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

Dear ladies and gentlemen, welcome to the quarterly Novaturas webinar. I'm Emilija Ivanauskaite, an Account Manager at Nasdaq Vilnius, and I'm pleased to introduce today's presenters: the CEO, Audrone Keinyte; and the CFO, Tomas Staskunas. Firstly, the management of the company will comment on Novaturas' financial results of the 9 months of 2020 and guide us through the recent events in the company. Right after the presentation, we will open the floor for the Q&A session. [Operator Instructions] So let's begin. Dear, Audrone Keinyte, I invite you to start the presentation.

Good morning to our investors and members of financial community and other participants of this presentation. Today, we will present the financial results and other performance indicators of Novaturas Group of the 9 months of 2020. Together with me, our Financial Director, Mr. Tomas Staskunas, is participating, who will also assist in answering your questions at the end of the presentation. So talking and presenting the results of 9 months of 2020. Of course, we have to start with the fact that majority of this video for 2020 is marked by coping with COVID-19 crisis, which has affected worldwide most of the sectors of the business and especially tourism and aviation sector. So well, in total, I would say that only 2 months of 2020 were the normal usual activity months. But from March, Novaturas Group has faced the COVID-19 crisis. And since then, the company was mainly focusing on coping with the crisis and some -- and taking many actions and measures in order to ensure the company's business activity continuity and, of course, to prepare for the future. So first of all, looking into the financial indicators of 2020 9 months. During this period, the company has generated EUR 30.5 million of revenue, which, of course, is a huge drop compared to 2019 the same period, whereas during 2020 9 months, we have reached almost EUR 140 million of revenue. The EBITDA of the company is minus EUR 1.6 million, and the net loss of 9 months of 2020 is minus -- net loss is EUR 3.7 million. So as we see that the COVID-19 crisis has affected the company's business significantly, and the consequences are continuing and did not end even after the strongest, this biggest restriction period, quarantine. So it continues with further because it has -- this crisis has had a huge impact on the movement between the countries. So during this presentation, of course, we will review the main performance indicators of the company, but I would like to pay a special attention on how we have coped and what kind of measures we have taken in order to ensure that the company can continue the business and can prepare for the future and can have a successful restart whenever the crisis would be over. So first of all, since the crisis has started, we have taken very strict measures on controlling our costs, and we'll look into the figures later on. Then I will present to you how the costs and the over [ guests ] and in general, the general and administrative costs have been decreased during this period. That was one of the very important measures that we had to take, considering that the income of the company will be reduced or even stopped for a certain period of time. Second thing is that we have reviewed our organizational structures, our governance. And again, certain decisions were taken in order to improve the -- and to simplify the organizational structure and as well to improve the efficiency of the company's operation in terms of the structure and processes between the company. This, of course, would allow us to have better processes to be faster, to be more efficient and of course, to optimize the costs. The third thing is that we have taken all possible state-aided measures in order to secure company's liquidity, and we continue doing so. Again, I would say in the next slides, I will present in more details what kind of state aid measures were taken and what we are still expecting from the governments of the Baltic states. Fourth is that during all this time, we had to take care of our existing clients because we had a very successful sales for 2020 summer season. So we had huge numbers of the clients that we had to take care of and to offer the most attractive options for them that would allow them to choose the most suitable option for them. Then again, as well in parallel, we had to continue working with all our other parts of the business activity. But of course, in some cases, it had to be adapted according to nowadays' reality. So talking about the distribution, apart from doing all the usual actions with our sales agents, keeping the contacts, informing them about the changes, keeping them informed about any actual happenings and our offers, of course, we have focused as well on the financial risk control of this channel, knowing that the tourism sector is under book crisis. We have also, from the company's perspective, to ensure that all the financial risks are controlled. Then the other actions that we have done, and we have done even faster than usual. So first of all, by adapting to the new circumstances to the different, let's say, tourism opportunities, we have developed a local brand, the holidays in the Baltic markets, in Lithuania, Latvia and Estonia. And we are selling accommodation and services in our selected key partner hotels in different resorts in cities of Lithuania, Latvia and Estonia. As well, we are offering the super sightseeing tours in Lithuania. So this product has been added already in the beginning of the season, in the beginning of the summer season, so it had quite a short period to be to -- how to say it, we had quite a short period to generate the sales. But during the period of July and September, it has already generated a certain part of our revenue, which is 4% in our revenue share. Then as well as early as never before, we have opened the seasons of Summer '21 and Winter '21-'22 because, well, first of all, we had to offer, as one of the options to our existing clients, of the canceled flights due to COVID. So we wanted to offer them the possibility to choose their holidays even next year. So