PORT OF TALLINN 2016 PERFORMANCE RESULTS ANALYSIS

Transcription

1 PORT OF TALLINN 2016 PERFORMANCE RESULTS ANALYSIS

2 TABLE OF CONTENTS 1. COMPETITIVE POSITION Competitive position on the east coast of the Baltic Sea Number of passengers Competitive position in Estonia OPERATING PERFORMANCE Cargo volume Number of passengers Total 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, servicing the consumer needs of the region in terms of trade and establishing points of regional significance such as a regional LNG terminal, or in becoming the location of large production directed to international market. In 2016, the total cargo turnover of the larger ports on the east coast of the Baltic Sea amounted to 456 million tons, meaning a slight increase by 3.5 million tons or 0.8% compared to previous year (in 2015, the corrected market volume was 452 million tons with growth of 0.2%). Adding the cargo volumes of other Estonian ports (8.4 million tons) the cargo market volume of AS Tallinna Sadam and its competitors was 464 million tons in 2016, which is 3.5 million more than in 2015 (growth by 0.8%). 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 2016 exceeded the cargo volume of 2002 twice and was 23% higher than the volume of 10 years ago. Cargo market volume % 40% % % 100 9,5% 7,8% 8,8% 9,4% 8,8% 6,8% 6,4% 6,2% 4,9% 4,3% 10% Cargo market volume TS share 0% The competitive position of ports in 2016 was again 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 increased by 4.7 million tons or 4% mainly due to containerised cargo (growth by 4 million tons or 7%, in TEUs also by 7%), which made up slightly more than half of the decrease of the previous year. 2

4 The largest increase of container volume was in Gdansk (2.7 million tons), Klaipeda-Butinge (0.98 million tons) and in St. Petersburg (0.97 million tons). The volume of containers decreased only in Gdynia and somewhat also in HaminaKotka and Ust-Luga. The volume of dry bulk also increased (2.9 million tons or 2.3%) mainly in part of fertilisers (Ust-Luga and Sillamäe). The volume of liquid bulk decreased by 4.1 million tons or 1.8%, mainly in Ventspils, Tallinn, St. Petersburg and Riga ports and increased in Primorsk and Ust-Luga. By countries, the largest growth in 2016 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 the Baltic countries. The volumes of the largest Finnish ports did not change. Cargo volumes of major east coast ports of the Baltic Sea, Change Growth m tons m tons m tons % share share Ust-Luga % 12.9% 13.9% Primorsk % 19.1% 20.1% St. Petersburg % 11.2% 10.5% Russia total % 50.1% 51.0% Port of Tallinn % 4.9% 4.3% Estonia total % 7.9% 7.5% Riga % 8.7% 8.0% Ventspils % 4.9% 4.1% Latvia total % 14.8% 13.3% Klaipeda-Butinge % 10.2% 10.6% Lithuania total % 10.2% 10.6% Baltic countries total % 32.9% 31.4% Poland total % 11.7% 12.2% Finland total % 5.3% 5.4% 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 5.5 million tons or 6%) and Primorsk (4.8 million tons or 8%), followed by Klaipeda-Butinge (2.3 million tons or 5%), Gdansk and Gdynia (both 1.3 million tons) and Sillamäe (1.0 million tons or 18%). Cargo volume increase was largely on account of liquid bulk and an account of containers in case of Gdansk. The sharpest declines of cargo volume occurred in Ventspils (-3.7 million tons), Riga (-3.0 million tons), St. Petersburg (-2.9 million tons) and Tallinn (-2.3 million tons). Changes in other ports were smaller. Due to the changes, Estonian and Latvian ports lost their market share once again as Russian, Lithuanian and Polish 3

