AS Tallinna Sadam (TSM1T) Earnings Call Transcript & Summary

Good morning, and welcome to webinar. My name is Valdo Kalm, and Andrus Ait is our CFO. And usually, we would like to start the main events in Q1. Q1 was stabilization quarter, especially in terms of cargo volume. That means we get basically the same volumes as last year and positive is the containers and dry bulk made the growth. And also ro-ro is stabilizing and shows already growth in April. Then we made the offer of submission of the tender to provide ferry service in the next period. And today, we can say that we won the tender for the next period, starting from Autumn 2026. That's very important for us because Ferry business and operation is a very stable business, and we managed to give the offer, generally along the same level in terms of margins, what we have in this period. Then we made the announcement of the competition to development areas in Muuga Harbour. It's a special area with the key, and we're waiting there especially production, but we can have any different goals. Therefore, we are very interested in this tender. It's ongoing. And definitely, it's interesting for the future developments. Then, reorganization of proceeding for MPG AgroProduction initiated by the court. It's ongoing, but at least it shows for us some positive development. And also, we've got positive judgment in dispute with SLK and Väinamere Liinid. Our Supervisory Board extended the contract for our Commercial Officer, Margus Vihman, and also appointed a new member of the Board, Rene Pärt. Previously, Rene was also in charge of new growth projects. Now with that step, we even more will focus for growth and new possibilities. And really after the crisis, there are a lot of new things on the table. And I'm really glad to have more business growth projects in the Board level. Trends in Q1. On the passenger side, we have seen a continuous growth in passenger numbers. 5%, but quite a good trend. Although we have seen decline in passenger vessels, but that's due to the docking works for the [indiscernible]. Now it's in operation back. And I guess these dock works are very important also for us as a port for, they are back in business. On Cargo, as I mentioned, in Q1, we saw the stabilization that's very important and important is also that we have seen a small increase in vessels. And as I mentioned, there are growth in the containers and bulk still decrease in liquid bulk. But the biggest group is nowadays for us, it's ro-ro and containers. We're focusing on that. And at least here, we see continuous growth, also, as I said, in April. Ferry business is very stable with a certain increase in passengers and vehicles. And also under the [indiscernible] shows stable usage plus revenue. Here are the numbers more precisely from Q1. And on right-hand side of the slide, we would again, say that from the previous years, it's extremely important to have a good number of vessels because our revenue and profits are there. On Cargo side, the stabilization on Cargo volumes. And again, on the right-hand side of the slide, we would just show the number of vessels is quite stable. In terms of Cargo volumes, I would just like to say that more and more with thinking and rethinking the pricing models because now we are making the offers to the new business, that's the new key and usage of these key in Paldiski, here we're using more flat rate model. Therefore, in the end of the date, it's, of course, important to have revenues and profits. Of course, we will follow the tons and volumes, but more and more we are thinking out of the box to try reengineer the pricing and replace it with flat rates, but is more stable. Shipping volumes are very stable with increase of passengers. And then last year was a record year in terms of passengers and vehicles and [indiscernible] shows a stable development. Future outlook. We would like to see and we hope that Passenger business will recover also this year, that means that by the end of the year, we would like to have growth compared to the last year. And of course, we're gaining the magic number, EUR 10 million what we had pre-COVID time. We're working heavily to have new ro-ro container lines in our ports, in Muuga and Paldiski. The good news is that a month ago, we signed agreement with X-Press Feeder line for Muuga. It's a huge shipping company and interesting is that they ordered 14 new container ships and the [indiscernible]. Therefore, it's really a Green Reform in shipping, and this new -- one of the new vessels will enter to our port in August this year. Therefore, we also have to be ready for bunkering, that's not the obligation, but we are interested to be attractive as a port to bunker Green Falls and X-Press Feeder will bring quite a huge containership to Muuga. We see increasing interest towards offshore wind farms based harbor. And we made already some offers, concrete offers to Poland and to Lithuania. And as you remember then, this new part of the harbor [indiscernible] will work for entire Baltic Sea that means we would like to serve all the Baltic Sea countries, and we see an increase in Finland, in Sweden, I mean in terms of wind farm parks, on offshore. Therefore, the situation is very interesting for us. We're investing just now in Paldiski and all the time table is in line. We would like to finish this project by the end of next year. And of course, at the same time, we're negotiating with some companies to use our backyard or industrial park, mainly in [indiscernible], but also in Muuga for the production of components of offshore wind farms. In Shipping, especially in offshore market, we also see quite a good increase. As you remember, we are also working on a design of new offshore ship. No decisions yet, but the market is very interesting. We're working on business plan and design and also this year shows the attractiveness of this business, Botnica got 5 years project with Baffinland. Baffinland is our own partner, very reliable partner, but at the same time also Botnica works this summer in BP or British Petroleum. [indiscernible] and last year, we made many investments on Botnica. And of course, there were some additional costs. The ship is in very good order. And I believe that this year, we don't have any extra cost. We just have to work efficiently. And we're preparing for the real estate model. And hopefully, we would like to introduce spot for the tender in this year. And there is already ongoing preparation for reducing the state's shareholding. Later on, Andrus will give some explanation, but basically, in general terms, we would like to be ready with the plan in September. There is no push on timing. It's very important to have a good timing from our side to show better results and then, of course, show the growth projects, with impact. But generally, we're starting the preparation about the structure, about the activities [indiscernible]. Yes, Andrus.

