Speaker #1: Financial results from the third quarter of 2026. My name is Anneli Simm, I'm the Investor Relations Manager at Tallink, joining me today is Peep Jalakas, Chairman of the board, who will guide you through the presentation starting with the overview of the quarter and its key highlights, followed by a closer look at the financial results.
Speaker #1: Following the presentation, we will move on to a Q&A session. We have already received several—or actually a number of—questions in advance, but please feel free to submit additional questions using the Q&A function during the webinar.
Speaker #1: It would be helpful if you could also include your name when submitting your question. But with that, I will now hand it over to Peep.
Speaker #2: Thank you, Anneli, and good afternoon, and welcome one more time to Tallink Group's Q3 2026 results webinar. The third quarter is our most important seasonal period, and today I will cover the operational performance profitability cash flow and financial position for both Q3 and the first 9-month of 2026.
Speaker #2: And I will then take your questions afterwards. So let me first begin with three main takeaways from the quarter. First, the summer season delivered revenue and volume growth.
Speaker #2: Revenue increased by almost 6% to 247 million euros, passenger volume grew by 2.8% to 1.8 million and cargo volume was up by close to 8%.
Speaker #2: And that, despite the closure of the Paldiski couple share route in May 2026. Second, operating profitability was resilient but under clear cost pressure. Fuel cost increased by more than 9 million euros in Q3 compared to the Q3 2025.
Speaker #2: EBITDA was therefore 68 million euros, 1 million below last year. The full phase-in of EU ETS from 70% of emissions in 2025 to 100% in 2026 added further pressure to the cost base.
Speaker #2: So Q3, compared to last year, Q3 increased in ETS cost was 2.3 million. But despite that, net profit increased to 43.8 million, which is 3 million euros higher than Q3 2025.
Speaker #2: And thirdly, our financial position remained solid. Net debt decreased by 11 million euros during the quarter, and is now below 400 million. Net debt to EBITDA improved to 3 times, and total liquidity remained above 100 million euros.
Speaker #2: Overall, Q3 demonstrated a resilience of demand and the value of disciplined fleet and balance sheet management in a difficult cost environment. Tallink Group remains a leading provider of leisure and business travel, and sea transportation services in the Baltic Sea region.
Speaker #2: Supported by Tallink Silja Brands and a growing Club One loyalty program. At the end of Q3, we had 11 vessels, 9 passenger vessels, and 2 shuttle vessels, like previous quarter.
Speaker #2: We operated 4 regular Baltic Sea routes, had 3 vessels on charter, and 1 vessel romantica is laid up at the quarter end. Our broader ecosystem includes 4 hotels, 19 Burger King restaurants, approximately 3.7 million Club One members, and around 4,500 employees.
Speaker #2: The business model remains diversified across passenger transport, cargo, onboard, and onshore retail, hospitality, and then charter income. This slide is familiar for you and shows how the fleet was deployed at the end of the quarter.
Speaker #2: Megastar Maistar and Victoria served the Estonian-Finland market. Baltic Queen operated Tallinn-Stockholm. Silja Symphony and Serenade operated Helsinki-Stockholm, while Baltic Princess served Turku-Stockholm route. Three vessels were chartered out: Galaxy One and Silja Europa remained in the Netherlands, and have been there since 2022.
Speaker #2: St. Patrick, formerly Superfast 9, has been on a 36-month charter since 1 May 2026, with the extension and purchase options. Romantica was used actively during the summer period.
Speaker #2: It operated as an additional vessel on Tallinn-Stockholm route in July, and early August, and then was temporarily chartered to Italy for accommodation and catering services during the Mediterranean Games.
Speaker #2: And then, afterwards, it returned and has been laid up at the end of the quarter. Now, looking at the key figures, Q3 passenger volume reached 1.8 million euros and was up close to 3%.
Speaker #2: Cargo units increased by 7.8% to almost 65,000. While passenger car declined slightly by 1.1%. Revenue grew close to 6%, up to 246.7 million. Gross profit increased to close to 70 million, EBITDA was at 68 million and then 1 million euro below last year.