5 ports gained it. The title of the largest port on the east coast of the Baltic Sea was retained by Ust-Luga (market share 20%) and Primorsk (14%), followed closely by Klaipeda-Butinge (10.6%), passing St. Petersburg (10.5%). AS Tallinna Sadam went from eighth position to the seventh with a market share of 4.3% (in %), because the decline in the cargo volume of Ventspils was 1.4 million tons larger than that of Port of Tallinn. On the background of the last ten years average annual growth of the market s cargo volume being 11.0 million tons, the 2016 growth of 3.5 million tons is clearly below the growth trend. By cargo groups, general cargo had highest growth (by 4.7 million tons or 4%) mainly due to the containers (growth 4.0 million tons or 7%, in TEUs by 384 thousand or 6.7%). Dry bulk grew by 2.9 million tons or 2.3%, wherein the highest grower was fertilisers (by 2.1 million tons or 7.1%). The volume of liquid bulk decreased by 4.1 million tons or 1.8%, due to the joint effect of reductions in oil products and increase in crude oil (-13.4 and 8.6 million tons, or -10.9% and 9.4%). Among general cargo, the volume of containerised cargo increased the most, mainly in Gdansk (+2.7 million tons or 25%, in TEU 208 thousand or 19%), Klaipeda-Butinge (+1.0 million tons or 22%, in TEUs 64 thousand or 17%), St. Petersburg (+1.0 million tons or 4.9%, in TEUs 30 thousand or 2%) and Riga (+0.24 million tons or 6.2%, in TEUs 31 thousand or 8.6%). In HaminaKotka the volume decreased by 0.2 million tons or 5.7%, while in TEUs the increase was 76 thousand or 14%. The volume of containers declined the most in Gdynia (-0.85 million tons or 12%, in TEUs 42 thousand or 6%). The volume in Port of Tallinn increased by 0.04 million tons or 2% (in TEUs declined by 6.5 thousand or 3%), which is one of the smallest changes. Total volume of the containers was 60.5 million tons (in TEUs 6.1 million). The largest handler was still St. Petersburg (1.75 million TEUs), followed by Gdansk (1.3 million TEUs), Gdynia (0.64 million TEUs), HaminaKotka (0.63 million TEUs), Helsinki (0.45 million TEUs) and Klaipeda-Butinge (0.44 million TEUs). Among the general cargo, the volume of Ro-Ro cargo grew the most by 0.68 million tons or 2.2%, while in units the decline was 43 thousand or 2.2%. The largest increase in volume was in Gdynia (0.74 million tons or 21%, in units 6.4 thousand or 4.3%), Klaipeda-Butinge (0.53 million tons or 12%, in units 14 thousand or 7.8%), Ventspils (0.24 million tons or 13%, in units 9.5 thousand or 14%) and in Tallinn (0.23 million tons or 5.4%, in units 48 thousand or 12.4%). Helsinki remained the port with the largest volume (6.7 million tons), followed by Klaipeda and Tallinn (5.0 million tons and 4.6 million tons, respectively). Swedish ports (e.g. Stockholm) are not included in the comparison because they are not ports on the 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. 4

6 Metal volumes (except scrap metal, which is included in dry bulk) grew by 0.5 million tons or 5% reaching in total 10.3 million tons. The main growth occurred in St. Petersburg (0.6 million tons or 9%), while the volumes of other ports did not change significantly. The port with the highest volume was dominantly St. Petersburg (6.8 million tons), followed by Klaipeda and Kaliningrad (1.2 and 1.0 million tons, respectively). The volume in Port of Tallinn was 0.1 million tons. The volume of dry bulk increased most in Ust-Luga (2.5 million tons or 10%), Gdynia (0.94 million tons or 14%), Tallinn (0.8 million tons or 27%) and Gdansk (0.55 million tons or 6%). The most significant decrease was in St. Petersburg (1.5 million tons or 13%), Riga (0.85 million tons or 3.7%) and Klaipeda-Butinge (0.56 million tons or 3.2%). The volume of fertiliser increased in total by 2.1 million tons (7%) to 31.5 million tons. The largest increase was in Ust-Luga (1.2 million tons or 68%), Sillamäe (1.0 million tons or 66%), Gdynia (0.6 million tons or 257%) and Tallinn (0.38 million tons or 26%). The volume decreased most in St. Petersburg (1.1 million tons or 14%) and HaminaKotka (0.28 million tons or 23%). The major handlers were Klaipeda (11.3 million tons), St. Petersburg (6.7 million tons), Ust-Luga (3.0 million tons) and Riga (2.8 million tons). Port of Tallinn volume was 1.8 million tons. Coal volumes did not change significantly, but were once again redistributed between ports, growing in Ust-Luga (0.8 million tons or 4%) and Gdansk (0.6 million tons or 13%) and declining mainly in Ventspils (-1.5 million tons or 33%) and Riga (-1.2 million tons or 9%). The largest handlers were still Ust-Luga (22.3 million tons), Riga (13.3 million tons) and Vysotsky (6.1 million tons). The volume in the Port of Tallinn was 0. The total volume of coal was 54 million tons. A structural change continued in liquid bulk: crude oil increased and oil products decreased, mostly taking place between Russian ports, while volume of oil products dropped also in few other ports. Crude oil mostly increased among its biggest handlers i.e. in Ust-Luga (3.3 million tons or 12%) and Primorsk (5.5 million tons or 12%), but also in Klaipeda-Butinge (0.6 million tons or 7%). The volume of oil products increased only Gdynia (0.9 million tons or 230%), Klaipeda-Butinge (0.8 million tons or 10%) and Sillamäe (0.6 million tons or 24%) and declined in all other ports, most in Ventspils (-3.6 million tons or -26%), Tallinn (-3.4 million tons or -27%), St. Petersburg (-3.1 million tons or -32%) and Riga (-2.4 million tons or -23%). The largest handler of liquid bulk was still Primorsk, although barely (64.4 million tons), followed by Ust-Luga (62.5 million tons), Klaipeda-Butinge (20.5 million tons) and Gdansk (12.8 million tons). The volume in Port of Tallinn was 9.4 million tons. The total volume of liquid bulk was 218 million tons. 5

