Aktsiaselts Tallink Grupp - NASDAQ OMX Baltic

Any failure or delay in the delivery of ordered ferries may have a material adverse effect on our business,
results of operations and financial condition.
We have entered into a shipbuilding contract with Aker Finnyards Oy, under which Aker Finnyards Oy shall
design, construct, equip, complete and deliver the New Cruise Ferry. The New Cruise Ferry has been financed
through cash flows from operations and external financing. Furthermore, we recently placed orders with Aker
Finnyards Oy and Fincantieri Cantieri Navali Italiani S.p.A. to design, construct and deliver two new high-speed
ro-pax ferries. Any failure or significant delay in construction, completion or delivery of the New Cruise Ferry or
the high-speed ro-pax ferries in accordance with the contracts and by the agreed deadlines could have a material
adverse effect on our business, results of operations and financial condition.
A large proportion of our revenue is concentrated on two of our vessels.
While we own a fleet of 12 vessels, a large proportion of our revenue for the financial year ended
August 31, 2005 was derived from ticket, onboard and cargo sales relating to our two newest cruise ferries,
Romantika and Victoria I. Although our investment and fleet renewal program contemplates the introduction of
an additional cruise ferry and two high-speed ro-pax ferries with a similarly high-quality service offering, it is
possible that our revenue and profits will remain concentrated among a relatively small number of ships. An
accident or suspension of operations for Romantika or Victoria I, or future vessels whose operations are
significant to us, could adversely affect our future sales and profitability. Furthermore, increased competition in
the mini-cruise segment could adversely affect the sales derived from our key vessels and therefore adversely
affect our overall revenue and profitability.
We face uncertainties regarding onboard trade and price development.
Our onboard shops compete with onshore shops. Since the consumer price level in Estonia is currently
lower than in Finland and Sweden, the prices in our onboard shops must be comparable to the prices in onshore
shops in Estonia in order to be competitive. Any reduction in the Estonian consumer price levels may reduce the
demand for goods sold onboard and force us to reduce our onboard prices, which could have a material adverse
effect on our business, results of operations and financial condition.
The tax-free status of trade in goods sold in onboard shops on the Helsinki—Tallinn and Kapellskär—
Paldiski routes was abolished when Estonia became a member of the European Union. We currently pay
Estonian, Swedish and Finnish value added taxes and Estonian excise tax on the sale of certain goods that were
previously sold free of such taxes. The Estonian excise tax rate is currently lower than the Finnish and Swedish
tax rates, but no assurance can be given that the Estonian tax rate will remain comparatively lower in the future.
Furthermore, as a result of the abolition of the tax-free status for onboard sales, our profit margins have
decreased as Estonian onshore prices have not increased sufficiently to compensate for our increased costs.
Due to the removal of the import restrictions upon Estonia’s membership of the European Union, the
governments of Finland and Sweden have commenced discussions on the future of excise taxation in Finland and
Sweden. Finland implemented a moderate reduction of the excise taxes on alcoholic beverages in early 2005.
There is currently uncertainty about which other policies, if any, will be adopted by the Finnish government. If
Sweden also were to reduce the excise tax levels on goods purchased domestically, the demand for goods sold
onboard and for mini-cruises might decrease. This could have a material adverse effect on our business, results of
operations and financial condition.
We are highly leveraged, and if we or any of our ship-owning subsidiaries default under any of our respective
loan agreements, we could forfeit the rights to our vessels.
We operate our vessels through individual ship-owning subsidiaries, one for each vessel. In addition, the
New Cruise Ferry is expected to be delivered in the spring of 2006, and two high-speed ro-pax vessels have been
ordered for delivery in 2007 and 2008. We are highly leveraged due to the fact that all recent and future
purchases of vessels have been and are expected to be financed mainly through loan financing and cash flows
from operations. Our obligations under the loan agreements have been secured by different security
arrangements, including mortgages, guarantees, assignments of earnings or insurances, charters, charter
guarantees, pledges or options to pledge the shares of our ship-owning subsidiaries, pledges of bank accounts and
other arrangements.
The loan agreements include several negative undertakings, relating to, among other things, entering into
other financial commitments, changes in our corporate structure or the nature of our business, and consolidating
or merging with another corporation. The loan agreements also contain extensive requirements relating to the use
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