Novaturas AB (NTU1L.VS) Earnings Call Transcript & Summary

Dear ladies and gentlemen, welcome to quarterly webinar for Novaturas. I am Simona Backiene, Account Manager at NASDAQ Vilnius, and I'm pleased to introduce today's hosts, Chief Executive Officer of the company, Audrone Keinyte; and Chief Financial Officer, Tomas Staskunas. Firstly, the management of the company will comment Novaturas' financial results for the first half of 2020. And the questions, as always, will be addressed after the presentation. Dear Audrone Keinyte, please go ahead.

Good morning, dear investors, members of financial community and other participants of today's presentation. Today's presentation will be held by me and also will be assisted by our -- the group's Financial Director, Mr. Tomas Staskunas. So during today's presentation, we will review the results of Novaturas' business activity of the first half of the year of 2020, which unfortunately has been very significantly affected by the COVID-19. We have recorded very successful start of the year in 2020. But unfortunately, from the second half of February of 2020, we have faced the unprecedented crisis in the world and especially in tourism and aviation in this year. So from the middle of March, no any business activity has been held by Novaturas, the operation has been suspended. And therefore, our key financial and other performance indicators record very big changes in the numbers compared to 2019. So talking about our revenue. Our revenue compared to 2019 has decreased by more than 3x. On the second quarter of 2020, we did not generate any income since the operation has been completely suspended due to existing restrictions worldwide. The first quarter results were already presented, but they have also been affected by the crisis, which since the month of March has already been affected by the crisis. During the first quarter of 2020, we managed to reach EUR 23.4 million of revenues. And therefore, the half year results are more or less the same. So the revenue of the first half of the year of 2020 is EUR 23.5 million, compared to EUR 83.3 million in 2019. The EBITDA that has been achieved is minus EUR 800,000. In 2020, during the same period, we have achieved EUR 1.7 million in 2019. Therefore, the net loss generated during the 2020, the half year, is minus EUR 2.2 million. So the results, as mentioned, have been very significantly and negatively affected by the crisis. And therefore, since -- especially during the second quarter of the crisis, we have continue to the crisis management. I would like to comment more details what kind of measures have been taken to control the crisis successfully and smoothly. So first of all, from the very start of the crisis, we have followed a very strict cost control. We suspended all investment projects. All unnecessary technology or marketing projects have been suspended due to the situation and all other costs have been controlled very strictly. Second is that we focused very accurately on operational efficiency. We have reviewed our processes, our resources. And we have managed to take certain measures to increase our operational efficiency. We have qualified certain employees in order to be more efficient in the parts of the business that were the most necessary during the crisis management. Third is that we are continuously negotiating with foreign partners and suppliers for more flexible pricing and in view of existing commitments. The -- all our contracts for the existing season as well as for the future seasons have been renegotiated in order be able to have the most attractive conditions for our customers. We have also managed to open the next season sales earlier than usual with the most aggressive contract rates. Again, in order to be able to offer to our clients very attractive options for the -- so they have a better, attractive option of rebooking for the -- because of their canceled holidays. Further, so we launched the local tourism services in all Baltic markets. Since the domestic driver -- demand for domestic driver income has increased significantly across the people, the market is intending -- or bigger market share is intending to spend their holidays closer to their homes and not to travel abroad. So here we have also reacted to this, and we have adapted our product by including the local products, the hotel accommodation services and the sighting tours in Lithuania, Latvia and Estonia. Then we partially restarted operations as of 1st of July to the same destinations. So the restart of the operations here was very important for us. We have followed very accurately the recommendations of the official institutions that are regulating our activity. And since the major restriction has been released by the mid of June, approximately in all 3 markets, we have taken a couple of mix to prepare for the restart of operation to -- as well to make sure that the indications and the terms are not being changed. And then from the beginning of July, we started our flight operation to Greece, which among all our countries is the most safest destination considering the COVID spread ratio. We are as well following further very much the indications of the other countries that are within our portfolio. And whenever the indications become more positive, we are ready to start the other destinations. In all 3 Baltic markets, we have intensively held our conversations with the government, and we have aimed, and we have managed to use all possible aid measures. So first of all, in Lithuania and Latvia, we have agreed for the state guarantee liquidity loan, which is EUR 1 million in Latvia by Altum and EUR 5 million in Lithuania by Invega. As well, we have got one subsidy in Estonia of EUR 60,000. Finally, we have used as well all the employment subsidies in all 3 countries. In all 3 countries, we have had certain differences between the countries, but we have used those measures in all 3 countries. And in this way during the first half of the year, we have got a subsidiary of EUR 135,000 of the salary compensation. Apart from this, I would also like to mention a few other measures that were also very important to the crisis management. So first of all, we have spent very huge efforts to deal with the clients in the best way and the most quality way, and to make sure that our clients have proper and very attractive options. And therefore, we have offered to all our clients 3 options. So first of all, we were able to change their holidays and fully book their holidays for later period or for the next year with in most cases with the same conditions that were in their original booking. Second is that if they were not sure of their second choice, then we have offered them a voucher, which has been like offered in all 3 markets as well for the clients of all 3 markets. And this voucher and the value indicated in the voucher is also covered by the tour operators insurance, which is a very important factor for the clients in order to feel safe. And in a case, the client has taken the voucher in most cases, we have offered them the commercial value, the added value with a certain additional percentage amount on the voucher value, add-on. And finally, the last option, which is the refund. So for the clients which were not willing to choose the first or the second option we have offered, they could also choose the refunds. So the refunds due to the cash flow situation and since the tourism, all industry pays the same situation due to the seasonality of the business