PORT OF TALLINN 2015 PERFORMANCE RESULTS ANALYSIS

Transcription

1 PORT OF TALLINN 2015 PERFORMANCE RESULTS ANALYSIS

2 TABLE OF CONTENTS 1. COMPETITIVE POSITION Competitive position on the east coast of the Baltic Sea Competitive position in Estonia OPERATING PERFORMANCE Cargo volume Number of passengers Operating income, expenses and profit Investments EVA or economic value added Cash flows Financial ratios

3 million tons 1. COMPETITIVE POSITION 1.1. Competitive position on the east coast of the Baltic Sea In evaluating the competitive position, the largest ports located on the east coast of the Baltic Sea and ports of Finland are considered as our competitors, the vast majority of which are immediate competitors of AS Tallinna Sadam in handling transit cargo mostly transported from or to Russia. In 2015, the total cargo turnover of the larger ports on the east coast of the Baltic Sea amounted to 451 million tons, remaining at the previous year s record level (in 2014, the corrected market volume was million tons with growth of 3.9%). Adding the cargo volumes of other Estonian ports (8.4 million tons) the cargo market volume of AS Tallinna Sadam and its competitors was 461 million tons in 2015, also remaining at the 2014 level (growth by 0.2%). Sustained growth of cargo volume in the ports on the east coast of the Baltic Sea depicts the ports role in the region s economic life. The cargo volume of 2015 exceeded more than twice the cargo volume of 2001 and was 30% higher than the volume of 10 years ago. Cargo market volume % 30% % ,6% 9,5% 7,8% 8,8% 9,4% 8,8% 6,8% 6,4% 6,2% 4,9% % 0% Cargo market volume TS share The competitive position of ports in 2015 was mostly characterised by growth of cargo volumes in Ust-Luga and Primorsk (Russia) and Gdansk (Poland) and Klaipeda-Butinge (Lithuania) ports, while the volumes of other ports decreased or remained at the previous year s levels. Among cargo types, the biggest change happened in general cargo, which decreased by 7.7 million tons or 7% due to the decline in containerised cargo (by 11%, in TEUs by 18%), losing at least the growth of the previous 3-4 years. The cargo types that increased their volumes were liquid bulk (+5.9 million tons or +2.7%) and dry bulk (+1.8 million tons or +1.5%), the total effect of which exceeded somewhat the decrease in containerised cargo. 2

4 By countries, the largest growth in 2015 was achieved by Russian ports again, followed by Polish and Lithuanian ports, resulting in new record volumes for them. The volume of ports in Estonia and Latvia decreased, leading to a decline in the volume of ports in Baltic countries. The volumes of the largest Finnish ports did not change. Cargo volume of major east coast ports of the Baltic Sea, Change Growth m tons m tons m tons % share share Ust-Luga % 16.5% 19.1% Primorsk % 11.7% 12.9% St. Petersburg % 13.3% 11.2% Russia total % 48.6% 50.1% Port of Tallinn % 6.2% 4.9% Estonia total % 9.6% 7.9% Riga % 8.9% 8.7% Ventspils % 5.7% 4.9% Latvia total % 15.8% 14.8% Klaipeda-Butinge % 9.5% 10.2% Lithuania total % 9.5% 10.2% Baltic countries total % 34.9% 32.9% Poland total % 11.2% 11.7% Finland total % 5.3% 5.3% TOTAL % 100% 100% Changes in cargo volumes of major east coast ports of the Baltic Sea were rather varied, from high growth to large decline. By ports, the biggest change was the growth of cargo volume of Ust-Luga (by a total of 12.2 million tons or 16%), again largely on account of liquid bulk, but also dry bulk (coal). In terms of growth, it was followed by Primorsk with 6.0 million tons (11%), Gdansk with 3.6 million tons (11%) and Klaipeda-Butinge with 3.4 million tons (7.8%) of growth. Primorsk grew on account of liquid bulk (crude oil and oil products), Gdansk on account of liquid bulk and Klaipeda-Butinge also on account of liquid bulk. The sharpest declines of cargo volume occurred in St. Petersburg (by 9.7 million tons or 16%, due to containerised goods and liquid bulk), Tallinn (by 5.9 million tons or 21%, due to liquid bulk), Ventspils (by 3.7 million tons or 14%, due to dry bulk fertilisers and coal) and Sillamäe (by 2.1 million tons or 28%). Changes in other ports were smaller. Due to the changes, Estonian and Latvian ports lost their market share as Russian, Lithuanian and Polish ports gained it. The title of the largest port on the east coast of the Baltic Sea was retained by Ust-Luga (market share 19%), followed by Primorsk (market share 12.9%) and St. Petersburg (11.2%). The cargo volume of Ust-Luga turned out to be 87.1 million tons, overtaking Primorsk already by 27 million tons. Primorsk port has a crude oil pipeline connection with Transneft pipeline system with the annual capacity of about 75 million tons, and an oil product terminal with the capacity of 8.4 million tons, 3

