Annual Report • Apr 27, 2016
Annual Report
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| Beginning of the financial year | 1 January 2015 |
|---|---|
| End of the financial year | 31 December 2015 |
Fax +372 6 409 810
Commercial Register no. 10238429
Address Sadama 5/7 10111, Tallinn
Republic of Estonia
Phone +372 6 409 800
Internet homepage www.tallink.com
Main activity maritime transportation (passenger & cargo transport)
| COMPANY OVERVIEW | 3 | |
|---|---|---|
| STRATEGY | 3 | |
| MANAGEMENT REPORT | 3 | |
| CORPORATE GOVERNANCE REPORT | 15 | |
| MANAGEMENT BOARD'S CONFIRMATION | 24 | |
| CONSOLIDATED FINANCIAL STATEMENTS | 25 | |
| CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME | 25 | |
| CONSOLIDATED STATEMENT OF FINANCIAL POSITION | 26 | |
| CONSOLIDATED STATEMENT OF CASH FLOWS | 27 | |
| CONSOLIDATED STATEMENT OF CHANGES IN EQUITY | 28 | |
| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | 30 | |
| Note 1 | CORPORATE INFORMATION | 30 |
| Note 2 | BASIS OF PREPARATION | 31 |
| Note 3 | SIGNIFICANT ACCOUNTING POLICIES | 33 |
| Note 4 | SEGMENT INFORMATION | 50 |
| Note 5 | OPERATING EXPENSES AND FINANCIAL ITEMS | 55 |
| Note 6 | INCOME TAX | 56 |
| Note 7 | EARNINGS PER SHARE (EPS) | 58 |
| Note 8 | CASH AND CASH EQUIVALENTS | 59 |
| Note 9 | TRADE AND OTHER RECEIVABLES | 59 |
| Note 10 | PREPAYMENTS | 60 |
| Note 11 | INVENTORIES | 60 |
| Note 12 | INVESTMENTS IN EQUITY-ACCOUNTED INVESTEES | 61 |
| Note 13 | OTHER FINANCIAL ASSETS | 61 |
| Note 14 | PROPERTY, PLANT AND EQUIPMENT | 62 |
| Note 15 | INTANGIBLE ASSETS | 63 |
| Note 16 | INTEREST-BEARING LOANS AND BORROWINGS | 64 |
| Note 17 | TRADE AND OTHER PAYABLES | 65 |
| Note 18 | DEFERRED INCOME | 65 |
| Note 19 | SHARE CAPITAL AND RESERVES | 66 |
| Note 20 | SHARE OPTION PROGRAMME | 67 |
| Note 21 | CONTINGENCIES AND COMMITMENTS | 69 |
| Note 22 | RELATED PARTY DISCLOSURES | 70 |
| Note 23 | GROUP ENTITIES | 72 |
| Note 24 | FINANCIAL RISK MANAGEMENT | 73 |
| Note 25 | SUBSEQUENT EVENTS | 79 |
| Note 26 | PRIMARY FINANCIAL STATEMENTS OF THE PARENT | 80 |
| STATEMENT BY THE MANAGEMENT BOARD | 84 | |
| INDEPENDENT AUDITORS' REPORT | 85 |
AS Tallink Grupp with its subsidiaries (hereinafter also referred to as "the Group") is the leading European ferry operator in offering high quality mini-cruise and passenger transport services in the Baltic Sea region as well as a leading provider of ro-ro cargo services on selected routes. The Group provides its services on various routes between Finland and Sweden, Estonia and Finland, Estonia and Sweden, and Latvia and Sweden under the brand names of "Tallink" and "Silja Line". The Group has a total fleet of 16 vessels that include cruise ferries, high-speed ro-pax ferries and ro-ro cargo vessels. In addition, the Group operates four hotels in Tallinn and one in Riga.
The Group's vision is to be the market pioneer in Europe by offering excellence in leisure and business travel and sea transportation services.
The Group's strategy is to
A modern fleet, a wide route network, a strong market share and brand awareness together with high safety, security and environmental standards are the main competitive advantages for the Group. They are the cornerstones for successful and profitable operations.
In the 2015 financial year the Group carried a total of 9.0 million passengers which is 1.1% more compared to the year before. The Group's revenue increased by 2.6% to all-time high of EUR 945.2 million (EUR 921.5 million in 2014) and EBITDA increased by 20.5% to a record EUR 181.4 million (EUR 150.6 million in 2014). Net profit more than doubled compared to last year and amounted to EUR 59.1 million (EUR 27.3 million in 2014) or EUR 0.09 per share (EUR 0.04 in 2014). The cash flow from operating activities increased by EUR 41.2 million and totalled to EUR 191.9 million. The increase in the Group's results is mainly attributed to the growth in passenger number, higher on-board revenue per passenger, higher charter revenue and lower operating costs. The results improved in all geographical segments compared to the previous financial year.
In 2015 financial year the proactive marketing and sales activities led to an increase of the passenger number. The number of passengers traveling with the Tallink and Silja Line branded ships grew steadily in most of the operated routes and the Group regained market share from the direct competition. On Tallinn-Helsinki route all time high number of 4.7 million passengers travelled with the Group's vessels during the year. Tallink and Enterprise Estonia joint campaign "Epic Estonia" targeting Swedish market was recognised as the "Best marketing campaign of the year" in Estonia, it is biggest ever Estonian campaign made in collaboration of public and private sector organizations.
More passengers with higher average on-board sales per passenger resulted in increase of shop and restaurant sales. The on-board sales growth was achieved thanks to the Group's continuous focus on development of the
product offering and expansion of the shops and restaurants in the vessels. The large scale investments to the vessels Silja Symphony and Silja Serenade shops, restaurants and cabins in the previous financial year showed positive impact on the earnings in 2015 by attracting more passengers and increasing on-board sales per passenger. In 2015 the Group continued with the updates of the public areas and introduced new concepts in number of vessels, also the existing successful shop and restaurant concepts are expanded to more vessels. The modernisation program is extended over several years and the Group will continue to update the shops, restaurants and cabins in selected vessels to develop and improve the product offering. In 2015 the Group took the next step and entered into partnership with world known fast food brand BURGER KING®. The world's first floating BURGER KING® restaurant on Tallink Shuttle ferry Star opened in January 2016.
The charter revenue increased compared to the previous period as more vessels were chartered out in 2015. Two of the chartered out vessels Silja Festival and Regina Baltica were sold in the first half of financial year 2015. Three Superfast ferries remain chartered out. Cruise ferry Silja Europa returned from charter to Tallinn-Helsinki route on March 2016.
The Group signed a contract with Meyer Turku Oy in February 2015 for the construction of its new EUR 230 million LNG powered fast ferry. The production of the new LNG fast ferry started on the 4th of August 2015 at Meyer Turku shipyard and the delivery of the vessel is planned in the beginning of 2017. In order to be ready for the delivery of the new generation LNG fast ferry to the Tallinn-Helsinki route Shuttle service early 2017, the Group decided to sell and charter back the fast ferry Superstar. The ownership of the vessel was transferred to the buyer in December 2015. The Group continues to operate the vessel under the charter agreement until the beginning of 2017, when the new LNG fast ferry will start to operate on Tallinn-Helsinki route Shuttle service.
In 2015 financial year the lower energy prices globally enabled smooth adoption to the more environmental friendly low sulphur fuel and the previously highlighted risk of increasing fuel cost did not materialise. Following the market prices the Group's average fuel price in 2015 was 5% lower compared to 2014. The total annual fuel consumption reduced by 13%, the saving is attributed to optimisations in vessel operations and changes in the fleet. Lower total fuel consumption and price resulted in EUR 20 million less fuel cost compared to previous year.
Following the Group's strategy to ensure cost efficient operations, the Tallink Logistics Center project was started and one of the most modern logistics centres in the region was launched in January 2016. The Group operated logistics centre will consolidate the logistics of the goods and will be the single hub for distribution of majority of the goods for the fleet, hotels and offices. In addition, the Group is in final phase with the implementation of its new enterprise resource planning system. The system improves the Groups resource management capacity and enables further efficiencies in operations and support functions.
The key highlights of the 2015 financial year were the following:
| 2015 | 2014 | Change | |
|---|---|---|---|
| EUR | EUR | % | |
| Revenue (million) | 945.2 | 921.5 | 2.6% |
| Gross profit (million) | 223.4 | 181.7 | 23.0% |
| Net profit for the period (million) | 59.1 | 27.3 | 116.7% |
| EBITDA (million) | 181.4 | 150.6 | 20.5% |
| Depreciation and amortisation (million) | 78.1 | 79.9 | -2.3% |
| Investments (million) | 43.6 | 49.1 | -11.2% |
| Weighted average number of ordinary shares outstanding1 | 669,882,040 | 669,882,040 | 0% |
| Earnings per share | 0.088 | 0.041 | 116.7% |
| Number of passengers | 8,976,226 | 8,881,732 | 1.1% |
| Number of cargo units | 308,029 | 310,492 | -0.8% |
| Average number of employees | 6,835 | 6,952 | -1.7% |
| 31.12.2015 | 31.12.2014 | ||
| Total assets (million) | 1,538.8 | 1,685.6 | -8.8% |
| Total liabilities (million) | 714.3 | 907.3 | -21.3% |
| Interest-bearing liabilities (million) | 549.3 | 743.4 | -26.1% |
| Net debt (million) | 467.3 | 678.1 | -31.1% |
| Total equity (million) | 824.4 | 778.3 | 5.9% |
| Equity ratio (%) | 53.6% | 46.2% | |
| Number of ordinary shares outstanding1 | 669,882,040 | 669,882,040 | 0% |
| Shareholders' equity per share | 1.23 | 1.16 | 6.0% |
| Ratios | |||
| Gross margin (%) | 23.6% | 19.7% | |
| EBITDA margin (%) | 19.2% | 16.3% | |
| Net profit margin (%) | 6.3% | 3.0% | |
| Return on assets (ROA) | 6.3% | 4.1% | |
| Return on equity (ROE) | 7.4% | 3.6% | |
| Return on capital employed (ROCE) | 7.7% | 5.0% | |
| Net debt to EBITDA | 2.6 | 4.5 | -42.2% |
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.
The Group's consolidated revenue amounted to EUR 945.2 million in 2015 (921.5 million in 2014). Restaurant and shop sales on-board and on mainland of EUR 500.6 million (487.6 million in 2014) contributed more than half of total revenue. Ticket sales amounted to EUR 228.0 million (230.5 million in 2014) and sales of cargo transport to EUR 104.4 million (103.1 million in 2014).
The revenue growth 2.6% was driven by higher restaurant and shop sales and charter revenues. The restaurant and shop sales increase 2.7% or EUR 13.1 million was supported by higher passenger number and also higher on-board sales per passenger. The charter revenues increased by 13.6% or EUR 6.4 million and the cargo revenues by 1.3% compared to 2014. Marketing and sales activities led to an increase of passenger number and resulted in lower ticket revenue per passenger, the total ticket revenue declined by 1.1%.
Geographically, 35.8% or EUR 338.2 million of revenue came from the Estonia-Finland route and 35.3% or EUR 333.3 million from the Finland-Sweden route. Revenue from the Sweden-Estonia route was EUR 104.3 million or 11.0% and from the Sweden-Latvia route EUR 42.0 million or 4.4%. The share of revenue generated by other geographical segments increased to 13.5% (EUR 127.4 million).
The following tables provide an overview of the distribution of revenue from operations between the Group's geographical and operational segments:
| Geographical segments | 2015 | 2014 | Operational segments |
|---|---|---|---|
| Finland - Sweden | 35.3% | 35.2% | Restaurant and shop sales on |
| Estonia - Finland | 35.8% | 34.9% | board and on mainland |
| Geographical segments | 2015 | 2014 | Operational segments | 2015 | 2014 |
|---|---|---|---|---|---|
| Finland - Sweden | 35.3% | 35.2% | Restaurant and shop sales on | 53.0% | 52.9% |
| Estonia - Finland | 35.8% | 34.9% | board and on mainland | ||
| Estonia - Sweden | 11.0% | 11.1% | Ticket sales | 24.1% | 25.0% |
| Latvia - Sweden | 4.4% | 6.5% | Sales of cargo transportation | 11.0% | 11.2% |
| Other | 13.5% | 12.3% | Accommodation sales | 2.0% | 2.1% |
| Income from charter of vessels | 5.7% | 5.1% | |||
| Other sales | 4.2% | 3.7% |
Gross profit was EUR 223.4 million (EUR 181.7 million in 2014), EBITDA EUR 181.4 million (EUR 150.6 million in 2014). Net profit for 2015 was EUR 59.1 million (EUR 27.3 million in 2014). Basic and diluted earnings per share were EUR 0.088 (EUR 0.041 in 2014).
The cost of goods related to sales at shops and restaurants, which is the largest operating cost item, amounted to EUR 215.4 million (EUR 211.2 million in 2014).
Fuel cost for 2015 was EUR 94.2 million (EUR 114.0 million in 2014). Fuel cost was impacted by lower fuel price levels throughout the year. Measured in euros, in 2015 the Group's average fuel price was approximately 5% lower than in the 2014 calendar year. Combined with one vessel less in Riga-Stockholm route and savings from more efficient vessel operations, the total annual fuel cost reduced by 17%.
The Group's personnel expenses amounted to EUR 193.8 million (EUR 189.8 million in 2014). The average number of employees in the 2015 financial year was 6,835 (6,952 in 2014).
Administrative expenses for 2015 amounted to EUR 47.3 million, and sales and marketing expenses to EUR 63.6 million (EUR 49.2 million and 62.7 million respectively in 2014).
Depreciation and amortisation of the Group's assets was EUR 78.1 million (EUR 79.9 million in 2014). There were no impairment losses related to the Group's property, plant, equipment and intangible assets.
The Group's net finance costs for 2015 amounted to EUR 34.2 million (EUR 40.7 million in 2014).
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.
The Group's net operating cash flow for 2015 was EUR 191.9 million (EUR 150.7 million in 2014).
Net cash flow from investing activities was EUR 72.0 million (EUR -48.8 million in 2014) of which EUR -43.6 million (EUR -49.13 million in 2014) resulted from purchases of property, plant, equipment and intangible assets. The proceeds from sale of vessels and other assets were EUR 115.6 million (EUR 0.3 million in 2014). The expenditures were: down payment for new LNG vessel (EUR 23.0 million), investments related to improvements to ships, scheduled maintenance expenses resulting from dockings and investments in various IT systems.
In the 2015 financial year, the Group's net repayments of existing loans totalled EUR 192.3 million (EUR 45.8 million in 2014). Interest payments were EUR 33.2 million (EUR 33.3 million in 2014).
In order to strengthen the Group's liquidity position the overdraft limit was increased by EUR 10 million to EUR 75 million in February 2015.
As at 31 December 2015, the Group's cash and cash equivalents totalled EUR 82.0 million (EUR 65.3 million as at 31 December 2014). In addition, available unused overdraft credit lines amounted to EUR 71.6 million (EUR 2.6 million in 2014).
In management's opinion, the Group has sufficient liquidity to support its operations.
The Group finances its operations and investments with operating cash flows, debt and equity financing and potential proceeds from disposals of assets. At 31 December 2015, the Group's interest-bearing liabilities as a percentage of capitalization (interest-bearing liabilities and shareholders' equity) was 40.0% compared to 48.8% at 31 December 2014. The decrease results from a EUR 194.0 million decrease in interest-bearing liabilities and a EUR 46.2 million increase in equity.
At the end of the 2015 financial year, interest-bearing liabilities totalled EUR 549.4 million, 26.1% down from the end of the previous financial year. The decrease is attributed to regular repayment of bank loans and premature repayment of bank loans related to the sale of vessels.
In June 2015 the Group signed with Nordea Bank Finland Plc the loan agreement in amount of EUR 184 million to finance the construction of the new LNG fast ferry Megastar in Meyer Turku shipyard. The loan will be paid out in
early 2017 when the ship is delivered, the maturity of the loan is twelve years from drawdown. Finnish Export Credit Agency "Finnvera" guarantees 95% of this post-delivery buyer credit and the loan bears OECD Commercial Interest Reference Rate (CIRR) based fixed interest rate.
All interest-bearing liabilities have been incurred in euros or in Norwegian krone.
Consolidated equity increased by 5.9%, from EUR 778.3 million to EUR 824.5 million, mainly from net profit for the financial year. Shareholders' equity per share, excluding own shares, was EUR 1.25. At the end of the 2015 financial year, the Group's share capital amounted to EUR 404,290,224. For further information about shares, please see the "Shares and Shareholders" section of this report.
The Group's main revenue-generating assets are vessels, which account for approximately 83% of total assets. During the financial year three vessels (Silja Festival, Regina Baltica and Superstar) were sold and at the end of the financial year the Group owned 15 vessels. Fast ferry Superstar is operated under a charter agreement until the delivery of new LNG fast ferry Megastar early 2017. The vessel types and operations at the end of the financial year are described in the table below:
| Vessel type | Built/renovated | Route | Other information |
|---|---|---|---|
| Cruise ferry | 2009 | Finland-Estonia | overnight cruise |
| High-speed ro-pax | 2008 | Finland-Estonia | shuttle service |
| High-speed ro-pax | 2007 | Finland-Estonia | shuttle service |
| Ro-ro cargo vessel | 1972/1989 | Finland-Estonia | cargo transportation |
| Cruise ferry | 2006 | Finland-Sweden | overnight cruise |
| Cruise ferry | 2008 | Finland-Sweden | overnight cruise |
| Cruise ferry | 1991 | Finland-Sweden | overnight cruise |
| Cruise ferry | 1990 | Finland-Sweden | overnight cruise |
| Cruise ferry | 2002 | Sweden-Estonia overnight cruise | |
| Cruise ferry | 2004 | Sweden-Estonia overnight cruise | |
| Ro-ro cargo vessel | 1999 | Sweden-Estonia cargo transportation | |
| Cruise ferry | 1989 | Sweden-Latvia | overnight cruise |
| High-speed ro-pax | 2001 | Chartered out | renamed "Stena Superfast VII" |
| High-speed ro-pax | 2001 | Chartered out | renamed "Stena Superfast VIII" |
| High-speed ro-pax | 2002 | Chartered out | renamed "Atlantic Vision" |
| Cruise ferry | 1993 | Chartered out* | |
*The cruise ferry Silja Europa started on Tallinn-Helsinki route day cruise service on 13 March 2016.
As at 31 December 2015 the value of the ships amounted to EUR 1,270 million (EUR 1,451 million at the end of 2014). The Group's vessels are regularly valued by 2 to 3 independent international shipbrokers who are also approved by mortgagees.
In February 2015 AS Tallink Grupp and Meyer Turku Oy signed a contract for the construction of the new LNG powered fast ferry for Tallinn-Helsinki route shuttle operations. The dual fuel ship will be about 212 meters in
length with a passenger capacity of 2,800. The ship will cost around EUR 230 million, 20% of the total cost will be paid during the construction period and the rest 80% upon the delivery of the vessel. The production of the new fast ferry started on the 4th of August 2015 at Meyer Turku shipyard and the delivery of the vessel is planned in the beginning of 2017.
All of the Group's vessels have protection and indemnity insurance (P&I), hull and machinery insurance (H&M) and they meet all applicable safety regulations.
The Group does not have any substantial on-going research and development projects.
The total number of passengers carried by the Group during the 2015 financial year was 9.0 million. The total number of cargo units carried by the Group's vessels was over 308 thousand.
