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

Good morning, dear listeners. Welcome to Novaturas' meeting with investors. I'm Emilija from Nasdaq Vilnius, and I'm delighted to be the moderator for this day's event. We will start with the presentation from the management, which will be followed by the Q&A session. [Operator Instructions] With that said, I'm pleased to introduce today's presenters, CEO of Novaturas, Audrone Keinyte; and CFO of Novaturas, Giedrius Ribakovas. Dear guests, please, the floor is yours, and good luck.

[Audio Gap] discussing the business environment and our business activity and the results. So to start with, I will start off of course with the key financial results. So first of all, talking about the revenue and turnover of Novaturas group during the 9 months operation in 2021. During the 9 months, Novaturas group has achieved EUR 74.7 million of revenue, which is still below 2019 by 46% as this is mainly influenced by still weak first and second quarter of 2021, when the market was still recovering gradually. However, during the third quarter, the estimates in terms of the numbers of tourists as well -- as in terms of turnover, have already increased significantly, and we are slightly below the numbers for 2019 on the third quarter compared to the same period of 2019. So as regards the EBITDA, during 9 months, we achieved almost EUR 2 million of EBITDA. Of course, comparing to 2020, we have -- when we reach the negative EBITDA of more than EUR 1.5 million, it is a very positive result considering that we are still in the pandemic, and we have still quite a lot of dynamics in the business environment and the governmental decisions and the epidemiological situation in the destinations and the source markets. Once we come to the indicator of net profit, we see that we have achieved to a very similar numbers of 2019. We have achieved EUR 1.1 million for net profit, which is around 15% lower than 2019. During the same period in 2020, we have reached to EUR 3.7 million of net loss. Now the most important event in the third quarter 2021 are the following: first of all, we have, as mentioned before, that we have been very much involved into and very much focused on the recovery of the business and on recovery of the capacities in order to reach to the pre-pandemic levels as soon as possible. But apart from this, of course, we were following the other priorities. And I'm happy to see that we can managed to handle or execute our financial obligations even earlier than the agreed deadlines with the financial institutions without any additional restrictions. So first of all, we have redeemed the convertible bonds worth EUR 2.5 million before the term agreed. As well, we have repaid the long-term bank loan, which is worth more than EUR 3 million, and we can have converted it to the credit line. And further, we are aiming to, let's say, to achieve the very positive financial results so that to be able to fulfill our financial obligations or to execute them earlier than it is agreed. Apart from this, during the third quarter, which was our, I would say, main quarter during the year. And generally, historically, the third quarter is the most significant in terms of the capacities during the third quarter, which is the main summer season, July, August and also September, we always generate the highest capacities, and we have the widest portfolio of the destinations. But apart from this, we are also starting and generating more and more sales for the winter destinations. And we have sold, and we have continued with the sales for the winter '21, '22. With our main destinations such as destinations in Egypt, Hurghada and Sharm El Sheikh resorts, the [indiscernible] and the United Arab Emirates and other destinations. On top of this, we have opened the ski destinations for the month of January, February and March of 2022. And we have successfully opened those destinations, and we are going to operate and offer our clients from the Baltic markets skiing in the resorts of Italy and France. And we are very glad to see and to have -- to see, to notice the huge demand on the skiing resorts, which also leads us to increasing the capacities for those destinations. Apart from this, we also intensively have worked with our long-haul product and on top of existing destinations such as Cancun in Mexico, Ireland, Mali and Seychelles. We have also added and supplemented our portfolio by some additional destinations such as Mauritius, Zanzibar and Cuba, which are also added to our long-haul destinations portfolio. So certain destinations -- our exotic destinations portfolio are already opened. We have already having clients traveling to those destinations. Some other destinations such as, for example, Bali or Thailand, we are still following [indiscernible], so that you open those destinations as soon as possible because there is a huge demand for the long-haul dismission, and we are the only tour operator in the Baltic market to offer such a variety of long-haul destinations. [indiscernible] and to offer it even during those times. On the other hand, as mentioned, that we are recording an increased demand for those destinations because the clients and the market is really keen to experience and to travel to maybe -- to have the variety and to have the choice for many more destinations than previously. Now talking about the other products and our client service, especially during the third quarter with the increased capacities. We had to be well prepared with our client service, with our human resources. We are constantly working on the processes improvements on the improvement of the client service, on follow-up of the market needs and not only reactively, but also proactively. And additionally, considering the environment of the pandemic, we are also -- we continue offering the clients very flexible conditions, which would allow them to plan their holidays without any fear of, let's say, COVID cases. And therefore, during the pandemic, we have launched a special product COVID Pause. And additionally, during the third quarter, we also launched an additional travel protection service, Self-Isolation