7 Mln tons Three-year change in cargo volume ,7 Other general cargo Containers ,6 7,0 1,1 7,1 Liquid bulk Dry bulk ,3-10,0-8,1 Total * 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, comparable to 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) and liquid bulk (both crude oil and oil products). Cargo volumes decreased mainly on account of liquid bulk (Tallinn, St. Petersburg and Ventspils) and dry bulk (Ventspils, coal), but also containerised cargo (St. Petersburg). Only Riga was somewhat able to substitute for the reduced volumes (mainly other general cargo timber). 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 trivial 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. Growth of cargo in the largest ports on the east coast of the Baltic Sea in the past three years totalled 36 million tons or 8%. Of the main cargo types, dry bulk grew the most 21.2 million tons or 20% mainly due to fertilisers, other dry bulk (grit stone, ore, etc.) and grains (10.1; 7.2 and 3.4 million tons or 47%, 78% and 21%, respectively), while the volume of coal with the 6

8 largest share remained unchanged. Among the ports, Ust-Luga (coal and fertiliser), Riga (grains, fertiliser and other dry bulk) and Klaipeda-Butinge (fertiliser) experienced the largest growth, decrease was mainly in Ventspils (coal). Liquid bulk grew by 9.5 million tons or 5%, accompanied by redistributions between ports, whereby the largest gainer was Ust-Luga (23 million tons) and the most volume was lost in Tallinn (-9.5 million tons), St. Petersburg (-7.5 million tons) and Ventspils (-5 million tons). In the composition of general cargo, the largest growth was observed in Ro-Ro volumes 4.7 million tons or 18% and in containerised cargo (1.2 million tons or 2%, in TEUs decline by 13%). In containerised cargo, the main increasers of their market shares were Gdansk from 17% to 21% and decliners were St. Petersburg from 36% to 29%, Kaliningrad from 5.5% to 3.1% and Tallinn 3.7% to 3.3%. The market shares of other ports increased. The cargo volume of the comparison group grew by 20 million tons or 7%, primarily on account of liquid bulk (Ust-Luga), dry bulk (Ust-Luga, Klaipeda, Riga) and containerised cargo (Gdansk). For Port of Tallinn, three-year growth was largest in other general cargo (by 0.77 million tons) and dry bulk (by 0.63 million tons); there was a decrease in liquid bulk (by -9.5 million tons or 50%) and containerised bulk remained unchanged (but in TEUs declined by 20%). Summary In 2016, the cargo volume of the major ports on the east coast of the Baltic Sea remained at the previous year s level. By cargo types, growth took place mostly on account of general cargo and dry bulk, exceeding the decline in liquid bulk. 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 once again on account of crude oil (mostly in Russian ports) and decreased on account of oil products, which, however, had a stronger effect than the former. Port of Tallinn dropped from sixth to seventh place by liquid bulk volume, due to the decrease in oil products. General cargo volumes grew mainly on account of containerised cargo (led by the Polish and Lithuanian ports) the volume of which still remains below previous levels due to the decline a year before which led to the loss of the growth of the last 3-4 years. The market share of the containerised cargo leader St. Petersburg declined for the sixth year in a row. Increase of dry bulk volume was wider, but mostly regarding to fertilisers (Ust-Luga, Sillamäe). Port of Tallinn by cargo volume among major ports on the east coast of the Baltic Sea stepped from eighth place to seventh with a market share of 4.3%. 7

9 1.2. Number of passengers The Baltic Sea is an inland sea with one of the densest traffic in the world. Ship traffic is also one of the main internal tourism transport means in the region. It is estimated that nearly 50 million passengers sail on the Baltic Sea in a year. The densest traffic is in the eastern part of the Baltic Sea, where the Port of Tallinn has the greatest number of passengers after Stockholm and Helsinki. The largest ships meant mainly for carrying passengers also sail between these harbours. Passenger ships meant for Ro-Ro cargo and Ro-Ro ships that carry a lesser number of passengers sail between the ports of the southern part of the Baltic Sea (Poland and Germany) and Denmark, Sweden, Finland, Latvia and Lithuania, also passenger ferries sail there (e.g. Germany-Denmark, Denmark-Sweden) which cover shorter distances. Latvia and Lithuania do not have a dense passenger ship traffic with the Scandinavian countries similar to that of Tallinn, and the passenger numbers are mainly made up from the co-effect of Stockholm line and cruise passengers (Riga) or also the co-effect of Ro-Ro line passengers and cruise passengers (Klaipeda-Butinge). The dense ship traffic between Estonia, Finland and Sweden is favoured, compared to other areas on the Baltic Sea shore, by the fact that the ports are at an optimum distance from each other to enable passenger ship traffic and also the fact that the vast passenger ship traffic takes place between the capitals of the said countries, which are all by the sea. The favouring aspect might also be the similarity of the cultural space and economic relations that keep developing. Thus, this is why the passenger ship traffic between the Port of Tallinn and the main opposite ports in Helsinki and Stockholm makes up a significant part of the economic activities in addition the cargo operations. The graph presents the data of larger ports in the eastern shore of the Baltic Sea by number of passengers and also the ports we have discussed regarding cargo volume competition earlier. Data on the passenger numbers of other ports by the Baltic Sea were not available or were partial which is why these are not shown. Additionally, the ports with passenger numbers coming from short-distance travels are not shown (trip length ca >1 h, e.g. Puttgarden-Rodby, Helsingborg-Helsingör all ca 6-7 million passengers). 8

