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

Good afternoon. Dear listeners, welcome to Novaturas meeting with investors. I'm Emilija from Nasdaq business, and I'll be moderating today's event. We will start with the presentation from the management which will be followed by the Q&A session. Please be informed that this webinar is being recorded and will be available for upon the request. [Operator Instructions] With that said, I'm pleased to introduce today's presenters, CEO of the company, Vitalij Rakovski; and CFO, Arunas Zilys. Dear guests, please, the floor is yours, and good luck.

Thank you very much. Dear investors, it's a big pleasure to have you all here. So I will start our presentation for the full year of year 2022. So to begin with, I would like to share with you the good news, which we had last -- this month, when Novaturas was recognized by NASDAQ for excellence in overcoming challenges, and we won the Challenge of the Year Award, which is, I think, huge recognition for full team who really did a lot of efforts and by overcoming those challenges during the pandemic years and also afterwards. Also, jumping to the year 2022, I believe that we demonstrated quite good resilience and also adaptivity towards the situation in the market. And despite the extremely challenging first half of the year, where we generated a negative EBITDA of EUR 0.8 million, we managed to finish full year with EUR 1 million EBITDA plus. And also, we almost managed to neutralize all the net loss which we incurred in the first half of the year when our net loss was minus EUR 1.7 million. Meanwhile, full year result is minus EUR 0.2 million. So basically, in the second half of the year, we earned EUR 1.5 million in profits, which is a considerable improvement versus the second half of the year in year 2021. I would outline a few things, which helped us to improve. So first of all is the fact that we introduced fuel PAX, which helped to significantly reduce the losses due to the jet fuel-price spikes. It's approximately EUR 1.6 million, EUR 1.7 million of additional funds, which were gathered from the customers. Second of all, once we noticed that there is a shift in demand after the war started, we adjusted our capacities quite substantially and quite fast, which also allowed us to avoid a lot of last-minute sales. And thirdly, when we saw the opportunity in the market of potential takeover of Kidy Tour bookings, we embrace this opportunity and also managed to increase our volumes by executing a transaction when we overtook all the bookings from Kidy Tour, who later on decided to terminate their operations. So all those things actually allowed us to strongly recover during the second half of the year and substantially decrease the losses coming from the first half of the year. Also, it is important to note that due to the IFRS 15 adjustments in the fourth quarter, we had a negative effect coming to this year of EUR 370,000. So this is basically a movement of profit between the periods. So the same equivalent amount would be moved to this year and January results. So without this adjustment, we wouldn't be even net profit positive of EUR 150,000. In terms of sales and customers served this year, we -- last year, we almost reached EUR 200 million, and it's approximately up to a 50% decrease versus last year and even 10% above 2019 levels. Meanwhile, talking about customers served, we reached 267,000 of customers served, and it's still slightly below the pre-pandemic levels of 294,000. However, the gap is indeed very, very small. And just a quick reminder that in 2019, it was a record year in terms of customers served from Novaturas. So we are very close to those record years -- last year. And in terms of competition in the market, I would say so that this year -- last year was quite dynamic. So first of all, tour Baltic, our large tour operator was sanctioned and basically, stopped the operations in the Baltic markets. Second of all, we saw also the discontinuation of operations by Kidy Tour, which I mentioned before. And thirdly, we saw a new market entrance coming from Join Up, which is a Ukrainian tour operator. So there was quite a lot of movement in the market. Currently, I would say so that Join Up is still very active in the market in terms of capacity and in terms of pricing, and pricing levels are still very aggressive. But despite that, we as Novaturas in all 3 Baltic countries maintained our market-leader position in the Baltics in terms of capacities. And also we even increased the gap from the nearest competitor, which is also a good news. I'll jump into a few things in terms of our financial liabilities. I would like to say one thing that during year 2022, we managed to decrease our net debt quite substantially. So almost we cut our net debt to almost half. So full effect -- P&L effect of these actions should be visible in year '23. And also, we've did quite huge improvements in aviation space. So from the beginning of December last year, we changed our aircraft in Estonia from the old-generation plane to the new-generation