In the second quarter (1 April - 30 June) of the 2019 financial year Tallink
Grupp AS and its subsidiaries (the Group) carried 2.7 million passengers, which
is 0.8% more than in the second quarter last year. The Group's unaudited revenue
for the second quarter increased by 0.3% to a total of EUR 256.1 million.
Unaudited EBITDA for the second quarter was EUR 50.7 million (EUR 43.5 million
in Q2 2018) and unaudited net profit was EUR 14.9 million (net profit of EUR
15.3 million in Q2 2018).
In the second quarter, the Group's revenue and operating result were impacted by
the following operational factors:
* The number of passengers travelling on the Group's ships increased in almost
all geographical segments (Estonia-Finland, Finland-Sweden and Latvia-
Sweden).
* The competition on the maritime traffic between Estonia and Finland puts
pressure on ticket prices.
* In 2019 the Easter holidays, when traffic volumes usually increase, were in
April, last year the holidays were in March.
Sales and segments
In the second quarter of 2019, the Group's total revenue increased by EUR 0.7
million and amounted to EUR 256.1 million. The revenue in the second quarter of
2018 and 2017 was EUR 255.4 and EUR 259.9 million, respectively.
* The total revenue from the shipping operations in the Baltic Sea (core
business) increased by 0.5% or EUR 1.3 million to 235.8 million.
* The revenue from the other segment, including intra-group eliminations,
decreased by a total of EUR 0.6 million and amounted to EUR 20.3 million.
The decrease was driven largely by lower accommodation sales resulting from
the ceased operations of Tallink Pirita Spa Hotel in Tallinn from November
2018 due to sale of the hotel property by its owner.
In the second quarter of 2019, The Group's ships carried a total of 1.4 million
passengers on the Estonia-Finland routes, which is a 0.5% increase compared to
last year. The number of transported cargo units on the routes decreased by
0.8%. On the Tallinn - Helsinki route, added capacity by competitors further
increased pressure on ticket prices. The Estonia-Finland segment revenue
decreased by EUR 1.3 million and amounted to EUR 94.9 million. The segment
result increased by EUR 0.5 million and amounted to EUR 21.5 million.
The Finland-Sweden routes' revenue increased by EUR 1.0 million and amounted to
EUR 89.6 million. The segment result of Finland-Sweden routes increased by
29.1% or EUR 2.1 million, supported by an increase in the number of carried
passengers and transported cargo units.
While the number of passengers carried on the Estonia-Sweden routes decreased by
3.0% and the number of transported cargo units decreased by 10.4%, the routes'
revenue decreased only by 0.8% or EUR 0.3 million and amounted to EUR 31.3
million.
The Latvia-Sweden route's revenue increased by EUR 1.8 million, which is a 9.9%
increase compared to last year. The positive development of the route's
passenger and cargo carriage volumes continued in the second quarter of the
2019 financial year, which resulted in a 5.2% increase in the number of carried
passengers and a 7.4% increase in transported cargo units.
Earnings
In the second quarter of 2019, the Group's gross profit increased by EUR 3.6
million compared to the same period last year, amounting to EUR 60.6 million.
Second quarter EBITDA increased by EUR 7.2 million and amounted to EUR 50.7
million, second quarter comparable EBITDA, i.e. without IFRS 16 adoption effect,
increased by EUR 3.0 million compared to the same period last year and was EUR
46.5 million.
The Group's second quarter result was impacted positively by lower fuel cost
resulting from agreements with the fuel suppliers to fix the price for 41% of
total fuel purchasing volume for the 2019 financial year and from savings on
total fuel consumption, through various energy efficiency initiatives.
Amortisation and depreciation expense increased by EUR 3.6 million to EUR 23.3
million compared to the second quarter of 2018. The increase was mainly a result
of the IFRS 16 adoption effect in the amount of EUR 3.7 million.
Net finance costs decreased by EUR 0.6 million compared to the second quarter
last year. The change includes a decline of EUR 1.3 million in interest costs
compared to same period the previous year and EUR 150 thousand less profit from
foreign exchange differences and the revaluation of cross currency and interest
rate derivatives. In addition, in Q2 there is EUR 0.6 million interest expense
from right-of-use assets liabilities (IFRS 16 adoption effect).
Second quarter profit before income tax increased by 22.0% or EUR 4.1 million
compared to the same period last year and amounted to EUR 23.0 million.
