AS Tallinna Sadam (TSM1T) Earnings Call Transcript & Summary

Good morning, everybody. Welcome to our webinar room. My name is Valdo Kalm. I'm in charge of the group.

Andrus Ait, I'm the CFO of Tallinna Sadam.

All right. As usually, we will start from main events from Q3. And we have had quite a busy quarter and most important, I would call also good news is the growth of cargo volumes. In Q3, there we have seen growth in all cargo types altogether 7%. Also, we have seen growth in 9 months, but important is that there are also more ships calling in. Also we had first green type of the vessel in Muuga, and X-Press Feeders launched a new methanol vessel. It now runs on biomethanol, and they made their first trip in Q3, and they will continue. And they also promised to bring another -- or next green vessel to our terminal. Also have had increase in passenger volumes. Q3 was quite good in Helsinki route, also in Stockholm route because of the 2 vessels in Stockholm. And we believe that the volumes will increase further on. Very important for us was the signing, the ferry service agreement for the next period. And of course, that's important for the group, but for TS Laevad also. I guess the conditions that we signed are good for us. There is a possibility. Now for investment to gain more efficiency, I mean, we are thinking about the new hybrid or totally electrical vessel for Saaremaa Link, and also Regula made additional trips, did a good job during Q3 also. Icebreaker Botnica had 2 contracts for the summer period. First was with BP, but unfortunately, due to the technical reasons, the contract ended earlier with BP, but now Botnica is in a good order and already worked for our main partner in Baffinland very well. The period is already ended. Therefore, also Botnica is in a good shape. Of course, this affected or it affected our Q3 results because of extra cost. But if you take 9 months charter days, then we basically had the same number of charter days as last period. We got EU funding for our TWIN-PORT VI. That's really good news because the funding says that it's 50% for the design and construction of onshore power in Muuga. Excellent news, and we're already designing the electricity connections in Muuga Port. Then we signed unsecured loan agreement with Swedbank with better conditions. And there are some court cases. First of all, that was the termination of MPG AgroProduction, reorganizing proceedings and following bankruptcy proceedings. That's good news to follow with bankruptcy proceedings. And hopefully, we will see the end of the process. And then we appeal to Harju County Court decision in relation to our old Board members. And we're working still with efficiency describing the processes and due to that, that we digitalized some of the part and then reengineered. We also managed to decrease the number of employees by 6%. The main trends by segment. As I mentioned, Q3 was strong or good also in the Passenger side and not only capacity number increased but also the vessel calls and then the revenue. And on Cargo side, we had increase in all types of cargo. Also, there is -- there was increase in vessel calls and ended with higher revenue. Ferry business shows a very stable development, with a small increase in passengers and vehicles. And Botnica segment or Other segment, we already described. We had a shorter period, but we started earlier with this BP project. And all in all, we had the same charter days in 9 months than last year. There are numbers on Passengers business, Q3 and also we have a growth in 9 months. Important is the number of ship calls. And on Cargo side and also growth in 9 months. Our Ferry business shows stable a development, a small increase. And Botnica, we mentioned and described already future outlook. We believe that the Passengers business will recover and that will continue. So also, we see the bookings for cruise vessels for the next period, but shows also increase. And as we mentioned, there is a new container line in Muuga. We believe that there is room and space in Muuga also for ro-ro. If we will see the continuous growth of ro-ro, then we believe there is room for additional line. Developers shows interest also in our offshore wind farms, base quay and harbor, and the development goes well. As we mentioned last quarter, then we will be ready in last year or beginning of '26. And we made 3 international offers. Then we're preparing for the real estate business model. We are quite close to announce the tender, but it depends a bit on market situation because there are a lot of development ideas about business real estate, and therefore, we have to follow market. But basically, I guess, first half of next year, we will have some [ good ] tenders for development -- developers. And we're preparing, and we have the plan together with our main owner to reduce the state's shareholding, but it's really up now to our minister who had to bring the topic to the government. And hopefully, we will have some news even this year. We're working on efficiency, and we're working with our industrial parks. We are very active on finding the new operators or customers in Muuga Industrial Park and in Paldiski. It's interesting time. There are 3 serious projects ongoing in Muuga and 2 in Paldiski. If there will be some news with concrete contracts, then of course, we will let you know. Yes, please, Andrus.

