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

Good afternoon, dear listeners. Welcome to Novaturas meeting with investors. I'm Emilija from Nasdaq Vilnius, and I'll be moderating today's event. [Operator Instructions]. Please be informed that this webinar is being recorded and will be available for a rewatch upon request. [Operator Instructions] With that said, I'm pleased to introduce today's presenter, CEO of the company, Vitalij Rakovski. Mr. Rakovski, please, the floor is yours, and good luck.

Thanks a lot. So good afternoon, dear investors, and thanks a lot for joining. So let's start. Very shortly I will present to you our third quarter financial results. So to begin with, we did perform really good and strong during the third quarter. Our revenue reached almost EUR 64 million, and this is almost 50% more than we had last year and even by 15% more versus 2019 levels. On top of that, we served more than 88,000 travelers, which is approximately 10,000 more than we had last year. Also, we have met and even exceeded our guideline, which we provided in the second quarter of this year, our guideline for the travelers served was 75,000 per quarter. And that is even managed to be closer to 90,000. In terms of profitability, it was an exceptionally good quarter, where we reached an EBITDA of EUR 2.1 million and net profit of EUR 1.9 million. This was mainly reached by a few main factors. So first of all, it's our proactive actions of program optimization, which were made somewhere in the middle of this year, and we adjusted our program based on customer demand. This is first. Second of all, we improved our optionality, especially in Estonia, [ optionality ] flight, which also allowed us to regain the trust in [ Estonia ] market. Thirdly, the increase of average selling price also contributed to the improvement of profitability. And last but not least, we did very well in [ timely ] reaction of jet fuel price fluctuation, which basically allowed us to avoid any fuel price, let's say, losses which we generated in the second quarter of this year. So all in all, it's even 10x more than we did in terms of EBITDA than last year, we even exceeded the 2019 and actual results by more than 50%. Such a strong third quarter allowed us to have a positive and for the full 9 months of this year of EUR 1.4 million EBITDA positive and also it allowed us to return to profitability path in terms of net profit as well. So for the 9 months of this year, we have a net profit of [ EUR 0.3 million ]. [ Last ] but not least, I would say so that in the third quarter, we also launched our Summer '23 program. And it was launched with, I would say, the widest destination of selection compared to the competitors in the market. And also it was launched at once. So it wasn't done as we did it previously, gradually, but basically, we launched full selection at the same time. Second of all, we did quite a unique step, and we [ introduce ] lowest price guarantee in the market and currently we are [ the only operator ] with such a service, which can be bought by our clients, which we see also to create a huge trust from our clients and our partners. Considering our promise that this is the best time to do your booking for the next summer. And this is the best price we can get. So our promise to our clients is that if such price would go down, we will compensate the difference. And thirdly, we'll also introduce the exceptional extra services offering, which is mainly concentrated to allowing our clients to have very flexible conditions for rebooking their holidays. So the combination of all this free let's say, steps as we see already allows us to have considerably higher early bookings than we had in year '21. So at the moment, we are 2x more early bookings than we had the year before, which also, we believe, creates a strong background for a successful start of next year, which is approaching. If to jump to the 9 months performance of our revenue, so our revenue exceeded and was approximately EUR 155 million. And this amount exceeds to 19 levels by more than 10%. In terms of travelers served as per slightly below 2019 levels, up to 10%. -- comparing the same period in 2019. The main reason behind such a revenue increase, I would say, 2 reasons behind that. First of all, is that the touring sector in general is recovering and demand is back. Second of all, average selling price rises quite substantial, and it consists of 2 factors. First of all, is that aviation fuel prices are still high and decreased substantially. And second of all, hotel rates are also up due to a generally inflationary environment, current in the market. Our sales distribution between the product categories remains quite stable. 90% of all sales are generated by packaged tours and the remaining is distributed in quite strongly and seeing the product. If we take a look on our performance by market. So I would say the results quite equally will be distributed between the markets. And as you see the performance versus last year and the performance versus 2019 is very similar between the markets. So some 10%, 15% gap versus 2019 in all the markets. Also [ I would like to ] emphasize the situation, a competitive situation in the market. So at the moment the competitors of 4 players in the market, which is Novaturas, [ Tez tour, Cora travel and Join UP ]. [ Join UP ] is the [ recent tour operator ] who entered the market in the second quarter of this year and gradually is increasing its capacity. However, we still believe that they are still in an active market and the small with quite aggressive pricing. However, on the other side, we see more and more light to be canceled. So we're currently actually doing more to into market and also reacting to our competitor actions. [indiscernible] to the performance by destination here, I would say so that there are no significant changes, Turkey remains a main destination for our clients, amounting or approximately