The following table provides an overview of transported passengers, cargo units and passenger vehicles in the 2015 and 2014 financial years.
| 2015 | 2014 | |
|---|---|---|
| Passengers | ||
| Finland-Sweden | 2,825,699 | 2,713,789 |
| Estonia-Finland | 4,744,708 | 4,518,013 |
| Estonia-Sweden | 946,832 | 973,254 |
| Latvia-Sweden | 458,987 | 676,676 |
| Total | 8,976,226 | 8,881,732 |
| Cargo units | ||
| Finland-Sweden | 64,309 | 87,197 |
| Estonia-Finland | 197,324 | 167,411 |
| Estonia-Sweden | 39,155 | 42,347 |
| Latvia-Sweden | 7,241 13,537 |
|
| Total | 308,029 | 310,492 |
| Passenger vehicles | ||
| Finland-Sweden | 161,772 | 161,197 |
| Estonia-Finland | 830,044 | 789,082 |
| Estonia-Sweden | 71,793 | 73,889 |
| Latvia-Sweden | 56,308 | 79,213 |
| Total | 1,119,917 | 1,112,381 |
The Group's market shares on routes operated during the 2015 financial year were as follows:
At the reporting date, the Group consisted of 44 companies. All of the subsidiaries are wholly-owned companies of AS Tallink Grupp. The following diagram represents the Group's structure at the reporting date:
The Group also owns 34% of AS Tallink Takso
| As at 31 December | 2015 | 2014 | Change |
|---|---|---|---|
| Onshore total | 1,565 | 1,521 | 2.9% |
| Estonia | 835 | 770 | 8.4% |
| Finland | 471 | 471 | 0.0% |
| Sweden | 177 | 199 | -11.1% |
| Latvia | 66 | 67 | -1.5% |
| Germany | 6 | 4 | 50.0% |
| Russia | 10 | 10 | 0.0% |
| At sea | 4,788 | 4,525 | 5.8% |
| Hotel* | 613 | 608 | 0.8% |
| Total | 6,966 | 6,654 | 4.7% |
On 31 December 2015, the Group employed 6,966 employees (6,654 on 31 December 2014).
* The number of hotel personnel is not included in the total number of onshore personnel.
In the 2015 financial year, staff costs in the cost of sales were EUR 142.4 million (EUR 138.7 million in 2014). Staff costs related to administrative staff and sales & marketing staff were EUR 21.3 million and EUR 30.1 million respectively (EUR 21.3 million and EUR 29.4 million respectively in 2014).
As at 31 December 2015 AS Tallink Grupp had a total of 673,817,040 shares issued and fully paid. There were no changes in the amount of shares during the 2015 financial year.
All the shares are of the same kind and each share carries one vote at the shareholders' general meeting. The par value of each share is EUR 0.6. No preference shares or shares with special rights have been issued. According to the articles of association of AS Tallink Grupp, shares can be freely transferred. No authorization needs to be obtained in order to buy or sell AS Tallink Grupp shares.
As a result of share buybacks carried out during the period of December 2007 - January 2008 the Group owns 3,935,000 own shares, which represent 0.584% of shares issued.
On 8 February 2011, the annual general meeting of AS Tallink Grupp approved the terms of a share option programme that allowed issuing options for up to 15 million shares until 31 August 2013. In accordance with the programme, the Group issued options during the 2011 and 2012 financial years. On 30 November 2014 7,317,500 share options expired (issued 2011). As at 31 December 2015, the Group had outstanding 7,276,903 share options (7,318,638 at the end of 2014) of which 3,150,000 were held by the Management Board and Supervisory Board and 4,126,903 by other Group employees. Each option gives the right to purchase one share in AS Tallink Grupp. The outstanding options represent around 1.1% of total shares outstanding. The terms and conditions of the issued share options are the following: exercisable not earlier than 36 months from issue or 21 December 2015 and not later than 21 June 2016; exercise price EUR 0.858 in the case of new shares issued or average acquisition cost in the case of existing shares purchased from the market; the options are to be settled by physical delivery of shares. As at 31 December 2015 outstanding share options had no diluting effect due to their exercise price being higher than the price in the stock market during the reporting period.
On 9 June 2015, the annual general meeting of AS Tallink Grupp approved the terms of a share option programme that allowed issuing options for up to 20 million shares. As at 31 December 2015 there were no options issued under the 2015 share option programme.
According to the resolution of the general meeting of 9 June 2015, the Company was granted the right to acquire its own shares subject to the following conditions:
1) The company is entitled to acquire own shares within five years as from the adoption of this resolution.
2) The total nominal values of the shares owned by the company shall not exceed 10 % of the share capital.
3) The price payable for one share shall not be more than is the highest price paid at Tallinn Stock Exchange for the share of AS Tallink Grupp at the day when the share is acquired.
4) Own shares shall be paid for from the assets exceeding the share capital, mandatory legal reserve and issue premium.
No share buybacks have been performed since adoption of this resolution.
Supervisory Board is authorized within three years as from 1 January 2016 to increase the share capital by EUR 25,000,000 increasing the share capital up to EUR 429,290,224.
The Management Board of AS Tallink Grupp has not been granted the right to issue new shares.
The shares of AS Tallink Grupp are traded on the NASDAQ OMX Tallinn Stock Exchange under the symbol TAL1T (REUTERS: TAL1T.TL, BLOOMBERG: TAL1T ET).
During the 2015 financial year, there were transactions with 64,169,830 AS Tallink Grupp shares on the Tallinn Stock Exchange. The highest daily average share price on the Tallinn Stock Exchange was EUR 0.86 and the lowest daily average share price was EUR 0.68. The average daily turnover of AS Tallink Grupp shares on the Tallinn Stock Exchange was EUR 197 thousand.
The following charts give an overview of the performance of the share price and trading on the Tallinn Stock Exchange during the last three years, from 1 January 2013 to 31 December 2015. The market capitalization in the end of the 2015 financial year was EUR 577.5 million.
The table below presents the distribution of share capital by size of share ownership as at 31 December 2015:
| Ownership size | No. of shareholders | % of shareholders | No. of shares | % of share capital |
|---|---|---|---|---|
| 1-99 | 953 | 8.66% | 66,571 | 0.01% |
| 100 - 999 | 6,425 | 58.38% | 5,822,034 | 0.86% |
| 1,000 - 9,999 | 2,993 | 27.20% | 14,390,618 | 2.14% |
| 10,000 – 99,999 | 524 | 4.76% | 23,337,344 | 3.46% |
| 100,000 – 999,999 | 74 | 0.67% | 40,142,674 | 5.96% |
| 1,000,000 – 9,999,999 | 31 | 0.28% | 131,202,984 | 19.47% |
| 10,000,000 + | 5 | 0.05% | 458,854,815 | 68.10% |
| TOTAL | 11,005 | 100.00% | 673,817,040 | 100.00% |
As at 31 December 2015, 6.75% of the Group's shares were held by individuals.
The table below presents the investors of the Group by investor type at 31 December 2015:
| Investor type | No. of shareholders | No. of shares | % of share capital |
|---|---|---|---|
| Principal shareholder, Infortar AS | 1 | 254,776,164 | 37.81% |
| Institutional investors | 1,086 | 373,541,138 | 55.44% |
| Private individuals | 9,918 | 45,499,738 | 6.75% |
The table below presents the 10 largest shareholders of the Group at 31 December 2015:
| Shareholder | No. of shares | % |
|---|---|---|
| Infortar AS | 254,776,164 | 37.81% |
| Baltic Cruises Holding L.P. | 117,362,149 | 17.42% |
| Nordea Bank Finland Plc. clients | 42,624,436 | 6.33% |
| ING Luxembourg S.A. AIF Acc. | 24,829,806 | 3.68% |
| ING Luxembourg Client Acc. | 19,262,260 | 2.86% |
| State Street Bank Trust Omnibus Acc. A Fund OM01 | 14,944,376 | 2.22% |
| Clearstream Banking Luxembourg S.A. Clients | 11,701,606 | 1.74% |
| Skandinaviska Enskilda Banken Finnish Clients | 7,924,385 | 1.18% |
| Mellon Treaty Omnibus | 7,416,559 | 1.10% |
| Firebird Republics Fund Ltd | 6,712,956 | 1.00% |
Major shareholders of the Group entered into a shareholders' agreement in August 2006. The agreement was amended in December 2012. The main terms of the agreement are published on the Group's website. The agreement sets forth among the other terms that the parties of the agreement and each shareholder of Tallink shall remain independent in their decisions and shall not be restricted by the agreement or otherwise, directly or indirectly, to exercise their voting right or any other powers available to them, in the manner which, in its own opinion, best complies with its duties under Estonian laws, any Rules of Tallinn Stock Exchange or the Corporate Governance Recommendations.
The Group has not concluded any agreement with its management or employees that contain the provisions of compensation payment in case of takeover bid.
The Group's strong expansion and growth have been achieved thanks to significant investments in the recent past. The Group's policy has been to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. In 2011 management introduced the strategic target to pay sustainable dividends. Dividend payment is related to the results of the company.
In the 2015 financial year a dividend of EUR 0.02 i.e. EUR 13,398,000 was paid. The rest of the operating cash flow was used to repay the bank loans, for down payment of the new LNG vessel and to support the Group liquidity.
This report is made in accordance with the Estonian Accounting Act and gives an overview of the governance of AS Tallink Grupp and its compliance with the requirements of the Corporate Governance Recommendations (CGR) of the NASDAQ OMX Tallinn Stock Exchange. The Group follows most of the articles of the CGR except where indicated otherwise in this report.
Pursuant to the Estonian Commercial Code and the articles of association of AS Tallink Grupp (the Company), the right of decision and the administration of the Company are divided between the shareholders represented by the shareholders' general meeting, the Supervisory Board and the Management Board.
The Company's highest governing body is the shareholders' general meeting. The primary duties of the general meeting are to approve the annual report and the distribution of dividends, elect and remove members to the Supervisory Board, elect auditors, pass resolutions on any increase or decrease in share capital, change the articles of association and resolve other issues, which are the responsibility of the general meeting by law. According to the law, the articles of association can be amended only by the shareholders' general meeting. In such a case it is required that 2/3 of the participating votes are for it.
Every shareholder or his/her proxy with a relevant written power of attorney may attend the general meeting, discuss the items on the agenda, ask questions, make proposals and vote.
The Group publishes a notice of an annual general meeting and an extraordinary general meeting at least three weeks in advance in a national daily newspaper, in the stock exchange information system and on the Company's website at www.tallink.com. The notice includes information on where the meeting will be held.
The agenda of the meeting, the Board's proposals, draft resolutions, comments and other relevant materials are made available to the shareholders before the general meeting on the Company's website and in the stock exchange information system. The shareholders may ask questions before the general meeting by sending an email to [email protected].
The Company has not made it possible to observe and attend general meetings through electronic channels as there has not been any interest for it (CGR 1.3.3).
In the reporting period AS Tallink Grupp held the annual general meeting on 9 June 2015. The meeting was attended by the Management Board members Janek Stalmeister, Andres Hunt, Lembit Kitter and Kadri Land. The Supervisory Board members present were Enn Pant, Toivo Ninnas, Kustaa Äimä, Ain Hanschmidt, Colin Douglas Clark, Eve Pant and Kalev Järvelill. The meeting was also attended by the Company's auditor. The chairman of the meeting was Raino Paron. The meeting was held in Estonian. The attending shareholders represented 459,172,054 votes, i.e. 68.55% of all votes. The resolutions adopted were: distribution of profits, nomination of an auditor, approval of the Share Option Program, amending the Articles of Association and authorizing the acquisition of own shares.
The Supervisory Board engages in oversight and longer-term management activities such as supervising the Management Board and approving business plans, acting in the best interest of all shareholders. No residency requirements apply to the members of the Supervisory Board. The Supervisory Board reports to the general meeting of the shareholders.
The Supervisory Board consists of 5 to 7 members. Members of the Supervisory Board are elected for periods of three years at a time. The Supervisory Board elects one of its members as chairman. For electing a member to the Supervisory Board his or her written consent is needed. The general meeting of the shareholders may remove any member of the Supervisory Board without a reason. Such a decision requires 2/3 of the votes represented at the general meeting. A member of the Supervisory Board may resign without a reason by informing the general meeting of the shareholders about the resignation.
The Supervisory Board is responsible for supervising management of the Company and organisation of its operations. The Supervisory Board determines the principles for the Company's strategy, organisation, annual operating plans and budgets, financing and accounting. The Supervisory Board elects the members of the Management Board and determines their salaries and benefits.
At present, the Supervisory Board has seven members: Mr. Enn Pant – Chairman, Mr. Toivo Ninnas, Ms. Eve Pant, Mr. Ain Hanschmidt, Mr. Lauri Kustaa Äimä, Mr. Colin Douglas Clark and Mr. Kalev Järvelill. The members of the Supervisory Board have the knowledge and experience necessary to fulfill their duties following the Corporate Governance Recommendations and legislation.
The meetings of the Supervisory Board are held according to need, but at least once in every three months. The Supervisory Board convened six times during the 2015 financial year. The Company's operations, development, strategies, targets and budget were discussed. Twelve resolutions were adopted in writing without convening a meeting.
The members of the Supervisory Board avoid conflicts of interest and observe the prohibition on competition. The Supervisory Board and the Management Board work closely in the best interests of the Company and its shareholders, acting in accordance with the articles of association. Confidentiality rules are followed on exchanging information.
The remuneration of the Supervisory Board was decided at the shareholders' special general meeting on 17 September 2013. Accordingly, the remuneration of the chairman is EUR 2,500 per month and the remuneration of other members of the Supervisory Board is EUR 2,000 per month. There are no other benefits for members of the Supervisory Board.
| Shares | Share options | |
|---|---|---|
| Enn Pant | 3,951,913 | 350,000 |
| Toivo Ninnas | 19,200 | 350,000 |
| Eve Pant | 603,500 | 350,000 |
| Ain Hanschmidt | 1,800,000 | 350,000 |
| Lauri Kustaa Äimä | 237,000 | 350,000 |
| Colin Douglas Clark | 0 | 0 |
| Kalev Järvelill | 1,276,800 | 350,000 |
The direct shareholdings and granted share options of the members of the Supervisory Board at the end of the 2015 financial year were the following:
The Management Board is an executive body charged with the day-to-day management of the Company, as well as with representing the Company in its relations with third parties, for example on entering into contracts on behalf of the Company. The Management Board is independent in their decisions and follows the best interests of the Company's shareholders.
The Management Board must adhere to the decisions of the general meeting of the shareholders and lawful orders of the Supervisory Board. The Management Board ensures, with its best efforts, that the Company complies with the law and that the Company's internal audit and risk management functions operate effectively.
The Management Board consists of 3 to 7 members. The members and the chairman of the Management Board are elected by the Supervisory Board for periods of three years at a time. For electing a member to the Management Board his or her written consent is needed. The chairman of the Management Board may propose that the Supervisory Board also appoint a vice chairman of the Management Board, who fulfills the chairman's duties in the absence of the chairman. Every member of the Management Board may represent the Company alone in any legal and business matter. According to the law the Supervisory Board may recall any member of the Management Board without a reason. A member of the Management Board may resign without a reason by informing the Supervisory Board about the resignation.
At present, the Management Board has three members. Mr. Janek Stalmeister, Chairman, is responsible for leading the Board and general and strategic management of the Group, additionally he is responsible for IT, hotel operations, retail operations, cargo operations and regional offices. Mr. Andres Hunt, Vice Chairman, is responsible for fulfilling the chairman's duties in his absence, finance, technical management and internal control. Mr. Lembit Kitter is responsible for the Group's sales & marketing, daily operations, customer service, business development and human resources. The Supervisory Board has concluded service agreements with the members of the Management Board.
In 2015 the remuneration of the members of the Group's Management Board was in total EUR 1.4 million, including EUR 36,000 termination benefits.
The remuneration of the Management Board is determined by the Supervisory Board according to the CGR. The Supervisory Board has adopted the principles of remuneration of the management of AS Tallink Grupp. According to the document, besides work benefits, termination benefits and a share option programme, the members of the Management Board are eligible to annual bonuses of up to six-months' remuneration that are paid when the Group's results are profitable. The pay and benefits of individual Board members are not disclosed as the Group believes that such detailed information is insignificant for investors and is outweighed by the possible harm and discomfort to the members of the Management Board from the disclosure of sensitive personal information. The Company does not want to disclose such information to its competitors (CGR 2.2.7).
Members of the Management Board avoid conflicts of interest and observe the prohibition on competition.
The direct shareholdings and granted share options of the members of the Management Board at the end of the 2015 financial year were the following:
| Shares | Share options | |
|---|---|---|
| Janek Stalmeister | 45,000 | 350,000 |
| Andres Hunt | 860,000 | 350,000 |
| Lembit Kitter | 0 | 350,000 |
According to the resolution of the general meeting of 9 June 2015, the Company was granted the right to acquire its own shares subject to the following conditions:
1) The company is entitled to acquire own shares within five years as from the adoption of this resolution.
2) The total nominal values of the shares owned by the company shall not exceed 10 % of the share capital.
3) The price payable for one share shall not be more than is the highest price paid at Tallinn Stock Exchange for the share of AS Tallink Grupp at the day when the share is acquired.
4) Own shares shall be paid for from the assets exceeding the share capital, mandatory legal reserve and issue premium.
The Management Board has no right to issue the Company's shares.
The Company follows the CGR in its information disclosure procedures and treats all shareholders equally. All the released information is published in Estonian and in English on the websites of the Company and the Tallinn Stock Exchange as well as through the OAM system managed by the EFSA.
Meetings with investors have been arranged on an ad hoc basis as and when requested by the investors. The information shared at the meetings is limited to data already disclosed. The Company has published the times and locations of significant meetings with investors. The presentations made to investors are available on the Company's website. However, the Group does not meet the recommendation to publish the time and location of each individual meeting with investors and to allow all shareholders to participate in these events as it would be impractical and technically difficult to arrange (CGR 5.6).
Preparation of financial reports and statements is the responsibility of the Company's Management Board. The Company's consolidated financial statements are prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the EU and relevant Estonian regulations. The company issues quarterly unaudited interim financial reports and the annual audited report.
The Company's annual report is audited and then approved by the Supervisory Board. The annual report together with the written report of the Supervisory Board is sent for final approval to the shareholders' general meeting.
The notice of the shareholders' general meeting includes information on the auditor candidate. The Company observes the auditors' rotation requirement. The audit fee and the auditors' responsibilities are set out in an agreement concluded between the Company and the auditor.
To the knowledge of the Company, the auditors have fulfilled their contractual obligations and have audited the Company in accordance with International Standards on Auditing.
For better risk management and control, the Company has established an Audit Committee and an Internal Audit Department.
The Internal Audit Department took part in the process of preparing the annual report. Internal audits are conducted to check that information presented in the annual report is reliable.
The consolidated financial statements for the 2015 financial year were audited by KPMG Baltics OÜ.
The Supervisory Board has elected two persons to the Audit Committee: Mr. Ain Hanschmidt and Ms. Mare Puusaag. The Audit Committee is responsible for monitoring and analysing the processing of financial information, the effectiveness of risk management and internal control, the process of auditing annual and consolidated accounts, and the independence of the audit firm and the auditor representing the audit firm on the basis of the law. The Audit Committee is responsible for making recommendations and proposals to the Supervisory Board.
| INFORTAR AS | 254,776,164 | 37.81% |
|---|---|---|
| BALTIC CRUISES HOLDING, L.P. | 117,362,149 | 17.42% |
The related party transactions are disclosed in the notes to the financial statements.
Vice-chairman of the Management Board, Amber Trust SCA
Supervisory Board member of several companies including AS Premia Foods, AS Toode, AS Baltika, AS Riga Dzirnavnieks and UAB Malsena Plius
Holds a Master's degree in Economics from the University of Helsinki, Finland, 1997
Mr. Colin Douglas Clark (born 1974) - Member of the Supervisory Board since 2013
Mr. Janek Stalmeister (born 1974) – Chairman of the Management Board since 2015
Worked in the banking sector in Estonia since 1992 at leading positions, including in Eesti Maapank, Tartu Maapank, Põhja-Eesti Pank and in SEB Eesti Ühispank
Graduated the Faculty of Economics, University of Tartu, Estonia, in 1976
In the Group's operations the safety and security of people, environment and property are of the utmost importance. Tallink's Safety Management System adheres to the ISM (International Safety Management) and ISPS (International Ship Port Facility Security) Codes and the requirements according to the ISO 14001 environmental management standard to guarantee that the operations of the ships and onshore organization prevent accidents, loss of human lives and environmental damages caused to the marine environment. The Safety Management System is audited by Lloyds Register and the Estonian, Swedish, Latvian, and Finnish Maritime Administrations.
