AS Tallinna Sadam (TSM1T) Earnings Call Transcript & Summary

Good afternoon. Welcome to our webinar. My name is Valdo Kalm. I am in charge of Port of Tallinn, and Andrus Ait is our CFO. As usually, we will start with main events in Q1. And we will start with record vessel calls on Tallinn-Helsinki line. That's really record. And also, we've got quite a nice development on growth of passengers. Then icebreaker Botnica signed a contract with Baffinland, that's a company in Canada, for summer work. But here, we can also add that just recently, we announced that there is another contract for the rest 2 months with Equinor. It's one of the biggest energy companies in Scandinavia. And Botnica got job to serve wind parks on the coast of U.K. Therefore, excellent coverage for this summer with a very good [ dues ]. Also, we got positive court ruling to the end of the legal dispute with SLK and Väinamere Lines. And we signed additional MOU with Utilitas Wind for the development of offshore wind farms and to use our Paldiski port. And we announced of the passenger terminal architectural competition, and that's now ongoing. We got -- that was international competition, of course, a tender. We've got almost 30 offers, and now we're working on that. And if there will be a decision, we will announce who won, and then it goes for the desired phase. Also, public discussions of sketch designs for the detailed plans of Old City Harbor happened in January. And that was quite successful because we got very little and not very serious feedback. Therefore, we definitely go on and move as fast as possible with our detailed plan together with the city government. Trends in Q1 by the segments. On Passengers side, we have seen continuous strong growth in passenger numbers, and it's valid not only for the Helsinki, but also we had some 90% growth on Stockholm line and as we already mentioned, increase in vessel calls and definitely in revenues and EBITDA. That means Q1 was a continuing recovery from pandemic. In Cargo, decline in volumes, 31%, of course, in revenues also, but less. And that's due to the EU sanctions. I would like to remember that last year Q1, we basically had all Russia and Belarus transit bulk in place. Therefore, the basis was very high. Although we had good news also on Cargo side that in Q1 ro-ro continued the growth that shows at least such a normal development on Estonian export input. Of course, part of that is transit also. But ro-ro is nowadays most profitable cargo type. Therefore, that's a good message. In Ferry business, revenue growth was 13% from additional trips and indexation. And under the Other segment, Botnica made also very stable quarter. And revenue increased due to the higher charter fee coming from the contract with Transport Administration. Here, we see the Passenger volumes, just to remind that we finished last year at level 7 million. And definitely, our aim is to catch again a record year 2019 pre-COVID time, 10-plus million. And so far, the recovery is there. On Cargo side, quite a sharp decline due to the [ ban ]. And as I mentioned, it comes from liquid bulk and dry bulk. Shipping, or Ferry, volumes, very stable. Recovery from COVID was also quite quick. As I mentioned, state ordered additional trips due to the growth in passengers and vehicles. Therefore, our Ferry business shows very stable and even growth development. Same for Botnica, stable Q1. And also, there are numbers from last year. And last year's utilization rate is very stable. And hopefully, this year will be similar or even a little bit higher. Future outlook. We believe that Passenger business shows a recovery in Q2, Q3. We are working on that. We have had and we have very good cooperation with our operators. Therefore, we do what we can. And therefore, we are quite positive because we have seen different new segments traveling more from Helsinki. And hopefully, the recovery continues. Still we have impact from sanctions. If you remember then announce -- we announced the impact for full year, but was basically lower than we prognosed that part of this impact is valid for the last year, but some EUR 3 million is impacting this year, and it's really difficult to say when they will end. But yes, that's the reality, and we're working with another cargo types and another channels to find the growth. Very important, in this case, is to develop ro-ro and containers. And that's our strategic goal, to have a growth in ro-ro to serve better Scandinavia, I mean Finland and Finnish export. And just recently, we launched new [ ramp ]. It's double [ ramp ] in Muuga, and that immediately shows up in revenues also because Caroline added one additional trip per day to that, and the results from Muuga showing very -- such a nice development. Then to the -- let's put it to the future growth area. That's offshore business and specifically in offshore wind [ parks ], where we've -- would like to take the part. And in the coming weeks, we will announce who is the winner of tender to construct the key and fulfill the landing in Paldiski Harbor. If you remember then, our decision was to invest EUR 53 million. And if we sign the contract, then we start immediately to construct the key. That's one part of that. But also, we're working with new contracts in shipping. Botnica's new contract with Equinor shows precisely the need of offshore ships in this area. And Botnica is moving to U.K. coasts to serve offshore wind farms. That's exactly the experience what we need. And therefore, we see that offshore business is increasing. We're even analyzing their annual decisions, but we are analyzing maybe we charter or we will build another offshore ship. Therefore, offshore wind farms, the installment or construction and then the maintenance and serving these wind farms are definitely future growth areas, and we're preparing to that very seriously to offer more such a value-based and all-value chain offer to developers. Then also this year, we are making the preparation for the real estate business. If everything goes okay, then hopefully, next year, we will see the confirming of detailed plannings. And then we immediately announce the tenders for developers to really start the real estate business.