Pause. So together, both the combination of those 2 additional services, they give a much more guarantee and much more confidence for the clients to plan their holidays in advance, without having the fear of change of the plans and losing their, let's say, prepayments to the tour operator. So this, let's say, additional product and additional service, in combination with very attractive commercial conditions and flexible commercial conditions, allows us to plan and expect that the market will be recovering much more fast. Now talking about the -- our flight operation during the third quarter. I;m really proud to say that we have managed to contact to the portfolio and the diversify of the destinations as we had before the pandemic. So during the July and August of 2021, which are the main summer seasons, we have operated the flights to Turkey, 3 islands in Greece, to Montenegro, 2 destinations in Bulgaria. Then in September, we also increased our portfolio and decreased our destinations -- number of destinations. And we have added as well 2 destinations in Italy such as Sicily and Calabria; as well as 2 destinations in Portugal, Madeira Island and also Algarve; and also, we have started our operation to Egypt, which continued later on to the winter season. So I have to see that the diversity of the destinations is already as same as it was before the pandemic. And this allows us to think really optimistically about the fourth quarter. We still do not forecast the exact numbers and the exact financial results that we are targeting. But hopefully, from the next year, once the situation is -- and seen the situation become more and more stabilized, we hope that we will be able to come back to more detail and clear forecast. On the other hand, more and more stabilized business environment and more stable situation of the market allows us to have a very optimistic planning for the fourth quarter. So for the fourth quarter, we are aiming to continue targeting 2019 capacities, and we are planning to operate more than 40,000 PAX during the fourth quarter in total, in all the Baltic markets as well. Again, considering the situation is very much stabilized, and we have better, stable and, I would say, increase in demand for traveling abroad. We are targeting positive profitability and positive EBITDA for the fourth quarter. I mentioned already increase in demand, and I have to say that especially high demand was reported in October and specifically for the school holidays period in October. So we have had huge demands. We have had also -- which was followed as well by business decisions such as increasing the flight capacity, adding some other destinations and expanding our summer season, even our summer season is ongoing capital now and to be extended to October -- to November months to the summer destinations such as Turkey. So this allows us to plan and to forecast that the market is more [indiscernible] the situation with the epidemiological level is still -- let's say, the epidemiological situation and the market is still -- and the source market is still quite critical. But again, traveling regulations and the situation how the European Union has and other destinations outside European Union have coped with health and safety requirements, how strict regulations are applied to the travelers and how the situation has been controlled and handled, this allows us to say that think that even during the pandemic, traveling can come back to our lives. One more trend that we noticed during the fourth quarter is that we see a huge demand in the skiing holidays. And again, this forced us or let's say, I mean, based on this, we are increasing our ski destinations capacity. We are adding more flights to our ski destinations. And we see that the market, especially considering that last year skiing was almost unavailable for the market, so we noticed a huge demand on this, and people are really coming back to the -- and planning the ski holidays in advance, which is necessary because ski destinations are very limited. The hotels are small. The resorts are small. Also, the capacity, the flight capacity is quite limited. So it is very much recommended to plan the ski holidays in advance and to have it fixed. The other very important and very positive indicator, I would say, is that we are coming back. We see that market and the tourism industry is coming back to the previous habits and to the previous environment and people start planning their holidays in advance, and we already see a very much growing numbers of early bookings, not only for the further winter season, but also for the summer '22. Due to this, let's say, we are also, how to say, checking and monitoring our flight capacity. But -- and also during -- made the changes so that to increase and maybe even to exceed our numbers from 2019. But what is very important that the client gains a lot of different values. When we are booking earlier, first of all, the prices are the most active during the early bookings. And so it is not only -- I mean, it is achieved not only by getting, let's say, the most attractive conditions from the hotels and from the destinations for the early bookers, but as well by let's say, planning our pricing policy accordingly. Second thing is that the client can choose from the most -- from the biggest diversity of the destinations and of the hotels because the hotels are still available and not fully booked. Third and very important factor that the destinations are also coming back to the pre-pandemic levels, and there is a huge demand in most of the destinations. Because most of the markets, West European markets, Central Europe, most of the markets have already opened, and even U.K., which is a very important market for many destinations, also has taken off all bans. So due to this, the destinations are very much demanded. The hotels are quite fully booked. We already can see it from our second part of the summer season 2021 and also the winter season. So therefore, it is very much recommended as well to book the visit in advance and to have the visit fixed. And this would help the clients to plan, let's say, their holidays more -- there's