5 which makes Primorsk the port with the largest oil export volume in Russia. The top three consisting of Russian ports was neared by Klaipeda-Butinge, which remained 4.4 million tons behind St. Petersburg. AS Tallinna Sadam dropped from the seventh position to the eighth with a market share of 4.9% (2014: 6.2%). Ventspils passed us because its cargo volume was 0.1 million tons higher, since the cargo volume of TS decreased more. On the background of the last ten years average annual growth of the market s cargo volume being 12.5 million tons, the 2015 growth of 1 million tons is clearly below the growth trend, although the result was better than the decrease of 2008 and 2009 (-4 and -15 million tons, respectively). By cargo groups, liquid bulk had highest growth (by 5.9 million tons or 2.7%), related to the combined effect of the growth in crude oil and decline in oil products (by 9.4 and -3.9 million tons, or by 11.5% and -3.0%, respectively). Dry bulk grew by 1.8 million tons or 1.5%, wherein the highest growers were grain (by 2.1 million tons or 15.6%), and fertilisers (by 1.8 million tons or 6.8%). The volume of general cargo decreased by 7.0 million tons or 5.8%, wherein the main decliner was containerised cargo (by -6.8 million tons or 10.7%, in TEUs by million or by -10.6%) and the highest grower was metal (by 2.1 million tons or 26.5%). A structural change took place in liquid bulk: crude oil increased and oil products decreased, mostly between Russian ports, but also affecting some others. Crude oil mostly increased among its biggest handlers i.e. in Ust-Luga (by 3.5 million tons or 15%), Primorsk by (2.8 million tons or 7%), but also Gdansk (by 1.9 million tons or 23%) and Klaipeda (by 1.3 million tons or 18%). The volume of oil products increased mainly in Ust-Luga only (by 4.9 million tons or 19%), Primorsk (by 3.2 million tons or 28%) and Klaipeda (by 1.8 million tons or 29%) and decreased in Tallinn (by -6.1 million tons or -32%), St. Petersburg (by -4.7 million tons or -33%), Sillamäe (by -1.8 million tons or 44%) and Ventspils (by -1.2 million tons or -8%), remaining unchanged elsewhere. The largest handler of liquid bulk was still Primorsk, although barely (59.6 million tons), followed by Ust-Luga (58.8 million tons), Klaipeda (18.8 million tons), Gdansk and Ventspils (both 14.7 million tons). The volume in Port of Tallinn was 12.8 million tons. The total volume of liquid bulk was 222 million tons. Among dry bulk, the volume of grain grew rather widely, in almost all ports except Russian ones. The volumes grew the most in Gdynia (by 0.8 million tons or 28%), Riga (by 0.3 million toms or by 37%), Klaipeda-Butinge (by 0.3 million tons or 8%), Ventspils (by 0.25 million tons or 96%), Tallinn (by 0.19 million tons or 53%) and Kaliningrad (by 0.18 million tons or 23%). Almost the only one with a decline was Gdansk (by million tons or 11%). The largest grain handler was still Klaipeda (3.8 million tons), followed by Gdynia (3.7 million tons) and Liepaja (2.9 million tons). The volume in the Port of Tallinn was 0.54 million tons. The total grain volume was 15.3 million tons. The volume of fertilisers grew the most in ports of Klaipeda and Ust-Luga (by 1.1 million tons or 11%, and by 1.3 million tons or 254%), and to a lesser extent in St. Petersburg (by 0.2 million tons or 3%) and HaminaKotka, Gdansk and Tallinn (by ca 0.1 million tons in each of them). The volume 4

6 declined the most and almost solely in Ventspils (by -1.4 million tons or -91%). The largest handler of fertilisers was still Klaipeda (11.4 million tons), followed by St. Petersburg (7.8 million tons) and Riga (2.6 million tons); Port of Tallinn was the fourth with 1.6 million tons. The total volume of fertilisers as dry bulk was 28 million tons. Coal volumes did not change significantly, but were redistributed between ports, growing in Ust-Luga (by 2.1 million tons or 11%), Gdansk (by 1.2 million tons or 35%) and Vysotsky (by 0.4 million tons or 8%) and declining mainly in Ventspils (by -1.4 million tons or 24%), Gdynia (by -0.7 million tons or 33%) and Riga (by -0.4 million tons or 3%). The largest handlers was still Ust-Luga (21.5 million tons), followed by Riga (14.5 million tons) and Vysotsky (5.7 million tons). The volume in the Port of Tallinn was 0. The total volume of coal was 54 million tons. The volume of containerised cargo decreased in almost all ports, but the most in St. Petersburg (by -4.0 million tons or 17%, in TEUs by -660 thousand or by 28%), Klaipeda (by -1.2 million tons or 22%, in TEUs by 71 thousand or by 16%), Gdynia (by -1.0 million tons or 12%, in TEUs by 150 thousand or by 18%), Kaliningrad (by -0.4 million tons or 28%, in TEUs by 146 thousand or by 45%). The volumes grew in Helsinki (0.15 million tons or 4%, in TEUs by 30 thousand or by 7%). In Gdansk, the volume grew in tons (by 0.34 million tons or 3%) but decreased in TEUs (by -121 thousand or by 10%). The volume in Port of Tallinn decreased by 0.2 million tons or 12% (in TEUs by -52 thousand or by 20%). The largest handler of containerised cargo was still St. Petersburg (by 19.9 million tons, or by 1.7 million TEUs), followed by Gdansk (10.7 million tons, or 1.1 million TEUs) and Gdynia (7.2 million tons, or 0.7 million TEUs). The volume in Port of Tallinn was 1.7 million tons (0.2 million TEUs). The total volume of containerised cargo was 58 million tons (5.71 million TEUs). Metal volumes (except scrap metal, which is included in dry bulk) grew the most in Klaipeda (by 0.9 million tons or 252%), St. Petersburg (by 0.41 million tons or 7%), Ust-Luga (by 0.40 million tons or 261%), and to a lesser extent in Gdansk (by 0.2 million tons or 303%) and Liepaja (by 0.14 million tons or 511%). The volume decreased a little in Riga (by -0.1 million tons or 31%). The volumes in Port of Tallinn did not change. The port with the highest volume was dominantly St. Petersburg (6.2 million tons), followed by Klaipeda and Kaliningrad (1.3 and 1.1 million tons, respectively). The volume in Port of Tallinn was 0.1 million tons. The total volume of metal was 9.8 million tons. The volume of Ro-Ro cargo decreased by 0.5 million tons or 1.6% (in units, a decrease by 177 thousand or by 11%). The sharpest decline occurred in HaminaKotka (by -0.6 million tons or 35%), St. Petersburg (by -0.4 million tons or 30%) and Riga (by 0.2 million tons or 48%). The volumes grew the most in Tallinn (by 0.33 million tons or 8%), Kaliningrad (by 0.27 million tons or 18%) and Ust-Luga (by 0.23 million tons or 12%). Helsinki remained the port with the largest volume (6.6 million tons), followed by Klaipeda and Tallinn (4.4 million tons and 4.3 million tons, respectively). Swedish ports (e.g. Stockholm) are not included in the comparison because they are not ports on the 5