Good afternoon from my side as well. And I will go on with the financial results of the group in Q1 2023. Revenue increased by 6.1% and amounted to EUR 28.4 million. And it was mainly -- the growth was mainly supported by higher number of passengers, also record number of vessel calls in our Passenger harbors. And also, shipping segments supported the growth quite strongly. Adjusted EBITDA increased by 0.6% up to level EUR 13.6 million. The growth this year is significantly lower than in revenue. Here, we must bring out the negative impact from costs, especially from labor expenditures due to the cost pressure and salary increases made over last year. And also, we have [ sensing ] motivation system to affect this year. And also, operating costs increased. The 3 items, cost items, which impacted the growth most, were moving costs, also maintenance costs for infrastructure and also cost of receiving waste from the ships, which is waste in our ports. Due to the higher cost, adjusted EBITDA margin lowered from 50% to 48%. Operating profit decreased by some 6%, and the market [ closed ] EUR 6.8 million. Here, we must bring out the effect -- one-off effect from rate of the assets in amount of EUR 800,000. This is related to the amendment in public sector accounting rules, which are applicable also for [ Portucel ] in Estonia. So according to [ FISA ] amendment, the threshold for recognizing the assets as noncurrent was increased from EUR 5,000 to EUR 10,000. And due to that, we had to write-off assets in the amount of EUR 0.8 million. Income tax, we didn't pay any income tax in the first quarter as we will pay out dividends in the second quarter. Payout day will be day after tomorrow at 12th of May. Profit for the period decreased by EUR 1.5 million or by 21%. And after the period, was EUR 5.7 million. And here, we have also an impact from higher interest rates as we paid more interest in the amount of EUR 0.9 million. We invested EUR 1.5 million in the first 3 months of this year, which is a relatively low level. The main projects were made in Old City Harbor, where we completed the surrounding area of Terminal D. And in Muuga, we completed and opened the new 2-storey ramp to serve the ro-ro traffic there. And both of those investments are good pace to increase revenue in ro-ro -- from ro-ro and from Passenger harbor segment. But here, it is important to also mention that we expect that in the second half of the year, the investment level will increase significantly as we will start the investment project or the new key construction in [ Palisisal ] Cargo. As we look at the revenue and profitability over the years, we see that in 2020, there was drop both in revenue and on EBITDA level because of the start of pandemic. But since then, we have been able to increase the revenue over the years. The adjusted EBITDA has been quite stable, despite the company has been impacted by pandemic. And after that, by sanctions on Russian and Belarusian cargo. But the EBITDA level has been quite stable or flat throughout the years. And this close also for the first quarter 2023 as the revenue increased and the EBITDA was quite similar as a year before in the first quarter. When we look at the results by segment-wise, we see that the growth on EBITDA and revenue, we managed to achieving in 3 segments out of 4. The most successful results came from Passenger harbors as the revenue there increased by EUR 2 million. It was mainly supported by a higher number of . Therefore, we had EUR 1 million extra revenue or additional revenue from [ receivables ]. We had a higher number of passengers, and passenger fees increased by EUR 700,000 and also the rental fee from renting [Audio Gap]. And also, the adjusted EBITDA increased quite significantly. Ferry segment also supported the growth in revenue by EUR 1 million. This is due to the indexation. And also, EBITDA increased. And on EBITDA level, we have managed to get the costs quite stable in this segment and. The consumption of fuel has been also decreasing per trip. So therefore, here, the EBITDA has increased. In the segment Other, revenue increased by EUR 300,000 due to the new contract with Transportation Administration for next 10 years for the icebreaking services on Estonian coast. And from that contract, we have higher contractual fee. In the segment Other, the EBITDA remain quite the same level as year before. The EBITDA increased from the activities of [ Botnica ], but at the same time, decreased EBITDA from our joint venture company, Green Marine, where the project-based revenues were lower and therefore, also EBITDA, from there, on that, decreased. And part of our harbor [ EBITDA ] order lowered volumes because of the sanctions revenue decreased by 18%, EUR 1.8 million. And also, EBITDA decreased. In revenue, investments decreased by [ EUR 1 million ]. Cargo charges, about EUR 200,000. And also, sale of electricity was lower, EUR 400,000, due to the lower price and due to lower consumption, which is related with the lower amount of cargo. But here is also I want to bring out that the 3 largest segments, Passenger harbors, Cargo harbors and Ferry segments harbor quite equal in size, both on revenue and on EBITDA. So all those segments are going to [ get ] to our results equally. On cash flow side, we can see that cash from operating activities decreased year-on-year by EUR 1.5 million as the payments to the suppliers and payments to employees increased more than received from sale of goods and services. Especially investing -- investment activities reflects the low investment level. And cash flow was -- free cash flow was EUR 11.8 million, which is EUR 2.3 million more than a year earlier at the same period. Cash used in financing activities increased by EUR 900,000, which is related to higher financing costs due to the higher year-over level. Net cash flow was positive EUR 7.8 million, which is EUR 3.4 million more than in first quarter 2022. And net debt at the end of the period decreased by EUR 27 million due to the loan repayments. But also, we had EUR [ 10 million ] cash on bank accounts, which also decreased net debt level. And on financial position, we don't see any significant change when we compare the results year-end period last year. Cash has increased, and we have paid back loans in amount [ EUR 3 million ]. But the financial position is quite stable and good and ables us to keep our dividend promise and pay out dividends. But with that, we will conclude our presentation, and we'll be back in a few minutes to answer your questions. Thank you.

