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 Q1 figures of 2025. Havila is represented today by the CEO, Bent Martini; and CFO, Aleksander Røynesdal. So the Management Board will speak shortly and get us through the presentation and the results. After the presentation, we will be happy to take your questions if you may have via the audio line or the chat. And having said this, Bent, I hand over to you.

Thank you very much, and welcome to our quarterly presentation for our first quarter 2025. Next, please. Yes, some pictures and some recognitions throughout last year and the first quarter. Nice to just show you that. Next, please. I will take you through a general update, and then Aleksander will go more in the details when it comes to the figures. For those of you not knowing us and the coastal route, we are part a concession with the Norwegian government. There are total 11 vessels in this route. We have 4 of those 11 vessels. And we have a contract with the Norwegian government until 2030, or 2031 if the garment will extend 1 year. Presently, they are preparing the next concession from 2030 to 2040. And certainly, we will do our outmost to participate in that contest and also have ambitions to grow into this route. Next, please. We have in the first quarter continue to deliver on the performance, exceptional performance throughout the first quarter, the non -- kind of off-hires. The weather is, of course, nothing you can do anything about. But technical wise, the vessels are fulfilling our expectations, and we have had 100% operational uptime for the first quarter. Next, please. We also see that we continue the improvements in all areas of the operations. We have been able to deliver on our targets when it comes to growing the average price per cabin. And in the first quarter, about a 35% increase in average cabin revenue compared to last year. And this is certainly very positive for the year and targets when it comes to EBITDA there. We had a positive EBITDA of NOK 11.2 million for the first quarter. This could have been higher. We have used a bit more of the marketing budget in the first quarter than we have originally planned for, but this will kind of level out during the year. So this is more kind of an upfront investment. And we, of course, also in the first quarter have had a bit higher LNG costs that we prepared for. But we see now the forward market of LNG prices is down, and it will really help us for the second quarter. And the forward prices in third and fourth quarter is very positive for our figures. Yes. And we continue to deliver on the reduction of CO2 emissions and also on the food waste targets. So it's very positive when it comes to the environmental side of our operation. And the feedback from the customers is also very, very positive. So we still are able to keep a very high net promoter score for all the vessels, in average 70-plus for the first quarter. Next, please. One of the targets we have when we started was to really change kind of more of the sales from agents, operators to our own channels. We have had a lot of success doing that. And 2025, it is continuing where we continue growing the sales on our own -- in our own channels, on the web and to our customer call center. Thus, we still have a lot of very good agents where we will keep, and they are really also helping us filling up the ships this year also. So we are continuing the positive development on the sales. We have introduced the kind of campaigns for this fall, and we will, in June, July, start campaigns also for next year, yes. And we have in place now a CRM system, which also will help in kind of growing the product and sales activities, both on board and ashore. Next please. And the development of kind of the cruise passengers, we see -- even though we have -- still have a very strong customer base from German-speaking countries, we do see that we have been able to change or to develop the customer base basis, people having a much higher confidence or focus on sustainability. We do see that people prefer shorter voyages, the flexibility of choosing shorter voyages, and we have been able to attract the kind of customers that are having a higher willingness to pay for our products. And we also see that the average age of our customers are continuing down. So last year, we had an average of 54 years of age, and this is continuing down now in the first quarter. So it's -- attracting kind of a broader audiences have been one of our priorities. And we do see that we have success on that also. Next, please. Yes, we -- as we reported in our first quarter, we have sold 61% of our total capacity for 2025. We -- if you look at the second quarter, 73% is sold, and that is kind of a secured volume. We still are growing that volume and selling. And especially in April and May is very, very good this quarter, and June will also be quite good. So we are looking forward to present the second quarter later. So this -- it looks positive, and we also see that the peak will be picking up on the third quarter and the fourth quarter. So very positive trends, as we see it. Next, please. Then I give the word to you, Aleksander.

