AS Tallinna Sadam (TSM1T) Earnings Call Transcript & Summary

Good morning. My name is Valdo Kalm. And our CFO, Andrus Ait, to my right, we both are ready to comment results from Q1. And as usually, we will start from the main events from first Q. And here we are with that. The most important thing is that we had quite a nice increase of vessel costs in Q1, and it mainly came from Cargo side, but also we had growth on passenger vessels. Good news is that we got new contracts and new container -- regular container line to Muuga Harbour, Ocean Network Express, ONE. Started to operate in February. And we had a long-term charter agreement with Baffinland for the Botnica. But this year Baffinland doesn't need Botnica, although we have a couple of jobs in pipeline, and if there will be concrete decision for summer and the autumn period, we will report that immediately. Also, as you know, we heavily supporting Rail Baltica and Rail Paldiski station to Muuga Harbour. And there are already many concrete steps ongoing. And in January, we signed agreement with Rail Baltica and government body for sales of 8 properties in Muuga. Especially these properties needed for the railway station and for railways in Muuga area. And effect financially will be in our P&Ls this quarter. The good news is that we got insurance income and money from icebreaker Botnica incident happened last year in Q3. It's almost EUR 1 million, and that's included in Q1 balance sheet. Trends in segments. In Q1, we had slight decrease of passengers. There is heavy competition between the operators. And we believe that this year we will still see the continuous improvement of passengers. Good news is that, as we had 4% vessel calls, then also we have seen growth in revenues in this segment. Cargo had stable volumes, but due to the nice increase of vessel calls, we also had revenue increase. The biggest growth came from liquid bulk this quarter. And containers had stable volumes. Slight increase in ro-ro. Our local ferry business shows stable development. And same for the Botnica winter job here in Estonia. Here are the volumes from Passenger harbours business. Again, most important thing that there is very stable or even increase in vessel calls, of course more than 50% of our revenues coming from port use. And on Cargo, as I mentioned, stable, almost stable in Q1. And again, important is the increase of vessel costs in Q1. Shipping shows in ferry segment also stable numbers and revenues. And in Botnica also stable charter days. Last year it was little bit smaller, but due to the good charter fees, we had last year also increase in revenues. It depends very much on the charter fees, this business. Future outlook, as I mentioned, we believe in Passenger business recovery. Basically there are two reasons. One, we believe that heavy competition will help between the 3 operators. I mean, Tallink, Viking Line, Eckero Line. There are quite many different packages on market available for different segments. And then we had also increase in cruise ships for this year, about 10%. We believe that that will happen. And then we will see bigger number of cruise passengers also. Very important to continue with ro-ro and container lines as we had in Q1. Last year we also had express feeder, new regular container line to the Muuga. We are negotiating container lines and ro-ro lines continuously. And we believe to have some new contracts during this year also because then we getting additional revenues and profits immediately without any additional cost or investment from our side. We started last year with a new campaign on industrial parks, and the aim is to specially have new industrial, I mean, producers due to Muuga and Paldiski Harbours to our industrial parks. Our multifunctional key development in Paldiski goes as planned. And we believe that if it will be ready as planned Q1 next year, then we will have revenues immediately on the key because it's multifunctional. We have still under negotiation many possibilities on Baltic Sea wind farms. But of course we need extra resources for ro-ros. And we continuously study the business plan and the need for multifunctional offshore vessel. There are some new tasks for this kind of offshore business. For example, as you noticed, there are a lot of things happening around the cables. There are two types of cables in offshore business, electricity and telco cables. Therefore, we really try to understand what is the functionality for such offshore vessel to build or buy this one. Maybe we will have certain final decision by end of this year because it's a big investment. We really have to understand better the market and changes in the market conditions. And then we now are in a quite a final phase of preparation of real estate business model. If everything goes well with detailed plans, then we would like to have 2 areas detailed plans fixed this year. And then we definitely will introduce the plots to the investors and to the market. And efficiency, efficiency, efficiency, is still on a table, we will continue. Last year we managed quite well to lower and keep the cost level. That's valid for this year also. Now I would like to give floor to Andrus.

