Tallink Grupp

Earnings Release • Apr 24, 2018

AS Tallink Grupp Audited Annual Report of the 2017 Financial Year

AS Tallink Grupp Audited Annual Report of the 2017 Financial Year

In 2017, the Group carried a record number, a total of 9.8 million passengers,

which is 3.2% more than in 2016. The number of cargo units transported increased

by 11% compared to the previous financial year. The Group's consolidated revenue

amounted to EUR 967.0 million (EUR 937.8 million in 2016). EBITDA increased by

EUR 8.9 million and amounted to EUR 158.3 million (EUR 149.5 million in 2016),

net profit for the financial year was EUR 46.5 million or EUR 0.069 per share

(EUR 44.1 million or EUR 0.066 per share in 2016).

The period's biggest milestone for the Group was the launch of the new LNG-

powered shuttle vessel Megastar. The ship carried more than 2 million passengers

in its first year on the Tallinn-Helsinki route. This is the highest-ever number

of passengers carried by any of the Group's vessels on the Baltic Sea per year.

Megastar improved the efficiency of the Group's shuttle operations and the Group

was able to increase the result of the Estonia - Finland segment despite tighter

competition in the market.

The most positive development in 2017 was the growth of the cargo business.

Cargo volumes increased in all geographical segments by 11.0% in total, while

cargo revenues increased by 13.3% or EUR 13.8 million compared to the previous

year and amounted to EUR 117.7 million. In order to be better positioned to

serve our cargo customers and capture increasing cargo volumes, the cargo ship

Sea Wind going in between Estonia and Finland, previously operating from Tallinn

Old City Harbour, started operating from Muuga Harbour to Vuosaari in October.

In the financial year, the revenues of all core operating segments increased

compared to the previous year. Shop and restaurant revenue increased by EUR

15.3 million and ticket revenue by EUR 6.7 million, the growth being supported

by a 3.2% increase in passenger numbers. Cargo revenue increased by EUR 13.8

million compared to 2016. The growth was driven by an increase in the number of

transported cargo units in all geographical segments, resulting from positive

economic developments in our main markets.

In 2017, the Group's ships carried a total of 5.1 million passengers on the

Estonia - Finland routes, which is at the same level as in 2016 and the number

of cargo units transported on the routes increased by 11.6%. On the Tallinn -

Helsinki route competition intensified due to capacities added by competitors,

which put pressure on ticket prices. In addition, the Group operated one cruise

ferry on the Tallinn - Helsinki route in contrast to two cruise ferries in the

period March to August 2016. The new shuttle vessel Megastar improved the

efficiency of the shuttle operations and the Group was able to increase the

segment result in a changed competitive environment. The segment revenue

increased by EUR 1.2 million and amounted to EUR 354.5 million, the segment

result increased by EUR 2.4 million and amounted to EUR 77.9 million.

The Finland-Sweden routes revenue increased by EUR 7.5 million compared to the

previous year and amounted to EUR 344.8 million. Growth was supported by a 1.1%

higher passenger number and by a 7.6% increase in the number of transported

cargo units. The segment result increased by EUR 3.2 million compared to the

previous year, amounting to EUR 18.5 million.

The Estonia-Sweden routes revenue increased by EUR 7.2 million compared to the

previous year. Growth was supported by a 4.8% higher passenger number and by a

2.9% increase in the number of transported cargo units. The segment result

decreased compared to the previous year due to higher operating costs as since

December 2016 a larger vessel has been deployed on the route.

The Latvia-Sweden route's revenue increased by EUR 21.9 million compared to the

previous year. Growth was supported by a 45.8% higher passenger number and by a

70.1% increase in the number of transported cargo units, which resulted from

added capacity. The cruise ferry Romantika started operating on the Riga -

Stockholm route in December 2016 as a second ship on this route. The capacity

increased entails also higher operating cost and the segment's result was

negative in 2017.

In the 2017 financial year, the Group's investments amounted to EUR 219.2

million. The largest investment was the purchase of the shuttle ferry Megastar

in January 2017. A number of investments were made to upgrade the ships'

restaurants, shops and cabins. Investments were also made in the development of

the online booking and sales systems.

