AS Tallinna Sadam (TSM1T) Earnings Call Transcript

Good morning, ladies and gentlemen. Welcome to our webinar. My name is Valdo Kalm and Andrus Ait is our CFO. As usually, we will describe the results of, in this case, Q3 and then also adding some comments about 9 months. All right. Generally, Q3 foroalin Group was quite good due to the increase of revenue by 6.7%, mostly coming from passenger segment and Ferry segment. Although there was increase of expenses, but we managed to increase also EBITDA, and we also measure our EBITDA margin, what is reached magical 49%. That's the margin what we had actually before the crisis. Therefore, we are happy with that. Also profit made the increase by 10%. Main events, there was increase in number of passengers and the good news that we got increase of more than 2% from all the directions. The biggest increase came from cruise about 26%, but also the other directions where we showed the increase. Then we signed the agreement for Vertical in North Sea started in September, and it goes well. It impacts the Q3, but also we see quite a good prognosis for Q4. Therefore, that was definitely good. But also signatories for next year governing as a number of sites in South Africa region for Botnica. And that, of course, a little bit fixes our positive programs for this segment. There a public discussion took place in Q3 and went very well. No big showstoppers. That means we can now move on with city government for the final fixing of retail plans. And we really would like to start as soon as possible, probably in Q1, I mean the real estate development, the area. Also, we got best employer brand title and there was announcement of the competition for the new Chairman of the Board role starting from first of March next year. But now to the segments, more precisely. As I mentioned, there was increase of passenger numbers. And all in all, revenue increase in this segment, almost 9% that's due to the bigger vessels and indexation. On cargo, we still had a decrease coming mainly from liquid bank, positive thing that we still see biggest growth in or around 4%, and that's our most profitable biggest segment. In [indiscernible], we have seen increase of revenue. It's coming -- it comes mostly from the indexation and so in volumes also very, very stable quarter. And charter days for the body were a little bit lower than last year. But in 9 months, it's more than last year. As I mentioned, passenger volumes increased few percent essences are stable. And if you take 9, then we are on last year's level. Now we hope that Q4 will be slightly better due to the Christmas cruise started last week already and we hope that competition between the operators in Ragone will also increase the number of passengers. But let's see how we will end the year. Cargo decrease was 3%. And in 9 months, 4%, mainly coming from liquid bulk projects liquid bulk volumes and it's very difficult to predict what come on Q4, let's say shipping volumes are very segment very stable in Q3 and also in 9 months. And as we mentioned, Botnica had a little bit smaller charter days in Q4, but in 9 months. some increase, and we believe that also Q4 will be successful, and we will increase the total charter days by the end of the year. future outlook. As I mentioned, still see the growth potential increase vessel by the end of the year. And we also have the reservation of ship growth for the next year. what is bigger than this year, therefore, Cruise drives the increase on passenger side very important event happened also just recently in October, we signed a new very operator agreement for Muuga-Vuosaari route, the TT line, a German-based company. And they're planning to start operation in Q1. If everything goes early even in January with a quite a big [indiscernible] and we have 3 key available. We're just preparing some other technical criticalities. If everything goes well, then this new operators start with 3 cases per day. That means all together, we chain inboard, there will be 6 calls per day. That's, of course, very good for our business, but it's a very important dealer for Estonian export Turks. It's really really like a bridge between and Estonia. It's important, I mentioned again the charter agreement signed by private operator for South Africa next year and 3 months Botnica secures certain revenues and profits for the next year. And all in all, it's important to develop our maritime transport corridors. Just remind you that in Q2, we signed the agreement with [indiscernible] port and of course, the biggest aim of this agreement is to increase the capacitor units between [indiscernible] between Muuga-Vuosaari and we're still negotiating and its ongoing industrial park campaign in Muuga Industrial Park and there is 1 serious negotiations ongoing, but it's a little bit too early to be more concrete. If there will be news, we will announce it. And as I mean, we're preparing the real estate business start in old city Huber and still efficiencies on our table all the time. With that, we would like to give the floor to Andrus, and please.