Net profit for the second quarter of 2019 was impacted by the higher income tax,
which was related to increase in dividends compared to last year.
The Group's unaudited net profit for the second quarter of 2019 was EUR 14.9
million or EUR 0.022 per share compared to a net profit of EUR 15.3 million or
EUR 0.023 per share in the second quarter of 2018 and compared to a net profit
of EUR 17.9 million or EUR 0.027 per share in the second quarter of 2017.
Results of the first 6 months of 2019
In the first 6 months (1 January - 30 June) of the 2019 financial year the Group
carried 4.5 million passengers which is 1.2% less compared to the same period
last year. The Group's unaudited revenue for the period decreased by 1.0% and
was EUR 435.0 million. Unaudited EBITDA for the first 6 months was EUR 54.5
million (EUR 47.7 million, 6M 2018) and unaudited net loss was EUR 10.4 million
(EUR 4.3 million, 6M 2018 net loss).
The financial result of the first 6 months of 2019 was impacted by following
factors:
* Planned dockings of seven ships in the first quarter resulted in 50 trips
less compared to last year. Among other ships, the maintenance and repair of
the cruise ferry Baltic Queen lasted for 42 days, which affected the
Estonia-Sweden segment's carriage volumes and financial result.
* High competition on the maritime traffic between Estonia and Finland, which
puts pressure on ticket prices.
Investments
In the second quarter of 2019 financial year the Group's investments amounted to
EUR 18.5 million, which included a prepayment for the new ship in the amount on
EUR 12.4 million.
Investments were also made to the ships' technical maintenance and innovative
energy efficiency solutions as well as to the development of the online booking
and sales systems.
Dividends
In May 2019 the shareholders' annual general meeting decided to pay a dividend
of EUR 0.05 per share from net profit for 2018. The total dividend amount of EUR
33.5 million was paid out on 03 July 2019 (third quarter). In addition, to
improve the Company's capital structure, the shareholders' annual general
meeting decided to reduce the Company's share capital by EUR 0.07 per share or
by EUR 46.9 million, which is expected to be paid in December 2019. The list of
entitled shareholders was fixed on 20 June 2019.
Financial position
In the second quarter, the Group's net debt decreased by EUR 19.7 million to EUR
537.1 million and the net debt to EBITDA ratio was 3.6 at the reporting date.
At the end of the second quarter, total liquidity (cash, cash equivalents and
unused credit facilities) amounted to EUR 123.1 million (EUR 165.4 million at
30 June 2018) providing a strong financial position for sustainable operations.
At 30 June 2019, the Group's cash and cash equivalents amounted to EUR 67.1
million (EUR 90.4 million at 30 June 2018) and the Group had EUR 56.0 million in
unused credit lines (EUR 75.0 million at 30 June 2018).
Economic Environment
The Group considers Finland, Sweden, Estonia and Latvia its home markets as
these are the countries to and from the shipping routes are operated. In terms
of exposure to economic conditions, the Group is exposed the most to
developments in Finland as nearly half of the passenger originate from that
country. Exposure is also high to economic developments in Estonia (19% of total
passengers in 2018) and Sweden (11%). The number of passengers from Latvia
accounted for 5% of the total passengers in 2018 while the remaining 19% came
from the rest of the world, mainly Europe.
There is no data yet available for the GDP for the second quarter of 2019,
however, the apparent census of various sources for full year of 2019 has
projected the real GDP growth rates to slow relative to 2018 for all the home
markets. The first half-year's business confidence developments across all home
markets corroborate such expectations.
Further, the GDP growth rates of the first quarter of 2019 were in-line with the
annual expectations in Sweden and Latvia. The growth pace in Finland was even
slower relative to the full year consensus estimates. In Estonia, however, the
first quarter GDP growth rate was ahead of the expected pace for the full year.
According to the OECD data, the business confidence continued to decline across
all of the home markets also throughout the second quarter of 2019. For the
second quarter in a row, the decline was particularly steep in Estonia. Among
the Group's home markets business confidence remained the highest in Latvia with
a positive outlook towards the future also still present in Sweden. The
indicator implies businesses possessing a pessimistic outlook in Finland and
Estonia.