Okay. Thank you, Bent. Okay. A couple of words on the financial performance, and then the focus here is really on the operational part of it, the EBITDA, because I think that -- that's the focus of the company and kind of the baseline for achieving a refinancing down the road. We're quite happy with having the fourth consecutive quarter with positive EBITDA contribution. I think what you see is sort of the seasonality where Q1 is the lowest quarter in terms of occupancy and revenue, while the second and the third quarter is really the 2 quarters where we're going to make the EBITDA for the year. So SEK 11 million this year compared to a negative SEK 18 million last year. It's posted, and it's really driven by, as I mentioned, a steep increase in pricing or achieved price per cabin, which is partly a general price increase, but it's also reflective of previous trips being rebooked into 2024. So we're kind of coming off a low base. Next slide, please. A couple of words on the key performance indicators, which we all -- we feel all our accounts moving in the right direction. We have occupancy has been built from kind of a low-based 2024. We increased 12% -- percentage points from 2023. We had a pretty good occupancy at the end of last year. And as Bent mentioned, the second quarter and the third quarter now looks pretty good for this year. So we're kind of aiming for that 75% target for the full year. If you look at the cabin factor, it's been steadily increasing, which is also very positive. It's a reflection of how many passengers do we have on average in each cabin. And the more passengers we have onboard, the more onboard sales we're able to generate. If you look at the cabin revenue and ACR, the average cabin revenue, it's up -- last year, it was up 30%. So we're obviously coming from a low -- very low base. This year, in the first part of the year, it's been [ negative 35% ] in the first quarter, which is also very steep. We expect that to level off a little bit over the next -- over the coming quarters and end up somewhere between 20% to 30% increase in 2025. And the onboard spend per pax night is also showing a positive trend. I think the first quarter was somewhat impacted by a lot weather. And a big part of the onboard sales are excursions. So we're sailing along a route which is very exposed to weather. During the winter season, that sometimes poses a challenge. So I think the onboard spend is somewhat impacted by the weather. And we have, as we mentioned, I think, in the previous update, a lot of initiatives to drive onboard sales and to achieve a higher sale per passenger. And so that's an ongoing work that is being implemented. Next slide, please. A couple of words on the cost. We have kind of a very stable cost base in terms of fixed costs, seeing that we are sailing the same route 24/7, 365 days a year. So the kind of operating cost is very stable. What we have flexibility on and which kind of is more variable is because of goods sold, which is a reflection of onboard sales. But also the manning is somewhat related to occupancy. I mean, we have a minimum manning that we need to maintain, but we can adjust the manning according to the occupancy. And then that's the manning in the hotel department. Next slide, please. So a couple of words on the costs. As Bent mentioned, we had some extraordinary costs in the first quarter. And as you can see on the right side, first quarter 2025 is a bit of an outlier. And it's partly impacted by LNG costs being extremely high in the first quarter. The TTF, the spot price, which is the reference price for gas, which we are exposed to was peaked in the first quarter. It's substantially lower at the moment, and the forward pricing is positive in terms of expecting lower fuel costs in the coming quarters. And then we had some extraordinary sales and marketing costs. Some of it is prioritization, but there's also some investments taken in the marketing side in the first quarter. And we had some higher admin costs related to work on the refinancing, and I'll get into that in one of the next slides. I think we do expect costs to be more aligned with the trend line in the coming quarters, as occupancy grows and as we will achieve a lower fuel costs. Next slide, please. So an update on our guiding or our targets for this year. What we see for 2025 and based on kind of the results and occupancy in the first quarter, what we have on the books now, we have narrowed down the range to an EBITDA greater than NOK 40 million for the year. We target an occupancy of 75%, where we have 81% of that on the books at the moment. And we're maintaining the price growth target of 20% to 30%, which gives us an EBITDA margin in the range of 20% to 30%. And then 2026 is a story of -- I mean, there's still some room to increase pricing, and we have 21% of the occupancy for 2026 on the books. And that is done at approximately 15% higher pricing than this year. So I mean, we have already achieved the price growth on the volume that is booked. So I think it's more of steering this to achieve an occupancy closer to the range between 75% and 80%, which would -- to kind of drive that last mile in the EBITDA. And then we are also working on a number of initiatives for pre-post voyage, where we are adding services to our guests. It could be train, it could be a hotel, a different kind of experiences that you can only get on the coastal route. You cannot get this type of experience sailing with one of the white big cruise ships, which cannot kind of combine a short cruise with the stay ashore in Norway. So based on that, we are maintaining our medium- to long-term target for EBITDA of NOK 600 million to NOK 800 million. Next slide, please. A couple of words on the refinancing and the overall debt situation. I think everyone who has followed the company know that the company was in a very difficult situation back in 2023 and when the last 2 ships were delivered. So we have an expensive bridge financing. And it's strict. It's particularly lender-friendly. So -- but it was a financing that enabled the delivery of the ships, and it matures in 2026. We have started the preparatory work for our refinancing process. We have engaged adviser in first quarter this year, Arctic Securities, and -- who has been tasked with mapping out the different alternatives that we have, be it public bond, private bond, leasing structure, et cetera. So we've had positive discussions with potential lenders during the first quarter. And I think the feedback is kind of the same as it has been in our own discussions. These potential lenders, they like the assets. They are very positive to the fact that there's a state contract backing the cash flow. The improved operational track record is there, and I think that's one of the reasons why we have kind of pushed the refinancing a little bit out is all these lenders are very focused on the operational results and kind of the track record and the results as well as the forward looking, but I think the last 12 months EBITDA accounts in this regard. And for those who have kind of tried the product, I think the feedback is very positive. So we're quite optimistic about having a solution -- a long-term solution in place during the year. And yes, the next slide, please. A couple of words on the balance sheet. As we have presented on the earlier call, the kind of value adjusted equity is substantially positive. And this is related to appreciation of the vessel values from construction of the ships and ordering until to now and -- which is kind of a base for refinancing of the existing mortgage debt. Next slide, please. So overall, looking at the share price development, we have made a proposal for the general meeting coming up now in June to do share -- not a share split, but to join 50 shares into 1 in order to kind of improve the pricing from both the Norwegian kroner perspective, but also euro or for the non-denominated pricing point of view. So we think that, that's going to be positive for the share and for the interest in the share, facilitating kind of long-term solution for the company... [Technical Difficulty]

