Published: 2020-05-07 18:30:00 CEST
Tallink Grupp
Quarterly report

AS Tallink Grupp Unaudited Consolidated Interim Report Q1 2020

In the first quarter (1 January – 31 March) of the 2020 financial year, Tallink Grupp AS and its subsidiaries (the Group) carried 1.6 million passengers, which is 15.6% less than in the first quarter last year. The number of cargo units transported increased by 7.0% in the same comparison. The Group’s unaudited consolidated revenue decreased by 13.4% or EUR 23.9 million to a total of EUR 154.9 million. Unaudited EBITDA was EUR -1.3 million (EUR 3.8 million in Q1 2019) and unaudited net loss was EUR 30.2 million (net loss of EUR 25.3 million in Q1 2019).

In the first quarter, the Group’s revenue and operating results were impacted by the following operational factors:

  • Increase in the number of carried passengers in January and February, 12.4% and 8.0%, respectively.
  • Drastic decrease in volumes in March due to Covid-19 resulting in 59.3% less passengers.
  • Planned dockings of five ships, totalling 69 days, which is 48 days less than in the first quarter last year.
  • Operations of 7 vessels and 3 hotels suspended since the travel restrictions were imposed in mid-March.

Impact of coronavirus disease Covid-19

Due to the global outbreak of Covid-19, the state of emergency declared in most of the Group’s home markets and the restrictions imposed by the authorities, the Group’s operating environment has deteriorated significantly subsequent to the end of reporting period.

Given the uncertainty regarding the duration of the crisis and the course of the post-crisis recovery, it is not possible to assess the financial impact of the Covid-19-related crisis reliably at the moment. Significant impact of the Covid-19 situation started only late in the quarter, resulting the number of passengers decline by 59.3% in March but only a 15.6% decrease for the entire quarter. More in line with the passenger development the first quarter revenue also declined by only 13.4% which contributed to net result to decline by EUR 6.9 million compared to last year’s normalised result (excluding one-off expenses). The true extent of the impact on our operations and results is more visible in our April passenger statistics – down 95.9% compared to last year.

In the current situation, the focus has shifted to cost and cash flow management to ensure the sustainability of the Group’s core business. Thus, we have scaled down on non-critical costs and investments.

Travel restrictions
To minimise the costs in the situation of lowered demand and imposed restrictions the Group made several operational changes.

Operations of Tallinn-Stockholm route vessels, Baltic Queen and Victoria I, were suspended from 15 March, Latvia-Sweden route vessels, Romantika and Isabelle, from 16 March and Helsinki-Stockholm route vessels, Silja Serenade and Silja Symphony, from 19 March. Operations of Tallinn-Helsinki route cruise ferry Silja Europa was suspended from 17 March and shuttle vessel Star from 18 March. Three hotels – Tallink City Hotel, Tallink Spa & Conference Hotel and Tallink Hotel Riga – have been closed since 18 March 2020. Tallink Express Hotel in Tallinn has remained open in limited capacity.  

Estonia-Finland routes shuttle vessel Megastar and cargo vessel Seawind, Paldiski-Kapellskär route cargo vessel Regal Star and Turku-Stockholm route cruise ferries Baltic Princess and Galaxy continued operating to ensure international movement of cargo.

In cooperation with Estonian Ministry of Foreign Affairs, cruise ferry Romantika performed an evacuation trip to Germany to bring home Estonians and Latvians who were not able to return home due to closed borders in Europe. In cooperation with Estonian Ministry of Economic Affairs and Communication, shuttle vessel Star was rerouted to Paldiski-Sassnitz route from 19 March to 18 April to ensure continuing transportation of goods between the Baltic and the Nordics and western Europe.

Changes concerning workload and remuneration of personnel
Due to the Covid-19 situation the following decisions relating to personnel were made in the first quarter of 2020:

  • the workload and remuneration of all Estonian personnel reduced to 70% for two months;
  • most of the Finnish personnel are on unpaid leave, except the staff on duty on vessels;
  • the workload of Swedish personnel reduced to 40% and remuneration reduced to 50%, except for the staff on duty on vessels;
  • the workload and remuneration of all Latvian personnel reduced to 70%;
  • the Members of Supervisory Board of Tallink Grupp AS waived their remuneration for three months;
  • the Chairman of the Management Board has requested his salary to be reduced to 50% and other Management Board Members’ salaries have been reduced to 70%.

