AS Tallinna Sadam (TSM1T) Earnings Call Transcript & Summary

Good morning, dear investors. Welcome to our webinar about Q4 and the Full-Year results. My name is Valdo Kalm. I'm CEO for the company, and Andrus Ait is our CFO.

Good morning.

First of all, the main events as usually. In Q4, we had good growth in cargo volumes, 12%. And the biggest driver for that was dry bulk, then containers, also ro-ro. And it's important to mention that there was quite a good increase of ship calls around 18%. Also, we had quite a nice volumes in passenger business, both in Helsinki route and Stockholm, but in Muuga-Vuosaari, the growth was even 14%. And yearly basis, it reached 200,000 customers. Then we had quite a special cruise season, and we had a couple of cruises during the winter and Christmas time in our port, that's important. Hopefully, that will continue in next seasons also. And then we signed in Q4 agreement with JetGas for development of new liquid methane terminal in Muuga port. And we signed all the contracts and now they're preparing for the investment for the superstructure. In the end of 2023, we signed Finnish-Estonia Green Corridor between 2 ports, 3 shipping companies and 2 cities. And it's important to mention that in Q4 in our steering, we approved 19 joint projects that are quite concrete, how to develop port infrastructure, how to move and follow with different fuels for the ships. Therefore, I would call it quite a successful concept for the future. Also for us, it was important the launch of Tram line for the Old City Harbor. And now we can say that our passengers from A and D terminal started to use it. It's popular. It works well. And definitely, it's all about the customer journey, especially green journey to the port and out from the port. Also had some court cases and on positive side for us was that MPG AgroProduction bankruptcy was decided. That's important for us because it's now clear that there will be no terminal, and we would like to have our land back. Therefore, hopefully, it will show certain results during this year. Also, Tallinn District Court accepted the appeal related to the judgment regarding the former managers of Port of Tallinn. And I would like to also mention that in Q4 and for whole year, we had quite intensive efficiency plan, and we managed to decrease our operating cost. About trends in business segments. As we mentioned that in Q4 growth continued, even we had slight bigger increase of passengers and due to that also in revenues in cargo, we had quite a nice growth in Q4, but also on yearly basis, we had growth in all cargo types, except liquid bulk. Important is that the number of calls -- vessel calls increased not only in Q4, but also during the year. And our Ferry business did good quarter and yearly basis achieved record numbers of passengers and vehicles. On the other hand, we have mainly Botnica activities. There we had a little bit smaller charter days. But yearly basis, we achieved basically the last year's level. Here are the more precise volumes, as we mentioned about strong Q4, but it will continue also -- continued all over the year. And I mentioned that Muuga-Vuosaari shows quite a good trend. On Cargo side, all the different cargo types made increase except liquid bulk, and that's important that our biggest cargo types as ro-ro, dry bulk and containers showing the growth and hopefully, that will continue. Ferry business made a good year, record number on passengers around 2.4 million and 1.2 million vehicles. That shows the increasing demand of the service. And on Botnica activities, we managed to almost keep the charter days as in 2023 and even better revenues due to the higher daily rates. About [ future ], we believe that the passenger business will recover. We see quite a good development from the beginning of the year in our regular international business, I mean Helsinki and Stockholm link and also have bigger numbers of cruise bookings for this period than last year. Therefore, we believe in recovery. Still very important to have new ro-ro and container lines in our ports. And from the 1st of February this year, new container line so and they started to operate regularly from Muuga to the Rotterdam direction entering many important ports in the Baltic Sea. That's the, how to say, new regular start. We introduced via our marketing campaign, Industrial parks already 2 years ago. Now we launched the new concept, Industrial parks 2.0 to promote our parks in Muuga and Paldiski. We still have free space, and we are very interested, especially on manufacturing companies. And therefore, we have such a special program for different associations for different conferences. And we hope that there is a momentum, maybe find new investors, again, more interested in production side to our industrial parks because we have still free space here. On our main development or investment to Paldiski Harbor goes as planned. We believe that we will finalize the investment in the beginning of next year. And just remind you that we believe to this offshore wind farms business more globally, we're doing the investment to serve whole Baltic Sea, not only the Estonian or Baltic coastline and then we need the new key for ro-ro development from military purposes. Therefore, we just doing our job and the investment goes as planned. In our mind is still new possibilities for multi-functional offshore vessel. The market is just now very interesting. The daily rates are high and we're really thinking about multi-functionality on this vessel. We have first design on a table. We're investigating the markets. There is no decision yet, but there is still a big opportunity for the growth. Hopefully, this year will be quite active also to start our real estate business. Hopefully, we will test the market with first plots for the developers. The overall market on real estate is not good, but I guess if to start with small pieces to test the market, that's the right thing to do. Therefore, we are quite optimist to really launch something this year. Then there is ongoing preparation for reducing the state shareholding and to issue the new shares. It's now up to government decision. Everything is prepared, let's say, what the nearest future shows. And it's still on a table every day's efficiency. Last year, we had quite a good result. For this year, we have another efficiency program. And that's, I guess, important to follow. With that, I would like to give to Andrus about the financials.