The key highlights of the 2017 financial year were the following:

* All-time high annual passenger number and higher revenue

* New LNG fast ferry Megastar started shuttle service on the Tallinn -

Helsinki route

* New passenger terminal opened in Helsinki

* Lower chartering revenues

* Scheduled maintenance of five ships during the Q1 low season

* Increased competition on the Tallinn - Helsinki route

* Lower operating costs from the termination of the charter of fast ferry

Superstar

* Effects from the re-routing of vessels in December 2016

* Renovated cruise ferry Silja Europa returned to the Tallinn - Helsinki route

* Two ships on the Riga - Stockholm route

* Sale of two Superfast vessels in December 2017

* Group-wide ship renovation programme continued

KEY FIGURES OF THE FINANCIAL YEAR 2017

For the year ended 31 December 2017 2016 Change %

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Revenue (million euros) 967.0 937.8 3.1%

Gross profit (million euros) 194.6 192.6 1.0%

Net profit for the period (million euros) 46.5 44.1 5.4%

EBITDA (million euros) 158.3 149.5 5.9%

Depreciation and amortisation (million euros) 86.4 77.9 10.9%

Investments (million euros) 219.3 68.9 218.2%

Weighted average number of ordinary shares

outstanding(1) 669 882 040 669 882 040 0.0%

Earnings per share 0.069 0.066 4.5%

Number of passengers 9 755 720 9 457 522 3.2%

Number of cargo units 364 296 328 190 11.0%

Average number of employees 7 406 7 163 3.4%

As at 31 December 2017 2016 Change %

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Total assets (million euros) 1 558.6 1 539.0 1.3%

Total liabilities (million euros) 722.3 729.1 -0.9%

Interest-bearing liabilities (million euros) 560.9 558.9 0.4%

Net debt (million euros) 472.0 480.1 -1.7%

Total equity (million euros) 836.3 809.9 3.3%

Equity ratio (%) 53.7% 52.6%

Number of ordinary shares outstanding(1) 669 882 040 669 882 040 0.0%

Shareholders' equity per share 1.25 1.21 3.3%

Ratios 2017 2016 Change %

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Gross margin (%) 20.1% 20.5%

EBITDA margin (%) 16.4% 15.9%

Net profit margin (%) 4.8% 4.7%

Return on assets (ROA) 4.3% 4.6%

Return on equity (ROE) 5.6% 5.4%

Return on capital employed (ROCE) 5.3% 5.6%

Net debt to EBITDA 3.0 3.2 -6.9%

EBITDA: earnings before net financial items, share of profit of equity-accounted

investees, taxes, depreciation and amortisation

Earnings per share: net profit / weighted average number of shares outstanding

Equity ratio: total equity / total assets

Shareholder's equity per share: shareholder's equity / number of shares

outstanding

Gross margin: gross profit / net sales

EBITDA margin: EBITDA / net sales

Net profit margin: net profit / net sales

ROA: earnings before net financial items, taxes /average total assets

ROE: net profit/average shareholders' equity

ROCE: earnings before net financial items, taxes / (total assets - current

liabilities (average for the period))

Net debt: interest-bearing liabilities less cash and cash equivalents

Net debt to EBITDA: net debt / 12-months trailing EBITDA

(1) Share numbers exclude own shares.

SALES

The Group's consolidated revenue amounted to EUR 967.0 million in 2017 (937.8

million in 2016). Restaurant and shop sales on-board and on mainland of EUR

536.7 million (521.5 million in 2016) contributed more than half of total

revenue. Ticket sales amounted to EUR 242.7 million (236.0 million in 2016) and

sales of cargo transport to EUR 117.7 million (103.9 million in 2016).

Geographically, 36.7% or EUR 354.5 million of revenue came from the Estonia-

Finland route and 35.7% or EUR 344.8 million from the Finland-Sweden route.