Thank you. So these are the financial results for the third quarter and 9 months period. The third quarter was the strongest in terms of financial results in 2026 to mean positive effect came from the cruise vessel costs, which we had more than last year. Also, the number of passengers increased. Botnica started its second charter or in the middle of September and also the indexation of contract of ferry services increased and sale of electricity increased as well. So these were the main positive supporters for the better results. Revenue third quarter increased by 6.7% to EUR 33.8 million. And the main effect came from the indexation of ferry service revenues based on the fuel price index. And in the third quarter, first time during this year, the effect from the indexation was positive. So the cost increase -- the fuel cost increase less than the indexation was in revenues. Also, the sale of electricity increased because of higher volumes and also because of higher prices, but there were also higher costs on cost side as well. And the residues increased mainly because of more finer of goods, vessel calls and actually all the revenue streams increased -- so this was also a positive side core third quarter. Adjusted EBITDA increased by 7% and amounted to EUR 16.6 million. The growth here was EUR 1 million. So operating costs and personnel costs increased by less than revenues. In operating costs to my main cost items, which impacted the cost growth were fuel costs because of higher prices, electricity cost also because of high prices and volumes. We also had some extra costs for Waste Management, which were connected with number of vessel cores, special cruise vessels, they gave up more risk, and therefore, we had higher costs. And also [indiscernible] started its charter work, and we did some prepare works and also rented some technical equipment. So the rental costs also increased to some extent. Adjusted EBITDA margin reached over 49%, which is quite a good number. operating profit increased by 10% to EUR 10.6 million, and the growth was about EUR 900,000. Also, the application amortization increased a bit because during the year, we have completed some investments. So from that, we had some increase for amortization. We didn't pay any dividend, so we didn't have any income tax on dividends in the third quarter and profit for the period increased by 11% to EUR 9.5 million. The growth was EUR 1 million. And net financial -- net finance costs were stable. We on blast from the deposits at the same time the outstanding loan banks was lower, but the [indiscernible] as increased. So all in all, the finance costs were stable. In the third quarter, we invested EUR 3.3 million. The biggest investments were the reconstruction in [indiscernible] harbor. We also improved on Muuga, where we plan to install the OPS or onshore power supply for container ships. And in the third quarter, we also upgraded video surveillance systems for our boards. On 9-month period, revenue increased by 4%, once again, mainly because of increase in various service revenues due to the indexation. Also sale of electricity impacted Botnica was charter out more 30 days more than layer during 9 months. So from that, we have also extra positive effect on revenues. And [indiscernible], of course, were positively impacted by our number of groups vessel calls. Adjusted EBITDA decreased by 6.5%. In the first half of the year, we had negative impacts from the fuel costs. So the indexation of the -- it came mainly from the Ferry segment and the higher cost, they didn't they weren't transferred to the revenues in the first half of the year because we have some time lag here for the indexation. And in the first quarter, there were also severe additions, which impacted the fuel consumption of the ferries. So that's also impacted the net cost. And after the difficult high season, we had to make some extra repair works for the third and also for Botnica. So we had some excess from that as well. And just a reminder, last year, during the first 9 months, we had also 2 positive one-off effects. The first 1 was the insurance endemic for the Botnica repair works, which we conducted in 2024. This was EUR 900,000 and the other 1 was the sale of land in Muuga Harbor to build freigh station for Baltic there, this impact was also EUR 900,000. This year, we didn't have those positive effects. EBITDA 9-month period was 4% to 4.5%, still over the 25%. Income tax was EUR 5.4 million which is same as last year, the [indiscernible] was also in the same amount, EUR 19.2 million. And profit for the year decreased by 17.8% and amounted to EUR 15.5 million. In the first 9 months, we invested EUR 6.8 million in addition to the investments, which I described on the third quarter, we also made some doors for this Also, we had 1 main engine replacement for the ferry, which was reawork, nothing extraordinary there. We also completed the key construction in [indiscernible] Harbor in the first quarter, and we continue to invest with the design of the terminal in Old City Harbor. And also, we made some IT investments to software and also for hardware. So the results at between the segments. In the third quarter, the revenue increased in 3 segments out of same cost EBITDA revenue increased by 9% in the passenger harbors mainly because of the residues, which increased because of more [indiscernible] cost, but also indexed the tariff rates at the beginning of this year and also carbo traces in passenger harbor increase as the rotor increased. And this transferred to the EBITDA as well. In cargo harbors, there was a slight decrease in revenues and also in EBITDA. [indiscernible] decreased as we had smaller ships. We had less tankers because the liquid bulk volumes decreased, but it was, to some extent, offset by the sale of electricity and also rental costs, which increased rental around which is increased and also led the decrease a bit in the third quarter in the cargo harbors. [indiscernible] segment, revenue increased like already noted because of the indexation of the fuel compound mainly. And in the third quarter, the indexation effect was positive, so indexation covered the cost increase, and there was actually was the effect which covered to some extent, the negative impact from the previous quarters. I mean [indiscernible] revenue was stable when you [indiscernible] its second charter work on North this year in the middle of September, and EBITDA was more positive than last year. Last year, we made more repair works for Botnica in the summer period. On month period, we see that revenue was also in 3 segments, the passenger harbors the reasons our explanations are similar in the third quarter, more crew ships and more passengers. So they support the results. [indiscernible] revenue decreased, but the drop on EBITDA level was higher. Last year, we had a one-off positive effect from the sales of land and so therefore, it was, you were still amount of EUR 500,000 last year. So but the other artifact comes from the less vessel cause less cargo in cargo harbor. In Ferry segment, revenue increased, but the main positive effect came from the third quarter. So the results of first half of the year were more negative. And like I described already, we made some extra pay works and also to as severe conditions in the first quarter. And Botnica, the revenue increased by EUR 1 million during the first 9 months because we had more better period than last year. but EBITDA was quite stable. There was a small decrease because last year, we received insurance in the mainly due to that then to the main statement. On cash flow side cash from operating activities was EUR 32 million decreased mainly because of the payments to the suppliers were higher because of player costs. And last year, we had also one-off positive effect as we received payment for the for working costs charter, which delivers to conduct the [indiscernible] 2024. So there was extraordinary positive effect last year. Cash used in investing activities was minus EUR 2.2 million. We invested almost EUR 7 million. But at the same time, we received some EUR 6 million from EU [indiscernible] in connection with project where we installed power supply for the vessels in [indiscernible] and last year it was positive because of effects on deposits, we got EUR 22 million -- received EUR 32 million from deposits, which we were placed on previous periods. So there was also one off positive effect last year. Free cash flow for '26 -- for the year 2026, 9 months was EUR 13 million and cash used in financing activities was minus EUR 30 million, which is higher than last year because in July, we had final term for 1 of our long-term loan agreements, and we have made 1 of bigger lower payment, so yet for the number was the year. And net cash flow amounted to EUR 800,000 -- minus EUR 80,000 a net debt at the end of the period decreased by EUR 3 million because cash and bank accounts decreased less than Austin, -- so therefore, net debt has decreased. And on financial position, cash and bank accounts similar at the end of the last year, fixed assets decreased as the patient and amortization exceeded the investments for the period equity decreased because of talent payout profit for the year that has been a big for the 9 months has been lower and debt has decreased because of loan repayments. And it's also important to note that at end of September this year, the current liabilities or short-term loans, the volume of short-term loans was quite high over the [indiscernible] because we had a final term for our long-term loans and actually bonds the funnel date was at the end of October. So we successfully refinanced those bonds and this was the reason why the current it was so high, but no, it's already normalized. But with that, we conclude our presentation. If that's next [indiscernible] and immediate generation. So this we want to explain separately and we will make a short break. We have some questions which we got upfront and those questions we addressed at first, and then we add to questions which you submit throughout the [indiscernible]. So we will be back in a couple of minutes. [Break]