more stability as well, it would maybe bring more stability in general to the tourism sector, where the last minute would be minimized and would be, let's say, as it was during the pre-pandemic times. For the fourth quarter operations, we are again coming back to the pre-pandemic destinations portfolio. So October, we are operating our flights to Turkey, to Portugal, to Funchal, to Madeira, to [indiscernible], to Canary Islands, to Egypt destinations. In November, we are already stopping our summer destinations such as Turkey and Portugal. So we remain with our winter destination with Canary [indiscernible]. In December, we are also having UAE, United Arab Emirates flights to Dubai. And on top of this, we have our long-haul destinations such as Cuba, Mauritius, Mexico and Seychelles, which are planned for the fourth quarter. In January, we will have skiing destinations starting as well as we will have more -- we hope to have more wide portfolio of long-haul destinations. Now after discussing the forward-looking statements, I would like to come back to the main indicators of our 9 months and third quarter of operation. So first of all, in terms of the number of passengers sold during the 9 months of 2021. We have had 123,000 of the passengers, which is by -- still 46% lower than in 2019, but this number is very much affected by the first and second quarter, which were still gradually recovering and are significantly lower compared to 2019. However, the third quarter shows already that we are coming back very fast with numbers of 2019. And we have -- we had, during the third quarter, 77,500 of passengers, which is just by 20% lower than 2019, the same period. So it shows that we are -- it is a huge speed coming back to the capacities -- to the pre-pandemic capacities. If compared to the third quarter of 2020, when we could operate some flights from all market certain destinations, we have by 6x better results in terms of the passenger numbers. In terms of revenue, the numbers are pretty much the same. I mean, the difference is between the year. So during 9 months of 2021, we had almost EUR 75 million turnover, and the third quarter is EUR 45.6 million. If we compare the third quarter to the second quarter, we had twice bigger numbers. So again, it is a very clear indication of very speedy recovery of the market. If we talk about the product portfolio, we see that the flight package tours are the main portfolio, main product. More than 90% of our total revenues are for the flight package tours or the holidays via flights. Unfortunately, site-seeing tours by coach and by plane are still quite difficult to organize, and we are recovering them as well. They are already in our program, and we are aiming to bring them back with full capacity from 2021. But for this year -- from 2022 -- sorry, but for this year, it was still quite difficult to operate. Now if we look into each market, we see also quite, I would say, different situation in the market in general. For the third quarter, we see that the -- all markets were already, of course, having better results than 2020. It's even comparable. But what we can see that even if we look into the 2020, the third quarter was very successful for Estonia. It even exceeded the numbers of Lithuania, and also Estonia is also on the same track for the third quarter in 2019 -- in 2021. So in 2021, Estonia generated [ 24,170 ] of passengers, which is just 7% less than in 2019. While in Lithuania, which -- where we have the numbers of [ 39.47 ] passengers during the third quarter of 2021. It is 20% lower than 2019. So we see a very positive trend for Estonia. This positive trend has been already recorded in 2020. And unfortunately, we see a still bigger gap in Latvia. Latvian numbers are still by 40% below 2020 -- 2019. And this is mainly due to the maybe situation of the market, governmental restrictions, also the, let's say, the vaccination processes, which are more slow than in Lithuania and Estonia. And therefore, this is also somehow reflected in the numbers. So this is more or less about the -- if we talk about the markets. If we discuss the destinations and the sales distribution between the destinations, we can see that certain main summer destinations, we are coming back more or less to the same revenue share as we had it in 2019. So Turkey and Bulgarian destinations, Tenerife, are reaching to the same sales or revenue share. We still record a higher demand for Greece. So in terms of the sales share percentage-wise, during the 9 months of 2021, we have almost doubled capacity to Greece, I mean, proportionally, proportionally compared to the other destinations. Egypt share is much lower due to the fact that Egypt is the mainly winter destination, and it was operated -- usually, it is operated from October, June, April, including. And this year, in 2021, in January, February, March and April were still very low, and we were just gradually restarting the price to those destinations. The other destinations such as and ski and long-haul, unfortunately, we almost had no operation to those destinations in 2021 9 months. And here, I would also like to mention that the other destinations are also gaining huge importance. And especially during this year, 2021 summer season, we have reported and experienced a huge demand to the exclusive destinations such as Montenegro, such as Corfu, Kefalonia Islands in Greece. So more exclusive, less discovered destinations, which also, of course, brings a conclusion that the clients, they want to travel more, to see more, especially after missing 1 year of traveling. Now once we come to the distribution slides. Again, we see a positive trend. I'm also happy to see that considering that the market is more than -- shopping more online based on the pandemic circumstances. So we see that -- I mean, we report much higher sales share in 9 months in 2021 compared to previous years, 2020 or 2019. So we have 20.3% of the sales from e-commerce, which is global. It includes our vaccines as well as the GDS sales, so our flight sales from the Global Distribution System. So that's a very positive indication. And we are constantly investing on improvement