Speaker #2: Primary then reflecting the 9.2 million increase in fuel cost and 2.3 million increase in ETS cost. Net profit increased by 3 million to 43.8 million.
Speaker #2: For the first 9 months, revenue increased by 4.5%, slightly above 600 million euros, EBITDA rose to 104 million and net profit increased to 19.4 million.
Speaker #2: Capital expenditures were 3.4 million in Q3 and in first 9 months the total amount was 25 million euros, largely in line with the previous year's figures.
Speaker #2: And capital expenditures were mainly related to vessel maintenance, repairs, interior upgrades, and IT systems. During Q3, we paid 20.6 million euros of loan principal and interest, dividend, and related income tax payments totaled 28.4 million.
Speaker #2: And even after these payouts, the net debt fell to below 400 million and liquidity was above 100 million. Revenue growth was led by our two largest geographical segments, Estonia-Finland revenue increased by 5.3 million to 100 million euros passenger volume on Estonia-Finland route increased by 1.5%, and cargo units close to 16%.
Speaker #2: The segment result was stable at 30 million euros. Finland-Sweden revenue increased by 5.8 million, close to 80 million euros passenger volumes grew by 5.3, and cargo units above 20%.
Speaker #2: At the same time, the segment result declined by 1 million euros, reflecting the impact of higher fuel cost and higher fuel cost on the longer route.
Speaker #2: Estonia-Sweden revenue declined slightly to 26 million and the segment result was 400,000 below last year's result. Passenger volumes increased, but cargo volumes fell significantly because the Baltic couple share route was closed after St.
Speaker #2: Patrick entered the chartering agreement. The other segment performed strongly. Revenue increased to 42.6 million and the segment result improved by 4.8 million to 14.8 million.
Speaker #2: And that was supported by charter activity and lower costs following the disposal of idle vessels in 2025. Our estimated passenger market share were 48% on Estonia-Finland and 38% on Finland-Sweden.
Speaker #2: And we remained the only passenger operator between Tallinn and Stockholm. Now, revenue growth was broad-based across the operational segments. Restaurant and shop sales remained our largest revenue category accounting for approximately 45% of Q3 revenue.
Speaker #2: Ticket sales contributed around 34%. Cargo 9 and charter income around 7%, with accommodation and other sales making up the rest. Compared with Q3 last year, onboard and onshore restaurant and shop sales increased by 4.2 million, ticket sales by 2.4 million, and cargo sales by 3.7 million.
Speaker #2: Charter revenue rose by close to 3 million. The key point is that growth did not rely on a single revenue stream. Passenger traffic, cargo, and charter activity all contributed.
Speaker #2: This slide illustrates the seasonality of our business. Q3 is the strongest quarter for passenger volumes revenue and earnings. The EBITDA comparison shows the effect of cost inflation.
Speaker #2: Despite higher revenue and activity, the fuel cost increase and full EU ETS implementation limited the conversion of growth into operating profit. The quarterly net result profile shows the importance of the summer season.
Speaker #2: Q3 generated a net profit of close to 44 million, compared with 41 million last year. For the first 9 months of 2026, net profit was 19.4 million, compared with 5.1 million in the same period last year.
Speaker #2: This improvement reflects stronger operating result over the 9-month period and lower depreciation following the alignment of estimated useful lives for cruise vessels and also disposal of idle vessels, last year.
Speaker #2: At the same time, the chart reminds us that the fourth and first quarter are structurally softer. We therefore continue to manage low-season capacity costs and fleet deployment actively.
Speaker #2: Q3 sales increased by 13.6 million as stated before. Cost base was inflated by fuel and ETS costs. Rest of the costs were rather stable.
Speaker #2: 9-month EBITDA is 2 million above 2025, result and net profit is impacted by lower depreciation and also slightly by financial costs in 2026. Operating cash flow in Q3 was close to 40 million, after capital expenditure of 3.4 million free cash flow was around 36 million euros.
