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

Good morning, dear listeners. Welcome to Novaturas meeting with investors. I'm Emilija from NASDAQ 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 a rewatch. [Operator Instructions] With that said, I'm pleased to introduce today's presenters, Chief Executive Officer of the company; Vitalij Rakovski and Chief Financial Officer, Vygantas Reifonas. Dear guests, please, the floor is yours, and good luck.

Thank you very much. Hello dear investors and all the participants. It's a bit pleasure to have you here. So today, we wanna present to you our financial results for the first 3 months and also update to you with -- for a full year outlook. So to begin with, our sales during the first half of the -- first quarter of this year are up by 35%. And we recorded increasing revenues every consecutive month which was driven by 2 reasons. First of all, our volumes increased by approximately 4% and then the remaining sales growth came from average sales price increase. The Average sales price increase was mainly driven by increasing basically all components of our tour package, primarily fuel price, jet fuel price following by hotel prices. That said, our gross profitability also increased and quite substantially more than 2x. So we reached gross profitability of almost 16%. Which is way better than we did last year when it was up to 10%. And ultimately, it resulted quite high EBITDA result of which is EUR 2.6 million. And this result is, I would say, so extremely good, especially for the first quarter. When we have a, let's say, low season or winter season when our sales are typically much lower. However, the profitability this quarter is extremely good. And even looking backwards, some 5, 6 years in a row, probably it would be one of the best or the best first quarter of the year of Novaturas. Also our EBITDA of EUR 2.6 million attributed to net profit of almost EUR 2.3 million and this good result was mainly driven, I would say, so by 4 reasons. So first of all, is the fact that we well diversified our destinations and it was always our priority. And specially we -- let's say we materialized this direction in the first quarter, where our long-haul share extremely increased almost 2x. So up to 20% of our total sales were generated from long-haul destinations and typically long-haul destinations are generating much higher sales profit per pax. So this is the first thing. Second thing is that we continuously improving our own sales performance. So our own sales share also increased. And considering the fact that it is a more, let's say, efficient sales channel for us. So it has a lower cost base. It also allowed to improve the profitability. Thirdly, we also did timely and quite strategically good decisions to consolidate in certain of our markets in Latvia and Estonia and the Egypt destination where we saw the increase in competition, and we also saw that there is a huge risk of price war. So basically additional pressure on the margins, and that's why knowing that it could impact our profitability. We consolidated with one of the other tour operators, which allowed us to, say, decrease the last minute typical loss-making sales. And last but not least, it is, of course, the fact that the jet fuel prices and USD euro exchange rate were also contributing positively on our cost of sales. So this is mainly -- I mean the reasons behind such good -- good performance. It results sales profit per pax more than EUR 100. So EUR 120 per pax, which is a very good result, I would say, so for the first quarter performance. Going forward, almost 60% of our annual program, when you say annual program, i mean summer destinations and winter destinations. So it's starting from November are also lso well sold out. So almost 60% are sold out by the end of May, which basically allows us to look positively on year-to-go performance. Also this year, in April, we executed the largest, I would dare to say so workation project in Lithuanian history where we, together with another tour operator AirGuru, and carried almost 2,500 passengers to one of our destinations and it was a huge workation, which was great success for all the participants, including us. So knowing our volumes of 2,500 passengers is -- it's a quite huge and considerable contribution to overall performance of Novaturas. Also in May, we introduced our full winter sales program and we added additional three destinations. And by that, we are continuing our strategy implementation where we want to diversify our destinations and we want to offer our clients something different than the mainstream destinations which are let's say, in winter it's season typically Egypt and in summer season, it's Turkey. So additional 3 destinations introduced and also looking on of course, still very early bookings for winter '23, '24. Our sales are up by 3x versus the last year, which is also a promising start for us. Overall overlooking the competition. So despite the fact that competition going forward in the first quarter and going forward is increasing we still firmly remain the market leader within the Baltic states with quite considerable, let's say, difference versus the second largest market player. Shortly overlooking the competitive environment, I would say, so that during the winter season, one additional tour operator Join Up was operating in the market. So that's one of the reasons why we were also looking wisely on our program and consolidating the flights where it was necessary. But going forward, also from June this year, another Turkish tour operator starts operations in the Baltic countries, which is called Anex Tour. And despite the fact that we as Novaturas were, let's say, so expecting maybe more aggressive start of this tour operator. However, based on the currently publicly available information, we see that the start of this operator would be a bit of a maybe slower let's say, so then we expected which, let's say, slightly eases pressure on summer sales. Also during the first quarter of this year, we introduced our 3 years growth strategy, where we said that our main focus would be into 4 directions. First of all, it's business growth through technologies. Second of all, we would put a lot of attention to the sustainable travel direction and also would put attention towards our clients and employees. So three 3-year strategy is available also publicly and those who haven't seen it can take a look at it and get more information. Also, I would say that looking forward, our summer sales, let's say, were well secured with jet fuel hedge instruments which was not the case last year and was one of the reasons