Market announcement

Title

AS Tallink Grupp Audited Annual Report of the 2019 Financial Year

Message

Letter to shareholders


Dear shareholders


Despite tight competition, slowing cargo market and a high number of dockings at
the beginning of the year, Tallink Grupp had nonetheless a very successful
financial year in 2019. We transported a record number of passengers, achieved a
net profit just short of EUR 50 million and managed to acquire the franchise
rights of Burger King restaurants for the Baltics. We also made good progress
with the development of the new LNG Shuttle ferry MyStar as well as with
shifting our corporate culture even further towards operational efficiency,
customer service and environmental and social responsibility. In addition to
strengthening our core business, we started actively looking for opportunities
to expand Tallink Grupp's reach by employing our existing skills and knowledge
in new areas.

The prospects looked promising also in early 2020. The traffic volumes in the
first two months were good, preparations for opening the first Burger King
restaurants were under way and, lastly, we signed a Memorandum of Understanding
with the City of Tallinn and AS Infortar for the development of an international
conference and concert centre with our own port in Tallinn. However, as we are
all acutely aware, the global escalation of Covid-19 into a pandemic and the
resulting restrictions on movements in March 2020 have altered the operating
conditions for most companies and forced us to shift our focus away from
exciting growth prospects to ensuring the sustainability of our core business.

Tallink Grupp, together with many other tourism, transportation and service
companies, is among those hit financially the hardest by this global health
crisis and the travel and movement restrictions imposed by governments
worldwide. We fully understand and respect the necessity of the restrictions in
order to ensure public health and the safety of our societies. Yet the
consequent economic side effects are painful nonetheless.

Uncertainty is one of the challenges of the current situation and there is much
that is simply beyond our control. But I would like to assure you that we have
decisively focused, and will continue to focus, on the matters that we can
control and are taking decisive action to limit the impacts of this global
crisis on Tallink Grupp.

To minimise the costs and losses in the face of significantly lower demand, we
have temporarily scaled down our operations - some routes have been suspended
and only one hotel is open. As the focus has shifted to the health of our core
business, we are reducing other activities with more limited future prospects.
The cutbacks will help lower our direct variable costs: cost of goods, port fees
as well as fuel cost.

We are also looking to scale down on our ship operating and maintenance costs as
well as other costs of sales and overheads by postponing all the non-critical
investments and purchases. Of course, there cannot be any compromise on the
safety and technical condition of our assets. I would hereby like to commend our
business partners who have already shown initiative by reducing the costs of
their services and relaxing payment terms.

On the one hand, there is less flexibility with staff costs, one of our highest
costs. On the other hand, we are seeking to do everything in our power to save
the jobs of our full-time employees. With many ships suspended in ports there is
less work to offer. Thus, we have been negotiating with maritime labour unions
in our different markets and, in agreement with them, sent our staff on paid
leave where possible and on unpaid leave in some other cases. For the onshore
office and support staff in Estonia, for example, the workload and remuneration,
including the remuneration of the Management Board, have been reduced by 30%.
Our Supervisory Board has unanimously decided to waive their remuneration for
the coming months and I have personally asked for my salary to be halved for the
foreseeable future. While making our own efforts to maintain jobs, we are deeply
grateful for the salary compensation and other support provided by our home
markets' authorities. However, above all, I would like to thank all of our more
than 7000 employees for their commitment and professionalism in securing the
future of our company in these hard times - we are all in this together.

The uncertainty surrounding the timing and form of a solution to the Covid-19
situation remains high. The longer it takes, the greater the impact on the
economy, which in turn will affect the pace of recovery. We are not under the
illusion that we will be back to business as usual in just a few months. It is
likely that once the most acute crisis is over, incomes, public confidence and
spending power around the globe will remain under pressure and return to the
pre-crisis levels of demand will be gradual. Therefore, we are monitoring the
situation carefully and evaluating the best course of action for returning to
our scheduled services once the situation normalises.