7 Milllion tons east coast of the Baltic Sea, but they are an important transaction partner for Estonia and Finland concerning Ro-Ro cargo moving with passenger ships. Three-year change in cargo volume ,1 Other general cargo Containers ,0 9,0-6,3 0,6 3,4-7,8-7,0 Liquid bulk Dry bulk Total -20 * Ro-Ro cargo is included in other general cargo group Compared to its main competitors by cargo volume during the last three years, Port of Tallinn was one of the three ports that lost volumes. The highest growth, exceeding the total of all other changes, took place in Ust-Luga, which grew its volumes primarily in liquid bulk (both crude oil and oil products), but also dry bulk (mostly coal). Among other ports, volumes grew in Riga on account of dry bulk (fertilisers, grain, grit stone) and liquid bulk (oil products), Gdansk on account of containerised cargo and liquid bulk (both crude oil and oil products) and Klaipeda-Butinge on account of dry bulk (mainly fertilisers). Cargo volumes decreased mainly on account of liquid bulk (Tallinn and St. Petersburg) and dry bulk (Ventspils, coal), but also containerised cargo (St. Petersburg). Only St. Petersburg was somewhat able to substitute for the reduced volumes (mainly liquid bulk). Developments across the ports during the past three years have come mainly from changes in dry and liquid bulk. The effect of containerised cargo has generally been smaller, but still significant for the largest container ports (St. Petersburg, Gdansk). In summary, the biggest effect on the volumes in ports came from liquid bulk, but also from dry bulk for several ports. Container volumes grew or remained the same in all ports (except the decrease in St. Petersburg), but had little effect. Port of Primorsk, the largest port of the region, has not been provided in the comparison, as the port is specialised in liquid bulk alone. 6

8 Growth of cargo in the largest ports on the east coast of the Baltic Sea in the past three years totalled 30 million tons or 7%. Of the main cargo types, dry bulk grew the most, by 21.3 million tons or 21%, mainly due to coal and fertilisers (by 6.3 and 6.1 million tons or 13% and 29%, respectively). Among the ports, Ust-Luga and Gdansk saw the biggest growth in coal, while the main port with a decline was Ventspils; the volume of fertilisers grew the most in Klaipeda-Butinge and St. Petersburg and decreased somewhat in Ventspils and Gdansk. Liquid bulk grew by 11.5 million tons or 5%, accompanied by redistributions between ports, whereby the largest gainer was Ust-Luga (by 32 million tons) and the most volume was lost in Primorsk (-15 million tons), Tallinn (-6.6 million tons) and St. Petersburg (-4.3 million tons). In the composition of general cargo, a little growth was observed in Ro-Ro volumes (by 1.2 million tons or 4%) and in containerised cargo (by 0.7 million tons or 1%, in TEUs a reduction by 13%). In containerised cargo, Tallinn s market share remained 3%; the main increasers of their market shares were Gdansk and Gdynia (by 14%->19% and 10%- >13%, respectively) and the market share decreased in St. Petersburg (41%->35%). The cargo volume of the comparison group grew by 37 million tons or 13%, primarily on account of liquid bulk (Ust-Luga), dry bulk (Ust-Luga, St. Petersburg, Klaipeda, Riga) and containerised cargo (Gdansk). For Port of Tallinn, three-year growth was largest in other general cargo (by 0.4 million tons) and smaller in containerised cargo (by 0.1 million tons); there was a decrease in liquid bulk (by -6.5 million tons or 34%) and dry bulk (by -1.0 million tons or 25%). Summary In 2015, the cargo volume of the major ports on the east coast of the Baltic Sea remained at the previous year s level after the sharp increase when the earlier rapid growth had stopped in By cargo types, growth took place mostly on account of liquid bulk and dry bulk, balancing the reduction in containerised cargo (general cargo). By countries, volumes grew again in ports of Russia and Poland, as well as Lithuania among the Baltic countries, achieving new records. Liquid bulk grew on account of crude oil and decreased on account of oil products, whereas the highest growth in both cargo types happened in Russian ports. Port of Tallinn dropped from third to sixth place by liquid bulk volume, due to the decrease in oil products. Dry bulk volumes grew on account of grain and fertilisers; rather widely for the former and only in Klaipeda and Ust-Luga for the latter. The biggest change among cargo types was the decrease of general cargo due to containers, losing the growth of the last 3-4 years. St. Petersburg saw a loss of market share for the fifth year in a row. In all, the rank of Port of Tallinn by cargo volume among major ports on the east coast of the Baltic Sea dropped from seventh to eighth place with a market share of 4.9%. 7

