Havila Kystruten AS (HKY) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and a warm welcome to today's earnings call of the Havila Kystruten AS following the publication of the Q2 financial figures of 2025. We are delighted to welcome the CEO Bent Martini and the CFO Aleksander Røynesdal, who will speak in a moment and guide us through the presentation and the results. After the presentation, we will move on to a Q&A session in which you will be allowed to ask your questions via audio line or the chat box. We are looking forward to the results. And having said this, Bent, please, the stage is yours.

Thank you very much, [ Ingmar, ] and welcome to this second quarter presentation from Havila Kystruten. We are quite delighted to show you that we are continuing the positive development into the second quarter and have a very positive kind of news also in the forward months to come. Next, please. Yes, just some pictures here to show that we have been quite successful in presenting this company and the product to the market, achieving recognitions throughout the world. Our customers are extremely satisfied, and that is, of course, something we are very proud of. Next, please. And then we take a general update from the company and then Aleksander will go more in detail on the financial highlights. Next, please. Yes, for the newcomers in this session, we are sailing on the historical route between Bergen and Kirkenes. We have a concession with the Norwegian government operating 4 out of 11 vessels on this route. We have been operating now for the second year with full operations. And we are now also waiting for the government to come out with the next tender for the concession for 2030 to 2040. So that's quite something we are looking forward to see, and we are very focused on continuing the positive development on this route. Next, please. For the second quarter, we had 100% operational uptime, a very positive uptime throughout the year. And the vessels are, technical-wise, very fit for these operations. And the organization has kind of grown into operating the modern fleets, the crew on board and the support organization assure. So we are very happy that we are able to deliver 100% operational uptime. Next, please. Some business highlights. We have been able to grow the revenues, 22% year-on-year, driven by 20% increase in average cabin revenues and also increase in occupancy for the second quarter compared to last year. And we are growing the EBITDA, the margins day by day, month by month and have a very positive development into the second quarter. And as you might know, the third quarter is the best quarter in this operation. We are continuing, developing the product onboard sales activities, et cetera, and working with optimizing the products, creating more margins. It's stable now, and we are putting more efforts into more activities, growing the day by day onboard sales. Also on the cost side, we are quite stable. The cost is more varying with the occupancy and cost of goods are kind of the majority cost. LNG is stable. We are focusing on reducing energy and have been very successful in the second quarter, reducing energy also delivering a 38% reduction in CO2 compared to the 2017 kind of figures, which is the requirement from the Norwegian government is to reduce 25%, and we are exceeding that a lot. That's our focus to really be good in reducing energy and of course, reducing emissions to air. Also continuing the focus on reducing food waste, second quarter, 57 grams per guest, which is extremely good. Our customers are extremely positive and satisfied with the product, and we are in average for the 4 vessels exceeding 70% -- 70 on the NPS, Net Promoter Score, and that is extremely good in this segment. Next, please. Also, continuing the focus on selling through our own channels. I think we have now really found the balance between agents, through operators and agents and selling through our own web page, direct sales, reducing our cost of commissions creating the margins ourselves. And that is, of course, something we will continue focusing on. We have implemented now the new CRM system, which is helping us to giving a much better support in the sales process towards the customers. So that is something that is day by day improving also the sales. The summer campaigns, which have been launched where we introduced short voyages has been a great success in Q2 and also now in Q3. So giving the customers much more flexibility, also attracting kind of a much broader audience or customers into this segment. Next, please. On the bookings side, we -- the DACH, the German market, Austria and Switzerland is a very strong market for us. We do see that we are attracting and growing in the U.S. market and Australia, New Zealand, we also grow now in the Asian market and having a very, very positive development when you look at the segments or the different customers that we are focusing on attracting is more younger audience. And we have been able to reduce the average kind of age of travelers with the activities we are presenting and also the focus on sustainable operations are attracting maybe different customers than in ordinary in this route if we look at over time. So the balance is now very good for us and the mix of channels of sales is very good. Next, please. 90% of the targeted sales have been sold already. We are having occupancy now in average of 67% for the year, very strong third quarter, and we are focusing on the fourth quarter. We have had a high focus on balancing the northbound and the southbound voyage. Last year, there was a 10% on balance. And this year, it's a balance, which enable us to create much more revenues from each guest, each traveler. And the majority of our bookings now are FIT, Free Independent Travelers, which normally contributes with higher margins. And of course, also the risk of cancellations in the group reservations that normally are in this segment, having FIT bookings, then we reduce those risks. And we have also changed kind of the contracts with agents and tour operators. So now the kind of order bookings for the year is fixed. There are no risks for cancellation throughout this year. So the year is looking -- we are quite optimistic for the year-end results. Next, please. Aleksander.