Although the global nature of the situation poses its challenges, we are also
actively looking for new business opportunities and revenue sources. So far, we
have secured some short-term work by providing critical links for cargo flows
between Estonia and Germany, Finland and Sweden, and Estonia and Finland. As the
recovery of our core business may take time, we are also more active in
chartering out our vessels and services.

I am also grateful that our lending banks have been understanding in this
situation. We have been in active discussions with our lenders on the topics of
loan covenants and payment schedules. However, even with initial support
measures from governments, and our own cost-cutting and cash flow management
efforts, we are not going to be able to fully offset the temporary absence of
the majority of our business. Thus, we will continue to evaluate and pursue
options to ensure the necessary liquidity in the short term and to support
recovery and growth in the next few years.

In addition to the above, we have been in active consultations with the
governments of our home markets regarding the necessary support measures for
mitigating economic damage, including guarantees for liquidity loans and
measures aimed at lowering the risk of accruing losses during the market
recovery period when borders are re-opened. I am very grateful to the Estonian
government for the constructive approach and for the supplementary budget, to be
approved by the parliament, which contains measures supporting the Estonian
economy, the tourism sector and Tallink Grupp. In addition to the abovementioned
temporary salary compensation, the measures include a new salary compensation
regulation for the maritime workers of Estonian-flagged vessels - something that
has been in place for a long time in all our other home markets.

I am aware that only as recently as February did we tell you that we were
planning to share the profits of the successful 2019 with our shareholders and
increase dividends. However, in the changed conditions and in the long-term
interest of the company, our employees and shareholders, the only prudent course
of action is to leave the profit distributions to the future and focus on
weathering the current storm.

In summary, our current strategic focus is on managing costs and cash flows with
the aim of bringing Tallink Grupp through the current global crisis to continue
offering a great service and green, frequent and comfortable transportation
links, both for passengers and cargo, in the northern part of the Baltic Sea. My
personal promise to all our customers, employees and shareholders is - we will
cruise again!


Yours sincerely,

Paavo Nõgene
Chairman of the Management Board



AS Tallink Grupp Audited Annual Report of the 2019 Financial Year

The Group carried a record number of 9 763 210 passengers in 2019, 6 599
passengers more than in 2018. The number of cargo units transported decreased by
1.4% compared to 2018. The Group's revenue amounted to EUR 949.1 million (EUR
949.7 million in 2018). EBITDA was EUR 171.1 million (EUR 142.8 million in
2018) and net profit EUR 49.7 million or EUR 0.07 per share (EUR 40.0 million or
EUR 0.06 per share in 2018).

In 2019, the Group's total revenue decreased by EUR 0.6 million to EUR 949.1
million. Total revenue for 2018 and 2017 amounted to EUR 949.7 million and EUR
967.0 million, respectively. Revenue from route operations (core business)
decreased by EUR 0.6 million to EUR 883.2 million.

The core business was strongly affected by a weaker-than-expected cargo market,
caused mainly by the uncertainty surrounding the UK's withdrawal from the EU,
labour strikes in Finland in the fourth quarter of 2019, and added capacity,
which increased competition.

In 2019, the Group's ships carried a total of 5.1 million passengers on the
Estonia-Finland routes, a 0.7% increase compared to 2018, but the number of
cargo units transported on the routes decreased by 1.5%. Due to pressure on
ticket and cargo prices, resulting from increased competition, Estonia-Finland
routes' revenue decreased by EUR 2.0 million to EUR 354.0 million. However, the
segment result, which was supported by strong cost control, improved operational
efficiency and lower fuel costs, grew by EUR 0.1 million to EUR 80.4 million.

The Finland-Sweden routes' revenue increased by EUR 6.9 million to EUR 344.4
million. The segment result improved by EUR 10.6 million, rising to EUR 26.8
million. The positive development was supported by the absence of lengthy
maintenance and repair works of the kind the cruise ferry Baltic Princess had in
the first quarter of 2018, lower fuel costs and tight cost control.