9 million tons 1.2. Competitive position in Estonia Cargo market volume 70 85% 60 80% ,0 74,5% 43,8 43,1 44,2 36,2 75% 70% ,2% 65,5% 64,0% 61,9% 65% 60% 10 55% % Market volume TS share In 2015, the total cargo market volume of Port of Tallinn and other Estonian ports amounted to 36.2 million tons, decreasing by 8 million tons or 18% in a year. Cargo volumes declined most in Tallinn (by 5.9 million tons or 21%), Sillamäe (by 2.1 million tons or 28%), Russian-Baltic Harbour (by 0.7 million tons or 49%) and Kunda (by 0.2 million tons or 12%). Cargo volume increased in Paldiski Northern Harbour (by 0.4 million tons or 23%), Bekkeri (by 0.3 million tons or 44%) and Miiduranna (by 0.16 million tons or 133%). Again, the market share of Port of Tallinn in the cargo volume of Estonian ports decreased somewhat to 62%, being the lowest of the last ten years. The large market share of Port of Tallinn among Estonian ports is attributed mainly to transit cargo. In Estonian export and import, Port of Tallinn is the market leader for Ro-Ro cargo, metal and grain, but captures a smaller market share in e.g. timber export. 8

10 2. OPERATING PERFORMANCE The year 2015 was a difficult one for AS Tallinna Sadam; the cargo volume, the business revenue and the net profit all decreased. The cargo volume decreased mainly on account of a decline in liquid bulk by 5.9 million tons or 21% to 22.4 million tons, which is the lowest in the past 15 years. Among main types of cargo, the volume of liquid bulk declined the most by 6.1 million tons and the volume of containerised cargo decreased by 0.2 million tons. The volume of Ro-Ro cargo and dry bulk increased somewhat, by 0.3 and 0.15 million tons, respectively. One of the causes of less revenue was also the lack of off-season work for the multi-functional icebreaker Botnica due to poor demand resulting from the low oil price and Western sanctions against Russia. On the other hand, the increase of regular line passengers brought about a new record in the number of passengers, reaching a total of 9.79 million. This helped increase the revenue from passenger segment. Still, total sales revenue declined by 17 million euros to 94 million euros. As a whole, operating income decreased by 15%, operating expenses together with impairments grew by 1% (without the expenses of one-off impairments, they decreased by 7%), profit before income tax by decreased by 22% and net profit decreased by 21%. The dividend amount paid to the owner in 2015 was 31.2 million euros, plus 7.8 million euros of income tax expenditure (in 2014: 42 million and 11.1 million euros, respectively). As the most important event of the year, the construction of four new ferries started in Turkish and Polish shipyards; from October 1, 2016, those ships will be working in OÜ TS Laevad, the subsidiary of AS Tallinna Sadam, serving the shipping lines of Kuivastu-Virtsu and Rohuküla-Heltermaa for the next 10 years. Continued important investments in port operations were the construction of a new traffic solution for passengers and cars passing through the Old City Harbour and the modernisation of the equipment to receive passenger ships. One of the marks for the year 2015 was also the arrest of two Management Board Members of AS Tallinna Sadam as suspects of taking a bribe. No charges had been presented against them at the time of this report s preparation. Regardless of that extraordinary event, the activities of AS Tallinna Sadam have continued pursuant to the approved strategy and goals of its principal activity, with the relevant changes in its management structure. Also, the company s Supervisory Board was replaced in full and Valdo Kalm was elected to be the new Chairman of the Management Board in an open competition in the beginning of 2016; he started his term of office on March 1, Until then, AS Tallinna Sadam was managed by a temporary two-member Management Board. 9

11 million tons 2.1. Cargo volume Cargo volume 40 36,5 100% ,5 28,2 28,3 75% 25 22, % ,3% ,5% -4,2% 25% 0% ,2% -20,8% -25% Cargo volume Change In 2015, the cargo volumes passing through the harbours of AS Tallinna Sadam decreased by 5.9 million tons (by 21%) to 22.4 million tons, i.e. to the lowest in the past 15 years. The decline came from the reduction in the volume of liquid bulk, the cargo type with the biggest share, by 6.1 million tons or 32% to the lowest level in the past 15 plus years. In that, the volume of liquid cargo serviced under the vessel-terminal-vessel scheme decreased by 5.8 million tons (by 45%) to 7.0 million tons, which accounted for 31% of the total cargo volume (a year earlier: 45%). Smaller declines happened to containerised cargo and general cargo volumes: by 0.2 (by 12%) and by 0.04 (by 7%) million tons, respectively. The volume of containerised cargo in TEUs decreased by nearly 52 thousand (by 20%), being 209 thousand TEUs and losing the growth of nearly three years. The cargo types that increased instead were Ro-Ro cargo and dry bulk, by 0.3 (8%) and 0.15 (13%) million tons, respectively. The reduction in liquid bulk volumes can be explained with Russia preferring its own ports, expressed primarily in the growth of liquid bulk in Ust-Luga and Primorsk, as well as with the decrease of liquid bulk volumes arriving in ports by ships, due to the decreased profitability of the added value services provided in the terminals as a result of the low price for crude oil. The decrease of the volume of containerised cargo can be related to a decrease of transit towards Russia due to the sharp decrease of internal demand in Russia as a result of reduced purchasing power. Most of the Ro-Ro cargo moved in the north-south direction and was less related to Russia. Growth of containerised cargo and Ro-Ro cargo, mainly related to the consumption on the east coast of the Baltic Sea and the region behind that is facilitated by the growing commercial trend of sending goods in containers. Among shipping 10