Thank you Valdo. And I will go along with the financial results for the first quarter 2024. The first quarter, the number of passengers increased and cargo volumes stabilized. But despite of that, the revenue decreased by almost 2% [indiscernible]. Main effect came from Cargo -- sorry, from Passenger Harbors, where we had less ship costs because of dock works, especially [indiscernible], which was absent from the route for almost one month, also Tallink made shorter dockings for day ships. And this also impacted our revenue. Also, in Cargo Harbors, the cargo charges declined. There was impact from -- actually from IFRS requirements as we take into account the destinations for our forecast for the full or entire year. Last year, we expected higher cargo charges and cargo volumes from [indiscernible] this year those expectations and forecasts are lower. And due to that, we expect lower cargo volumes and cargo charges, and we have to take into account already in the first quarter. Adjusted EBITDA decreased by 6% and amounted to EUR 12.7 million. In addition to the lower revenue, the impact came mainly from Ferry segment, where we had higher fuel costs because of the severe ice conditions in the first quarter this year. Last year, there wasn't any ice, so fuel consumption and fuel costs increased. And we had also higher personnel expenses because we made salary changes during last year, so the reference level last year in the first quarter was lower. Those changes were mainly in the Ferry segment. And we had also -- this year, we had also higher clear provisions for bonuses in the first quarter. Adjusted EBITDA margin decreased from 48% to 46%. Operating profit increased by 3% up to EUR 7 million. If adjusted EBITDA decreased, then on operating profit, there was impact from depreciation and amortization, which was higher in the first quarter last year, as we made a one-off write-off of the noncurrent assets as there was the amendment of accounting rules. Income tax, we didn't pay any income tax, as we pay out dividends in the second quarter. Like last year, the dividend payout will be next Friday, 17th of May this year. Profit for the period was EUR 5.2 million, which is 9% less than the year before. And we can also say that the financial costs were -- finance cost were also higher because of higher EUR rates. Investments for the period were EUR 18 million almost, which is tenfold higher than the first quarter last year. The main project is -- which is ongoing the construction in Paldiski South Harbour, where we are living the new key, intended to serve our offshore wind farms. And we had also one top work for one of our ferries in the first quarter. Here, the results by segment-wise [indiscernible] revenue increased in the Ferry segment and in the segment Other and decreased in the Cargo Harbors and Passenger Harbors. In Passenger Harbors, the impact came mainly from fewer vessel calls like I already explained, [indiscernible] was absent from the route. And also EBITDA decreased in euros less than on revenue level was the top. So we can say that costs in this segment decreased year-on-year. In the Cargo Harbor segment, there was a slight decline on revenue because of lower cargo charges and there was also a slight decrease in residues because we had more vessel calls but the grand tonnage of the vessels decreased mainly because of the tankers, which were smaller and therefore, the current tonnage decreased, and this is the main factor which impacts the [indiscernible]. In regard of Cargo Harbors, the EBITDA increased because of the lower costs. In the Ferry segment, revenue increased because of indexation was a bit lower than in previous quarters, as the consumer price index increased [indiscernible] also but the fuel was index decreased. So there was a controversial impact inside of the indexation. And in Ferry segment, EBITDA decreased the most because of higher cost of fuel and also because of the changes in salaries during last year. The segment Other revenue increased a bit because of the leap year charter period was 1 day longer [indiscernible] icebreaking services for the transportation administration in Estonia and EBITDA decreased a bit because of maintenance works last year. We collected maintenance work together with the top works this year, they are more spreaded between the different months. On the cash flow side, we see that cash from operating activities has increased by EUR 2.7 million and amounted to EUR 15.1 million. The main impact came from Baffinland project, which we concluded in the fourth quarter last year, but we received payment in the first quarter this year. Last year, we didn't -- in the first quarter last year, we didn't have such impact. We received the money already in the year of 2022. Cash used in investing activities reflects the high investment level and was minus EUR 18.4 million. Free cash flow was minus EUR 2.3 million, because of investments, mainly. Cash from use in financing activities was minus EUR 5.4 million, which is EUR 1 million more than in the first quarter last year, and this includes the impact of higher [indiscernible] rates. And net cash flow was minus EUR 7.6 million which is EUR 15 million less than in the first quarter last year. And the main impact comes from investments. And net debt at the end of the period was EUR 148 million, which is almost EUR 60 million more than the first quarter last year. Last year, we had a higher level of cash in our bank accounts. It was almost EUR 50 million, this year, level is -- was EUR 20 million. The gross debt itself has decreased. We have an [indiscernible] amount of EUR 14 million during the year. And on financial position, cash on bank accounts reflects compared to cash flow compared to the year-end period, the noncurrent assets has increased because of investments and there was offsetting effect from [indiscernible] equity has increased in the amount of profit of the period and we paid back loans and reimbursed bonds in the amount of EUR 3 million. Therefore, the debt has decreased. But with that, I will try to conclude this presentation. We have some extra slides like all this about revenue and EBITDA generation, you can post them later, if you have any deeper interest and we will make a short break. We have some questions sent upfront. Then those questions, we will address at first, and then we will take questions, which you will submit throughout. We will be back soon. Thank you. [Break]