The Estonia-Sweden routes' revenue decreased by EUR 6.7 million to EUR 112.3
million. The routes' carriage volumes and financial result were affected by
maintenance and repair works on the cruise ferry Baltic Queen in the first
quarter of 2019.

The Latvia-Sweden route's revenue increased by EUR 1.2 million compared to
2018. Growth was driven by a 0.5% higher passenger number and a 3.4% increase in
the number of transported cargo units. Supported by lower fuel costs and tight
cost control, the segment result increased by EUR 1.6 million, which exceeded
the route's revenue growth.

Revenue from the segment other decreased by a total of EUR 1.1 million and
amounted to EUR 73.7 million. The main reason for the decrease was lower revenue
from hotels, as Tallink Pirita Spa Hotel in Tallinn ceased operations from
November 2018 due to sale of the hotel property by the owner. Unlike
accommodation sales, there was an increase in sales at onshore shops, which was
supported by a lower excise duty rate effective in Estonia from 1 July 2019 and
new brand shops.

In 2019, the Group's revenue and operating results 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).
  * Planned dockings of seven ships. Among them, the maintenance and repair of
    the cruise ferry Baltic Queen lasted for 42 days, which affected the
    Estonia-Sweden segment's first quarter carriage volumes and financial
    result.
  * Competition in maritime traffic between Estonia and Finland put pressure on
    ticket and cargo prices.
  * Alcohol excise duty rate in Estonia was lowered, effective from 1 July 2019.
  * Lower bunkering prices, which were attributable to lower global prices, and
    fuel price agreements.
  * Tight cost control, investments in vessels' energy efficiency and automation
    projects.


Key figures

 For the year ended 31 December                    2019        2018        2017
-------------------------------------------------------------------------------
 Revenue (million euros)                          949.1       949.7       967.0

 Gross profit (million euros)                     196.9       183.8       194.6

 EBITDA¹ ² (million euros)                        171.1       142.8       158.3

 EBIT¹ (million euros)                             74.9        63.5        72.0

 Net profit for the period (million euros)         49.7        40.0        46.5



 Depreciation and amortisation³ (million
 euros)                                            96.2        79.3        86.4

 Capital expenditures¹ ?(million euros)            60.9        36.4       219.3

 Weighted average number of ordinary shares
 outstanding                                669 881 045 669 859 148 669 882 040

 Earnings per share¹                               0.07        0.06        0.07



 Number of passengers¹                        9 763 210   9 756 611   9 755 720

 Number of cargo units¹                         379 634     384 958     364 296

 Average number of employees¹                     7 270       7 430       7 406



 As at 31 December                                 2019        2018        2017
-------------------------------------------------------------------------------
 Total assets³ (million euros)                  1 533.0     1 500.9     1 558.6

 Total liabilities (million euros)                710.1       644.0       722.3

 Interest-bearing liabilities? (million
 euros)                                           577.9       510.1       560.9

 Net debt¹ (million euros)                        539.0       428.0       472.0

 Net debt to EBITDA¹                                3.1         3.0         3.0

 Total equity (million euros)                     822.8       856.9       836.3

 Equity ratio¹ (%)                                53.7%       57.1%       53.7%



 Number of ordinary shares outstanding      669 882 040 669 865 540 669 882 040

 Equity per share¹                                 1.23        1.28        1.25



 Ratios¹                                           2019        2018        2017
-------------------------------------------------------------------------------
 Gross margin (%)                                 20.7%       19.4%       20.1%

 EBITDA margin (%)                                18.0%       15.0%       16.4%

 EBIT margin (%)                                   7.9%        6.7%        7.4%

 Net profit margin (%)                             5.2%        4.2%        4.8%



 ROA (%)                                           4.8%        4.1%        4.3%

 ROE (%)                                           6.0%        4.8%        5.6%

 ROCE (%)                                          5.7%        5.2%        5.3%

 Current ratio                                      0.5         0.8         0.6

(1) Alternative performance measures based on ESMA guidelines are disclosed in
the "Alternative performance measures" section of the report.
?(2)? EBITDA adjusted for 2019 without the IFRS 16 adoption effect was EUR
153.7 million.
(3) Please see note 14 for the IFRS 16 adoption effect on assets.
(4) Please see note 16 for the IFRS 16 adoption effect on interest-bearing
liabilities.
(5) Does not include additions to right-of-use assets.