12 directions, the biggest change was the decrease of transit volumes in both export and import. Yet, the volumes of actual export and import increased. Cargo breakdown 100% 4,2% 5,6% 6,3% 7,0% 7,8% 80% 11,2% 10,2% 13,7% 11,5% 9,8% 13,0% 13,0% 14,1% 13,1% 19,3% Containers General cargo 60% Dry bulk Ro-Ro cargo 40% 73% 66% 67% 67% 57% Liquid bulk 20% 0% In terms of types of cargo, liquid bulk with 57%, Ro-Ro cargo with 19%, dry bulk with 13% and containerised cargo with 8% accounted for the major part of cargo volumes (the respective figures for 2014 were 67%, 14%, 10% and 7%). In near future, the cargo structure, regarding bulk cargo (liquid bulk and dry bulk) will depend on further utilisation of Russia s port capacities. As regards Ro-Ro and containerised cargo, the volume depends mainly on the development of the region s economic environment and the geopolitical tensions affecting it. Business risk associated with the large share of liquid bulk in cargo handling is being reduced by passenger transport, income from which comprised 42% of Port of Tallinn s consolidated operating income in 2015 (a year earlier: 36%), the share of income from cargo was 47%. As a new activity not related to cargo, icebreaker Botnica earned 5% of the consolidated operating income in turn. Cargo volume by cargo groups (thousands of tons) Cargo group change change % Oil products, oil chemistry 18,836 12,802-6, % Ro-Ro cargo 4,000 4, % Containerised cargo 1,972 1, % Grain % Coal % Fertilisers 1,499 1, % Timber % Scrap metal % Crude oil % 11

13 Cargo group change change % Grit stone, pavement debris % Other cargo % Wood pellets, woodchips % Ferrous metal % Peat % Foodstuffs % TOTAL 28,321 22,431-5, % Vehicles (pcs) 1,670,347 1,709,750 39, % Containerised cargo (TEU) 260, ,784-51, % In 2015, the volume of most cargo groups decreased again, the most for oil products, which was also the biggest change. The most increased cargo types were Ro-Ro cargo and grain. The volume of containerised cargo decreased in TEUs more than in tons. Primarily, the number of full unloaded and empty loaded 40-feet containers decreased. The number of empty unloaded and full loaded 40-feet containers increased in lesser extent. Cargo volume breakdown 100% 80% 9,7% 12,3% 12,5% 12,8% 16,8% 9,5% 11,7% 12,4% 13,3% 18,0% 60% Import 40% 81% 76% 75% 74% 65% Export Transit 20% 0% By destination, transit constituted 65%, import 17% and export 18% of cargo volume. The decrease of transit volume to its five-year low resulted from a decrease of its volume by 30%, while the volume of export grew by 17% and import grew by 7%. 12

14 Share of countries of origin in cargo volume Belarus 3% (1%) Lithuania 3% (2%) Germany 2% (3%) Latvia 2% (3%) Sweden 2% (1%) Poland 1% (5%) Others 5% (6%) Russia 47% (43%) Finland 12% (10%) Estonia 24% (26%) * In parentheses: share of country of origin in 2014 The biggest change among countries of origin in terms of cargo volume passing through Port of Tallinn in 2015 was the increase of the share of cargo originating from Russia, from its ten-year low (43%) to 47%, and the drop of Poland s share from 5% to 1%. Russia s share increased regardless of the decrease of cargo volume by 1.7 million tons (by 14%, almost fully liquid bulk) to 10.5 million tons. 84% of the total cargo was liquid bulk, 15% was fertilisers and the rest was containerised cargo. The share of cargo originating from Estonia decreased to 24% as a result of the cargo volume s decline (by 2.1 million tons or 28%). 38% of the cargo volume was Ro-Ro cargo, 24% was crude oil and oil products, 16% was containerised cargo, 10% grain, 6% timber. Finland s share was 12% (including 76% as Ro-Ro cargo, 16% as crude oil and oil products, 4% as scrap metal). The share of Belarus rose to 3% (the volume of crude oil and oil products grew). Poland s share dropped to 1% (62% as crude oil and oil products with the sharpest decline and 36% as containerised cargo). Among major countries of origin, the shares of Russia and Finland increased (by 1.2 and 1 percentage points, respectively). 13

15 Share of countries of destination in cargo volume Spain 1% (4%) Belgium 2% (1%) Sweden 2% (2%) Morocco 2% (1%) Germany 2% (2%) Brazil 3% (2%) Others 19% (23%) Finland 9% (7%) The Netherlands 11% (10%) USA 16% (13%) Estonia 33% (36%) * In parentheses: share of country of destination in 2014 Compared to countries of origin, the number of substantial countries of destination of cargo handled in Port of Tallinn in 2014 was larger again. In the structure of countries of destination, Estonia retained the largest share, followed by the USA and the Netherlands. 53% of the cargo volume destined to Estonia was oil products (100% in the case of the USA, 89% for the Netherlands), Ro-Ro cargo was 31%, containerised cargo 8.5% and grit stone 5%. The volume of cargo destined to Estonia decreased by 2.7 million tons (by 26%), 2.8 million tones of it was oil products. 9% of the cargo volume was destined to Finland (of that, vehicles made up 90%, grit stone 4%, oil products 3%). It was the only one among the larger destination countries that increased its volume (by 6%). The shares of the USA (oil products), Finland (Ro-Ro cargo) and the Netherlands (oil products and containerised cargo) increased somewhat. Finland was the only one among the larger destination countries that increased its volumes (by 6%); the decrease of cargo volumes remained less sharp for the USA and the Netherlands (by 3% and 11%) than the total for Port of Tallinn (by 21%). The share of Spain decreased the most, on account of decline in oil products. The share of Russia dropped from 1.6% the 1.2%, mainly on account of containers. Summary In 2015, cargo volume in Port of Tallinn dropped by 5.9 million tons or 21%, to the lowest in the past 15 years, due to the ongoing decrease in the volume of liquid bulk (by 6.1 million tons or 32%). The volume of containerised cargo and general cargo also decreased, but in a smaller extent (by 12% and 7%); Ro-Ro cargo and dry bulk grew somewhat (by 8% and 13%). In liquid bulk, the volume serviced under the vessel-terminal-vessel scheme decreased especially sharply: by 5.8 million tons or 45% (to 7 million tons). The decrease of the liquid bulk volume can be explained by Russia preferring its own ports of Ust-Luga and Primorsk for cargo export and by decreased profitability of the added 14

