AS Tallinna Sadam (TSM1T) Earnings Call Transcript & Summary

Good morning. Welcome to our Q2 webinar. My name is Valdo Kalm and Andrus Ait is our CFO.

Good morning.

And as usually, we would like to start with overall comments and events on Q2. In Q2, we had increase of revenue of 5.4%, and that's mainly due to the good start from our offshore ship, Botnica. And also, we had a nice growth and start of cruise season. We've got 30% more cruise ships than last year and 40% more passengers. Although at the same time, we had quite a big influence from heavy winter. That means that by the end of Q1, it was quite a tough situation with ice, and we got some extra cost from our daughter, TS Laevad, and also from the shipping. And therefore, our profitability went down due to that, but it's more onetime issue. And also on Q2 results of the last year, we had positively influenced by one-off profit of EUR 1 million sales of land of Muuga to Rail Baltica, therefore, there was also such a onetime positive issue or topic from last year and influenced it negatively this year. The main trends -- sorry, main events from Q2, we had quite stable passenger flows, but decrease in cargo at 2.3%. We had Annual General Meeting, and we distributed the dividends as we promised and very important was the adoption of 2 detailed plans by Tallinn City Council. That's a really important start for our real estate business, as we promised. We will try to start by the end of this year with the first plot and the first tender. Let's see, we have to also agree some details with city government, but we are really on a very end of the process. Botnica had quite early job in North Sea. It went well. And then we signed additional trips for the regular summer job with Minister, also went well, regularly did good job. And we signed loan agreement with OP Bank, not using yet the credit line, but agreement is signed. And already many years, we are ranked among the most reputable employers in Estonia. And this time, we've got the highest ranking in a fifth position together with other important companies and famous brands also on retail banks and other retail brands. Trends in Q2. As I mentioned, the passenger business a little bit decreased, but we had a very good start of cruise and there was 40% more passengers. Therefore, there is an increase of revenue of 5%. On cargo side, we had 2% decrease. Our main and most important segment, Ro-Ro and the biggest segment, of course, had basically a similar level as last year and even increased with 6 months, but we had still decrease from liquid bulk and altogether, there is revenue decrease 2.7%. Ferry business shows very stable or even increasing numbers in revenues in number of passenger vehicles and trips. And as we mentioned, then Botnica offshore ship had doubled the charter days from last year. There are more precise numbers on passengers. Also cargo, as I mentioned, important to keep our biggest group Ro-Ro stable or even in 6 months, we have had increase. Let's see how we will continue on a second half. It depends, of course, in the economy in export, but there are some positive trends on export. Therefore, we are -- we would like to see there still growth in Ro-Ro and probably in containers. Shipping volumes on our Ferry Segment very stable. And Botnica showed good utilization rate in Q2. And therefore, you see the growth on 6-month period compared with the last year. Future outlook. It's quite similar as we show you last quarter. We hope it will be a good season and the year for the cruise. There are already 30% more vessels and 50% more passengers. We see good bookings by the end of the year. We're continuously working with new Ro-Ro and container lines, specifically for Paldiski because now we have new quay. Before we had a lack of resources in Paldiski, now we have excellent conditions there, therefore, we're negotiating with 2 companies for Paldiski and Muuga. And maybe there will be some good news by the end of the year. Then we signed in Q2 also contract with Lübeck and Hamburg ports to develop our existing customer base and cargo volumes because we have the same container lines entering our ports, but we see there are growth possibilities. And it's very concrete with Lübeck, but also with Hamburg, we have 3, 4 very concrete points and cooperation activities to achieve. And there is ongoing industrial park campaign for Muuga development area, which is around 20 hectares. We have one quite concrete negotiation in the middle of that we can't comment. We're talking about the industry good flows of vessels or cargo, but it's really too early to comment. Maybe we will have certain news also by the end of the year. Then as mentioned, there is ongoing cooperation for real estate business for tender, and it's all about efficiency. We're working on that on process side. And if we follow our personnel numbers, we will manage to decrease it by 6 months also. I would like to give the floor now to Andrus to comment our financials.