that's why we opened the next season's holidays portfolio. And it is already on sale for several months. On the other hand, we are preparing and we are completely ready for the sales whenever -- even now. So we -- by having all those changes from the Summer '20 and Winter 2021 months, we have quite already a good load for the Summer '21 and Winter '21-'22 holiday seasons. As well, talking about our contacts and our obligations with foreign partners and suppliers. We are as well adapting, and we are reacting to the current situation, and we are renegotiating our existing deals. First of all, we are looking for better and more attractive commercial conditions. So we are constantly reviewing the prices, other conditions that are needed with our obligations. And of course, as well, we handle all our existing commitments so that you reduce by maximum our risks. Further, from first of July, we have managed to reopen, relaunch some of the destinations. Again, I will talk a little bit in more details about this in the next slide, when presenting the results of the third quarter and the, let's say, operational and financial indicators. As well, during this period, we have worked and we have negotiated a lot with our partner support in order to refund some prepayments from the destinations, which was and is quite a difficult task because everybody is in a very complicated situation due to this crisis, and liquidity of each company in the tourism sector is affected very badly. But we have managed to refund EUR 7 million of prepayments from the destinations. So I will go to the next slide, where I will present some of those points in more details so that you -- to introduce in more details the actions that we were doing. So I will start by the slide, which defines the operating expense situation. As we can see in the slide that compared to 2019 9 months, we have managed to reduce our total operating expenses by 61.1%, and it amounted into EUR 5.2 million. While previous year, the total operating expenses were 13 point -- almost EUR 4 million (sic) [ EUR 13.4 million ]. Well, talking about our general or total operating expenses, which exclude commissions and one-offs, it has been reduced by 40%. And actually since the start of the crisis, this figure is more or less similar in the third. In the second quarter, we also had very similar figures. So we continue optimizing our processes and costs. And therefore, any unnecessary spendings have completely stopped. Our human resources policy is being refused -- reviewed as well. On the other hand, of course, we do not compromise the quality of our services and we take care of our clients, of our partners in the same way as we did, of course, considering very critical and difficult working environment and circumstances caused by the COVID-19. The -- I would say that the asset-light model, business model, has allowed us to react very fast and to achieve those figures that are indicated in this slide. And of course, the company's management and the Board continues reviewing all the processes and optimizing them and increasing the efficiency and also implementing the organization where it is needed. So therefore, I would also say a few words of the organizational structures that have been done in the 9 months -- during the 9 months, or more specifically, in the second and third quarter of 2020. So first of all, there has been changes in the corporate governance. And instead of having as previously a 2-tier corporate governance structure, where there was a Supervisory Board supervising the Management Board and the Management Board, which was formed by the executives, by the managers, directors of the company. So the corporate governance structure has been transformed to 1-tier corporate governance structure. And therefore, currently, the company is -- has a Management Board, which consists of 5 members, 2 of them are independent board members. The other 3 board members are the shareholders of the company. Virginijus Lepeska, the independent board member, was elected as the Chairman of the Board. So by having the 1-tier corporate governance structure and 1 Management Board, which not only supervises the company's management but as well it's been involved into more significant issues of the company's management, we have more effective corporate governance in the company. Second reorganizational measure is that the company has took over the core business of the subsidiary company in Lithuania, Sofa Travel. Sofa Travel was acting as a travel agent. So in order to improve the customer service, Novaturas has taken over the main business. The Novaturas clients can from the Sofa Travel and certainly with this step, we would be -- we are able to improve the experience of travelers and to increase and to improve our standards of the services provided. So I would see that this action was done considering [ most policy ] main factors. So first of all, that Novaturas, as in Latvia and in Estonia, is able to control the own -- their own channel. Second thing is, of course, that by this, we would strengthen our brand, improve our customer service and, of course, it leads us to the cost optimization as well. Finally, the recent change that has been done in Estonian subsidiary company. So due to the optimization of the organizational structure, the company has farewelled the country manager of Estonian subsidiary. So Estonian subsidiary has always been managed by the Management Board. The Management Board of Novaturas Estonia are 2, the Management Board members are 2: it's our Financial Director, Tomas Staskunas; and me. So we continue management of the company on the strategic level. Of course, implementing all processes were needed centrally from Lithuania and as well as having very strong and loyal team in Estonia, which continues performing as usual. The office organizational matters will be handled by our long-term employee, who is now -- who will be authorized to handle all the formal and organizational matters of Novaturas Estonia. Talking about the state help in each market. We -- of course, as never before, in this crisis situation, tourism sector has very long discussions and continuous discussions via the [ associates ] but this most openly in all key markets because it is obvious that the crisis hit -- or tourism is one of the sectors that has been hit by COVID-19 crisis mostly. And therefore, there must be state aid measures that would help this sector to survive. And that there should be individualized approach towards this sector due to the fact that the companies of tourism sector could not restart and relaunch their businesses after the most strong restrictions were over. The restrictions have continued, the restrictions imposed by the governments of each country, and it was very difficult to relaunch, restart the activities, the business activities for tourism companies, especially for tour operators and travel agents. Therefore, there have been long discussions. And in all cases, Novaturas Group has used all the state aid measures in all the markets, which in most cases, they were applied to many other sectors. And therefore, I would maybe see them in details. So in Lithuania, first of all, that we have taken EUR 5 million long-term loan received from the bank but guaranteed by the state. Then we have taken EUR 1 million long-term loan received by Invega, which was used to refund the prepayments for the clients, which are willing to get the refunds. Then we are continuing to -- or we have already applied for bigger amount in the limits of this loan because the refund -- amounts of refunds are higher than that. As well, we have agreed and negotiated and agreed with Luminor Bank to delay payments of a long-term loan and as well to extend the overdraft. So the start of partial payments of the long-term loan is postponed and the overdraft limit is extended until the 31st of March of 2021. In Lithuania as well, the Minister of the Economy and Innovation has developed an innovations program for the tourism sector companies. So we applied for this, and we have been confirmed the EUR 35,000 of innovation grants. That's the maximum grant possible for any tourism sector company. So this grant shall be used for innovative projects in developing different tourism products as well as marketing projects. As well, we have already been informed that there would be the repatriation compensation. This state measure is still being finalized. But as soon as it is activated, of course, we will apply for this because in the beginning of the crisis, when we had to return all the clients from the destinations, we had huge losses of the repatriation of the clients back to Lithuania. Talking about Latvia. In Latvia, we have received EUR 1 million loan by -- which is as well guaranteed by Altum, the state's guarantee fund. Then we have received EUR 81,000 subsidy, which is a subsidy for the tourism companies, and it has been calculated according to the employment taxes paid in 2019. So a certain proportion of employment taxes or labor taxes paid in 2019 has been paid back as -- in the form of subsidy in Latvia. Then as well, we have already of received EUR 167,000 of repatriation compensation. In Estonia, we have received EUR 60,000 as subsidy, which has been paid to, I would say, most of the tourism sector companies. Now talking about all markets. Of course, we have used all possible state aid measures and tools in order to maintain our employees. And in -- again, in different countries, in Lithuania, Latvia and Estonia, there were different help themes. So according to them, our employees were -- majority of our employees who are maintained. And for this, we've got already EUR 233,000 of partial compensation subsidy. Then we -- in Lithuania, the subsidy still continue. So we are going to receive and to continue receiving this subsidy. As well in Latvia and Estonia, there are, even though the subsidy program has stopped, but there are discussions about extending or opening new subsidy program for tourism sector companies in order to maintain the employment places. The -- one more important point that I would like to present as our response to the COVID-19 crisis as a tourism tour operator. So first of all, during all this crisis, of course, that the client was our main focus. And we -- whenever the crisis has started, first of all, we have focused on returning the clients safely from the destinations without considering the losses and all other possible consequences. As well, for the existing clients, we have created or implemented certain offers, which would allow them to have a choice and to choose the best possible option for them. Well, again, I would like to highlight that considering how difficult situation tourism companies have faced, I would say that our focus on the clients was very significant. And therefore, apart from the other options that were offered to the clients, we have also managed to start refunding the clients' fare prepayments. And we were the first -- one of the first ones in the market to start doing so. So we do hope that -- and first of all, of course, we want to thank our clients for their patience because, of course, it took some time for us to handle all needed financial tools and to ensure that we are able to do this -- to do so without harming the company's continuity. But as well, we are sure that this would increase people's confidence in the tourism sector and secure their trust for the future. So talking about the prepayments of the clients. First of all, from the very beginning, we were working very hard to offer our clients the most effective options for the change. And the big parts of our clients have chosen the reservation change or booking change possibility for the later period or even the next year were the most effective conditions. So we have managed to change the bookings in the amount of EUR 5.8 million groupwise. As well, we have issued the vouchers, the travel vouchers, which were as well coordinated together with the government to make sure that they are also prepared according to the requirements of European Commission. And as well, we are covered by the tour operators' insurance. So we have issued the vouchers in the amount of EUR 1.3 million groupwise. As well, up to date, we have already refunded EUR 5.5 million so our clients groupwise in all the markets, Lithuania, Latvia and Estonia, and we still