Earnings Call: Q1 2022

May 10, 2022

Good morning, ladies and gentlemen. Welcome to webinarium, where we are going to introduce Q1 results from Port of Tallinn. My name is Valdo Kalm, and our CFO, Andrus Ait will be also on the stage. Main events. What we had in Q1, we got again a contract for Botnica for this summer. Botnica is in good shape, in good condition and preparing to leave to Canada. At the same time, we also running negotiations for the next periods. Just to inform that demand is there from Canadian client. Yeah, first of all, let's make this summer happen. We also signed a compromise agreement with Tallink in Q1, and we already covered this, and it's a compromise what is, so to say, win-win with all parties. We had a change in Management Board. Andrus Ait came as a board member and then CFO. Also, Andrus is now the member of supervisory board of the subsidiaries. Welcome, Andrus, again, and good luck for future. Thank you. There are some recognition for cruise terminal. Maybe one of the biggest was Grand Prix to the Annual Architecture Award 2021. Cruise terminal also very active in off season also. Now, of course, he started to serve the cruising customers also, but cruise terminal is really fully booked and the revenue is coming from events during Q1, during the winter, covering totally the cost. Therefore, this second plan B or business model works very well. We would like to notice that we signed a partnership on Baltic Sea, a green transport corridor between Tallinn, Gdynia, Roenne, and Rotterdam to establish green fuel, but also other on source power supply possibilities for the ships. That means that in the future we will have really green corridor also for cargo ships. We started such a first test with first by building title agreement in Old City Harbor, that's Laeva 5. That's really the model what we would like to establish here for real estate business that we wish signing a long-term rental or title agreement, and then we call on the tenders the investors to build here houses, offices. In this case, Laeva 5 will be the restaurant building, and the investor will invest and build that. Therefore, it's really the test, and the first tender was very successful. Let's see how we will continue. Maybe just good news that we had quite recently a very important meeting with city government to move on with the detailed planning to make them public. That's very important step how to really fix the detailed planning in four areas in Old City Harbor. Main trends in our businesses. Passenger business made a steep rise in terms of numbers and revenue. Of course, last year basis was very low, but honestly, it shows very good development. That's, of course, especially Tallinn, Helsinki, but also we got increase from Stockholm and it's good news that it continues even in April. We really got from Q1 with this increase some EUR 1 million to the EBITDA directly. Therefore, that's a good trend. On cargo side, despite of decline of volumes, we had stable revenue, even small increase. This volume went down from liquid bulk and from fertilizers. We had good growth from ro-ro and containers and, yeah, first time ro-ro catched liquid bulk volumes. That means there is some structural structural change also in revenues and in EBITDA. On ferry business, sorry, just comment on cargo side, that in March, we had sanctions on Belarus liquid bulk and then fertilizer terminal in Muuga. That of course continues, now we're waiting more concrete sanctions on liquid bulk. There are no concrete sanctions yet, they will come over the year. It's not clear, as we heard from European Union, definitely there will be up to October some sanctions on our liquid bulk. Moving on with ferry business, we also had revenue growth coming mainly from indexation and additional trips. Botnica made very stable Q1 with stable revenue and profits. All in all, we called Q1 quite successful because in all the segments we had increase of revenues. We will come back to that later on. Here are the volumes. We basically covered that, plus half a million passengers. Cargo, I already mentioned that, minus 8%, some structural changes on revenue side. Here you see shipping volumes on our TS Laevad, more passengers, more vehicles, and on our revenue side, indexation, and Botnica made a very stable period. Again, we have to still talk about the factors in our strange time or crisis time. We see recovery from COVID-19, but still impact from passenger business is there. Hopefully, we will see quite good spring and summer. It's very difficult to say what will happen in autumn, but at least, as I already mentioned, in April, the trend continues. There are more and more tourists and also cruising season opened quite successfully, and we already had two huge cruisers in our port. Sanctions against Russia and Belarus. Also, I mentioned that, with the Belarus, they are already effective. On our Russian, ships flags, they are active. We follow these sanctions definitely, bigger impact will be, I guess, in a coming period from liquid bulk. That's not clear when exactly, total impact is clear. We calculated, in the beginning of the year already that maximum effect or impact is about EUR 