10 million passengers million passangers Number of passengers in ,0 12,0 10,0 11,9 11,7 10,2 8,0 6,0 4,0 2,0 0,0 3,3 2,5 1,0 0,7 0,6 0,4 0,1 0,1 0,0 Over the past five years, the passenger number has grown most in the Port of Tallinn (by 1.7 million passengers or 20%) and Helsinki (by 1.0 million passengers or 10%), while the changes in other ports remained quite insignificant. The indicator of the port with the largest passenger number Stockholm has remained stable, which has been affected by the slight decrease in the number of passengers travelling between Sweden and Finland. Passenger number in the ports of eastern shore of the Baltic Sea 40 38,1 38,8 39,0 39,1 39,9 100% 30 75% ,2% 23,8% 24,6% 25,0% 25,5% 50% 25% % Market volume TS share The share of TS has increased among the passenger numbers of the compared group and was in 2016 ca 25%. The five-year comparative data does not include the Port of Mariehamn due to insufficient data. In summary, the development of passenger numbers in the larger ports of the eastern shore of the Baltic Sea is quite stable. 9

11 million tons 1.3. Competitive position in Estonia Cargo market volume 50 43,8 43,1 44,2 100% 40 36,2 34,8 80% 30 67,2% 65,5% 64,0% 61,9% 57,8% 60% 20 40% 10 20% % market volume TS share In 2016, the total cargo market volume of Port of Tallinn and other Estonian ports amounted to 34.8 million tons, decreasing by 1.4 million tons or 4% in a year. Cargo volumes declined most in Tallinn (2.3 million tons or 10%). Cargo volume increased the most in Sillamäe (1.0 million tons or 18%) and Paldiski Northern Harbour (0.2 million tons or 9%). Changes in other harbours were minor. Again, the market share of Port of Tallinn in the cargo volume of Estonian ports decreased somewhat to 58%, 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. The passengers passing the ports belonging to AS Tallinna Sadam (10.2 million) make up nearly 100% of the total number of passengers related with Estonian international sea traffic. The data on the national ferry traffic between the mainland of Estonia and islands is not considered here, the majority of which (more than 2 million passengers per year) are passengers travelling between mainland and the large islands (Saaremaa and Hiiumaa), where AS Tallinna Sadam via its subsidiary OÜ TS Laevad as of the fourth quarter of 2016 is the provider of the passenger ferry service. 10

12 2. OPERATING PERFORMANCE 2016 was an eventful year for AS Tallinna Sadam, with regards to both traditional port management as well as passenger ferry service being launched as a new service line. In port management the cargo volumes declined, but the number of passengers increased and the port showed persistently solid results in the passengers segment. The volume of cargo decreased by 2.3 million tons, i.e. 10%, to 20.1 million tons, which meant the lowest level over the last period of almost 20 years. In terms of cargo types, only the volume of liquid bulk decreased (by 3.4 million tons) while the volumes of other cargo types increased, most the volumes of dry bulk (by 0.8 million tons, i.e. 27%) and Ro-Ro cargo (by 0.2 million tons, i.e. 5%). As a result of growth in the volume of line passengers the number of passengers reached a new record of 10.2 million. This also contributed to the growth in revenue related to line and cruise passengers segment. In October, through subsidiary OÜ TS Laevad rendering a ferry service on passenger ferry routes between the mainland and major islands of Estonia was commenced as a new business line in accordance with a 10-year contract signed with the state. The larger part of the income related to rendering public transport services, i.e. the public transport support, was recognised within other income. Total income (revenue and other income) increased by EUR 11.6 million (12%) up to EUR 111 million that is comparable to the highest level so far earned in 2014 when ice-breaker Botnica was leased out during the off ice-breaking season to perform offshore operations, and in port operations the cargo volumes were 40% higher. All in all, income increased by EUR 11.6 million, i.e. 12%, expenses increased by EUR 3.1 million, i.e. 5% (however, when excluding an expense of EUR 5.2 million incurred as one-off write-down in 2015, the expenses in 2016 increased by 14%), operating profit increased by EUR 8.5 million, i.e. 21%, and net profit by about EUR 9 million, i.e. 28%. The dividend distributed to the shareholder in 2016 amounted to EUR 35.0 million, plus income tax expense of EUR 8.75 million (2015: EUR 31.2 million and EUR 7.8 million respectively). One of the main events of the year was continued construction of the four new passenger ferries at the shipyards in Turkey and Poland; however, completion of the ferries turned out to take longer than agreed on. Therefore, on 1 October rendering the ferry service was started with temporarily rented replacement ferries. Rental expenses on replacement ferries are covered by income from the penalty receivable from shipyards as a result of delayed completion of the ferries. By the end of the year ferry Leiger had been delivered by the Turkish shipyard and the ferry started servicing the Rohuküla Heltermaa route shortly before the end of the year. Shortly after the turn of the year ferry Tõll was delivered by the Polish shipyard. Tiiu, the second ferry under construction in the Turkish shipyard, and Piret, the second ferry under construction in the Polish shipyard, are expected to be delivered in March Related to port operations, the 11