The Group's safety and security management operations are aimed at maintaining and developing safe procedures for ships and creating a safe ship environment for both the crew and passengers. The crew's safety and security management skills are consistently developed, tested and practiced through drills and exercises in cooperation with the authorities. The skills are improved by identifying the known risk factors and areas, and practicing related procedures. In addition, the crew's environmental safety awareness is continuously improved.
The objective of the Group's Safety Management System is to ensure that valid rules and requirements set out by the IMO (International Maritime Organization), the EU (European Union), the maritime authorities, the certification bodies and other maritime organizations as well as their applicable regulations and standards are adhered to.
Ship masters are responsible for the onboard safety and security operations of the ships managed by the Group. The task of the onshore organization is to supervise, support and develop safety and security work.
All the Group's vessels carry lifesaving equipment which meets the highest safety standards and are always ready for immediate use. Nevertheless the Group's highest-level nautical and good-seamanship practices together with top-level safety and security organizations are designed to prevent situations where all this safety equipment should be put in use.
The Group recognises that environmental protection and management is one of its highest priorities. Every effort is to be made to preserve and protect the environment from marine and atmospheric pollution and any other form of pollution, including office-based waste.
The Group's vessels are maintained and operated in accordance with the MARPOL convention (the International Convention for the Prevention of Pollution from Ships). This ensures that air and sea pollution is kept at the lowest practicable level.
The Group operates a zero spill policy. The Group's objective is to eliminate the possibility of pollution at source by ensuring that high standards of safety and awareness are maintained and that all relevant legislation and conventions are followed for both its sea and shore activities. Additionally, the Group is committed to continuous improvement of the methods that are used to carry out and achieve this objective, including the use of equipment and practices that minimise waste generation.
Selection of international certificates held by Group companies:
As a major tax-payer in Estonia, Finland and Sweden, the Group believes that financial success can only be guaranteed through responsible and sustainable development. Therefore, each year, the Group gives a significant share of its success back to society and the environment in which the Company operates.
Group entities are actively involved in supporting many public initiatives and events, especially youth and sports organisations. Being one of the largest Estonian companies in terms of the number of employees, it has always been the Group's goal to encourage its employees to participate in social events for the sake of the environment and society.
There are many areas which the Group supports and sponsors. The environment, children and young people, and sports are areas which are considered to be the most important in all the countries in which Tallink has its operations.
A more detailed overview of the environmental and social responsibility policies and activities are provided in the Group's Sustainability Report.
The Group has continuous focus on developing the product offering to attract more passengers and increase revenue from retail sales. The public areas modernisation program is extended over several years and the Group will continue to update the shops, restaurants and cabins in selected vessels to develop and improve the total product offering to its customers.
Looking forward to the financial year 2016 the chartering revenues will decrease compared to 2015 as fewer ships are in charter. The previously chartered out cruise ferry Silja Europa returned from charter and started daily passenger operations on Tallinn-Helsinki route in March 2016.
The Group will continue to work with different areas to ensure the cost efficient operations. Further efficiencies are expected from the projects like the vessel operations monitoring systems, the common enterprise resource planning system, Tallink Logistcs Center, the Tallink Training Center and other ongoing initiatives.
The Group's business, financial position and operating results could be materially affected by various risks. These risks are not the only ones we face. Additional risks and uncertainties not presently known to us, or that we currently believe are immaterial or unlikely, could also impair our 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.
The Management Board confirms that to the best of their knowledge the management report of AS Tallink Grupp for the 2015 financial year presents a true and fair view of significant events and their impact on the Group's results and financial position and includes an overview of the main risks and uncertainties.
Janek Stalmeister Chairman of the Management Board
Andres Hunt Vice Chairman of the Management Board
Lembit Kitter Member of the Management Board
Tallinn, 25.04.2016
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December
| In thousands of EUR | Notes | |||
|---|---|---|---|---|
| 2015 | 2014 | |||
| Revenue | 945,203 | 921,466 | 4 | |
| Cost of sales Gross profit |
-721,780 223,423 |
-739,789 181,677 |
5 | |
| Sales and marketing expenses | -63,578 | -62,654 | 5 | |
| Administrative expenses | -47,311 | -49,211 | 5 | |
| Other operating income | 983 | 1,696 | ||
| Other operating expenses | -10,254 | -854 | ||
| Result from operating activities | 103,263 | 70,654 | ||
| Finance income | 12,808 | 11,760 | 5 | |
| Finance costs | -46,964 | -52,443 | 5 | |
| Share of profit of equity-accounted investees | 64 | 24 | 12 | |
| Profit before income tax | 69,171 | 29,995 | ||
| Income tax | -10,101 | -2,734 | 6 | |
| Net profit for the year | 59,070 | 27,261 | ||
| Other comprehensive income | ||||
| Items that may be reclassified to profit or loss | ||||
| Exchange differences on translating foreign operations | 160 | 286 | ||
| Other comprehensive income for the year | 160 | 286 | ||
| Total comprehensive income for the year | 59,230 | 27,547 | ||
| Basic and diluted earnings per share | ||||
| (in EUR per share) | 0.088 | 0.041 | 7 |
| In thousands of EUR | Notes | ||
|---|---|---|---|
| As at 31 December | 2015 | 2014 | |
| restated | |||
| ASSETS | |||
| Current assets | |||
| Cash and cash equivalents | 81,976 | 65,311 | 8 |
| Trade and other receivables | 36,583 | 38,210 | 9 |
| Prepayments | 5,274 | 3,798 | 10 |
| Income tax prepayment | 1,224 | 1,650 | |
| Inventories | 29,197 | 31,315 | 11 |
| 154,254 | 140,284 | ||
| Non-current assets | |||
| Investments in equity-accounted investees | 350 | 286 | 12 |
| Other financial assets | 308 | 252 | 13 |
| Deferred income tax assets | 19,410 | 21,338 | 6 |
| Investment property | 300 | 300 | |
| Property, plant and equipment | 1,311,418 | 1,467,964 | 14 |
| Intangible assets | 52,726 | 55,174 | 15 |
| 1,384,512 | 1,545,314 | ||
| TOTAL ASSETS | 1,538,766 | 1,685,598 | |
| LIABILITIES AND EQUITY | |||
| Current liabilities | |||
| Interest-bearing loans and borrowings | 81,889 | 149,850 | 16 |
| Trade and other payables | 88,480 | 91,236 | 17 |
| Income tax liability | 4,567 | 1,300 | 6 |
| Deferred income | 28,906 | 29,408 | 18 |
| 203,842 | 271,794 | ||
| Non-current liabilities | |||
| Interest-bearing loans and borrowings | 467,447 | 593,532 | 16 |
| Derivatives | 42,863 | 41,982 | 24 |
| Other liabilities | 192 | 0 | |
| 510,502 | 635,514 | ||
| Total liabilities | 714,344 | 907,308 | |
| Equity | |||
| Equity attributable to equity holders of the Parent | |||
| Share capital | 404,290 | 404,290 | 19 |
| Share premium | 639 | 639 | 19 |
| Reserves | 65,083 | 70,129 | 19 |
| Retained earnings | 354,410 | 303,232 | |
| Total equity attributable to equity holders of the | |||
| Parent | 824,422 | 778,290 | |
| Total equity | 824,422 | 778,290 | |
| TOTAL LIABILITIES AND EQUITY | 1,538,766 | 1,685,598 |
| For the year ended 31 December | In thousands of EUR | Notes | |
|---|---|---|---|
| 2015 | 2014 | ||
| Cash flows from operating activities | |||
| Net profit for the period | 59,070 | 27,261 | |
| Adjustments for: | |||
| Depreciation and amortisation | 78,102 | 79,908 | 14, 15 |
| Net gain/loss on disposals of property, plant and equipment |
9,164 | -76 | |
| Net interest expense | 36,099 | 35,336 | 5 |
| Net expense from derivatives | 4,926 | 15,758 | 5 |
| Gain on disposal of financial assets | -186 | 0 | |
| Profit from equity-accounted investees | -64 | -24 | 12 |
| Net unrealised foreign exchange gain | -5,591 | -7,783 | |
| Share option programme reserve | 300 | -224 | |
| Income tax | 10,101 | 2,734 | 6 |
| 132,851 | 125,629 | ||
| Changes in: | |||
| Receivables and prepayments related to operating activities |
1,463 | -2,291 | |
| Inventories | 2,118 | 2,142 | |
| Liabilities related to operating activities | -4,139 | -2,103 | |
| Cash generated from operating activities | 191,363 | 150,638 | |
| Income tax paid | |||
| 553 191,916 |
71 150,709 |
||
| Cash flows from/used in investing activities | |||
| Purchase of property, plant, equipment and intangible assets |
-43,629 | -49,148 | 14, 15 |
| Proceeds from disposals of property, plant, equipment | 115,370 | 215 | |
| Proceeds from other financial assets | 229 | 0 | |
| Interest received | 74 | 140 | |
| 72,044 | -48,793 | ||
| Cash flows used in financing activities | |||
| Repayment of loans | -133,263 | -89,842 | |
| Change in overdraft | -59,052 | 43,993 | |
| Payments for settlement of derivatives | -4,045 | -3,985 | |
| Payment of finance lease liabilities | -80 | -75 | |
| Interest paid | -33,210 | -33,270 | |
| Payment of transaction costs related to loans | -1,429 | 0 | |
| Dividends paid Income tax on dividends paid |
-13,398 -2,818 |
-20,096 -5,342 |
|
| -247,295 | -108,617 | ||
| TOTAL NET CASH FLOW | 16,665 | -6,701 | |
| Cash and cash equivalents: | |||
| - at the beginning of period | 65,311 | 72,012 | |
| - increase / decrease | 16,665 | -6,701 | |
| - at the end of period | 81,976 | 65,311 | 8 |
for the year ended 31 December, in thousands of EUR
| Trans | Ships´ | Mandatory | Reserve for |
Share option |
Equity attributable to equity holders |
|||||
|---|---|---|---|---|---|---|---|---|---|---|
| Share capital1 |
Share premium1 |
lation reserve1 |
revaluation reserve 2 |
legal reserve1 |
treasury shares1 |
programme reserve3 |
Retained earnings |
of the Parent |
Total equity | |
| As at 31 December 2013 | 404,290 | 639 | 12 | 56,777 | 16,651 | -4,163 | 834 | 296,023 | 771,063 | 771,063 |
| Net profit for the year 2014 Total other comprehensive |
0 | 0 | 0 | 0 | 0 | 0 | 0 | 27,261 | 27,261 | 27,261 |
| income for the year 2014 | 0 | 0 | 286 | 0 | 0 | 0 | 0 | 0 | 286 | 286 |
| Total comprehensive income for the year 2014 |
0 | 0 | 286 | 0 | 0 | 0 | 0 | 27,261 | 27,547 | 27,547 |
| Transactions with owners of the company |
||||||||||
| Transfer from profit for 2013 | 0 | 0 | 0 | 0 | 2,171 | 0 | 0 | -2,171 | 0 | 0 |
| Transfer from revaluation reserve |
0 | 0 | 0 | -2,215 | 0 | 0 | 0 | 2,215 | 0 | 0 |
| Dividends | 0 | 0 | 0 | 0 | 0 | 0 | 0 | -20,096 | -20,096 | -20,096 |
| Share-based payment transactions (Note 20) |
0 | 0 | 0 | 0 | 0 | 0 | -224 | 0 | -224 | -224 |
| Transactions with owners, recognised directly in equity |
0 | 0 | 0 | -2,215 | 2,171 | 0 | -224 | -20,052 | -20,320 | -20,320 |
| As at 31 December 2014 | 404,290 | 639 | 298 | 54,562 | 18,822 | -4,163 | 610 | 303,232 | 778,290 | 778,290 |
| Net profit for the year 2015 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 59,070 | 59,070 | 59,070 |
| Total other comprehensive income for the year 2015 |
0 | 0 | 160 | 0 | 0 | 0 | 0 | 0 | 160 | 160 |
| Total comprehensive income for the year 2015 |
0 | 0 | 160 | 0 | 0 | 0 | 0 | 59,070 | 59,230 | 59,230 |
| Transactions with owners of the company |
||||||||||
| Transfer from profit for 2014 | 0 | 0 | 0 | 0 | 1,363 | 0 | 0 | -1,363 | 0 | 0 |
| Transfer from revaluation | 0 | 0 | 0 | -6,869 | 0 | 0 | 0 | 6,869 | 0 | 0 |
| As at 31 December 2015 |
404,290 | 639 | 458 | 47,693 | 20,185 | -4,163 | 910 | 354,410 | 824,422 | 824,422 |
|---|---|---|---|---|---|---|---|---|---|---|
| Transactions with owners, recognised directly in equity |
0 | 0 | 0 | -6,869 | 1,363 | 0 | 300 | -7,892 | -13,098 | -13,098 |
| Share-based payment transactions (Note 20) |
0 | 0 | 0 | 0 | 0 | 0 | 300 | 0 | 300 | 300 |
| Dividends | 0 | 0 | 0 | 0 | 0 | 0 | 0 | -13,398 | -13,398 | -13,398 |
| reserve |
1 For further information see also Note 19 Share Capital and Reserves
2 For further information see also Note 14 Property, Plant and Equipment and Note 19 Share Capital and Reserves
3 For further information see also Note 20 Share Option Programme
The consolidated financial statements of AS Tallink Grupp (the "Parent") and its subsidiaries (together referred to as the "Group") for the year ended 31 December 2015 were authorised for issue by the Management Board on 25 April 2016.
According to the Estonian Commercial Code, the annual report including the consolidated financial statements prepared by the Management Board must be agreed by the Supervisory Council, and approved by the shareholders' general meeting. Shareholders have the power not to approve the annual report prepared and presented by the Management Board and the right to request that a new annual report be prepared.
AS Tallink Grupp is a public limited company incorporated and domiciled in Estonia, with a registered office at Sadama 5/7 Tallinn. AS Tallink Grupp's shares have been publicly traded on the Tallinn Stock Exchange since 9 December 2005.
The principal activities of the Group are related to marine transportation in the Baltic Sea (passenger and cargo transportation). Further information on the principal activities of the Group is presented in Note 4 Segment Information. As at 31 December 2015 the Group employed 6,966 people (6,654 as at 31 December 2014).
The consolidated financial statements of AS Tallink Grupp and its subsidiaries have been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union (hereinafter: IFRS EU).
The consolidated financial statements have been prepared on the historical cost basis except for the following items in the statement of financial position:
The Group has adopted the following new standards and amendments to standards, including any consequential amendments to other standards, with a date of initial application of 1 January 2015:
IFRIC 21 Levies
Annual Improvements to IFRSs
The amendments to standards and new interpretations effective from 1 January 2015 did not have any impact on the Group's financial statements.
At 31 December 2014 the Group had recognised derivatives in the amount EUR 41,982,000 as current liabilities. The Group restated derivatives in the Statement of Financial Position 2014 from current liabilities to non-current liabilities as their contractual maturity is 2017-2019. There was no impact on total liabilities.
The figures reported in the financial statements are presented in euros, which is the Parent company's functional currency. All financial information presented in euros has been rounded to the nearest thousand except when otherwise indicated.
The preparation of the consolidated financial statements in conformity with IFRS EU requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected.
In the process of applying the Group's accounting policies, management has made the following judgements, which have the most significant effect on the amounts recognised in the financial statements:
As at 31 December 2015, the Group had entered into lease agreements for five hotel buildings, two office buildings and one warehouse building (31 December 2014: five hotel buildings and two office buildings). Management has determined that all significant risks and rewards of ownership of the property have been retained by the lessors and so the Group, acting as a lessee, accounts for these agreements as operating leases. See Note 21 for more detailed information on the minimum lease payments of the lease agreements.
As at 31 December 2015, the Group had entered into fixed-price fuel delivery contract. Management has determined that, although the contract contains embedded derivative, this derivative should not be separated from the host contract as the economic characteristics and risks of the embedded derivative are closely related to those of the host contract.
The following assumptions and estimation uncertainties have a risk of resulting in a material adjustment in the next financial year:
For the purpose of revaluation, the Group determined the fair value of its ships as at 31 December 2015. The fair value of ships depends on many factors, including the year of construction, several technical parameters as well as how the ships have been maintained (i.e. how much the owner has invested in maintenance). In order to assess the fair value of ships, the Group's management used independent appraisers. Revaluation depends upon changes in the fair values of the ships. When the fair value of a ship differs materially from its carrying amount, a revaluation is required. Management is of the opinion that as at 31 December 2015 carrying value of ships as a group did not materially differ from their fair value. Therefore, no revaluation was performed as at 31 December 2015. Further details are given in Note 3.4 and Note 14.
Management has estimated the useful lives and residual values of property, plant and equipment and intangible assets, taking into consideration the volumes of business activities, historical experience in this area and future outlook. Management's opinion of the useful lives of the Group's property, plant and equipment and the Group's intangible assets is disclosed in Notes 3.4 and 3.5 respectively.
The Group determines whether goodwill is impaired at least on an annual basis. This requires an estimation of the value in use of the cash-generating units to which goodwill is allocated. Estimating value in use requires management to make an estimate of the expected future cash flows from the cash-generating unit and also to choose a suitable discount rate in order to calculate the present value of those cash flows. The carrying amount of goodwill as at 31 December 2015 amounted to EUR 11,066,000 (31 December 2014: EUR 11,066,000). Further details are given in Note 15.
Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realised simultaneously.
A deferred tax asset is recognised for all unused tax losses to the extent that it is probable that taxable profit will be available against which the losses can be utilised. Significant management estimation is required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and level of future taxable profits. Further details are given in Note 6.
The fair values of derivative financial instruments have been determined by an independent valuer with relevant professional qualifications and experience. Valuation methods are Hull White Model, Black76 – Model and Jarrow – Yildirim – Model. Inputs used are EUR interest rates term structure, EUR swaption and cap volatilities, inflation swap rates, EURIBOR and NIBOR FRA rates. Inputs used are mainly unobservable.
Customer loyalty programme (Club One) applies to sales transactions in which the entities grant their customers award credits that, subject to meeting further qualifying conditions, the customers can redeem in the future for free or discounted goods or services. The Group recognises credits that it awards to customers as a separately identifiable component of revenue, which is deferred at the date of the initial sale. The credits are recognised at fair value based on the actual use and the estimated timing and value of realisation. Further details are given in Note 18.
Except for the changes explained in note 2.3, the accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements, and have been applied consistently by Group entities.
Business combinations are accounted for using the acquisition method as at the acquisition date, which is the date on which control is transferred to the Group.
For acquisitions the Group measures goodwill at the acquisition date as:
When the excess is negative, a bargain purchase gain is recognised immediately in profit or loss.
The consideration transferred does not include amounts related to the settlement of pre-existing relationships. Such amounts are generally recognised in profit or loss.
Costs related to the acquisition, other than those associated with the issue of debt or equity securities, that the Group incurs in connection with a business combination are expensed as incurred.
Any contingent consideration payable is recognised at fair value at the acquisition date. If the contingent consideration is classified as equity, it is not remeasured and settlement is accounted for within equity. Otherwise, subsequent changes to the fair value of the contingent consideration are recognised in profit or loss.
Subsidiaries are entities controlled by the Group. Control exists when the Group is exposed or has rights to variable returns from its involvements with the investee and it has the ability to affect those returns through its power over the investee and there is a link between power and returns. In assessing control, potential voting rights that currently are exercisable are taken into account. The consolidated financial statements comprise the financial statements of AS Tallink Grupp and its subsidiaries. The financial statements of the subsidiaries used in the preparation of the consolidated financial statements are prepared as at the same reporting date. If a subsidiary uses accounting policies other than those adopted in the consolidated financial statements for like transactions and events in similar circumstances, appropriate adjustments are made to its financial statements in preparing the consolidated financial statements. Subsidiaries are fully consolidated from the date of acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date that such control ceases.
