Good afternoon, and welcome to all participants joining us for this investor webinar, during which we will present Tallink's financial results for the third quarter of 2025. My name is Anneli Simm, and I am the Investor Relations Manager at AS Tallink Grupp. Margus Schults, the Member of the Management Board who is here with me, will walk you through the presentation, covering Tallink's operations, the Q3 financial results, and the key takeaways. He will also take your questions after the presentation. We have already received... With that, I will conclude my introduction. I will...
Now, during Q2 and even more in Q3, we can see that the sea is coming down. The sunshine sometimes is already seen from the sky. Our Q3 results have been quite delightful for us. Results now. As you know, we have been able to sell already two vessels, Star in the springtime of this year and Regal Star during Q3 of this year. We have also signed a sales agreement for Sailor. The vessel will be delivered during the October month. After that, we will have 11 passenger vessels and no cargo vessels in the fleet. We have still three vessels in charter. Two charters are in the Netherlands already several years. One charter was prolonged recently during Q3 for the next one-year period. Galaxy will stay in charter until October 2026. We have also new charters since a couple of months ago.
Our vessel Romantica is now in Algeria, traveling on the Mediterranean Sea between Spain, France, and Algeria. Other key numbers are remaining the same. We have four hotels, 20 Burger King locations, about 4,700 employees. What is also delightful is that we have a Club One membership, where the number of members is constantly increasing, now reaching almost 3.5 million. Yesterday, we published a press release where we also told that at the end of this month, we will renew quite substantially the Club One program. We hope that after that, there will be even more members. On the fleet, it's just a reminder that we have Megastar and MyStar as shuttle vessels between Tallinn and Helsinki. On top of the 22-hour cruise vessel, Victoria, on Tallinn-Helsinki.
In Tallinn-Stockholm, we continue with one vessel, Baltic Queen, departing every second day. Baltic Sea cargo share, we have a vessel Superfast, servicing mostly cargo clients, but also passengers who have a passenger car with them. What we have done during the autumn time, we have reduced the schedule of frequency for Superfast. If you compare numbers to last year, the schedule is different. On Helsinki-Stockholm, Silja Symphony and Silja Serenade are still there with a normal schedule. On Turku-Stockholm, also Baltic Princess is there on a regular route. We have three chartered vessels, as mentioned, Galaxy and Silja Europa in the Netherlands. Silja Europa now prolonged until October 2026. Romantica is in Algeria on the Mediterranean Sea. Here, it's still the end of Q3. We have a layup, one vessel, Sailor, but as already mentioned, it's sold.
As already said, we have been able to find these sunny spots from the sea quite luckily. We have been able to improve our result from Q3 2024 quite well. The number of passengers increased by 3%. It's basically summer months which showed improvement. Maybe September, as you know, there was a small decline. We are very happy that July and August of this year were very strong in terms of passenger growth. Cargo units decreased in Q3 by 10%. We can see that the decline is slowing down. As you know, in September, we published also the traffic volumes. In September, the volumes of cargo decreased by 7%. We hope to see now that the negative trend is slowing down. With the improvement of the economy, it turns into positive.
In revenue, we made €233 million revenue in Q3, which is €1.2 million or 0.5% higher than a year ago. We had very strong ticket revenue. We had also relatively strong onboard revenue. Obviously, we had fewer layup vessels than a year ago. We had also more charter revenues than a year ago. As charters normally produce maybe not so much revenue, but quite a substantial improvement of bottom line, our EBITDA improved by €0.5 million during Q3 comparing last year or less than 1%. Net result improved almost €4 million, more than 10% from last year. Obviously, our net debt is continuing to increase. We are paying back loans every month. Obviously, we have now reached the level of €433 million. What is also good to highlight from the previous webinars is that this year we had exceptionally long docking days.
Totally during nine months, it's 73 days comparing a year ago, 11 days. Especially in Q1, but also a little bit in Q2, we had long dockings, which obviously worsened our results in the beginning of the year. If you look at sales results by geographical segments, as I said, the increase of revenue is not so much changed. What has been changed is that last year we had the vessel Victoria traveling as a second vessel between Estonia and Sweden. This summer, the Victoria was between Estonia and Finland. You can see that in terms of revenue, Estonia-Sweden segment suffered, and Estonia-Finland segment improved. If you go to the bottom line level, we can see that even the revenue was lower between Estonia and Sweden, the bottom line improved. It basically tells that the consumer demand is still not on the level as pre-COVID.