13 Million tons construction of a new automated traffic solution for passengers and cars passing through the Old City Harbour and modernisation of the reception facilities necessary for servicing passenger vessels were continued as the major capital expenditures. As at the reporting date, an investigation continued in the criminal case started in 2015 against two long-term former members of the management board of AS Tallinna Sadam suspected of accepting bribes. Despite this extraordinary event the operations of AS Tallinna Sadam have continued in line with the strategy and objectives for core business approved by the supervisory board of the company but with appropriate changes having been made in the governance structure. In 2016, as a result of a public competition the supervisory board of AS Tallinna Sadam elected Valdo Kalm the new chairman of the management board, and Marko Raid (earlier appointed the temporary chairman of the management board until the new management board was elected) and Margus Vihman were elected members of the management board with Marko Raid in the position of the chief financial officer (CFO) and Margus Vihman in the position of the chief commercial officer (CCO) Cargo volume Cargo volume ,5 28,2 28,3 75% ,4 20,1 50% ,3% ,2% -20,8% -10,3% -19,2% 25% 0% -25% Cargo volume Change In 2016, the cargo volumes passing through the harbours of AS Tallinna Sadam decreased by 2.3 million tons (by 10%) to 20.1 million tons, i.e. to the lowest in the past 20 years. The decline came from the drop in the volume of liquid bulk, the cargo type with the biggest share, by 3.4 million tons or 26%. Mainly, the volume of the liquid bulk arriving via railway declined, while volume of liquid cargo serviced under the vessel-terminal-vessel remained quite 12

14 unchanged, making up 33% (year before 31%) of the total volume of cargo. The volumes of other cargo types increased in total by 1.1 million tons, mostly the volumes of dry bulk and Ro- Ro cargo by 0.8 (27%) and 0.2 (5%) million tons respectively. By the end of the year, the volume of containerised cargo also reached a slight increase: by 37 thousand tons or 2%, but the volume in TEUs was still negative by 6.5 thousand (3%) and was 202 thousand TEUs. The reduction in liquid bulk volumes can be explained with Russia preferring its own ports on shipping cargo originating from Russia, expressed primarily in the growth of liquid bulk in Ust- Luga and Primorsk. On the other hand, growth in the volume of liquid cargo shipped to the port with vessels is hindered by rather low oil prices which cut back demand for added-value services provided in terminals and decreases profitability. Although decrease in the volume of containerised cargo turned into a slight increase in the second half of the year, transit to and from Russia remained at lows due to weak domestic demand in Russia. Most of the Ro-Ro cargo moved on the north-south routes and was less connected with Russia. Growth in the volumes of containerised and Ro-Ro cargos related to the consumption on the east coast of the Baltic Sea and the area beyond has been fostered by a growing trend in the trade sector to deliver goods in containers. In terms of transport direction the most significant change was decrease in volume of transit in exports. However, the volume of Estonian exports showed rather solid growth by 0.5 million tons, i.e. 13%, while the volume of imports did not grow significantly. Cargo breakdown 100% 5,6% 6,3% 7,0% 7,8% 8,8% 80% 60% 13,7% 11,5% 9,8% 13,0% 13,0% 14,1% 13,1% 19,3% 18,6% 22,7% Containers General cargo Dry bulk 40% 20% 66% 67% 67% 57% 47% Ro-Ro cargo Liquid bulk 0% In terms of types of cargo, liquid bulk with 47%, Ro-Ro cargo with 23%, dry bulk with 19% and containerised cargo with 9% accounted for the major part of cargo volumes. In near future, the cargo structure, regarding bulk cargo (liquid bulk and dry bulk) will depend on further 13