Thank you, Valdo. So these are the financial results for the second quarter and 6 months period. Financial results were impacted, like already explained by fewer cargo volumes, less vessel calls in total. At the same time, we had higher fuel cost for ferries and electricity as well. And also last year, in the second quarter, we had also some one-off positive effects, which I explain later. And from positive side, there was -- there were some offsetting effects from the Botnica activities and also from higher number of cruise ship calls. Revenue increased by 5.4% to EUR 31.1 million. And the growth here is explained by the higher number of charter days of Botnica. There were 20 extra days compared to the last year same period and vessel calls also increased because of higher number of cruise ship calls, and we also increased the vessel dues tariffs, which came into effect starting from April. So this had also some effect. And there was increase also in sale of electricity and sale of ferry services as well. Adjusted EBITDA fell by almost 11% to EUR 14.2 million. The decline here is caused by higher fuel costs of ferries because of the higher price level. Also electricity costs were higher but these costs were covered by higher revenues. So EBITDA level, there was effect from electricity costs. We also made more repair and maintenance work. Partially it was connected with the Ferry Segment -- ferry operations in the first quarter where we had tough ice conditions. This impacted also Botnica with technical conditions. So we had to make there also some extraordinary repairs. And partially the higher repair costs were caused because of the fact that more repair works just concentrated on the second quarter. So adjusted EBITDA margin fell by 8.1% to 46.7%. Operating profit also declined by 20% to EUR 7.9 million and the decline here was a bit higher than on EBIT level because we had higher amortization costs because we commissioned the new quay in Paldiski, but also we had some one-off write-offs in the second quarter were -- which were made in connection with the repair works of the ferries. Income tax was at the same level as year before as we paid out dividends EUR 19.2 million like last year. So there wasn't any amendment in tax regulation. So there wasn't any change. Profit for the period decreased by 60% to the level of EUR 1.4 million. The decline here is a bit lower than operating profit in euros. That's because our interest payments were a bit lower than financial as the outstanding amount of debt decreased. And we invested EUR 2.3 million in the second quarter. The main investment was the replacement or renewal of the main engine of one of our ferries. This was regular work. After a certain hour of operating -- after certain number of operating hours, we have to exchange the engines and this was the main investment. And we also reinforced one quay in Muuga Harbor to install the onshore power supply for the container ships. And last year, we had the ongoing investment, the construction of Paldiski Harbor new quay. This year, we didn't have such kind of bigger investment. So therefore, this explains the drop in investments. Six month period, the numbers are quite similar, but there were some extra one-off effects as we got insurance indemnity for Botnica repair works, which we carried out in 2024. So these receipts or payments were in the first quarter 2025. This year, we didn't have this impact. Last year, we also sold the land in Muuga Harbor, this also impacted adjusted EBITDA. This impact was in the second quarter and also in 6-month period. And also last year, we received some payments for the debt, which we have considered uncollectible, so therefore, there was a lower cost level in 2025. And in first quarter, in addition, the fuel cost of ferries were impacted by severe ice conditions. So the consumption from that was also higher. Profit for the 6-month period was EUR 6 million. The decline here was 41.7%, and we invested EUR 3.5 million. In the first quarter, we proceeded to design the new A-terminal and made also some IT investments. When we look at the results by segment-wise, we see that in the second quarter, revenue increased in 3 of 4 segments. The decline was in Cargo Harbors. In other segments, the growth and EBIT increased in the second quarter was stable in Passenger Harbors and declined in Cargo Harbors and Ferry Segment. In Passenger Harbors revenue increased mainly due to the cruise ship calls and also due to the higher tariffs of vessels dues, which came into effect starting from April. Actually, all the revenue streams in Passenger Harbors increased except the sale of other services as the revenue from advertising activities decreased. The EBIT in Passenger Harbors remained stable. We had some elevated level of repair works there as we repaired the cruise ship quays and this was reasonable to do before the summer where we have the peak of cruise ship calls, so therefore, the repair work is more concentrated to the second quarter. In Cargo Harbors, revenue declined, and this is mainly attributable to the fact that the Tallink vessel, Superfast, didn't operate anymore in Paldiski–Kapellskär route after the first decade of April. So due to that, the vessel dues decreased. We have also less cargo and cargo charges also decreased. On