16 million passengers value services provided in the terminals as a result of the low price for crude oil (with the vesselterminal-vessel scheme). In the structure of cargo volumes, the volume and the share of transit cargo continued to decline. Among countries of origin of cargo, the share of Estonia decreased and the share of Russia increased, while both volumes dropped, although less for Russia. Large changes among destination countries of cargo were mainly caused by the slight redistribution of liquid bulk among the countries. The share of Estonia as a destination country dropped, which can also be explained by the specifics of declaring the vessel-terminal-vessel cargo. Among the origin countries of containerised cargo, the volume and share of Estonia continue to grow, while the volume of cargo coming from elsewhere is decreasing. Among countries of destination, the volume related to Estonia decreased and the volumes of the Netherlands and Belgium increased. In 2015, 83% of the containerised cargo passing through Port of Tallinn was related to Estonian import and export, which is the highest of the past 5 years Number of passengers Number of passengers 9,24 9,57 9,79 8,84 8,48 7,1% 4,3% 4,5% 3,6% 2,3% % 30% 20% 10% 0% Number of passengers Change In 2015, the number of passengers passing through the harbours of AS Tallinn Sadam grew by 224 thousand or 2.3%, reaching a record number of 9.79 million passengers (2014: 9.57 million passengers with growth of 3.6%). Once again, such a large number of passengers exceeded expectations in the context of economic lows in the region. There were no large movements regarding line passenger ship operators in

17 Breakdown of passenger numbers 100% 80% 60% Overnight cruise and other Traditional cruise Tallinn-St.Peterburg 40% Tallinn-Stockholm Tallinn-Helsinki 20% 0% The majority of Port of Tallinn s passengers and respective revenue comes from regular lines. In recent years, the biggest change relates to growing number of passengers on Tallinn-Helsinki line as the largest route. The Tallinn-Stockholm line, cruise passengers and the Stockholm-Tallinn- St. Petersburg passenger line opened in mid-2011 have made quite equal contributions to the growth of passengers, although less than the largest line. The Tallinn-Helsinki line (growth of 254 thousand passengers or 3%), the greatest in proportion, with its total 8.2 million passengers, accounted for the major part of the growth in the number of line passengers which in turn was the main growth driver of total passenger numbers. The number of passengers decreased on the Stockholm line (by 24 thousand passengers or 3%) and the St. Petersburg line (by 22 thousand passengers or 15%), but an increase occurred in cruise passengers (by 18 thousand passengers or 4%), being a little over 0.5 million passengers. The growth surpassed the expectations in relation to the sharp decline of the crude oil price, which compensated the expenseraising effect that the stricter environmental requirements for ship fuels on the Baltic Sea had on travel. The Baltic Sea region maintains its reputation as the world s fastest growing region for cruiseship tourism. For 2016, we forecast that the number of cruise passengers will remain near the level of

18 million EUR 2.3. Operating income, expenses and profit Operating income ,2 88,6 102,2 110,8 93,8 100% 80% 60 60% ,3% 2,8% -0,7% 8,4% ,3% 40% 20% 0% -20% Operating income Change The consolidated revenue of AS Tallinna Sadam for 2015 amounted to 93.8 million euros, decreasing by EUR 17.0 million i.e. 15.3% (2014: revenue of EUR million and an increase by 8.4%). AS Tallinna Sadam, the parent company of the consolidation group, earned 88% of the group s income; TS Energia OÜ earned 7% and TS Shipping OÜ earned 5% of the income. In terms of income sources, the biggest change was that the revenue from charter fees of icebreaker Botnica decreased by EUR 8.5 million, amounting to a total of EUR 4.6 million. Income decreased because no profitable off-icebreaking season work was found. The long-term off-season charter contract signed was cancelled due to the economic sanctions established against Russia. The penalty revenue from the contract cancellation (EUR 3.0 million) was recorded under other business revenue and the related income tax expenditure (EUR 0.6 million) was recorded under income tax expenditure. Due to the oil price dropping to the ten-year lowest, the offshore projects at oil platforms, to be performed with similar specialised ships, were suspended and postponed, so the market for such ships entered a low period and no profitable work was found in the summer. As regards traditional sources of income, income from port charges and fees declined the most (by EUR 7.3 million or 12.6%). The sharpest drop was in income from tankers, and to a lesser extent also in income from container ships, comparably with the decrease of cargo volumes. Income from port charges and fees increased in case of passenger and cruise ships, due to both increase of their total gross tonnage and certain tariff changes. The decrease of liquid bulk volume led to a decline of the cargo charge revenue (by EUR 0.8 million or 10%), but this remained smaller than the decrease of cargo volume because the volume decreased mainly in liquid bulk served under the vessel-terminalvessel scheme and the cargo charge revenue from that is lower. Income from passenger fees increased by EUR 0.56 million or 5%, mainly as a result of an increase in the number of passengers and a 17

