Havila Kystruten AS (HKY) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and I warmly welcome you to today's earnings call of Havila Kystruten AS following the publication of the preliminary financial year figures of 2024. I'm delighted to welcome CEO, Bent Martini; and CFO, Aleksander Røynesdal. So the gentlemen will speak shortly and guide us through the presentation and the results. And afterwards, as always, you have the opportunity to ask your questions directly to them. So having said this, Bent, the stage is yours.

Thanks a lot, Sarah. Welcome to the fourth quarter 2024 presentation for Havila Kystruten. We will -- I myself will give kind of a general business update, and then Aleksander will go through the more specific financial highlights. Next, please. And yes, our operations is the coastal route between Bergen and Kirkenes. And we have 4 out of 11 vessels in this route. The contract with the Norwegian government called the concession is from 2021 up to 2030. And the government has 1 year -- potential of 1-year option from 2030 to 2031. The government is also in progress of coming out with the new concession from 2030 to 2040. So that's in progress. Next, please. We are quite proud to have been able to reduce the CO2 emissions in this route. This in 2024, we reduced by 34%. We could have reduced even more if we -- if the infrastructure around the Norwegian coast has been a bit better when it comes to shore power. But we are in progress, both in extending or improving the infrastructure and also we are looking into blending in biogas going forward. And our ambition is to be climate neutral in 2028, sailing with 100% biogas. We continue the good work of reducing the food waste and also in 2024, we were able to deliver below our target of 75 grams per day per guest, which is quite low in this market or segment. So in overall, we are extremely satisfied with the results when it comes to the ESG deliverables in 2024. Next, please. Also when it comes to having 4 new vessels into operations. In average for 2024 we had uptime of 98%, which is quite good -- not quite good, it's very good actually. In the fourth quarter, we had 100% uptime, which also helps on the results. Next, please. Full year preliminary highlights. We ended up in 2024 with an occupancy of 73%. That's up from 65% from the year before. We do see a very positive development on the ACR and also on the onboard spend. Our spend per guest night is growing, and we have initiated more activities and more initiatives to grow the OBS further. Ended up with a total revenue of NOK 1.5 billion in 2024 and the EBITDA ended up on, yes, NOK 219 million, which is far better than the year before. But we do see a positive trend going forward. And the EBITDA margins will grow. We continue having a very positive feedback from our guests. So the Net Promoter Score in average for 2024 was plus 70 for all 4 vessels into operation. And this is extremely good as we see it. Next, please. It also helps a lot for everyone in the company when we also are receiving awards and recognitions, which we have done throughout 2024. This is some of the awards, maybe mention the awards from the Time Magazine where we were selected as one of the top 100 extraordinary destinations to visit and stay in. And that is a fantastic achievement for a new company which puts us on the agenda. Next, please. The sales have -- through our own channels have continued to improve. We -- more than 50% of all sales, about 55% of all sales are through our own channels, which is very positive. The sales through the web has increased, and we are now in a very good balance between the sales through agents and tour operators and our own channels. And the focus is on digital marketing and we have had great success on keeping the costs flow on marketing, but have reached out in the different channels in a very good and positive manner and achieved good sales without reducing our prices. So we continue to work with the setup, the systems, also implemented a new CRM system end of this year -- last year and this will also help out with the sales going forward, building knowledge and ownership with the guests and customers. Next, please. And we also see that the aim we have put up in kind of being a company and a product for also the younger ones is something we have actually achieved. The average age traveling on the this route, we have been able to reduce from 2021, 2022 from average age of 64 down to now 54 last year. And that is -- the customers have focused on sustainability, they have focused on high-quality and they have focused on different flexibility when it comes to travel, shorter trips, the flexibility to jump off and jump on is a positive side effect. And we do see that this attract customers from -- the growth is huge from the U.S. and Asia Pacific areas. Still high when it comes to German speaking, from Germany and Austria and -- so Switzerland is still high, but the Asian market is also coming down this year -- yes, next year. Next slide, please. Yes, these slides indicates the present book we actually today exceeded 54% bookings, not 53%. And this is, as we see it, a very positive status when it comes to the timing of the year. The balance in the book is very good. We have a high occupancy in the first 6, 7 months of the year. And the ACR is much higher this year than last year. So the average ACR for the 54% is NOK 5,200 per guest, which is extremely good. So we are optimistic, and we believe that with the balance now, where we have 50-50 between the northbound and the southbound voyages, we will be able to achieve the targets of EBITDA for 2025. Next, please. Aleksander?