why our second quarter performance was extremely poor, I would say, so we recorded a net loss on EBITDA at profit level. Meanwhile, going forward, we are well secured. So more than at this moment, 70% of our sold passengers are hedged with jet fuel futures and forex futures. And that's why we feel much more comfortable looking in the summer. A few words about the performance by markets and by destinations. So first of all, our sales in Lithuanian markets are up almost our volumes up almost 13%. In Latvia, it's 9%, meanwhile, Estonian market it is a decrease of 12%. So in the Lithuanian market, we were in Egypt destination was how to say, intensively consolidated. That's why the volumes in Egypt destination increased. And we did quite well with this destination in Lithuania. Meanwhile, we are seeing higher competition and also maybe not as high as we expected demand. We consolidated regions as much as we can and our volumes there were a bit lower and however, as I said before, we introduced a lot of long-haul destinations and super markets, it's different. But overall, it contributed significantly towards our, let's say, performance and our long-haul share substantially increased. Average selling price is more than EUR 1,000, and that's probably the highest average selling prices through the last few years. So the general inflation is quite high as overall in the market. And the same happens with traveling sector. So average selling price is sort EUR 1,100 mainly it is driven by the fuel price increases and the hotel price increases. And also in our case, it's also influenced by the fact that the destination mix between is changed. So we are selling more long-haul destinations where the average selling price is considerably high. Taking a look on our distribution channels and effective commission. So as was said in the beginning, our distribution sales mix is changing and our main sales channel remains the same. So it's travel agencies but this year of travel agencies is a decreasing 3 quarters in a row. So as you see, year '21, it was 70%. Meanwhile, this quarter, we recorded only 66% and looking deeper into that, our own sales channel is increasing substantially. So from 11% of share. Now it's almost 18% of share. Our web sales are more or less stable. So was at 19%. This quarter is slightly lower. It's almost 17%. However, going forward, our attention to the web sales remains, let's say, very high and that's why one of the main priorities in our strategy is the introduction of the new page which would be based on the new technology and it would be with totally different user experience, and we are planning to launch this already. The first half of this year. So in some time in June. So that's from where we expect our web sales to increase also even despite that, our unique visitors flowing into our web page are increasing. So it's up by more than 25%. Comparing year-over-year. And also taking a look on the shares between our tour operators in their web pages. So we are dominant there, more than 50% of total Internet flow, let's say. So it goes to Novaturas. If to take a look on our operating expenses and sales and marketing expenses here the situation is, I would also say well managed so our costs are under control. Our total sales and marketing and general and administrative expenses increased by 23%. And if they divided into the marketing. So it's a 27% decrease in general administrative expenses, 17% increase but it's much lower increase versus our sales. So that's why our share to sales is even decreasing so 5%. Meanwhile, last quarter, it was in year '22. It was at 5.6%. So I would say, so that despite quite high inflationary environment, we are doing well with certain efficiency measures and trying to find the ways how to, let's say, a slowdown or OpEx increase. And so far, we are doing good in terms of this. Last but not least, a forward-looking statement for the year '23. We would like to update a certain our key performance indicators. So first of all, volume wise, where you can do it in February, we gave a guideline of to conduct ERU 270,000 from EUR 270,000 to EUR 290,000. So this guideline remains unchanged. Annual revenue guideline also stays flat, so from EUR 210 million to EUR 225 million. Meanwhile, our guideline for EBITDA performance is increased. And so from EUR 3 million to EUR 5 million to EUR 4 million to EUR 6 million and so if the midpoint before was EUR 4 million and now it's EUR 5 million for EBITDA and with the same amount, we update our net profit. Net profit from EUR 1 million to EUR 3 million. That was our initial guideline. And now updated one is from EUR 2 million to EUR 4 million with the midpoint of EUR 3 million. So the reason behind this guideline update is, first of all, of course, the stronger first quarter, where we see that our net profit is already within the annual guideline range. Of course, the strong sales for summer are also giving additional push for guideline update. So this, I would say, so the 2 main reasons. Of course, there are certain risks, which we accounted. However, time will show how they will materialize. So this first is that the impact of the competition can be different. So far, we see extremely huge competition in Turkey destination where there are 5 tour operators with their own programs, offering clients a lot of flies. So that could have a certain negative impact for our performance. And of course, second is macroeconomic sentiment so far, let's say, so we see that the demand for traveling is high and we do not feel any substantial, let's say, impacts from the macroeconomics. Meanwhile, it's difficult to predict how it's going to be in the second half of the year, especially, I would say so during autumn. Looking on a strategic, let's say, our objectives, so we will keep implementing our strategy agenda with the main focuses to the digitalization, to improvement of customer experience also would be investing into the algorithmic pricing and also would be developing additional extra services for our clients on top of traditional tour packages. So at this point, I would end up and I will sum up this presentation in the following way that the start of the year is extremely good, extremely strong. We did deliver one of the best results. First quarter results during the history or on the company going forward, perspectives are also good or moderate. The business model itself stands well. We're diversifying our destinations. We're diversifying our sales channels. We're investing into the technologies. So all these things should going forward contribute to value increase for shareholders. And now I leave the time for questions.

