15.5.2019 18:28:33 //
Juha Peltonen
Timo Porthan

Tallink Group is modernising its ships and hotels

Last year was a record-breaking year for Tallink Group in terms of passenger and freight volumes, but the high fuel price ate into earnings. The shipping company has ordered a new ship to operate the route between the West Harbour in Helsinki and Tallinn. According to Paavo Nõgene, the CEO, additional capacity is also required between Vuosaari and Muuga.

Tallink Group has not yet decided whether the new shuttle express ship ordered from the Rauma Marine Constructions shipyard will replace the Star on the route between Helsinki and Tallinn or whether the new ship will simply be added to the route for additional capacity.

In any case, the shipping company’s volumes from the West Harbour to Tallinn are growing, as the new ship will be the same size as the Megastar, which was completed the year before last. These vessels are one-third larger than the Star. The new ship will run on liquefied natural gas (LNG). The vessel will cost approximately EUR 250 million and she is scheduled for completion in January 2022.

“After the new shuttle vessel, the priority will shift to addressing the issue of the Muuga–Vuosaari route. We also need extra capacity on that route, so there are various alternatives for the Star in the future,” says Paavo Nõgene, Tallink’s CEO.

Tallink operates the route between Vuosaari and Muuga using the 47-year-old Sea Wind, which Nõgene affectionately refers to as the old lady. The route serves cargo traffic. The EU’s key transport projects include the Rail Baltica connection from Muuga, a project that is scheduled for completion in six years.


Tallink’s shares also listed in Helsinki

Tallink Group is the largest passenger and cargo shipping company in the northern Baltic Sea area. It operates seven routes under the Tallink and Silja Line brands with 14 vessels. Last year, the Group carried almost 9.8 million passengers, which is slightly more than the record set in the preceding year. The number of cargo units grew even further by an impressive 5.7 per cent. However, the company’s net sales and profits have contracted since 2017.

“Last year was a year of contradictions. We set a series of records but our financial outcome was not record-breaking,” Nõgene summarises.

At the end of 2017, the shipping company sold two superfast vessels, so there was only one vessel leased out last year. This vessel is covered by a contract with the state of Canada until the end of 2020, and Canada has an option to extend the lease by two years. The CEO calculates that the income from leasing last year was EUR 10.8 million less than in the preceding year.

“However, the biggest impact on profitability was due to the substantial rise in fuel prices. We paid EUR 16.6 million more for fuel than in the previous year. This is the main reason why our profit only came to EUR 40 million.”

Despite the high fuel price, the company’s renewed its dividend policy last November. The aim is to pay a dividend of EUR 0.05 per share, and the shares were listed at EUR 1.06 in mid-April.

“This is a dividend we would like to maintain. It makes us attractive because the dividend is about five per cent,” Nõgene states.

In addition, the Board of Directors proposes to the Annual General Meeting that a one-off capital return of EUR 0.07 per share be paid out to Tallink’s owners.

“An equity ratio of 57 per cent is unnecessarily high for us: our comfort zone is between 40 and 50 per cent.

The combined capital return and dividend will make the Estonian shipping company the best payer of dividends on the Helsinki stock exchange this year. The company’s shares were listed on Nasdaq Helsinki last December.

“Finland is a home market for us. Now, everyone in Finland is able to invest in Silja,” Nõgene says.

According to him, the listing was also about marketing.

“We will receive more attention in Finland.”

Silja Line was floated on the Helsinki stock exchange for the first time in 1912. For investors, a parallel listing in Helsinki will improve the liquidity of shares. In Tallinn, the entire stock market has an average trading volume of less than EUR 1 million a day, while in Helsinki, the figure is over EUR 500 million.


Expansion into other business areas

This year, Tallink Group is not expecting to set new passenger records. In the first quarter, the number of passengers was down 3.9 per cent year-on-year. The number of transported vehicles also decreased, although the number of cargo units continued to grow.

“Due to dockage, only 2,234 journeys were made in the first quarter, compared with 2,299 in the same period last year. This has inevitably impacted on passenger numbers,” Nõgene says.

Six of the company’s ships underwent planned refurbishment work during dockages in Finland, Poland and Lithuania. The Group has invested more than EUR 90 million in modernising its vessels over the last five years. Renovations and upgrades were also carried out at the company’s hotels in the early part of the year.

“We hope that passenger numbers will increase, but this is challenging on a competitive market. That is why I am sure that the Group will continue to expand into other business areas this year and next, including on land.”

Tallink Group is also involved in Eesti Gaas’ LNG tanker project. The new tanker is expected to begin operating on the Baltic Sea at the end of next year.

“We will supply the crew for the tanker but we are not financing its construction,” Nõgene specifies.

This year will mark 30 years since the former managers bought out the shipping business and AS Tallink Grupp was created. The company’s founders, Enn Pant, Kalev Järvelill and Ain Hanschmidt, still own almost 40 per cent of the Group’s shares via their company, Infortar, and they are on Tallink Group’s Board of Directors. Eesti Gaas, a gas company, is also wholly owned by Infortar.

“We are a type of multi-family company. It is important for us that the main owners are active, long-term investors,” Nõgene says.


New passengers from Asia

The share of international passengers on Tallink Group’s ships increased markedly last year. Nõgene expects this trend to continue.

“At the same time, the shipping company is striving to ensure that development is not taking place at the expense of customers in the home markets. The Club One customer loyalty programme recently surpassed 2.5 million members,” Nõgene says.

The number of passengers coming from Asia increased by almost one-third last year, and the number of German passengers increased at the same rate. There were 20 per cent more Russian passengers than in the preceding year.

The shipping company has invested in its vessels with one eye on Asian tourists, which is reflected in areas such as the food products on sale and the signage. There are already cruise hosts and hostesses who speak Korean, Mandarin and Japanese on the route from Helsinki to Tallinn. This year, they will also join the routes to Stockholm.

“Last year, we became the first Estonian company to introduce Alipay as a means of payment. It is now accepted on all of our ships.”

Nõgene is satisfied with the new terminal at the West Harbour in Helsinki. He hopes that the Silja Europa will also be able to use it as of the beginning of 2021.

“From the point of view of customer service, the new terminal is attractive.”

The Port of Helsinki and Tallink Group are both involved in the EU-financed Twin Port 3 project.

“The project will improve the environmental friendliness of passenger and cargo traffic and boost energy efficiency between Tallinn and Helsinki.

In contrast, Nõgene considers the plans to build a tunnel between the two cities unrealistic.

“Which problems would the tunnel solve? If the market grows, all of the operators are ready to increase the number of departures – including us. I am sure the states of Estonia and Finland have more important things to invest money into.”