more than 40% of total sales. And then the destinations were distributed quite similar. So [ Greece ] is around 16% of total sales. Egypt 15%, then [ across ] Montenegro, Spain and Bulgaria. Also, I want to be said that after current market situation, Novaturas is the tour operator, which has the widest destination selection, more than 30 destinations are available in our portfolio. And we are quite far away from the nearest competitor to [ travel ] around 20 destinations and the other 2 market players have given below the destinations in their selection. Jumping to the -- our sales distribution among the channels. I would like to emphasize a few things. So first of all, our main distribution channel remains travel agencies, which account of 69% of total sales. At the same time, we keep growing our own direct sales especially these results are very good in the [ life ] market, and it is driven by a few things. So first of all, the time that the biggest trial opinions last year this year already stopped discontinued their operations and clients they distributed in the market, which allowed us also to improve our own sales. And second of all is that our service level of our direct sales is quite high. [indiscernible], which we are measuring is net promoter score. As you see, it's almost 90%, which is a really good result, which also gives a direct contribution to our increasing on sales share. Last but not least, we are continuing to develop various functionalities of systems, including the improvement and additional features for our value agencies. If to adjust to the e-commerce area where our sales, as you saw before account for roughly [ 15% ] . So in this environment, I would say - so we look at a stronger than off-line environment. So looking on top 3 biggest tour operators, their traffic, we have the highest share more than 50%, it remains quite stable during this year. In [ life and market ], it's even higher in which accounts of almost 60%. Converting these numbers into the absolute figures during whole 9 months of this year, we managed -- we had our websites were visited by [ EUR 3 million ] [indiscernible]. This is 60% more than [indiscernible]. So our web sales are looking good, we compared to the market, also clearly leading the way. In terms of efficiency and product dividend, our sales, I would emphasize probably sales profit as one of the main indicators, which shows us how much we turn the tax of the traveler. So in the first quarter this year, we generated EUR 44. Meanwhile, last year, the same period, it was only EUR 11 per [indiscernible] and in 2019, it was around EUR 30. So basically, this is the main reason why our EBITDA result is much, much better than in the previous period. Load factor for the 9 months is 94%, which is close to our estimated expected annual load factor of 95%. In the third quarter, it was slightly lower due to the fact that there was some availability on the issues on certain destinations where we have challenges to filling the claims However, for the full year, this ratio should be closer to 95%. Average package price is also high and remains high during [ Q4 ] this year. It's around EUR 800. Meanwhile, last year, it was closer to [ EURO 700 ]. [Jumping ] to the operating performance, our operating expenses and operating performance, I would say so that in the third quarter, we continued to be very well under control of our OpEx. So our general admin expenses were slightly above EUR 1 million. And if we compare it to the [ '20 ] level, so it's up by [15%]. However, they are together with sales and marketing costs are even lower than we had into 19 levels. So basically, we are for now still are able to serve higher number of clients with a lower, let's say, operating resources needed. So it's also quite a quite good result so far. And last, but not least, our future and forward-looking statements. So we would say a few things need to be mentioned. First of all, is our continuous actions were [ meet ] during the middle of the year where we reviewed our capacities for the second half of the year. considering the new competition in the market and also our intention to improve the profitability. So this is the first thing. Second of all, we've also traditionally consolidated flights in Estonia with another tour operator with [ that program ]. And by that, we are also partially managing the risk, considering current uncertainty in macro consultants in the market. And thirdly, our Summer '23 Program is already, let's say, available and our capacities are already public. So we believe that the current announced program is well balanced, I would say, so and is very well strategically planned. The volumes there are very close to [ '22 ] of this year, summer program levels. And the reason behind that is that we are not planning any, let's say, increase considering the [indiscernible] that still macroeconomic situation is quite certain. And we want to be in this [indiscernible] pragmatic and also deliver everything what we announced and to keep the promises to our partners and our clients. All of that being said, our plan for quarter 4, [ is to ] have monthly travel volumes of average of 15,000. This is first thing. Second of all, we are planning to have significantly higher profitability in the second half of the year versus first half of the year and the third quarter of this year already proves that we are keeping [indiscernible] this track record, the same we plan for the fourth quarter. And also our EBITDA profitability in the second half of the year and last quarter should be significantly positive which should lead us to the overall result of net profit being very close to [ 220 ] year '21. So at this moment, I would stop and can give a stage for questions.

[Operator Instructions] And the first question would be as following. And they're congratulating you on good results and asking, could you please share your expectations for sales profit per pax in 2023?