Thank you, Valdo. Here are visible the financial results of the group for the first quarter this year. Cargo volumes and the number of passengers decreased slightly in the first quarter. However, the revenue, adjusted EBITDA and profit for the period decreased. The increase in revenue was 1.5%, and the revenue amounted to EUR 28.4 million. The increase is attributable mainly to a higher number of vessel calls, both in Cargo harbours and in Passenger harbours. And also the cargo charges increased. To explain the higher number of vessel calls in Cargo harbours, there were bigger ships and also the cargo volumes were quite stable. And we had some new ro-ro lines. So this is the main -- sorry, container lines. So these are the main reasons. And in Passenger harbours last year Finlandia was out of the line for 1 month. So this was the reason for the Passenger harbours. So cargo charges increased despite the drop in cargo volumes. Last year we adjusted or corrected the cargo charges downward because we expected lower cargo volumes for the entire year. And this year we didn't make such kind of correction. This correction was made according to the accounting rules IFRS 15. So this is the main reason why this year the cargo charges are higher than last year. Also there was increase in lease income. And also the revenue from the right of superficies also increased. Adjusted EBITDA increased by 9.4% and amounted to EUR 13.9 million. Increase was EUR 1.2 million. It is mainly attributable to the lower operating expenses, with maintenance, repair costs decreased the most and there was the impact from the insurance indemnity from Botnica incident. The incident itself happened last summer, during the summer charter work. After that, we carried out the maintenance and repair works. And the situation was handled by us, insurance case. And this year, in first quarter, we received indemnity payment of EUR 900,000. In addition to that, the planned regular maintenance and repair works were also lower. This also decreased expenses. And we had also lower fuel costs in the first quarter compared to the last year same period. But personnel expenses increased. We decreased the number of employees according to the efficiency measure. And due to that we had severance payments. So this was the one-off impact. Also there was increase in bonus reserves and also the average salary across the group has also increased a bit. Adjusted EBITDA margin was 49.1%, mainly because of lower costs and because of the insurance indemnity, but also the other costs decreased and the revenue increased. In the first quarter, we didn't pay any dividends, income taxes related with the dividends. So we usually do this in the second quarter. This year, it will be similar. We pay out dividends this Friday on 16th of May. And so the income tax will be recorded in the second quarter. Profit for the period increased by EUR 1.6 million, so more than 30% and amounted to EUR 6.8 million. Here we can also bring out the impact from the finance costs. As [indiscernible] has decreased, the finance costs decreased also by EUR 0.5 million. In the first quarter, we invested EUR 3.6 million. Last year, the investment volume was almost EUR 18 million. The main project is continuously the key construction in Paldiski. This year we had also drydocking works for 2 of our ferries and we made also some IT investments. But last year, to explain the decrease here, last year, the first quarter was -- the investment volumes were very high because there were some filling works in connection with the key construction and we also brought some materials in advance upfront. So therefore, the investments were higher. This year, the main investment volume will be in the second quarter in connection with the Paldiski construction. So this is -- I would like to emphasize that the construction works go by the plan and there is no delay. When we look at the results by segment-wise, we see that the revenue increased in passenger, cargo and ferry segment and there was a slight decline in segment other. In Passenger harbours, more vessel costs, therefore the increase, and due to the Easter holidays which last year were in the first quarter, this year, they were in the second quarter, we had less passengers. And the passenger fees decreased, but the increase in vessel use was higher. Also the sale of electricity increased a bit and also rental income increased. And EBITDA was stable in the first quarter in Passenger harbours. In Cargo harbours, revenue increased also because of the high vessel use. Cargo charges increased. And also rental income increased. But EBITDA -- adjusted EBITDA in Cargo harbours decreased because the one-off effect from the -- due to the fact that we decreased the number of employees impacted this segment the most. And also we made less repairment -- sorry, more repairment and maintenance work this year than last year in the first quarter. So this also impacted the adjusted EBITDA. In ferry segment, the revenue, there was a minor increase because of indexation, and costs decreased significantly because of lower fuel costs. Last year in the first quarter, we had quite tough ice conditions. Therefore, the consumption of the fuel was higher and also the fuel price this year is a bit lower than last year. So all in all, it resulted lower costs in ferry segment. And in the segment other, revenue decreased a bit because of the leap year last year. So we had 1 charter day less than last year, but adjusted EBITDA increased significantly because of the insurance indemnity and also the regular and planned maintenance works this year for Botnica were lower than last year. On cash flow side, we see that cash from operating activities increased by EUR 4.2 million, amounted to EUR 20.3 million. And this reflects the higher revenue and lower costs. So the receipts from sale increased and payments to the suppliers decreased. Cash used in investing activities, here we see a decrease. So this is in line with the lower investments. But this year we also received grant money from EU project TWIN-PORT 4. This project was completed already last year. In this project we built a 2-story ramp, for example, in Muuga and also renovated ramp in Old City Harbour. So the project was successfully concluded last year. And this year, we received the final payment in amount of EUR 2.5 million. So this impacted this row positively. The free cash flow was plus EUR 19.8 million and increase on this line was EUR 22.1 million. Cash used in financing activities also decreased because of lower finance costs. And last year, in the first quarter we had also higher loan repayment in connection with the loan agreement which ended over the last year. So this year it was the final installment. So this year we didn't have this repayment and therefore a positive impact from that as well. Net cash flow for the period in first quarter was EUR 17.7 million, which is plus EUR 25.3 million compared to the Q1 last year. And net debt at the end of period is quite similar than last year. Net debt at the end of the period was EUR 149 million. Cash on bank accounts has increased, but at the same time also the gross outstanding debt has increased, but the increase here was only EUR 1.4 million. And on financial position, we see that due to the positive cash flow, cash in bank accounts has increased, noncurrent assets decreased a bit compared to the year-end period because the investments were lower than amortization for the period. Equity was impacted by profit for the period and debt is quite similar than at the end of the last year. So this is all from our side. Like always, there are a few slides about revenue generation and EBITDA generation. You can study them later if you have any deeper interest. Now we will make a short break. Please submit questions through Teams, and we will be back in a couple of minutes.

So we are back. We have received 3 questions. So I start with the first one. Would it be possible to quantify the impact of Baffinland not using the option for Botnica in Autumn 2025? So the impact on revenue level is for about EUR 3 million, so -- but we still are hopeful that we can replace the work with other charters. So the negotiations are ongoing and we are positive on that. Second question. What are planned investments for 2025? And has there been any changes to the long-term investment plan? No, currently, we don't have any changes in long-term investment plans. The total investment will be in this year EUR 30 million to EUR 35 million, EUR 20 million to EUR 23 million of that is related to the key construction in Baltic Sea and the other are mainly the maintenance investments to improve the keys and port facilities.

Right. The next question, Please give an update on the planned sell-down by the Estonian state. When can we expect it to happen? The status is quite similar. It's still valid that we prepared together with the Minister's plan, project plan, how to say, and it's really up to the government now, then they will prioritize it and take to the government meeting for decision, we are basically ready to discuss it. And as we said earlier, that will happen not earlier than end next year or even beginning '27. Thank you.

So we are updating the questions. So it seems that, right, there are no more additional questions. Then thank you for watching and see you next time.

Thank you for interest and see you.