Bent, Aleksander, I guess you are [indiscernible].

Can you hear us, Sarah?

We can hear you, but not see you anymore.

Can you hear us?

Yes, yes. We can hear you.

Okay. We have a little of power blackout, I think. So we certainly disappeared. So we can continue. So at the end, the key performance indicators, I think we've been through kind of the main indicators, and this is more for the analysts to be used in their preparations of reports. Let me just see if we can get you up on the screen again, Sarah.

That's okay. So we're now at the end of the presentation. We can move on to the Q&A session, anyway.

Okay. Great. You're online on our screen. again.

Absolutely. So just for you all, I guess you're all fast readers, so this is the declaimer. And now we would be happy to take your questions. [Operator Instructions] And in the meantime, we received the first hand from Tim Kruse.

Yes. Thanks for the update. Obviously, my question is on the guidance for this year. I'm wondering a bit why you sort of adjusted that because -- and I think there was a typo in the first version of the presentation. Thanks for clarifying that you expect now EBITDA above NOK 400 million, which would have been in the prior range of your guidance. So obviously, that implies a bit that you probably expect to be at the lower range of the original guidance, to NOK 400 million, then maybe to NOK 500 million. But why did you adjust it? Is this sort of maybe you want a clean slate for your discussions with the refinancing partners? And then as an addition, I presume this mainly comes from lower occupancy expectations. And then you showed that you can adjust certain personnel costs for lower occupancy. So that again would imply that somehow that would have should have been affected in your prior guidance as well. Yes, maybe you could just give -- shed some light on that from you.

Again, I can give a shot. You touched upon it in the main reason is occupancy. I think the initial guide was between 75% to 80%. I think we're -- based on first quarter and on the booking status at the moment, we feel more comfortable with the lower end of that occupancy range. And with that, trying to maintain the very positive pricing picture that we have achieved. I don't know, Bent, if you have anything to add on that.

No.

