AS Tallink Grupp Audited Annual Report of the 2018 Financial Year

Tallink Grupp AS and its subsidiaries (the Group) carried a record number of 9 756 611 passengers in 2018, 891 passengers more than in 2017. The number of cargo units transported increased by 5.7%. The Group’s revenue amounted to EUR 949.7 million (EUR 967.0 million in 2017). EBITDA was EUR 142.8 million (EUR 158.3 million, 2017) and net profit for the year EUR 40.0 million or EUR 0.06 per share (EUR 46.5 million or EUR 0.07 per share in 2017).

In 2018, the Group’s total revenue decreased by EUR 17.3 million to EUR 949.7 million.

• Total revenue from route operations (core business segments) increased by EUR 0.7 million to EUR 883.7 million despite a EUR 7.4 million decrease in revenue from the Finland-Sweden segment, which was mainly due to the 68-day maintenance of the cruise ferry Baltic Princess.
• Other revenue streams (segment other) decreased by EUR 19.4 million to EUR 74.8 million. The largest decrease occurred in charter revenue, which dropped by EUR 10.8 million because fewer ships were chartered out. There was also lower revenue from onshore shops (in Tallinn Old Harbour area) as the price level of products sold in onshore shops in Estonia has become less competitive after recent years’ excise duty increases. In addition, there was lower revenue from hotels because Tallink Pirita Spa Hotel in Tallinn ceased operations from November 2018 due to the sale of the hotel property by its owner.

The cargo business sustained growth in 2018. Transported cargo volumes increased by 5.7% and cargo revenues grew by 6.1% or EUR 7.1 million to EUR 124.9 million. The number of transported cargo units grew in all geographical segments, supported by positive economic developments in the Group’s main markets.

In 2018, the Group’s ships carried a total of 5.1 million passengers on the Estonia-Finland routes, 0.3% more than the year before, and the number of cargo units transported on the routes increased by 5.4%. On the Tallinn-Helsinki route competition increased through capacity added by competitors, which put pressure on ticket prices. However, the new shuttle vessel Megastar improved the efficiency of shuttle operations and the Group was able to improve the segment result despite a challenging competitive environment. The segment’s revenue increased by EUR 1.5 million to EUR 356.0 million and the segment’s result increased by EUR 2.4 million to EUR 80.3 million.

The Finland-Sweden routes’ revenue decreased by EUR 7.4 million to EUR 337.5 million and the segment’s result decreased by EUR 2.3 million to EUR 16.2 million. The first-quarter maintenance and repair of the cruise ferry Baltic Princess affected the Finland-Sweden segment’s carriage volumes and financial result. The segment’s result was also weakened by a rise in bunker prices which increased fuel costs.

The Estonia-Sweden routes’ revenue grew by EUR 1.7 million compared to 2017. Growth was supported by a 0.4% higher number of passengers and a 10.9% increase in the number of transported cargo units. The segment’s result decreased compared to the previous year due to higher fuel costs attributable to a rise in bunker prices.

The Latvia-Sweden route’s revenue increased by EUR 4.8 million compared to 2017. Growth was supported by a 7.0% higher number of passengers and a 24.5% increase in the number of transported cargo units. Positive development of the route’s carriage volumes and revenue continued in 2018. However, due to higher fuel costs resulting from an increase in bunker prices, the segment result improved by only EUR 0.2 million to EUR -1.0 million.

In 2018, the Group’s revenue and operating result were influenced by the following operational factors:

• The number of passengers travelling on the Group’s ships increased in almost all geographical segments (Estonia-Finland, Estonia-Sweden and Latvia-Sweden).
• The number of cargo units transported on the Group’s ships increased in all geographical segments.
• The first-quarter maintenance and repair of the cruise ferry Baltic Princess affected the Finland-Sweden segment’s carriage volumes and financial result.
• Charter revenue decreased compared to the same period last year as fewer ships were chartered out. 
• An increase in bunker prices drove up fuel costs.

Key figures

¹ Alternative performance measures based on ESMA guidelines are disclosed in the “Alternative performance measures” section of the report.