6 million in terms of revenues and a little bit less than in EBITDA. Of course, energy prices and climate change is ongoing trends. We were working on that also. We are very active on green agenda, how to say, and use this turnaround for our business also. Of course, on energy side, we were working with hybrid solutions on our shipping company. We would like to use this momentum and move into wind energy business. That's totally different story, and we will discuss it later on. All right. Please, Margus, Andrus, floor is yours. Sorry. Thank you, Valdo. Good morning from my side as well. As we look at the financial results, we see that we were able to increase the revenue, adjust EBITDA and profit, and taking into account all the circumstances, it is quite a good result from our point of view. The revenue increased by 7.1%, which is almost EUR 1.8 million. This was mainly driven by higher number of passengers. It's also important to mention that we managed to increase the revenue in all our segments and also almost in all our revenue streams. Only exception was vessel duties due to the lower cargo volumes. Adjusted EBIT has increased by 3.5%, which is almost half a million EUR. The revenue increased more than the costs. We also had good result in our joint venture company or associate company, Green Marine, which is handling waste management services. Therefore also, this had also positive impact to adjusted EBITDA. Adjusted EBIT lowered a bit from 52% to 50%. Operating profit remained at the same level as in the first quarter 2021. We didn't have any income tax because we didn't pay out any dividends in the first quarter. The dividend payment will be made on the 12th of May. This is day after tomorrow. This is similar to the last year. We'll report income tax on the second quarter. Profit for the period increased by 5% for more than EUR 300,000. It was more positive than the operating profit change because of lower income interest costs due to the lower debt level. On bottom line is, we see investments. We had increased investments by almost 30%, which is more than EUR 1 million. In the first quarter in 2021, we had relatively low investment level and this year, we invested mainly in Old City Harbor, where we restructured the surrounding area of passenger Terminal D. We also improved the vessel service equipment. In Muuga Harbor, we improved the cargo and ro-ro service capacity. By segment-wise, as I already mentioned, we see an increase of revenue in all our segments. The highest increase was in passenger segment. As I mentioned, it was driven by higher number of passengers. In cargo segment, we also increased the revenue by EUR 100,000. Despite of the drop in cargo volumes, we were able to increase the revenue. To explain that, the cargo charges for liquid bulk and for dry bulk are lower than cargo charges of ro-ro and containers and therefore, we managed to increase the revenue despite of the drop in cargo volumes. In the ferry segment, as Valdo already mentioned, the revenue increased, and this was mainly due to the indexation and also our partner, transportation administration ordered more trips and therefore, also the revenue increased. In the segment other, which contains the operations of Eesti Reklaamfilm, we also see a slight increase compared to the first quarter last year, in revenue and this was caused mainly by indexation. When we look at the EBITA figures, we see that EBITA has increased in passenger harbor segment and in the ferry segment, remain at same level in the segment other and decreased in the cargo harbor segment. In the cargo harbor segment, the costs was impacted by higher energy prices, and we also made a bit more repair works in this segment and therefore, the EBITDA has decreased. In the ferry segment, the increase in EBITDA is impacted by mainly 2 factors. First is that we made more trips and we had this indexation in June. In last year, in the 1st quarter, the weather conditions were also a bit tougher. There was more ice in the sea and therefore also, fuel costs per trip were higher than in this year. In the segment other, as I mentioned, the EBITDA remain at the same level. Here we also made a bit more repair works and, when we take this out, the EBITDA would be also EUR 100,000 positive than in this picture. Moving on with the cash flow and financial position. We don't see any significant change here on cash flow statement. The cash from operating activities has a bit decreased, as cash receipts from sale of goods and services has increased a bit less than payments to suppliers. This change is very, very little. Cash used in investing activities reflects the higher investment level and has therefore Negative cash flow has increased by almost EUR 600,000. Free cash flow was EUR 9.5 million, which is EUR 700,000 less than the first quarter last year. It mainly reflects the impact of investments. Cash used in financing activities has a bit decreased due to the lower debt level, and therefore we paid less interest costs. Net cash flow was in the first quarter EUR 6.2 million, compared to EUR 6.7 million last year, and the decrease reflects mainly this impact from investing activities. Net debt at