Tallink Grupp
Quarterly report

AS Tallink Grupp Unaudited Consolidated Interim Report Q4 2022

The Q4 2022 results of AS Tallink Grupp will be introduced at an Investor Webinar held today at 12:00 (EEST). To participate, please join via the following link; we kindly ask participants to provide their questions latest by 11:00 by email to: investor@tallink.ee. Further details are available in a previously published announcement.

In the 2022 financial year (1 January – 31 December), AS Tallink Grupp and its subsidiaries (the Group) carried 5 462 085 passengers, which is 84.4% more than in the financial year 2021. The number of cargo units transported increased by 11.0% compared to the previous financial year. The Group’s unaudited consolidated revenue amounted to EUR 771.4 million (EUR 476.9 million in 2021), up by 61.7%. Unaudited EBITDA was EUR 135.8 million (EUR 58.3 million in 2021) and the unaudited net profit for the period was EUR 13.9 million (net loss of EUR 56.6 million in the financial year 2021).

The following operational factors impacted the Group’s revenue and operating results in the financial year 2022:

• In the beginning of the financial year, the Group’s operations and operating results were continuously influenced by the COVID-19 in all home markets. The demand for travelling increased after the travel restrictions were lifted in February in Finland and Sweden, and in Estonia from mid-March.
• The demand was negatively impacted by the war in Ukraine that Russia unleashed on 24 February 2022 and the hindered recovery of inbound tourism from Asia due to COVID-19 related travel restrictions in these countries.
• The delivery of shuttle vessel MyStar to the Tallinn-Helsinki route in mid-December increased the total number of vessels operated by the Group to 15 – including 3 shuttle vessels, 2 cargo vessels and 4 cruise ferries as well as 6 vessels on charter (2 vessels on long-term and 4 vessels on short-term charter).
• The Group operated 3 hotels in Tallinn while the Riga Hotel has remained closed since October 2020.
• The planned maintenance works of vessels totalled to 138 days.
• High global fuel prices impacted the Group’s cost level throughout the year.
• The Group continues to focus on cost savings from previously implemented measures and restoring profitable operations on its core routes.
• The Group regularly monitors the developments on its main routes including the capacity of each route and continues to look for chartering options for vessels not used on the main routes.

Sales and Segments
In 2022, the Group’s total revenue increased by EUR 294.5 million to EUR 771.4 million. Total revenue in 2021 was EUR 476.9 million.

Revenue from route operations (core business) increased by EUR 236.4 million to EUR 629.0 million compared to the financial year 2021.

In 2022, the Group’s ships carried a total of 3.1 million passengers on the Estonia-Finland route, up by 76.9% year-on-year. The number of transported cargo units increased by 19.0%. The revenue from the Estonia-Finland route increased by EUR 93.3 million to EUR 277.8 million. The segment result improved by EUR 39.7 million to EUR 51.7 million. The segment reflects operations of two shuttle vessels, one cruise ferry, and one cargo vessel. Shuttle vessel MyStar was added to the Estonia-Finland route in mid-December 2022.  The cruise ferry Silja Europa stopped operating on Tallinn-Helsinki route in August 2022 due to a charter agreement. The cargo ship Sea Wind was sold at the end of April 2022. Starting from the fourth quarter of 2022 the route was only operated by two shuttle vessels.

The number of passengers almost doubled on Finland-Sweden routes amounting to 1.9 million in 2022. The number of transported cargo units decreased by 9.9%. The routes’ revenue increased by EUR 115.6 million to EUR 274.3 million and the segment result increased by EUR 14.6 million to a loss of EUR 1.0 million. The segment reflects the operations of two cruise ferries on the Turku-Stockholm and two cruise ferries on the Helsinki-Stockholm routes. Starting from the fourth quarter of 2022 the Turku-Stockholm route was only operated by one cruise ferry as the cruise ferry Galaxy stopped operating on the route from September 2022 due to a charter agreement.

On Estonia-Sweden routes the number of carried passengers almost doubled compared to 2021 amounting to 0.5 million. The number of transported cargo units remained at the same level as a year ago. The revenue of Estonia-Sweden routes increased by EUR 27.8 million to EUR 76.8 million and net loss increased by EUR 4.0 million to EUR 11.0 million. Estonia-Sweden routes reflect operation of two cargo vessels and one cruise ferry as well as expenses related to the suspended cruise ferry Victoria I until the ferry was chartered out.

Revenue from the segment other increased by a total of EUR 62.2 million and amounted to EUR 147.4 million. The increase was mainly driven by chartering out vessels, accommodation sales, opening of Burger King restaurants and to a lesser extent by various retail activities.

Earnings
In 2022, the Group’s gross profit grew more than four-fold compared to previous financial year amounting to EUR 113.5 million. EBITDA increased by EUR 77.5 million and amounted to EUR 135.8 million.

Amortisation and depreciation expense increased by EUR 2.8 million to EUR 98.1 million compared to last year.

As a result of increased interest-bearing liabilities, net finance costs increased by EUR 2.8 million year-on-year to 24.7 million euros.