Revenue from the Estonia-Sweden route was EUR 117.2 million or 12.1% and from

the Latvia-Sweden route EUR 66.5 million or 6.9%. The share of revenue generated

by other geographical segments decreased to 8.7% or EUR 83.9 million.

EARNINGS

Gross profit was EUR 194.6 million (EUR 192.6 million in 2016) and EBITDA EUR

158.3 million (EUR 149.5 million in 2016). Net profit for 2017 was EUR 46.5

million (EUR 44.1 million in 2016). Basic and diluted earnings per share were

EUR 0.069 (EUR 0.066 in 2016).

The 2017 financial statements include one-off costs related to the exploration

of potential strategic options of EUR 3.6 million. The Group's like-for-like

results (results excluding one-off costs) are as follows: gross profit EUR

194.6 million (EUR 192.6 million in 2016), EBITDA EUR 161.9 million (EUR 149.5

million in 2016), net profit EUR 50.1 million (EUR 44.1 million in 2016), basic

and diluted earnings per share EUR 0.075 (EUR 0.066 in 2016). For additional

information, please see Note 26 Subsequent Events.

The cost of goods related to sales at shops and restaurants, which is the

largest operating cost item, amounted to EUR 227.8 million (EUR 225.0 million in

2016).

Fuel costs for 2017 amounted to EUR 85.9 million (EUR 74.2 million in 2016).

Fuel costs were impacted by an increase in carriage capacity and higher fuel

prices throughout the year. As a result, total annual fuel costs increased by

15.8%. The Group makes continuous efforts to improve and optimize its day to day

operations and lower the fleet's fuel costs.

The Group's personnel expenses amounted to EUR 215.2 million (EUR 210.0 million

in 2016). The average number of employees in 2017 was 7 406 (7 163 in 2016).

Administrative expenses for the period amounted to EUR 53.7 million, and sales

and marketing expenses to EUR 71.3 million (EUR 51.0 million and 72.3 million

respectively in 2016). Administrative expenses for 2017 include one-off costs

related to the exploration of potential strategic options of EUR 3.6 million.

The Group's like-for-like administrative expenses (expenses excluding one-off

costs) are EUR 50.1 million (EUR 51.0 million in 2016).

Depreciation and amortisation of the Group's assets totalled EUR 86.4 million

(EUR 77.9 million in 2016). There were no impairment losses related to the

Group's property, plant and equipment and intangible assets.

The Group's net finance costs for 2017 amounted to EUR 21.2 million (EUR 26.8

million in 2016).

The Group's exposure to credit risk, liquidity risk and market risks, and its

financial risk management activities are described in the notes to the financial

statements.

CONSOLIDATED STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

For the year ended 31 December, in thousands of EUR 2017 2016 Notes

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Revenue 966 977 937 805 4

Cost of sales -772 372 -745 223 5

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Gross profit 194 605 192 582

Sales and marketing expenses -71 339 -72 268 5

Administrative expenses -53 672 -50 973 5

Other operating income 2 873 2 450

Other operating expenses -509 -184

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Result from operating activities 71 958 71 607

Finance income 12 738 10 514 5

Finance costs -33 987 -37 289 5

Share of profit of equity-accounted investees 40 13 12

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Profit before income tax 50 749 44 845

Income tax  -4 253 -741 6

Net profit attributable to equity holders of the

Parent 46 496 44 104

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Other comprehensive income/expense

Exchange differences on translating foreign operations 13 -469

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Other comprehensive income/expense for the year 13 -469

Total comprehensive income attributable to equity

holders of the Parent 46 509 43 635

Basic and diluted earnings per share (in EUR per

share) 0.069 0.066 7

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CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 31 December, in

thousands of EUR 2017 2016 restated ¹ 2015 restated ¹ Notes

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ASSETS

Cash and cash equivalents 88 911 78 773 81 976 8

Trade and other receivables 46 466 38 674 36 583 9

Prepayments 5 395 7 926 5 274 10

Prepaid income tax 40 91 1 224

Inventories 40 675 38 719 29 197 11

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Current assets 181 487 164 183 154 254