have EUR 2.5 million of refunds that are requested, and we are still continuing with this process. In order to have smooth process of refunds, we have applied for additional EUR 1.5 million loan for refunds in Lithuania, and we are hoping that this help will be provided to us because our aim is to refund our clients as soon as possible. Now talking about our main performance indicators as we see that the numbers compared to 2019 are drastically lower. And of course, that the virus crisis has significantly affected our revenues and seat supply. So talking about all, let's say, 9 months. First of all, I would most probably differentiate the quarters. So first of all, the first quarter of 2020 was very successful, at least the January and February. So we have the -- even usual figures. And it was supposed to be that for the next quarters, we would have increased figures in terms of turnover and tax numbers. Unfortunately, in March, the crisis has started. And since then, since March, middle of March, we were on lockdown. So our activity was completely stopped until the end of June from the 1st of June, which is already in the third quarter. So the second quarter was complete no activity and no income period. From the 1st of July, which is already third quarter, we could reopen our operation, but unfortunately, due to constantly changing regulations of the government and as well the market reaction to this, it was very difficult to maintain a stable operation. And so we had very narrow product portfolio, we had a very, I would say, constantly changing business activity environment, which did not help us to generate more revenues and more PAX numbers. So talking about revenue, we have reached EUR 30.5 million of revenues, which is compared to previous year is by 80% drop. And talking about PAX numbers, we count on -- a 85% drop compared to 2009 the same period. In terms of the product, of course, that all products were remained in our product portfolio. One of the new products appeared, which is the Baltic product. As I have mentioned on the third quarter, it has -- we have recorded 4%. It has reached 4% share in our revenue of the same period -- of this period. Now if you look into each market separately. So as mentioned in the quarter -- in the third quarter, from July to September, including we put already reopened some destinations, but the restrictions were very strict in the beginning. The regulations were very strict in the beginning, then they were more and more released and they were softening. But still, let's say, the regulations, the review or revision of the regulations was already at the end of the summer season. So you could not really generate and we could not take the most of the summer season, which is our main season, and is the main season for all tourism companies and all tourism sector. Still, comparing Lithuania, Latvia and Estonia. In general, even though there were -- there was European Union common recommendations in terms of the -- of the regulations, but each country could follow their own policy and could impose their own restrictions. So compared to all markets and considering all markets, I would say that Lithuania has followed one of the most strict restrictions policy. And therefore, in Lithuania, we have 85% drop in the PAX numbers compared to the same period to the 9 months of 2019. Estonia had, I would say, the most balanced and logical restrictions. They have also implemented all recommendations of European Union, European Council. And there was quite, I would say, professional handling of those regulations on time as well as we could -- and this allowed us to generate better PAX numbers -- in the PAX numbers in terms of the PAX in Estonia. So in Estonia, we have managed to reach the numbers that are indicated in this chart. And this accounts only to 75% drop compared to 2019 9 months. So as we see, that -- because if usually among the capacities of Novaturas Group, Lithuania usually has around 50% of the total capacities; Estonia, 30% of the total capacities; and Latvia 20% of total capacities. As we see that this distribution of the -- of our production among the markets has now changed during this crisis period significantly, and Estonia is almost achieving the numbers of Lithuania in the total, let's say, sales here of Novaturas Group. Now we come to the slide of destinations. And again, I would like to present a little bit more in details via this chart has such an outlook. So first of all, I will start with the main destination, Turkey, which, in 2019, as you see, it has achieved 40% of the total revenue share in our total product. And in 2020, unfortunately, we could not open the sales and the flights to Turkey even though the other markets were operating the flights to Turkish resorts. Of course, maybe with certain restrictions, but the other markets, even neighboring markets such as Poland, Czech Republic, Germany, even U.K., there was an act successfully operating the flights to Turkish resorts. Unfortunately, in the Baltics, the government did not allow us to operate -- to have an operation, which we were ready to do in the most safe way and, of course, implementing all needed measures in order to have in our portfolio the main summer destination for the Baltic clients. So Greece was the -- one of the very few destinations that we could open in 2020. So we started the flights to Greece, to Crete, Rhodes and Corfu in July. Unfortunately, again, due to the restrictions which were not revised on time, we had to stop the flights and bear the losses of the stopped operation. But still, we managed to have quite a good number of our operations to Greece, and we reached to 14.7% in total sales revenue in 2020. But still, Greece was operated only during July and part of August, then we had to stop due to the increased virus ratio, which later on, again, was revised, but was -- we could restart the flights. So we are now at the end of the season, again, for a very short period because the season in Greece is over already. Now Bulgaria. Bulgaria, it had quite good virus indicators until end of June. Unfortunately, then, they have started to increase, so we could operate only few flights to Bulgaria, and