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

Good morning. Dear listeners, welcome to Novaturas Strategy Presentation for the Year 2023-'25. I'm Emilija from Nasdaq Vilnius, and I'll be moderating today's event. We will start with a 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 a rewatch. As always, I encourage every one of you to share your questions in the Q&A section at the bottom of your screen and you can submit them either anonymously or with your name. With that said, I'm pleased to introduce today's presenter, Chief Executive Officer of the company; Vitalij Rakovski. Mr. Rakovski, please, the floor is yours, and good luck.

Thank you very much. So hello, dear investors. It's a big pleasure to have you here, and thanks a lot for joining. And today is a really special day when we will present Novaturas Group strategy for upcoming 3 years. Before jumping to the strategy presentation, I would like to give a very short snapshot about Novaturas in general, as there might be new investors joining this webinar and also potential investors joining this webinar as this context is quite important. Very shortly, Novaturas is a public company with direct operations in Lithuania and also we are having 2 subsidiaries operating in Latvia and Estonia, 100% owned who are executing the operations in those markets. Novaturas is already operational in the tour operator market for more than 20 years. And for a very long period of time, it is a leading tour operator in the Baltics with sales, which last year almost reached EUR 200 million. We're also listed in Vilnius and Warsaw Stock Exchanges. We have more than 6,000 shareholders. 6 of them are having more than 5% of shares. And also, we are having an experience of management team with average experience between 15 to 20 years in various fields. But of management, I mean myself, the recently appointed Rasa, is our Chief Sales Officer who joined the company last year, our long-term employee who is the Chief Commercial Officer. And Novaturas is a market leader, not only in off-line, but also a market leader in online among other tour operators. So as you see, our market share in online is more than 50%. And our closest competitor having a quite huge gap versus Novaturas of almost 20% market share difference. Meanwhile, on the other -- the third market player is with approximately 10% market share and market player who recently entered the market last year is having negligible operations in online. And this strong market position in online allows us to think that we are well positioned to grow further in this area as we believe that this is the future of travel. Also, we are a tour operator having the widest destination selection of more than 30 destinations. Meanwhile, the closest competitor is having approximately 20 destinations and the remaining 2 market players are having less than 10 destinations for selection. And this -- why the destination selection allows us, first of all, to diversify our revenue and second of all, to have an extensive offering for our clients. And the market outlook is positive according to the publicly available information published by Euromonitor. Sun and Sea or we can say, leisure holidays in the coming 5 years will remain the most popular holiday selection among other holiday types. So by other holiday types, I mean, like cultural traveling, sports traveling, eco traveling etcetera. So despite the fact that those niche holiday types are growing, but still the forecast as such that Sun and Sea and leisure are all the destinations who will dominate this market. Second of all, Novaturas top destinations, which is Turkey and Greek islands, where among the top recovered destinations after pandemic, which also helped us last year. Thirdly, destinations introduced by Novaturas, which is Montenegro in the Baltic markets, we introduced this destination the first. And also the returning destination, which is Tunisia, [indiscernible] to the market trends. And the fact that we are introducing this destinations for returning these destinations to the markets. The first shows that our know-how in this area is very good, and we can understand the tendencies properly and introduce them to the market the first. Also, we are having the wide customer base. Last year, we served almost 270,000 travelers. Also, we had almost 4 million unique webpage users last year. And at the moment, we are cooperating with more than 400 travel agencies in Baltics. Our distribution and sales distribution is also well diversified, where 70% of our sales are coming from travel agencies. Meanwhile, the remaining 30 from our own sales, including our platform. Also, I would like to shortly overview the historical growth of Novaturas also in order to give context to the listeners how Novaturas was developing during the years. So the business was established for more than 20 years before. And after the establishment of the business, Novaturas quite quickly launched a geographical expansion and in 2 years, after the launch of the operations and Novaturas entered Latin market. And after 3 years, more Novaturas entered Estonian market. By doing so already in year 2004, with again the market leader in the Baltics and it was noticed by the private equity investors from Poland, who in year 2007 acquired the majority stake of the company. In the coming 10 years, with ups and downs, Novaturas was continuously growing. And in the period between 2017 and '18, Novaturas experienced the best