For question, I wouldn't be able to say the absolute figures we are currently in a very active planning stage of the next year. However, I would say probably a few things which could be a [ line ]. So first of all, is that considering our good performance in the second half of this year, we are planning to be on a similar or slightly better levels next year second quarter, so the second half of the year, meanwhile considering our client or performance in, let's say, a challenging first half of the year this year. So we plan to have considerably better results in the first half of next year. So in absolute figures, I would say, so sales profit per pax should increase next year due to much better performance for the first half of the year.

Thank you very much. The next question would be as following. In your presentation, you [ write ] "Net profit expected to be bonded and higher than Q4 of 2022". Do you mean that Q4 2022 net profit is expected to be higher than Q4 2021 and [ positive ]?

Correct.

Then let's proceed to the next question, and it is as following. Both companies are heading into a recession. Mild as is seen so far, the consumption seemed to slow down at best, but Novaturas sees rapid sales growth during the 4 months, which is a bit contradictory. Any insights about while sales of holiday packages seems to buck the general trend? Much appreciated.

A very good question that we are also strongly monitoring the macro situation and the, let's say, cost of living situation and also positively surprised that the demand for traveling is not decreasing here. So there could be a certain delay effect from one which we, of course, don't know. But one of the reasons could be a surge and the reason could be that despite the cost of living [indiscernible], people are still willing to travel and still willing to obviously have locations on their holidays due to the fact that for a while, they didn't have it. But so far, indeed, the demand is still there. Let's put it on this. So -- but as we said before, we are strongly monitoring the situation, and we're looking on it. And in the case of any signs, it would be, how to say, dynamically adapting our supply towards that.

Thank you for your answer. -- as we have 2 more questions remaining, I would like to invite all attendees to send in your questions in the Q&A box of the screen, and I will read them out loud. So the next question is, could you please give us the feel for the expected interest expenses in 2023, assuming that [ Euribor ] is expected to be around 2.9%. Also, maybe you can comment on the planned loan repayment schedule.

So I will pass the answer to Arunas.

Thank you for your question. And let's start [indiscernible], still in the standing for the next year of the financials. But in terms of the our loan rebuilding schedule, the majority part of loan is set for 2024 and 2027. And next year will be less debt for the loan repayments. So we could have a positive effect on cash flow [ in company this year ].

Thank you very much. Let's proceed to the next question, and the next question is asking, could you please indicate the aviation fuel hedge ratio in Q3 and how it compares to Q2 and Q1?

Yes. I will also take this question. Thank you, please. We have a higher position of hedged aviation fuel than Q1 and very similar we had by the end of Q2. And it is because that we have a lower number of clients during the business season because it's around [ EUR 50,000 ] per month as we have around [ 7,000 clients in different months. So, yes, during Q3, we increased our limit [indiscernible] -- we have signed new facilities for [ implement ] the brokerages, and we will increase it still for their upcoming summer [ for season ].

And could you please share your insights on why one of the biggest [ life and travel ] agencies went bust?

Yes, good question. And I would say so one of the reasons in this because of the delayed reaction of actions to the pandemic. This is first thing. Second of all, let's say, crystallization of the business lines of the owners of travel agency. Travel agency business wasn't the only business overall [indiscernible] decided to concentrate to the other business lines [ to stop activity this year ].

Thank you very much for your answer. [Operator Instructions]. And the last question, as it seems for today is, in the long term, what percentage of web sales Novaturas is targeting to have infill distribution by channels?

Yes. So currently, there is no such, let's say, figure of what the sales share we want to have. However, we want to basically our debt sales to increase, let's say, on a higher pace than the total market increase. And then how to say, instrument behind that is that we want to improve our conversion rate of our web, which should allow us to have higher growth rate than the total market. So ultimately, the share can grow, but not necessarily if our other channels would be doing, how to say, in the same good way as well. So definitely growth of that should be much higher than the portfolio.

Thank you very much for your answer. And if you could maybe comment on if you know, what was the market share of the [ Latvia ] travel agent that went bust?

Market share -- probably difficult would be for me to answer, but let's say, so as an indicator, it could be that their share in our sales was in B2B sales was some 10%, I would say, so more than 10%. So maybe that could help to understand. So basically, it was -- at that moment, it was the biggest travel agency in the market. But it was also the work to be said there, I'd say, volumes were not just like 1 day where I say, canceled. They were [ raising ] their operations, a gradual step-by-step and basically, that's how [indiscernible].

Thank you very much. It seems that all the questions are answered on behalf of Novaturas and as that Willis, thank you, everyone, for joining us today. The recording will be available upon request from the company. Dear management, thank you very much for the presentation and an interesting Q&A session. Have a good day, everyone, and goodbye.

Thank you very much. Goodbye.