The Group’s unaudited net profit for 2022 was EUR 13.9 million or EUR 0.019 per share compared to a net loss of EUR 56.6 million or EUR 0.081 per share in 2021.

Investments
The Group’s investments in 2022 amounted to EUR 203.3 million majority of which (EUR 176.7 million euros) is related to the new shuttle vessel MyStar. Total cost of MyStar was EUR 252 million euros of which EUR 75.3 million was invested in 2021.

Due to the continuously challenging economic environment ship-related investments were kept to minimum. Only critical maintenance and repair works were performed. The maintenance and repair works lasted a total of 138 days in financial year 2022.

Investments were also made in the development of the online booking and sales systems as well as other administrative systems and in relation to the opening of new Burger King restaurants.

Dividends
Due to a complicated operating environment and considering the Group’s long-term interests, the Supervisory Board proposed not to pay dividends for the financial year ended on 31 December 2021, which was approved by the shareholders during the Annual General Meeting on 9 June 2022.

Financial Position
At the end of financial year 2022, the Group’s net debt amounted to EUR 738.6 million having increased by EUR 129.9 million compared to the end third quarter 2022 and by EUR 86.2 million compared to the end of financial year 2021. The net debt to EBITDA ratio was 5.4 at the reporting date (11.2 as at 31 December 2021).

As at 31 December 2022, the Group’s cash and cash equivalents amounted to EUR 114.9 million (EUR 127.6 million on 31 December 2021) and the Group had EUR 135.0 million in unused credit lines (EUR 134.8 million on 31 December 2021). The total liquidity buffer (cash, cash equivalents and unused credit facilities) amounted to EUR 249.9 million (EUR 262.4 million on 31 December 2021). The payment of previously postponed principal payments under existing loan agreements restarted in the second quarter of 2022. In 2022, the Group loan repayments amounted to EUR 110.1 million compared to EUR 14.7 million in 2021. The current trade and other payables amounted to EUR 86.9 million (EUR 91.7 million on 31 December 2021).

Results of the Q4 2022
The Group’s unaudited revenue in the fourth quarter (1 October – 31 December) 2022 increased by 22.2% year-on-year and amounted to EUR 203.7 million. During the quarter, the Group carried 1.3 million passengers which is 15.4% more compared to the same period last year. The restaurant and shop sales on-board and onshore increased by EUR 9.2 million and ticket revenue by EUR 10.5 million year-on-year. As there were fewer vessels available due to chartering the transported cargo units dropped by 5.4% resulting cargo revenue to decrease by EUR 2.8 million compared to the same period a year ago. Revenues from chartering increased by EUR 19.3 million compared to fourth quarter 2021.

Unaudited EBITDA in the fourth quarter 2022 was EUR 50.4 million (EUR 25.1 million, fourth quarter 2021) and unaudited net profit amounted to EUR 16.7 million (net loss of EUR 3.3 million, fourth quarter 2021).

The financial result of the fourth quarter of 2022 was driven by recovering demand, an increase in customer numbers, and the chartering of six vessels, while the war in Ukraine and the rapid increase in global fuel prices had an adverse impact.

Personnel
As of 31 December 2022, the Group had 4 904 employees (4 785 on 31 December 2021). The number of employees includes 167 employees on maternity leave.

In the 2022 financial year, staff costs amounted to EUR 162.9 million (EUR 124.0 million in 2021), which is an 31.3% increase compared to the same period last year. The increase in average FTEs is 7.5% compared to the financial year 2021. The increase is driven mainly by expanded operations (more ships and hotels operated) compared to 2021.

Economic Environment
The Group’s operations were predominantly impacted by changes in consumer behaviour and the economic developments in its core markets of Finland, Sweden, and Estonia, but also by the global geopolitical situation and war in Europe. The demand for international travel has continued to grow steadily but has not yet returned to pre-COVID-19 levels. Additionally, the recovery of inbound tourism from Asia has been haltered as number of countries in Asian region only raised their COVID-19 travel restrictions at the end of 2022.

OECD measured consumer confidence that reached its record low in September 2022 has since started to show slight improvement on hopes that lower energy prices might help avoid a recession in 2023. However, the volatility of energy prices, the war in Ukraine, the tightening monetary policy and the high inflation continue to be key concerns globally. The improving confidence was reflected in the increasing passenger volumes during the fourth quarter.

The company’s cargo business remained steady and robust during the period, although the market conditions and availability of shipping fleet put further pressure on the already challenging price competition.

During the fourth quarter, global fuel prices increased on average about 60% compared to the same period last year while the average prices in 2022 almost doubled compared to the previous financial year of 2021. Therefore, the Group’s overall fuel cost increased by 100% and amounted to EUR 144 million in 2022 despite of lower frequency of operations.

For the foreseeable future and according to current best knowledge and estimates, the key risks for the business continue to be related to the fluctuations in fuel prices, the war in Ukraine, rising interest rates and the changing customer travel and consumption habits.