Sales

The Group's revenue amounted to EUR 949.1 million in 2019 (949.7 million in
2018). Restaurant and shop sales on board and on shore in the total amount of
EUR 536.6 million (524.4 million in 2018) contributed more than a half of total
revenue. Ticket sales amounted to EUR 240.7 million (243.8 million in 2018) and
sales of cargo transport to EUR 119.1 million (124.9 million in 2018).

Geographically, 37.3% or EUR 354.0 million of revenue was generated by the
Estonia-Finland routes and 36.3% or EUR 344.4 million by the Finland-Sweden
routes. Revenue from the Estonia-Sweden routes was EUR 112.3 million or 11.8%
and from the Latvia-Sweden route EUR 72.5 million or 7.6%. The share of revenue
generated by other geographical segments decreased to 7.8% or EUR 73.7 million.


Earnings

Gross profit for 2019 amounted to EUR 196.9 million (EUR 183.8 million in 2018)
and EBITDA to EUR 171.1 million (EUR 142.8 million in 2018). Net profit for
2019 was EUR 49.7 million (EUR 40.0 million in 2018). Net profit per share was
EUR 0.07 (EUR 0.06 in 2018).

The Group's profitability was influenced mainly by the following factors:

  * A total of EUR 12.9 million lower fuel costs. The fuel cost saving resulted
    from agreements with fuel suppliers, which fixed the price for 41% of the
    Group's total fuel purchasing volume for 2019, and savings on total fuel
    consumption, achieved through various energy efficiency initiatives. Fuel
    costs were also positively affected by lower global bunkering prices.
  * Higher income tax due to an increase in dividends compared to 2018.
  * Larger revenue from onshore shops (in the port area) due to a lower alcohol
    excise duty rate in Estonia, effective from 1 July 2019.
  * Nonrecurring costs of EUR 2.4 million including tax related to the
    termination benefits of managerial personnel.

The cost of goods sold at shops and restaurants, which is the largest operating
cost item, amounted to EUR 221.1 million (EUR 217.2 million in 2018).

Fuel costs for 2019 amounted to EUR 89.6 million (EUR 102.5 million in 2018).
Fuel costs were impacted by lower bunkering prices, which were attributable to
lower global prices, and fuel price agreements. As a result, annual fuel costs
decreased by 12.6%. The Group makes continuous efforts to improve and optimise
its day-to-day operations and lower the fleet's fuel costs.

The Group's personnel expenses amounted to EUR 223.5 million (EUR 218.1 million
in 2018). The average number of employees in 2019 was 7 270 (7 430 in 2018).

Administrative expenses for the period amounted to EUR 56.8 million and sales
and marketing expenses to EUR 67.7 million (EUR 55.2 million and 69.3 million,
respectively, in 2018).

Depreciation and amortisation of the Group's assets totalled EUR 96.2 million
(EUR 79.3 million in 2018). There were no impairment losses related to the
Group's property, plant and equipment and intangible assets.

Net finance costs decreased by EUR 1.2 million compared to 2018. The change
includes a decrease of EUR 4.5 million in interest expense and EUR 0.9 million
less gain on foreign exchange differences and the revaluation of cross currency
and interest rate derivatives. In addition, in 2019 there was interest expense
of EUR 2.3 million from liabilities related to right-of-use assets (IFRS 16
adoption effect).

The Group's exposure to credit risk, liquidity risk and market risks, and its
financial risk management activities are described in the notes to the financial
statements.


Liquidity and cash flow

The Group's net operating cash flow for 2019 was EUR 174.6 million (EUR 156.8
million in 2018).

