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

Good morning, dear listeners. Welcome to Novaturas Investor Relations Conference. I'm Paulius from Nasdaq Vilnius, 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 on Nasdaq Baltic YouTube channel. [Operator Instructions] With that said, I'm pleased to introduce today's presenters, the Chief Executive Officer of Novaturas, Vitalij Rakovski; and Chief Financial Officer, Vygantas Reifonas. Vitalij, please, the floor is yours.

Thank you. Hello, dear investors. It's good to have you. And today, it's a big pleasure to present our quarterly performance, which indeed this quarter was very strong and led us to historically high profitability. First of all, our EBITDA for the third quarter reached EUR 2.3 million, which is approximately EUR 0.2 million more than we did last year. And such good performance was mainly driven by 3 reasons. First of all, we did have a very strong early bookings this year. And also, we managed to reduce our last-minute sales. If last year, our last minute sales share was approximately 30% of total our sales, meanwhile, this year, it is approaching 25%. Second of all, we've also managed to have a very balanced seat supply, which allowed us to also minimize last minute sales and also to avoid as much as possible currently a low price environment, which is driven by quite high competition. And that led us to a very, very high load factor for the third quarter of this year, which reached 97%. Meanwhile, last year, our load factor was only 92%. Such profitability was also led by good sales profit per PAX, which was very, very close to the last year performance, around EUR 46 per passenger. If you compare this profitability with historical numbers -- long-term historical numbers, we can see that it is well above the numbers we were reaching on a pre-pandemic level, meaning years 2018 and 2019, when third quarter EBITDA was approximately EUR 1.3 million, EUR 1.5 million. If to look on volumes, volumes remained almost flat year-over-year, 86,000 passengers served during the third quarter, and it's only minus 2,000 passengers versus last year. Mainly the decrease was coming from 2 destinations. First, it's Turkey destination, another one was Greek Islands. And the decrease in Greek Islands roughly contributed to, I would say, half of a decrease, which was driven by the unexpected wildfires in the destination. Also, what helped us this year is our fuel hedging strategy, which allowed us to reverse almost EUR 0.7 million of potential loss. So currently, we're hedging the majority of our fuel exposure, fuel and ForEx exposure, which allows us to control our profitability. Also, the customer Net Promoter Score, which we started to measure from the beginning of this year remains very high, and it very well shows that the customer confidence for Novaturas services is very much appreciated. Our Net Promoter Score for the third quarter this year was well above 50% and was growing constantly in every quarter. If to sum up the numbers for the 9 months, so sales are increasing by approximately 7%. And number of passengers is slightly down by 3%. Meanwhile, the sales profit per PAX is almost 2x higher than the last year. And EBITDA is approaching EUR 8 million, which is 8x -- 9x more than we had last year. And last year, it was approximately EUR 0.9 million. If to switch to the performance by the market, we can see that this decline, which I mentioned before, 2,000 passengers is distributed between the markets in the following group. So in Lithuania, our volumes went up by 4,000. Meanwhile, in Latvia and Estonia it went down by 4,000 and 2,400, respectively. The main decrease in Latvia and Estonia was coming from the same markets from Turkey and Greek Islands. In Lithuania market, meanwhile, the volumes were increasing in Turkey by 1,000; Indonesia by 2,000; and Bulgaria by 1,000. And the only decrease was coming from Greek Islands. If to look to Estonia and Latvia markets. So first of all, it was said before wildfires impacted our volume decrease slightly, I would say so. However, another important factor was the volume decrease in Turkey, which was mainly driven by our issues we had with the flight schedule in Latvia and Estonia markets, which forced us to change the air carrier. So we switched from 1 air carrier to another 2 air carriers, Turkish air carriers, which helped us to improve our flight times. So it did give better quality for our services. Meanwhile, our volumes temporarily were down. So for this summer season, they are down. However, the next season, we are planning to recover these volumes. Also, what helped us this year is the diversification of destinations. If to take a look on year '21, 4 main destinations, which is Turkey, Greece, Bulgaria, and Montenegro accounted for almost 100% of our total sales. Meanwhile, this year, the same 4 destinations accounted for 85% of our sales. So we are further diversifying the destinations and it very strongly helps us to compete in the currently very intensive competitive environment. To illustrate it in few numbers. So this year, our profitability is Tunisia and Montenegro are approaching the profitabilities we were having in Turkey. And Turkey was the destinations, which was generating the highest profits among all destinations. Despite the fact that in Tunisia and Montenegro our volumes are at least 2x, 3x lower than in Turkey. So it very well illustrates how our quick reactions towards customer preferences helps us to diversify and also win in the market. On top of that, we are further increasing our volumes in long-haul destinations and in round trips, approximately volumes in the long hauls in the last 2 years increased by almost 