of our e-commerce channel and bringing all possible optimizations so that -- to have, let's say, an effective and efficient tool for the clients who want to book online. The own retail has, I would say, maintained its sales share, and we have approximately 11% of group-wise sales done through our own retail channels. And of course, as usual, our main distribution channel with travel agencies. So we are also happy to see that majority of our travel agents have survived the pandemic situation quite successfully. And our key agents, but most of them with very -- with all the exception, are with us, also now strongly recovering and very well prepared for the recovery of the market. So we are, again, continuously looking for the new operational tools and waste, how to increase our cooperation and how to strengthen our cooperation with our B2B travel agents. Now if we -- let's see the final slides, just to discuss more in detail the profitability ratios, the productivity ratio. So first of all, talking about the EBITDA. During the 9 months, we have achieved EUR 2 million, almost EUR 2 million of EBITDA. Last year, it was negative EUR 1.6 million. During the third quarter, we have achieved EUR 200,000 EBITDA. Well, actually, the third quarter is always the most intensive in terms of capacities, in terms of the number of flights, in terms of the volumes. However, it is also the most competitive one because we also have the summer season in the markets. So the local resorts are also opened, and also the net cost on the destinations are the highest, which reflects also in the lower profitability on the third quarter. As well, I have to mention that during 2021, we had clear target and the clear strategy to focus on the recovery of the capacity. So this was, I would say, almost fulfilled. We are very, very much close to the numbers of 2019. And therefore, the EBITDA is lower than 2019 because we had a clear target of -- on increasing our capacity, our market share and also strengthening our leadership position on the market. The interest of the net profit for the 9 months, we have very -- I would say we have also very positive result, which is very close to the numbers of 2019, just 15% lower than 2019. Now if you look to more typical indications -- indicators of load, profit per PAX and average package tour price, again, the pandemic environment and pandemic circumstances have shown us -- have brought us, let's say, a certain environment where the load -- it's quite difficult to achieve the same loads as we used to have in the pre-pandemic levels, which usually was around 97%. Unfortunately, due to quite intensive terms of last-minute sales, due to all the COVID guarantees that we provide our customers, the load factor is still lower than usual. It is around 92%, but bit by bit, especially with the strengthening, early booking sales and minimized last-minute sales, I would see that we should reach or achieve the previous pre-pandemic load factor indications. In terms of the profit per PAX, I have already mentioned that the profit per PAX on the third quarter was not our main target. We were in on increasing our capacity, and we have done, in general, as a [indiscernible] tour operator, we have done it on a higher speed than the regular airlines or in general, than the tourism industry recovery worldwide. And therefore, it is reflected in the profit per PAX, but the future shows that with the recovered market, we can come back to our regular profit per PAX indications. And finally, one very positive indicator, the average package tour price, which we see is increasing on a yearly basis. And in 2021, despite quite intensive last-minute sales, we have -- on the third quarter, we have EUR 707 per package tour price. For the 9 months, we have EUR 725, which is higher in general than during pre-pandemic times. So it shows that the clients have chosen more quality destinations, higher category and more quality hotels. Higher category hotels, they are paying much more attention to the quality of their holidays, and that there is an economical potential as well for the travel business, not only to recover, but also to flourish, I would say, for the future. And finally, for the operating expenses, we are also having a positive indicators compared to 2021 and 2019. So in general, the -- let's say, the total operating expenses of 2021 third quarter are more or less the same as they were in 2020. If compared to 2019, we have a decrease of 40%. If we include commissions and one-off expenses compared to 2019, for the third quarter, we had around 70% lower numbers. So that's very positive. And also the same trends are for 9 months. During the 9 months, in -- as a total operating expenses compared to 2020, we have very similar 13% lower than in 2020, but commissions, of course, were much higher due to higher operation, and the total operating expenses were increased by 41%. So to sum up, I would say that we are continuously working on, of course, the costs control, but that's not the main point and not the main issue because we are now with the market recovery. Apart from controlling the costs, which were optimized, I would say, to the maximum during the pandemic, we have -- we are working strongly on the business recovery, on the market recovery. We are very much focused on the process improvement and their automatization, on -- very much on the clients and market needs follow-up. So we are expanding our products based on the market needs, selection-wise, price-wise, choice-wise, quality-wise. We are also working strongly on the client service and improvement of the client service. And of course, our main -- I would say, one of the main focuses is this distribution. So strengthening our cooperation to the travel agencies, and also improving our e-commerce channel would be our main focus points, I would say, which would, of course, together with our products and with our [indiscernible] ability, the general business and very much business decision -- our business decisions would bring and would increase the value for the shareholders. So from our side, that's it today. Now I will be very much pleased to answer to your questions.