Thank you, Bent. Now next slide, [ Ingmar. ] Okay, a couple of words on the operational performance. So what you can see is the seasonality in our earnings and our EBITDA generation. We are now going into high season. So second quarter is usually our second best quarter in kind of a cyclical perspective. We grew by more than 22% on the operational revenues. The contractual revenues are somewhat lower and that's based on the indexation of the contract, which is based on a set of cost components. And the rise in Q1 '25 is related to an accounting effect from an option year that we have. So just to explain that difference in Q4 '24 and to now Q2 '25. And the rise in margin is driven by price growth, but also by occupancy growth. The second quarter was more than 5 percentage points better than the same period last year. Total EBITDA for the quarter ended at NOK 79 million, and we had a margin -- EBITDA margin of 19%, which is also better than what we had in the second quarter last year. Next slide, please. So on the key performance indicators, so what you can see on the occupancy throughout the different quarters, 74%, up from 69% the same period last year. Cabin factor is trending upwards. It's ticking upwards quarter-by-quarter, which is very positive. It means that we have more passengers onboard the ship. And we can sell onboard products, excursions, other products, et cetera, to all these guests that are traveling with us. So the rise in the cabin factor is a positive for -- especially for the onboard sales. Average cabin revenue has grown rapidly from kind of a low base. And we have touched upon kind of the background for that increase in the earlier earnings calls. But I think that the company started off with a low pricing to fill the ships. And then combined with cancellation and a lot of cancellations that was where we kind of offered our clients to travel at a later point at the same price. That price effect has kind of leveled off during the year. So I think if you look at the price increase in Q1, we have close to 40% price increase. Second quarter, it's leveling off a little bit with 20% increase in the ACR. But we still see that for the year, we are kind of in that range of 20-plus ACR growth compared to last year. And then it's kind of that's driving the increase in margins. On the operating or the onboard sales per passenger night, Q2, we still haven't seen the full effect for some of the initiatives that we have implemented this year. It's taking -- taken somewhat more time to implement these initiatives. But we are seeing now that for the latest summer season, onboard sales are picking up per guest. So that's a positive sign. I think one of the key focus areas for the company throughout the third and fourth quarter and into '26 is to drive the product development of more than increase onboard sales. Next slide, please. A couple of words on the costs. Costs have stabilized. We had some of the costs in Q2 '25 compared to Q1 '25 at the higher -- a much higher occupancy. So that's positive. If you look at the composition of the cost, crew, which is variable with occupancy, it's a large COGS and LNG and the OpEx for the vessel and the hotel is going to be second one and third biggest cost events. Next slide, please. Looking at each cost category. On the left-hand side, you have the most variable cost components, which is the cost of goods sold directly related to how many passengers we have onboard and how much they are spending when they are onboard. Payroll crew is also -- I mean we have a minimum money that we have to [ alert ] but the crewing is also related to the occupancy of the ship. And I think it is quite good that we have been able to manage the crew costs compared to kind of the increases we saw last year. I think we had a lot of training on personnel, which have been leveling off somewhat. OpEx vessel is more stable. It's more related to ongoing operation of the ship. We have a large component in the OpEx vessel, which is related to our power by the hour agreement with Kongsberg. Port cost is a large component of the OpEx that kind of follows cost inflation. For the LNG, the LNG cost is directly linked to the LNG market price. As we announced in August, we renegotiated the LNG purchase contract in August, where we have opened up for the ability to acquire 1/3 of the volume through a second supplier in the North. And based on the pricing formula and the forward pricing that is present, we see that this would lead to 10% savings on the LNG on an annual basis. So we expect that to take effect from the fourth quarter this year. Admin payroll is also fixed -- more fixed cost related to cost inflation. But there could -- there are some swings from time to time, especially Q4 last year, where we had extra initiatives on the marketing side. So on the right-hand side, you can see the kind of breakdown chart occupancy compared to costs. So we are currently following the line Q2 '25 was on the line. And it kind of shows the sensitivity of occupancy and operating costs. Next slide, please. So on the outlook, we maintain a target EBITDA of NOK 400 million in 2025. We have a large focus on margin improvement for the year. I mean that's been the main target to improve our margins. We have an occupancy target of 75%. We still have some volume to sell to reach that target occupancy for the year, which is at 67%. But what we see is that the kind of behavior of our customers is changing a bit, especially with the increased offering of shorter voyages. So we see that the customers book their trips closer to the [ plotter ] than before. So we're still