Thank you, Valdo. And adding on with the financial results. The group results in the third quarter were strongly impacted by higher cargo volumes. Also, the number of passengers continued to grow. But on the one hand, only negative impact being from the Botnica operations as the ship was chartered out for less days. So all those factors impacting our financial results. Revenue in the third quarter decreased by 0.7% to EUR 31.2 million, which is about EUR 200,000 less than last year. Positive impact in the revenue came from vessel calls as we had more vessel calls, both in Cargo harbours and in Passenger harbours. Also, passenger fees increased based on the higher number of passengers. Cargo charges also increased in connection with the higher cargo volumes. And we had also a bit higher revenue from the Ferry operations, and rental income also increased. But the negative impact from breaking operations was a bit higher than the [ first Q ] impacts from our revenue streams. Adjusted EBITDA decreased by 1.7% to EUR 13.3 million, with the drop we see in euros, that's something [ as it was ] in revenue. So we can say that the costs are -- first level was back year-on-year basis. Operating costs, there was controversial impacts inside the operating costs. We had extra repair and maintenance costs in connection with the Botnica incident. But at the same time, we have managed to decrease the maintenance costs in the Cargo harbours. And also, a positive effect came also from the lower land tax as the tax rate was reduced in the beginning of this year. Adjusted EBITDA decreased by 0.4 percentage points to 42.6%. Operating profit was about EUR 7.3 million, and it's in euros similar as in revenue level, so the general impact came from revenue. We didn't pay any dividends in the third quarter, so we didn't have any income tax. And profit for the period was EUR 5.6 million, which is 6.5% less than in the third quarter last year. Now it's a bit higher than it was [ many times ] euros. So we have also higher interest expenses this year based on the higher euro [ book ]. In the first quarter, we invested EUR 8.4 million, which is 77% more than last -- in the third quarter last year. The main investment project like in previous quarters was the quay construction in banks for South Harbour. This -- in the third quarter, we also reconstructed on the quay in the North Harbour. On the 9-month period, revenue increased by 2.5% to [ EUR 90.8 ] million. The increase in euros was [ EUR 2.1 million ]. The positive effect came from ferry operations, from rental income, because sale of electricity was higher. And a 9-month period, the revenue from working operations also increased by 10% because we had a very strong second quarter, and the summer charter this year already started in May. Last year, it was in June. And positive effect from the second quarter was stronger than the negative impact from the third quarter. So all in all, working operations showed higher revenue. Adjusted EBITDA increased by 5.4% to EUR 40.9 million, [ this includes AS Tallinna ] revenue to EUR 2.1 million. So -- because our 9-month period also flat, there was a slight decrease in operating costs and a slight increase in personnel expenses. But at the moment, the cost level was mostly flat. Adjusted EBITDA margin increased by 1.2% [ points ] to 45%. Operating profit was EUR 23.2 million, plus 16%. It's a bit increase since here is a bit higher than on EBITDA level. Last year, in the first quarter, we had one-off extra amortization costs as we write off some fixed assets in accordance with changes in legislation as the threshold for recognizing the assets as fixed assets was increased. So last year, we had elevated cost level. This year, we didn't have this impact. And the income tax gains was EUR 3.1 million in profit for the period 9 months -- for 9 months was EUR 14.9 million. The increase was 14.1%. We invested EUR 33.4 million, which is threefold as much as last year. So the main domestic project this year have been the quay construction in Paldiski. We're ready to serve the offshore wind farm construction and maintenance. In the third quarter, we construct the one quay in Muuga and more passenger cargo we constructed in Q1, and we had also the first half of the year Regula talking about [ one-off ] our tariffs. The results in segment terms, you see that in this third quarter, both revenue and EBITDA increased in Passenger harbours, Cargo harbours and the Ferry segment. And the negative impact was attributable due to Botnica operations in the segment Other. Now in the Passenger harbours, revenue increased based mainly on a higher number of passengers and more vessel calls. In Cargo harbours also, we had more vessel calls in connection with cargo volumes, so we see more cargo charges. The Ferry segment, that their increases attributable to the indexation. 9-month period, our [ gross ] revenue and EBITDA increased in all segments with one exception, in the Ferry segment with the revenue decreased about EUR 100,000. The Ferry segment, maybe the drop was in connection with higher -- with severe ice foundations in this quarter. We have higher net fuel costs this quarter. But the revenue has increased due to the indexation in the Ferry segment. Passenger harbours the revenue increased a bit due to the revenue from the sale of [ the requests ] and also the rental -- the rental income has increased. In January, one of the regularly operating vessels, Finlandia was docked and [ the vessel was absent from ] the strong third quarter also we see that [ similar ] impact. In Cargo harbours, the revenue also has increased a bit because of higher rental income because of [ this support of ] the third quarter as the cargo volumes showed [ higher ] growth, and also we have more vessels calls. But the growth on [indiscernible] has been even [ higher ]. This is the result of the efficiency measures that we have made [ less maintenance and repair boats ] this year from last year 9-month period. And the segment Other as already mentioned, [ breaking ] from Botnica operations increased 10% despite the technical issue in the third quarter, and also the EBITDA increased in the same extent as on revenue level. On cash flow side, cash from operating activities increased, indicates the higher revenue, and payments to suppliers were also lower. Cash used in investing activities affects the high investment level this year. It was minus EUR 32.9 million. Free cash flow was EUR 7.4 million while cash used in financing activities, minus EUR 15 million compared to the money [indiscernible] last year. Maybe this year we've taken a loan -- unsecured loan of EUR 20 million. And we also made no loan repayments on last year and also interest expenses were a bit higher. So the total impact from financing activities was minus EUR 15 million. And the net cash flow for the period was [ EUR 7.6 ] million. And net debt in the period increased by almost EUR 19 million. It's -- to explain that, we have this specialty bank accounts, [indiscernible] September last year. And the financial position [ cash in ] bank accounts increased in connection investments also where the net number of assets increased due to the investments. Debt has also increased [indiscernible] [ 9 months ] period. So that's all with the slides. But always, we have some extra slide about the revenue generation. We won't comment on this. Our presentation is available on our website, and if you're interested, you can [ investigate later ]. And now we will make a short break, and we'll be back in a couple of minutes to answer your questions. Thank you. [Break]