Equity-accounted investees are those entities in which the Group has significant influence, but not control, over the financial and operating policies. Significant influence is presumed to exist when the Group holds between 20 and 50% of the voting power of another entity.
Equity-accounted investees are accounted for using the equity method (equity-accounted investees) and are initially recognised at cost. The Group's investment includes goodwill identified on acquisition, net of any accumulated impairment losses. The consolidated financial statements include the Group's share of the profit or loss and other comprehensive income and equity movements of equity-accounted investees, after adjustments to align the accounting policies with those of the Group, from the date that significant influence commences until the date that significant influence ceases. When the Group's share of losses exceeds its interest in an equityaccounted investee, the carrying amount of that interest (including any long-term investment) is reduced to nil and the recognition of further losses is discontinued except to the extent that the Group has an obligation or has made payments on behalf of the investee.
Intra-group balances and transactions, and any unrealised gains arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. Unrealised gains arising from transactions with equity-accounted investees are eliminated against the investment to the extent of the Group's interest in the investee. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment.
The Parent's functional currency and presentation currency is the euro. Each entity in the Group determines its own functional currency and the items included in the financial statements of each entity are measured using that functional currency.
Transactions in foreign currencies are translated into the respective functional currencies of Group companies at the exchange rates at the dates of the transactions.
Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the functional currency at the exchange date rate at that date. The foreign currency gain or loss on monetary items is the difference between amortised cost in the functional currency at the beginning of the year and the amortised cost in foreign currency translated at the exchange rate at the end of the year.
Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated to the functional currency at the exchange rate at the date that the fair value was determined. Foreign currency differences arising on retranslation are recognised in profit or loss, except for differences arising on the retranslation of available-for-sale equity instruments which are recognised in other comprehensive income. Nonmonetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction.
The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition, are translated to euros at exchange rates at the reporting date. The income and expenses of foreign operations are translated to euros at exchange rates at the dates of the transactions.
Foreign currency differences are recognised in other comprehensive income, and presented in the foreign currency translation reserve (FCTR) in equity. When a foreign operation is disposed of such that control or significant influence is lost, the cumulative amount in the FCTR related to that foreign operation is reclassified to profit or loss as part of the gain or loss on disposal. When the Group disposes of only part of its interest in a subsidiary that includes a foreign operation while retaining control, the relevant proportion of the cumulative amount is reattributed to non-controlling interests.
Non-derivative financial instruments comprise investments in equity securities, trade and other receivables, cash and cash equivalents, loans and borrowings, and trade and other payables.
Cash and cash equivalents are cash on hand, call deposits, short-term bank deposits and short-term highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.
Non-derivative financial instruments are recognised initially at fair value plus, for instruments not at fair value through profit or loss, any directly attributable transaction costs. Subsequent to initial recognition non-derivative financial instruments are measured as described below.
Financial liabilities are recognised initially at fair value, net of directly attributable transaction costs. In subsequent periods, financial liabilities are stated at amortised cost using the effective interest method; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in profit or loss over the period of the financial liability. A financial liability is derecognised when the underlying obligation is discharged or cancelled or expires.
The Group initially recognises loans and receivables and deposits on the date that they are originated. All other financial assets are recognised initially on the trade date at which the Group becomes a party to the contractual provisions of the instrument. The Group derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred.
Any interest in transferred financial assets that is created or retained by the Group is recognised as a separate asset or liability.
Financial assets and liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Group has a legal right to offset the amounts and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously.
The Group has the following non-derivative financial assets: cash and cash equivalents, loans and receivables and available-for-sale financial assets.
Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition loans and receivables are measured at amortised cost using the effective interest method.
The Group's investments in equity and certain debt securities are classified as available-for-sale financial assets. Subsequent to initial recognition, they are measured at fair value, and changes therein, other than impairment losses and foreign currency differences on available-for-sale instruments, are recognised in other comprehensive income and presented in equity.
The Group uses derivative financial instruments such as swaps, options and forwards to manage its risks associated with changes in exchange rates and interest rates. Such derivative financial instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently remeasured to fair value; changes therein are recognised in profit or loss. Derivatives are carried as assets when the fair value is positive and as liabilities when the fair value is negative.
The fair value of interest rate derivative contracts is determined using generally accepted valuation methods such as Hull White Model, Black76 – Model and Jarrow – Yildirim – Model.
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares and share options are recognised as a deduction from equity.
When share capital recognised as equity is repurchased, the amount of the consideration paid, which includes directly attributable costs is recognised as a deduction from equity. Repurchased shares are classified as treasury shares and are presented in the reserve for treasury shares. When treasury shares are subsequently sold or reissued, the amount received is recognised as an increase in equity, and the resulting surplus or deficit on the transaction is transferred to/from retained earnings.
Property, plant and equipment, except ships, are measured at cost, less accumulated depreciation and any impairment.
Cost includes expenditure that is directly attributable to the acquisition of the asset, including borrowing costs (see 3.8). The cost of self-constructed assets includes the cost of materials and direct labour and any other costs directly attributable to bringing the assets to a working condition for their intended use.
When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment.
Ships are measured at revalued amount (i.e. fair value less depreciation charged subsequent to the date of the revaluation). Revaluations are made with sufficient regularity to ensure that the carrying amount does not differ materially from that which would be determined using fair value at the end of the reporting period.
At the revaluation date, the carrying amount of ships is replaced with their fair value at the date of revaluation and accumulated depreciation is eliminated. Any revaluation surplus is recognised in other comprehensive income and presented in the revaluation reserve in equity. A revaluation deficit is recognised in loss, except that a deficit offsetting a previous surplus on the same asset, previously recognised in other comprehensive income, is offset against the surplus in the "revaluation of ships".
An annual transfer from the revaluation reserve to retained earnings is made for the difference between depreciation based on the revalued carrying amount of the assets and the depreciation based on the assets' original cost. Upon disposal, any revaluation reserve relating to the particular asset being sold is transferred to retained earnings.
Subsequent expenditure relating to an item of property, plant and equipment that has already been recognised (e.g. replacements of parts of some items, dry-dockings with intervals of two or five years) are added to the carrying amount of the assets, if the recognition criteria are met, i.e. (a) it is probable that future economic benefits associated with the item will flow to the Group, and (b) the cost of the item can be measured reliably. The replaced items are derecognised. All other expenditures are recognised as an expense in the period in which they are incurred.
Depreciation is calculated on a straight-line basis over the estimated useful life of the asset. Depreciation is discontinued when the carrying value of an asset equals its residual value. The residual value of ships is based on their estimated realisable value at the end of their useful life.
Depreciation is calculated on a straight-line basis over the estimated useful life of assets as follows:
| | buildings | 5 to 50 years |
|---|---|---|
| | plant and equipment | 3 to 10 years |
| | ships | 17 to 35 years |
| | other equipment | 2 to 5 years |
Land is not depreciated.
Depreciation is calculated separately for two components of a ship: the vessel itself and dry-docking expenses as a separate component. This is based on the industry accounting practice.
The depreciation charge is calculated for each part of a ship on a straight-line basis over the estimated useful life as follows:
| | ships | 17 to 35 years |
|---|---|---|
| | capitalised dry-docking expenses | 2 to 5 years |
The residual values, depreciation methods and useful lives of items of property, plant and equipment are reviewed at least at each financial year-end and, if an expectation differs from previous estimates, the change is accounted for as a change in an accounting estimate.
The residual value is calculated as a percentage of the gross carrying amount of the ship. The residual value for ships is 15%.
An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset is included in profit or loss (in "other operating income" or "other operating expenses") in the financial year the asset is derecognised.
Goodwill that arises upon the acquisition of subsidiaries is included in intangible assets. For the measurement of goodwill at initial recognition see note 3.1.
Goodwill is measured at cost less accumulated impairment losses.
Research costs are expensed as incurred. An intangible asset arising from development expenditure on an individual project is capitalised only when the Group can demonstrate (1) the technical feasibility of completing the intangible asset so that it will be available for use or sale; (2) its intention to complete and its ability to use or sell the asset; (3) how the asset will generate future economic benefits; (4) the availability of resources to complete the asset; and (5) the ability to measure reliably the expenditure attributable to the asset during development.
Following the initial recognition of development expenditure, the cost model is applied requiring the asset to be carried at cost less any accumulated amortisation and any accumulated impairment losses. Any expenditure capitalised is amortised over the period of expected future sales from the related project. Amortisation of the asset begins when development is completed and the asset is available for use.
The cost of a trademark acquired as part of an acquisition of a business is its fair value as at the date of acquisition. Following initial recognition, intangible assets with finite useful lives are carried at cost less accumulated amortisation and any accumulated impairment losses.
Other intangible assets (the licences and development costs of IT programs, acquired customer contracts) are initially recognised at cost. Following initial recognition, intangible assets with finite useful lives are carried at cost less accumulated amortisation and any accumulated impairment losses. Internally generated intangible assets, excluding capitalised development costs, are not capitalised and expenditure is expensed in the year in which the expenditure is incurred.
The useful lives of intangible assets are assessed to be either finite or indefinite. Intangible assets with finite lives are amortised over the useful economic life on a straight-line basis and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible asset with a finite life are reviewed at each financial year-end. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are accounted for by changing the amortisation period or method, as appropriate, and treated as changes in accounting estimates. The amortisation expense on intangible assets with finite lives is recognised in profit or loss in the expense category according to the function of the intangible asset.
Subsequent expenditure is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure, including expenditure on internally generated goodwill and brands, is recognised in profit or loss as incurred.
Amortisation is calculated on a straight-line basis over the estimated useful life of an intangible asset as follows:
| | trademarks | 20 years |
|---|---|---|
| | other intangible assets | 5 to 10 years |
Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in profit or loss when the asset is derecognised.
Investment property is property held either to earn rental income or for capital appreciation or for both, rather than for sale in the ordinary course of business, use in the supply of goods or services, or for administrative purposes. Investment property is measured at fair value with any change therein recognised in profit or loss.
When the use of a property changes such that it is reclassified to property, plant and equipment, its fair value at the date of reclassification becomes its deemed cost for subsequent accounting.
Inventories are measured at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs necessary to make the sale.
The costs of inventories, consisting mostly of fuel, and merchandise purchased for resale are assigned by using the weighted average cost method and includes expenditure incurred in acquiring the inventories, conversion costs and other costs incurred in bringing the inventories to their existing location and condition.
Borrowing costs are recognised as an expense when incurred, except those, which are directly attributable to the acquisition, construction or production of assets that necessarily take a substantial period of time to get ready for their intended use or sale (e.g. new ships). Borrowing costs related to the building of new ships are capitalised as part of the cost of related assets up to the delivery date.
A financial asset is assessed at each reporting date to determine whether there is any objective evidence that it is impaired. A financial asset is considered to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of the asset.
An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount and the present value of its estimated future cash flows discounted at the original effective interest rate.
All impairment losses are recognised in profit or loss and reflected in an allowance account. When the Group considers that there are no realistic prospects of recovery of the asset, the relevant amounts are written off. An impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment loss was recognised. For financial assets measured at amortised cost, the reversal is recognised in profit or loss.
The carrying amounts of the Group's non-financial assets, other than ships, investment property, inventories and deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset's recoverable amount is estimated. For goodwill and intangible assets that have indefinite lives or that are not yet available for use, the recoverable amount is estimated at each reporting date.
The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessment of the time value of money and the risks specific to the asset. For the purpose of impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the cash-generating unit).
The goodwill acquired in a business combination, for the purpose of impairment testing, is allocated to the cashgenerating units that are expected to benefit from the synergies of the combination.
An impairment loss is recognised if the carrying amount of an asset or its cash-generating unit exceeds its estimated recoverable amount. Impairment losses are recognised in profit or loss. Impairment losses recognised in respect of a cash-generating unit are allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to reduce the carrying amount of the other assets in the unit (group of units) on a pro rata basis.
An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognised in prior periods are assessed at each reporting date for any indication that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset's carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.
Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided. A liability is recognised for the amount expected to be paid under a short-term cash bonus plan if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably.
Termination benefits are recognised as an expense when the Group is demonstrably committed, without realistic possibility of withdrawal, to a formal detailed plan to either terminate employment before the normal retirement date, or to provide termination benefits as a result of an offer made to encourage voluntary redundancy. Termination benefits for voluntary redundancies are recognised as an expense if the Group has made an offer of voluntary redundancy, it is probable that the offer will be accepted, and the number of acceptances can be estimated reliably.
The grant-date fair value of share-based payment awards granted to employees is recognised as an employee expense, with a corresponding increase in equity, over the period that the employees became unconditionally entitled to the awards. The amount recognised as an expense is adjusted to reflect the number of awards for which the related service and non-market performance conditions are expected to be met, such that the amount ultimately recognised as an expense is based on the number of awards that meet the related service and nonmarket conditions at the vesting date. For share-based payment awards with non-vesting conditions, the grantdate fair value of the share-based payment is measured to reflect such conditions and there is no true-up for differences between expected and actual outcomes.
The fair value of the employee share purchase plan is measured by independent appraisers. The fair value of the employee share options and share appreciation rights is measured using the Black-Scholes formula. Measurement inputs include the spot price on the measurement date, the exercise price of the instrument, expected volatility, the option maturity date, the risk-free interest rate and expected dividends.
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.
If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects the risk specific to the liability. The expense relating to any provision is presented in profit or loss net of any reimbursement. Where discounting is used, the increase in the provision due to the passage of time is recognised in "finance costs".
A provision for onerous contracts is recognised when the expected benefits to be derived by the Group from a contract are lower than the unavoidable cost of meeting its obligations under the contract. The provision is measured at the present value of the lower of the expected cost of terminating the contract and the expected net cost of continuing with the contract. Before a provision is established, the Group recognises any impairment loss on the assets associated with that contract.
Leases in terms of which the Group assumes substantially all the risks and rewards of ownership are classified as finance leases. Upon initial recognition the leased asset is measured at an amount equal to the lower of its fair value and the present value of the minimum lease payments. Subsequent to initial recognition, the asset is accounted for in accordance with the accounting policy applicable to that asset. Other leases are operating leases and the leased assets are not recognised in the Group's statement of financial position.
Finance leases, which transfer to the Group substantially all the risks and benefits incidental to ownership of the leased item, are recognised at the inception of the lease at the fair value of the leased property or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between the finance charge and the reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are recognised as an expense. Capitalised leased assets are depreciated over the shorter of the estimated useful life of the asset and the lease term.
Leases, where the lessor retains substantially all the risks and benefits of ownership of the asset, are classified as operating leases and lease payments are recognised as operating lease expenses on a straight-line basis over the lease term.
Leases where the Group retains substantially all the risks and benefits of ownership of the assets are classified as operating leases. Lease income from operating leases is recognised in income on a straight-line basis over the lease term.
Revenue is recognised to the extent that it is probable that economic benefits will flow to the Group and the revenue can be reliably measured. Revenue is measured at the fair value of the consideration received or receivable, excluding trade discounts, volume rebates and sales taxes or duties. The following specific recognition criteria must also be met before revenue is recognised:
Revenue is recognised when the significant risks and rewards of ownership of the goods have passed to the buyer, i.e. at the time of selling the goods to the customer at the retail stores, bars and restaurants, generally for cash or by card payment.
Revenue from tickets and cargo transport is recognised as the services are rendered. At financial year-end, a revenue deferral is recorded for the part of the revenue that has not yet been earned in relation to prepaid tickets and cargo shipments.
Revenue from sales of hotel accommodation is recognised when the rooms have been used by the clients. At financial year-end, a revenue deferral is recorded for the part of the revenue that has not yet been earned in relation to prepaid room days.
The Group sells packages, which consist of a ship ticket, accommodation in a hotel not operated by the Group and tours in different cities not provided by the Group. The Group recognises the sales of packages in its revenue in full instead of recognising only the commission fee for accommodations, tours and entertainment events, as the Group (1) is able to determine the price of the content of the package; (2) has discretion in selecting the suppliers for the service ; and (3) bears credit risk. Revenue from sales of packages is recognised when the package is used by the client.
Charter income arising from operating charters of ships is accounted for on a straight-line basis over the charter terms.
In these financial statements the term 'charter' refers to 'lease' as defined in IFRS (EU).
For the customer loyalty programme, the fair value of the consideration received or receivable in respect of the initial sale is allocated between award credits (Club One points) and ticket sale. The amount allocated to the loyalty programme is deferred, and recognised as revenue when the Group has fulfilled its obligation to supply the services under the terms of programme or when it is no longer probable that the points under the programme will be redeemed.
For further information see Note 18.
Government grants are initially recognised as deferred income where there is reasonable assurance that the grant will be received and all attaching conditions will be complied with. Grants related to an expense item are recognised as a reduction of the expense over the period necessary to match the grant on a systematic basis to the costs that it is intended to compensate. Grants that compensate the Group for the cost of an asset are recognised in profit or loss on a systematic basis over the useful life of the asset.
Finance income comprises interest income on funds invested (including available-for-sale financial assets), dividend income, gains on the disposal of available-for-sale financial assets, and gains on derivative instruments that are recognised in profit or loss.
Finance costs comprise interest expense on borrowings, changes in the fair value of financial assets at fair value through profit or loss, impairment losses recognised on financial assets and losses on derivative instruments that are recognised in profit or loss. Borrowing costs not directly attributable to the acquisition or construction of a qualifying asset are recognised in profit or loss using the effective interest method.
Foreign currency gains and losses are reported on a net basis.
Interest income and expenses are recognised as they accrue in profit or loss, using the effective interest method. The effective interest rate is the rate that exactly discounts the estimated future cash payments and receipts through the expected life of the financial asset or liability to the carrying amount of the financial asset or liability. When calculating the effective interest rate, the Group estimates future cash flows considering all contractual terms of the financial instrument, but not future credit losses. The calculation of effective interest rate includes all transaction costs and fees and points paid or received that are an integral part of the effective interest rate. Transaction costs include incremental costs that are directly attributable to the acquisition or issue of a financial asset or liability.
Dividend income is recognised in profit or loss on the date that the Group's right to receive payment is established.
Income tax expense comprises current and deferred tax. Income tax expense is recognised in profit or loss except to the extent that it relates to items recognised in other comprehensive income or expense, in which case income tax is also recognised in other comprehensive income or expense.
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years.
Current tax payable also includes any tax liability arising from the distribution of dividends. See below Group companies in Estonia.
With the exception of group companies domiciled in Estonia, deferred tax is recognised providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for the following temporary differences: the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit, and differences relating to investments in subsidiaries and jointly controlled entities to the extent that it is probable that they will not reverse in the foreseeable future. In addition, deferred tax is not recognised for taxable temporary differences arising on the initial recognition of goodwill. Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. Deferred tax assets are recognised for unused tax losses, unused tax credits and deductible temporary differences to the extent that it is probable that future taxable profits will be available, against which they can be used. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised; such reductions are reversed when the probability of future taxable profits improves. Unrecognised deferred tax assets are reassessed at each reporting date and recognised to the extent that it has become probable that future taxable profits will be available, against which they can be used.
Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and the deferred tax assets and liabilities relate to income taxes levied by the same tax authority on the same taxable entity, or on different taxable entities, but they intend either to settle current tax liabilities and assets on a net basis or to realise the assets and settle the liabilities simultaneously.
According to the Estonian Income Tax Act, for Group companies registered in Estonia, including the Parent, net profit is not subject to income tax, but dividends paid are subject to income tax (calculated as 20/80 of the net dividends to be paid in 2016; 20/80 in 2015). The potential tax liability from the distribution of retained earnings as dividends is not recorded in the statement of financial position for Estonian group companies. The amount of the potential tax liability from the distribution of dividends depends on the time, amount and sources of the dividend distribution.
Income tax from the payment of dividends is recorded as income tax expense in the period in which the dividends are declared. The maximum income tax liability that could arise on the distribution of dividends is disclosed in Note 21.
According to the income tax law of Cyprus, the net profit of shipping companies registered in Cyprus and operating with ships registered in the Cyprus ship register or/and having their business outside Cyprus, and the dividends paid by these companies, are not subject to income tax. Thus, there are no temporary differences between the tax bases and carrying values of assets and liabilities that may cause deferred income tax.