After the reporting period, collective redundancies process was commenced, including among others hotel personnel and Latvian onboard personnel. To date the redundancies have affected approximately 10% of the Group employees.

Support measures
The Group has, after the reporting date, applied for temporary salary compensation measures offered by the states.

From late March the operations of Megastar and Turku-Stockholm route vessels have been backed by Finland’s National Emergency Supply Agency’s to ensure the cargo supply. The support is of crucial help to cover the operating expenses, however, there is no contribution to earnings.

Estonian parliament has approved change in legislation granting exemption from ships’ fairway dues for twelve months starting from April 2020.

Activities to improve liquidity
The Management Board has decided to propose to the Supervisory Board not to pay dividends from net profit for 2019.

An instalment for the construction of shuttle vessel MyStar, originally scheduled for the second quarter of 2020, was postponed to the third quarter of 2020 after negotiations with the shipyard.

To the date of the report the Group has been carrying out constructive negotiations with financial institutions regarding waivers of loan covenants and payment schedules.

To ensure sufficient liquidity the Group has, to the date of the report, been in consultations and negotiations with various financing institutions and State of Estonia regarding obtaining additional financing. Based on such activities the financial report has been prepared according to going concern principle.

Sales and segments

In the first quarter of 2020, the Group’s total revenue decreased by EUR 23.9 million to EUR 154.9 million. Total revenue in the first quarter of 2019 and 2018 was EUR 178.9 million and EUR 184.2 million, respectively.

Revenue from route operations (core business) decreased by EUR 25.8 million to EUR 143.7 million. Starting from March the passenger operations and segment results on all routes were significantly affected by Covid-19 situation and travel restrictions. Increase in cargo units was affected by changes in pricing policy.

The number of passengers carried on the Estonia-Finland routes decreased by 15.0% compared to last year but the number of transported cargo units increased by 8.3%. Estonia-Finland routes’ revenue decreased by EUR 11.2 million to EUR 59.2 million. The segment result decreased by EUR 3.7 million to EUR 3.3 million.

The number of passengers carried on the Finland-Sweden routes’ decreased by 16.9% but the number of transported cargo units increased by 4.6%. The route’s revenue decreased by EUR 10.7 million to EUR 57.2 million and the segment result decreased by 61.3% or EUR 3.1 million to EUR -8.2 million.

On Estonia-Sweden routes’ the number of passengers carried decreased by 9.6% but the number of transported cargo units increased by 14.9%. Despite the 7.4% decrease in the routes’ revenue, the segment result decreased by 2.2% to EUR -4.7 million. The results were supported by the absence of the lengthy maintenance and repair works cruise ferry Baltic Queen had in the first quarter of 2019.

On the Latvia-Sweden route the transported passengers and cargo units decreased by 21.3% and 20.3%, respectively. The route’s revenue decreased by EUR 2.5 million compared to last year and amounted to EUR 10.1 million. The segment result decreased by EUR 1.3 million to EUR -5.3 million.

Revenue from the segment other increased by a total of EUR 1.8 million and amounted to EUR 12.5 million. The increase was mainly driven by higher sales from onshore shops and revenue from stevedoring services at the Tallinn Old City Harbour as a result of winning a public tender.

Earnings

In the first quarter of 2020, the Group’s gross profit decreased by EUR 10.7 million compared to the same period last year, amounting to EUR -0.2 million. EBITDA decreased by EUR 5.0 million and amounted to EUR -1.3 million.

The Group’s first quarter result was positively impacted by the increase in passenger volumes in January and February as well as the absence of nonrecurring costs such as in the first quarter of 2019. However, the fear surrounding the virus and travel restrictions in force across Europe had a significant negative impact.

Amortisation and depreciation expense increased by EUR 0.1 million to EUR 24.8 million compared to last year.