plane. We would be using Boeing plane for full year this year, and there are a few advantages, which I would like to outline. So first of all, this plane has more seats available by approximately 5%, but also it is much more fuel-efficient. So the fuel savings are up to 15%. So all in all, that should give us quite huge improvements in CO2 emissions, and we are estimating that it could be up to 18% CO2 savings. And in terms of annual tonnes -- equivalent tonnes of CO2, it should be from 5,000 to 6,000. So this is, I would say, first huge step towards our sustainability strategy and all-sustainability agenda. Also a few things to be mentioned about the early bookings and how we are performing so far. So last year in October, we launched our early bookings for the full summer, and this year, we did a few new things. So first that we started with the full selection of destinations. Second of all, we also introduced the lowest-price guarantee to the market, which was quite unique. And last but not least, we also offered quite extensive extra services packages available for our plans. All of that and of course, the recovery of the travel sector in general allows us to already now generate significantly more early bookings than we had in year '21, and also looking on the tendencies which are visible from the beginning of the year '23. And we see that we are -- given overcoming year 2019 also, which is promising is the sales performance during the tourism fairs. I would like to say that the tourism fairs in a week is the most intensive sales a week during the whole year. So they are typically held in different Baltic countries in the end of January and mid of February, and this year, it was an extremely successful week for us. It was a record-high week. Historically, where we -- where our sales were 40% more than we did last year and also even 20% more than in 2019, which was a record year as well. So this is -- these 2 things going forward are quite promising. And jumping to the performance by the quarters. Here, I would say that there is -- tendencies are very similar looking on performance quarter-by-quarter. So the gain versus 2019 in terms of revenue and number of PAXs is quite stable. So we are still up to 10% below 2019 levels. If we jump to our performance by the markets, we should probably say that we did quite a good in the Finnair market and also in the Latvian market. Meanwhile, in the Estonian market, we did have some challenges and competitive challenges and also our operational challenges related to the punctuality of our flights. It was a temporary, let's say, obstacle for us to operate, and especially during the summer season. So it was one of the reasons why we decided to change the airplane and also to do other needed actions to improve the quality. And we already saw some improvements in the year-end. However, the full effect of those changes should be visible in year '23. Meanwhile, talking about Lithuanian and Latvian markets. So we -- in Latvian market, I'm happy to share that our -- what we returned to the market-leader position and our gap versus the closest competitor is very, very significant. So we have a very clear market either in Latvian market. And in Lithuania market, we are very closely sharing market-leader position with the second largest player. In terms of sales and distribution among the destinations, so Turkey remained our #1 destination as it still offers the best value for money proposition for our customers. However, we are intensively investing into other destinations. So first of all, last year, we had 2 unique destinations, which is Montenegro and Tunisia, where we did quite good. And this year, our capacities, they are even further increasing quite substantially, despite the fact that the competition in these destinations from this year already is existing. However, we believe that we are very well positioned to perform well in those markets as we have quite a lot of, let's say, securities in the hotels where we operate, also, this is the best-selling hotels. So we very well understand what customer wants and what are their wishes. So this is first thing. Second of all is that we believe that we are quite strong in terms of our aviation costs. So this is about the Montenegro and Tunisia, and also, we are further increasing our, say, operations in the long haul. We are observing already a while the increasing demand towards those destinations. So already last year, we increased our volumes. But going forward, we plan to do so even more. And also, we further keep our widest destination selection in the market, and as you see, the gap among the second largest player in the market is still quite high. So we are operating in more than 30 destinations during the year. To look on the e-commerce performance, which is also important for us as a tour operator -- as a leading tour operator. So our web traffic share remains quite high as it was during the full year 2022. So more than 50% of the web traffic share among 3 largest tour operators is attributable to Novaturas in all other countries. And we -- our