[Operator Instructions] We have the first question, which is as following: what does the proportion of long-haul destinations in early booking sales?

I probably -- talking about winter '23, '24, wouldn't be able to name the number, but I would say following that going forward, even to the next season, we increased our long haul, let's say, selection and volumes even addition by 50% versus this year. So this year should be even higher.

Let's take a minute to wait for more questions to come in. All right, Another attendee, congratulates you on great results and asks you, could you please elaborate a bit more on the competition? How is the Ukrainian Up is doing and the Turkish challenger.

Yes. So to put everything in a structured way. So we -- last year, the newcomer called Join Up, Ukrainian tour operator launched operations this year, a new one. Anex should launch operations for Turkey starting from June. So as I said in the presentation, the launch of Anex operations so far in our opinion, are, let's say, so slow and not as aggressive as maybe we expected. So there were different information in the market, how they can start and how strong it would be. So so far, it's, I would call it, moderate launch of operations. Meanwhile, Join Up finds its customers through, I would say, so quite low average selling prices. So basically, a bit of the targeting maybe with a different client profile than we have. So far they're proceeding with their operations, I would say so. So they were, let's say, so maybe more aggressive during the winter season as Join Up is well known for strong operations in Egypt. Meanwhile, we don't have maay be such strong operations also strong destinations during the summer. However they're also having some, let's say, some also moderate operations, and we've -- if I recall correctly, if market share of some 10-plus percent and 10-something percent.

All right. Coming back to the long-haul destinations. So will the long-haul destination proportions remain similar in summer and autumn of this year compared to this quarter.

And now during the summer basically, the share of loan falls is much lower due to the seasonality of the business typically long hauls offered to our clients during the winter. So during the summer, we have almost no long hauls and then they are restarting from November.

[Operator Instructions] So the next question would be as following. Where do you see the proportion of own sales in the total mix?

And so far, it's difficult to predict the share,as we do not have any kind of particular number for our sales, just we have a let's say, strategic direction to improve our web sales. So we want them to grow on a higher pace than total sales. So that should contribute to share increase how quickly and how well we can do it, time will show up. We believe that the strong, let's say, background and backbone for this direction is the introduction of new web page, which would be a fundamental change. And going forward, we're going to invest into the page substantially. So this is, let's say, first thing and also we're, how to say investing into the efficiency measures of our own sales. So we are developing the customer relationship management system, and we are developing the customer service standard, which we believe and already see that substantially contributes to increasing sales efficiency of our own sales channels. And even in certain markets, our own sales share is, I would say so quite high up to even 40%. So totally, it's -- this quarter, it's a 30% -- oh yes. But a number of markets in certain particular markets, it's up to 40%. So the share should go. However, we don't want to how to say, intentionally, how to say, forget about the traveling agencies channel as there the competition is also high and certain our competitors are operating only through this channel. So that's why we're going to be, and we would be strong in this channel as well. So only, as I say, time will show up, which channel would perform best.

Do you expect strong pricing pressure from the Turkish competitor?

So far, by the way, good question also, we were expecting the pricing competition with new competitors entering the market would be high. But so far, I would say, so it's not -- they're not as aggressive with the prices as we expected. So far, again, time may change, but there is quite huge competition from the existing competitors as there is generally quite huge supply of seats to the market to the Turkey destination. So it's enough of the, let's say, so fight between the existing competitors.

As all the questions are answered on behalf of Novaturas and Nasdaq, thank you, everyone, for joining. It was a pleasure hosting you today. As always, the recording will be available for a rewatch. Dear management thank you very much for the presentation. Have a good day, everyone, and goodbye.

Thank you, everyone. Goodbye. See you.