In accordance with the income tax laws of other jurisdictions, the company's net profit and the profit from permanent establishments adjusted for temporary and permanent differences determined by the local income tax acts is subject to current income tax in those countries in which the Group companies and permanent establishments have been registered (see Note 6).
Tax to be paid is reported under current liabilities and deferred tax positions are reported under non-current assets or liabilities.
The Group presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Parent by the weighted average number of ordinary shares outstanding during the period. Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding for the effects of all dilutive potential ordinary shares, which comprise share options granted to employees, if any.
The Group determines and presents operating segments based on the information that internally is provided to the Group's Management Board that is the Group's chief operating decision maker. An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Group's other components. All operating segments' operating results are reviewed regularly by the Group's Management Board to make decisions about resources to be allocated to the segment and to assess its performance, and for which discrete financial information is available.
A segment is a distinguishable component of the Group that is engaged either in providing products or services within a particular economic environment (geographical segment), or in providing related products or services (operational segment), which is subject to risks and returns that are different from those of other segments.
Segment information is presented in respect of the Group's geographical segments (by routes).
Inter-segment pricing is determined on an arm's length basis.
Segment expense is expense resulting from the operating activities of a segment that is directly attributable to the segment and the relevant portion of expenses that can be allocated to the segment on a reasonable basis, including expenses relating to sales to external customers and expenses relating to transactions with other segments of the Group. Segment expense does not include administrative expenses, interest expense, income tax expense and other expenses that arise at the Group level and are related to the Group as a whole. Expenses incurred at the Group level on behalf of a segment are allocated to the segment on a reasonable basis, if these expenses relate to the segment's operating activities and can be directly attributed or allocated to the segment.
Segment results that are reported to the Management Board include items directly attributable to a segment as well as those that can be allocated on a reasonable basis.
Segment assets are those operating assets that are employed by a segment in its operating activities and that either are directly attributable to the segment or can be allocated to the segment on a reasonable basis. Segment assets do not include assets used for general Group or head-office purposes or which cannot be allocated directly to the segment. Segment assets include operating assets shared by two or more segments if a reasonable basis for allocation exists.
Segment liabilities are those liabilities that are incurred by a segment in its operating activities and that either are directly attributable to the segment or can be allocated to the segment on a reasonable basis.
Expenses, assets and liabilities which are not directly related to a segment or cannot be allocated to a segment are presented as unallocated expenses, assets and liabilities of the Group.
Segment capital expenditure is the total cost incurred during the financial year to acquire property, plant and equipment, and intangible assets other than goodwill.
The following new standards, amendments to standards and interpretations are not yet effective for the annual financial reporting period ended 31 December 2015 and have not been applied in preparing these consolidated financial statements. The Group does not plan to adopt these standards early. Those which may be relevant to the Group are set out below.
Amendments to IFRS 11 Accounting for Acquisitions of Interests in Joint Operations
Effective for annual periods beginning on or after 1 January 2016; to be applied prospectively. Early application is permitted.
These amendments require business combination accounting to be applied to acquisitions of interests in a joint operation that constitutes a business.
Business combination accounting also applies to the acquisition of additional interests in a joint operation while the joint operator retains joint control. The additional interests acquired will be measured at fair value. The previously held interests in the joint operation will not be remeasured.
The Group expects that the amendments, when initially applied, will not have impact on the Group's financial statements.
Effective for annual periods beginning on or after 1 January 2016. Early application is permitted.
The amendments to IAS 1 include the following five, narrow-focus improvements to the disclosure requirements contained in the standard.
The guidance on materiality in IAS 1 has been amended to clarify that:
The guidance on the order of the notes (including the accounting policies) has been amended, to:
The Group expects that the amendments, when initially applied, will not have a material impact on the presentation of the Group's financial statements.
Effective for annual periods beginning on or after 1 January 2016; to be applied prospectively. Early application is permitted.
The amendments explicitly state that revenue-based methods of depreciation cannot be used for property, plant and equipment.
The amendments introduce a rebuttable presumption that the use of revenue-based amortisation methods for intangible assets is inappropriate. This presumption can be overcome only when revenue and the consumption of the economic benefits of the intangible asset are highly correlated, or when the intangible asset is expressed as a measure of revenue.
The Group expects that the amendments, when initially applied, will not have material impact on the Group's financial statements as the Group does not apply revenue-based methods of amortisation/depreciation.
Effective for annual periods beginning on or after 1 January 2016 and apply retrospectively. Early application is permitted.
The amendments to IAS 27 allow an entity to use the equity method in its separate financial statements to account for investments in subsidiaries, associates and joint ventures.
The Group does not expect that the amendments, when initially applied, will have material impact on the Group's financial statements as the Group intends to continue to carry its investments in subsidiaries, associates or joint ventures at cost.
Effective for annual periods beginning on or after 1 January 2018 and apply retrospectively. Early application is permitted.
The new standard presents revised guidance on the classification and measurement of financial assets, including new expected credit loss model for calculating impairment. This standard replaces IAS 39 Financial Instruments: Recognition and Measurement.
The permissible measurement bases for financial assets – amortised cost, fair value through other comprehensive income, fair value through profit and loss – are similar to IAS 39 Financial Instruments: Recognition and Measurement.
IFRS 9 replaces the "incurred loss" model in IAS 39 with an "expected credit loss" model, which means that a loss event will no longer need to occur before an impairment allowance is recognised.
The standard aims to address concerns about "too little, too late" provisioning for loan losses, and will accelerate recognition of losses.
The new model will apply to financial assets that are:
It will also apply to certain loan commitments and financial guarantees.
The Group does not expect that the new standard, when initially applied, will have material impact on the Group's financial statements.
Effective for annual periods beginning on or after 1 January 2017 and apply retrospectively. Early application is permitted.
IFRS 15 establishes principles for reporting, useful information to users of financial statements about nature, amount, timing and uncertainty of revenue and cash flows arising from an entity's contracts with customers.
Companies will apply a five-step model to determine when to recognise revenue, and at what amount.
The model specifies that revenue should be recognised when (or as) a company transfers control of goods or services to a customer at the amount to which the company expects to be entitled.
Depending on whether certain criteria are met, revenue is recognised:
The Group does not expect that the new standard, when initially applied, will have material impact on the Group's financial statements
IFRS 16 Leases
Effective for annual periods beginning on or after 1 January 2019. Early application is permitted.
Under the new standard the Group will recognise new assets and liabilities. The accounting treatment of leases by lessees will change fundamentally. IFRS 16 eliminates the current dual accounting model for lessees, which distinguishes between on-balance sheet finance leases and off-balance sheet operating leases. Instead, there is a single, on-balance sheet accounting model that is similar to current finance lease accounting. Lessor accounting remains similar to current practice.
For lessees, the lease becomes an on-balance sheet liability that attracts interest, together with a new asset on the other side of the balance sheet. The impacts are not limited to the balance sheet. There are also changes in accounting over the life of the lease.
The Group expects that the new standard will have material impact on the Group's financial statements, but the Group has not yet analysed the range of impact.
The improvements introduce ten amendments to ten standards and consequential amendments to other standards and interpretations. These amendments are applicable to annual periods beginning on or after 1 January 2016, with earlier adoption permitted.
None of these amendments is expected to have a significant impact on the Group's financial statements.
A number of the Group's accounting policies and disclosures require determination of fair value for both financial and non-financial assets and liabilities. Fair values have been determined for measurement and/or disclosure purposes based on the following methods. When applicable, further information about the assumptions made in determining fair values is disclosed in the notes specific to the asset or liability.
When measuring the fair value of an asset or liability, the group uses observable market data as far as possible. Fair values are categorised into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows:
The market value of ships is the estimated amount for which the property could be exchanged on the date of valuation between a willing buyer and a willing seller in an arm's length transaction after proper marketing wherein the parties had each acted knowledgeably and willingly. The Group uses independent appraisers to determine the fair value of the ships. The frequency of revaluation depends upon changes in the fair values of the ships. When the fair value of a ship differs materially from its carrying amount, a revaluation is required.
The fair value of patents and trademarks acquired in a business combination is determined using the relief from royalty method. The fair value of customer relationships acquired in a business combination is determined using the multi-period excess earnings method, whereby the subject asset is valued after deducting a fair return on all other assets that are part of creating the related cash flows.
The fair value of other intangible assets is based on the discounted cash flows expected to be derived from the use and eventual sale of the assets.
Fair value is based on market value, being the estimated amount for which a property could be exchanged on the date of the valuation between a willing buyer and a willing seller in an arm's length transaction after proper marketing wherein the parties had each acted knowledgeably and willingly.
The Group uses independent appraiser, having appropriate recognised professional qualifications and recent experience in the location and category of the property being valued.
The fair value of the employees share options has been measures using Black-Scholes formula. Services were taken into account in measuring fair value.
The fair value of interest rate swaps is based on independent appraisers' valuations. Fair values reflect the credit risk, interest rate risk and foreign exchange risk of the instrument and include adjustments to take account of the credit risk of the Group entity and counterparty when appropriate.
Fair value, which is determined for disclosure purposes, is calculated based on the present value of future principal and interest cash flows, discounted at the market rate of interest at the reporting date. For finance leases the market rate of interest is determined by reference to similar lease agreements.
The amount allocated to the Club One points is estimated by reference to the fair value of the services for which they could be redeemed, since the fair value of the Club One points themselves is not directly observable. The fair value of the services for which the Club One points, granted through a customer loyalty programme, can be redeemed takes into account the expected redemption rate and the timing of such expected redemptions. Such amount is recognised as deferred income.
In accordance with the Estonian Accounting Act, the notes to the consolidated financial statements have to include the separate primary financial statements (i.e. statement of comprehensive income, statement of financial position, statement of cash flows and statement of changes in equity, collectively referred to as primary financial statements) of the Parent only. The separate primary financial statements of AS Tallink Grupp are disclosed in
Note 26 Primary Financial Statements of the Parent. These statements have been prepared using the same accounting policies and measurement bases that were used on the preparation of the consolidated financial statements, except for investments in subsidiaries which are stated at cost in the separate primary financial statements of the Parent.
The Group's operations are organized and managed separately according to the nature of the different markets. The Group operates (1) four ships between Estonia and Finland, (2) three ships between Estonia and Sweden, (3) one ship between Latvia and Sweden, (4) four ships between Finland and Sweden, (5) six ships were chartered out from the Group (Other), (6) four hotels and seven shops in Estonia (Other) and (7) one hotel in Latvia (Other), which represent different business segments.
The following tables present the Group's revenue and profit as well as certain asset and liability information regarding reportable segments for the years ended 31 December 2015 and 31 December 2014.
For the year ended 31 December
In thousands of EUR
| 2015 | Estonia Finland route |
Estonia-Sweden route |
Latvia-Sweden route |
Finland Sweden route |
Other | Elimination of inter segment sales |
Total |
|---|---|---|---|---|---|---|---|
| Revenue | |||||||
| Sales to external customers | 338,183 | 104,360 | 41,964 | 333,263 | 127,433 | 0 | 945,203 |
| Inter-segment sales | 0 | 0 | 0 | 0 | 10,180 | -10,180 | 0 |
| 338,183 | 104,360 | 41,964 | 333,263 | 137,613 | -10,180 | 945,203 | |
| Result | |||||||
| Segment result | 90,255 | 6,371 | 5,319 | 17,207 | 40,693 | 0 | 159,845 |
| Unallocated expenses | -56,582 | ||||||
| Net financial items | -34,156 | ||||||
| Share of profit of equity-accounted investees |
64 | ||||||
| Profit before income tax | 69,171 | ||||||
| Income tax | -10,101 | ||||||
| Net profit for the period | 59,070 | ||||||
| Assets and liabilities | |||||||
| Segment assets | 282,949 | 240,523 | 28,200 | 552,353 | 316,289 | -967 | 1,419,347 |
| Unallocated assets | 119,419 | ||||||
| 1,538,766 | |||||||
| Segment liabilities Unallocated liabilities |
24,345 | 9,632 | 4,257 | 62,926 | 13,581 | -967 | 113,774 600,570 |
| 714,344 |
| 2015 (continued) |
|||||||
|---|---|---|---|---|---|---|---|
| Other segment information | |||||||
| Capital expenditures: | |||||||
| - segment's property, plant and equipment ("PP&E") |
2,261 | 1,712 | 96 | 11,501 | 881 | 0 | 16,451 |
| - unallocated PP&E | 24,287 | ||||||
| - segment's intangible assets ("IA") | 7 | 2 | 1 | 44 | 26 | 0 | 80 |
| - unallocated IA | 2,840 | ||||||
| Depreciation | 11,107 | 9,476 | 2,568 | 27,184 | 19,802 | 0 | 70,137 |
| Unallocated depreciation | 2,613 | ||||||
| Amortisation | 774 | 207 | 103 | 533 | 134 | 0 | 1,751 |
| Unallocated amortisation | 3,601 |
| 2014 | Estonia Finland route |
Estonia-Sweden route |
Latvia-Sweden route |
Finland Sweden route |
Other | Elimination of inter segment sales |
Total |
|---|---|---|---|---|---|---|---|
| Revenue | |||||||
| Sales to external customers | 321,738 | 102,442 | 60,023 | 323,969 | 113,294 | 0 | 921,466 |
| Inter-segment sales | 0 | 0 | 0 | 0 | 10,553 | -10,553 | 0 |
| 321,738 | 102,442 | 60,023 | 323,969 | 123,847 | -10,553 | 921,466 | |
| Result | |||||||
| Segment result | 82,937 | 4,648 | 1,297 | 2,964 | 27,177 | 0 | 119,023 |
| Unallocated expenses | -48,369 | ||||||
| Net financial items | -40,683 | ||||||
| Profit from subsidiaries | |||||||
| Share of profit of equity-accounted investees |
24 | ||||||
| Profit before income tax | 29,995 | ||||||
| Income tax | -2,734 | ||||||
| Net profit for the period | 27,261 | ||||||
| Assets and liabilities | |||||||
| Segment assets | 391,011 | 247,529 | 31,294 | 578,736 | 362,112 | -784 | 1,609,898 |
| Unallocated assets | 75,700 | ||||||
| 1,685,598 | |||||||
| Segment liabilities | 23,930 | 9,887 | 5,109 | 63,127 | 12,499 | -784 | 113,768 |
| Unallocated liabilities | 793,540 | ||||||
| 907,308 |
| 2014 (continued) |
|||||||
|---|---|---|---|---|---|---|---|
| Other segment information | |||||||
| Capital expenditures: | |||||||
| - segment's property, plant and equipment ("PP&E") |
1,309 | 1,533 | 1,128 | 39,002 | 2,414 | 0 | 45,386 |
| - unallocated PP&E | 1,224 | ||||||
| - segment's intangible assets ("IA") | 18 | 6 | 2 | 7 | 27 | 0 | 60 |
| - unallocated IA | 2,742 | ||||||
| Depreciation | 12,748 | 9,470 | 4,819 | 24,512 | 20,256 | 0 | 71,805 |
| Unallocated depreciation | 2,550 | ||||||
| Amortisation | 773 | 155 | 104 | 475 | 168 | 0 | 1,675 |
| Unallocated amortisation | 3,878 |
In thousands of EUR
For the year ended 31 December
| 2015 | 2014 | |
|---|---|---|
| Ticket sales | 227,968 | 230,459 |
| Sales of cargo transport | 104,433 | 103,060 |
| Sales of accommodation | 18,783 | 18,967 |
| Restaurant and shop sales on-board and on mainland | 500,601 | 487,546 |
| Income from charter of vessels | 53,473 | 47,072 |
| Other | 39,945 | 34,362 |
| Total revenue of the Group | 945,203 | 921,466 |
For the year ended 31 December
| Cost of sales | In thousands of EUR | Note | |
|---|---|---|---|
| 2015 | 2014 | ||
| Cost of goods sold | -215,401 | -211,211 | |
| Port & stevedoring costs | -92,213 | -95,830 | |
| Fuel costs | -94,191 | -114,008 | |
| Staff costs | -142,368 | -138,660 | |
| Ships' operating expenses | -76,249 | -77,930 | |
| Depreciation and amortisation | -70,052 | -71,733 | 14, 15 |
| Cost of package sales | -9,172 | -9,185 | |
| Other costs | -22,134 | -21,232 | |
| Total cost of sales | -721,780 | -739,789 |
For the year ended 31 December
| Sales and marketing expenses | In thousands of EUR | |||
|---|---|---|---|---|
| 2015 | 2014 | |||
| Advertising expenses | -30,128 | -29,322 | ||
| Staff costs | -30,149 | -29,869 | ||
| Depreciation and amortisation | -1,836 | -1,747 | 14, 15 | |
| Other costs | -1,465 | -1,716 | ||
For the year ended 31 December Administrative expenses In thousands of EUR Note
| 2015 | 2014 | ||
|---|---|---|---|
| Staff costs | -21,320 | -21,285 | |
| Depreciation and amortisation | -6,214 | -6,428 | 14, 15 |
| Other costs | -19,777 | -21,498 | |
| Total administrative expenses | -47,311 | -49,211 | |
Specification of staff costs included in the cost of sales, sales and marketing expenses and administrative expenses:
For the year ended 31 December
| In thousands of EUR | |||
|---|---|---|---|
| 2015 | 2014 | ||
| Wages and salaries | -171,672 | -170,513 | |
| Government subsidies | 37,233 | 37,196 | |
| Social security costs | -53,981 | -51,352 | |
| Staff training costs | -2,150 | -1,372 | |
| Other staff costs | -3,267 | -3,735 | |
| Total staff costs | -193,837 | -189,776 |
During the reporting period EUR 37,233,000 was deducted from the cost of sales in connection with government subsidies related to seamen's salaries in Finland and Sweden (2014: EUR 37,196,000). The subsidies are received according to law. The government subsidies receivable is disclosed in Note 9.
| For the year ended 31 December | ||
|---|---|---|
| In thousands of EUR | ||
| 2015 | 2014 | |
| Finance income | ||
| Net foreign exchange gains | 6,683 | 10,411 |
| Income from interest rate swaps | 5,929 | 1,274 |
| Income from other financial assets | 186 | 0 |
| Interest income arising from financial assets not measured at fair value through profit or loss |
10 | 75 |
| 12,808 | 11,760 | |
| Finance costs | ||
| Interest expense arising from financial liabilities measured at amortised cost |
-36,109 | -35,411 |
| Expenses from foreign exchange derivatives | -6,810 | -7,168 |
| Expenses from interest rate swaps | -4,045 | -9,864 |
| -46,964 | -52,443 | |
| Net finance costs | -34,156 | -40,683 |
Income tax contains current income tax and deferred income tax.
Swedish, Finnish, Latvian and Russian subsidiaries and Canadian and Australian permanent establishments In accordance with the Swedish, Finnish, Latvian ,Russian, Canadian and Australian tax laws, the company's net profit adjusted for temporary and permanent differences determined in the income tax acts is subject to income tax in Finland, Sweden, Latvia, Russia, Canada and Australia. In Finland the tax rate as at 31 December 2015 was 20%, in Sweden 22%, in Latvia 15%, in Russia 20%, in Canada 26% and in Australia 30% (as at 31 December 2014 in Finland 20%, in Sweden 22%, in Latvia 15%, in Russia 20%, in Canada 26% and in Australia 30%).
Major components of the Group's income tax expense for the years ended 31 December:
| In thousands of EUR | ||
|---|---|---|
| 2015 | 2014 | |
| Current period tax expense | ||
| Latvian subsidiaries | -26 | -17 |
| Finnish subsidiary | -27 | 0 |
| German subsidiary | -7 | 0 |
| Estonian parent company | -2,818 | -5,342 |
| Permanent establishments1 | -5,295 | -1,300 |
| Total current tax expense Change in deferred tax |
-8,173 | -6,659 |
| Swedish subsidiaries | -123 | -599 |
| Finnish subsidiaries | -1,820 | 4,538 |
| Latvian subsidiaries | 15 | -14 |
| Total deferred tax income/expense | -1,928 | 3,925 |
| Total tax income/ expense | -10,101 | -2,734 |
1 AS Tallink Grupp had chartered out two ships providing accommodation services in Canada and Australia that gave raise to permanent establishments for taxation purposes. Therefore AS Tallink Grupp is subject to Canadian and Australian corporate income tax on the activity in these countries. The fiscal year in Australia is from 1 July to 30 June and therefore estimated income tax expense EUR 2,500,000 for the Australian permanent establishment is calculated and recognised in the Group's financial statements (2014: EUR 1,500,000) . In April 2015 in Canada and in December 2015 in Australia the permanent establishments were ceased.