and the prepayments done to the destinations and the cash flows or fees of the destination. So the refund procedure has taken some more time, but we were one of the first leaders to start the refund procedures in all 3 markets. By this moment, we have already refunded approximately EUR 2 million to our customers. And of course, we are very grateful for our customers that they -- for their belief and their trust in our company, and we are very happy and very grateful that a majority of them have chosen the rebooking option and they will be traveling with us again in the future. This is a very important factor because this allows us also to keep a certain basis for our planning for the future. As well talking about the crisis management, I would also like to mention that we have been very strictly or very intensively working with our destinations in order to get or to manage our cash flow situation. So we were aiming to get some refunds of our prepayments to the destinations. So from one of the major destinations where we have got the biggest amount of the money prepaid, we have managed to refund a certain amount of the prepayments, which is Turkey. Moreover, the season there is not starting and is still suspended. We hope that we will be able to operate it later this year. Currently, Turkey operation is stopped. It will not be -- or all flights are canceled till the end of August. As well, due to the fact that we could restart our flight operation to Greece, this also allowed us and allows us to consume our prepayments there. So more than EUR 4 million have already been refunded from the destinations out of all our prepayments done to the destinations. We'll go further to the other slides, but since the figures are pretty much not changed compared to what we have reported on the first quarter, I would just mention the main highlights in the next slide. So talking about the PAX numbers, we have had [ 31,200 ] of the clients, which were actually -- or all those numbers have been generated from the first quarter. And in terms of revenue, we have reached EUR 23.5 million. Then talking about our product portfolio and our sales or revenue share. Within our product portfolio, we have included 1 new category of the product, which is the local product. And therefore, during the 2020, the half of the year, we have generated -- or the sales share within the product -- for the local product is 0.1%. But we have started the sales for the local product in the beginning of the summer season, so in the beginning of June. Therefore, the numbers are -- we do not have time to generate more production to this product typically during June, which is also part of the half year. For the future, we are noticing an increase in the demand and increasing sales from all 3 markets. And as well, we are selling the all 3 products in all 3 markets, meaning that some -- for example, Lithuanian product is being sold in Latvia and Estonia, and we noticed quite active cross market selling. Talking about number of travelers within the countries. Again, we see the distribution within the markets and the numbers have seen like the first quarter of 2020. I would just maybe indicate the main trends. First of all, I would like to highlight the Estonia numbers, which are -- which have quite, let's say, big part in the group, let's say, PAX numbers. This is mainly due to the reason that in Estonia, we had quite, I would say, an ambitious planning for the first quarter and quite very successful operation. As well, we have taken over the operation of another cooperator, which has suspended its activity in Estonia, which was Aurinkomatkat, so that's why the first quarter numbers are -- in Estonia are relatively higher than usual within the market. As well, talking about those numbers, I would like about the distribution of the sales within the markets. I would also like to mention a few points we have in the future sales and current situation even after we restarted our operation or during the rebookings procedure, we have noticed a very positive activity in Estonian market. So Estonian market's numbers are -- continue to be very, let's say, positively effected. Talking about the destinations. Again, this chart shows the real situation, whereas Turkey and Greece and Bulgaria, the 3 main destinations and the countries where we have our summer destinations were not operated at all till the end of June. The work -- we could not -- we don't have any sales share in those destinations during the 2020. And so we can only compare the results of winter destinations, which was more or less the same trends or the same trends as we reported in the first quarter. So in general, the summer was not started. So it has been restarted only in the 2020 July, and it has been started currently by this only. We had also a few -- very few flights or like 1-week operation to Bulgaria, but we have to suspended it due to the COVID spread. So therefore, now we are, as I mentioned, that we are aiming to include and to expand our flight operation to other countries and destinations where we can fly and where the safety measures or safety indications allow us. Talking about our restart of operations. I would also like to highlight that we are in a very responsible planning and operating our flights. First of all, we are choosing only the destinations and the countries where we are sure of the safe situation. So first of all, the ratio of the COVID spread. We don't fly to any destination where the ratio does not -- or provides more, let's say, problems or obstacles or more risks on the health and safety. So that's why currently only Greece has been chosen to be operated. At this moment, the second thing is that we are very actively working with our suppliers, with our aviation suppliers, the destinations with our suppliers, the ground handling suppliers on the destinations with the hotels to make sure that all safety measures are implemented 100% and our clients and our tourists can be safe. And still, in this unlikely situation that the COVID spread ratio is increasing, again, we are reacting to this. We are not continuing our program. So that's a very important factor, which actually differentiates us from the regular airlines or low-cost airlines. We are very responsibly performing our business activity and taking care of the client and his -- and their health first. And finally, I would like also to mention that especially in this crisis situation, which is a crisis, but it can -- a crisis as well an opportunity, I would like to see that we are noticing already that more and more clients, they are choosing to operate not just because of attractive product or many other factors, but it's more because the traveling with the tour operator is very safe. This crisis situation has had, let's say, or this traveling situation before -- once the current time has been started, many clients have yet or many -- not our clients, but many people worldwide had very negative consequences because the airlines did not take care of them and they had to find their own ways to come back and so on. So talking about us, as a tour operator, we are taking care of our clients in such unlikely situation that the clients have to be brought back from the destination, we would always take care of them till the last point. So that's in the -- I would say, in the current context and current circumstances on the tour operators, the safety of traveling with the tour operator becomes very important. Finally, talking about the