As the first quarter trends suggested the further weakening of the low
confidence of Swedish consumers effectively stopped in the second quarter of
2019. However, this was not the case with the Finnish consumers' confidence
which continued to plummet also in the second quarter of 2019. The confidence is
now clearly below the long-term averages. The long-term data also suggests
consumer confidence development being a leading indicator for business
confidence in Finland. Thus the short-term outlook for Finnish business
confidence is weak.
While the Finnish and Swedish consumers were more wary with their spending in
the second quarter due to relatively low confidence the consumer confidence in
Estonia and Latvia remained buoyant with consumers more inclined to spend rather
than save.
According to Eurostat's harmonised indices of consumer prices in the second
quarter of 2019, the price inflation increased relative to the inflation
measured in the first quarter of 2019 across all the home markets. The increase
in inflation rate was more substantial in Estonia and Latvia while the increase
in both Finland and Sweden was marginal. The inflation remained above the ECB
target rate of 2% in Estonia and Latvia and below the target in Sweden and
Finland.
The labour situation has remained challenging in the first half of the year
reflecting the recent low unemployment rates in the home markets, particularly
in Estonia. The situation of the Estonian labour market has also contributed to
the growing divergence between business and consumer confidence developments,
which steepened well in the first half of 2019.
Measured in euros the effective market prices of relevant fuels remained, on
average, at comparable levels to the second quarter of 2018. And lastly, the
operating environment on the Estonia-Finland route saw an increase in
competition with additional departures and capacity introduced during the
quarter.
Key risks to the economic environment in all of the home markets have to do with
uncertainties from increasing protectionist tendencies (including a potential
trade war between China and the US, the UK's withdrawal from the EU) and
potential deferral of investments leading to decreasing trade for all of the
open economies around the Baltic Sea. Also, global fuel prices are expected to
remain volatile due to uncertainties in the global economy and politics.
Events in Q2
Changes in the Management Board
On 22 February 2019, it was announced that the Supervisory Board appointed Mrs
Piret Mürk-Dubout as a Member of the Management Board. The mandate of Mrs Mürk-
Dubout started on 15 April 2019 and lasts for a period of three years.
Prepayment for the new ship
The first instalment of the prepayment according to the shipbuilding contract to
Rauma Marine Constructions in an amount of EUR 12.4 million was made in April
2019.
Dividends and capital reduction
In May 2019 the shareholders' general meeting decided to pay a dividend of EUR
0.05 per share from net profit for 2018. The total dividend in amount of EUR
33.5 million was paid out on 03 July 2019 (third quarter). The dividend related
income tax in amount of EUR 8.0 million was recorded in the second quarter. In
addition, to improve the Company's capital structure, the shareholders' annual
general meeting decided to reduce the Company's share capital by EUR 0.07 per
share or by EUR 46.9 million, which is expected to be paid in December 2019.
Events after the reporting period and outlook
Signing of the loan agreement
Tallink Superfast Ltd., a subsidiary of Tallink Grupp AS, and KfW IPEX-Bank GmbH
signed a loan agreement in the amount of EUR 197.6 million to finance the new
EUR 247 million LNG powered fast ferry currently under construction in Rauma
Marine Constructions Oy.
The loan is arranged and long-term financing is provided by KfW IPEX-Bank GmbH.
Finnish Export Credit Agency "Finnvera" guarantees 95% of this post-delivery
buyer credit.
The loan is secured by the mortgage on the new vessel and the corporate
guarantee of Tallink Grupp AS. This OECD-term export credit loan will be drawn
on the delivery of the vessel, presumably in the beginning of 2022 and has the
final maturity of twelve years from the drawdown.
Contingent risk
In the legal proceedings commenced in 1996 (against S.A. Bureau Veritas and Jos
L. Meyer Werft GmbH) the French court (Tribunal de Grande Instance de Nanterre)
reached a verdict on 19 July 2019 which found there to be no legal grounds for
the claims made against Bureau Veritas, which meant it was unnecessary to adopt
any verdicts regarding involved persons. The court decided to order Bureau
Veritas to pay Tallink Silja OY a compensation to cover the legal costs. The
said compensation has no significant impact on the financial results of the
Group.
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).
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 the results.
The Group is looking for innovative ways to upgrade our ships and passenger area
technology to improve the overall performance of our company through modern
solutions. A collaboration with the Tallinn University of Technology (TalTech)
was started in the first quarter of 2019 to develop so-called ?Smart Car Deck"
solutions for the Group's vessels over the next two years.
In addition to that, 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.