performance historically, where the results were the highest. And as the investment cycle of private equity investor ended, we decided to exit the company by -- through the IPO. And that's how Novaturas became a publicly listed company in 2018. Going forward, in year 2020 and '22, we had an extremely challenging period with the COVID pandemics and Ukrainian war prices last year. It was not an easy period of time for the business. However, we survived and managed to solve this crisis successfully. It was even noticed by NASDAQ, where this year, we were awarded as the most resilient company among other listed companies in NASDAQ Stock Exchange. And going forward, and today, I'm going to present you the new growth strategy for the years of '23-'25. A very short snapshot on financials. So this year, we are planning to generate revenue between EUR 210 million and EUR 225 million. EBITDA we plan to have from EUR 3 million to EUR 5 million with the midpoint of EUR 4 million, net profit from EUR 1 million to EUR 3 million with the midpoint of EUR 2 million. We plan to keep the dividend policy as it was before, from 70% to 80% of dividend payout ratio and also our leverage policy would be quite conservative going forward. So our guideline is less than 2x net debt to EBITDA. Historically, during the peak period, it was even below 1x during the difficult times, this level was between 3 and 6x of net debt to EBITDA. And now I will jump to the Novaturas strategy presentation part, where our ultimate goal for our strategy is to make traveling together easy. And in order to make it easy, we outlined for ourselves 4 main directions. So first one is technology-driven direction. Second of all, it's customer experience orientated direction. Thirdly, it's sustainable traveling and fourth, it's people engagement. So I would like to begin with technology-driven direction where our main focus would be on technology-driven solutions. Our strategic guideline here would be an EBITDA between EUR 5 million to EUR 8 million with the midpoint of EUR 6.5 million. In order to achieve such results, we outlined for ourselves 3 main priorities in this direction. First is our willingness to launch a new webpage, which we are planning to do already in the second quarter of this year. And the rationale behind that is that the existing webpage is already outdated. The architecture is also outdated, which was developed more than 10 years ago, which means that our webpage requires significant refurbishments. So we will be changing absolutely customer experience, we would be changing the design of the webpage, and we would be also improving the performance speed. All in all, these actions should enable us to convert a much higher portion of our visitors on the webpage. And as you saw in the beginning, the potential there is huge of almost 4 million visitors annually. Second, our priority would be our orientation towards the dynamic packaging. So by introducing this solution, we want to extend our destination selection and also we want to extend our product selection. What I mean by dynamic packaging is the following. But first of all, we're going to be integrating ourselves with flight aggregators, regular flight aggregators. Flight aggregators who are aggregating low-cost carriers. And on the other side, we would be also integrating ourselves with hotel bed banks. By doing so, we would be able dynamically to back various tours, and we will be able to offer much wider selection to our clients, which would ultimately lead us to revenue increase. The third priority in this direction would be our orientation towards the algorithmic and automated pricing. The current market situation is extremely dynamic. Moreover, the competition is very high. That's why our timely reaction with the prices and accurate reaction with the prices is very much needed. By doing so, we would basically achieve 2 goals. First, we will be able to offer better prices to our customers. And secondly, we believe that we will be able to maximize the returns to the shareholders. Our second direction is customer experience orientated direction where we would aim to create hassle-free traveling experience to our clients. The strategic guideline here would be our client Net Promoter Score of more than 50. And here we have 5 priorities. First is reliable aviation, where we will be focusing on partnerships with aviation companies who would be putting a lot of attention towards the punctuality. We would be putting attention towards qualitative in-flight services and who would have strong, sustainable aviation agenda. Second priority would be the refreshment, timely refreshment of our hotels selection. So we would be updating our hotel selection with new trended hotels and also removing those hotels who have negative client feedback. On top of that, of course, we would be mixing the traditional contracting business model, which we applied before with the new opportunities arising with integrations of various bed banks. So that would allow us to quite actively and quickly to adapt our hotel supply to our client needs. Our third priority is our orientation towards the customer experience, mapping and journey. So we're going to remap our customer journey, and we will pinpoint those areas where the most qualitative improvements are needed and certain actions would be set up in those areas. In the fourth priority, which is the extension of extra services, we would be orientating ourselves into extending various