distribution, again, since there were not no sales during the second quarter at all. We see still an increase of online sales, so by 1 percentage point compared to -- almost 1 percentage point compared to last year. Another change where I would also like to additionally comment that our only deal, it has also to record -- the second half of the year records and increased sales share for the -- through our own retail channel. So first of all, during this again crisis situation and especially during the second quarter, we had to deal with the rebookings. And since the working conditions were quite difficult for all industries as the work has been remote, we could not control to maximum maybe the B2B channel since those are the independent travel agencies, external travel agencies. But we have taken very intensive, let's say, monitoring of our own employees and especially the ones who are in charge of their own retail and the web sales consultants. So therefore, this number can be affected by this plus due to the nonperformance of one of the travel agencies in Lithuania and also not fulfillment -- no fulfillment of the contractual obligations, we had to terminate the contract with them. And therefore, the clients are now being taken care of by Novaturas, by ourselves. So this number, as mentioned, is mainly influenced by those 2 factors. The profitability figures again. Most probably no need to go further into them since the main performance indicators have already been presented in the beginning of the presentation. And I would also have just a quick view on the efficiency and productivity ratios. On the second quarter, we did not have any operation, therefore, there is nothing -- no comparison or no logical comparison. But I would just like to mention that during the first quarter, we have managed to increase our profit per PAX and our average package selling tour price, which is seen in the half year numbers. And this is just -- it confirms again the fact that the 2020 and the start of the 2020 year was very successful, and we were going on a very positive trend. Now talking about the operational expenses. We are -- as mentioned, we have implemented a very strict control on the operating expenses. Actually, this is a continuous optimization process, which started already in 2019. In 2019, during the first half of the year, we have also reduced our operating expenses by 5%, which considering the success still very active markets and good capacity as well as I would say, an achievement. But of course, during this crisis situation, we had to implement completely other measures. And therefore, during the first half of 2020 year, we have reduced our operating expenses in total by 57.2% compared to the previous year. Apart from the fact that we are optimizing and formed very strict control, we are still not compromising with our quality. During this period, for us, it was extremely important to handle our clients and to deal with our clients in the best possible quality way, with our B2C clients, with our B2B clients, with our travel agents and to have a continuous communication and work with them. And it was, of course, very, I would say, critical situation because of huge loads, the huge loads of bookings that we had to change and to modify manually. And therefore, it has taken a much effort from our side. As mentioned, we had also to rotate some and to requalify some of our people, and we are focused very much on the service departments in order we can be as possible, efficient and also to deal with the clients as much as possible smoothly. Another thing is that we were and we are still following a policy that we are aiming to maintain the employment as much as possible because majority of our team, majority of our employees are long-term employees with very strong competencies in the tourism industry, in the markets. And therefore, we continue following the same policy because this is what -- this is one of our, I would say, big advantages and values. And we are -- even during the crisis periods, we are searching for different measures in order to optimize our costs, but to maintain our employment. And this is what -- and to be fully prepared and ready for a very successful, let's say, operational growth in the future. So talking again also about the operating expenses decrease. I would like to say that since we used also the measures provided by the government and also since the -- especially the second quarter was still in the strict quarantine regime, we had depart of our employees, so majority of our employees were on downtime. While on the second half of June, we are -- we came back to full operation. And finally, I would like to mention a few other changes within the company. So first of all, we had changes in the corporate governance structure. In the end of June, the supervisory council or supervisory board has been kind of removed from the corporate governance structure. And now we have the Board, and accordingly, the previous executive management board has -- is now in the top executives category. So within the top executives, we do not have any changes since the last presentation that has been done. So among our top executives, we have our Financial Director and our Commercial Director, which are long-term company employees and are also the key persons in the company's management. Talking about the Board. Since the supervisory council has been removed from the corporate governance structure, we have new Board with big part of new members. So within the Board, we have 5 members, 2 of them are independent members of the Board. So our board members are Vidas Paliunas and Ugnius Radvila who are also one of the founders of Novaturas more than 30 years ago. And also, they have been also members of the supervisory accounts of the Board. We have also another shareholder in our Board, Janek Pohla. So Janek has joined us and he worked from 30th of June. And then we have Andrius Jurkonis and Virginijus Lepeška, which are independent members of the Board. Andrius Jurkonis has a very extensive financial knowledge. And Virginijus Lepeška has very extensive experience in organizational consulting corporate governance and strategic management. Another important change that has happened during the second quarter of 2020 is that we have changes in our shareholders' structure. The Polish Investment Fund has exited from -- and is no longer a shareholder of Novaturas Group, and now we have I would say a very diversified shareholder structure. So the -- as we see, the among 2 biggest shareholders, we have 2 investors, Rendez Vous and Moonrider from Estonia. So both of them are from Estonia, and they have taken part of the shares from the Polish Investment Fund. Then the ME Investicija, Ugnius Radvila are the shareholders that have already been within our shareholder structure earlier. And then among the shareholders that have less than 7%, we have Rytis Šumakaris, we have Vidas Paliunas and Rondam AS, which is another new shareholder due to the exit of the Polish Investment Funds. So this, I would say, current structure of the shareholders and the fact that we have the shareholder structure has been complemented by the new shareholders from Estonia shows that the shareholders believe in us and trust us, and we are grateful for this. And with this structure, we can just follow even stronger our experience and very open business activity and investors relations. So that's for today. Now we will be pleased to answer any questions you might have.