Events in the Fourth Quarter
Changes in AS Tallink Grupp's loan obligations
AS Tallink Grupp amended and restated the EUR 280 million loan agreement from December 2016. The final maturity of the Euribor based floating interest rate loan was extended by 3 years with two further extension possibilities, each by one year. Sustainability-linked clauses were added to the amended and restated loan agreement. The outstanding balance at the time of the restatement of the loan was EUR 135.5 million.

As a result of the amended and restated loan agreement the company’s refinancing risk decreases.

The new loan is guaranteed by the subsidiaries of AS Tallink Grupp: Tallink Sea Line Ltd, Tallink Victory Line Ltd, Tallink Ltd, Tallink Autoexpress Ltd and Tallinn Swedish Line Ltd. The loan is secured by the mortgages on the ships belonging to these subsidiaries.

Short-Term Charter Agreement
AS Tallink Grupp and the Estonian Social Insurance Board signed a short-term time-charter agreement for one of the company’s vessels. To fulfil the contract, the company used a vessel that was currently not operating on any routes or providing any other services during the contract period. The vessel is chartered to the Estonian authorities from 8 December 2022 for six months with extension options (6+1+1). Previous agreement between AS Tallink Grupp and Estonian Social Insurance Board for chartering one of the Group’s vessels was signed in April 2022 for four months with extension options (4+2+2).

The vessel is used to provide temporary accommodation to Ukrainian refugees arriving in Estonia.

Delivery of MyStar
On 7 December 2022, Tallink Superfast Ltd, a subsidiary of AS Tallink Grupp, took delivery of the new shuttle vessel MyStar from Rauma Marine Constructions shipyard, Finland.

The cost of the ship amounted to EUR 252 million and the purchase was financed with a loan of EUR 196.3 million from KfW IPEX-Bank GmbH Ltd., the credit is guaranteed by Finnish Export Credit Agency “Finnvera”. The long-term loan was drawn down at the delivery, the maturity of the loan is twelve years and bears fixed interest rate.

MyStar is co-financed by European Union, the Connecting Europe Facility, Transport – Motorways of the Sea in the amount of EUR 0.1 million.

MyStar started operating on 13 December 2022.

Short-Term Extension of Vessel Charter Agreement (Victoria I)
AS Tallink Grupp and Corporate Travel Management (North) Ltd on behalf of The Scottish Government agreed an extension to the short-term time-charter agreement for the vessel Victoria I. The vessel is used to provide temporary accommodation in Scotland. The charter was extended for five months from 14 January 2023.

Events After the Reporting Period and Outlook
New Collective Agreement
On 6 February 2023, AS Tallink Grupp and the Estonian Seamen’s Independent Union signed a new collective agreement for the next 4 years. Subject to the agreement, the wages of the Group’s maritime workers in Estonia will increase by 13.5% (service personnel) and 16.1% (technical personnel) compared to the minimum wages of the previous collective agreement.

Silja Europa chartering agreement
In February 2023, AS Tallink Grupp and Slaapschepen Public BV, an organisation nominated by Centraal Orgaan Opvang Asielzoekers (COA) in the Netherlands, have used the option for extending the existing short-term charter agreement for Silja Europa until 19 June 2023.

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 months (June-August). In 2022-2023, seasonal fluctuations in revenue generation are smoothed by Group’s earnings from chartering services.

The war in Ukraine has a negative impact on the demand of certain customer groups, mainly customers from the countries directly participating in the conflict and from Asian countries, together with the risk of an increase in some input prices, mainly fuel and raw materials. The exact magnitude and duration of the potential effects from the conflict remain difficult to assess.

Despite the uncertainties in the outlook of the economic environment the management is continuously looking for ways to manage risks for the low season (for example through charters).

Research and Development Projects
The Group does not have any substantial ongoing research and development projects. The Group is continuously seeking opportunities for expanding its operations to improve its results.

The Group is continuously looking for innovative ways to upgrade the ships and passenger area technology to improve its overall performance through modern solutions. The most recent technical projects are focusing on the solutions for reducing the CO2 footprint of the ships.

Risks
The Group’s business, financial position and operating results could be materially affected by various risks. These risks are not the only ones that we face. Additional risks and uncertainties not presently known to us, or that we currently believe are immaterial or unlikely, could also impair the 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.

• Protracted geopolitical and military conflict in Europe
• Governmental restrictions on business activities
• Impact of high inflation on consumer habits
• Accidents, disasters
• Macroeconomic and labour market developments
• Changes in laws and regulations
• Relations with trade unions
• Increase in the fuel prices and interest rates
• Market and customer behaviour
• Variations in labour legislation impact the competitiveness while sailing under different flags

Key Figures

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/loss per share: net profit or loss/ 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 profit/loss margin: gross profit / net sales
EBITDA margin: EBITDA / net sales
EBIT margin: EBIT / net sales
Net profit/loss margin: net profit or loss / 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

Consolidated statement of financial position

Consolidated statement of cash flows

Anneli Simm
Investor Relations Coordinator

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

Attachments

• 2022 Tallink Grupp Q4 Presentation
• Tallink Grupp 2022 Q4 ENG
• Tallink Grupp 2022 Q4 Financial Data