The Group's cash used in investing activities was EUR 60.7 million (EUR 35.7
million in 2018). A number of investments were made to upgrade the ships'
restaurants, shops and cabins. Investments were also made in the development of
the online booking and sales systems. In addition, in the second quarter of
2019 the Group made a prepayment of EUR 12.4 million for a new LNG shuttle
vessel, MyStar.

In 2019, the Group's loan repayments totalled EUR 79.8 million (EUR 190.0
million in 2018).

Interest payments were EUR 16.7 million (EUR 19.4 million in 2018).

At 31 December 2019, the Group's cash and cash equivalents totalled EUR 38.9
million (EUR 82.2 million at 31 December 2018). In addition, available unused
overdraft credit lines amounted to EUR 90.0 million (EUR 75.0 million in 2018).

The Covid-19 crisis related deterioration of the operating environment
subsequent to the end of the reporting period and activities to ensure the
sustainability of operations are described in more detail in Note 24.

In management's opinion, the Group has sufficient liquidity to support its
operations.


Consolidated statement of profit or loss and other comprehensive income

 For the year ended 31 December, in thousands of EUR              2019     2018
-------------------------------------------------------------------------------
 Revenue (Note 4)                                              949 119  949 723

 Cost of sales (Note 5)                                       -752 234 -765 892
-------------------------------------------------------------------------------
 Gross profit                                                  196 885  183 831



 Sales and marketing expenses (Note 5)                         -67 727  -69 315

 Administrative expenses (Note 5)                              -56 555  -55 223

 Impairment loss on receivables (Note 23)                         -228     -272

 Other operating income                                          2 599    4 633

 Other operating expenses                                         -106     -153
-------------------------------------------------------------------------------
 Result from operating activities                               74 868   63 501



 Finance income (Note 5)                                           995    8 631

 Finance costs (Note 5)                                        -18 674  -27 552

 Share of loss/profit of equity-accounted investees (Note 12)       -4        4
-------------------------------------------------------------------------------
 Profit before income tax                                       57 185   44 584



 Income tax  (Note 6)                                           -7 467   -4 535



 Net profit                                                     49 718   40 049

 Net profit attributable to equity holders of the Parent        49 718   40 049



 Other compherensive income

 Items that may be reclassified to profit or loss

 Exchange differences on translating foreign operations            161      267
-------------------------------------------------------------------------------
 Other comprehensive income                                        161      267



 Total comprehensive income                                     49 879   40 316

 Total comprehensive income attributable to equity holders of
 the Parent                                                     49 879   40 316



 Basic and diluted earnings per share (in EUR, Note 7)           0.074    0.060
-------------------------------------------------------------------------------


Consolidated statement of financial position

  As at 31 December, in thousands of EUR                     2019        2018
------------------------------------------------------------------------------
  ASSETS

  Cash and cash equivalents (Note 8)                       38 877      82 175

  Trade and other receivables (Note 9)                     37 606      43 805

  Prepayments (Note 10)                                     6 805       6 084

  Prepaid income tax                                           67          46

  Inventories (Note 11)                                    37 255      35 741
------------------------------------------------------------------------------
  Current assets                                          120 610     167 851



  Investments in equity-accounted investees (Note 12)         403         407

  Other financial assets and prepayments(Note 13)           1 619         320

  Deferred income tax assets (Note 6)                      18 674      17 934

  Investment property                                         300         300

  Property, plant and equipment (Note 14)               1 347 093   1 267 928

  Intangible assets (Note 15)                              44 264      46 164
------------------------------------------------------------------------------
  Non-current assets                                    1 412 353   1 333 053

  TOTAL ASSETS                                          1 532 963   1 500 904



  LIABILITIES AND EQUITY

  Interest-bearing loans and borrowings (Note 16)          89 198      78 658

  Trade and other payables (Note 17)                       98 926     100 682

  Derivatives (Note 23)                                         0         918

  Payables to owners                                            6           2

  Income tax liability                                          0         116

  Deferred income (Note 18)                                33 314      32 113
------------------------------------------------------------------------------
  Current liabilities                                     221 444     212 489