the end of the period has decreased by EUR 15.8 million due to the loan repayments, reimbursement of bonds and also we had more cash in our bank accounts. On financial position, here we also don't see any significant change compared to the year-end period. The cash on accounts in banks has a bit increased and at the same time the debt level has decreased. With that, we will conclude our presentation. We have also some extra slides here about revenue generation and the EBITDA generation by segment part-wise. This you can browse later if you had if you have any interest about more detailed information. Now we will make a short break. You can send us questions by typing them in. On the right-hand side, you can see the question mark. By pushing that, you can send us questions, and we will back in a few minutes to answer your questions. Thank you for questions. I will repeat them, and then we will start answering. First one, do I understand correctly that currently the port is still handling Russian oil or liquid bulk, just not serving Russian vessels? What would be the decline in annual volumes if total cargo will disappear? Yes, the first answer is yes. We really don't serve Russian vessel or owned or under the Russian flag, but Russian liquid bulk is still there. If that will disappear, then we're talking about 6 million tons, what is in correlation with EUR 6 million. That's totally if all the Russian transit cargo will disappear. We have also a question about investments. Is the investment level seen in the quarter representative for the remaining quarters of the year? The answer is Thank you for the question. The answer is, the ongoing, or next quarters the investment level should be on the same level as it was on the first quarter. Maybe we see a little or slight decline in the last quarter because meaning if investment projects has related to Terminal D surrounding area project, which should be completed by the end of August or in the middle of September. The total investment level should be somewhere between EUR 12 million-EUR 15 million. Next question. Is the mentioned EUR 6 million possible negative impact of cargo revenues from sanctions for this year? What would be the full year impact in case of trade embargo with Russia and Belarus in 2023? Yes, the first answer is yes, that EUR 6 million, again, possible negative impact. Just explain that when we made the prognosis, then we already had lower, significantly lower numbers on fertilizers. We still consider that this EUR 6 million will cover all the sanctions. If we talk about 2023, then it's really difficult to say. First of all, we don't know yet the impact for this year. It depends of concrete decisions from EU, and we follow very carefully these rules. We already see that there are possibilities for new cargos, especially for example, on fertilizers. If one our terminal is under the sanction, then of course, on a market there is a need for fertilizers. That means that our other operators have the capabilities to serve also fertilizers. They have done it before, for example, in Muuga we have 3 bulk, dry bulk operators. Honestly, it's really difficult to describe what will happen next year because there are also possibilities for new cargo. Okay. We have also one question, about cruise ships. What is the current outlook of the cruise ship visit of the year? Our Ukrainian war cost worries still prevailing or some operators are returning? Yeah. Okay. You can start, and then I can add if. We see that we have estimatedly 170 cruise ship visit for this year, and some of the ships are already here. Definitely there is impact from the war, because the number of tourists on the ships has decreased per ship. There hasn't been any significant change in the last weeks, so we are positive and hope that this number of cruise ship visits will be here during the summer period. Yeah. just comment that, in the beginning of the year, we thought that maybe biggest risk comes from America or from American tourists and American cruising companies. now last week we had first, American company's huge cruise ship here. That's a positive sign that America is still with us on this business. Therefore, if we will fulfill this number what Andrus described, 100 fift- 70. 70, then it's a very good result. Next question. Do I understand correctly if there are no major objections from the public to the detailed plan, the tender for real estate developer would be launched this year? Thank you for the question. Let's put it so that that's maybe too optimistic. What I said that we started with one plot because we already separated this plot before we had detailed plan and permission to build the plot earlier. If we're talking about bigger plots, then this year, what will happen, that's the public such a discussion or opening for the discussion the detailed plans. That's the very important step for the fixing the detailed planning. That doesn't happen yet. That does not happen in this year yet. This year we don't have any tenders more. First of all, we have to fix the detailed plans for the area. All right. Thank you for the questions. Thank you for listening us and trust us and all the best. All the best.