[Operator Instructions] The first question received in advance was about the effect of COVID-19. Please elaborate on action plan to overcome difficulties caused by COVID-19. So the first slide was dedicated to measures taken by the company, but maybe you would like to follow up again on this question.

Thank you for this question, I would stress the mean issues which the company faced the liquidity issue, operational efficiency issue and working with a huge number of clients who have to be persuaded to change their trip, to delay the trip or to make other decision. So regarding the liquidity issues, we have renegotiated with our bank loan terms. We have received additional loans in Latvia and in Lithuania. Also we carefully approached and managed to claim part of our prepayments to the destinations back. And also we made a big effort to make -- to decrease our overheads as fast as possible and as low as possible for the time being. Then we had no operations. And of course, we have worked hard to propose the best offers to our customers. And to agree with our customers on the best way to handle this situation for them and for us.

Thank you very much for your answer. And the next question received in advance is the following: what are intentions of the new incoming large shareholders communicated to the management, if any communication?

So the new shareholders, which came from Estonia, we just indicated during our talks that we are considering increased investment as a long-term investment. Also one -- the biggest new shareholder is -- on the whole company is presented in our Board by Janek Pohla, who is the sole owner of this company. So he just decided to also take an active role in the management of the company. So in general, the investment is viewed as a long-term investment. And we are happy to have very diversified investment -- investors in our company.

Thank you. Currently, we are waiting for more questions. And one more question arrived. You received many negative opinions about money refund, what it takes for you about 3 months to give back customers money for canceled trip when you received government help. What's your opinion? Why it takes so long time?

For me, it's really hard to comment why government help took so long because we -- of course, we are very happy and very grateful to governments of all our countries for their help to the business. But of course, we saw the examples in other European countries, which were faster. Maybe it's because it's first such a huge crisis for our governments, and were not ready in advance how to provide help business very fast. But finally, we received loans in June. And also, we are -- there are some additional measures concerned like Invega is starting to provide additional loans to make refunds faster to the clients. So hopefully, we will be able to make it faster. But we were always trying to be in line with our cash flow projections and to government help.

