TTS (Transport Trade Services) S.A. (TTS) Earnings Call Transcript & Summary

Hello, everyone, and welcome to the video conference related to the annual report of TTS. I believe we are going to start with a brief presentation, after which we are going to move on to your questions. Now let's try to show you the presentation on the screen. As I stated, 2024 was a difficult year in terms of market conditions. In our estimation -- as per our estimation, it was unprecedented, at least in regards to a reasonable time horizon for our analysis. There were 2 good flows that led to this situation, namely flows coming from Ukraine, agricultural goods that almost completely disappeared in 2024, coupled with the fact that agricultural product flows from the Danube Basin were low due to market conditions, which were bad and the farmers did not sell their product. And on the other hand, there was also a diminishing, significant diminishing in terms of raw materials, metallurgical raw materials due to the decarbonization policy of the European Union and lack of an industrial policy at the level of the European Union. In what concerns offers, we had a -- over-offering in terms of transport services. All of the flows from '22, '23 led to an excess in terms of fleet availability. And as a result, demand started to decrease. And of course, there was an overflow in terms of what we offered. Prices decreased rapidly. And this didn't only happen on the transport market, but also on the port operation market. And what concerns us, our volumes decreased substantially, transported and managed 3.71 million tons. Port operations were more impacted because the port operations segment only worked in collaboration with river transport within the group and with third parties. When Ukrainian grains disappeared, the effect was quite significant in relation to the port. The highest decrease relates to agricultural products, almost 3 million tons, but there was also a decrease in terms of mineral flows. They decreased by 1.3 million tons. The only flows that increased by approximately 300,000 tons were chemical products. And all of these aspects are reflected in the financial results that show, of course, a decrease, minus RON 400 million in terms of revenue, almost RON 300 million in terms of EBITDA. What I stated related to volumes can be analyzed in this chart and in the table presented here. So the port was affected, more affected in terms of volume as compared to river transport, but there was a decrease from 15.5 million tons in 2023, an exceptional year, as we all know, to 11.81 million in 2024. And as we stated before, you can see a decrease in terms of minerals, and it was caused by the fact that the units worked less in 2024. Moving on. I don't know if you can see or it's covered. So in terms of market shares, we had a slight decrease in terms of river transport, in terms of transit via the Danube-Black Sea channel measured in tons as well as in terms of general traffic on the Romanian segment of the Danube measured in tons per kilometer. Lacking official statistics, these are the 2 parameters that we use in order to compute or assess our market shares for river transport activities. Moving on. In what concerns port operation, it was a bit different here. If we take into account bulk goods, general bulk goods and solid bulk goods in terms of maritime traffic and river traffic, this is one of the parameters that we analyze for Constanta Port. There was a decrease, yes, indeed. But when we talk strictly about maritime traffic, which is important from our perspective because the computation method related to river transport is not -- maybe you can explain better?

Yes, it's a bit complicated. So river transport in Constanta is only reflected in the final reports of Constanta Port. And the figures for last year aren't published yet, so it's quite difficult to assess in terms of our transport conducted via Constanta.

So when we are talking about maritime traffic, our market shares have increased when analyzing bulk solid general goods, which will represent our market segment in Constanta. The increase was substantial, over 3% from the market share -- of the market share. But also when we are talking about overall traffic regardless of goods, this also includes bulk liquid container goods that we do not operate. So in terms of financial results, they were already published. They are decreasing across the board. This applies to the consolidated figures and individual figures. In terms of consolidated stance, the only parameter maintained over 2024, which was a reference here because 2021 and 2022 are distorted due to Ukrainian goods and exports, the only parameter relates to revenue. This increased 22.5% as compared to 2021. Otherwise, EBITDA has decreased, including as compared to 2021, but it has maintained a relatively okay level. And what we can see when analyzing the data series is that although operational expenses before amortization have decreased significantly in 2024, RON 133 million, the decrease in terms of revenue was higher. So that's why the overall operational result was decreasing, but of course, this was reflected also in the net profit value. In terms of financial position, it's still solid at group level. It's actually increasing by almost 60% compared to 2021. That's -- or decreasing as compared to 2021. And we maintain a low indebtedness degree level, 0.21, slightly decreasing as compared to 0.23 at the end of 2023. I think we have an issue with the chart. Well, let's remain here for now. In terms of individual financial figures, in terms of all parameters, we have growth as compared to 2021. Of course, substantial decreases in terms of 2023. Margin was 14.4% and profit margin 12.8%. We had reductions in terms of operational expenses at individual level as well. Amortization increased, thanks to investments conducted in 2023. Financial position is good. It's above 2022. So it's only decreasing when compared -- we're talking about assets. So assets are decreasing as compared to 2023. Debt at total level as well as subsegment loans decreased in 2024 as compared to 2023. Indebtedness level was 0.31%. Now moving on to 2025. So risk factors that continue to affect us relates to -- the macro factors are European policies, the war in Ukraine. There is still no certainty in relation to this war. Of course, negative circumstances could appear in relation to the Suez-Black Sea maritime route due to international conflict. We can't really estimate the potential effects of tariffs or policies imposed by the United States of America in relation to tariffs. And we see, as of 2024, if it will become reality, a reduction in terms of available capacity in relation to the Danube fleet due to unfavorable market conditions and a potential restart of LIBERTY Galati, which could improve -- would improve our overall situation. In what concerns good flows, there is no perspective related to grain flows for them to restart via Constanta. In terms of flows from the Danube Basin, we expect exports to restart in the second half of the year. The crops are promising. They seem to be doing well, but we have to see. It depends on the market, on the international market prices and their development. We could have increases in terms of minerals as a result of demand and demand for electric units in the Danube Basin. But in relation to the European Commission, we aren't seeing any signs that the situation will improve. And it -- what -- in what concerns chemical products, we estimate them to maintain their current level, maybe slight, slight growth in this regard. In terms of budget for 2025, at consolidated level -- actually both consolidated level and individual level reveals the fact that the budget is built based on slight revenue growth as a result -- mainly as a result of estimations on mineral products and chemical products. Agricultural products continue at the level of our budget. They continue to show a decrease in terms of volume. Otherwise, in terms of expenses, consumable goods are decreasing 2%, 3% as compared -- based on current prices, a decrease of 5.5% of salary expenses and amortization, a decrease of 6%. These are the main assumptions based on which the budget was built. We did not take into account the famous poll tax because when we actually drafted the budget, there was no talk or there were no data related to this new tax. And we did not take into account dividends distributed by subsidiaries to TTS this year. This is the overall brief presentation of 2024 and also related to potential perspectives for 2025. I think we can move on to your questions.