Net finance costs decreased by EUR 0.2 million compared to the first quarter last year. The change includes a decrease of EUR 0.2 million in interest expense.

The Group’s unaudited net loss for the first quarter of 2020 was EUR 30.2 million or EUR 0.045 per share compared to a net loss of EUR 25.3 million or EUR 0.038 per share in 2019 and net loss of EUR 19.6 million or EUR 0.029 per share in 2018.

Investments

The Group’s investments in first quarter of 2020 amounted to EUR 27.1 million. In the first quarter there were planned dockings of five vessels: Seawind, Megastar, Romantika, Silja Europa and Silja Symphony. The planned service breaks of five vessels totalled 69 days in the first quarter of 2020 (117 days in the first quarter of 2019).

Investments were made in the ships’ technical maintenance, upgrades of public areas and a number of energy efficiency projects as well as projects to reduce emissions such as the trial of a wind-assisted ship propulsion unit on Regal Star and the installation of the ballast water treatment system and the replacement of the vessel’s provision cooling system on Silja Europa.

The Group’s investments included a prepayment of EUR 12.4 million for a new LNG shuttle vessel, MyStar.

Investments were also made in the development of the online booking and sales systems as well as other administrative systems.

Dividends

Due to a deteriorated operating environment after the reporting date and considering the Company’s long-term interests, the Management Board has decided to propose to the Supervisory Board not to pay dividends from net profit for 2019.

Financial position

In the first quarter, the Group’s net debt increased by EUR 35.5 million to EUR 574.5 million and the net debt to EBITDA ratio was 3.5 at the reporting date.

At the end of the first quarter, total liquidity buffer (cash, cash equivalents and unused credit facilities) amounted to EUR 79.2 million (EUR 112.9 million at 31 March 2019). At the same time, the current trade and other payables amounted to EUR 100.7 million exceeding the liquidity buffer 1.27 times. The respective figures for the end of the first quarter of 2019 were EUR 97.8 million and 0.87.

At 31 March 2020, the Group’s cash and cash equivalents amounted to EUR 16.5 million (EUR 47.8 million at 31 March 2019) and the Group had EUR 62.7 million in unused credit lines (EUR 65.1 million at 31 March 2019).

Economic Environment

The Group operates shipping routes to and from Finland, Sweden, Estonia and Latvia and therefore considers these countries its home markets. As nearly half of all the passengers are Finnish, the Group is exposed the most to the economic developments in Finland. Similarly, the Group faces high exposure to the economic developments in Estonia and Sweden.

In the first two months of 2020, the economic environment was favourable for our passenger operations. Less docking days compared to 2019 and stable consumer confidence reflected in the number of carried passengers improving 10% in January-February. From March, the environment has significantly deteriorated and has been defined by the outbreak of Covid-19 and the extensive travel and other restrictions applied across our home markets from mid-month. The combined effects from lower demand, travel restrictions and decreased supply to minimise the costs, resulted in the 59% drop in the number of passengers carried in March 2020. The developments around Covid-19 and the various containment measures will continue to be the key aspect of the operating environment with the impact visible first hand in our passenger volumes, as truly evident in the 96% decline in the number of passengers carried in April 2020.

Although the confidence of businesses had started to recover from the lengthy deterioration and a low point reached in the preceding quarter across our home markets, the overall cargo market remained weak in the first quarter of 2020, particularly January and February. Our volumes were largely supported by adjustments in the pricing policy and the sudden spike in demand for consumer goods in March. The current halt of the economies is expected to start weighing on the consumer and business confidence, implied also by the already rising unemployment across our home markets. Therefore, the environment for our cargo operations is expected to weaken in the coming periods.

The concerns regarding decreasing demand due to Covid-19 related global economic slowdown combined with oil-politics fuelled increase in the supply, resulted in a sharp decline in global fuel prices from mid-March. The effective market prices of the relevant fuels (in euros) were in the first quarter of 2020, on average, 20% lower compared to last year’s prices. As a combination of the changes in the market prices and our price-fixing agreements, the effective average fuel price in the first quarter of 2020 was 5% lower than this time last year.