Thank you. Okay. So a couple of words on the financial performance. While the contract revenue is stable and adjusted annually, the operational revenue has been growing quite rapidly since delivery of the last 2 vessels in Q3 2023. And we've kind of doubled the income in that period, which is, of course, extremely good. We see a positive development in the operational performance and in the development of the EBITDA margin. We've gone from a negative territory on the operating result to a positive EBITDA in both second, third and now the fourth quarter of 2024. So we're kind of building on that positive momentum that we have. I think the fact that we have positive EBITDA in the kind of shoulder seasons in kind of Q4 is a positive thing. And we have very high occupancy in the fourth quarter which contributes to the results. So the total EBITDA for the year ended at NOK 219 million and a margin of 14%, which is -- which we are happy with, but as we will go into details on some of the next slides, that is kind of a start and it's reflective of the kind of startup phase that the company is in. Next slide, please. A couple of words on the key performance indicators. They are kind of all supportive of the positive development in the operational results. Occupancy has been growing. We are up from 65% in 2023 to 73% last year. The cabin factor, which is how many people are staying, how many guests do we have in each cabin, which is driving onboard sales and utilization of our cruise vessels, is also trending upwards. But I think the most important one is the cabin revenue. And year-on-year, we've reported 30% growth in the cabin -- average cabin rates. And we do see that, that growth can be continued into 2025. And I'll go into that on some of the next slides. The onboard spend is also showing a positive development and the onboard spend is driven by passengers onboard as well as kind of the activities that we can create for our guests to onboard the ships. Next slide, please. The cost breakdown per quarter, the cost is reflective of the buildup in revenues divided by -- into each category. The kind of variable costs are -- we will go in that in the next slides. But if you look at the major cost items, the crew is, of course, a big chunk of the cost. So is LNG and so is the cost of goods, which is quite related to the number of persons onboard. Next slide, please. So if you look at the operating cost per category, it has been growing throughout the year, which is partly reflective of underlying inflation. It's also reflective of kind of the increased activity. So we have, on the right-hand side, we've shown the operating costs, total operating cost per quarter benchmarked against the occupancy rate, which shows that the cost is quite correlated with the occupancy rate. So a higher occupancy drives more people onboard, higher cost of goods, et cetera. Next slide, please. So looking at the outlook, we are kind of repeating the outlook that we provided in the third quarter presentation. 2025 is a year where we target modest volume growth, up from 73% last year up to 75% plus this year. If you look at the pricing that we have on the books, I mean, Bent mentioned that we now have 54% on the books for 2025. And on that volume, we are seeing the 20% to 30% price increase which is supporting our growth in the top line and also a growth in the EBITDA to bring us into this NOK 400 million to NOK 500 million target range for this year. Going out on the curve, 2026 onwards, we see still potential for improvement. We have already secured some volume for 2026. And what we see on the pricing there, it's already at the upper end of the range that we are targeting here, 15% ACR growth compared to 2025. We do see potential for higher utilization as the products are developed and kind of the business matures, which will then bring us into a range of NOK 600 million to NOK 800 million per year in EBITDA, which is where we think that this business should be. Next slide, please. A couple of words on the refinancing. We do have an expensive loan, which is a bridge loan maturing in July 2026. We have a very flexible shareholder loan of about EUR 80 million with our majority shareholder, Havila Holding, and we also have an overdraft facility with the majority shareholder of about NOK 200 million. And the focus at the moment is to address the maturity of the secured bond loan, which is maturing in July 2026. I think as a prudent policy, we would like to handle that 12 months before maturity, before the loan becomes current. So we are in the process of addressing that maturity. We see that the credit markets are open, credit spreads are low and there is money out there for this type of financing. And I think the feedback that we get is lenders, debt providers are very positive towards the ships, the quality of the ships, the environmental profile, the fact that they comply with the current emission regulations in the government concession and can also comply with any stricter regulations in the future. And I think they also recognize now that we are on the right path from an operational perspective. We are building confidence in the figures and they can see that what is on the books supports the targets that we have projected. And so the feedback is good from potential lenders. Next slide, please. A couple of words on the balance sheet. We do get questions about the book equity of the company, and we think it's important to address it. So the book value of the vessels are recorded in NOK, in kroner, while the debt is recorded in euro. And because of this misalignment between the assets and the liabilities, when the currency fluctuates, and in this case, the kroner has depreciated against the euro, that has caused unrealized currency losses. So a big part of the negative equity is actually unrealized currency and then we see, on the other hand, that since ordering of the ships and construction shipbuilding prices have increased by more than 50%, and I think this goes for all shipping segments. So if you look at the broker value of the vessels, which is -- it's kind of a specialized ship broker assessment of newbuilding costs today, and we have indications that this range is reasonable and kind of where a willing seller, willing buyer would evaluate these vessels today. And although they do -- they are built for the coastal route, they are also built for the expedition segment. So these vessels are flexible and attractive to potential cruise companies. So if you do that value adjustment based on kind of market value of the ships, we do have significant positive equity. We estimate this just based on the ship values alone to be positive NOK 3.8 billion. So it's about realizing that value over time, and we think we're on a good track with the kind of targets that we have and the positive development of the operational performance. Next slide, please. Yes. Finally, a couple of words on the stock. We are -- we have a low free float on the stock. So it's quite sensitive to larger investors buying and selling shares. But we do think that there's substantial underlying value supporting the shares, just as we showed on the previous slide. We think refinancing in 2025 is kind of a trigger that could unlock some of the value in the share for us to achieve a more sustainable and long-term financing, would obviously unlock some of the value of the share. And we are committed to delivering on kind of environmental requirements but we are also committed to over-delivering on the environmental requirements on the route. So we are actively looking at phasing in biogas into our fuel mix. We have a target to become climate neutral by 2028. And we can do that without any modifications to the ships by blending in biogas. So it's a matter of if the economics make sense, then that's certainly a viable route for us to create additional value. And through that, we believe that we're well positioned to win another concession for the 4 vessels. And also, I think with the operational platform we have, we are also interested in growing all the routes. And I think that concludes the presentation, Sarah, that was the last slide. Thank you.