optimistic on getting there on the occupancy for the year. ACR still maintaining that plus 20% increase in ACR which means that the overall margin will also improve substantially from last year. 2026, still focus on improving that margin. What we see on the bookings that we have for next year is that we are more than 10% above the same time last year on the average cabin revenue. So we are within that 10% to 15% range in pricing. We are working on the occupancy and on the marketing campaigns for next year to reach a higher occupancy than this year. And we have kind of an increased focus on developing additional revenue streams. And what we see is that we've kind of started to try a little learn a lot on the additional revenue streams. And we have started bundling trips where we offer flight and stay combined with the voyage. And we see that this was implemented at first last year. But what we see now is that the interest for this is taking off and it is really a focus area for 2026 just to build on that packaging. So I think that's the -- with those initiatives and with that price increase, we are looking for plus NOK 600 million on EBITDA next year and that we will, in the subsequent years get into that range of NOK 600 million to NOK 800 million in EBITDA. And we see that the pricing is kind of a lot higher on the shorter voyages. So compared to like a half trip compared to a round trip, guests pay more per cabin per night, and they spend more while they are on board. So we believe in that strategy. It's just taking a little bit more time than just filling the ships with round trips. Next slide. Okay, a couple of words on the financing side and the refinancing process. So we signed an amendment agreement with the existing lender for our secured bond in July. And what we did was extend maturity by 6 months, so maturity is now in January '27. And we align the covenants of the agreements with kind of our operational ramp-up phase, providing headroom in the covenants to our projections. And we reduced the interest rate for the first 5 months, where there's a step-up in -- at the end of the year. And again, to achieve that, we settled the core premium, the core protection of the loan, which means that the new principal amount is NOK 326 million, and this will be booked in the third quarter financials. But I think we see this as a step in the refinancing process. So this is the first step. The next step is to find more firm footing, and we have engaged Arctic Securities to drive that process, and we are working on a number of alternatives that -- on the financing side. Next slide, please. So on the -- we get a lot of questions on the book equity and the negative results. What we see is that our book equity is impacted by currency. So in the second quarter, we had NOK 150 million negative result from changes in the euro-NOK exchange rate. And it's unrealized losses. So what we see, a large part of the negative equity is related to currency. So if you look at the value-adjusted balance sheet where you have kind of debt in euro and you take your ships in euro at the quarter broker value, we had an average value or accumulative value of all the 4 ships at NOK 688 million in the second quarter which means that the value adjusted book equity is more than NOK 3 billion. So I think we still feel comfortable that there's substantial value in the balance sheet. And for us, it's now a matter of improving the operating model and building the operating results to match that large underlying value. Next slide, please. Yes. A couple of words on the share. As I mentioned, we see substantial asset backing from the 4 ships and the contract with the Norwegian government. We will continue to deliver on sustainability, and we have an ambition to become climate neutral by 2028. We are now looking into first phases of blending in biogas to reduce our emissions further and to prove to the government that it's possible to achieve pretty climate goals today without any modifications to our ships. And we think that there's kind of good potential for us to grow on the coastal route with the 4 ships we have who can comply with kind of any stricter environment regulations that can be implemented in the future. What kind of the signals we get is that the coastal route is a very important part of Norway's environmental efforts. And it's kind of one of the top 10 areas where the government can really cut emissions that will impact the CO2 balance of the country. A word on the share split that was the reverse share split that was announced at the AGM. We have been working through the summer on practicalities, and we have some obstacles with the Norwegian holiday. And what we see is that because of the technicalities, we will need to do an eGM to ratify all the details of the reverse split. So we will get back to that. Hopefully, we can execute it in September. And that would mean that 1 share -- 50 shares today will be become 1 share after the split. Next slide, please. Yes, I think the key performance indicators we've been through is more for reading. The presentation has been published on the stock exchange, and I think it's more for analysts and shareholders to have a track record of our KPIs. And just to -- for everyone's recollection, the KPIs are sourced from the company's booking system. So there are discrepancies between the figures -- the KPIs and the accounting figures because of some prioritization and some currency effects. But it shows kind of a good picture of the operational performance of the company. I think that concludes it, [ Ingmar. ] So we are open for questions.