Speaker #2: Financing cash outflow included 29.2 million net effect from debt financing, 4.9 million of interest, and other financial items, and 22.3 million of dividend payment.
Speaker #2: The issue of shares under the option program generated 2.5 million euros positive cash flow. As a result, cash decreased by 18 million during the quarter.
Speaker #2: To 21.8 million, this movement should be viewed together with the unused overdraft facility and the significant scheduled payments during the quarter. For the first 9 months, operating cash flow was 104 million and free cash flow 79 million.
Speaker #2: The balance sheet remained solid at the end of Q3, total assets were 1.3 billion and shareholders' equity 728 million. The equity-to-asset ratio improved to 55%.
Speaker #2: Interest-bearing liabilities decreased to 420 million, net debt declined by 11 million during the quarter, and stood slightly below 400 million euros. Net debt as I said already before was at 3.
Speaker #2: Cash was 22 million and unused overdraft facility 81 million, giving total liquidity of 102.8 million. And this financial flexibility is important as we enter the lower-season period, continuous scheduled debt service and prepare for the second dividend installment in November.
Speaker #2: At the quarter end, long-term bank loans amounted to 332.3 million. We had 3 loan agreements outstanding. The syndicated loan and 2 shipbuilding loans related to MyStar and Megastar.
Speaker #2: The portfolio includes both fixed rate and EURIBOR-based floating rate financing. During the quarter in September, we amended the syndicated loan and extended its maturity by 2 years, until December 2030, with option for 2 further 1-year extensions.
Speaker #2: And this reduces the refinancing risk and improves the maturity profile of our debt. Unused overdraft facilities increased to 81 million, while the drawn overdraft balance was close to 19 million.
Speaker #2: During Q3, loan principal and related interest payments totaled 20.6 million. Debt reduction remains an important priority and balance with maintaining sufficient liquidity and shareholder distributions.
Speaker #2: So thank you for your attention. Then to summarize, then Q3 delivered growth in passengers cargo and revenue profitability remained resilient despite the fuel cost and ETS cost increase.
Speaker #2: We continue to reduce net debt, while maintaining liquidity above 100 million euros. We will now move to the Q&A session, and I will be pleased to answer your questions.
Speaker #1: Thank you, Bip. As usual, I will read out the questions. That we have received earlier, as well as those which have been posted to the Q&A section.
Speaker #1: And Bip will answer them. Due to some of the questions repeat each other, we have combined them and grouped them together, based on similar topics.
Speaker #1: But let's start with the first question. You have increased your market shares between Finland and Sweden, and your profit has increased despite increasing costs.
Speaker #1: Your competitors claim that you have been more aggressive. What is it you have done? Is it lower prices on tickets, or onboard, or just increased marketing?
Speaker #2: I think the quick answer is a combination of everything. But we have focused on strengthening our core routes through targeted sales and marketing activities, then competitive offerings, and also maintaining a high-quality customer experience including relevant onboard offerings in our shops, restaurants, and entertainment.
Speaker #2: The growth in passenger and cargo volumes reflects the continued demand for our services, we continuously adjust our commercial activities to market conditions, but clearly our objective is not simply to increase the volumes, but at the same time focus also on profitability.
Speaker #2: So that's this profitable growth is still our key target.
Speaker #1: Thank you. What is your mix of fuel at the moment?
Speaker #2: When it comes to our cruise ferries, then we primarily operate on marine diesel oil or MDO, while our shuttle vessels use liquefied natural gas, LNG, or then the bio-methane.
Speaker #2: But as they are dual fuel, vessels, then they also can operate on marine gas oil or marine diesel oil. If the shuttle vessels operate primarily on LNG, which has been the practice in last quarters, then fuel mix is close to 75-25 between marine diesel and LNG, and this is then based on today's schedule and routes.
Speaker #1: Thank you. How will this affect last quarter of the fuel mix, basically fuel prices?
Speaker #2: Yes. So fuel cost remain one of our important operating expenses. That's for sure. The impact on the fourth quarter will depend on the fuel price development.