We do think that one vessel on that route is the right decision and is more profitable comparing two vessels. This summer showed very clear that with less revenue, we can make more profit. The segment other basically includes vessels which are in layup and charter. Obviously, now this year we have more vessels in charter and less in layup. This improvement is quite significant. If you look on the operational segments, then basically the major improvement is coming from the ticket sales. Obviously, we can say that with a higher number of passengers during summer, we have also been able with our dynamic pricing to improve ticket revenue from the high demanded departures. Basically, the improvement is coming from ticket sales. As mentioned already, onboard consumption has not decreased. It's more or less stable with per passenger.
Obviously, since consumer confidence is not strong in none of our home markets, we are competing with land prices, land prices of shops, land prices of restaurants. We have not been able so much to improve the revenues from onboard sales as on the ticket side. The dynamics of seasonality is very much as it has been. We made, obviously, we have a little bit less, a little bit more passengers in summertime. We have a little bit less cargo in summertime. Obviously, on the bottom line level, it's a major improvement in summertime since all the increased number of passengers are going down to the net profit level. You can see that again, we have cumulatively 4.2 million passengers, 185,000 cargo units during the nine-month period. The revenue will be or was in nine months €580 million almost. EBITDA €102 million.
The last four years developing on the net profit level is that we had a very good summer, €4 million higher net profits than last year. We were not able to repeat the 2023 result. I remind everyone that 2023 was an all-time high net profit since we had also seven vessels in charter in different places. Comparing 2023, we had a severe beginning of the year. Now, like I said, we have already been able to find good sunny spots and improve the result. In the consolidated income statement, maybe not too much to add. You can see the nine months and Q3 numbers in comparison to last year. Not in sales level, not too many changes. In 2024, nine months results we have in Q1 also sales of Isabelle. This is other operating items. We don't have any major extraordinary items during this year in either in Q3.
Since we are paying now dividends, we are also reflecting the dividend income tax in our nine-month result. This was already taken into account in Q2 after shareholders' meeting decided the size of dividends. In Q3, even we pay dividends in July and in November, the income tax is already in our books from Q2. The EBITDA margin has been also slightly improving since last year, and net profit margin even more. On the cash flow statement, we have a good cash flow, €55 million from our operations. We had also cash flow from the sales of Regal Star, €6 million. We improved free cash flow, which was €6 million better than last year in Q3, totally €51 million. We had obviously debt financing and interest rates.
The lower interest rate is a combination of two things: a lower loan balance, which is decreasing from quarter to quarter, and also lower interest rates, lower Euribor. Dividends paid last year, we paid dividends in the whole amount in Q3. This year, we decided as our parent company in Fortor to split dividends into two parts. We paid half of dividends, €0.03 per stock in July, and the other parts will be paid in November. It will be in Q4 cash flow. In our balance sheet, no major changes. We have still vessels, which are according to amortization schedule, the amount of which is going to be down according to amortization schedule. On the liability side, we have loans, which are also paid down according to loan amortization schedule. We have a very strong balance sheet where we have already an equity ratio of 54%.
It obviously means that since we do not have any incoming years, we need to have a very big investment. We have a normal annual maintenance investment in the size of €25 million- €30 million. We concentrate mostly now for paying dividends in the coming years. We have a solid liquidity situation. By the end of the quarter, we had cash and unused overdraft totally in the amount of €132 million. We do not have any changes in our loan portfolio structure. We have still now, in the last couple of years, three loans, one syndicated loan and two project loans, which are related to the building of MyStar and Megastar. The maturity is between three and nine years. Some of the loans are Euribor floating rate loans, and some fixed, but all are related obviously to Euribor.
On top of that, we have a €100 million overdraft limit, which was not in use at the end of this quarter. This is a short introduction of Q3 result. Thank you.