[Operator Instructions] Mr. Kruse, you should be able to speak now.

Yes, I have a few actually. I would start with sort of the, yes, the relation of occupancy and pricing. I would gather that overall, compared to maybe what you projected last year. Occupancy is the KPI, which is maybe still lagging a bit behind your initial thoughts. What is your thoughts on sort of the pricing effects on demand and if you maybe overstep at the one or the other end? Or yes, what are your thoughts there? That would be really interesting.

Yes. So you can fill in that -- but I think the -- a lot of the price increase is kind of coming off a very low base. So if we compare ourselves with our competitors, we are not expensive at all. So -- and some of it is coming from these canceled trips that were booked at very low prices. But I think we see with the 10% increase that we have for next year that we were kind of reaching a level now that where we see additional price increases over and above that. It can be achieved by mix -- by improving the mix of voyages just as I mentioned in the presentation. We have a lot higher average cabin revenue for shorter trips and for half trips than round trips. So I think we will seek to grow pricing is further and to grow the yield on the existing cabins is to the level of shorter trips and package that in a way that we can extract more value from the cabins. We are touching kind of on an absolute pricing level. I think we are touch and go where we can -- we're looking to hit.

Okay. Yes, I saw that in the report, you mentioned that the shorter trip revenue was up 40%. I think that's very encouraging. Could you maybe quantify what more or a substantially higher price for the shorter trips means? Is that like 10% or 15% or 20% sort of on a like-for-like basis or more?

I think I don't have the number in my hand, but it's around 20%, I think, for half trip compared to round trip.

It is the difference between Northbound and Southbound. So some of the North -- half trip Northbound is by far the best pricing.

Bent, maybe you could comment on sort of the relation. You mentioned that you have 3 individual travelers. That's the sort of strongest growing group. On the other hand, agency -- the share of agencies was higher in Q2. Is that like the normal seasonality? Or does that not relate to each other? That means that 3 individual travelers could also have booked by agency?

So the travel agents also provide -- provides a conversion. They are selling FITs also. So it's -- so the balance is as we see the development, this is very positive. And the good thing is that like the travel agents and our operators, they are kind of those that are filling up the books quite ahead like for 2026, we already have about 30% of all capacity is booked. And of course, having good partners in agents and tour operators that is kind of very positive for the company.

Excellent. Aleksander, maybe 2 quick questions on the costs. Bunker costs were lower than Q1. Was that the normal seasonality or also some -- yes, other effects. You mentioned that the new contract will kick in, in Q4. So that's nothing we can see here. And then maybe personnel cost also was lower than in Q1. Maybe you could just comment, is this a level we can expect going forward? Or did you move some costs from sort of the personnel cost to variable cost, maybe which were then in cost of materials to maybe external sailors. Yes, that would be interesting.