Thank you very much. There is one more question. How long can you burn cash with minimal operations if we face second wave of COVID-19 in autumn?

So first of all, at the moment, we are operating. We are flying. We are flying from the start of July. Of course, we cannot know for sure how big operation, we will manage to have in the upcoming months. In case we will have a big second wave and again, total lockdown, we will just make a fast reaction to make again, significant decreases in our operational activity and our operational expenses. And our cash burn is not very big by taking into account that we are a lean business. We are a asset-light business. We don't have to support big asset items in the company. So we have enough liquidity to support the operations for a long time even without any activity.

Thank you very much. Currently, the questions are answered. We will wait a bit for more questions to come in. And there is one more question. When do you plan to be cash flow positive?

So in our business, of course, the volume is the main factor to -- and profits and to be cash flow positive Of course, we are -- as long as we are managing to claim back the frozen cash in destinations, we are generating positive cash, even if our volumes are very low in July. In general, I would say in July, our volumes are really low. But to be cash flow positive on operational level even not taking into account cash flow recovery from destinations, we only need about twice as big operation as we had in July. 2, maybe 2.5x bigger operations in July. And in July, operation is very, very small. So if we will reach approximately 1 quarter of our normal operation, which we had last year, we can be on a break-even point of our cash generation from our operations.

We received one more question. After governments of Baltic market will inform that main destinations as Turkey and Egypt is banned till the end of the year, how are you planning to make refunds for EUR 17 million if, for example, Estonian government can support only maximum is EUR 1 million of loan without assurity?

So answering this question. First of all, there is no such decision and those destinations are not yet banned till the end of the year. The situation is very dynamic, changing better fast. So we cannot claim and we cannot base any kind of planning or statements that the operation to Egypt and Turkey will be banned till the end of the year. There is no such statement from the government, and we are aiming and we are ready to restart the operations to Turkey and Egypt and any other destination once the restrictions or regulations are changed. The second thing is that Turkey has already -- we have missed a good part of the season to Turkey. So quite a major part of the season to Turkey, and we managed to handle the situation in a quite -- a very good way. The part and the biggest part of the clients have already changed the trips to the next year. So among this EUR 17 million, which is actually not only prepayments from the clients, it includes also some other prepayments from the agencies and so on. So it's among -- those prepayment amount a certain part, I would say 1/4 has already moved to the next year. Then as well for the clients that have already chosen to the refund option, we are refunding them. And also, part of the clients are already being within the operation to Greece. So the amounts mentioned are not -- the EUR 17 million is not the amount we should base any kind of planning of refunds and cash flow. In the case, and this is an unlikely case, that we cannot operate to Egypt and Turkey till the end of the year.

Thank you very much for your answer. And there is one more question. Do you see some synergy or benefit from ownership change?

So talking about our new shareholders from Estonia. All of them have a certain part of investments or businesses within the tourism industry or service industry. So of course, it might give us some additional values in the company's future. Actually, one of the shareholders, the Moonrider also is related with agencies business. And the travel agency that is also part of their portfolio is one of our key travel agencies in Estonia. So in the future, we believe that we can reach to very good and positive maybe synergies. Another important point is that all 3 shareholders, they are long-term investors. And therefore, for the future -- for the company's future, it is a very positive factor. And considering that one of the shareholders, Mr. Janek Pohla is also the Board number, we expect and we aim to cover certain competencies and maybe ideas for the company's long-term future development.

Thank you very much for your answer. And we have one more question. How many bad debts Novaturas got at this moment? As we know, one of the biggest agencies, NOVATOURS, stopped its activities.

First of all, I would like to mention that the company has a very strict control system. And we are working with agencies. We are taking deposits commissions this year, we are checking credit automatically, and we are not letting agencies to make any bad debts to us. And historically, this system worked really well. Of course, this situation which we are facing is unprecedented. And NOVATOURS, which stopped operation, could have some negative impact. But taking into account the volumes, which this agency is sold and the size of NOVATOURS, it will not be very significant.

It looks like we've covered all of questions and the time is over. And -- on behalf of NASDAQ Vilnius, I would like to thank everyone. It was a pleasure being with you today. A record of the presentation will be available in the NASDAQ Baltic YouTube channel, webinar playlist and on the website of the company, novaturasgroup.com. Dear Audrone Keinyte and Mr. Tomas Staskunas, thank you very much for the presentation and for answers given. Participants, thank you for joining. Everyone have a wonderful day.