Currently, the key risk has to do with global and regional developments with the Covid-19 situation and related restrictions on travel and other economic activities. In addition, the duration of the situation and its economic damage and its impact on local and international trade.

Events in Q1

Fuel price risk management
In the first quarter of 2020, the Group entered into agreements with its main fuel suppliers and fixed the purchase price of fuel equivalent to about 65% of its total estimated fuel volume for 2020. The average agreed price was about 5.5% lower compared to the average price of similar agreements for 2019.

Due to the Covid-19 situation, more flexible terms were negotiated and agreed with one of the fuel suppliers in April, according to which we are purchasing fuel at market prices until our performance recovers to an agreed level. From the other supplier we continue to purchase at fixed price, but as per our contractual notification in April, only in the volume of our actual consumption.

Changes in the Group structure
In February 2020, Hansatee Cargo AS, a wholly-owned subsidiary of Tallink Grupp AS, was merged with the Group company Tallink AS and thereafter deleted from the Commercial Registry.

Signing the Memorandum of Understanding
On 26 February 2020, Tallink Grupp AS, the Group’s largest shareholder Infortar AS and the City of Tallinn signed a memorandum of understanding to develop the city owned architectural monument Tallinn City Hall and its adjacent properties into a top conference and concert centre in the Baltic Sea region with an accompanying Tallink port in the city centre to improve the attractiveness of Tallinn as a tourist destination and to offer local citizens new recreational opportunities.

According to the memorandum, the project parties agreed to establish a joint venture in which the City of Tallinn will hold a 34% stake and both the Group and Infortar AS will hold a 33% stake, and upon establishment, to make initial contributions pro rata to their shareholding and in the total amount of EUR 1 million.

Events after the reporting period and outlook

Developments with the new shuttle vessel MyStar
The physical production process of MyStar started on 6 April 2020 in Rauma shipyard in Finland. Prepayment in the amount of EUR 49.4 million will be made in the third quarter of 2020.

Increase of overdraft limit
In April, the Group extended its existing overdraft facility with Danske Bank A/S by EUR 20.0 million. The increase of the overdraft facility helps to improve the Group’s liquidity.  

Changes in the Audit Committee
The Supervisory Board of Tallink Grupp AS has decided to recall Luke Staniczek from the Audit Committee. From 17 April, the Audit Committee continues with three members including Meelis Asi (Chairman of the Audit Committee), Ain Hanschmidt and Mare Puusaag.

Tallink Ekspress e-shop
On 20 April 2020, a new Tallink Ekspress e-shop was opened, in which different food products, alcohol and non-alcohol drinks as well as basic necessities are sold. Home delivery service is provided by Tallink Takso.

Changes in the Group structure
In April 2020, TLG Agent OÜ, a wholly-owned subsidiary of Tallink Grupp AS, was renamed LNG Shipmanagement OÜ. The main activity of the subsidiary is to provide crewing service. 

Earnings
The Group’s earnings are not generated evenly throughout the year. The summer period is the high season in the Group’s operations. In management’s opinion and based on prior experience most of the Group’s earnings are generated during the summer (June-August).

Due to the ongoing Covid-19 situation the earnings outlook for 2020 has become highly uncertain and will be largely subject to external factors such as the states’ decisions regarding the timing of lifting of the travel restrictions, allowing passenger traffic as well as the duration of the recovery period.

Research and development projects
Tallink Grupp AS does not have any substantial ongoing research and development projects. The Group is continuously seeking opportunities for expanding its operations in order to improve its results.

The Group is looking for innovative ways to upgrade the ships and passenger area technology to improve its overall performance through modern solutions. The most recent project, in collaboration with ports in the Baltic Sea area, involves making preparations for the use of high-voltage shore connection during the vessels’ port stays. Another ongoing collaboration project with Tallinn University of Technology (TalTech) involves the development of smart car deck solutions.

In addition, the Group is participating in a programme, funded by the European Space Agency, with a goal to develop techniques for autonomous navigation for ships, using a combination of different sensors, machine learning and artificial intelligence.