All right. Let's continue with the questions, what we have...

The first question is regarding the IRR, which we use in our project increment -- internal rate of return or [ book of calling ] usually what we take into account in the project is about the percent of [indiscernible].

Right. And that's what we will try to follow. All right. A couple of questions about the Paldiski offshore wind farm port. When the Paldiski wind farm base port is expected to start generating actual revenue for the Port of Tallinn. Hopefully, we will be ready by the beginning of '26. I guess, then -- by the tenders that we have had so far. And we made [ free ] offers already. We hope that there will be revenues and then the profits from '27. That means we need some, of course, documentation and, how to say, warming up the quays. But yes, hopefully '27, we will see the concrete revenues and profits.

Now we had some questions sent from email. So we'll comment on those questions.

When the construction of offshore wind farms planned in Baltic Sea region, specifically within Baltics. And when could the Paldiski Port will generate the real turnover? Just -- I answered to that. But in Baltics, we hope that the first offshore wind farm will start in Lithuania. And therefore, it's still a very interesting and exciting region for us. What is the alternative use for the Paldiski base port if the offshore wind farm should not go into the operation, whatever reason? Honestly, we're building this quay for dual use. We have already concrete customer that's Minister of Defense with serving the NATO, the troops and ships and vessels. But honestly, our Paldiski Port is very busy. We can't take any regular ro-ro line to our port because all the quays are occupied. If there are really very long delays or postponing of the contracts for offshore wind farms, then we definitely can use a quay for ro-ro and to find operators there. The government of Sweden has rejected some of the offshore wind power projects in the Baltic Sea. Will there be some effect for the Paldiski investment? Or are you going to postpone the investment? We see there are some effect. But honestly, so far, we have not made any offer in the tenders to Sweden. We did [ free ] offers to other regions. And therefore, we don't see such a huge effect. They rejected only the part of the plans, not totally, and of course, Sweden is also interesting country, but there are other areas to build and then maintain. And as I already mentioned, the quay what we just now constructing is [ dual per use ]. That means we can use their very, very good ramp. We can use it for military. And then for the ro-ro. Therefore, we are not going to postpone the investment, and we believe that there is many possibilities to use the quay and also backyard of the quay. All right. There was a question about DBT. That's the fertilizer operator in Muuga. Do you see that there are risk of bankruptcy? Or what are the other alternatives? Honestly speaking, we don't see the bankruptcy case at least yet. Of course, we don't believe there will be a transit of fertilizers during the war. It's not possible, definitely. And at the same time, there are already some -- or they're not the transit business, but some other fertilizers business going on, a big Norwegian operator came in and operating via Muuga. Therefore, let's see. But at least now we don't see any bankruptcy development on DBT.

Next question regarding the vertical operations in the third quarter. [ And there was ] so much negative impact on operating profit this quarter was from the early termination of the BP project and also from the repair costs. So the total impact was about EUR 2 million, EUR 2.5 million. So it came from lower revenue and to the repair costs. Can you expect the European Commission in the [ grant money ] recognize the [ cash post ] this year? Yes, we have some signs that [indiscernible] received some grant money or in this year. Just to remind that the support -- the EU support from the EUR 10 million of the EUR 20 million, which is the project cost provision, 50%, and some part of [ EUR 10 million ] still probably in December of this year. And the last question, how much the growth EUR 33 million of investments made in the 9 months is related to the quay construction in Paldiski? So about EUR 29 million of total investments were made [indiscernible] Paldiski project [ during the 9 months ].

All right. Then thank you for your questions. Thanks for attention and all the best.