Yes. But my question remains that why did you -- I mean, this would have been in your formal guidance, what you just outlined. So that sort of -- that's -- I mean, I appreciate that you are very sort of giving a clear picture. But in the end, the market has reacted, I think, slightly negative to that. So that would have been just my question, why you felt that necessary in that respect. But fair enough. Maybe on the contract revenues, they were only slightly increased. Is this due to the fact that LNG only increased more sort of in the Q1 and end of last year? I would have expected that you have maybe a bit higher contract revenue uptake from price -- overall price increases.

Tim, it's related to the indexation on the state contract. The state contract is adjusted at the end of each year, and the kind of the adjustment mechanism goes back to the fourth quarter of the previous year, which means that the drop in LNG or fuel cost is about 25% or 30% of the indexation. And this is a reflection of the steep fall in LNG pricing in -- from the peak in 2023. And so that's the reason. So I think you would expect somewhat increase next year as the LNG pricing in last year was higher than the previous year.

Okay, okay. Understood. Maybe could you give us a bit of a color on what you see sort of on the competitive environment? And that sort of adds to my question on occupancy. What's the main driver for you to influence occupancy levels? And if you can, what is your take on how occupancy as compared to your competitor? Because I mean, the question remains, like, if you have 2% increase in occupancy this year, how realistic is it sort of a 5% increase next year? And is that partially maybe a lower uptake in occupancy this year due to the sharper price increases? What are your thoughts on that? And maybe as an add-on, the nationality split, is that something you would expect also from your competitor, the one you have? Or do you think they are more European-based, maybe more German customers, that you are able to attract sort of more foreign, more far broad sort of guests to your product?

It's a big question. I think -- and certainly, I don't have the details for our competitor on this route. But if you look at the concept, the product we are trying to develop, it is basically that we are offering shorter voyages, meaning that we would like to attract also a broader audience. People not necessarily having time to travel 11, 12 days, but are -- would like to have parts of the vacation on our ships along the coast. And we are the ones offering that. And that is part of our strategy to build kind of a concept where we could attract and offer that kind of product. And going into 2025, it was extremely important for us to ensure that we have a balance between the North and South routes. Last year, it was a 10% kind of difference on balance between North and South. And this year, we have been able to balance it, meaning that we can take the risk to offer shorter voyages. And that is what we are doing now on the kind of the strategy during the summer, and the sales are picking quite good up. Our competitor is very focused on round trip, and that is kind of also the reason why kind of the segmentation of customers or passengers are a bit different now between them and us. So -- and I really haven't heard anything about our occupancy so far. But what I can say is that the occupancy we do see, one thing is the first quarter a bit lower than last year. Last year was, in February, very high due to a lot of the transfers from cancellations in 2022 and '23 was moved to February. So it was a very low ACR reflecting kind of the old prices and discounts. But now, like -- last year, April, May was not very good for us. This year, we are far above the expectations. So it's -- and also, like we showed in the presentation, the customer base is reflecting an audience that are much more willing to pay up to get kind of -- to be able to choose their kind of product, how many days they would like to travel, et cetera. So I'm not sure if that answered your question, Tim.

Thank you so much for your questions, Tim. So Tim was the only person in the queue, so then we will move on to our chatbox. And then first of all, we have here a comprehension question. So did you say you will do a reverse split, 50 to 1 of your shares?

Yes. Correct, 50 to 1.

All right. So -- and then further question. Could you please provide some more details which services you actually provide for the government?

Services for the government is, of course, the main service is to keep up selling the route 24/7, 356 days a year. So that's kind of the main service. In addition to that, we have to take passengers from port to port, meaning the passengers, not tourists, but locals that would like to travel with us as a ferry. And there is a tariff from the Norwegian government that we have to follow on that. In addition to that, we have to carry cargo between each port. We are doing that in a kind of cooperation also with Hurtigruten, our competitor. So that's kind of ensuring the infrastructure for the local communities, especially important in the Northern part of Norway.

All right. Thank you. And then I guess Tim has a quick follow-up.