web pages in all [ multi ] countries were visited by almost 4 million unique users, which is 44% more than we had in year '21. Also, I would like to outline our sales distribution between the sales channels. Here, we quite substantially increased our position in Latvian market, where our own sales share increased up to 40%, when before it was closer to 30%. So we basically used the market situation where the largest agency decided to diminish their operations and later on to diminish at up to -- almost up to zero. That allowed us to increase our own sales share quite substantially. Meanwhile, in Lithuania and in Estonia, our distribution between the sales channels remained quite stable. In terms of efficiency and productivity, load factor in the fourth quarter was 60 -- 96% plus. And so -- and for the full year, it was 94%. So basically, it's even 2% load factor more than it was in year '21. Still not needed the perfect load factor, which we would like to have, which is 95% and even more, but the tendency is quite positive. Second of all, our sales profit per PAX for this year was basically by 25% lower than we had in year '21. And the reasons behind, I would say, the same as we have for EBITDA performance. So first and the biggest impact is the jet fuel-price spikes, which were not fully hedged and that basically generated significant losses for our operations. Second of all, I would say that during the -- and as you see in the fourth quarter, we are also slightly below than we had sales profit per PAX last year. So the reasons behind that -- first is that the competition in Egypt was quite high this year. When I say this year, I mean year 2022. And the reason behind that is the new market entry made by Join Up. So the competition is intensive, and we want to keep our market share and that's why our profitability is slightly below year '21 levels. Second of all, we still have this IFRS 15 impact, which also impacted our sales profit per PAX. In terms of operating expenses. So here, the tendency during the year kept the same. So every quarter, we were slightly below even 2019 levels, despite the very high inflation in the Baltic markets. However -- and I would say our operational efficiency measures allows us to be even below 2019 levels and serve almost the same number of customers which we did in the year 2019. So from the operational excellence point of view, I would say so that we are doing very well. And our sales and marketing expenses are, let's say so, slightly already above 2019 levels, as basically operations are back on track. And the main increase here is coming not from marketing expenses, but from sales personnel expenses as we were expanding our own sales teams in all Baltic markets, which basically resulted in increase in sales. And last but not least and maybe probably the most important is that forward-looking statements on which we have for year '23. So 4 things we would like to say. First of all, volumes. In terms of volumes, we're not planning anything significantly above year 2022. So we are targeting from 270,000 to 290,000 passengers served. And then in terms of revenue from EUR 210 million to EUR 225 million, which should contribute to the EBITDA result from EUR 3 million to EUR 5 million, so substantially more than we had this year of EUR 1 million. And to the net profit, it should be from EUR 1 million to EUR 3 million. Other qualitative things which I would like to outline for the year '23 are the following: so first of all is that we would still be willing to maintain our market-leader position in the market in terms of capacities. And also, we would be further enhancing and searching for opportunities to launch whether new destinations or returning destinations, and we will be further investing in the long-haul destinations. Second off, we would be investing and putting a lot of attention into the digital agenda, and we would be introducing new features, new opportunities and new services in terms of digitalization. Thirdly, we would continue to improve our customer experience, and also, we would be willing to shift our customer behavior towards the early bookings similarly as we did this year with the lowest-price guarantee services and all other, let's say, extra services, which are motivating the clients to choose early their holidays then move into the last minute. So we want to continue this trend. And last but not least, we would also be willing to upsell more our passengers going forward. And last but not least, this year, in year '22, we already did quite a lot of improvements relating to our dynamic pricing. However, we are just starting this journey, and going forward, we will be searching for new opportunities, how to make our pricing more algorithmical, I would say so, and also going forward, to use various AI technologies and machine learning technologies. And last but not least, this year, we would be using much more intensively hedging instruments and would be hedging our ForEx exposure and jet fuel price fluctuation exposure. So at this moment, I will stop and leave time for questions.