additional services, which our clients are willing to have during their travel time. Current market trends are showing that the customers are hearing to have 3 things. First of all, is personalization. Second of all, it's convenience and thirdly, it's security. So these are the main tendencies, what customers are saying, what is needed for them. And we already started to move towards this direction by introducing lowest price guarantee in our early booking sales process. We've also introduced additional punctuality guarantee in one of our markets. And we are also piloting the express transfer in one of our destinations, which should allow our customers to save time on transfer. So these and similar types of services would be of our attention going forward. This should allow us to upsell more and increase sales and we believe increase profitability. And the last priority in this direction is the diversification of sales channels. So we will be not only investing into our reservation system, which is heavily used by our travel agencies. We would be definitely introducing new functionalities and updating the existing ones. But also with this priority, we would like to empower the development of our own sales through the technological advancements. So at this moment, we are actively developing our client relationship management system. We're also heavily investing into the development of customer service standard in sales process. These and similar types of initiatives should enable us to convert much higher number of customers into real sales. Our third direction is the sustainable travel direction and we want to act with highest care for our plan. The strategic guideline here is the decrease of CO2 emissions. And I must admit that this area, not only for us, but for the whole market is quite new. However, being as a market leader, we would like to take here initiative and to lead this direction in the market. And we outlined 3 main priorities in this direction for ourselves. First is the reduction of CO2 emissions in aviation. We already started this journey by switching into new generation airplane in Estonian market. We are also extending our partnership and cooperation with the airBaltic in Latvian market, where airBaltic is having one of the newest fleets in the market and it's -- and those 2 actions are strongly contributing towards CO2 emission reduction. So again, this and similar type of initiatives would be of our attention going forward. Our second priority is the promotion of CO2 reduction. So we, for sure, are noticing that our clients are showing interest in sustainable traveling topic in general. However, they lack information, they lack education and they lack knowledge. And we also know that some hotels are investing more into the sustainable -- sustainability. Meanwhile, others are investing less. So that our ultimate goal here would be to outline and to promote those hotels to do more in this area. And in case our clients would be interested in this kind of hotels, and they would be able to find it in our [indiscernible]. Last, but not least, is our dedication towards the sustainable traveling education. It is clearly noticed by various researchers that more than 80% of respondents are curious about the sustainable traveling. Meanwhile, only minority of them do have knowledge of how to have such kind of services. So that's why we're taking the leadership in this area, and we will be educating, first of all, our clients, second of all, our partners and thirdly, of course, ourselves. And our last direction is people engagement. It is probably more than in any other industry, important to [ derive ] attention towards people as the traveling industry is extremely dependent on people. And our strategic guideline here is employee Net Promoter Score of more than 30. And we have 3 main priorities in this direction. First is effective organizational structure. And during the last year and going forward, we were already doing huge changes within the organizational structure by consolidating certain functions, separating the others, introducing new competencies to the company. And by this, we want to create such organizational structure, which would be empowered to deliver the current strategy, which I'm presenting. Our second priority is the talent retention. And to put it into the context, I would like to say that probably Novaturas is the only tour operator in the Baltics who has full know-how resources here in the Baltics, in Lithuania in particular. Meanwhile, the other tour operators, I would have to say, having limited operations and where a significant part of their know-how is situated somewhere outside the Baltic countries. That's why to acquire the know-how and knowledge from the market, it's not so easy. And we want to grow our know-how, our expertise from the inside. Thus, it is very important to put attention towards the talent retention. What I mean by that, it means more attention towards identification of both people training, both people and preparing them for future leadership. Our last priority in this area is the people engagement. And here, we would invest more into learning and development of our employees. We would be improving our motivational system, and we would be also improving our onboarding process, which is extremely crucial in order to retain people. So these are the main priorities in terms of people engagement. And at this stage, I would stop and give time for questions. Thank you.