Thank you, Valdo. So these are the financial results of the group for the fourth quarter and 12-month period. The results were strongly impacted by higher number of passengers. Also cargo volumes increased due to that, we had more cargo vessel calls in our cargo ports and all this led to the better financial results. And in the Q4, the results were even stronger than the year average. The revenue increased in the fourth quarter 2024 by 2.7% to EUR 28.8 million. The growth was supported by higher cargo volumes, due to that we have the more vessel calls and the revenue increased from vessel used and also cargo charges were higher. Like I said, more passenger due to that, we have more passenger fee also increased. We had also 2 revenue streams, which decreased in the fourth quarter. One of them was charter fees as our icebreaker Botnica was chartered out fewer days than in the Q4 2023 and also sale of electricity revenue decreased because of lower electricity price. Adjusted EBITDA increased by 18% and amounted to EUR 12.2 million. The increase here was supported by higher revenue and operating costs in addition also decreased mainly because of the lower tax expenditures, especially land tax, which decreased because of the lower tax rate, which was imposed from the beginning of 2024. And also the electricity costs were slight lower. Personnel expenses increased only 1%. So basically, they remained stable. So altogether contributed to the better EBIT in the fourth quarter. Adjusted EBIT margin increased by 5.5 percentage points to 42.5%. We didn't pay any income tax because dividend payout was in the second quarter and profit for the period increased by 50% up to EUR 4.3 million. And in the fourth quarter, the net finance costs were also decreased because the Euribor has decreased compared to the Q4 2023. And from that, we had also a positive impact. In the Q4, we invested in 2024, EUR 5.4 million. The main investment project is still the key construction in Paldiski South Harbor and in the fourth quarter, we also replaced one main engine of our -- one of our ferries. It was nothing extraordinary. The engine needs to be replaced after a certain number of working hours. So this was planned work and therefore, the investment. In the fourth quarter -- in 12-month period, the revenue increased by 2.5% up to EUR 119.6 million. It is good to say that the revenue increased in all our revenue streams. The main positive effect came from ferry services where the revenue increased due to indexation of variable part of the contractual fee, and we made also a bit more trips. In the beginning of 2024, we started to provide port services to Paldiski -- sorry, Pakrineeme LNG and therefore, the revenue from other services also increased. Despite of the lower number of charter days, the revenue from Botnica activities also increased as the daily rates for the chartering increased. Also, lease income increased due to the indexation of rents and receipts from write-offs appreciation. And of course, due to the higher cargo volumes, the cargo charges increased and also passenger fees increased. Adjusted EBITDA increased by 8% and amounted to EUR 53 million. Like in fourth quarter, during the 12 month, the operating cost also decreased. The reasons are quite similar. We had to pay less land tax, but also all the other operating costs were quite stable. There was cost items which decreased and cost items which increased. For example, last year, we had elevated costs in connection with the Botnica summer projects as we had to rent special equipment. This year, we didn't with -- in 2024, we didn't have those costs. But we had extra repair cost in 2024 as we had technical problem with Botnica in this summer. And also the cost of upkeep and cleaning of port infrastructure increased a bit. Personnel expenses increased 2%. But at the same time, in connection with the efficiency measures, the number of employees, average number of employees decreased by 5%. Adjusted EBITDA margin reached almost to the level of 45% and increased by 2.2 percentage points. Operating profit increased 18% and amounted to EUR 28.1 million. Last, in 2023, we had also extra depreciation costs in connection with one-off write-off of the noncurrent assets as the threshold for recognizing the assets as noncurrent was increased. In 2024, we didn't have such impact. So from that, we had some EUR 600,000 positive effect to the operating profit. Income tax in 2024 was EUR 3.1 million, which is similar as in comparative period as we paid out equal amount of dividends both years. And profit for the period increased by 21% to EUR 19.2 million. Profit was also impacted by higher net finance costs as in 2024, the Euribor level was higher. So due to that, we paid more interest in amount of the increase was in amount of EUR 1.2 million. And in 2024, we invested EUR 38.8 million, which is EUR 18 million more than in 2023. The main investment project was the construction of Paldiski. In connection with this project, we invested about EUR 32 million. In addition to that, we constructed a ramp in Muuga Harbor to serve better container ships. In Old City Harbor also we constructed ramp and key. And in Ferry segment, we made docking works for 2 of our ferries. Those were regular docking works. And in the fourth quarter, we replaced the main engine for one of our ferries. Moving on with results of the segments. In the fourth quarter, revenue and EBITDA increased in 3 segment out of 4, the strongest growth was in cargo harbors because of higher cargo volumes and more cargo ship visits in cargo ports and EBIT increased even more than revenue in cargo harbors because the lower costs impacted mainly the cargo harbors. In passenger harbors, revenue increased by EUR 200,000 because of higher number of passengers and the same impact was also in EBITDA level. In the Ferry segment, revenue increased in the fourth quarter because of indexation and the same growth was also on EBITDA level. In segment Other revenue decreased by EUR 400,000 as Botnica was rented or chartered out less days. This is involved with Canadian project, which we -- where we participate in [ every ] autumn. In 2023, there was extended charter period, but this -- in 2024, the period was like more normal and due to that, the revenue decreased. But the drop in EBITDA level on EBIT level was lower. So in connection with more charter days in 2023, we had also more costs. So in 2024, the EBITDA decreased less than revenue. On 12-month period, we see that the revenue and EBITDA increased in all our segments. Once again, the strongest growth was in Cargo harbors. The reasons are similar as it was in the fourth quarter. In the passenger harbors also revenue increased because of mainly higher number of passengers. And just a reminder, in the first quarter, we had less vessel calls in passenger harbors because of [ talking ] works, one of the ships which are regularly operating between Italy and Helsinki, due to that, we had about 19 visits less in the first quarter. So this impacted the vessel use revenue negatively. But I would like to say that when we take this out, the growth would be even higher in passenger harbors. And in the Ferry segment revenue increased mainly because of the indexation, a bit also impact from the higher number of trips. EBITDA increased in euros a bit less because in the first quarter, we had severe ice conditions due to that, we had higher cost for the fuel and also port dues in the Ferry segment increased, which impacted the costs negatively. In the segment Other, it is despite of the fewer charter days, the revenue increased because of higher daily rates and also EBITDA increased. So this year, we had one-off impact from the repair works at the summertime in 2024 -- 2023, there was impact as we rented extra equipment for the ship. So they offset each other and the costs were quite equal. On cash flow side, we see that cash from operating activities increased by EUR 4.8 million, mainly because of higher revenue, the receipts increased and at the same time, in connection with lower cost payments to the suppliers decreased. Cash used in investing activities was minus EUR 45 million, mainly because of high investment level. In addition to that, in the fourth quarter, we received EU grant money in connection with the Paldiski South Harbor construction and EU military fund supported us with EUR 50 million. So from that, we had positive impact. And in fourth quarter, we also deposited EUR 22 million with maturity exceeding 3 months. So from that, we had negative impact for this growth. So altogether, cash used in investing activities was minus EUR 45 million. Free cash flow was EUR 3.3 million and cash used in financing activities was minus EUR 15.8 million. During the year, we took into use new loans in amount of EUR 30 million. But at the same time, the repayments of previous loans also increased a bit and interest cost and expenditures were higher. So therefore, in total, the increase here was the positive effect in this row was plus EUR 25.6 million if we compare the 2 years each other. And net cash flow was quite similar minus EUR 12.5 million compared to the minus EUR 14 million in '23. And net debt at the end of the period increased mainly in connection with higher -- with the new loans. And on financial position, cash on bank accounts decreased in connection with investments and also we deposited more than EUR 20 million. So therefore, other current assets increased. And noncurrent assets increased because of investments, which are higher than the annual depreciation. Debt increased because of new loans and other liabilities grew due to the EU support money. And equity was similar at the end of the year because we paid out dividends EUR 90 million. At the same time, the profit for the period was also EUR 90 million. So altogether, there was no change in equity. So this is all from our side. We have some extra slides about revenue generation and EBITDA generation. If you have any deeper interest, you can browse them later. The presentation is uploaded on our website. With that, we will make a short break, and we'll be back in couple of minutes to answer your questions. And we have also some questions sent upfront and those questions we address at first. So see you soon in a couple of minutes.