Speaker #2: Consumption levels and our ability to manage the costs we continue to monitor the situation closely and then focus on improving the operational efficiency.
Speaker #1: Thank you. Is there a risk that you will temporarily cancel routes? For example, Helsinki-Stockholm. If so, when you do when do you see this coming?
Speaker #1: Is there a special fuel price when it gets critical?
Speaker #2: Just to remind, then we close Paldiski-Kapellsaar route in May. But that was mostly due to related to chartering out the vessels. But we actually analyze constantly different options how to utilize the fleet in most efficient way.
Speaker #2: However, at this stage, we do not have any plans to suspend further routes. And I'm not in a position to give any specific fuel price levels where that situation might change.
Speaker #2: But the environment is dynamic, and we constantly assess the situation.
Speaker #1: Thank you. Romantic is back in Tallinn. What is the near future for her? Is there a possibility that she will be temporarily put in traffic, like this summer?
Speaker #1: And what is your evaluation of Romantic's summer traffic?
Speaker #2: First, we continue to evaluate potential chartering opportunities and alternative uses for Romantic. I would say it is unlikely to put Romantic in traffic during the low season, and especially with the current fuel price environment.
Speaker #2: The vessels' deployment during the summer demonstrated the flexibility of our fleet, and our ability to use vessels for different commercial opportunities. Romantic attracted new passengers during July and early August in Tallinn-Stockholm route, and then had the successful chartering in Italy late August, early September as an accommodation vessel.
Speaker #1: Thank you. You have recently warned about changing flags due to announced lower government supports. Were you where are you currently in these plans, and what flags and what ships would be most attractive for a change or flag if you take this further?
Speaker #2: Thank you. First, just to clarify, there was a support during COVID years in Estonia for partial refund of employment taxes paid by Tallink. In government budget strategy for 2027-2030, it was first put back.
Speaker #2: And now, during the budgetary talks, actually taken away in actual 2027 budget. Now, overall, the competitiveness of the Estonian maritime sector is an important issue for us.
Speaker #2: Different national support schemes and employment-related costs can create significant differences in operating costs of vessels, sailing under different flags. We have experienced operating in Finland, Sweden, and Latvia in addition to Estonia.
Speaker #2: And all these countries accept Estonia, then have more favorable employment taxation. So 2027 government budgetary process in Estonia is currently ongoing. And we are actively monitoring the developments and also explain our viewpoints.
Speaker #2: Our priority is to maintain competitive and sustainable operations but any potential changes to vessel registration would require a comprehensive assessment of financial operations and regulatory implications.
Speaker #2: So we have not announced any decision regarding specific vessels or alternative flags. So this process will continue.
Speaker #1: Thank you. To what extent do you expect the industry to pass on the increased fuel prices onto customer ticket prices?
Speaker #2: As it was said, then fuel costs represent important part of our operating expenses and sustained increase inevitable put pressure on profitability. We continuously review our pricing in response to market conditions.
Speaker #2: But our ability to pass on higher costs depend on customer demand, competition, and price sensitivity. We aim to maintain a balance between competitive pricing, passenger volumes, and profitability, therefore we cannot assume that all increases in fuel costs can be fully passed on to customers and we also bet that we can partly cover the additional fuel cost with actual increased volumes.
Speaker #1: Thank you. As Armin Penner started recently as CFO, should we expect any changes to group reporting or capital allocation priorities?
Speaker #2: Armin Penner joined the Tallink team mid-October, or early last week. I believe he will bring fresh perspectives and valuable insights into how we can further strengthen our financial management, improve efficiency, and optimize the use of our financial resources but know immediate changes are planned when it comes to the reporting.
Speaker #1: Thank you. Perhaps you could give an update on the chartering outlook for Silja Europa and Galaxy. Is the base case to extend the chartering during next year, or is it more likely that they will be chartered to new clients?
Speaker #2: The current situation is that there's no changes planned and no news to communicate both chartering agreements have prolongation options available. And we don't have currently any information that these options will not be used has the strong year-to-year growth in cargo remained in the beginning of Q4 26?