Thank you very much for your presentation. [Operator Instructions] The first question would be as following. Will Novaturas stay profitable if there will be any sharp price jumps of aviation fuel, let's say, if the oil price rises to USD 110, USD 150 per barrel level.

So this year, we already hedged 95% of our fuel expenses exposure. So everything what is sold in advance for future period is hedged. So we are not having this risk anymore compared to the last year. So this is first thing. Second thing is that in case fuel prices would rise up again, our, of course package prices would increase again, and we will not be obviously accepting this risk into our P&L. So directly answering the question, yes, we would stay profitable.

What is the Novaturas profit target for the future years?

Yes. So that's what I presented in one of the guidelines. So from EUR 5 million to EUR 8 million of EBITDA with a midpoint of EUR 6.5 million.

It seems that we have the last question. So please, if you have questions, send it in now. And the question would be, will Novaturas sell shares of Novaturas -- for Novaturas employees. If so, what will be the price per unit and when will it happen?

Yes. So maybe I might interpret the question differently, but currently, all Novaturas employees already became the share option holders of Novaturas shares. And we did it last year, in the beginning of this year. So going forward, those people who would retain for at least 3 years would be able to execute the share options and would become the shareholders of Novaturas. So our rationale behind this decision was very simple to involve people into the one common goal, which we have the increase of share price and through share options, we are exactly executing that. So we are having not only -- we're having a few areas for which we encourage people to select the share options. One is through the, let's say, while the longer people work in the company, the more share options they can get, but also in their performance evaluation and through bonuses, our employees can select how in which way they want to receive the bonus, it's whether cash or share options. And share options are having much higher coefficient from bonuses.

We have one more question. Could you please describe the new functionality of your webpage?

Yes. So probably I would repeat that the user experience would be different. So it would be shorter, much more convenient than the design itself will change and also the speed of the webpage, which is currently not acceptable or maybe not enough speed we have in the webpage, but should change substantially. Also, it would be adaptable to the mobile, easier than it is currently. And all those functionalities should contribute to the higher conversion rate. Also, we will probably outline that this development and these improvements are not the final improvement. So this is only the first stage of our webpage development. And going forward, we will be developing a future road map of what we want to have there additionally.

Will the dividend policy remain the same in the new strategy period?

Yes.

All right. Let's proceed. And it seems that we have the last question. So please send in your questions if you have some. So the question would be what is the average cycle EBITDA margin for the market leader in your sector, in your opinion? And what are the main drivers for the margin growth.

I would say that the margin is from 3% to 5% is something what is achievable and what is the benchmark in the market. And the driver for our margin improvements are a few. So first is the increase of bed sales. Second of all, increase of home sales, thirdly, algorithmic pricing, which, according to various researches, improves the profitability quite significantly versus the annual pricing process. Also, additional profitability should come through the sale and through the expansion of extra services, which are typically having much higher profitability than the tour package. Those would be probably the main ones.

Could you please comment if you think about share buyback in addition to dividends?

It is one of the considerations, which is on the table during the Board discussions, but it's not yet, let's say, so decided, but it's one of the considerations dividends versus share buyback, yes.

And it seems that it's, again, the last question for today. So what is the future plan regarding listing on Warsaw Stock Exchange? Any plans to delist from there?

Currently, there are no decisions made in terms of this question. So currently, where I mean.

As all the questions are answered, on behalf of Novaturas and Nasdaq Vilnius, thank you, everyone, for joining us today. The recording will be available for rewatch. Dear management, thank you once again for the presentation and interesting Q&A session. Have a good day, everyone, and goodbye.

Thank you. Bye-bye.