Thank you for your presentation. Can you talk about the decrease of market share for river transport and your expectations for the short term and the medium term?

Yes. Hello, Mr. Caius, so this decrease based on the models that we use for computation based on data available to us, so this decrease was expected. One, we no longer have huge volumes of raw materials via Galati and Tulcea, 4 million or something like that. And this is significant. And for our transportation quotas, this is even more significant. And number two, fleet flow due -- so we had a huge fleet for Ukrainian grains. And everyone is now competing for the same volume, but the overall volume has decreased significantly as compared to 2023. So short term, medium term, you may access the website, acn.ro, and there you can find the monthly data related to traffic. It's actual goods volume and capacity. Capacity is not of interest to us, but you will see that in terms of volume, there is a huge decrease as compared to the previous year, and this has been, of course, reflected. So potential as compared to last year, it's not a huge reason to celebrate, but we, compared to other providers on the market had a better situation. I know it's not a celebration reason but it's good.

So Caius, the decrease in 2024, if Ukrainian goods affected everyone, so it decreased for all of our competitors, but we were additionally impacted by raw material flows. And that's why it's reflected in the market share. That's where this decrease of the market share comes from.

A continuation of the previous question. Please, can you debate how do you envisage the investment policy for business lines?

It's the same policy that we have previously communicated in terms of port. So one, we reduced investments in terms of processing. Two, we continue investments that were included in the program in the pipeline. Decirom is conducting investments as per the plan. And we have a common investment with a partner for a storage unit dedicated for certain good volumes sponsored by the partner in question. It's a 5-year endeavor, so this is a very special investment. Otherwise, we are amortizing assets, so we are working on own funds. And Phase 3 with the 70,000 tons that we want to carry on with, the investment is ongoing. We want to continue it and finish it successfully. Hopefully, by spring, it will be ready. EUR 23 million value of the investment, of which EUR 15 million loan and other -- the other amount is own contribution. Otherwise, other investments are on hold. We're waiting. And we are going to finance an investment in the second half of the year. And we are going to make some calculations, move the crane and see how we can comply with the parameters of the investment. This will continue until the end of the year. In terms of fleet, we reduced due to financial reasons. We reduced investments to the bare minimum. Expansion investments are basically reaching 0. And we simply want to maintain the fleet, and that's it, a fleet necessary and required for us to work our business as usual. The fleet overall is 4x bigger than what we need right now. EUR 5 million investments as compared to EUR 20 million. So this is the overall situation right now. We are waiting for a building permit. As you all know, this is going horribly slow. But once we obtain it, we are going to inform you. We'll continue the process, and we are going to carry out investments, but only if we have a partner who is there for us and supports the project. For chemical products, we're -- we shall see. This is a -- it's still an idea right now.

What potential impact does the current situation have on the energy market, for example, petrol?

The impact is positive and negative, depends on the perspective. On one hand, the price of fuel, as I had upon makes us have lower costs in terms of the fuel used to buy our line ships. On the other hand, we have a BAF clause in certain contracts. So of course, the revenues are -- reflect this. But the overall impact is positive because minerals from Serbia, for example, and we have another segment that is impacted. So transportation, spot transportation have no BAF clause, so it's the same price. It's one price. So that's why we have -- we've seen and achieved a certain reduction of costs. In terms of energy, for cranes, the costs are not high. They are almost insignificant when compared to port management, other costs.

And overall, there are no significant costs in terms of energy.

Of course, as price, but as energy, yes, our consumption is below 5%, 2%, 3 percentages. It depends. It depends on the sites we are talking about. For example, in Cernavoda, we have a certain unit that is using up more energy, but it covers its own consumption and use. So we have Galati. And Galati -- for Galati, the impact is low.

Thank you very much, and good luck to the new members of the team and to Mr. Stefanut.

Are there any other questions for now? No.

If we are getting close to the conclusion, I want to thank the investors for the trust. We have trust also, and we believe we will continue on an upward path. We will see each other with the...

For the next report in Q1, for Q1 at the end of May. Thank you, and we will see each other in the next video conference. [Statements in English on this transcript were spoken by an interpreter present on the live call.]