Thank you, Margus. We will now proceed as usual with the Q&A. I will read out the questions received, and Margus Schults will provide the answers. Due to a high number of questions received, and some of those are quite similar, we have grouped them. If you feel like your question is not answered, it is still answered. Let's kick off with the list now. What are the company's dividend expectations for 2026, and are there plans to consider a more progressive dividend model to reflect future earnings growth?
Tallink Grupp wants to be a good and reliable dividend provider for investors. We have a dividend policy which says that we pay at least €0.05 per share of dividends if our economic situation allows that. As I said already, we do not plan any large-scale new investments in the coming years, therefore, we are paying more dividends. This year, it was decided to pay $0.06 per share, $0.03 and $0.03 accordingly. Next year's dividends, we are planning to publish together with 2025 results, Q4 results, and whole year results in February. We will decide also the next year's dividend amount then.
Are you considering a share buyback program? If so, under what conditions might it be initiated? How does the company view buybacks relative to dividend payouts?
Our Board of Directors have a mandate from the shareholders' meeting to buy shares. This kind of mandate has been there already for decades and is renewed every third year when it's needed. We do not have today any plans to repurchase our own shares.
Is Tallink considering strategic partnerships to strengthen its market position and expand its route network or services?
We cooperate, of course, with different companies in our home markets regarding the sales and marketing activities. Regarding some kind of strategic partnership, we do not see in the near future this kind of need. We want to be, in the coming years, an independent and strong listed company.
Are there any planned enhancements to the Club One loyalty program or new initiatives such as subscription-based travel passes, partnerships with public transport systems, or discounted business passes?
We have already, like I said, 3.5 million Club One members. Obviously, since this is our strong asset for marketing and sales activities, we want to increase the number. One of the activities we are doing is now to renew the Club One program in the coming weeks. You will probably find in the coming weeks more information about the improvements of the program on our website. We concentrate in our Club One program mostly on our own activities and then maybe add pieces with our partners and so on. The key is to drive this ourselves.
Thank you. Are there plans to upgrade the fleet with hybrid or low-emission vessels? Has Tallink set specific CO2 reduction targets for 2030?
We have two LNG-powered vessels, Megastar and MyStar. We obviously decrease CO2 emissions by a number of activities. We are doing it every year. We are optimizing our energy systems. We are using different graphite paintings under the bottom of vessels in order to reduce water resistance, et cetera, et cetera. There is no one silver bullet to reduce CO2 emissions, but a lot of small, but each of cumulatively, of course, increase the CO2 emissions. We have a goal to reduce CO2 emissions by 2% per year. The baseline in the EU and IMO, International Maritime Organization, is 2008. Basically, from 2008, we have been able to reduce CO2 by 60%, 60% already. We are continuing according to the requirements with a pass of at least 2% per annum.
Is AS Tallink Grupp considering launching new routes and other plans to enhance the booking app or website?
Our core strength and core knowledge is relying on our three core markets. It's Estonia, Finland, and Sweden. Of course, we are monitoring constantly different potentials and new ideas, but we do not have any potential plans or specific plans currently on the table.
How does the company plan to stay competitive with the Viking Line?
Of course, it's good that we have competitors. We are actually constantly investing in the improvement of our vessel quality. I mean the quality not only on the technical side, but also on the passenger comfort. A good example was Baltic Princess, where we made $8 million investments to improve the facilities, which are for our passengers in Turku route. Yes, it's actually still more a question that we compete with home sofa and all other alternatives to spend free time, like maybe Netflix or Nintendo or maybe daily spa in onshore. This is where the real competition takes place. We try with different offers and also emotions, which people hopefully get positively on board on our vessel to encourage people to come for cruising.
Thank you. What is the average annual occupancy or load factor of AS Tallink Grupp's main routes? Are there any plans to optimize underperforming routes or internal operations for better cost efficiency?
We do not measure this kind of annual occupancy as maybe in airlines or maybe in hotels. This is because our choice of offers is much more complicated. We have different cabin categories. We have passengers with cars and without cars. Therefore, sometimes maybe if one cabin category is sold, people maybe postpone the trip just to get the desired cabin category. We do not monitor that. Obviously, we are constantly monitoring the developments in our main routes and optimizing the pricing and trying to maximize the bottom line. Obviously, we are working also on the routes in cost efficiency and profitability maintenance. Again, reminders that this year we have been able to sell three vessels, which is definitely reflecting full-time positive effects in 2026 results. We don't have a double effect. We do not have a negative result or negative cash flow from layup.