19 change in the structure of passengers. Income from sales of electrical energy decreased due to lower electricity price, but this also reflected in a decrease of the relevant expenditure. To sum up, the share of revenue related to passenger ships and cruise ships in the total revenue increased and the share of revenue related to cargo shipping decreased, due to the revenue changes in those directions and the decline in the shipping sector s revenue. 100% Breakdown of operating income by revenue types 80% 60% 40% 20% Services Vessel's charter fees Rental and RoS income Passenger fees Cargo charges Port fees 0% The biggest change of the past five years in terms of revenue types among operating income of AS Tallinna Sadam was the addition of vessel s charter fees in 2013, with the share of 6.6% that increased to 11.8% in 2014 due to an increase of the relevant income (long summer work by Botnica) and decreased to 5% in 2015 due to no summer work for Botnica. The shares of the revenue types of port fees and charges and cargo charges decreased (by 5.9 and 3.6 pp, respectively) due to their revenues declining slightly, and the shares of rental and right of superficies income as well as passenger fees increased (by 3.8 and 1.4 pp, respectively) due to the growth of those revenues. In 2015, port charges and fees comprised 51%, rental and right of superficies income 12%, passenger fees 12%, cargo charges 7%, sales of services 7% and charter fees 5% of total income. 74% of AS Tallinna Sadam s operating income comprised of variable income (port charges and fees, cargo charges and passenger fees), which is mostly in direct dependence on changes in cargo volume and number of passengers. This is less than the usual level for the past 10 years (80%), but more than in 2014 (70%), in a significant extent due to Botnica s profitable summer work in 2014; without that, the relevant comparison indicator was also 74%. Fixed revenue can be considered the rental and right of superficies income, the share of which has grown from the earlier 8-9% to 13.3% in 2015, mainly due to the growth of the relevant income and the decline of the variable income in the recent year. 18

20 Although the growth of revenue from port charges and fees has been relatively stable during the past ten years (with only a small decline in 2012 and 2015), several different impacts influenced its formation. In the past 10 years, the number of vessel calls to Port of Tallinn has decreased, both for passenger (including cruise) ships as well as cargo vessels (by-38% and -43%, respectively), while the gross tonnage of passenger ships has increased by 70% and that of cargo vessels has decreased by 33% (in 2014, the change was 0). Among passenger ships, a large number of smaller line vessels (including seasonal fast ferries) have been replaced by newer and larger ones. The number of cargo vessel calls has been impacted mainly by changes in cargo volume and growth of average vessel size. Increasing of the average size of vessels has led to the increase of total vessel GT calling to the port, especially in case of passenger, cruise, container, and Ro-Ro vessels. This, in combination with the annual indexing of port charges and fees implemented since the start of 2006, has increased the port charges and fees revenue, especially from the mentioned vessel types (except for Ro-Ro). In summary, increase of revenue from port charges and fees has slightly exceeded increase of revenues from other services like passenger fees, cargo charges (which has decreased) and sales of services. Only the rental and right of superficies income has grown faster (even without the effect of Botnica). Breakdown of income structure by cargo types General cargo 3% (3%) Non-marine 0% (0%) Others 6% (5%) Botnica 5% (12%) Ro-Ro 5% (3%) Dry bulk 6% (5%) Passengers 42% (35%) Containers 9% (7%) Liquid bulk 24% (29%) * In parentheses: cargo type s share in 2014 In 2015, the passenger segment (line and cruise passengers together with Old City marina) with its 42% share continued to be the largest cargo type in AS Tallinna Sadam s operating income structure (income associated with cargo type), preceding liquid bulk (with 24% share). Hence, income from two main cargo types comprised a total of 66% of AS Tallinna Sadam s operating income (a 19

21 million EUR year earlier: 64%). The share of the passenger segment grew with a slight increase of income (by EUR 0.2 million). The income from Ro-Ro cargo grew the most (by EUR 1.4 million), mainly due to the addition of the Tallinn-Vuosaari line (Ro-Ro cargo on passenger ship). The sharpest decline happened in the incomes of liquid bulk and Botnica (by EUR 9.5 and 8.7 million, respectively) as well as their shares. Together with the increase of income (by EUR 0.5 million i.e. 6%), the share of containerised cargo rose to 9%. Incomes from other cargo types changed less; income from dry bulk grew (by EUR 0.15 million) and income from general cargo decreased (by EUR 0.5 million). Compared to the income structure of five years ago, the shares of liquid and dry bulk have decreased (2011: 41% and 7%, respectively), while the shares of passengers, containers and to a lesser extent also general cargo have grown (2011: 35%, 4% and 2%, respectively), adding also the revenue from Botnica. Expenses of operating activities 60 56,6 57,6 58,4 50% 50 46,6 49,0 40% 40 30% 30 15,4% 20% 20 5,1% 5,3% 1,7% 1,5% 10% 10 0% % Expenses of operating activities Change Expenses related to operating activities (operating expenses; personnel expenses; and depreciation, amortisation and impairment losses) totalled EUR 58.4 million, up on 2014 by EUR 0.9 million or 1.5%. If not accounting for one-off expenditure, the expenses decreased by EUR 4.3 million or 7.5%. Among all expenses, depreciation, amortisation and impairment losses of fixed assets increased the most (by EUR 4.0 million or 21%), mainly due to a one-off impairment expense on non-current assets in the total amount of EUR 5.2 million. EUR 5 million from the impairment losses was related to icebreaker Botnica, based on the expert opinion on market value in the low situation of the charter market. Operating expenses decreased by EUR 2.2 million or 9% as a result of a decrease in most expense types, but mostly in the electricity price, consultation expenses, fixed asset repair costs and several other operating expenses. Labour expenses decreased by EUR 0.9 million or 7%, mainly in relation with icebreaker Botnica, where the labour costs were smaller because there was no off-season work. 20

22 Annual growth rate 100% Breakdown of expenses 80% 60% 40% 20% Operating expenses Depreciation and impairment Personnel expenses 0% Together with decreasing or increasing of expenses from operating activities, changes also occurred in the breakdown of expenses. In 2015, the increased depreciation and impairment of fixed assets brought about an increase of its share as well. Without accounting for the one-off impairment expenditure of EUR 5.2 million, the expense structure remained unchanged, compared with % Comparison of real and financial indicators 10% 0% % -20% Cargo volume Number of passengers Operating income Operating expenses A large share of variable income in operating income and on the other hand a large share of fixed expenses in operating expenses is indicated by the comparison of changes in real and financial indicators of AS Tallinna Sadam for the past five years. Operating income has generally changed similarly to the change of cargo volume and number of passengers. However, changes in operating expenses are not directly related to changes in cargo volume or operating income, as most of operating expenses are made up of fixed costs, such as personnel expenses and depreciation (in 2015, the one-off impairment expenditure as well). Variable expenses include mostly resale of utility 21