The first question that we got advanced, what will be the business model for development of Old City port area? We have decided together with our Supervisory Board that the main model for real estate development is the building title or building right model that we will announce tenders to developers. And then we will sign the long-term rental or building title contracts. But also, there are 2 other models available. If there is some very interesting project for the port, for the area, then, of course, we can invest also partly or fully and will come as a developer. But the main model is building title. About timeline and about the first cash flow, as I already mentioned, if everything goes well, then this year, we call it preparation. And if that goes well, then next year, hopefully, we will have at least some areas fixed or agreed with detailed plans. And then actually, we will immediately start the tender. Therefore, first revenues, probably next year. Second question, what is the business model of the Port of Paldiski in relation or development of offshore wind parks? Here, we invest for key for infrastructure. And we're using our basic model that we will collect produce from the ships, and we would like to have a rental agreement with developers. As we already mentioned, we signed 4 MOUs with developers, and that's the main model to collect the rental and port use. Also, we see that there is possible to a little bit why the value chain, as I mentioned, we have free plots in [ Palis ] report. And then in other side, we're analyzing just now maybe there is a business case to charter or even build the offshore ship. About the first cash flows and timeline, again, key must be ready on spring/summer 2025. That means, again, then we would like to immediately have a contract fixed on these keys. And hopefully, the cash flows will show up in 2025.

Next question, what will be the structure of financing Paldiski key? The European Commission core financing is EUR 20 million. But how is the rest of the investment divided between equity and loan capital? Yes, correct. We will finance the investment, which is EUR 53 million. EUR 20 million of that, we will finance by support money from EU, about EUR 25 million we plan to finance with additional loan, and the rest of the investment will be equity. But we will sign the contract probably in the second half of May, in the coming weeks. And then, we are able to do more precise estimations about cash flow in connection with this project, and then we can plan what the financing exact number for loan will be. Here is also one question regarding Cargo volumes -- about decreased Cargo volumes to the revenue. And EBITDA decrease in this segment was in line with our projections. Projections in the beginning of the year are different. We can say that the decrease in revenue and EBITDA in Cargo segment is quite in line with our forecast in the beginning of the year. Regarding costs actually, we didn't expect or -- didn't expect that the electricity price will lower so quickly. From that, we have actually more positive results due to that. But generally, we can say that Cargo segment grows quite in line with our plans in the beginning of the year. And final question, please confirm that excluding onetime write-off, the net profit decreased by EUR 0.7 million. Yes, correct. The impact of the write-off the assets was EUR 700,000 [Audio Gap] to the profit. So it seems that there is no more questions. Thank you for participating, and see you next time.

Thank you. See you next quarter.