We have positive cash flows this year from the sales. In case of Romantica, we will have also hopefully positive cash flow from the charter revenues.
Thank you. The amount of cargo units in the routes between Finland and Sweden has been notably decreasing for a while. Is it due to economic uncertainties, or could the increased competition and fewer AS Tallink Grupp vessels on the route play a role? Do you have any plans to try to increase the amount of cargo in the route?
Cargo is one of the operational segments which is clearly in correlation with the GDP development in our home market. We can see that since now the GDP is improving slightly or the negative GDP numbers are becoming less, we can see also that the cargo volumes have been starting to improve step by step. It will take time. Between Finland and Sweden, it's obviously also the capacity which has been added. We know that our competitor, Finland's, have bought between Antalya and Sweden two new vessels which have a bigger carjack. It's a combination of economic uncertainties and also increased competition on that route. Cargo is also something where the contract is normally done for an annual basis. If in the consumer side, the changes in the market can be more fast than on the cargo side, it takes time.
Normally, this is now the autumn is a time when next year contracts are done. We hope that we can be better during 2026.
Assuming Euribor stays around current levels, is the Q3 interest expense a good indicator for coming quarters, or perhaps there are more loans up for adjustment?
We have not been, we are not able to assess what will be the Euribor level in the future. You can see the interest expense which is in Q3 2025, and then we are making down payments of loans, which of course means that the residual balance is constantly decreasing. What will be the Euribor in the Q4 or 2026, I am not able to say.
Seems like profitability on the Estonia-Sweden route improved significantly in Q3 2025. What is behind this improvement?
As mentioned, basically we had instead of two vessels last year, we had now one vessel there. As we already mentioned, we do not see that there is enough demand for two vessels on that route, at least not in 2025, perhaps also not in 2026. We can see that one vessel is doing basically a better result on the bottom line level than two vessels. The reason is that with two vessels, we have double the costs, but we are not able to, with maybe not so good consumer confidence conditions, we are not able to double the revenue. Revenue is less than double with two vessels, but costs are doubled. Therefore, one vessel, which means that the ship fulfillment rates are better, we can ask all for a better price from tickets, we make a better result.
Can you comment on the fuel price effect in Q3 2025 versus last year, if any, and also your fuel price strategy for 2026 with regards to hedging?
Yes, we are buying fuel from the total cost, whether we buy for Megastar and MyStar gas oil or LNG. Basically, we are continuing with spot purchase of fuels, and we are not planning to hedge for the time being.
Would it be possible to quantify the expected annual savings from having less ships in layup in 2026 versus 2025?
We have been saying that very roughly one big vessel, one cruise vessel, is making a loss of €1 million per month while staying in layup in the quay. The cargo vessels, I mean Regal Star, which is sold, and Sailor, which will be also delivered, obviously make a little bit less losses than a big cruise vessel. You can see now quarter reports segment other. The segment other also includes charter income. You can very roughly say that €1 million per month for a big cruise vessel in layup and then a little bit less for a cargo vessel.
How do you see Finnish consumer confidence developing over the next six months? What is your expectation?
We are not publishing any macroeconomic views in our reports, but we can see that there is some kind of light. We can see if reading media in Finland that the spending, for instance, in credit cards is somewhat increasing, but still consumers are very careful. Even there is no direct economic needs. Also, the savings in banks are on record high levels. Yes, there is probably some kind of light in the journal, but it's hard to say how sharp is the light and how quickly it's approaching us. We hope that the worst is over.
What could most influence Tallinn-Helsinki route's ability to increase profitability?
I mean, it's like everyday work. It's obviously we can generate more demand for that because we have down Tallinn-Helsinki. We have obviously people who are traveling on some kind of needs for work or to visit relatives or for some kind of event. We also have a cruise vessel Victoria, which is basically the 22-hour product for to spend free time. One way of obviously is to create more demand by having attractive offers, having attractive marketing, more targeted offers for people, more specific for individual needs. Obviously, what we are doing really many years is that also to have even more demand-based or dynamic pricing in our ticketing. We can generate maybe more people to come when the demand is lower by having a little bit better prices. On very high demand departures, we can again maybe add a few euros.