23 million EUR services, repairs of fixed assets and mooring services, which however do not directly depend on the changes of cargo volume and the number of passengers. Since a large share of AS Tallinna Sadam s income depends on cargo volume and the number of passengers, while most of the expenses are fixed by nature, there is a risk that a decrease of cargo volume or in the number of passengers would bring along substantial financial damage to AS Tallinna Sadam. In order to manage the risk, continued efforts are made to target an increase of fixed income in total income and to seek cost optimisation possibilities. In 2013, the revenue and expenditure from operating Botnica as a new activity weakened the relation of income and expenditure indicators to changes in cargo volume and the number of passengers. Due to this, the future relations between changes in revenue and cargo volume / passenger numbers on the consolidated group s level may not resemble to previous years. In the previous five years, the relative growth of operating expenses has exceeded the growth of operating revenues, except in Without accounting for the one-off impairment expenditure in 2015, operating expenses decreased by 8%, which was still less than the decrease of revenue (by 15%). The smaller growth of revenues was caused by decrease of cargo volume or lack of growth thereof, and the most important contribution to the growth in 2014 came from an increase of revenue from Botnica. Operating income and profit 110, ,2 88,6 102,2 93, ,7 39,5 45,5 53,2 35, Operating income Operating profit Operating profit for 2015 (profit before other income and other expenses) amounted to EUR 35.4 million, which is less by EUR 17.8 million or a third when compared with 2014, due to the decrease of operating revenue. Without accounting for the one-off impairment expenditure EUR 5.2 million, the operating profit was EUR 40.6 million, with a decrease of EUR 12.6 million or 24%. As a result of the changes, operating margin (operating profit divided by sales revenue), which demonstrates the efficiency of the operations of AS Tallinna Sadam, decreased from 48.0% to 37.7% (with adjusted 22

24 operating profit: to 43.2%). The decrease of operating profit was caused by both the decreased revenues from the activities of the subsidiary OÜ TS Shipping using the icebreaker Botnica and the decreased revenue from traditional port operations. As the results of OÜ TS Shipping depend largely on the revenue of the icebreaker s off-season offshore work and that can be rather different across years, it expectedly affected the results of the group as a whole as well. Recent port extension projects that have passed from the investment stage to the operational stage with planned operation volumes and income levels not yet achieved have a deteriorating effect on efficiency. Major such projects include the coal terminal opened in Muuga in 2005, Saaremaa Harbour opened in 2006 and the infrastructure of the extension of Muuga Harbour container terminal completed in We forecast some decline in operating margin in near future. EBITDA (profit before interest income and expenses; income tax; and depreciation, amortisation and impairment) for 2015 was EUR 63.6 million compared with the record level of EUR 71.4 million in 2014, which is a decrease by EUR 7.9 million or 11%. A smaller decrease compared to the decrease in operating profit resulted mostly from an increase of other operating income and a decrease of other operating expenses. Summary In 2015, revenue decreased due to both the absence of Botnica s offshore summer work and the decrease of income from port charges and fees resulting from a sharp decline in liquid bulk volume. Among major segments, income from Ro-Ro cargo, passengers and also containerised cargo increased. The increase of passenger-related income was facilitated by continuing growth of line passenger numbers. As the expenses of operating activities increased (without accounting for the oneoff impairment expenditure, they decreased, although less than the decrease of revenue), it was amplified in the decline of operating profit by a third, as well as in decrease of the operating margin demonstrating the efficiency of the operations Investments For achieving its strategic objectives, AS Tallinna Sadam invests each year into development of infrastructure related to port activity. The investments are made with the objective to diversify the port s cargo volume in order to decrease dependence on the as-yet largest group of cargo liquid bulk, and increasingly to create possibilities to aggregate logistics and value added service providers to port area. Investments are based on the development perspectives of the serviced area, cargo flows and transportation channels in order to ensure competitiveness of the port and the parties operating in the port. 23

25 million EUR Investments 62,1 77,7 53,3 21,7 17,7 11,9 13,4 11, EA 80% 70% 60% 50% 40% 30% 20% 10% 0% Investments Prepayments % of turnover In 2015, the group s total investment in new infrastructure assets, acquisition of non-current assets and improvement of existing infrastructure assets amounted to EUR 11.9 million, which was somewhat less than the previous year s investments. Ferry construction was funded with EUR 55 million, carried as EUR 53.3 million of a prepayment for non-current assets and not included in the investment amount of The largest investments in 2015 were made for the development of the reception equipment for vessels and passenger servicing facilities in the Old City Harbour, as well as for communications lines and the construction of a new traffic solution, the latter establishing traffic areas with new solutions and electronic gates for driving from the shore to a vessel and vice versa, in a total of approximately EUR 7.7 million. Investments in other harbours were smaller, being mostly intended for quay reconstruction projects. Investments into computer technology, equipment and software reached EUR 0.3 million. Investments related to ferry funding, construction supervision and information systems needed for route operations were in a total of EUR 1.7 million. The investments planned for 2016 include the partial cost of the construction of passenger ferries, which will be needed for passenger ferry connection between the mainland and the largest islands, as well as other investments related to ferry traffic, in the total amount of EUR 40 million. Construction of the passenger ferries will complete by autumn 2016 and the total volume of the related investments will estimably be EUR 120 million. Nearly EUR 34 million will be invested in the Old City Harbour, mainly to establish the traffic solutions and the ship reception equipment ensuring a new and customer-friendly service environment for the nearly 10 million passengers per year passing through the Old City Harbour. 24