Risks
The Group’s business, financial position and operating results could be materially affected by various risks. These risks are not the only ones we face. Additional risks and uncertainties not presently known to us, or that we currently believe are immaterial or unlikely, could also impair our business. The order of presentation of the risk factors below is not intended to be an indication of the probability of their occurrence or of their potential effect on our business.

  • Covid-19 situation and developments
  • Accidents, disasters
  • Macroeconomic developments
  • Changes in laws and regulations
  • Relations with trade unions
  • Increase in the fuel prices and interest rates
  • Market and customer behaviour


Key figures

For the periodQ1 2020Q1 2019Change %
Revenue (million euros)154.9178.9-13.4%
Gross profit (million euros)-0.210.5-101.6%
EBITDA¹ (million euros)-1.33.8-133.4%
EBIT¹ (million euros)-26.0-20.9-24.6%
Net profit/loss for the period (million euros)-30.2-25.3-19.6%
    
Depreciation and amortisation (million euros)24.824.70.4%
Capital expenditures¹ ²(million euros)27.125.37.2%
Weighted average number of ordinary shares outstanding669 882 040669 878 0070.0%
Earnings/loss per share¹-0.045-0.038-19.6%
    
Number of passengers1 566 7301 855 772-15.6%
Number of cargo units99 61793 1147.0%
Average number of employees7 0667 097-0.4%
    
As at31.03.2031.12.19Change %
Total assets (million euros)1 517.81 533.0-1.0%
Total liabilities (million euros)724.5710.12.0%
Interest-bearing liabilities (million euros)591.0577.92.3%
Net debt¹ (million euros)574.5539.06.6%
Net debt to EBITDA¹3.53.19.8%
Total equity (million euros)793.2822.8-3.6%
Equity ratio¹ (%)52%54% 
    
Number of ordinary shares outstanding669 882 040669 882 0400.0%
Equity per share¹1.181.23-3.6%
    
Ratios¹Q1 2020Q1 2019 
Gross margin (%)-0.1%5.9% 
EBITDA margin (%)-0.8%2.1% 
EBIT margin (%)-16.8%-11.7% 
Net profit/loss margin (%)-19.5%-14.1% 
    
ROA (%)4.5%3.8% 
ROE (%)5.5%4.1% 
ROCE (%)5.3%4.6% 

1 Alternative performance measures based on ESMA guidelines are disclosed in the Alternative Performance Measures section of this Interim Report.
2 Does not include additions to right-of-use assets.

EBITDA: result from operating activities before net financial items, share of profit of equity-accounted investees, taxes, depreciation and amortization
EBIT: result from operating activities
Earnings per share: net profit / weighted average number of shares outstanding
Equity ratio: total equity / total assets
Shareholder’s equity per share: shareholder’s equity / number of shares outstanding
Gross margin: gross profit / net sales
EBITDA margin: EBITDA / net sales
EBIT margin: EBIT / net sales
Net profit margin: net profit / net sales
Capital expenditure: additions to property, plant and equipment – additions to right-of-use assets + additions to intangible assets
ROA: earnings before net financial items, taxes 12-months trailing / average total assets
ROE: net profit 12-months trailing / average shareholders’ equity
ROCE: earnings before net financial items, taxes 12-months trailing / (total assets – current liabilities (average for the period))
Net debt: interest-bearing liabilities less cash and cash equivalents
Net debt to EBITDA: net debt / EBITDA 12-months trailing


Consolidated statement of profit or loss and other comprehensive income

Unaudited, in thousands of EURQ1 2020Q1 2019
Revenue (Note 3)154 930178 870
Cost of sales-155 102-168 371
Gross loss /profit-17210 499
   
Sales and marketing expenses-13 948-17 042
Administrative expenses-13 424-15 068
Other operating income1 532724
Other operating expenses-22-14
Result from operating activities-26 034-20 901
   
Finance income (Note 4)11 002
Finance costs (Note 4)-4 112-5 331
Loss before income tax-30 145-25 230
   
