MANAGEMENT REPORT The management report of AS Tallinna Sadam (Port of Tallinn) has been prepared on the basis of consolidated financial indicators. In 2006, AS Tallinna Sadam once again achieved the largest cargo volume in its history. However, the number of passengers passing through the port decreased somewhat. Although the cargo volume attained a record level, it remained somewhat below the expected volume due to the decrease in the volume of liquid cargo. Cargo volume was attained primarily through the planned growth of dry bulk, thereby reducing the risks related to liquid cargo in accordance with the long-term strategic plan. The keywords of the strategy are the use of new (not liquid cargo related) cargo flows with the goal of dispersing risks, continuing growth of passengers and creation of a more stable investment climate for the parties operating in the port. The objective to attain faster growth than that of the competing Finnish and Baltic transit ports was also attained in 2006. In 2006, the cargo volume passing through the ports of AS Tallinna Sadam increased by 1.7 million tons (or 4%) and reached a record level of 41.3 million tons. In the dynamics of cargo volume, the main keyword was the change in the structure of cargo volume, where the share of liquid cargo fell under 60% for the first time in this century, falling by almost 8 percentage points. Despite cargo volume growth, the market share of AS Tallinna Sadam declined somewhat among the largest ports on the eastern coast of the Baltic Sea - from 12.1% to 11.9%. By cargo types, liquid cargo (58%), dry bulk (27%) and rolling stock (8%) made up most of cargo volume (in 2005, the respective figures were 66%, 20% and 8%). By transport directions, transit (84%), exports (7%) and imports (8%) made up the cargo volume (in 2005, the respective figures were 85%, 8% and 7%). The cargo handling in AS Tallinna Sadam is not seasonal in nature. Cargo volume passing through the port in winter may be affected by freezing sea lanes in the Finnish Gulf due to long periods of cold weather where ice-breaking activities may slow down the movement of vessels and cargo (last extraordinarily difficult ice conditions existed at the beginning of 2003). The fluctuations in cargo volume are normally related to changes in market conditions (incl. changes in the world market prices of cargo, factors affecting Russia's exports such as export duties and tariffs and export capacities). In 2006, the number of passengers travelling through the ports of AS Tallinna Sadam was less than the record level of the year before and was 6.76 million, decreasing by almost 250 thousand passengers or 3.5% (in 2005, the respective figures stood at 7.01 million passengers and an increase of 4%). The number of passengers was less than expected, even though the growth was expected to slow down after the fast increase following the accession to the European Union. The decline in the number of passengers was mostly attributed to the decline in the number of passengers on the largest Tallinn-Helsinki line, where the number of passengers declined by almost 250 thousand passengers or 4%. However, the number of passengers grew steadily on the second largest Tallinn-Stockholm line, reaching 622 thousand passengers, an increase by 56 thousand passengers or 9%. The number of passengers on Paldiski-Kapellskär route decreased for the first time in the line's ten-year history - by 9 thousand passengers or 6%. The key event of the year in passenger traffic was the acquisition of the liner operations of Silja Line by the region's largest operator, Tallink. In 2006, the number of cruise passengers once again grew significantly, increasing by 19% and reaching a record level of 299 thousand passengers. The opening of the new quay for cruise ships at the Old City Port in 2004 enabled to receive simultaneously larger than average cruise ships under more flexible conditions, creating excellent preconditions for the growth of cruise passengers in the upcoming years. In 2006, Saaremaa Harbour was opened for receiving cruise ships, from which however no significant volumes of cruise passengers is expected in the short term. In 2006, almost 5 thousand cruise passengers passed through the port. With regard to line passengers, no high growth is expected in the near future. The investments made by the Estonian companies into tourism and accommodation as well as modernisation of the vessel park support moderate growth. With regard to cruise passengers, the past years' fast growth is expected to decelerate. In the spring-summer-autumn (warmer) season, passenger ship operators use fast ferries on Tallinn-Helsinki line to provide faster and more cost-efficient service for growing number of passengers during this period. In 2006, fast ferries carried 1.7 million passengers or 30% of the line's annual volume (in 2005, the respective figures were 2.1 million passengers or 35%). The fast ferries that have so far been in use only in the summer are expected to be replaced in 2007 at least partially by new, larger fast ferries operable throughout the year, which will improve year-round servicing of line passengers. The season of cruise ship visits is mostly between May and September. Such seasonalities exist regularly in transporting passengers and therefore they do not have an unusual effect on the results of operations of AS Tallinna Sadam. In 2006, the consolidated sales of AS Tallinna Sadam amounted to EEK 1 178 million (EUR 75.3 