EBIT level, there was a higher drop. To explain that, last year, we sold the land in Muuga Harbor and from that, we had positive impact in the amount of EUR 900,000. And in addition to that, we were able to recover some receivables estimated uncollectibles. This impact was for about EUR 400,000. This was in 2025. So this year, we didn't have any positive one-offs in Cargo Harbors. In Ferry Segment, revenue increased because of indexation based on the fuel price in the first quarter, but cost -- increase in costs was higher. Because of that, the EBIT decreased. It's important to explain that the indexation in ferry revenues, so some of the indexation is based on the fuel price index. But in the first quarter this year, the price started to increase in March so the average price for the first quarter was not so high. But -- so it means that the revenues in second quarter wasn't indexed based on the first quarter average price. It was indexed on that, but the cost was already higher throughout the entire quarter. So the indexation didn't cover the higher costs fully. So in coming quarters, the indexation effect on revenues should be a bit higher than the second quarter. And in second quarter, revenues increased because of longer charter period and EBIT also increased a bit less because personnel expenses increased. As the ship is chartered out, then we have an elevated level of personnel expenses. And also we made some repair works after the tough ice-breaking season in the first quarter this year. In the 6-month period, the revenue increased in 3 segments, like in the second quarter the additional impacts were in segment rather on EBITDA level. The EBITDA decreased in 6 months period because of the insurance indemnity last year which we did not have this year. This impact was EUR 100,000. And in Ferry Segment, the EBITDA was impacted by severe ice conditions, which increased the consumption of the fuel. And also we had less cargo due to the ice conditions as well. So this impact was also in Cargo Harbors. So in cash flow side, we see that cash from operating activities decreased by EUR 8 million because the sales of services decreased and the payments to the suppliers increased. The sale of services increased partially due to the fact that in the first quarter 2025, we received payment for the charter of Botnica, which was carried out in the fourth quarter of 2024. This year, we didn't have this kind of receipt. So therefore, there was some decline from one-off impact as well. And payment to suppliers increased mainly because of fuel costs. Cash used in investing activities was minus EUR 400,000. This includes the investments, but we also received grant money from EU funds, which supports our investments where we construct the onshore power supply for our cruise quays. The number of 2025 was EUR 20 million. To explain that we had bank deposits ended during the first 6 months, and therefore, we had a positive effect, and we had also sale of land of Muuga Harbor. The free cash flow was EUR 17.7 million and cash used in financing activities was quite similar as the year before. This includes the dividend payout and interest payments were lower than last year a bit. And net cash flow was minus EUR 4.4 million and net debt was quite similar as the end of 6 months 2025, EUR 145 million. So the cash in bank accounts decreased by some EUR 20 million and also outstanding decreased in the same... And on financial position, cash and bank accounts decreased compared to the year -- year-end period last year and this reflects the negative cash flow, minus EUR 4 million. The non-current assets decreased because of the amortization and depreciation increased investments. It was higher than investments. Other current assets increased as we got funding from EU funds and the equity was impacted by dividend payout for the period and debt was quite similar as at the end of 2025. In first half of the year, the loan repayments are quite low and higher loan repayments will be made in the second quarter. So with that, we conclude our presentation. Like always there are some slides about revenue and EBITDA generation. And we will make a short break, and you can send us questions, and we will be back in a couple of minutes to answer the questions. Thank you.

I take the first question about the investments and is the investment level of EUR 2.3 million a good indicator? For maintenance investments which are yearly for about EUR 9 million to EUR 10 million. Yes, based on the historical data, the average level of maintenance investments is about EUR 10 million. But this year, we also expect some development investments when we start to build the onshore power supply for the cruise quay in Old City Harbor. There has been some delays because of tenders, but we see that the annual investment level for the group should be for about EUR 20 million or a bit less, EUR 20 million. So the next question, how much of the operating expenses increase of 19% in Q2 year-on-year was one-off related costs? It's tricky to estimate because it's hard to say that whether the fuel costs are one-off or not. But I would say that some 5% of that was related to one-off effects. It's like rough estimate, which is related to the repair works and other one-off costs. So some 5% of that was related to one-offs.