Tallink Grupp
Annual Financial Report

Audited Annual Report of the 2014 Financial Year

Tallinn, 2015-04-30 08:50 CEST -- Audited Annual Report of the 2014 Financial Year

In the 2014 financial year the Group’s operations were affected by several actions and changes in the operations and market developments. Compared to the previous period an increased number of the Group’s vessels were chartered out resulting in higher revenues from charters. The cruise ferries Silja Serenade and Silja Symphony received major upgrades that resulted temporarily in fewer trips. With the goal to optimize operations several re-routings were done. This resulted in lower fuel consumption but added one-off costs. At the same time increased capacity resulted in a changed competitive landscape. These various factors had an effect to the slight decline in the volumes resulting in a somewhat weaker annual result.

The Group had a smooth transition switching to low sulphur fuel. One of the goals was to reduce fuel consumption by optimising current operations, therefore several re-routings were made: the cruise ferry Silja Europa was chartered out, the cruise ferry Baltic Queen changed to the Tallinn-Helsinki route and the cruise ferry Romantika changed to Tallinn-Stockholm route, leaving the Riga-Stockholm route with the cruise ferry Isabelle as the only vessel.

During the 2014 financial year a total of 8.88 million passengers travelled on the Group’s vessels. The Group’s consolidated revenue for 2014 was EUR 921.5 million (EUR 942.0 million in 2013). Gross profit was EUR 181.7 million (EUR 190.2 million in 2013), EBITDA EUR 150.6 million (EUR 156.2 million in 2013). Net profit for 2014 was EUR 27.3 million (EUR 43.3 million in 2013), representing earnings per share of EUR 0.041 (EUR 0.065 in 2013).

During the 2014 financial year the Group’s increased focus continued to be on developing the on-board concept.  It is our vision for the long term on-board development of new business concepts for bars, restaurants, shops, boutiques, servicing, technical innovations, customer communication etc, we call this “Newboard”.  In February 2014 the Group launched the refreshed vessel Silja Serenade on the Stockholm-Helsinki route and in October the refreshed Silja Symphony was launched on the same route. The vessels have a 50% expanded shopping area including a new Superstore, upgraded Grand Buffet concept and a new Italian restaurant. Several of the other public areas received a facelift including the refurbishment of Commodore Class cabins and a refreshed SPA & Sauna area. In 2014 the Group invested around EUR 30 million in upgrading the vessels.

Active development of the on-line sales channels continued throughout the year. The volume and share of on-line bookings continue to increase.

The European Commission has a strategy to reduce atmospheric emissions from seagoing ships. This approach brought the Baltic Sea area new rules. From the start of 2015 the allowed sulphur content was reduced from 1.0% to 0.1%. In order to be in compliance the Group switched to marine gasoil, a more expensive fuel that required minimal investment for the vessels. The Group continues actively to monitor the developments of the alternative solutions such as installing scrubbers on selected vessels, LNG technology and alternative fuels.

The key highlights of the 2014 financial year were the following:

• Operations impacted by an overall weak economic environment in the region
• Increased competition
• Development of the online sales channels
• Development of “Newboard”
• Upgrade of vessels
• Re-routings and additional charters
• Global drop in fuel prices

In management’s opinion, the Group’s financial position allows the Group to pay dividends. Management will propose to the 2015 shareholders’ general meeting a dividend distribution of EUR 0.02 per share, i.e. EUR 13,398,000 in aggregate.

EBITDA:  Earnings before net financial items, share of profit of equity accounted investees, taxes, depreciation and amortisation
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
Net profit margin: net profit / net sales
ROA: Earnings before net financial items, taxes /Average total assets
ROE:  Net profit/Average shareholders’ equity
ROCE: Earnings before net financial items, taxes / (Total assets – Current liabilities (average for the period))
Net debt: Interest-bearing liabilities less cash and cash equivalents
Net debt to EBITDA: Net debt / 12-months trailing EBITDA
¹ Share numbers exclude own shares.

SALES

The Group’s consolidated revenue amounted to EUR 921.5 million in 2014 (942.0 million in 2013). Restaurant and shop sales on-board and on mainland of EUR 487.6 million (507.3 million in 2013) contributed more than half of total revenue. Ticket sales amounted to EUR 230.5 million (249.2 million in 2013) and sales of cargo transport to EUR 103.1 million (105.6 million in 2013). The distribution of sales between operational segments remained more or less stable compared to the previous financial year.

Geographically, 35.2% or EUR 324.0 million of revenue came from the Finland-Sweden route and 34.9% or EUR 321.7 million from the Estonia-Finland route. Revenue from the Sweden-Estonia route was EUR 102.4 million or 11.1% and from the Sweden-Latvia route EUR 60.0 million or 6.5%. The share of revenue generated by other geographical segments increased to 12.3% (EUR 113.3 million).

EARNINGS

Gross profit was EUR 181.7 million (EUR 190.2 million in 2013), EBITDA EUR 150.6 million (EUR 156.2 million in 2013). Net profit for 2014 was EUR 27.3 million (EUR 43.3 million in 2013). Basic and diluted earnings per share were EUR 0.041 (EUR 0.065 in 2013).

The cost of goods related to sales at shops and restaurants, which is the largest operating cost item, amounted to EUR 211.2 million (EUR 220.2 million in 2013). Accordingly, the proportion of sales on the tax- paid routes (Finland-Estonia and Latvia-Sweden routes), where the margin is lower, increased, whereas the share of the Finland-Sweden tax-free routes decreased.

Fuel costs for 2014 were EUR 114.0 million (EUR 129.8 million in 2013). Fuel costs were impacted by lower fuel price levels throughout the year. Measured in euros, in 2014 the average market price of the reference fuel (Fuel oil 1% sulphur content) was approximately 10% lower than in the 2013 calendar year.

The Group’s personnel expenses amounted to EUR 189.8 million (EUR 182.4 million in 2013). The average number of employees in the 2014 financial year was 6,952 (6,948 in 2013).

Administrative expenses for 2014 amounted to EUR 49.2 million and marketing expenses to EUR 62.7 million (EUR 45.1 million and 63.3 million respectively in 2013).

Depreciation and amortisation of the Group’s assets was EUR 79.9 million (EUR 73.2 million in 2013).According to the operational efficiency review of the ships the Group Management changed at the beginning of the financial year 2014 estimated useful lives of the ships. There were no impairment losses related to the Group’s property, plant, equipment and intangible assets.

The Group’s net finance costs for 2014 amounted to EUR 40.7 million (EUR 36.0 million in 2013).

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.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

 CONSOLIDATED STATEMENT OF CASH FLOWS

         Janek Stalmeister
         Chairman of the Management Board
         AS Tallink Grupp
         Tel +372 640 9800
         E-mail janek.stalmeister@tallink.ee
         
         
         Harri Hanschmidt
         Head of the Finance Department
         
         AS Tallink Grupp
         Sadama 5/7. 10111 Tallinn
         Tel +372 640 8981
         E-mail harri.hanschmidt@tallink.ee