For the year ended 31 December
In thousands of EUR
| 2015 | % | 2014 | % | |
|---|---|---|---|---|
| Profit before tax | 69,171 | 29,995 | ||
| Tax using the Company's domestic rate | 0 | 0 | 0 | 0 |
| Tax arising on dividends declared in Estonia | -2,818 | -4.07 | -5,342 | -17.81 |
| Current income tax expense in foreign jurisdiction | -5,355 | -7.74 | -1,317 | -4.39 |
| Change in recognised tax losses | -2,526 | -3.65 | 3,355 | 11.19 |
| Change in temporary differences | 598 | 0.86 | 570 | 1.90 |
| Income tax (expense)/ benefit | -10,101 | -14.60 | -2,734 | -9.11 |
According to Russian, Latvian, Finnish and Swedish legislation it is permissible for taxation purposes to use higher depreciation and amortisation rates and thereby accomplish a postponement of tax payments. These postponements are shown as a deferred tax liability. The Finnish and Swedish subsidiaries have also carryforwards of tax losses, which are considered in the calculation of the deferred tax asset.
| As at 31 December | ||||
|---|---|---|---|---|
| In thousands of EUR | Assets | Liabilities | ||
| 2015 | 2014 | 2015 | 2014 | |
| Tax loss carry-forward1 | 25,477 | 28,003 | 0 | 0 |
| Property, plant and equipment | 50 | 35 | 0 | 0 |
| Intangible assets | 0 | 0 | -6,117 | -6,700 |
| Tax assets / liabilities | 25,527 | 28,038 | -6,117 | -6,700 |
| Offset of assets and liabilities | -6,117 | -6,700 | 6,117 | 6,700 |
| Tax assets/ liabilities | 19,410 | 21,338 | 0 | 0 |
1 Deferred tax assets of EUR 23,012,000 (2014: EUR 25,415,000) in Finland and of EUR 2,464,000 (2014: EUR 2,588,000) in Sweden have been recognised in respect of the losses carried forward. The recognised Finnish tax losses will expire from 2023-2025 (2014: 2022-2024) and the Swedish tax losses have no expiration date. Tax losses of Finnish subsidiary that will expire before 2022 have not been recognised due to estimation uncertainty. Such unrecognised tax losses amounted to EUR 89,352,000 as at 31 December 2015 (EUR 86,110,000 as at 31 December 2014).
The Group has recognised deferred tax assets to the extent that the losses carried forward will be offset against projected future taxable profits. According to the Group management estimations, the Finnish subsidiary will be profitable from 2020 onwards. The estimations are based on the business plan of Finnish operations and reduction of intragroup charter fees. The revenue growth rate for the years 2016-2025 of Finnish operations used in calculations is 2-4% and the growth rate used for cost increase is 1-3% (2015-2024 of Finnish operations used in calculations is 2-3% and the growth rate used for cost increase is 1-2%).
The sensitivity of the value of recognized deferred tax assets to main assumptions of the projected future taxable profits is as follows: 1) +/- 1% change in average revenue growth rate for the years 2016-2025 would change the value of recognized tax assets by EUR +17,870,000 /-23,012,000 respectively; 2) +/- 1% change in average costs' growth rate for the years 2016-2025 would change the value of recognized tax assets by EUR -23,012,000 /+17,870,000 respectively.
| Balance | Recognised | Balance | |
|---|---|---|---|
| 31 December 2014 | in profit or loss | 31 December 2015 | |
| Tax loss carry-forward | 28,003 | -2,526 | 25,477 |
| Property, plant and equipment | 35 | 15 | 50 |
| Intangible assets | -6,700 | 583 | -6,117 |
| Net deferred tax (asset)/liability | 21,338 | 1,928 | 19,410 |
Basic EPS are calculated by dividing the net profit for the year attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the year. The Group has issued 7,276,903 share options, which have no diluting effect due to their average price in the stock market being lower than the exercise price during the reporting period.
At 31 December 2015 the Group held 3,935,000 of the AS Tallink Grupp shares as treasury shares.
| In thousands | Shares issued |
Treasury shares |
Shares outstanding |
|---|---|---|---|
| As at 31 December 2014 | 673,817 | 3,935 | 669,882 |
| As at 31 December 2015 | 673,817 | 3,935 | 669,882 |
For the year ended 31 December
| In thousands of EUR | |
|---|---|
| 2015 | 2014 |
| 669,882 | |
| 59,070 | 27,261 |
| 0.088 | 0.041 |
| 0.088 | 0.041 |
| 669,882 |
As at 31 December
| In thousands of EUR | ||||
|---|---|---|---|---|
| 2015 | 2014 | |||
| Cash at bank and in hand | 80,156 | 63,428 | ||
| Short-term deposits | 1,820 | 1,883 | ||
| Total cash and cash equivalents | 81,976 | 65,311 |
Cash at bank earns interest at floating rates based on daily bank deposit rates (in 2015 the rates were in the range of 0.00-0.05% and in 2014 in the range of 0.00-0.25%).
Short-term deposits are made for varying periods. The maturity dates of short-term deposits recognised in the statement of financial position as at 31 December 2015 range up to 11 January 2016. As at 31 December 2015 and 31 December 2014 short-term deposits of EUR 1,820,000 and EUR 1,883,000 respectively could only be used for repayment of bank loans.
The Group´s exposure to currency risk and analysis is disclosed in Note 24.
| As at 31 December | In thousands of EUR | ||
|---|---|---|---|
| 2015 | 2014 | ||
| Trade receivables | 24,259 | 24,115 | |
| Allowance for doubtful trade receivables | -804 | -734 | |
| Government grants receivable | 10,452 | 10,221 | |
| Other receivables (Note 24) | 2,676 | 4,608 | |
| Total trade and other receivables | 36,583 | 38,210 | |
During the reporting period EUR 516,000 of the trade receivables was expensed as doubtful and uncollectible (2014: EUR 310,000).
The Group's exposure to the credit and currency risks of receivables is disclosed in Note 24.
| Note 10 PREPAYMENTS |
||
|---|---|---|
| As at 31 December | In thousands of EUR | |
| 2015 | 2014 | |
| Prepaid expenses | 4,467 | 2,794 |
| Tax prepayments | 807 | 1,004 |
| Total prepayments | 5,274 | 3,798 |
The balance of prepaid expenses includes mostly prepayments for insurance.
| As at 31 December | In thousands of EUR | ||
|---|---|---|---|
| 2015 2014 |
|||
| Tax prepayments | |||
| VAT | 740 | 838 | |
| Prepaid excise duties | 0 | 22 | |
| Other prepayments | 67 | 144 | |
| Total tax prepayments | 807 | 1,004 |
| Note 11 INVENTORIES |
||
|---|---|---|
| As at 31 December | In thousands of EUR | |
| 2015 | 2014 | |
| Raw materials (mostly fuel) | 2,220 | 2,406 |
| Goods for sale | 26,961 | 28,909 |
| Prepayments to suppliers | 16 | 0 |
| Total inventories | 29,197 | 31,315 |
In 2015 the write-down of inventories to net realisable value amounted to EUR 133,000 (2014: EUR 97,000). The write-downs are included in cost of sales.
The Group is exposed to fuel price risk as the fuel used for ship operations is purchased at market prices. The Group has implemented a fuel surcharge system according to which the Group charges its customers a fuel surcharge to partly offset the impact of fuel price increases. At 31 December 2015 (as well as at 31 December 2014) there were no derivative contracts for fuel outstanding. For more information see Note 24.
The Group has investments in the following equity-accounted investees:
As at 31 December 2015
| Name of equity-accounted investee | Country of incorporation |
Interest |
|---|---|---|
| AS Tallink Takso | Estonia | 34% |
In thousands of EUR 2015 2014 Investments at the beginning of financial year 286 262 Share of profit/loss of equity-accounted investee 64 24 Investments at the end of financial year 350 286
Key figures of equity-accounted investees
As at 31 December 2015, in thousands of EUR
| Name of equity accounted investee |
Current assets |
Non current assets |
Total assets |
Current liabilities |
Non current liabilities |
Total liabilities |
Revenues | Expenses | Profit/ loss Equity |
|---|---|---|---|---|---|---|---|---|---|
| AS Tallink Takso |
1,276 | 106 | 1,382 | 312 | 41 | 353 | 3,822 | 3,635 | 187 1,029 |
AS Tallink Takso's figures as at 31 December 2015 are unaudited. The figures above reflect 100% of the assets, liabilities and result of the associate.
As at 31 December 2014, in thousands of EUR
| Name of equity accounted investee |
Current assets |
Non current assets |
Total assets |
Current liabilities |
Non current liabilities |
Total liabilities |
Revenues | Expenses | Profit/ loss Equity |
|
|---|---|---|---|---|---|---|---|---|---|---|
| AS Tallink Takso |
1,096 | 152 | 1,248 | 323 | 83 | 406 | 3,388 | 3,317 | 71 | 842 |
| As at 31 December | In thousands of EUR | |
|---|---|---|
| 2015 | 2014 | |
| Available-for-sale financial assets | 168 | 211 |
| Other receivables (Note 24) | 140 | 41 |
| Total other financial assets | 308 | 252 |
| In thousands of EUR | Land and buildings |
Ships | Plant and equipment |
Assets under construction |
Total |
|---|---|---|---|---|---|
| Book value as at 31 December 2013 |
4,841 | 1,479,030 | 9,572 | 2,452 | 1,495,895 |
| Additions | 4 | 41,480 | 4,743 | 383 | 46,610 |
| Exchange rate differences | 0 | 0 | 3 | 0 | 3 |
| Disposals | 0 | 0 | -189 | 0 | -189 |
| Depreciation for the year | -1,116 | -69,110 | -4,129 | 0 | -74,355 |
| Book value as at 31 December 2014 |
3,729 | 1,451,400 | 10,000 | 2,835 | 1,467,964 |
| Additions | 334 | 10,498 | 4,527 | 25,379 | 40,738 |
| Reclassification | 41 | 0 | -41 | 0 | 0 |
| Disposals | 0 | -124,090 | -444 | 0 | -124,534 |
| Depreciation for the year | -1,162 | -67,706 | -3,882 | 0 | -72,750 |
| Book value as at 31 December 2015 |
2,942 | 1,270,102 | 10,160 | 28,214 | 1,311,418 |
| As at 31 December 2014 | |||||
| -gross carrying amount | 12,786 | 1,714,237 | 30,838 | 2,835 | 1,760,696 |
| - accumulated depreciation | -9,057 | -262,837 | -20,838 | 0 | -292,732 |
| As at 31 December 2015 | |||||
| -gross carrying amount | 13,120 | 1,559,457 | 33,896 | 28,214 | 1,634,687 |
| - accumulated depreciation | -10,178 | -289,355 | -23,736 | 0 | -323,269 |
The Group used the valuations of two independent appraisers to determine the fair value of the ships. Fair value was determined by reference to market-based inputs, which are mainly unobservable (level 3 under fair value hierarchy). The Group management also take into consideration expected cash flows for the chartered ships if needed. The following table shows the valuation techniques used in measuring ships fair values, as well as the significant unobservable inputs used.
| Valuation technique | Significant unobservable inputs |
|---|---|
| Market comparison technique, cost approach: The independent | • Sale prices of similar ships |
| appraisers consider both approaches. They scan the market and | • Level of the demand of particular |
| look at second-hand sales of similar ships taking place, as well as | ships |
| analyse the general demand of the particular ship in various parts | • Construction prices of ships |
| of the world. Also they look at how much the ship did cost to | • Maintenance and repair programme |
| construct less reasonable depreciation and at the new | of ships |
| constructing prices of similar ships today. | |
The frequency of revaluations depends on changes in fair values which are assessed at each year-end. When fair value differs materially from the carrying amount, further revaluation is performed. As at 31 December 2015 there were no material difference between carrying amount and fair value (as well as at 31 December 2014).
If the ships were measured using the cost model, the carrying amounts would be as follows:
| 31 December 2015 | In thousands of EUR |
|---|---|
| Cost | 1,709,976 |
| Accumulated depreciation | -487,567 |
| Net carrying amount | 1,222,409 |
| 31 December 2014 | In thousands of EUR |
| Cost | 1,886,347 |
| Accumulated depreciation | -489,509 |
| Net carrying amount | 1,396,838 |
Due to the annual transfer from the revaluation reserve to retained earnings (the difference between depreciation based on the revalued carrying amount of the assets and the depreciation based on the assets' original cost) the revaluation reserve was decreased as at 31 December 2015 by EUR 6,869,000 (2014: EUR 2,215,000) and retained earnings were increased by the same amount.
As at 31 December 2015 the Group's ships with a book value of EUR 1,044,632,000 (2014: EUR 1,214,794,000) were encumbered with first or second ranking mortgages to secure the Group's bank loans (see also Note 16).
| In thousands of EUR | Goodwill1 | Trademark2 | Other3 | Total |
|---|---|---|---|---|
| Book value as at 31 December 2013 | 11,066 | 36,418 | 10,441 | 57,925 |
| Additions | 0 | 0 | 2,802 | 2,802 |
| Amortisation for the year | 0 | -2,916 | -2,637 | -5,553 |
| Book value as at 31 December 2014 | 11,066 | 33,502 | 10,606 | 55,174 |
| Additions | 0 | 0 | 2,920 | 2,920 |
| Disposals | 0 | 0 | -16 | -16 |
| Amortisation for the year | 0 | -2,916 | -2,436 | -5,352 |
| Book value as at 31 December 2015 | 11,066 | 30,586 | 11,074 | 52,726 |
| As at 31 December 2014 | ||||
| - cost | 11,066 | 58,288 | 27,562 | 96,916 |
| - accumulated amortisation | 0 | -24,786 | -16,956 | -41,742 |
| As at 31 December 2015 | ||||
| - cost | 11,066 | 58,288 | 29,707 | 99,061 |
| - accumulated amortisation | 0 | -27,702 | -18,633 | -46,335 |
1 Goodwill in the amount of EUR 11,066,000 is related to the Estonia-Finland route segment. In the impairment test of goodwill related to the Estonia-Finland routes, the recoverable amount was identified based on value in use. Management calculated value in use using the results and margins achieved in the 2015 financial year, a
revenue growth rate of 0% p.a. (2014: 0%) and a discount rate of 6% (2014: 6%) . Five-year cash flow to perpetuity value was used. There was no need to recognise an impairment loss.
2 A trademark of EUR 58,288,000 was recognised in connection with the acquisition of Silja OY Ab in 2006. The fair value of the trademark at the acquisition date was determined using the relief from royalty method. As at 31 December 2015, book value of trademark was tested for impairment. For testing purposes the average revenue growth rate of 1% (2014: 1%), royalty rate of 2.25% (2014: 2.25%) and discount rate of 6% (2014: 6%) were used. There was no need to recognise an impairment loss.
3 Other intangible assets include mostly the licences and development costs of IT programs of EUR 9,733,000. The licenses have finite lives and are amortised over 5 to 10 years. Amortisation of intangible assets is recorded in profit or loss under cost of sales, sales and marketing expenses and administrative expenses.
| As at 31 December | ||||
|---|---|---|---|---|
| In thousands of EUR | ||||
| 2015 | Maturity | Current portion |
Non-current portion |
Total borrowings |
| Liabilities under finance lease | 2018 | 82 | 216 | 298 |
| Unsecured bonds1 | 2018 | 0 | 93,097 | 93,097 |
| Overdraft | 2016 | 3,397 | 0 | 3,397 |
| Long-term bank loans | 2016-2021 | 78,410 | 374,134 | 452,544 |
| Total borrowings | 81,889 | 467,447 | 549,336 | |
| As at 31 December In thousands of EUR |
||||
| 2014 | Maturity | Current portion |
Non-current portion |
Total borrowings |
| Liabilities under finance lease | 2018 | 80 | 278 | 358 |
| Unsecured bonds1 | 2018 | 0 | 98,636 | 98,636 |
| Overdraft | 2015 | 62,449 | 0 | 62,449 |
| Long-term bank loans | 2015-2021 | 87,321 | 494,618 | 581,939 |
| Total borrowings | 149,850 | 593,532 | 743,382 |
1The change in the bond balance come up from the foreign exchange rate differences of NOK.
As at 31 December 2015 the Group had the right to use bank overdrafts of up to EUR 75,000,000 (2014: EUR 65,000,000). Bank overdrafts are secured with a commercial pledge of EUR 20,204,000 (2014: EUR 20,204,000) and mortgages on ships (see Note 14). In the year ended 31 December 2015 the average effective interest rate of bank overdrafts was EURIBOR + 2.23% (2014: EURIBOR + 2.12%). As at 31 December 2015 the balance of overdrafts in use was EUR 3,397,000 (2014: EUR 62,449,000).
In the year ended 31 December 2015 the weighted average interest rate of the Group's variable rate bank loans was EURIBOR + 3.02% (2014: EURIBOR + 3.02%).
As at 31 December 2015 AS Tallink Grupp had given guarantees to HSH Nordbank AG, Nordea Bank Plc and Danske Bank A/S. for loans of EUR 158,894,000 (2014: 227,873,000) granted to overseas subsidiaries by abovementioned banks.
Overseas subsidiaries have given guarantees to Nordea Bank Finland Plc and Swedbank AS for the loans granted to AS Tallink Grupp. As at 31 December 2015 the book value of the loans was EUR 293,650,000 (31 December 2014: EUR 354,066,000). Primary securities for the loans are the ships belonging to the overseas subsidiaries and a pledge of the shares in these subsidiaries.
The Group has issued counter guarantees to the commercial banks that have issued guarantees to several governmental authorities in favour of Group entities, required to perform the Group's daily operations. As at 31 December 2015 the total amount of the guarantees was EUR 7,694,000 (2014: EUR 2,618,000). The guarantees issued are not recognised in the statement of financial position as, according to historical experience and the Group management estimations, none of them is expected to turn into an actual liability.
In the loan agreements signed with banks, the Group has agreed to comply with financial covenants related to ensuring certain equity, liquidity and other ratios. During the financial year 2015 (as well as in 2014) the Group complied with all financial covenants.
| As at 31 December | In thousands of EUR | ||
|---|---|---|---|
| 2015 | 2014 | ||
| Trade payables | 41,694 | 39,962 | |
| Other payables | 2,459 | 2,508 | |
| Payables to employees | 22,015 | 21,452 | |
| Interest payable | 2,259 | 3,175 | |
| Tax liabilities | 17,079 | 16,709 | |
| Other accruals | 2,974 | 7,430 | |
| Total trade and other payables | 88,480 | 91,236 |
The Group´s exposure to currency and liquidity risks is disclosed in Note 24.
| As at 31 December | In thousands of EUR | |
|---|---|---|
| 2015 | 2014 | |
| Tax liabilities | ||
| Salary-related taxes | 12,949 | 11,153 |
| Excise duties | 2,217 | 2,622 |
| VAT | 1,912 | 2,884 |
| Other taxes | 1 | 50 |
| Total tax liabilities | 17,079 | 16,709 |
| As at 31 December | In thousands of EUR | |
|---|---|---|
| 2015 | 2014 | |
| Club One points | 12,150 | 11,291 |
| Prepaid revenue | 16,756 | 18,117 |
| Total deferred income | 28,906 | 29,408 |
The Group measures the liability for outstanding Club One points in combination of the value of its services and the averages of the Club One points used to redeem the services, taking into account the pattern of use of the points by the customers and the expiry rates of the points. The calculations are performed for each segment.