Yes, yes. Thanks for taking me again. Yes, Aleksander, I just have a question in terms of the refinancing. How do we expect to sort of that maybe as -- not a concrete time line, but what is sort of the next steps? Is it currently you're sort of in lose contact with some interested parties? And does the actual process start with bidding, et cetera? So how do we -- can we expect that to go over the next months? Because I think your plan was to have it sort of ideally secured until end of Q3 -- or reporting of Q3. So maybe just sort of what your current expectation would be in terms of sort of process and time line.

So we have engaged adviser on mapping up the options. We have had preliminary discussions with a number of interested parties over the quarter. I think the -- it's a bit of a -- we're kind of torn in different directions in terms of the existing cost structure being very strict, which means that waiting has been kind of -- we have been incentivized to wait and not do this early. And then at the same time, all of the potential lenders are quite occupied with -- not only on the target and forward-looking EBITDA, but also the historical 12 months EBITDA, which is kind of impacting pricing. I think it's difficult to give kind of an exact answer, but discussions are positive. We will move when we feel the timing is right. And we feel that the structure is good enough for the company. And we have a target to have this in place this year to kind of to create a more long-term financing that kind of supports the growth story and supports the kind of development of the product and also something that reflects the underlying value of both the ships and the contract with the government, which Bent touched upon. So I think that's what we can say today. I don't know, Bent. Anything to add?

No. I can just say that we are using a lot of time on this. Okay.

Okay. Yes, sure. But I mean, Euribor is walking in the right direction for you, I guess, that sort of -- as a reference rate, I don't know if it will be a reference rate. But as one reference rate, definitely, that's going in the right direction.

We are seeking euro financing. So -- because of the revenue mix -- yes.

Just a final follow-up on sort of housekeeping issues. Is changing reporting to euro potentially something you would have to go through the AGM? Or is that something you could change, probably not this year, but something you are still looking at?

Yes, it is a process that we need to do. And it's also something we need to sort out towards the -- not government, but different authorities that -- and specially the tax authorities, et cetera. So it could be implemented from next year, but it's not something which is doable this year.

So we have 2 questions concerning the refinancing, but we missed them by now. So let's move on as we have a lot of questions. So are there any initiatives to increase the free float?

You mean the free float of shares? Yes, not any particular initiatives at the moment other than trying to give more frequent updates to the market. I mean, we have initiated monthly trading updates. We have started guiding and are presenting our targets, which is -- which has been positive. But it's also -- as Tim mentioned, we have to be realistic. And sometimes, we have to adjust that targeting, I think. We're doing the reverse split on the shares, which we think is going to be positive for demand for the shares. But we're not actively taking any actions on the ownership structure, if that's the question.

All right. Are you planning a secondary listing in Germany or elsewhere?

I think -- at the moment, I think we are more preoccupied with building the operational track record and achieving refinancing. And I think when that is in place, secondary listing or listing on the main exchange would be for more realistic, yes.

All right. Are you planning to participate in any investor conference?

Yes. We are participating in some of your -- in investor conferences. And I think we would like to attend to the relevant investor conferences that are taking place in Norway and in some of the relevant places. So, yes.

All right. Have you done impairment tests of your ships?

Impairment tests? I mean, we have -- every quarter, we -- in connection with our loan agreement, we collect broker values, which are kind of an assessment from a professional asset broker or ship valuator, taking into account secondhand market, new building, pricing, et cetera. So I think we are testing the market value of the ships. We have also indications for new building, kind of a repeat of the same ships. And every marker, we have this almost 2x book value of the ships. So I think that should answer that question.

All right. And then we have quite a long question regarding the occupancy. Previously, it was communicated that the cruise business was focused on summer historically, but it changed to more of a year-round business with the curve flattening. Looking to the occupancy in Q1 '25, was the flattening of the curve a post-COVID catch-up effect? So can we expect low winter, but very strong summer business?