I think, we've come back. So we go on with the questions. The first question is regarding the EU support money in connection with the Paldiski construction. Is the remaining EUR 5 million of the European Commission support of Paldiski expected to be received in 2025? Actually, EUR 5 million -- EUR 15 million we received in 2024 and remaining EUR 5 million we already received before we started the construction. So all the support money we have already received, it means that there won't be any additional receipts from -- in connection with that project from EU support funds.

The next question, could you comment on dividend proposal and why you are not proposing 100% payout for '24 to the Supervisory Board? It's really so that we are capable to pay more than 70% from the profit. Last year, we did that. But again, it's Supervisory Board and annual meeting decision. But yes, our long-term strategy is pay out a very stable dividends even in amounts. Therefore, there is a potential to pay more. Next question. What is the level of investment in 2025? And how could it be distributed between Paldiski and other investment? This year, our investment level is EUR 35 million and about 70% from that is Paldiski. What could be annual rent or EBITDA effect from new Paldiski when ready? We can't comment it very precisely because we are in the tenders and in the negotiation, but I would say that it's quite the big effect and quite significant. Thank you.

Yes, it seems that there are no additional questions. So, sorry.

Sorry, we're refreshing the screen and there is some additional questions. All right. What could be the net effect for the company's cargo volumes if Russian scenarios could be removed?

[indiscernible] removed.

Yes, that's very difficult question, even political. Of course, super structure is there. There are capacities, but it's very difficult just now to comment on that because of any clear signs what could be the solution.

Yes. Do you have already funding for the possible service vessel, how it will be funded? No, we don't have yet any funding for that project as we haven't decided this project yet, but probably it will be financed by additional loans and also with equity. So of course, we estimate the future cash flows and also the investment and if it's profitable and doable for the company, so then we enter to the project. So we hope that we can give any additional information by the end of this year.

Thank you all for the attention, for the questions and good luck for the future.

Thank you.

Bye.

Goodbye.