Speaker #2: Yeah, the quick answer is yes. So we haven't seen any major changes there. So it has continued as last couple of quarters and last months.
Speaker #1: Thank you. We are now moving to the Q&A questions a little bit through the Q&A section in this webinar. Is there a plan to resume the Baltic Couples Care route at some point?
Speaker #2: Currently, I would say not. So we have suspended the route. We have looked for the vessel but with current fuel prices, then the probability to restore this route is rather low.
Speaker #2: But we keep our capacity to return to that topic and to operate that route if the overall environment is more suitable.
Speaker #1: Thank you. We all know that the main season in the maritime industry runs primarily from April to October. What are your ideas for maintaining healthy profitability and turnover during the low season as well?
Speaker #2: Valid question. This is something that has been there for many years. What we do is we try to attract also passengers during the low season with different activities on board whether it is the current Spanish festival on our cruise ships, or upcoming Christmas activities.
Speaker #2: So we know that the passenger numbers are lower, but all in all, the value proposition that we create also during the winter season is something that we believe that brings the passengers on board.
Speaker #2: And of course, at the same time, keeping the costs under control especially during the low season.
Speaker #1: Thank you. What do you consider to be your biggest competitive advantage over competitors such as Viking Line and Eckerö Line?
Speaker #2: It depends a bit on the route and vessel, but if to take the most or the route where most passengers and cargo is actually moved tail in Helsinki route, then we have the most modern vessels Mystar and Megastar.
Speaker #2: We have most frequent schedule if the biofuels are available, then we also operate with biofuels, meaning that we are the most environmentally friendly and then we constantly look for the best price-quality balance when it comes to our pricing.
Speaker #2: So I would say that these are the our key strengths. And if we look at the development of the market shares and growing passenger numbers, and cargo volumes in Q3, then it seems that this value proposition is well appreciated also by our customers.
Speaker #1: Thank you. Are there any plans to expand or reduce the fleet?
Speaker #2: Not immediately. As we said, then we are looking for the job for Romantica, which is currently idle, and as I also comment, then we don't see that there is a need for extra vessel during the low season.
Speaker #2: So we are currently assessing different opportunities and if something is agreed, then also share this information with investors. And when it comes to the new potential new builds, then nothing specific and concrete to announce as of now.
Speaker #2: We are continuously monitor the market. Also, talk to different shipyards to understand that what are the latest developments in technology and how these could be implemented in the benefit of tailing group.
Speaker #2: But nothing concrete to announce as of now.
Speaker #1: Thank you. What was the positive impacts on gross profit line in Q3 from lower DNA expense?
Speaker #2: Just a second. I will take the I will take the look the absolute year-over-year decrease was 3.3 million euros of which then 2.3 was related to the change of useful lives of the ship.
Speaker #2: So that was the activity that we did Q4 last year where we changed the lifetime of the assets based on then the useful lives of the ships back then.
Speaker #1: What are the plans with Romantica in Q4 and over the next 12 months?
Speaker #2: As I said, then we are looking currently for the job or charter out this vessel. If we are successful, then of course it depends whether it is a short-term or long-term chartering agreement and whether we have any opportunity and possibility to utilize this vessel during the high season in Baltic Sea or not.
Speaker #2: So first, the clear goal is to find the opportunity as soon as possible, hopefully in Q4, if not then in Q1 latest.
Speaker #1: And we have now one more question. Italian media outlets report that Romantica's contract value for the Mediterranean Games was approximately 6 million euros. Was that amount fully booked under charter revenue or was it somehow split across segments?
Speaker #2: My understanding is that it was fully booked under the charter revenue and then the ballpark number 6 million euros is also correct.
Speaker #1: Thank you. That was the last question and the last answer. On behalf of Tallink, we thank you all for joining us today. And for your questions, our fourth quarter 2026 results will be published in February, next year, 2027.
Speaker #1: We do appreciate your continued interest and support and we look forward to speaking with you again at the next results webinar. We wish you all a pleasant rest of the day and thank you and goodbye.