As at 31 December
| 2015 | 2014 | |
|---|---|---|
| The number of shares issued and fully paid (in thousands) | 673,817 | 673,817 |
| Total number of shares of EUR 0.60 each (in thousands) | 673,817 | 673,817 |
| As at 31 December | ||
| In thousands of EUR | ||
| 2015 | 2014 | |
| Share capital (authorised and registered) | 404,290 | 404,290 |
| Total share capital | 404,290 | 404,290 |
|---|---|---|
| Share premium | 639 | 639 |
| Total share premium | 639 | 639 |
According to the articles of association of the Parent effective as from 17 September 2013, the maximum number of common shares is 2,133,333,333. Each share grants one vote at the shareholders' general meeting. Shares acquired by the transfer of ownership are eligible for participating in and voting at a general meeting only if the ownership change is recorded in the Estonian Central Registry of Securities at the time used to determine the list of shareholders for the given shareholders' general meeting.
Common shares grant their holders all the rights provided for under the Estonian Commercial Code – the right to participate in the general meeting, the distribution of profits, and the distribution of residual assets upon the dissolution of the company; the right to receive information from the Management Board about the activities of the Company; a pre-emptive right to subscribe for new shares in proportion to the sum of the par values of the shares already held when share capital is increased, etc.
The registered share capital of AS Tallink Grupp amounts to EUR 404,290,000, the number of shares is 673,817,000 and the nominal value of a share is EUR 0.60.
| In thousands of EUR | ||
|---|---|---|
| 2015 | 2014 | |
| 298 | ||
| 54,562 | ||
| 18,822 | ||
| -4,163 | ||
| 910 | 610 | |
| 65,083 | 70,129 | |
| 458 47,693 20,185 -4,163 |
The translation reserve comprises all foreign currency differences arising from the translation of the financial statements of foreign operations.
The revaluation reserve relates to the revaluation of ships. The ships' revaluation reserve may be transferred directly to retained earnings when the ship is disposed of. However, some of the revaluation surplus may be transferred when the ship is used by the Group. In such a case, the amount of surplus transferred is the difference between depreciation based on the revalued carrying amount of the ship and depreciation based on the original cost of the ship. The Group uses the latter alternative.
The mandatory legal reserve has been formed in accordance with the Estonian Commercial Code. The mandatory legal reserve is formed by means of yearly net profit transfers. At least 1/20 of net profit must be transferred to the mandatory legal reserve, until the reserve amounts to 1/10 of share capital. The mandatory legal reserve may be used to cover losses and to increase share capital but it may not be used for making distributions to owners.
Reserve for treasury shares comprises the cost of the AS Tallink Grupp´s shares held by the Group. At 31 December 2015 the Group held 3,935,000 of the AS Tallink Grupp's shares (2014: 3,935,000 shares).
At 31 December 2015 the share option programme reserve comprised the fair value of the share option programme measured at the grant date.
Dividends were declared and paid by the Company for the year in the amount of EUR 13,398,000 (2014: EUR 20,096,000), i.e. EUR 0.02 per qualifying ordinary share (2014: EUR 0.03). This led to a payment of income tax of EUR 2,818,000 by the Group (2014: EUR 5,342,000).
In December 2012 the Group issued 7,610,000 share options of which 3,850,000 to the Management Board and Supervisory Council and 3,760,000 to certain other Group employees. Each option gives right to purchase one share of AS Tallink Grupp. The terms and conditions of the issued share options are the following: exercisable not earlier than 36 months from issue or 21 December 2015 and not later than 21 June 2016; exercise price EUR 0.858 in the case of new shares issued or average acquisition cost in the case of existing shares purchased from the market; the options are to be settled by physical delivery of shares.
The fair value of the services received in return for share options granted is based on the fair value of share options granted, measured using the Black-Scholes model as at the grant date. The Group used an independent external advisor for the valuation of the share options. In addition to the terms and conditions of the share options the following inputs were used: spot price of 0.848 at 20 December 2012; expected volatility of 30% based on historical analysis; the options' average time to maturity which was 42 months; effective dividend yield of 3.5% (based on the equity analysts' consensus) and a risk-free interest rate of 0.336%.
| Key Management Personnel |
Senior Employees | |
|---|---|---|
| Option issued | 2012 | 2012 |
| Fair value at grant date (EUR) | 0.125 | 0.125 |
| Share price at grant date (EUR) | 0.848 | 0.848 |
| Exercise price (EUR) | 0.858 | 0.858 |
| Expected volatility (%) | 30 | 30 |
| Expected life (months) | 42 | 42 |
| Expected dividend yield (%) | 3.5 | 3.5 |
| Risk-free interest rate (%) | 0.336 | 0.336 |
| Number of options | Weighted average exercise price |
|
|---|---|---|
| Outstanding at 1 January 2014 | 14,692,768 | 0.858 |
| Forfeited during the year 2014 | 56,630 | 0.858 |
| Expired during the year 2014 | 7,317,500 | 0.858 |
| Outstanding at 31 December 2014 | 7,318,638 | 0.858 |
| Exercisable at 31 December 2014 | 7,318,638 | 0.858 |
| Outstanding at 1 January 2015 | 7,318,638 | 0.858 |
| Forfeited during the year 2015 | 41,735 | 0.858 |
| Outstanding at 31 December 2015 | 7,276,903 | 0.858 |
| Exercisable at 31 December 2015 | 7,276,903 | 0.858 |
At 31 December 2015 7,276,903 (2014: 7,318,638) share options were valid and outstanding. The average remaining time to maturity of the outstanding share options is 0-6 months. The following table summarises information about options outstanding at 31 December 2015:
| Outstanding options |
Average remaining time to maturity (months) |
Exercise price | ||
|---|---|---|---|---|
| Options issued 2012 | 7,318,638 | 0-6 | 0.858 | |
| The change in option reserve | ||||
| In thousands of EUR | ||||
| 2015 | 2014 | |||
| Options issued 20121 | 305 | 317 | ||
| Forfeited during the year | -5 | -14 | ||
| Expired during the year | 0 | -527 | ||
| Total change in option reserve | 300 | -224 |
1The value of options issued at the end of 2012 of EUR 951,000 was recorded as an expense during the vesting period of 36 months from the beginning of 2013. In 2015 EUR 300,000 (2014: EUR 317,000) was recorded as an expense.
The outstanding share options have no diluting effect due to their average price in the stock market being lower than the exercise price during the reporting period (see Note 7). The average price in the stock market in the 2015 financial year was EUR 0.79 (2014: EUR 0.74).
AS Tallink Grupp, AS Hansatee Cargo and Tallink Silja OY filed a complaint with Helsinki District Court for recovery of harbour fees for the years 2001 until 2004. The total amount claimed is more than EUR 34 million (of which AS Tallink Grupp's claims more than EUR 13 million, AS Hansatee Cargo's claim more than EUR 400 000 and Tallink Silja Oy's claims approximately EUR 21 million). The basis for the claim is that the Finnish state applied and demanded from the ships of EU member states incorrect harbour fees. On 28 February 2015 the Court held that the Finnish state is liable to return the fairway dues collected illegally and the accrued interests. The Finnish State contested this decision in a higher court instance in December 2015 and expected case review could begin in April 2016. The amount was not recognised as at 31 December 2015 (as well as at 31 December 2014) since it is not considered virtually certain to be recovered
Some members of the Management Board are entitled to termination benefits if agreement will be terminated by The Group's Supervisory Council. At 31 December 2015 the maximum amount of such benefits was EUR 2,268,000 (EUR 2,426,000 in 2014) (see Note 22). The Group has no formal plan for termination of service agreements with the Key Management Personnel.
The Group's retained earnings as at 31 December 2015 were EUR 354,410,000 (2014: EUR 303,232,000). At 31 December 2015, the maximum income tax liability which would arise if retained earnings were fully distributed is EUR 70,882,000 (2014: EUR 60,646,000). The maximum income tax liability has been calculated using the income tax rate effective for dividends on the assumption that the dividend and the related income tax expense cannot exceed the amount of retained earnings as at 31 December 2015 (2014: 31 December 2014).
The Group leases five hotel buildings under operating leases. The leases typically run for a period of ten years, with the Group's option to renew the lease for further 5 years. Some lease payments are increased every year and some leases provide for additional rental payments that are based on the result of hotel operations. The lease expenses from 1 January 2015 to 31 December 2015 were EUR 13,255,000 (2014: EUR 13,451,000) including contingent lease expense EUR 1,215,000 (2014: EUR 1,292,000). See also Note 22.
The Group also leases two office buildings and one storehouse. The lease expenses from 1 January 2015 to 31 December 2015 were EUR 1,993,000 (2014: EUR 1,973,000). The lessor has the right to increase lease payments by up to 6% per year. See also Note 22.
On 1 December 2015 the Group sold fast ferry Superstar and chartered it back until the beginning of 2017. The charter payment from 1 January 2015 to 31 December 2015 were EUR 868,000 (2014: EUR 0)
Minimum non-cancellable operating lease payments are as follows:
As at 31 December In thousands of EUR
| 2015 | 2014 | |
|---|---|---|
| < 1 year | 25,068 | 14,344 |
| 1-5 years | 50,528 | 43,230 |
| >5 years | 34,426 | 6,106 |
| Total | 110,022 | 63,680 |
The Group's charter income from 1 January to 31 December 2015 was EUR 53,473,000 (2014: EUR 47,072,000).
Minimum non-cancellable charter payments are as follows:
As at 31 December In thousands of EUR
| 2015 | 2014 | |
|---|---|---|
| < 1 year | 19,398 | 46,136 |
| 1-5 years | 36,880 | 56,278 |
| Total | 56,278 | 102,414 |
All charter agreements used by the Group are based on BIMCO Standard Bareboat Charter and BIMCO Time Charter Agreement.
For the purpose of these financial statements, parties are related if one controls the other or exerts significant influence on the other party's operating decisions. The Group has transactions and balances with the following related parties:
The Key Management Personnel hold positions in other entities that result in them having control or significant influence over the financial or operating policies of these entities.
The Group has entered into the following transactions with related parties and has the following balances with related parties.
For the year ended 31 December In thousands of EUR
| 2015 | Relation ship |
Sales to related parties |
Purchases from related parties |
Receivables from related parties |
Payables to related parties |
|---|---|---|---|---|---|
| AS Infortar - services | a | 50 | 47 | 2 | 5 |
| AS HT Valuuta - services | a | 107 | 0 | 1 | 0 |
| AS Vara HTG - leases | a | 0 | 2,751 | 0 | 834 |
| OÜ Sunbeam - leases | a | 0 | 3,745 | 0 | 206 |
| OÜ Topspa Kinnisvara - leases | a | 0 | 2,683 | 0 | 0 |
| OÜ Mersok - leases | a | 0 | 8 | 0 | 0 |
| OÜ Hansa Hotell - leases | a | 0 | 1,051 | 0 | 175 |
| OÜ Fastinvest - leases | a | 0 | 1,227 | 0 | 0 |
| SIA Happy Trails - leases | a | 1 | 3,290 | 0 | 636 |
| AS Vaba Maa - services | a | 8 | 920 | 0 | 86 |
| AS Gastrolink - goods a |
9 | 1,077 | 1 | 66 |
|---|---|---|---|---|
| Eesti Laevaomanike Liit (Estonian a Ship-owners' Association) - membership fee |
1 | 14 | 0 | 0 |
| AS Tallink Takso - services b |
1 | 107 | 0 | 12 |
| MTÜ SEB Tallink Tennis Team – a services |
0 | 50 | 0 | 0 |
| MTÜ Eesti Tennise Liit - services a |
21 | 159 | 0 | 0 |
| OÜ Infor Invest a |
0 | 42 | 0 | 0 |
| 2014 | ||||
| AS Infortar - services a |
176 | 47 | 1 | 5 |
| AS HT Valuuta - services a |
113 | 0 | 1 | 0 |
| AS Vara HTG - leases a |
0 | 2,775 | 0 | 857 |
| OÜ Sunbeam - leases a |
0 | 3,709 | 0 | 257 |
| OÜ Topspa Kinnisvara - leases a |
0 | 2,634 | 0 | 0 |
| OÜ Mersok - leases a |
0 | 9 | 0 | 1 |
| OÜ Hansa Hotell - leases a |
0 | 1,033 | 0 | 178 |
| OÜ Fastinvest - leases a |
0 | 1,234 | 0 | 0 |
| SIA Happy Trails - leases a |
1 | 3,305 | 0 | 337 |
| AS Vaba Maa - services a |
13 | 673 | 1 | 85 |
| AS Gastrolink - goods a |
4 | 1,163 | 1 | 76 |
| Eesti Laevaomanike Liit (Estonian a Ship-owners' Association) - membership fee |
0 | 14 | 0 | 0 |
| AS Tallink Takso - services b |
1 | 83 | 1 | 14 |
| MTÜ SEB Tallink Tennis Team – a services |
0 | 50 | 0 | 0 |
| OÜ Inf Maja - services a |
3 | 0 | 0 | 0 |
| MTÜ Eesti Tennise Liit - services a |
24 | 165 | 1 | 0 |
AS Tallink Grupp's members of the Management Board and members of the Supervisory Council are defined as the Key Management Personnel.
The Key Management Personnel's compensation was as follows:
| For the year ended 31 December | ||
|---|---|---|
| In thousands of EUR | ||
| 2015 | 2014 | |
| Short-term benefits | 1,375 | 1,896 |
| Termination benefits | 36 | 900 |
Some members of the Key Management Personnel are entitled to termination benefits (refer note 21). At 31 December 2015 the maximum amount of such benefits was EUR 2,268,000 (31 December 2014: EUR 2,426,000).
The Key Management personnel benefits are presented without social tax. In December 2014 one Member of the Management Board received termination benefits EUR 900,000.
| Group entities | Interest | Interest | Country of | Parent company |
|---|---|---|---|---|
| as at 31 | as at 31 | incorporation | ||
| December | December | |||
| 2015 | 2014 | |||
| OÜ Hansaliin | 100% | 100% | Estonia | AS Tallink Grupp |
| OÜ Hansatee Kinnisvara | 100% | 100% | Estonia | AS Tallink Grupp |
| AS Tallink Duty Free | 100% | 100% | Estonia | AS Tallink Grupp |
| OÜ HT Laevateenindus | 100% | 100% | Estonia | AS Tallink Grupp |
| OÜ HT Meelelahutus | 100% | 100% | Estonia | AS Tallink Grupp |
| AS Tallink | 100% | 100% | Estonia | AS Tallink Grupp |
| AS Hansatee Cargo | 100% | 100% | Estonia | AS Tallink Grupp |
| OÜ TLG Hotell | 100% | 100% | Estonia | AS Tallink Grupp |
| OÜ Tallink Travel Club | 100% | 100% | Estonia | AS Tallink Grupp |
| AS Tallink Baltic | 100% | 100% | Estonia | AS Tallink Grupp |
| OÜ Mare Catering | 100% | 100% | Estonia | AS Tallink Grupp |
| AS HTG Invest | 100% | 100% | Estonia | AS Tallink Grupp |
| Tallink Finland OY | 100% | 100% | Finland | AS Tallink Grupp |
| Tallink Latvija AS | 100% | 100% | Latvia | AS Tallink Grupp |
| Tallink Line Ltd | 100% | 100% | Cyprus | AS Tallink Grupp |
| Tallinn-Helsinki Line Ltd | 100% | 100% | Cyprus | AS Tallink Grupp |
| Vana Tallinn Line Ltd | 100% | 100% | Cyprus | AS Tallink Grupp |
| Tallink Fast Ltd | 100% | 100% | Cyprus | AS Tallink Grupp |
| Tallink Ltd | 100% | 100% | Cyprus | AS Tallink Grupp |
| Tallinn Swedish Line Ltd | 100% | 100% | Cyprus | AS Tallink Grupp |
| Tallinn Stockholm Line Ltd | 100% | 100% | Cyprus | AS Tallink Grupp |
| Tallink Victory Line Ltd | 100% | 100% | Cyprus | AS Tallink Grupp |
| Hansalink Ltd | 100% | 100% | Cyprus | AS Tallink Grupp |
| Tallink Autoexpress Ltd | 100% | 100% | Cyprus | AS Tallink Grupp |
| Tallink High Speed Ltd | 100% | 100% | Cyprus | AS Tallink Grupp |
| Tallink Sea Line Ltd | 100% | 100% | Cyprus | AS Tallink Grupp |
| Tallink Superfast Ltd | 100% | 100% | Cyprus | AS Tallink Grupp |
| Baltic SF VII Ltd | 100% | 100% | Cyprus | AS Tallink Grupp |
| Baltic SF VIII Ltd | 100% | 100% | Cyprus | AS Tallink Grupp |
| Baltic SF IX Ltd | 100% | 100% | Cyprus | AS Tallink Grupp |
| Tallink Hansaway Ltd | 100% | 100% | Cyprus | AS Tallink Grupp |
| Tallink-Ru OOO | 100% | 100% | Russia | AS Tallink Grupp |
| HTG Stevedoring Oy | 100% | 100% | Finland | AS Tallink Grupp |
| Ingleby (1699) Ltd. | 100% | 100% | UK | AS Tallink Grupp |
| OÜ HT Hulgi Tolliladu | 100% | 100% | Estonia | AS Tallink Duty Free |
| AS Tallink Scandinavian | 100% | 100% | Estonia | AS Tallink Grupp |
| Tallink Silja Oy | 100% | 100% | Finland | AS Tallink Scandinavian |
| Sally AB | 100% | 100% | Finland | Tallink Silja Oy |
| Tallink Silja AB | 100% | 100% | Sweden | AS Tallink Grupp |
| Silja Line Gmbh | 100% | 100% | Germany | Tallink Silja Oy Ab |
| OÜ Hera Salongid | 100% | 100% | Estonia | OÜ TLG Hotell |
| SIA HT Shipmanagement | 100% | 100% | Latvia | OÜ HT Laevateenindus |
| SIA TLG Hotel Latvija | 100% | 100% | Latvia | OÜ TLG Hotell |
Through use of financial instruments the Group is exposed to the following risks:
This note presents information about the Group´s exposure to each of the above risks, the Group´s objectives, policies and processes for measuring and managing risk, and the Group´s capital management.
The Management Board has overall responsibility for the establishment and oversight of the Group´s risk management framework. The Group´s financial department is responsible for developing and monitoring the Group´s risk management policies.
The Group´s risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Group´s activities.
Credit risk is the risk of financial loss that the Group would suffer if the counterparty failed to perform its financial obligations, and arises principally from the Group´s receivables from customers and cash. The credit risk concentration related to accounts receivable is reduced due to the high number of customers. At the reporting date, the maximum credit risk was as follows:
As at 31 December
| In thousands of EUR | |||
|---|---|---|---|
| 2015 | 2014 | ||
| Cash and cash equivalents | 81,976 | 65,311 | |
| Trade and other receivables (Notes 9, 13) | 26,271 | 28,021 | |
| Total | 108,247 | 93,332 |
The Group´s exposure to credit risk for trade receivables is mainly influenced by the characteristics of each customer. In monitoring customer credit risk, customers are grouped according to their credit characteristics, including whether they are individuals or legal entities, whether they are travel agents or customers with credit limits, and considering their geographic location, receivable aging profile, maturity and existence of previous financial difficulties. Trade receivables relate mainly to travel agents and customers with credit facilities. The credit risk concentration related to trade receivables is reduced by the high number of customers.
The Group´s management has established a credit policy under which each new customer with a credit request is analysed individually for creditworthiness before the Group´s payment terms and conditions are offered. Some customers are obliged to present a bank guarantee to meet the credit sale criteria. Customers are assigned credit limits, which represent the maximum exposure that does not require approval from the Group´s management. Customers that fail to meet the Group´s benchmark creditworthiness may transact with the Group on a prepayment basis only. Charterers hiring Group's vessels have provided bank guarantees to cover their payment risk.