million), increasing by EEK 46 million (EUR 3 million) or 4.1% (in 2005, the respective figures were EEK 1 132 million (EUR 72 million) and 6.6% growth). AS Tallinna Sadam as the Parent Company of the consolidation group earned 93% of sales and Tallinna Sadama Elektrivõrk OÜ earned the remaining 7% of sales. Revenue growth in 2006 arouse mainly from the growth in port dues by EEK 41 million (EUR 2.6 million) or 6.7%, of which the major part was attributable to the introduced waste fees as a new subtype of port dues. Although the indexation of port dues also helped to propel sales growth, its effect was lessened by a change in the structure of cargo ships visiting the port whereby due to the change in the cargo volume structure, the total gross tonnage of tankers having higher tariffs decreased and along with it also the total sales earned on them. The expenses related to operating activities (operating expenses, personnel expenses and depreciation and impairment) totalled EEK 630 million (EUR 40.2 million), increasing by EEK 73 million (EUR 4.7 million or 13%). The growth of expenses was primarily related to the costs related to the expansion of main activities. Increase in operating expenses by EEK 46 million (EUR 2.9 million) or by 19% contributed the most to the growth of expenses. The operating profit for 2006 (operating profit before other income and other expenses) was EEK 548 million (EUR 35.1 million), which meant a decline of the operating profit by EEK 27.1 million (EUR 1.7 million) or 4.7% when compared to 2005. The operating profit fell as the growth of operating expenses exceeded the growth in sales. Thus, the efficiency of the operations of AS Tallinna Sadam expressed as the operating margin (operating profit divided by sales) fell, declining from 50.8% to 46.6% in 2006. In 2006, the net profit was affected by a one-time gain from the sale of non-current assets in the total amount of EEK 171 million (EUR 10.9 million). This mostly involved assets leased out in the Port of Paljassaare, which lacked perspective for the further port related development and continuance due to the limitations set on the cargo traffic through the centre of Tallinn city. The Group's net profit for 2006 amounted to EEK 596 million (EUR 38 million), which exceeds the net profit for 2005 by EEK 167 million (EUR 10.7 million). The return on assets of AS Tallinna Sadam (net profit divided by the annual average volume of assets) increased in 2006 to 9.7% but this was due to a one-time gain from the sale of assets. When calculating the return on assets for 2006 on the basis of the adjusted net profit, the return on assets was 8.4%. This is the lowest return on assets over the last five years. The expected decline in the return on assets is related to the growth of asset volume due to long-term and sizable investments that will lead to increased sales in the future as well as changes in the structure of the cargo volume which led to decline in the share of more profitable liquid cargo. In 2006, the return on equity of AS Tallinna Sadam (adjusted net profit divided by the annual average volume of equity, also adjusted by the same one-time gain) was 10.1%, which represented a slight decrease in the return on equity as compared with the previous year's return on equity of 10.6%. Compared with the higher decline in the return on assets, the return on equity was kept higher by a change in the capital structure, where the share of debt increased somewhat (when comparing the averages for the year). In 2006, the Group invested a total of EEK 446 million (EUR 28.5 million) into new infrastructure and improvements of existing infrastructure, which on the one hand represented a growth of EEK 101 million (EUR 6.5 million) compared to the previous year, but on the other hand, was several times less than planned. Due to the longer than expected preparatory period of several large development projects, they have been included in the investment plan for 2007. Most of the investments were traditionally related to water transport facilities (quays and aquatory), totalling EEK 197 million (EUR 12.6 million) or 44% of the total investments. The largest constructions were the completion of Saaremaa Harbour and the reconstruction of several quays at the Old City Port. A total of EEK 174 million was invested into development of land, warehouse plots, streets and railways, and a total of EEK 32 million (EUR 2 million) in the networks of utility services and for enhancement of the supply certainty of these services. BALANCE SHEET, thousands, unaudited -------------------------------------------------------------------------------- | | EEK | EEK | EUR | EUR | -------------------------------------------------------------------------------- | | 31.12.06 | 31.12.05 | 31.12.06 | 31.12.05 | -------------------------------------------------------------------------------- | ASSETS | | | | | -------------------------------------------------------------------------------- | CURRENT ASSETS | | | | | -------------------------------------------------------------------------------- | Cash and cash equivalents | 514 693 | 145 659 | 32 895 | 9 309 | -------------------------------------------------------------------------------- | Shares and other | 37 710 | 27 848 | 2 410 | 1 780 | | securities at fair value | | | | | -------------------------------------------------------------------------------- | Trade receivables | 85 907 | 95 547 | 5 490 | 6 107 | -------------------------------------------------------------------------------- | Other receivables and | 25 876 | 15 222 | 1 654 | 973 | | prepayments | | | | | -------------------------------------------------------------------------------- | Total other current assets | 664 186 | 284 276 | 42 449 | 18 169 | -------------------------------------------------------------------------------- | Non-current assets held | 0 | 18 623 | 0 | 1 190 | | for sale | | | | | -------------------------------------------------------------------------------- | Total current assets | 664 186 | 302 899 | 42 449 | 19 359 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | NON-CURRENT ASSETS | | | | | -------------------------------------------------------------------------------- | Long-term prepayments | 0 | 8 449 | 0 | 540 | -------------------------------------------------------------------------------- | Other long-term | 8 585 | 9 329 | 549 | 596 | | receivables | | | | | -------------------------------------------------------------------------------- | Property, plant and | 5 745 372 | 5 534 862 | 367 196 | 353 742 | | equipment | | | | | -------------------------------------------------------------------------------- | Intangible assets | 12 500 | 0 | 799 | 0 | -------------------------------------------------------------------------------- | Total non-current assets | 5 766 457 | 5 552 640 | 368 544 | 354 878 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Total assets | 6 430 643 | 5 855 539 | 410 993 | 374 237 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | LIABITLITIES | | | | | -------------------------------------------------------------------------------- | Current liabilities | | | | | -------------------------------------------------------------------------------- | Current portion of | 185 282 | 247 578 | 11 842 | 15 823 | | long-term debt | | | | | -------------------------------------------------------------------------------- | Supplier payables | 60 746 | 51 682 | 3 881 | 3 303 | -------------------------------------------------------------------------------- | Tax liabilities | 3 085 | 586 | 197 | 37 | -------------------------------------------------------------------------------- | Short-term provisions | 17 839 | 19 477 | 1 141 | 1 245 | -------------------------------------------------------------------------------- | Other payables | 48 786 | 48 204 | 3 118 | 3 081 | -------------------------------------------------------------------------------- | Total current liabilities | 315 738 | 367 527 | 20 179 | 23 489 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Non-current liabilities | | | | | -------------------------------------------------------------------------------- | Long-term borrowings | 1 661 386 | 1 378 835 | 106 182 | 88 124 | -------------------------------------------------------------------------------- | Long-term provisions | 3 712 | 3 712 | 237 | 237 | -------------------------------------------------------------------------------- | Government grants | 18 358 | 7 217 | 1 173 | 461 | -------------------------------------------------------------------------------- | Other long-term payables | 3 000 | 537 | 192 | 34 | -------------------------------------------------------------------------------- | Total non-current | 1 686 456 | 1 390 301 | 107 784 | 88 856 | | liabilities | | | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Total liabilities | 2 002 194 | 1 757 828 | 127 963 | 112 345 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | EQUITY | | | | | -------------------------------------------------------------------------------- | Capital attributable to | | | | | | the Parent Company's | | | | | | equity holders | | | | | -------------------------------------------------------------------------------- | Share capital at nominal | 2 755 619 | 2 750 000 | 176 116 | 175 757 | | value | | | | | -------------------------------------------------------------------------------- | Statutory reserve capital | 275 000 | 275 000 | 17 576 | 17 576 | -------------------------------------------------------------------------------- | Hedge reserve | 8 494 | -6 030 | 543 | -385 | -------------------------------------------------------------------------------- | Retained earnings | 792 908 | 648 793 | 50 676 | 41 465 | -------------------------------------------------------------------------------- | Profit for the period | 594 724 | 429 118 | 38 010 | 27 426 | -------------------------------------------------------------------------------- | Total capital attributable | 4 426 745 | 4 096 881 | 282 921 | 261 839 | | to the Parent Company's | | | | | | equity holders | | | | | -------------------------------------------------------------------------------- | Minority interest | 1 704 | 830 | 109 | 53 | -------------------------------------------------------------------------------- | Total equity | 4 428 449 | 4 097 711 | 283 030 | 261 892 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | TOTAL LIABILITIES AND | 6 430 643 | 5 855 539 | 410 993 | 374 237 | | EQUITY | | | | | -------------------------------------------------------------------------------- INCOME STATEMENT, thousands of kroons, unaudited -------------------------------------------------------------------------------- | | 2006 | 2005 | 01.07.06-3 | 01.07.05- | | | | | 1.12.06 | 31.12.05 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Sales | 1 177 953 | 1 132 002 | 549 657 | 553 337 | -------------------------------------------------------------------------------- | Other income | 186 810 | 9 977 | 51 115 | 7 628 | -------------------------------------------------------------------------------- | Operating expenses | -288 548 | -242 893 | -150 510 | -135 125 | -------------------------------------------------------------------------------- | Personnel expenses | -153 651 | -143 062 | -93 216 | -82 552 | -------------------------------------------------------------------------------- | Depreciation and | -187 329 | -170 542 | -97 328 | -106 273 | | impairment | | | | | -------------------------------------------------------------------------------- | Other expenses | -3 664 | -12 331 | -468 | -10 737 | -------------------------------------------------------------------------------- | OPERATING PROFIT | 731 571 | 573 151 | 259 250 | 226 278 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Financial income and | | | | | | expenses | | | | | -------------------------------------------------------------------------------- | Interest expenses | -62 226 | -49 688 | -33 726 | -25 880 | -------------------------------------------------------------------------------- | Other financial income and | 11 383 | 3 301 | 7 095 | 1 462 | | expenses - net | | | | | -------------------------------------------------------------------------------- | Total financial income and | -50 843 | -46 387 | -26 631 | -24 418 | | expenses | | | | | -------------------------------------------------------------------------------- | Profit from ordinary | 680 728 | 526 764 | 232 619 | 201 860 | | activities | | | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Income tax expense | -85 130 | -98 211 | 0 | 0 | -------------------------------------------------------------------------------- | Profit for the period | 595 598 | 428 553 | 232 619 | 201 860 | -------------------------------------------------------------------------------- | attributable to: | | | | | -------------------------------------------------------------------------------- | Equity holders of the | 594 724 | 429 118 | 232 129 | 202 127 | | Parent Company | | | | | -------------------------------------------------------------------------------- | Minority interest | 874 | -565 | 490 | -267 | -------------------------------------------------------------------------------- | Basic earnings and diluted | 2,16 | 1,56 | 0,84 | 0,74 | | earnings per share (in | | | | | | kroons) | | | | | -------------------------------------------------------------------------------- INCOME STATEMENT, thousands of euros, unaudited -------------------------------------------------------------------------------- | | 2006 | 2005 | 01.07.06-3 | 01.07.05- | | | | | 1.12.06 | 31.12.05 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Sales | 75 285 | 72 348 | 35 129 | 35 365 | -------------------------------------------------------------------------------- | Other income | 11 940 | 638 | 3 267 | 488 | -------------------------------------------------------------------------------- | Operating expenses | -18 442 | -15 524 | -9 619 | -8 636 | -------------------------------------------------------------------------------- | Personnel expenses | -9 820 | -9 143 | -5 958 | -5 276 | -------------------------------------------------------------------------------- | Depreciation and | -11 973 | -10 900 | -6 220 | -6 793 | | impairment | | | | | -------------------------------------------------------------------------------- | Other expenses | -234 | -788 | -30 | -686 | -------------------------------------------------------------------------------- | OPERATING PROFIT | 46 756 | 36 631 | 16 569 | 14 462 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Financial income and | | | | | | expenses | | | | | -------------------------------------------------------------------------------- | Interest expenses | -3 977 | -3 176 | -2 155 | -1 654 | -------------------------------------------------------------------------------- | Other financial income and | 728 | 211 | 453 | 93 | | expenses | | | | | -------------------------------------------------------------------------------- | Total financial income and | -3 249 | -2 965 | -1 702 | -1 561 | | expenses | | | | | -------------------------------------------------------------------------------- | Profit from ordinary | 43 507 | 33 666 | 14 867 | 12 901 | | activities | | | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Income tax expense | -5 441 | -6 277 | 0 | 0 | -------------------------------------------------------------------------------- | Profit for the period | 38 066 | 27 389 | 14 867 | 12 901 | -------------------------------------------------------------------------------- | attributable to: | | | | | -------------------------------------------------------------------------------- | Equity holders of the | 38 010 | 27 426 | 14 836 | 12 918 | | Parent Company | | | | | -------------------------------------------------------------------------------- | Minority interest | 56 | -37 | 31 | -17 | -------------------------------------------------------------------------------- | Basic earnings and diluted | 0,14 | 0,10 | 0,05 | 0,05 | | earnings per share (in | | | | | | euros) | | | | | -------------------------------------------------------------------------------- Sven Ratassepp Public Relations Manager 6318064
PORT OF TALLINN UNAUDITED 2006 CONSOLIDATED 12 MONTHS INTERIM FINANCIAL STATEMENTS
| Source: Tallinna Sadam
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