we had to stop the operation. So Bulgaria was not operated almost. And then we are coming to other destinations, which are in all destinations up from the first quarter and since the first quarter was quite successful till the virus started. We have booked numbers in the sales share for Egypt, Canary Islands, long-haul, skiing and other destinations. But so in the overall sales share, those numbers are good, but we understand that total numbers, of course, the absolute numbers are very much decreased. Talking about the distribution, I would say that most probably, it is not the main topic now to talk about because the -- in general, the sales situation is -- and the demand in the market is quite low at this moment. So there are no big changes in distribution. Of course, we are working very strongly with our retail agencies, not only to follow the sales situation, to follow their own situation, but also to control our financial risks. As well, we are -- as mentioned already, we are paying a special focus on our own channel. We are doing all needed measures and actions in order to improve the service of the clients. Now talking about the profitability results. And as mentioned already, we have minus EUR 1.6 million of EBITDA of 9 months in 2020, which accounts to EUR 3.7 million of net loss of this period. Again, as mentioned before, the profitability indicators would be completely different if we could restart in more stable way, the destinations from July. And unfortunately, due to the regulations, which finally affected as well the market reaction very much, those profitability results are as such. Now talking about the efficiency and productivity ratios, we can see that as well this crisis period has made an impact on this. In terms of the load factor, we report a lower load factor, but it was very much affected by the empty leg costs because we do not have booked flight operation, but we had empty leg costs that -- empty legs to repatriate the clients from the destinations when we have to stop the operation. So in most cases, talking about the destinations that we could offer like Greece, Cyprus and Tunisia. We had to stop those flights at certain period and to operate empty leg flights. So this is one of the main, I would say, factors which affected the numbers of load factor. Talking about the profit per PAX. We have as well the EUR 43 per PAX in the 9 months of 2020. So here, we can -- we see as well the average package tour price increasing compared to the previous year 9 months. So we have reached EUR 732 per package. Now one more thing which I need to mention talking about the profitability and the load factor. During this period and most probably it will continue longer, the sales habits have changed completely because of constantly changing virus spread situation as well as constantly changing the state regulations and decisions. And the clients are now mainly buying and purchasing their holiday trips in the last minute. So of course, we have managed to adapt our business model to this and it's -- we have completely adapted to the new, let's say, sales environment and business activity environment. But in certain cases as well, it can -- it carries more risk in terms of the profitability and the loads. On the other hand, as mentioned, that the business planning, the sales planning is completely different from what we had before, where we had a lot of early booking sales and the last minute was usually the least part of the -- in the sales structure. So that's it from our side. Now talking about the future and further situation. So first of all, as I have mentioned, that in the last month, we are already facing, how to say it -- we are already facing different policy from the governments. We see that the regulations in terms of the movement between the countries has been becoming more and more soft. They are much more according to the actual situation and to the reality. However, on the other hand, in the last weeks, we have increasing COVID spreads, especially in Lithuania and in general, worldwide. So I would say that it is quite difficult to forecast the future. But of course, we are ready for the next difficult quarter, with most probably not very big chances of operation. On the other hand, considering that the governments are now adopting the new reality, not only in terms of the restrictions in the country, but as well in terms of the restrictions for the movement between the countries, we do hope that there would be more chances whenever possible and, of course, considering virus situation, that there would be more chances to offer safe destinations to our clients and we will take any chance to do so. On the other hand, from the management point of view, from the management perspective, we will continue on the cost optimization and as well for a very strong preparation for the future. So we will -- we are reviewing all strategic initiatives. We are adopting to the new client habits, to the new buying habits. We are reviewing our portfolios of the future, of Summer '21, Winter '21, and to not only in terms on the commercial conditions, but also in terms of product itself, because when we understand that the client is changing. And so therefore, we will be completely ready for the new reality and we would do so proactively, not reactively. As well, from the company management at work, I have to say that we were working hard on ensuring the company's liquidity situation and continuation of the business. So we are ready to -- for the difficult quarters that we might face. And therefore, as mentioned earlier, that in the parallel level, we are preparing for the future restart because we do believe that the tourism will be back. It's facing really difficult times but it will be back, and it will do that most probably different. Safety will become one of the core factors for any travelers. The clients as well might be changed as well, the distribution channels might change. And as a company's management, we are taking into account all those factors and getting very well prepared for all what the future and new reality will bring to us. So thank you for your attention, and now we are ready to answer your questions.