The Group establishes an allowance for impairment that represents its estimate of losses incurred on trade and other receivables. The main components of this allowance are a specific loss component that relates to trade receivables (individually significant exposures) and a collective loss component (established for groups of similar assets in respect of losses that have been incurred but not yet identified).
The aging of receivables at the reporting date was: As at 31 December
| In thousands of EUR | ||||
|---|---|---|---|---|
| 2015 | 2015 | |||
| Gross | Impairment | Net | ||
| Not past due | 21,928 | -209 | 21,719 | |
| Past due 0-30 days | 3,420 | -10 | 3,410 | |
| Past due 31-90 days | 763 | -54 | 709 | |
| Past due 91 days - one year | 513 | -165 | 348 | |
| Past due over one year | 451 | -366 | 85 | |
| Total | 27,075 | -804 | 26,271 |
As at 31 December
| In thousands of EUR | |||
|---|---|---|---|
| 2014 | 2014 | ||
| Gross | Impairment | Net | |
| Not past due | 23,237 | 0 | 23,237 |
| Past due 0-30 days | 3,884 | 0 | 3,884 |
| Past due 31-90 days | 529 | -7 | 522 |
| Past due 91 days - one year | 529 | -259 | 270 |
| Past due over one year | 585 | -468 | 117 |
| Total | 28,764 | -734 | 28,030 |
Movements in the impairment allowance for trade receivables:
| In thousands of EUR | ||||
|---|---|---|---|---|
| 2015 | ||||
| Balance at 1 January | 734 | 762 | ||
| Amounts written off | -183 | -88 | ||
| Impairment loss recognised | 516 | 310 | ||
| Reversal of prior period impairment loss | -263 | -250 | ||
| Balance at 31 December | 804 | 734 |
Financial derivatives with a positive fair value for the Company, taking into account legal netting agreements (ISDA agreements), also represent a credit risk. Credit risk arising from financial transactions is reduced through diversification and accepting counterparties with high credit ratings only (BBB or higher).
The Group holds cash and cash equivalents with banking groups that have investment grade credit ratings (BBB or higher).
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group´s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Groups' reputation.
The Group's low current ratio represents the normal course of business. Majority of the sale is done by prepayment, bank card or cash payments, therefore the cash conversion cycle is negative and in general the Group receives the cash from sale before it has to pay to its vendors.
The Group's objective is to maintain a balance between continuity and flexibility of funding through the use of bank overdrafts, bank loans and bonds. The Group has established Group account systems (the Group's cash pools) in Estonia, Finland, Sweden and Latvia to manage the cash flows in the Group as efficiently as possible. Excess liquidity is invested in short-term money market instruments. AS Tallink Grupp maintains three committed bank overdraft facilities to minimize the Group's liquidity risk (see Note 16 for details).
The following tables illustrate liquidity risk by periods when cash flows will fall due or may fall due on financial liabilities outstanding as at 31 December (based on contractual cash flows):
| 2015 | < 1 year | 1-2 years | 2-5 years | >5 years | Total |
|---|---|---|---|---|---|
| Non-derivative financial liabilities | |||||
| Overdraft | -3,397 | -3,397 | |||
| Finance lease liabilities | -82 | -14 | -96 | 0 | -192 |
| Trade and other payables | -68,427 | -68,427 | |||
| Secured bank loan repayments | -80,617 | -265,000 | -106,571 | -6,000 | -458,188 |
| Bond repayment | -93,097 | -93,097 | |||
| Interest payments(1) | -19,171 | -16,676 | -9,208 | -94 | -45,149 |
| Derivative financial liabilities | |||||
| Interest rate swaps (2) | -4,306 | -4,570 | -5,346 | 0 | -14,222 |
| Foreign exchange derivative inflow | 93,097 | 93,097 | |||
| Foreign exchange derivative outflow | -120,000 | -120,000 | |||
| Total | -176,000 | -286,260 | -241,221 | -6,094 | -709,575 |
| 2014 | < 1 year | 1-2 years | 2-5 years | >5 years | Total |
| Non-derivative financial liabilities | |||||
| Overdraft | -62,449 | -62,449 | |||
| Finance lease liabilities | -80 | -77 | -201 | 0 | -358 |
| Trade and other payables | -67,097 | -67,097 | |||
| Secured bank loan repayments | -89,839 | -89,839 | -389,899 | -21,872 | -591,449 |
| Bond repayment | -98,636 | -98,636 | |||
| Interest payments(1) | -24,473 | -21,906 | -30,653 | -702 | -77,734 |
| Derivative financial liabilities | |||||
| Interest rate swaps (2) | -4,930 | -4,756 | -9,730 | 0 | -19,416 |
| Foreign exchange derivative inflow Foreign exchange derivative outflow |
98,636 -120,000 |
98,636 -120,000 |
(1) – expected, based on the interest rates and interest rate forward curves
(2) – net cash flow, expected, based on the interest rates and interest rate forward curves
Guarantees issued are not recognised in the statement of financial position as, according to historical experience and the Group's management estimations, none of them has turned into an actual liability.
Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Groups' income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return.
The Group buys and sells derivatives, and also incurs financial liabilities, in order to manage market risks.
The Group is exposed to exchange rate risk arising from revenues, operating expenses and liabilities in foreign currencies, mainly in the US dollar (USD), the Swedish krona (SEK) and the Norwegian krone (NOK). Exposure to USD results from the purchase of ship fuel and insurance, exposure to NOK derives from the bond issued in that currency and exposure to SEK arises from the fact that it is the operational currency on some routes. The impact of the fluctuation of the Swedish krona is considered immaterial to the financial statements.
The Group seeks to minimize currency risk by matching foreign currency inflows with outflows. Currency risk from NOK nominated bond is hedged with cross currency swap.
The following tables present the Group's financial instruments by currency denomination:
As at 31 December
In thousands of EUR
| 2015 | EUR | USD | SEK | NOK | Other | Total |
|---|---|---|---|---|---|---|
| Cash and cash equivalents | 64,599 | 4,704 | 12,320 | 0 | 353 | 81,976 |
| Trade receivables, net of allowance | 22,052 | 0 | 1,281 | 0 | 122 | 23,455 |
| Other financial assets | 1,182 | 0 | 1,634 | 0 | 0 | 2,816 |
| Total | 87,833 | 4,704 | 15,235 | 0 | 475 | 108,247 |
| Current portion of borrowings | -81,807 | 0 | -82 | 0 | 0 | -81,889 |
| Trade payables | -35,731 | -917 | -4,822 | -1 | -211 | -41,682 |
| Other current payables | -19,343 | 0 | -9,389 | -1,179 | 0 | -29,911 |
| Interest rate swaps | -12,635 | 0 | 0 | 0 | 0 | -12,635 |
| Foreign exchange derivatives | -137,837 | 0 | 0 | 107,609 | 0 | -30,228 |
| Non-current portion of borrowings and other liabilities |
-374,134 | 0 | -216 | -93,097 | 0 | -467,447 |
| Total | -661,487 | -917 | -14,509 | 13,332 | -211 | -663,792 |
| Net, EUR | -573,654 | 3,787 | 726 | 13,332 | 264 | -555,545 |
| As at 31 December | ||||||
| In thousands of EUR | ||||||
| 2014 | EUR | USD | SEK | NOK | Other | Total |
| Cash and cash equivalents | 55,016 | 601 | 9,359 | 0 | 335 | 65,311 |
| Trade receivables, net of allowance | 22,143 | 0 | 1,147 | 0 | 91 | 23,381 |
| Other financial assets | 2,319 | 0 | 2,329 | 0 | 1 | 4,649 |
| Total | 79,478 | 601 | 12,835 | 0 | 427 | 93,341 |
| Current portion of borrowings | -149,770 | 0 | -80 | 0 | 0 | -149,850 |
|---|---|---|---|---|---|---|
| Trade payables | -32,825 | -2,013 | -4,703 | 0 | -421 | -39,962 |
| Other current payables | -23,727 | 0 | -9,502 | -1,336 | 0 | -34,565 |
| Interest rate swaps | -18,564 | 0 | 0 | 0 | 0 | -18,564 |
| Foreign exchange derivatives | -143,707 | 0 | 0 | 120,289 | 0 | -23,418 |
| Non-current portion of borrowings and other liabilities |
-494,618 | 0 | -278 | -98,636 | 0 | -593,532 |
| Total | -863,211 | -2,013 | -14,563 | 20,317 | -421 | -859,891 |
| Net, EUR | -783,733 | -1,412 | -1,728 | 20,317 | 6 | -766,550 |
A 10 percent strengthening of the euro against the following currencies at the end of the financial year would have increased (decreased) profit or loss and equity by the amounts shown below. This sensitivity analysis assumes that all other variables remain constant. The analysis was performed on the same basis for 2014.
As at 31 December In thousand EUR
| 2015 Profit or loss | 2014 Profit or loss | |
|---|---|---|
| USD | -379 | 141 |
| SEK | -442 | -169 |
| NOK | -1,333 | -2,032 |
| Other | -26 | -1 |
The Group is exposed to interest rate risk through funding and cash management activities. The interest rate risk – the possibility that the future cash flows from a financial instrument (cash flow risk) will change due to movements in market interest rates – applies mainly to bank loans and bond. There are no material interest rate risks related to the assets of the Group.
At the reporting date the interest rate profile of the Group's interest-bearing financial instruments was as follows:
As at 31 December
| In thousands of EUR | ||
|---|---|---|
| 2015 | 2014 | |
| Fixed rate financial liabilities | 298 | 41,291 |
| Variable rate financial liabilities | 591,901 | 744,073 |
| Total | 592,199 | 785,364 |
A change of 10 basis points in interest rates of interest bearing financial instruments at the reporting date would have increased (decreased) profit and equity by the amounts shown below. This analysis assumes that all other variables remain constant. The analysis was performed on the same basis for 2014.
| In thousands of EUR | ||
|---|---|---|
| 2015 | 2014 | |
| 10 basis point increase | -228 | -58 |
| 10 basis point decrease | 228 | 58 |
In the opinion of the Group's management there are no significant differences between the carrying values and fair values of financial assets and liabilities. The fair value for derivatives has been determined based on accepted valuation methods.
All derivative financial instruments are recognised as assets or liabilities. They are stated at fair value regardless of their purpose. Many transactions constitute economic hedges but do not qualify for hedge accounting under IAS 39. Changes in the fair value of these derivative financial instruments are recognised directly in profit or loss: fair value changes on forward exchange contracts and currency options are recorded in exchange gains and losses and those on interest rate swaps and interest rate options in interest income and expense.
The fair values of hedged transactions at the end of the year were as follows:
| In thousands of EUR | ||||||
|---|---|---|---|---|---|---|
| Hierarchy | Maturity | 2015 | 2014 | |||
| Notional amount |
Fair value | Notional amount |
Fair value | |||
| Interest rate swap | Level 3 | 2019 | 100,000 | -12,046 | 100,000 | -16,364 |
| Interest rate swap | Level 3 | 2018 | 70,000 | -589 | 70,000 | -2,200 |
| Foreign exchange derivative(1) | Level 3 | 2018 | 60,000 | -15,114 | 60,000 | -11,709 |
| Foreign exchange derivative(1) | Level 3 | 2018 | 60,000 | -15,114 | 60,000 | -11,709 |
| Total derivatives with negative value | -42,863 | -41,982 |
At effective date the Group exchanged the NOK notional amount (NOK 450,000,000) against EUR notional amount (EUR 60,000,000) and at the termination date there is exchange back. During the life of the derivative the Group pays EURIBOR based EUR and receives NIBOR based NOK in every three months.
The fair values of all derivative financial instruments have been determined by an independent valuer with relevant professional qualifications and experience. Valuation methods are Hull White Model, Black76 – Model and Jarrow – Yildirim – Model. Inputs used are EUR interest rates term structure, EUR swaption and cap volatilities, inflation swap rates, EURIBOR and NIBOR FRA rates. Inputs are mainly unobservable (level 3 under fair value hierarchy). The following table shows the valuation techniques used in measuring derivatives' fair values, as well as the significant unobservable inputs used.
| Valuation technique | Significant unobservable inputs | Inter-relationship between key unobservable |
|---|---|---|
| inputs and fair value measurement | ||
| Hull White Model | • EUR interest rates term |
The estimated fair value would increase |
| Black76 Model | structure | (decrease) if: |
| Jarrow – Yildirim Model | • EUR swaption and cap |
• EUR interest rates were higher (lower) |
| volatilities | • inflation swap rates increase (decrease) | |
| • inflation swap rates |
The Group considers total shareholders' equity as capital. As at 31 December 2015 the shareholders' equity was EUR 824,422,000 (2014: EUR 778,290,000). The Group's policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business.
The Group has made significant investments in the recent past where strong shareholders' equity has been a major supporting factor for the investments. The Group seeks to maintain a balance between the higher returns that might be possible with higher levels of borrowing and the advantages and security afforded by a sound capital position.
At the annual general meeting held on 8 February 2011, management introduced the strategic target of reaching the optimal debt level which would allow the Group to start paying dividends. In management's opinion, a comfortable level for the Group's equity ratio is between 40% and 50% and for the net debt to EBITDA ratio an indicator below 5. As at 31 December 2015 the Group's equity ratio was 53.6% and the net debt to EBITDA ratio was 2.6 (2014: 46.2% and 4.5 respectively).
The Group may purchase its own shares on the market; the timing of these purchases may depend on the market prices, the Group's liquidity position and business outlook. Additionally, legal factors may limit the timing of such decisions. Primarily the repurchased shares are intended to be cancelled or they may be used for issuing shares under the Group's share option programme. Currently the Group does not have a defined share buyback plan.
On 11 February 2016 AS Tallink Grupp established new 100% owned subsidiary OÜ Baan Thai. The subsidiary main activity will be the catering services.
For the year ended 31 December
| In thousands of EUR | ||||
|---|---|---|---|---|
| 2015 | 2014 | |||
| Revenue | 471,380 | 435,862 | ||
| Cost of sales | -371,049 | -363,577 | ||
| Gross profit | 100,331 | 72,285 | ||
| Sales and marketing expenses | -35,292 | -35,224 | ||
| Administrative expenses | -19,273 | -18,602 | ||
| Other operating income | 9,442 | 1,185 | ||
| Other operating expenses | -56 | -311 | ||
| Results from operating activities | 55,152 | 19,333 | ||
| Finance income | 12,577 | 9,983 | ||
| Finance costs | -59,645 | -64,293 | ||
| Share of profit of equity-accounted investees | 64 | 24 | ||
| Net profit/loss before income tax | 8,148 | -34,953 | ||
| Income tax | -8,046 | -6,642 | ||
| Net profit/loss for the year | 102 | -41,595 |
| As at 31 December 2015 2014 ASSETS Current assets Cash and cash equivalents 18,573 36,489 Receivables from subsidiaries 105,329 125,621 Receivables and prepayments 19,103 18,913 Tax assets 1,209 1,398 Inventories 9,304 9,870 153,518 192,291 Non-current assets Investments in subsidiaries 405,371 405,283 Receivables from subsidiaries 272,077 310,557 Investments in equity-accounted investees 350 286 Other financial assets and prepayments 52 58 Property, plant and equipment 330,182 285,015 Intangible assets 10,930 10,485 1,018,962 1,011,684 TOTAL ASSETS 1,172,480 1,203,975 LIABILITIES AND EQUITY Current liabilities Interest-bearing loans and borrowings 103,367 164,100 Payables and deferred income 247,560 160,588 Tax liabilities 8,355 5,032 359,282 329,720 Non-current liabilities Interest-bearing loans and borrowings 632,177 681,311 Other liabilities 192 0 Derivatives 42,863 41,982 675,232 723,293 Total liabilities 1,034,514 1,053,013 Equity Share capital 404,290 404,290 Share premium 639 639 Reserves 16,932 15,269 Retained earnings -283,895 -269,236 137,966 150,962 TOTAL LIABILITIES AND EQUITY 1,172,480 1,203,975 |
In thousands of EUR | |||
|---|---|---|---|---|
For the year ended 31 December
| In thousands of EUR | ||
|---|---|---|
| 2015 | 2014 | |
| Cash flows used in/from operating activities | ||
| Net profit/loss for the financial year | 102 | -41,595 |
| Adjustments | 107,625 | 112,041 |
| Depreciation | 56,087 | 47,548 |
| Net interest expense | 53,710 | 62,993 |
| Net gain/loss on disposals of tangible and intangible assets |
-7,999 | -6 |
| Net unrealised foreign exchange gain | -5,758 | -7,972 |
| Income tax | 8,046 | 6,642 |
| Other adjustments | 3,539 | 2,836 |
| Income tax repaid | 405 | 0 |
| Changes in receivables related to operating activities | 8,059 | 82,491 |
| Change in inventories | 566 | 776 |
| Changes in liabilities related to operating activities | 56,466 | 58,108 |
| 173,223 | 211,821 | |
| Cash flows used in investing activities | ||
| Purchase of property, plant, equipment and intangible assets | -27,810 | -3,923 |
| Proceeds from disposals of property, plant, equipment | 9 | 6 |
| Increase in share capital of subsidiaries | 0 | -140,001 |
| Proceeds from other financial assets | 225 | 0 |
| Interest received | 6 | 26 |
| -27,570 | -143,892 | |
| Cash flows from financing activities | ||
| Redemption of loans | -62,005 | -53,432 |
| Change in overdraft | -60,901 | 43,425 |
| Payments for settlement of derivatives | -4,045 | -3,985 |
| Interest paid | -20,402 | -23,984 |
| Dividends paid | -13,398 | -20,096 |
| Income tax on dividends paid | -2,818 | -5,342 |
| -163,569 | -63,414 | |
| TOTAL NET CASH FLOW | -17,916 | 4,515 |
| Cash and cash equivalents: | ||
| - at the beginning of period | 36,489 | 31,974 |
| - increase / decrease | -17,916 | 4,515 |
| - at the end of period | 18,573 | 36,489 |
For the year ended 31 December
In thousands of EUR
| Share capital |
Share premium |
Mandatory legal reserve |
Reserve for treasury shares |
Share option programme reserve |
Retained earnings |
Total equity | |
|---|---|---|---|---|---|---|---|
| As at 31 December 2013 | 404,290 | 639 | 16,651 | -4,163 | 834 | -205,374 | 212,877 |
| Net loss for financial year 2014 | 0 | 0 | 0 | 0 | 0 | -41,595 | -41,595 |
| Allocation of profit for 2013 | 0 | 0 | 2,171 | 0 | 0 | -2,171 | 0 |
| Dividends | 0 | 0 | 0 | 0 | 0 | -20,096 | -20,096 |
| Contributions by and distributions to owners of the Company |
0 | 0 | 0 | 0 | -224 | 0 | -224 |
| As at 31 December 2014 | 404,290 | 639 | 18,822 | -4,163 | 610 | -269,236 | 150,962 |
| Net loss for financial year 2015 | 0 | 0 | 0 | 0 | 0 | 102 | 102 |
| Allocation of profit for 2014 | 0 | 0 | 1,363 | 0 | 0 | -1,363 | 0 |
| Dividends | 0 | 0 | 0 | 0 | 0 | -13,398 | -13,398 |
| Contributions by and distributions to owners of the Company |
0 | 0 | 0 | 0 | 300 | 0 | 300 |
| As at 31 December 2015 |
404,290 | 639 | 20,185 | -4,163 | 910 | -283,895 | 137,966 |
| 2015 | 2014 | ||||||
| Unconsolidated equity at 31 December | 137,966 | 150,962 | |||||
| Interests under control and significant influence: | |||||||
| -carrying amount | -405,721 | -405,569 | |||||
| -carrying amount under the equity method | 1,092,177 | 1,032,897 | |||||
| Adjusted unconsolidated equity at 31 December |
824,422 | 778,290 |
We hereby take responsibility for the preparation of the consolidated financial statements of AS Tallink Grupp (in these consolidated financial statements referred to as "the Parent") and its subsidiaries (together referred to as "the Group").
The management board confirms that:
Janek Stalmeister Chairman of the Management Board
Andres Hunt Vice Chairman of the Management Board
Lembit Kitter Member of the Management Board
Tallinn, 25.04.2016
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