calls has supported the growth in revenue. This year, we had, in the first half of the year, 68 cruise ship calls with 54,000 passengers on board. The load factor of the vessels is 3x lower than previous years, but the number is recovering quite good. In Passenger harbour segment, also the rental income increased, and there was mainly 2 factors which influenced the growth. First, last year, we made discounts in rental fees due to the pandemic situation. And in the third quarter last year, we took use -- took into use the cruise terminal, and this has helped also increase the revenue in Passenger harbour segment. In Cargo harbour segment, the revenue remained at the same level as last year, both in second quarter and on 6-months period. Although the cargo volumes dropped mainly due to the outbreak of the war in Ukraine, and as a result of that, there was dropping in liquid bulk and dry bulk. But as Valdo already mentioned, ro-ro and containers volumes increased and that the cargo charges for ro-ro and containers are per unit higher, and therefore, the revenue was at same level as year before. In the Ferry segment, the revenue increased by EUR 1 million due to the indexation. And we also made extra trips due to the higher demand from Transportation Administration. And in the second quarter, where we show the results of the [ point ], mainly we managed to increase the revenue as well. But it is important to point out that in segment Other, there is a seasonal effect at Botnica, hence, the icebreaking services for the state in the middle of April and the charter work starts in the end of June, therefore, the revenue in the second quarter is -- was this year and has been in previous years lower than in other quarters during the year. On EBITDA level, the Passenger harbour segment is the one also where the most growth took place. In Cargo harbour segment, the EBITDA decreased due to the cost pressure, and the pressure came mainly from electricity prices and then energy prices. In the Ferry segment, we see EBITDA growth by EUR 0.5 million. And this was -- here, it's important to mention that last year, there was elevated cost level due to the maintenance work of the main engines of the ferries. And when we take this out from last year, then the level would be same as this year. And in the segment Other, we managed to achieve a positive result in the second quarter, mainly due to the better result of our associate company, Green Marine. On the 6-months level, we see a quite similar pattern. Revenue has increased in all segments, and EBITDA increased in 3 segments out of 4. And the growth was the highest in Passenger harbours segment. On cash flow side, we see cash from operating activities increased by EUR 2.8 million, and it was mainly attributable to higher revenue. The cash receipts from goods and services increased more than payments to the suppliers. And also this year, we paid out income tax to dividends. Last year, we paid out dividends through June. And according to the Estonian tax legislation, dividend income tax should -- must be paid out on the next month. And therefore, the results of 2021 does not contain the payment of income tax. Cash used in investing activities decreased by EUR 4.2 million, although we said that the investment level was even higher than last year in the first half of 2022. And to explain that, in May, we received a grant payment from EU funds as we present -- we submitted last year the final report of the TWIN-PORT project. And the report was approved in the beginning of this year, and we received that payment in May. Just a reminder, in TWIN-PORT II project, we renovated the Terminal D building and built the Admiral Bridge. Free cash flow increased by EUR 7.6 million. And cash used in financing activities increased by EUR 5 million, and the growth is mainly attributable to the higher dividend payment. The loan repayments remained at the same level. And net cash flow increased by EUR 2.6 million. And net debt at the end of the period was almost EUR 19 million lower due to the loan repayments and more cash on bank accounts. On our balance sheet, we don't see any significant change compared to the year-end period. We had a bit less money on cash on bank accounts. Debt has decreased due to the loan repayments. And the other liabilities -- in other liabilities, we see growth due to the grant payment which we received in May. With that, we will conclude our presentation. We have extra -- 2 extra slides about revenue generation and EBITDA generation, but those are just for information if anyone have more interest in that. And we will be back in a few minutes. [Operator Instructions] And we have also 2 questions sent upfront. Those questions, we will answer first. And yes, we will be back in a few minutes. Thank you.

All right. Ladies and gentlemen, we are ready to answer the questions. And the first question was sent already in advance. And when can we expect the news about detailed planning in Old City Harbour? I would like to say 2 things, what kind of activities we have had in Q2, and these are quite important. The first is that during the summer, we basically fixed the traffic solution, the main streets and, how to say, areas in front of our E Terminal and cruise area. That's very important, and that's what we fixed together with the city government. And now we hope that in Q3, there will be a public -- they actually put them public. It's really up to city government, but they have to do it. And hopefully, they will do it. And that's a very important step because after that, of course, we take comments from the neighbors, but there are not so many neighbors. It's very much of a city around us. And we hope, if the public process, but last some weeks, be lowered, then we are in a quite good move. Another important step, what we had during the summer is to really fixing the time line, and it was just yesterday the signing of contract. Now it's clear that it's coming, and it's also influencing our detailed planning and traffic solutions in front and around the A Terminal. These such due developments.

The second question. Has the idea of paying dividends more than once a year been considered? Thank you for the question. Yes, paying out dividends more than once a year, we have considered. But taking into account that we have more than 22,000 investors, in case we would pay out dividends more than once a year, there would be extra cost for the company. And this has been the main reason we -- why we haven't decided this over and still paying out dividends once a year.

Next question. Do you expect ro-ro and containers to compensate not only sales, but profits too? Honestly, we are quite close. It now really depends on volumes. If we're getting still good volumes and then the increase on that, and then, of course, there are some costs related to that.

The containers and ro-ro volumes has decreased -- has increased about 10% on -- in every quarter. And when this will continue, then a positive effect to profit will appear as well. But currently, as Valdo mentioned, we have cost pressure from energy costs. The costs increased 60% year-on-year, and that has also impacted us in a large scale. And therefore, we have to look at those like 2 factors combined, the growth of containers and ro-ro and the growth of costs.

Yes. But we are quite close because we know the profitability of each segment or different cargoes. Can you comment on the trends seen in liquid and dry bulk volumes so far in Q3? I guess we will see in Q3 quite a similar picture. And if we're talking about the sanctions, additional sanctions, that these decisions, we will see only in Q4. I guess before that, hopefully, the situation will be quite stable.

What is your latest estimate of the impact of sanctions against Russia and EBITDA? When -- after the first quarter, we said out that total impact to the results could be somewhere around EUR 6 million on EBITDA and revenue level. As Valdo mentioned, the recovery has been better than we expected in the first half of the year. Therefore, we would say that the negative impact is lower than we estimated then. But we would like not to say out the exact number because there are so many drivers and factors which can influence the final results for the year. But what can we say that the number is definitely lower than EUR 6 million.