Yes. So on the LNG cost, the port energy price was higher in the first quarter than the second quarter. So it's more a market pricing. So we see that the market price for the TTF pricing for LNG has come down quite a bit. The last time I checked, it's around 32 which is a lot lower than what it was in the first quarter. So we can kind of expect that in the third as well. And then as you say from the fourth quarter, the new arrangement kicks in. And we do expect to extract savings from the fourth quarter onwards. On the personnel, I presume you mean crewing. And I think part of the crewing costs in the first quarter is going to -- is also related to end of the year where some of the very highly booked trips in late December is kind of flowing into the first quarter because some of the trips they start at the end of the year and then they end in the beginning of the first year. But we do see that we have better control on the growing costs and on demanding compared to occupancies. We are working hard to kind of optimize the demand in accordance with the occupancy.

Okay. Perfect. Then maybe last question. On the cash flow, which was positive in Q2. Two questions there. Can you remind me like on the cash flow profile over the year. And secondly, I remember that at least last year, you still had some issues with credit card issuers that prepayments didn't really flow through to you due to you being like a start-up in there due to the young company age. Can you maybe comment on that and how that's developed? And yes, that would be great.

Yes. So in terms of prepayments, the level is usually at its highest at midyear like beginning in July. And then it's at a low point at the end of the year. In the first half of the year, we managed to release probably half of the withheld prepayments. So the payment provider originally held back almost everything and then they reduced it to 60%. And then we have worked with the payment provider as our results have improved. So part of the improvement in working capital in the first half is also related to release of these prepayments. There's still some prepayments being held back approximately EUR 3 million. And we are working to get that released now in the second half. So that's kind of a positive on the working capital. It means that we will -- our working capital is moving into a negative territory, which is in our case, good because we do sell far ahead. And we would like all that prepayment to be paid to us and not held by a third party.

Thank you very much, and we move on to a question from the chat box. First of all, the participant thanks you for the great presentation and is curious about how you can say anything about the performance compared to competitors? For example, how you can communicate the obvious advantages Kirkenes versus Hurtigruten with existing and potential customers?

That was a tricky question. I think what we see is that both have a very positive development on the occupancy and the number of guests choosing to travel the coastal routes. So in general, we are -- that's a very positive that both companies actually are having success. And of course, the -- we are trying to kind of do something different than our competitor, and they are trying to do something different than us. So that's for us, it's -- we are very focused on kind of giving the customers the flexibility to choose like shorter voyages and have a lot of focus on creating those opportunities. And now we see that it is giving us a very good development now in bookings. The -- those traveling on shorter voyages are also willing to pay a bit more. So that's also helping us. And of course, the flexibility of kind of doing this is also a basis that we have 4 sister vessels that they are similar and the pricing model we have on the bookings -- following up the bookings, et cetera, enable us to manage kind of the whole year and the continuing kind of filling up the vessels even though we are having shorter voyages. So I think that's a big difference between the companies today.

Well, thank you very much. And there is a question from the same participant. If it would be possible to talk and clarify a bit more on the currency challenges which had a big effect on Q1 and Q1 results, how to cope with such going forward?

Yes. So I think the challenge is that we have an account -- we have accounts in Norwegian kroner, which kind of related to our Norwegian setup and the fact that we do operate on the coastal route. And then we have assets which are priced balance sheet-wise, are priced in euro. But in our books, they are booked in Norwegian kroner and since the assets or the ships, they are built kind of in a European context, they are priced in a kind of a secondhand market price in Europe. And we have -- probably in last year, we had close to NOK 400 million in equivalent revenues, which is covering kind of the interest expense. So for us, to borrow in euro is the natural thing because you have a hedge on the debt service and then you have balance sheet protection because the secondhand value is in euro. But at the same time, we are operating in Norway. We have revenues in -- from the Norwegian government in kroner and from a number of guests in kroner, which are matching with the Norwegian cost. So I think it's noise. So over time, it should level out, but it's noise and it makes it difficult to read the bottom line. So we have discussed a number of times to do that. Our competitors have accounts in euro. So that is certainly something we are looking at to avoid having these large unrealized currency swings from month to month or from quarter-to-quarter.

Well, thank you. And we get back to Mr. Kruse, who has another question.

Yes. Sorry, for following more. But I do have 2 questions or maybe 3 actually on the reporting. Is this something you're looking into for 2026, Aleksander, the euro switch? Or is there any sort of regulatory topics? Or is it just more an internal readiness that's sort of a factor for that?