A figure questions. I think basically for us, it was -- January was very low on the 51%. February, March, a bit more up. And average for -- if you look at the historical, at least 5, 6 years back, 60% to 64% for the first quarter is quite natural. And the volume into second and third quarter is growing up, up to 90%, and the fourth quarter, mid-60s. What we saw last year was that we had 78% in the fourth quarter. Certainly, that's something we're also targeting this year. So it's a bit difficult to say correct necessarily answer on this. I think the big differentiator during the seasonality is the price of the product, and that is kind of our main focus this year is to actually lift the average price per cabin, so that the price of the product is more correct. So -- but I think this -- the coastal route is more -- the seasonality is more or less leveled out in the 60% to 70% in the lower season is still quite high.

Yes. I think if you go back historically and look at the occupancy in the first quarter, I think the outlook going forward is quite positive because the interest for tourism in Northern Norway is the right thing, and it's a lot higher than it was in the past to go and experience the Northern light and to see kind of the wideness of the Northern part of Norway. And we're seeing a lot of Asian tourists coming into Northern Norway, and there's been opened up a couple of airline routes into -- from -- through Finland into Kirkenes, which is positive. And I think we see that -- I mean, the hotel pricing in kind of the main cities in the North during that period is extremely high. So one area which we are focusing on is to go -- try to compete with these because we can offer a short voyage, and you get to see the Northern light. And it's actually not -- pricing-wise, it's competitive with hotel stay on land without any meals included. So I think, definitely, there is a potential there. But it relates to the short voyage concept that we are developing.

So what are the major catalysts investors can look forward to this year?

I think it's obviously the operational side of it, achieving that occupancy and pricing during the high season. So that's one of the things we touched upon in the presentation is we are very balanced in terms of occupancy on the Northbound versus the Southbound route, which means that we have initiated some direct campaigns for short voyage during the summer season, which we are seeing the effect of now in the bookings, which is very positive. So I think the delivery on the operational side is, of course, a catalyst to deliver on what we are saying we think we can achieve. The refinancing is, of course, a potential trigger for any investor. And then once the -- and thinking more long term, once the next concession around for the government contract is announced, we'll know more about the competitive foundation for that transaction. And we'll also have more clarity on our position, which we think is very good for the 4 ships we have. And we think we have a good platform for growth within the group.

Do you foresee some conversion of debt to equity given the rather high MD EBITDA?

I think, at the moment, we are focusing on refinancing the mortgage debt, and we have not done for any equity or debt to equity. So we are working on the refinancing of the mortgage debt.

So by now, we have 2 questions left from the chat. When will you provide the annual report 2024? And also our Board has announced as of 27th of May.

Yes, that was provided yesterday. So it was announced yesterday. And I think the -- just to give a small comment on the delay in the reporting, I mean, we're a small organization. We have had kind of a very steep growth in volume over the past year, which has kind of taken a toll on the whole organization. We're probably experiencing what you would call growth pains, so -- which is a positive thing. But we have been preoccupied with ensuring that the quality is good. And for that reason, to present quality figures, we have kind of delayed the reporting. But it was published yesterday along with the first quarter. It can be -- it's available in both Norwegian and English, and I think it's a very nice report. But you can enjoy reading it.

All right. And the last question, are you aiming to beat the lower guidance?

If we are aiming to beat the lower guidance, I think we are -- we have a target starting now of more than NOK 400 million in EBITDA, which is a kind of a function of how we are able to steer the occupancy versus pricing. The pricing, we have achieved. So it's a matter of how do we kind of maneuver the occupancy into that range. We have some variability on the operating cost side. So we are doing -- we're taking the initiatives that we can to support that target. So I think we -- the target for this year is above NOK 400 million, and that's what we're sticking by.

All right. Thank you so much. So with this, as we did not receive any further questions, we will come to the end of today's call. So thank you, everyone, for joining and all your questions. And a big thank you also to you, Bent and Aleksander, for your presentation and your time. So I wish you all a lovely remaining Wednesday and hand back for some final remarks, which concludes our call for today.

Yes. Thanks a lot for everyone that have listened and also asked questions. If there are other questions, please send them to us, and we will do our utmost to answer. We are very optimistic for the future and looking very much forward to presenting the second quarter. So see you then.

Thank you.

Thank you.