  Interest-bearing loans and borrowings (Note 16)         488 682     431 477

  Other liabilities                                             0          22
------------------------------------------------------------------------------
  Non-current liabilities                                 488 682     431 499
------------------------------------------------------------------------------
  Total liabilities                                       710 126     643 988



  Share capital (Note 19)                                 314 844     361 736

  Share premium (Note 19)                                     663         662

  Reserves (Note 19)                                       69 608      69 474

  Retained earnings                                       437 722     425 044
------------------------------------------------------------------------------
  Equity attributable to equity holders of the Parent     822 837     856 916

  Total equity                                            822 837     856 916
------------------------------------------------------------------------------
  TOTAL LIABILITIES AND EQUITY                          1 532 963   1 500 904


Consolidated statement of cash flows

 For the year ended 31 December, in thousands of EUR              2019     2018
-------------------------------------------------------------------------------


 CASH FLOWS FROM OPERATING ACTIVITIES

 Net profit for the period                                      49 718   40 049

 Adjustments for:

 Depreciation and amortisation (Notes 14, 15)                   96 249   79 280

 Net loss on disposals of property, plant and equipment            -80     -104

 Net interest expense (Note 5)                                  17 644   19 806

 Net income/expense from derivatives (Note 5)                      111   -5 055

 Loss/profit from equity-accounted investees (Note 12)               4       -4

 Net unrealised foreign exchange loss                              107    4 294

 Treasury shares                                                    18        6

 Income tax (Note 6)                                             8 207    4 535
-------------------------------------------------------------------------------
 Adjustments                                                   122 260  102 758

 Changes in:

 Receivables and prepayments related to operating activities     4 740    2 407

 Inventories                                                    -1 514    4 934

 Liabilities related to operating activities                      -311    6 723
-------------------------------------------------------------------------------
 Changes in assets and liabilities                               2 915   14 064

 Cash generated from operating activities                      174 893  156 871

 Income tax paid                                                  -317      -87
-------------------------------------------------------------------------------
 NET CASH FROM OPERATING ACTIVITIES                            174 576  156 784



 CASH FLOWS FROM INVESTING ACTIVITIES

 Purchase of property, plant, equipment and intangible assets  -60 887  -36 037

 Proceeds from disposals of property, plant, equipment             192      368

 Interest received                                                   1        7
-------------------------------------------------------------------------------
 NET CASH USED IN INVESTING ACTIVITIES                         -60 694  -35 662



 CASH FLOWS FROM FINANCING ACTIVITIES

 Proceeds from loans received                                   45 000  110 000

 Repayment of loans received                                   -79 750  -69 666

 Repayment of bonds (Note 16)                                        0 -120 303

 Payments for settlement of derivatives                         -1 029   -3 569

 Payment of lease liabilities                                  -14 822     -108

 Interest paid                                                 -16 717  -19 440

 Payment of transaction costs related to loans                  -1 431   -1 113

 Dividends paid (Note 19)                                      -33 443  -20 096

 Reduction of share capital                                    -46 888       -1

 Income tax on dividends paid (Note 19)                         -8 100   -3 562
-------------------------------------------------------------------------------
 NET CASH USED IN FINANCING ACTIVITIES                        -157 180 -127 858



 TOTAL NET CASH FLOW                                           -43 298   -6 736
-------------------------------------------------------------------------------


 Cash and cash equivalents at the beginning of period           82 175   88 911

 Change in cash and cash equivalents (Note 8)                  -43 298   -6 736
-------------------------------------------------------------------------------
 Cash and cash equivalents at the end of period                 38 877   82 175


Veiko Haavapuu
Financial Director

AS Tallink Grupp
Sadama 5
10111 Tallinn, Estonia
E-mail [email protected] (https://www.globenewswire.com/Tracker?data=P3-
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