Thank you for the explicit presentation. [Operator Instructions] So the first question to the management of the company would be Novaturas has got EUR 5.5 million in cash. Why company still did not made all refunds needed? You are financing your crisis with client money. How -- for how long you think it is normal for well-branded company act like this?

Investors and other participants, I'm Finance Director, Tomas Staskunas, and I will answer this question. So first of all, we have started refunds as soon as we are able to start them, and we are doing it taking into account continuity of our business, and we want to ensure longevity and sound financials of the company long term into the future. So we already refunded EUR 5.5 million of advances to the customers, and we are continuing to refund the remaining asked amounts, just we are doing it gradually.

The second question would be, what is your forecast for the fourth quarter of 2020 and the first quarter of 2021? If the trend of EUR 1.5 million loss per quarter won't change during this period, company will be cashless by the start of March. How are you going to handle this situation?

So talking about the last quarter this year, we still have operations in October. We were flying to Greece and to Cyprus. We do not expect a significant operation, at least at the moment, in November and December, unless something change in the market. We cannot predict at the moment how the first quarter of 2021 will develop because Europe is making very strict measures to limit the spread of the virus. And we saw in the spring period that strict measures usually result in the significant decline of new infection rates. And if Europe will cope with the second wave of the virus, we can also expect some restart of the business in the first quarter of 2021. But at the moment, it's just a possibility. We do not make any forecast. And I think the cash situation and liquidity of the company, the management of a company is doing all necessary steps to ensure the company has enough liquidity to sustain operation until we will be able to operate at the normal level.

There is one more question. Considering the company, market situation and goodwill in the balance sheet, Novaturas at this moment is in technical bankruptcy. Did you consulted your auditors already if they are planning to sign on EUR 30 million goodwill sum in year 2020 financial statements?

So it's too early to talk to the auditors about 2020 year financial statements because audit will start after we will finalize that. Yes. And I just want to stress one important thing. That goodwill, which is on the company balance sheet, is not measured by 1 year result. This is -- this amount represents long-term company ability to earn profits, and long-term company ability to earn profits has not vanished. We are still in the business. We are strong in this business and we do believe that we will be able to earn profits as soon as this crisis will end.

Thank you. As all the questions are answered, on behalf of Nasdaq Vilnius, thank you, everyone. It was a pleasure being with you today. Recording and the presentation will be available in the Nasdaq Baltic YouTube channel. If the company would like to make the last comment, feel free to do so.

We just want to thank all the participants for participation, for questions given, and we will just be ready to meet again after next quarter.

Tomas Staskunas and Audrone Keinyte, thank you for the presentation and the Q&A session. Everyone, have a good day, and goodbye.