That was the last slide. So thank you very much for your presentation and congratulations on the results.

So dear ladies and gentlemen, you have now the opportunity to ask your questions to Bent and Aleksander if you may have. [Operator Instructions] And in the meantime, we received a question in the chat box from [ Jan Martin ]. So he says, congratulations on the great performance. One question on Q4 versus Q3. Why is the EBITDA drop higher than the revenue drop?

I think the fact that our volume was quite good in the fourth quarter, but the pricing is a lot lower compared to the high season. So if you look at the seasonality historically on the route, its seasonality has been expressed in terms of occupation, that has changed somewhat. And we do see a kind of a more even occupancy throughout the year with a lot of tourists wanting to explore Norway in the winter season. But pricing wise, we are extracting a lot higher pricing from our guests in the high season, so in kind of typically second and third quarter. So I think that that's the reason why there's like a larger drop in the EBITDA compared to the top line.

All right. So now we have the virtual hand from Ingo. So Ingo, you should be able to ask your question.

Yes, this is Ingo Schmidt from Montega speaking. And thank you for your presentation so far. Today, I'm representing my colleague, Tim Kruse, who has given me a few questions, and I'll start with the first one. Weather conditions in Q4 were not ideal, which negatively affected onboard sales. How much revenue did you lose approximately due to this in Q4?

I'm not sure if I can answer that directly, but we can send some information afterwards, if that's okay for you, Ingo.

Yes, that's okay, that's okay. I'll continue with the next one. Can you comment on occupancy in February? And also how the weather has been so far in respect to onboard sales?

I think on the occupancy, we will -- once the February is complete, we will provide a trading update on February. But weather-wise?

Yes, I guess if you have followed the weather in Norway, both January and February, we have had quite tough weather along the Norwegian Coast, which, of course, have an impact on, especially on excursions. So -- but I think that we, in general, see a positive trend, positive development on onboard spend compared to the year before. And we also see a positive trend on the average ACR also in February compared to the year before.

Okay. Will there be any change in contract revenues in 2025?

Yes, there is an annual adjustment of the contract revenues, and that is included in our target projections for 2025. So there's like an annual adjustment on the contract based on number of official parameters like fuel cost inflation and particularly LNG cost is a part of that cost adjustment.

Okay. And the last one, you saw 3% points of capacity in February, putting you at 54% sold occupancy for 2025. How is the presold occupancy distributed over the year?

I'm not sure if we can go into all the details. What I can say is that the 54% is in average for the year. That's correct. The occupancy for the first half is much higher.

So we will now move on with questions from the chat box. So [ Lars ] wants to know what are typical commission margin taken by booking agency?

Typical margins could vary from the contracts we have, but everything from 15% -- or 12% up to 20%.

All right. So now we only have one question in the chat left. So please be reminded to ask questions if you may have. Can you please comment on cash collection of pre-bookings? I would have expected your cash flow to be much better due to the high degree of pre-booking. Can you please remind us how cash flow from pre-bookings develops? And what your expectations for cash flow throughout 2025 will be are?

Yes. So I'll address that question. So currently, the prepayments on cash bookings follow the seasonality. So -- and we do have -- we have a certain deposit that is paid when the guests book the trip, and there's a deposit, there's a remaining payment to be made about 3 months prior to -- 3 to 4 months prior to the voyage. So naturally, the low season in terms of pricing, it's around year-end which kind of marks the low period in our working capital. And then it builds towards the summer season, so it kind of peaks around June and July. So what you would see is that at year-end, it's at the low point and then it builds towards the mid part of the year. So over the past few years, we've seen like a rule of thumb approximately EUR 5 million difference in the level of prepayment from January to June. As revenues grow, we do expect that difference to grow as well.

Thank you so much, Aleksander. So this answer concludes our Q&A session as we did not receive any further questions in the meantime. So therefore, dear participants, thank you, everyone, for joining and to show an interest in Havila. So should further questions arise at a later time, please feel free to contact Bent and Aleksander. And also a big thank you to you for your time today and for the insightful presentation. I wish you all a lovely remaining Friday, happy weekend. It was a pleasure to be your host today and hand back for some final remarks.

Thanks a lot, Sarah. Thanks to all participating. So -- and if there is any other questions, please just send us a note, and we will do our best to answer it. Thanks a lot.