* 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 period Q2 2019 Q2 2018 Change %
-------------------------------------------------------------------------------
Revenue (million euros) 256.1 255.4 0.3%
Gross profit (million euros) 60.6 57.1 6.1%
EBITDA¹ (million euros) 50.7 43.5 16.6%
EBITDA adjusted² (million euros) 46.5 43.5 6.8%
EBIT¹ (million euros) 27.4 23.8 15.1%
Net profit for the period (million euros) 14.9 15.3 -2.6%
Depreciation and amortisation³ (million
euros) 23.3 19.7 18.5%
Capital expenditures¹ ?(million euros) 18.5 6.4
Weighted average number of ordinary shares
outstanding 669 882 040 669 882 040 0.0%
Earnings per share¹ 0.022 0.023 -2.6%
Number of passengers¹ 2 651 843 2 631 326 0.8%
Number of cargo units¹ 99 546 101 072 -1.5%
Average number of employees¹ 7 363 7 611 -3.3%
As at 30.06.19 31.03.19 Change %
-------------------------------------------------------------------------------
Total assets³ (million euros) 1 609.9 1 572.3 2.4%
Total liabilities (million euros) 800.0 744.0 7.5%
Interest-bearing liabilities? (million euros) 604.2 604.6 -0.1%
Net debt¹ (million euros) 537.1 556.8 -3.5%
Net debt to EBITDA¹ 3.6 3.9 -8.2%
Total equity (million euros) 809.9 828.3 -2.2%
Equity ratio¹ (%) 50.3% 52.7%
Number of ordinary shares outstanding 669 882 040 669 882 040 0.0%
Equity per share¹ 1.21 1.24 -2.2%
Ratios¹ Q2 2019 Q2 2018
-------------------------------------------------------------------------------
Gross margin (%) 23.7% 22.3%
EBITDA margin (%) 19.8% 17.0%
EBITDA margin adjusted² (%) 18.1% 17.0%
EBIT margin (%) 10.7% 9.3%
Net profit margin (%) 5.8% 6.0%
ROA (%) 4.0% 4.2%
ROE (%) 4.1% 5.5%
ROCE (%) 4.9% 5.3%
((1) Alternative performance measures based on ESMA guidelines are disclosed in
the Alternative Performance Measures section of this Interim Report.
(2) Comparable EBITDA for Q2 2019 without IFRS 16 adoption effect.
(3) Please see note 6 for IFRS 16 adoption effect on assets.
(4) Please see note 8 for IFRS 16 adoption effect on interest-bearing
liabilities.
(5) 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
Jan-Jun Jan-Jun
Unaudited, in thousands of EUR Q2 2019 Q2 2018 2019 2018
-------------------------------------------------------------------------------
Revenue (Note 3) 256 103 255 409 434 973 439 564
Cost of sales -195 469 -198 356 -363 840 -368 804
-------------------------------------------------------------------------------
Gross profit 60 634 57 053 71 133 70 760
Sales and marketing expenses -19 212 -20 329 -36 254 -36 642
Administrative expenses -14 443 -13 805 -29 511 -26 533
Other operating income 439 954 1 163 1 067
Other operating expenses -11 -54 -25 -81
-------------------------------------------------------------------------------
Result from operating activities 27 407 23 819 6 506 8 571
Finance income (Note 4) 93 2 880 1 095 5 958
Finance costs (Note 4) -4 506 -7 844 -9 837 -15 217
-------------------------------------------------------------------------------
Profit/loss before income tax 22 994 18 855 -2 236 -688
Income tax -8 104 -3 576 -8 129 -3 599
Net profit/loss for the period 14 890 15 279 -10 365 -4 287
Net profit/loss for the period
attributable to equity holders of the
Parent 14 890 15 279 -10 365 -4 287
Other comprehensive income
Items that may be reclassified to profit
or loss
Exchange differences on translating
foreign operations 257 461 422 393
-------------------------------------------------------------------------------
Other comprehensive income for the period 257 461 422 393
Total comprehensive income/loss for the
period 15 147 15 740 -9 943 -3 894
Total comprehensive income/loss for the
period attributable to equity holders of
the Parent 15 147 15 740 -9 943 -3 894
Earnings per share (in EUR, Note 5) 0.022 0.023 -0.015 -0.006
-------------------------------------------------------------------------------
Consolidated statement of financial position
Unaudited, in thousands of EUR 30.06.2019 30.06.2018 31.12.2018
-------------------------------------------------------------------------------
ASSETS
Cash and cash equivalents 67 070 90 402 82 175
Trade and other receivables 53 270 56 052 43 805