15 utilisation of Russia s port capacities. As regards Ro-Ro and containerised cargo, the structure of cargo types will mostly depend on the development of the region s economic environment, geopolitical tensions influencing it and also on the trade-boosting labour-saving electronic transaction environment developed in Estonia. Business risk associated with the large share of liquid bulk in cargo handling is being balanced by passenger transport and by the new activity of offering the passenger ferry services, the income related to which made up 38% and 12% respectively from the total income of AS Tallinna Sadam in 2016, the share of cargo related income was 39%. As an activity not related to cargo, icebreaker Botnica earned 4% of the consolidated total income in turn. Cargo volume by cargo groups (thousands of tons) Cargo group Change Change % Oil products, oil chemistry 12,802 9,405-3, % Fertilisers 1, , % Ro-Ro cargo 4,330 4, % Sugar Wood pellets, woodchips % Scrap metal % Grain % Timber % Goods in containers 1,741 1, % Peat % Foodstuffs % Other % Grit stone, pavement debris % Crude oil % Ferrous metal % TOTAL 22,431 20,118-2, % Vehicles (pcs) 1,709,750 1,789,890 80, % Containerised cargo (TEU) 208, ,327-6, % In 2016, the volume of most cargo groups increased but in total the effect was small due to the decrease of the largest cargo group (oil products). The largest increase was with fertilisers, Ro-Ro cargo and sugar. The volume of containerised goods increased slightly but decreased in TEUs. 14

16 Cargo volume breakdown 100% 12,3% 12,5% 12,8% 16,8% 18,9% 80% 11,7% 12,4% 13,3% 18,0% 22,6% 60% Import 40% 76% 75% 74% 65% 58% Export Transit 20% 0% By destination, transit constituted 58%, export 23% and import 19% of cargo volume. The decrease of transit volume to its five-year low resulted from a decrease of its volume by 50%, while the volume of export grew by 32% and import grew by 6%. Share of countries of origin in cargo volume Lithuania 3% (3%) Sweden 2% (2%) Germany 2% (2%) Latvia 2% (2%) Belgium 1% (1%) Poland 1% (1%) Others 6% (7%) Russia 45% (47%) Finland 14% (12%) Estonia 23% (24%) * In parentheses: share of country of origin in 2015 In 2016, there were no significant changes in the countries of origin of the cargo volume passing through AS Tallinna Sadam. The biggest change was the small decrease of the share of cargo originating from Russia, near its ten-year low (43%), increase of share of Finland from 12% to 14% and decrease of Estonia s share by 1 percentage point. Russia s share decreased due to the decline in cargo volumes by 1.4 million tons (13%) (liquid bulk) to 9.1 million tons. 79% of the cargo was liquid bulk, 20% fertilisers and the rest containerised cargo. Finland s share was 14% (from this 75% Ro-Ro cargo, 12% oil and oil products, 7% grit stone) and the 15

17 cargo volume remained 2.7 million tons. The share of goods originating from Estonia fell to 23%, due to the decrease in cargo volumes (by 0.7 million tons or 14%, regarding oil products) to 4.5 million tons. 48% of the cargo volume was Ro-Ro cargo, 20% containerised cargo, 11% timber, 9% grain. Change took place in the decrease of the volume of oil products from 1.2 million tons (share in %) to 0. Share of countries of destination in cargo volume Others 23% (19%) Estonia 19% (33%) Great Britain 3% (1%) Belgium 3% (2%) Germany 3% (2%) Sweden 3% (2%) Canada 5% (1%) Brasil 5% (3%) *In parentheses: share of country of destination in 2015 Netherlands 10% (11%) Finland 11% (9%) USA 17% (16%) Compared to countries of origin, the number of substantial countries of destination of cargo handled in Port of Tallinn in 2016 was larger again. Among countries of destination Estonia retained the largest share, followed by the USA and the Netherlands. The decrease in Estonia s share is to do with the decreasing volume of the oil products by 3.7 million tons. 62% of the cargo volume destined to Estonia was Ro-Ro cargo, 16% containers, 11% grit stone, 7% oil products (100% in case of USA, 83% in case of the Netherlands). The volume of cargo destined to Estonia decreased by 3.7 million tons (49%). 11% of the cargo volume was destined to Finland (of that, vehicles made up 90%, oil products 5%, fertilisers 2%) and the volume increased by 0.2 million tons or 9%. The volumes of destinations with smaller shares also increased: Canada (0.6 million tons or 224%, oil products), Great Britain (0.3 million tons or 164%, liquid bulk), Brazil (0.3 million tons or 43%, fertilisers), Sweden (0.2 million tons or 42%, timber and oil products). Summary In 2016, cargo volume in Port of Tallinn dropped by 2.3 million tons or 10%, to the lowest in the past 20 years, due to the ongoing decrease in the volume of liquid bulk. The volumes of other cargo types increased in total by 1.1 million tons, mostly dry bulk and Ro-Ro cargo, but 16