Income tax -53-25
   
Net loss for the period-30 198-25 255
Net loss for the period attributable to equity holders of the Parent-30 198-25 255
   
Other comprehensive income  
Items that may be reclassified to profit or loss  
Exchange differences on translating foreign operations585165
Other comprehensive income for the period585165
   
Total comprehensive loss for the period-29 613-25 090
Total comprehensive loss for the period attributable to equity holders of the Parent-29 613-25 090
   
Loss per share (in EUR, Note 5)-0.045-0.038


Consolidated statement of financial position

Unaudited, in thousands of EUR31.03.202031.03.201931.12.2019
ASSETS   
Cash and cash equivalents16 46247 77538 877
Trade and other receivables31 11242 02337 606
Prepayments11 63111 8316 805
Prepaid income tax18167
Inventories39 45236 30537 255
Current assets98 658138 015120 610
    
Investments in equity-accounted investees403407403
Other financial assets and prepayments1 8473071 619
Deferred income tax assets18 67417 93418 674
Investment property300300300
Property, plant and equipment (Note 6)1 353 8681 369 7151 347 093
Intangible assets (Note 7)44 02345 58144 264
Non-current assets1 419 1151 434 2441 412 353
TOTAL ASSETS1 517 7731 572 2591 532 963
    
LIABILITIES AND EQUITY   
Interest-bearing loans and borrowings (Note 8)100 784100 64689 198
Trade and other payables100 67997 84598 926
Payables to owners626
Income tax liability01160
Deferred income32 86741 46533 314
Current liabilities234 336240 074221 444
    
Interest-bearing loans and borrowings (Note 8)490 213503 930488 682
Non-current liabilities490 213503 930488 682
Total liabilities724 549744 004710 126
    
Share capital (Note 9)314 844361 736314 844
Share premium663663663
Reserves69 68169 14569 608
Retained earnings408 036396 711437 722
Equity attributable to equity holders of the Parent793 224828 255822 837
Total equity793 224828 255822 837
TOTAL LIABILITIES AND EQUITY1 517 7731 572 2591 532 963


Consolidated statement of cash flows

Unaudited, in thousands of EURQ1 2020Q1 2019
   
CASH FLOWS FROM OPERATING ACTIVITIES  
Net loss for the period-30 198-25 255
Adjustments29 38729 244
Changes in:  
Receivables and prepayments related to operating activities1 645-3 952
Inventories-2 197-564
Liabilities related to operating activities2 2377 550
Changes in assets and liabilities1 6853 034
Cash generated from operating activities8747 023
Income tax repaid/paid13-82
NET CASH FROM OPERATING ACTIVITIES8876 941
   
CASH FLOWS FROM INVESTING ACTIVITIES  
Purchase of property, plant, equipment and intangible assets (Notes 6, 7)-27 070-25 262
Proceeds from disposals of property, plant, equipment4478
Interest received11
NET CASH USED IN INVESTING ACTIVITIES-27 025-25 183
   
CASH FLOWS FROM FINANCING ACTIVITIES  
Proceeds from loans received (Note 8)15 0000
Repayment of loans received (Note 8)-14 667-16 500
Change in overdraft (Note 8)12 2589 857
Payments for settlement of derivatives0-1 029
Payment of lease liabilities (Note 8)-3 915-3 467
Interest paid-4 748-5 019
Payment of transaction costs related to loans-2050
NET CASH FROM/USED IN FINANCING ACTIVITIES3 723-16 158
   
TOTAL NET CASH FLOW-22 415-34 400
   
Cash and cash equivalents at the beginning of period38 87782 175
Change in cash and cash equivalents-22 415-34 400
Cash and cash equivalents at the end of period16 46247 775

 

Veiko Haavapuu
Financial Director

AS Tallink Grupp
Sadama 5
10111 Tallinn, Estonia
E-mail veiko.haavapuu@tallink.ee

Attachments


Tallink Grupp 2020 Q1 ENG.pdf
Tallink Grupp 2020 Q1 Financial Data.xlsx
Tallink Grupp 2020 Q1 Presentation.pdf