Sales

The Group’s revenue amounted to EUR 949.7 million in 2018 (967.0 million in 2017). Restaurant and shop sales on board and on shore in the total amount of EUR 524.4 million (536.7 million in 2017) contributed more than half of total revenue. Ticket sales amounted to EUR 243.8 million (242.7 million in 2017) and sales of cargo transport to EUR 124.9 million (111.7 million in 2017).

Geographically, 37.5% or EUR 356.0 million of revenue was generated by the Estonia-Finland routes and 35.5% or EUR 337.5 million by the Finland-Sweden routes. Revenue from the Estonia-Sweden routes was EUR 119.0 million or 12.5% and from the Latvia-Sweden route EUR 71.3 million or 7.5%. The share of revenue generated by other geographical segments decreased to 7.9% or EUR 74.8 million.

Earnings

Gross profit for 2018 amounted to EUR 183.8 million (EUR 194.6 million in 2017) and EBITDA to EUR 142.8 million (EUR 158.3 million in 2017). Net profit for 2018 was EUR 40.0 million (EUR 46.5 million in 2017). Net profit per share was EUR 0.06 (EUR 0.07 in 2017).

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

• Fuel costs grew by EUR 16.6 million due to an increase in bunker prices. At the same time, the Group achieved fuel savings. Through various energy efficiency initiatives, in 2018 the ships’ average fuel consumption per nautical mile decreased by 3.2%.
• Charter revenue decreased because fewer ships were chartered out compared to the previous year.
• Revenue from onshore shops (in the port area) decreased because the price level in onshore shops in Estonia has become less competitive after recent years’ excise duty increases.
• Nonrecurring costs incurred and proceeds received in 2018:

• • Costs of EUR 1.5 million from the listing of shares on the Nasdaq Helsinki Stock Exchange.
  • Costs of EUR 0.9 million from the termination of the lease of an old fuel tank.
  • Other proceeds of EUR 1.0 million received under a compensation agreement with the former owner of the Superfast vessels.

The cost of goods sold at shops and restaurants, which is the largest operating cost item, amounted to EUR 217.2 million (EUR 227.8 million in 2017).

Fuel costs for 2018 amounted to EUR 102.5 million (EUR 85.9 million in 2017). Fuel costs were impacted by an increase in carriage capacity and higher fuel prices throughout the year. As a result, annual fuel costs increased by 19.3%. The Group makes continuous efforts to improve and optimize its day to day operations and lower the fleet’s fuel costs.

The Group’s personnel expenses amounted to EUR 218.1 million (EUR 215.2 million in 2017). The average number of employees in 2018 was 7 430 (7 406 in 2017).

Administrative expenses for the period amounted to EUR 55.5 million and sales and marketing expenses to EUR 69.3 million (EUR 53.7 million and 71.3 million respectively in 2017).

Depreciation and amortisation of the Group’s assets totalled EUR 79.3 million (EUR 86.4 million in 2017). There were no impairment losses related to the Group’s property, plant and equipment and intangible assets.

Net finance costs decreased by EUR 2.3 million compared to the previous year, mainly through EUR 3.9 million lower interest expenses. Total gains from exchange rate differences and the revaluation of cross currency and interest rate derivatives decreased by EUR 1.6 million.

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 2018 was EUR 156.8 million (EUR 136.2 million in 2017).

The Group’s cash used in investing activities was EUR 35.7 million (EUR 86.8 million in 2017). 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 2018, the Group’s loan repayments totalled EUR 190.0 million (EUR 174.4 million in 2017), including the repayment of senior unsecured bonds of NOK 900 million issued in 2013. A term loan of EUR 110.0 million was taken to partly refinance the redemption of the bond issue.

Interest payments were EUR 19.4 million (EUR 20.7 million in 2017).

At 31 December 2018, the Group’s cash and cash equivalents totalled EUR 82.2 million (EUR 88.9 million at 31 December 2017). In addition, available unused overdraft credit lines amounted to EUR 75.0 million (EUR 75.0 million in 2017).

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

Consolidated statement of profit or loss and other comprehensive income

Consolidated statement of financial position

Consolidated statement of cash flows

Veiko Haavapuu
Financial Director
         
AS Tallink Grupp
Sadama 5/7, 10111 Tallinn
E-mail veiko.haavapuu@tallink.ee

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