18 million passengers the volume of containerised cargo did not change significantly. In case of liquid bulk, the volume of the cargo delivered to the port by railway decreased, while the volume serviced under the vessel-terminal-vessel scheme remained almost unchanged. The decrease of the liquid bulk volume can be explained by Russia preferring its own ports of Ust-Luga and Primorsk for cargo export, while the growth of cargo serviced by vessel-terminal-vessel scheme is hindered by decreased profitability of the added value services provided in the terminals as a result of the low price for crude oil. In the structure of cargo volumes, the volume and the share of transit cargo continued to decline. Among countries of origin of cargo, no significant changes happened, Russia s share dropped to the lowest of 10 years. The concentration among the destination countries decreased slightly. 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 (export), while the volume of cargo coming from elsewhere (that is, arriving here) is decreasing. In 2016, the volume of loading exceeded the volume of unloading for the first time in case of full containers. In 2016, 86% of the containerised cargo passing through Port of Tallinn was related to Estonian import and export, which is the all-time highest Number of passengers Number of passengers ,17 9,24 9,57 9,79 8,84 4,3% 4,5% 3,6% 2,3% 3,9% % 30% 20% 10% 0% Number of passengers Change In 2016, the number of passengers passing through the harbours of AS Tallinn Sadam grew by 380 thousand or 3.9%, crossing a record number of 10 million passengers and reaching million passengers. Once again, such a large number of passengers exceeded expectations in the context of economic lows in the region, but at the same time it expresses the tightening connection between the nearby countries in terms of tourism and economical activities. The 17

19 dense schedule of line passenger ships and the service that is more and more available and convenient contributes by making travelling easier. There were no large movements regarding line passenger ship operators in The number of ship calls increased with nearly all operators. Breakdown of passenger numbers 100% 80% 60% 40% Overnight cruise and other Traditional cruise Tallinn-St.Petersburg 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 remained on the same level. The Tallinn-Helsinki line (growth of 302 thousand passengers or 4%), the greatest in proportion, with its total 8.5 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 also increased on the Stockholm line (by 32 thousand passengers or 4%, reaching almost 1 million passengers) and the St. Petersburg line (by 39 thousand passengers or 31%). An increase occurred in cruise passengers (by 5.5 thousand passengers or 1%), being a little over 0.5 million passengers. The Baltic Sea region maintains its reputation as the world s fastest growing region for cruise-ship tourism. For 2017, we forecast that the number of cruise passengers will increase slightly. 18

20 million EUR 2.3. Total income, expenses and profit Total income ,5 106,9 113,7 99,6 111,3 100% 80% % 40% ,0% 11,9% 6,4% 11,7% ,4% 20% 0% -20% Total income Change The consolidated total income of AS Tallinna Sadam for 2016 amounted to million euros, increasing by 11.6 million euros or 12%. Since October 2016, AS Tallinna Sadam provides, via its subsidiary OÜ TS Laevad, a passenger ferry service between mainland Estonia and the large islands according to the public passenger carriage service provision agreement with the state. The income from the service provision comes from ticket sales income and public transportation support, the first of which is registered according to the accounting requirements, in the sales revenue, and the other and larger part in other income. To ensure the comparability of the different years data, the sales revenue and other income are presented as one total income in the above graph. AS Tallinna Sadam, the parent company of the consolidation group, earned 78% of the group s income;ts Laevad OÜ 12%, TS Energia OÜ earned 6% and TS Shipping OÜ earned 4% of the income. Per income type, the largest change was the increase of other income by 9.5 million euros, totalling to 15.4 million euros. The increase of other income was mainly related with the activities of OÜ TS Laevad, including the contractual penalty income from the shipyards (6.9 million euros) and the state provided public transportation support for providing the passenger ferry service in the fourth quarter (4.4 million euros). Other income also included the contractual penalty income from harbour operators for underperforming the contractual volumes in sum of nearly 2.9 million euros. The other income of 2015 included the revenue of one-off contract penalty from the cancelling of Botnica s long-term offshore work contract in sum of 3.0 million euros (from which the income tax expense in sum of 0.6 million euros emerged). 19

21 Among the sales revenue types, the major change was the increase of the passenger fee income and decrease of the port fees income (by +4.7 million euros and -3.6 million euros, respectively), mostly impacted by tariff changes between the above income types as regards passenger vessels. The decrease in liquid bulk volumes also affected the port fees income diminishingly. The increase in passenger numbers also affected the increase of passenger fee income. Cargo fee income decreased by 0.7 million euros or 10% due to the decrease of liquid bulk volumes, which exceeded the effect from the increase of other cargo types. A new income type was the ticket sales income from the passenger ferry service provided with the ferries in sum of 1.9 million euros. Changes in other income types remained smaller. In 2017, the income related with passenger ferry service will increase and also its share in income due to providing the service for an entire year, compared to providing the service since fourth quarter in % Breakdown of operating income by revenue types 80% 60% 40% 20% Other services Passenger ferry service Vessel's charter fees Rental and RoS income Passenger fees Cargo charges 0% The largest 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. From the fourth quarter in 2016, a new income type from providing the passenger ferry service added, in total of 13.2 million euros (contractual penalty income from the shipyards 6.9 million euros, public transportation support 4.4 million euros, ticket and other income 1.9 million euros) and with a share of 12%. The shares of the revenue types of port fees and charges and cargo charges decreased (by 12 and 3.8 pp respectively), due to their revenues declining slightly and the share of the passenger fees increased (by 4.5 pp) due to the growth of those revenues. 20