Thank you very much for the presentation. And indeed, now we will proceed with the Q&A session. [Operator Instructions] And the first question would be as following. Could you please indicate how many people Novaturas had by the end of 2022?

It's approximately 200. So roughly, we have 100 employees in Lithuania, and then approximately, 20 in Latvia and Estonia each. And also, we have around 60 employees in the destinations.

Let's proceed, and the next question would be, is Novaturas happy with the current funding structure? And are there any plans to redeem EUR 5 million bond this year?

I would leave this probably for Arunas.

Thank you for this question. And of course, for this moment, we acquired what was our funding structure. However, as our results are improving with every quarter, we are opening another sources of financing with more beneficial conditions. But get back to the question, are there plans to redeem EUR 5 million bond? It depends on our further cash flow as this bond is until year 2027 with quite favorable conditions. So for this short period, I do not see short-term plans to redeem it.

Let's continue then. So the next question would be, given the announced 2023 targets, what sales profit per PAX does that imply versus EUR 30 per PAX last year?

I can also answer that. As Vitalij indicated in the last slide, our initial EBITDA goal is EUR 3 million to EUR 5 million. What does it mean is that we need at least EUR 40 per PAX in sales profit. So this amount would be not smaller than in 2019 as it was EUR 40 per PAX.

The next question is regarding the dividend. So if 2023 targets are met, would that give away for the dividends?

Yes. According to our dividend policy, we -- if everything will be reached according to our plan, it would be here for -- with the year that we will pay the dividends for 2023.

[Operator Instructions] So the next question is, could you please provide a bit more details on supplementary services as ways to improve sales?

Yes. So as an example of the services and new services introduced last year, so this is the lowest price current year. Also, there is so-called flexibility service where you can change your booking or you can change your hotel with a certain additional supplemental fee. And also, there is new service introduced in our largest destination in Antalya, where we have an express transfer. So this is not a private transfer, but an express transfer where, I would say, few passengers can join and with very limited number of stops, come to their hotels. So this kind of services we are talking when we say about the supplementary services.

Let's continue. According to IFRS 15, the profit of EUR 670,000 from 2022 December was moved to this year January. Could you please provide more details?

Yes, I would like to be very brief because it's technical and accounting procedures. But the majority, there are 2 streams of profit that moved to January 2023. First is, when we book our holiday in a year, we book by the -- it begin. And if this holiday starts in, let's say, December 28, 3 days -- profits from those 3 days go to 2022 and the remaining part of the profit goes to the January. This is first stream. And another stream that commission costs incurred in January 2023 as incremental costs are backwarded to 2022 year. What does it mean that this year, our package price is significantly higher as it was last year. So this significant amount -- this amount is significantly higher than it was last year's.

Let's continue. And the next question is, what percentage from revenue it would take for Novaturas to be fully hedged from oil price changes?

The -- just oil typically is around 17% up to 20% of our revenue. So the total amount is around EUR 40 million. So if we would like to catch all amount, this will be the number.

And what are your plans or policy according hedging for 2023?

Despite now we have favorable conditions when we have a foundation in jet fuel price, yet we will still improve our hedging positions and try to hedge a significant amount of upcoming summer-season amount. So it should be between 30% and 60% of summer season.

[Operator Instructions] So the next question that we received is, can you say what are the company's expectations for 2023 in terms of customers, revenue and profit?

So I think it was answered during forward-looking statements. So from 270,000 to 290,000 PAXs; revenue, EUR 210 million, EUR 225 million; and EBITDA, EUR 3 million, EUR 5 million; and net profit, EUR 1 million, EUR 3 million.

Another attendee is thanking you for the presentation and ask you to explain the jump of cost of sales in Q4 of 2022 compared to the previous quarter.

Arunas, you should unmute yourself.

Sorry. Yes. As I mentioned in the previous question that a significant amount is [ according to -- for us ] when a larger portion of commissions was transferred from 2023 to 2022. So the major difference comparing to last year is this, and of course, this year, we are having a full team, bigger program, and that's how we -- it's proportionally increased our sales cost.

[Operator Instructions] So the next question would be, in terms of Q4 revenue that grew 30% compared to Q4 in 2021 while sales commission expenses increased 3x, could you please explain the difference?

Yes. This question was a little -- I have already answered before previously.

And then it seems that the last question for today is, unless we receive more is, what is your long-term profit per PAX target? Is it EUR 50, EUR 70 or EUR 80?

I would say that in the short to midterm, from EUR 50 to EUR 70. In the long term, probably, it could be in the similar range or even higher.

It seems that we covered all the questions for today. On behalf of Novaturas and Nasdaq Business, thank you, everyone, for joining us. Dear management, thank you very much for the presentation. Attendees, thank you very much for the questions. Have a good evening, everyone, and goodbye.

Thank you. Good bye.