We are back with Q&A.

And the first question sounds like, what are the current volumes of cargo still moving across the Russian board? And are they continued the decline already there is already more than 2 years, there is no export coming from Russia? That means we're not serving export anymore, but it's still some import Russia the products food production, that is not under the sanctions and we are talking about about 150,000, 200,000 tonnes. And we don't see that now it will show the decrease that means that honestly, no impact is prognosed. Second question what is planned for real estate development at Old City Harbor by the end of next year, including Terminal A? As we mentioned very briefly, our public observation of the plants went very well. And now we try to finalize agreement with the city government. That means we're moving now towards final fixing of our retail plants and as soon as possible next year, we would like to start with development. Indeed, the area. It's the area close to the the street. There are a couple of excellent properties to develop -- and we also would like to start a construction of a terminal on the second half of next year. Third question. What is the latest status of lawsuit against former members of the management board? Honestly, there is no news about that.

Okay. The next question, can we expect positive impact in Q4 2026 from the indexation of ferry service revenues? So I can say that the main positive effect was in the third quarter, we don't expect such a big effect from the fourth quarter, but still it depends on the fuel prices and also about the number of trips, but we can say there might be some positive effect, but not as big as in the third quarter. What is the outlook for the fourth quarter cargo and what are the management's current expectation regarding next year? So we can comment that we don't expect any changes in liquid bulk, so there has been a drop, and we don't see that in the fourth quarter, it will change. But what we see that like it's a seasonal effect that in the fourth quarter, we have more [indiscernible], especially crane. So from that, we expect a positive effect and the grain transport started this year later than last year. So there might be some positive effect in the fourth quarter. And regarding the next year, say, we do our forecast based on the overall economic situation.