Prepayments 12 134 14 367 6 084
Prepaid income tax 46 49 46
Inventories 39 326 40 953 35 741
-------------------------------------------------------------------------------
Current assets 171 846 201 823 167 851
Investments in equity-accounted investees 407 403 407
Other financial assets 326 324 320
Deferred income tax assets 17 934 18 718 17 934
Investment property 300 300 300
Property, plant and equipment (Note 6) 1 373 420 1 285 775 1 267 928
Intangible assets (Note 7) 45 640 47 199 46 164
-------------------------------------------------------------------------------
Non-current assets 1 438 027 1 352 719 1 333 053
TOTAL ASSETS 1 609 873 1 554 542 1 500 904
LIABILITIES AND EQUITY
Interest-bearing loans and borrowings (Note
8) 108 190 163 235 78 658
Trade and other payables 107 626 107 003 100 682
Derivatives 0 28 441 918
Payables to owners 33 496 20 099 2
Income tax liability 8 049 3 562 116
Deferred income 46 635 45 284 32 113
-------------------------------------------------------------------------------
Current liabilities 303 996 367 624 212 489
Interest-bearing loans and borrowings (Note
8) 495 970 374 201 431 477
Other liabilities 0 16 22
-------------------------------------------------------------------------------
Non-current liabilities 495 970 374 217 431 499
-------------------------------------------------------------------------------
Total liabilities 799 966 741 841 643 988
Share capital (Note 9) 361 736 361 736 361 736
Share premium 663 639 662
Reserves 70 893 70 641 69 474
Retained earnings 376 615 379 685 425 044
-------------------------------------------------------------------------------
Equity attributable to equity holders of the
Parent 809 907 812 701 856 916
Total equity 809 907 812 701 856 916
-------------------------------------------------------------------------------
TOTAL LIABILITIES AND EQUITY 1 609 873 1 554 542 1 500 904
Consolidated statement of cash flows
Jan-Jun Jan-Jun
Unaudited, in thousands of EUR Q2 2019 Q2 2018 2019 2018
-------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net profit/loss for the period 14 890 15 279 -10 365 -4 287
Adjustments 36 133 28 140 65 377 52 543
Changes in:
Receivables and prepayments related to
operating activities -11 569 -12 513 -15 521 -18 538
Inventories -3 021 -3 455 -3 585 -278
Liabilities related to operating activities 14 154 19 064 21 704 25 420
-------------------------------------------------------------------------------
Changes in assets and liabilities -436 3 096 2 598 6 604
Cash generated from operating activities 50 587 46 515 57 610 54 860
Income tax paid -136 -19 -218 -71
-------------------------------------------------------------------------------
NET CASH FROM OPERATING ACTIVITIES 50 451 46 496 57 392 54 789
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant, equipment and
intangible assets (Notes 6, 7) -18 456 -6 284 -43 718 -14 649
Proceeds from disposals of property, plant,
equipment 64 16 142 42
Interest received 0 0 1 1
-------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES -18 392 -6 268 -43 575 -14 606
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of loans received (Note 8) -14 834 -12 834 -31 334 -27 334
Change in overdraft (Note 8) 9 152 -2 331 19 009 0
Payments for settlement of derivatives 0 -909 -1 029 -1 746
Payment of lease liabilities (Note 8) -3 667 -27 -7 134 -52
Interest paid -3 415 -3 854 -8 434 -9 560
-------------------------------------------------------------------------------
NET CASH USED IN FINANCING ACTIVITIES -12 764 -19 955 -28 922 -38 692
TOTAL NET CASH FLOW 19 295 20 273 -15 105 1 491
-------------------------------------------------------------------------------
Cash and cash equivalents at the beginning of
period 47 775 70 129 82 175 88 911
Increase in cash and cash equivalents 19 295 20 273 -15 105 1 491
-------------------------------------------------------------------------------
Cash and cash equivalents at the end of period 67 070 90 402 67 070 90 402
Veiko Haavapuu
Financial Director
AS Tallink Grupp
Sadama 5
10111 Tallinn, Estonia
E-mail veiko.haavapuu@tallink.ee
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