First question, which we received from the meeting or webinar. Please elaborate on the preparation for the reduction, state shareholding, how far are you in the process? Are the advisers working actively on this today? What is the target size to be sold? The state has announced that if it is ready to reduce shareholding to 51%, it means 60% of the equity -- and taking into account the current stock price, the amount of SPO would be about EUR 50 million. Regarding the advisers or the process, we are in the early stage. We have met some potential -- with some potential advisers, we are putting together or throwing up the schedule people be set or will be ready in the third quarter this year. And then it will be -- happened this or we see that the first time for it could be the second half of next year or even the year 2026. Why so? Because we see that we need to do preparations at first, of course, as the timing is important to show improvement of the results and also developments and good financial impact from growth projects. Second question, please give an update on the real estate project and the description of the business model. We hope that detailed planning process will be approved and the detail balance imposed by the city government by the end of this year. So right after the implementation of the detailed imposement of the detailed plans, we are ready to put up one tender regarding one block. And after that, we are going on with the landlord model during the next years, we see that the pace of the development -- development depends on the real estate market situation and how the market can absorb the new volumes or square meters. So it depends on the market situation.

The easier base scenario for 2024 cargo volumes to be in line with 2023. The answer is yes, by the results from Q1. And easier base scenario for this year's passenger volumes to be -- grow around 5%. Also answer is yes. We expect quite a similar growth around 5% by the end of the year.

Please give an update on the brand investments for 2024 and 2025. And also what is the normalized annual maintenance investment, excluding the growth projects? This year, we see that the investment level will be for about EUR 45 million to EUR 50 million. The main project is Paldiski South Harbour. In the Paldiski South Harbour, the new key -- but we have also seen that the smaller project construction prices have came down, and therefore, the investment level would be lower than we expected in the beginning of this year. Say, it will be between EUR 45 million and EUR 50 million. For the next year, we see that the investment level will be somewhere EUR 35 million, once again, mainly in connection with Paldiski South Harbour and the Helsinki in this harbor. And the regular or regular investments for maintenance have been about EUR 15 million per year.