22 In 2016, port charges and fees comprised 42%, passenger fees 15%, passenger ferry service 12%, rental and right of superficies income 11%, sales of other services 6.5%, cargo charges 6%, charter fees 4%, and other income 3.6% of total income. 63% of AS Tallinna Sadam s total 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 (70 80%), concerning both the addition of the new passenger ferry service, the share of which will increase in the coming years, and also the Botnica s charter fee addition from 2013, the effect of which also depends on the income of summer work. Fixed revenue can be considered the rental and right of superficies income, the (winter) charter fee of Botnica and the passenger ferry service income, the share of both of which has increased from previous 8-9% level in 2016 to 27%, due to the addition of the Botnica income and passenger ferry service income, and also the increase of the income of rental and right of superficies. 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 slightly exceeded increase of revenues from other services like passenger fees, cargo charges (which has decreased) and sales of services. Only the effect of reduction of the tonnage fees of the passenger ships and the decrease of port fees caused by the decline in cargo volumes in 2016 led to the passenger fee income 10-year growth larger than in case of port fees. Only the rental and right of superficies income has grown faster (even without the effect of Botnica). 21

23 Breakdown of income structure by cargo types Ro-ro 4% (5%) Botnica 4% (5%) General cargo 2% (3%) Other 6%(6%) Dry bulk 7% (6%) Passengers 38% (42%) Containers 8% (9%) Ferry services 12% (-) Liquid bulk 18% (24%) * In parentheses: cargo type's shares in 2015 In 2016, the passenger ferry service as a new service in sum of 13.2 million euros was added to the AS Tallinna Sadam income per cargo type structure (based on the cargo type or field that produced the income), the effect of which has decreased the share of other fields. The passenger segment (line and cruise passengers together with Old City marina) with its 38% share continued to be the largest business field in AS Tallinna Sadam s income structure. Hence, income from two main segments comprised a total of 56% of AS Tallinna Sadam s income (a year earlier: 66%). The share of the passenger segment decreased regardless a slight increase of income. The income also increased in case of dry bulk (by 2.2 million euros) in relation with the increase in cargo volume growth and less also in case of containerised cargo (by 0.3 million euros). The income from liquid bulk and Ro-Ro cargo decreased the most (2.8 and 0.2 million euros). Compared to the income structure of five years ago, the share of liquid bulk has decreased (35% in 2012), while the shares of passengers and to a lesser extent also containerised cargo have grown, and the income from Botnica and the passenger ferry service has added. 22

24 million EUR 60 Expenses of operating activities and other costs 62,4 60,6 59,3 57,0 50% 50 50,7 40% 40 30% ,8% 12,4% 6,3% 5,2% 20% 10% 10-2,2% 0% % Expenses Change Expenses related to operating activities (operating expenses; personnel expenses; and depreciation, amortisation and impairment losses) and other costs totalled 62.4 million euros, growing 3.1 million euros or 5% in a year. If not accounting for one-off expenditure in 2015 in sum of 5.2 million euros (impairment losses, from which 5.0 million euros concerned icebreaker Botnica), the expenses increased by 8.3 million euros or 14%. The increase of expenses was mainly due to the expenses related with providing the passenger ferry service. Among the expense types, the operating costs increased the most, by 5.7 million euros or 24%, from which 5.2 million euros was related with leasing the temporary replacement ferries, because the contractual deadlines for new ferries to be constructed were exceeded. Labour expenses increased by 1.7 million euros or 14% also due to the initiation of the passenger ferry service. Other costs include the expense of assessing the claims of the contractual penalty recorded in other income as unlikely in sum of 1.0 million euros and the penalty in sum of 0.4 million euros for nonconformity to the passenger ferry service contract condition, in relation with the delayed deadline of completion of the new ferries. The expenses decreased regarding traditional port operations and icebreaker Botnica because of the savings measures applied due to declined operational volumes. 23

25 Annual growth rate 100% Breakdown of expenses 80% 60% 40% Operating expenses Depreciation and impairment Personnel expenses Other costs 20% 0% Together with decreasing or increasing of expenses from operating activities, changes also occurred in the breakdown of expenses. In 2016, the increased operating costs and labour costs brought about an increase of their shares as well. Without accounting for the one-off impairment cost of 5.2 million euros in 2015, the change in expense structure remained smaller in % Comparison of real and financial indicators 15% 5% -5% % -25% Cargo volume Passenger number Income Expenses 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 24

26 million EUR expenses and depreciation (in 2015, the one-off impairment expenditure as well). Variable expenses include mostly resale of utility 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 and from the fourth quarter of 2016 the provision of passenger ferry services 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, expenses decreased by 11%, which was still less than the decrease of revenue (12%). 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. Total income and operating profit ,6 106,9 113,5 99,6 111, ,8 49,9 52,9 40,4 48, Total income Operating profit Operating profit for 2016 amounted to 48.9 million euros, which compared to 2015 increased by 8.5 million euros or 21%, due to the larger increase of income compared to the increase of expenses. Without accounting for the one-off impairment expenditure EUR