[Operator Instructions] So let's proceed with the questions that we already received. And the first one is as following: could you please comment on what is the current dividend policy, please?

So currently, the management is not in a position to answer this question because this is decided by the -- during the shareholders meeting, of course, by proposals, propositions done by the management and Board. How -- and of course, we have to consider the company situation and the fact that it is the first year after the -- or during the pandemic when we see the recovery -- a clear recovery of the business. However, the company's strategy in terms of the dividends payment is not -- it has not changed, and we continue and we maintain the same strategy to pay from 70% to 80% our net profit as dividends to our shareholders. On there -- but once more, for this year, unfortunately, we are not in a position to answer.

Another investor says, thank you for the presentation. Could you please explain the reasons behind very low profitability in Q3? And how you plan to overcome those reasons in the future?

So well, I believe I already explained during my presentation that during the third quarter, we have increased our capacity significantly. So during the third quarter, we are below 2019 numbers by 20%, which is a huge increase of the capacity compared to the previous quarters. The previous quarters were still, the market was recovering slowly. So there was no, let's say, we were during the first quarter and even the second quarter, I would say that we were the first tour operator to start the flights to certain destinations in general, which, of course, also affected the profit margins and the overall, let's say, ratio between supply and demand. So therefore, I would say that the first and second quarter were also exceptionally positive in terms of the profit margins because the market was still very much, if I can say, unstable, very much worsened, and we had very low seat supply on the market. The third quarter is much more competitive, and still the market -- we were, I would say, with our planning capacity, we were much more aggressive than the market capacity in general, all the other competitors or the regular airlines. So we have targeted ourselves to recover the market and to be the most aggressive in terms of the seats planning and the flights planning. And therefore, as mentioned already during my presentation, it affected in the overall profit per PAX.

Another question that we received is as following. More stable environment may mean higher competition and lower margins. What are your steps to restore profit per PAX to regular levels as soon as possible?