It's kind of internal readiness. It's regulatory as well where we need to apply for it. But it's been under discussion for some time. And it's something we are evaluating. I don't have a time line for it at this point in time.

Okay. Then maybe also on the refinancing, just a quick question there. Is it -- maybe you could just -- I don't know if this is a moving target and the process, but sort of the tendencies, is it still mainly your thoughts on refinancing? Or how are the chances or your thoughts on maybe sale leaseback kind of options or a mixture? That would be interesting. And then the final question, you mentioned that you will be blending in biogas to further improve your CO2 profile. Is that on your account? Or is this together with sort of a subsidy from or payments from the government on that?

Okay. I can address your first question on the refinancing and I'll leave the biogas. So we are I mean we are, with the amendment, we are positioned to do a refinancing now. If the conditions are right, then our adviser is working on a number of alternatives. They are pursuing private placement or...

We just lost the connection to Bent and Aleksander and I'll wait a few seconds until they reconnect, I just stay online. Hopefully, they will be back with us in a few seconds. Well, there seems to be a problem with Bent and Aleksander reconnecting. I'll wait a few more seconds. I can tell in the meantime, that have been no further questions. And unless Bent and Aleksander get back to us, I would rather say that we come to the end of today's earnings call. Thank you, everyone, for joining and your shown interest in Havila. Should further questions arise at a later time -- well, there is the reconnecting to Bent and Aleksander. So well, we move back to those. And if you unmute yourself, we can get back to you. Maybe I just try to give you the opportunity to speak. Yes. Now we can hear you and get back to you. So welcome back.

Sorry, the power went out there. Okay. Tim, you still there?

Yes, yes. So I think you mentioned that you're working on all kinds of scenarios with Arctic.

Yes, we are working on private placement like private debt solutions. We have set up a syndicate for public bond. The public bond market is probably as good as it has been in a long time. So I think the window for the public bond market is certainly attractive for us. So for us, it's a balance of market conditions compared to our operating results and our ability to get acceptance for kind of the ramp-up phase of the company. But we are also looking into leasing solutions in our -- leasing in the European context and also leasing from other places. So we are pursuing kind of a number of options. And we may do this in a 2-step approach or we can -- or if the terms are right, we can do it more long term, but it's kind of dependent on the market conditions, what's available and then also the progress of our ramp-up. But we are positioned to do it now with the amendment, and we have more time and we are less going to stress on time and covenants that the North require.

Okay. And then maybe just on that, is that the principal of the big loan you're looking to refinance or also part of the shareholder loans?

It is primarily the secured bond. But depending on the transaction, we may also kind of address the shareholder loan as well. Bent, on the biogas?

Yes. As a company, we do have ambitions to start blending in biogas already next year. And the ambition is to be 100% climate neutral in the end of 2028. We have dialogue with the potential delivery of biogas along the Norwegian coast, and that is looking quite positive. We are, of course, in dialogue with the Norwegian government for doing this. And of course, they also are very focused on reducing their total CO2 emissions. And we, as a company, could actually enable them to at least deliver on the targets in this concession, if you look at the 11 vessels. Today, there are -- we are the only one delivering on the 25% reduction. And we can actually reduce the CO2 emission and help the government to deliver on their targets. So that's kind of the discussions we have, and it's a very positive discussion with the Norwegian government.

Okay. Understood. And so you would be compensating for your competitor on the route in a way if you over deliver on your -- yes. Okay. Understood. All the best for the upcoming projects.

Well, thank you for your question. And as I said to the participants and now to you guys, as you are back. In the meantime, we have received no further questions. And therefore, we come to the end of today's earnings call. Thank you very much for joining and showing your interest in Havila. Should further questions arise at a later time, please feel free to contact Investor Relations. Thank you, Bent and Aleksander, for your presentation and the time you took to answer the question. I wish you all a lovely weekend. And with this, I hand over to Bent and Aleksander for some final remarks.

Thanks a lot, Ingmar, and thanks a lot, everyone, for participating and listening in and looking very much for presenting the results in the third quarter for your guys. Thank you.

Thank you.