Who is currently the main passenger on the Tallinn-Helsinki route? A weekend tourist, a rider from Finland, or a commuter?
We do not measure or we do not know what is the purpose of traveling with us. Is it a weekend, spending a weekend in Tallinn or work? Obviously, comparing the long-term trend, we can see that with economic slowdown, there are less frequent commuters. It's very hard to say why they commute, what is the purpose for that. Since we have over 3 million passengers annually on that route, we obviously need everyone who we can find. There are different sales and marketing techniques and channels to attract them. We are basically working with passengers from A to Y.
Question about Finland-Sweden routes. Does this product segment have a future?
Yes, so we think that the product has a future. We can see if you look at the long-term trend over decades, the amount of passengers has been very stable. There is no decline in spite of all kinds of crises that we have had during the decades. We are also confident that especially in the lower season, the offering or the capacity has been too high. Now we can see in the moments when we have less vessels between Finland and Sweden, that the profitability has been improving. Yes, we think the future is there, but we are not assuming that capacity will return to pre-COVID levels.
AS Tallink Grupp gain more additional revenue from freight traffic related to the construction of Rail Baltica?
Potentially, yes, but obviously we do not have any speculation. We do not do any speculations regarding the timing or the future of Rail Baltic. We can probably be more wise when the years are going and the potential opening of Rail Baltic will be approaching. Potentially, yes, but we do not speculate on that item.
Looking ahead to 2026, what is the biggest risk and where could growth come from in the coming years?
We have listed our risks in our quarter report. All the risks are there. Obviously, as for everyone, probably the biggest risk is related to geopolitical developments in the whole Europe or eastern part of Europe. Also, obviously, the risk is how the home market economies are doing. We do not plan, like I said, currently we do not have on table any major new growth plans. We are concentrating to operate our current routes and hotel operations as efficiently as we can. If we can have a small increase of the number of passengers, the number of cargo, then already this will lead to the improvement on the bottom line because additional volumes go directly to the bottom line level as they do not need too much any variable additional costs.
Thank you. We are now moving to the questions submitted via Q&A function. I hope Silver doesn't mind that I will not ask the questions which have already been answered. Do I understand correctly that you have recorded the cost of carbon quotas which you have been required to submit for year 2024 in Q3 cost of goods? The cost of quotas you have to submit for this year will also be submitted and recorded in cost during Q3 2026? How does the dynamic exactly work and when are the costs reflected in your P&L?
The quotas are reflected on monthly or quarterly. Basically, we know already online how much emissions we produce every month, and we buy the quotas on a monthly basis. The costs are reflected on a monthly basis. The delivery of quotas to respective states in Finland, Estonia, and Latvia is done once in a year annually. In September 2025, we delivered the quotas to Estonia, Finland, and Latvia, but the cost was already booked in 2024. Respectively, the cost of quotas in 2025 is already every monthly in our results. 2025 quotas will be delivered to the states just as a transfer in September 2026.
Could you quantify investment needs for current fleet in Q4? What are the plans' needs for financial year 2026?
We do not specify the investment needs in quarterly. Typically, if you look at our investment profiles, then our investments are around €25 million, a little bit plus minus, €25 million per year. Mostly, the investments are concentrating on Q1, maybe a little bit Q2, because this is the time we are making our dockings due to the maybe weakest demand on the market. Some investments are done sometimes in Q3, Q4. Out of this investment, I would say more than 75% are related to vessels and the improvement of either technical condition of vessels or then maintenance or improving passenger comfort. Maybe less than 25% of investments are also IT investments. This is, of course, more stable during the year.
Have fuel costs been a tailwind for Q3 cost base? Could you quantify the year-on-year change in fuel costs for either Q3 or nine-month periods?
We are publishing the split of costs on annual levels. It will be after the Q4. As I said, we are buying the fuel from spots, and everyone can make their own conclusions from looking at what is the price of fuel on the market.
Thank you, Margus. That was the last question for today. We would like to thank everyone for attending and for your questions. We wish you a pleasant rest of the day. Our fourth quarter results will be published in February 2026. Thank you and goodbye.