So we are used to the competition, and the competition has been increasing during the previous years, but it did not really influence our capacities and our market position. We are -- during all these years, we maintained our leadership position. And I would say that there are a lot of competitive advantages that Novaturas has compared to the competition in general. So that's a huge diversity of the destinations, huge diversity of different categories of the products, starting from the site seeing, skiing and long-haul destinations, holiday destinations, the already mentioned huge diversity of the holiday destinations. We have very strong position in main destinations, which are offered by many tour operators such as Turkey and Egypt, and we have really, very good and important hotels over there where we can offer the biggest -- the best value for money. And on top of this, we also have exclusive and very undiscovered destinations. We have more than 45 destinations in our portfolio. One more very important thing is that we are also working in the Baltic markets and we have a Baltic market's crew. So this allows us to work and according to the Baltic market's mentality, culture and needs. So very fast in modifying our product according to the needs of our markets, of our clients. We are also very fast to make decisions, client-focused and client-centered decisions in order to keep our clients and to increase our clientele and knowing the culture and mentality of the Baltic markets and being very flexible to work according to this. I think it is also very important advantage compared to the other companies which are belonging to bigger groups. As well, during our history, we have always paid huge importance to our partnerships. We have long-term partnerships. We have better, reliable partnerships with our destinations, with our air carriers, and we are working on the service improvement even more to the clients. So I will say that there are a lot of different factors which define the leadership position. On top of this, respect of the brand, we are the first operator to be established in the market with a leadership position during COVID pandemic, 2 years of the history. And during the pandemic, we have just strengthened this, our reputation among other tour operators. Plus, also, I have to see that we are, I would say, maybe the tour operator which has a very well-balanced distribution and has very strong ties with the travel agents, So Baltic market-wise. So this is very important. Because you might have a perfect product, but without distribution you will not be able to sell it. So we have very strong ties with the B2B agents and having our own sales channels such as web and also our own front offices, it is -- it gives us, I would say, very stable and very confident position in the markets. And of course, it does not mean that we are standing and waiting for the competition to change or the market to change. We are proactively doing business decisions, leadership decisions in order to be always in the front line.

Another question is as following: is it good business strategy to have plenty of exotic destinations, which have low share in revenue while competitors concentrate only to a small number of core destinations?

I would say that long-haul destinations are not offered by many competitors. And it is -- I would say it is company's decision how to act. We know the market very well, and we know that the long-haul destination clientele, they like the usual, are able to pay; and they like to choose from the variety. And for us, this model has proved already since 5 years ago when we introduced it to the markets. With this model, we can offer the choice to the client, the choice of the destinations, the choice of the hotels, the choice of the dates, and also, to provide with our usual service in those destinations. And the most important, with the very attractive prices, because by contacting the airlines and by having our strong contacts in the destinations, we can -- they have a better effective selling package rate. Hence I cannot comment on the other models. I can just say that this has proved to us very successful and has been growing throughout the years. Unfortunately, pandemic stopped this, but bit by bit or once the other destinations, the long-haul destinations are opening, we are already -- we are recording already an increasing demand for our long-haul destinations. On the other hand, I would say that having long-haul flight to the exotic destination with quite high air fare price and high capacity of the aircraft due to the model of the aircraft that can fly directly from the source market to the destination, business-wise, I consider it quite a big risk, which can prove to be right. Can be -- prove -- depending on the market, depending on the destination, depending maybe on the strategy. But it is, as a tour operator, from the prospective of the tour operator of the Baltic markets, I mean -- and evaluating the risk, the risk in our case is much more may be split among different destinations and minimized as much as possible, also by planning to the clients.

Another question is as following: how fuel prices influenced your profit per PAX this year? And what effect maybe in fourth quarter of 2021, I guess, but it's written '22.

So basically the package is -- how to say, the package is -- combines several little components, not only tour, which is changing, but also even the, let's say, the hotel prices, the air fare, the tour and many other components of the package where we have to monitor the trends worldwide, and we have to accordingly modify our pricing and prices. So that's done regularly. And we are, I would say, as much as possible forecasting and accordingly, including it in our net price calculations.

As all the questions are answered, on behalf of Nasdaq Vilnius, thank you, everyone. It was our pleasure being with you today. The recording of the presentation will be available in the Nasdaq Baltic YouTube channel. Thank you, dear management. Thank you, dear attendees. And Have a good day, everyone, and goodbye.