Investments in equity-

accounted investees 403 363 350 12

Other financial assets 344 348 308 13

Deferred income tax assets 18 722 18 791 19 410 6

Investment property 300 300 300

Property, plant and equipment 1 308 441 1 304 897 1 311 418 14

Intangible assets 48 900 50 127 52 726 15

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Non-current assets 1 377 110 1 374 826 1 384 512

TOTAL ASSETS 1 558 597 1 539 009 1 538 766

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LIABILITIES AND EQUITY

Interest-bearing loans and

borrowings 159 938 106 112 81 889 16

Trade and other payables 95 548 106 970 92 170 17

Derivatives 29 710 0 0 24

Dividends payable to

shareholders 3 4 0

Income tax liability 34 10 4 567

Deferred income 31 429 30 895 28 906 18

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Current liabilities 316 662 243 991 207 532

Interest-bearing loans and

borrowings 400 968 452 793 467 447 16

Derivatives 4 688 32 359 42 863 24

Other liabilities 0 0 192

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Non-current liabilities 405 656 485 152 510 502

Total liabilities 722 318 729 143 718 034

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Share capital 361 736 361 736 404 290 19

Share premium 639 639 639 19

Reserves 68 946 68 774 65 083 19

Retained earnings 404 958 378 717 350 720

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Equity attributable to equity

holders of the Parent 836 279 809 866 820 732

Equity 836 279 809 866 820 732

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TOTAL LIABILITIES AND EQUITY 1 558 597 1 539 009 1 538 766

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(1) For further information see also Note 25 Correction of Errors

CONSOLIDATED STATEMENT OF CASH FLOWS

For the year ended 31 December, in thousands of EUR 2017 2016 Notes

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CASH FLOWS FROM OPERATING ACTIVITIES

Net profit for the period 46 496 44 104

Adjustments for:

Depreciation and amortisation 86 371 77 858 14, 15

Net loss on disposals of property, plant and

equipment -1 903 -83

Net interest expense 23 744 27 980 5

Net expense/income from derivatives 5 631 -6 215 5

Profit from equity-accounted investees -40 -13 12

Net unrealised foreign exchange gain/loss -7 564 4 889

Share option programme reserve 0 -910

Income tax 4 253 741 6

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Adjustments 110 492 104 247

Changes in:

Receivables and prepayments related to operating

activities -6 707 -4 969

Inventories -1 956 -9 522

Liabilities related to operating activities -12 140 16 785

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Changes in assets and liabilities -20 803 2 294

Cash generated from operating activities 136 185 150 645

Income tax paid -7 -3 265

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NET CASH USED IN OPERATING ACTIVITIES 136 178 147 380

CASH FLOWS FROM INVESTING ACTIVITIES

Purchase of property, plant, equipment and intangible

assets -219 207 -68 638

Proceeds from disposals of property, plant, equipment 132 448 169

Interest received 1 74

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NET CASH USED IN INVESTING ACTIVITIES -86 758 -68 395

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from loans 184 000 280 000

Repayment of loans -134 321 -313 524

Change in overdraft -40 110 36 713 16

Payments for settlement of derivatives -3 592 -4 289

Payment of finance lease liabilities -102 -99

Interest paid -20 744 -24 083

Payment of transaction costs related to loans -216 -2 989

Dividends paid -20 096 -13 398 19

Reduction of share capital -1 -40 189

Income tax on dividends paid -4 100 -330 19

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NET CASH USED IN FINANCING ACTIVITIES -39 282 -82 188

TOTAL NET CASH FLOW 10 138 -3 203

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Cash and cash equivalents at the beginning of period 78 773 81 976

Increase/decrease in cash and cash equivalents 10 138 -3 203 8

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Cash and cash equivalents at the end of period 88 911 78 773

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Janek Stalmeister

Chairman of the Management Board

AS Tallink Grupp

Tel +372 640 9800

E-mail janek.stalmeister@tallink.ee

Veiko Haavapuu

Financial Director

AS Tallink Grupp

Sadama 5/7, 10111 Tallinn

Tel +372 640 9914

E-mail veiko.haavapuu@tallink.ee

Attachment

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