4x. Meanwhile, in round trips, it increased by approximately 50%. To repeat a bit, on the customer perspective, so Net Promoter Score, which we started to measure in the first quarter, and the results were approximately 40% at first increased to 50% in the second quarter, and now it is approaching 55%. To distribute this by markets, we do see a very good Net Promoter Score in Lithuania and the Latvia market, well above 60%. Meanwhile, in the Estonia market, it's close to 40%. And it's mainly driven by the fact that our flight punctuality was struggling and still the market will remember this, let's say, so performance. However, we're intensively working with the alternatives on the air carrier in Estonia and we hope to improve the services there in the upcoming future. Also the Net Promoter Score between the destinations is also good in Turkey, Tunisia, Bulgaria. It is well above 50%. In other destinations is close to 50%. Another focus of ours this year was the flight punctuality, where we dedicated a lot of our attention and results are significantly improved. We managed to deliver much better on-time performance. So for the 9 months last year, on-time performance was close to 80%. Meanwhile, this year, it is approaching 90%. And in the third quarter, it was even 93%. On top of that, we managed to significantly decrease the 3-hour delays, especially in the second and the third quarter. In the second quarter almost 4x, we decreased 3-hour delays, in the third quarter even 6x. So it is a very, very significant step up and it was very well appreciated by our customers. In terms of our distribution and sales channels, I must say that at this time, we once again our well diversified and well-balanced distribution channels, again, helped us to perform well this quarter. As we are seeing the increase of our own retail channel, which went from 14% of share to 15% of share. However, this quarter, we did experience certain challenges with our web sales. And our share of web sales went down by approximately 2%. It was mainly driven by the fact that we launched our new web page, which is currently dealing with after launch issues, which is temporarily, however, it indeed had a negative impact for the third quarter performance. However, as I said before, the well-balanced distribution helped us to, how to say, regain those losses from another channel, which is B2B channel. So this very well illustrates that despite the fact that we are losing in certain sales channels, we can recover from another ones. Distribution channels by countries remain very similar, so approximately 75% of sales in Lithuania goes to B2B. Meanwhile, in Latvia and Estonia, it is significantly less; 55% in Latvia and 60% in Estonia. Going forward, we're going to be further putting attention towards our web page, despite the fact that the web traffic to our web page remains still the largest compared to other tour operators. However, we're going to further invest into the content of the web page, put the contention towards the automated hotel images, descriptions and other functions, which are needed for user experience improvements. In terms of expenses, they were, I would say, managed well. Quarterly expenses for the third quarter went from EUR 1.8 million to EUR 2.7 million. So EUR 0.9 million increase. However, roughly EUR 0.4 million of that increase is related to various annual bonus accruals and stock options accruals, which are linked to our annual performance. So the remaining increase is EUR 0.5 million, which is mainly distributed to the salary increase and other costs. In terms of year-to-date performance, we see very similar tendencies. The main increase is coming from the salaries cost category, approximately 2/3 of our costs are related to salaries. So this is the main cost item in operating expenses for us. The increase on year-to-date is EUR 1.5 million. And it is distributed between the 3 main factors. First factor is the same mentioned accruals for stock options and annual bonuses, which is roughly EUR 0.5 million. Another EUR 0.6 million goes to the increase in personnel, the number of employees, and mainly this increase is coming from IT resources and other resources needed for strategy implementation. So as one of our directions is technology-driven direction. We did invest a lot and extended our resources into this function. Approximately, I would say, half of the FTE increase is coming from IT resources. And the remaining effect is attributable of EUR 0.3 million to the salary inflation, which was quite high this year. The remainder of the cost increases are attributable to advertising and marketing and then other costs in advertising and marketing, we did have more intense marketing activities due to the increased competition and also in other, of course, we had a more external professional services provider costs. I'd like to end the presentation with the forward-looking statements. So our guideline of volumes is slightly changing and going slightly down. It was -- it is mainly related to the fact that during the fourth quarter, our volumes would go down as we're entering -- already entered the winter season. However, on top of that, due to the work happening between Israel and Palestine, there was a decrease of demand to Egypt destination. And we were forced to react to that by decreasing our flights to Egypt. So it slightly impacts the volumes for this year. The same goes with revenue. Revenue guideline also slightly decreased to EUR 205 million and up to EUR 210 million. However, profitability-wise, we're not changing our guideline and keeping it as high as it was before. So EBITDA should be between EUR 6 million and EUR 8 million and net profit between EUR 4 million and EUR 6 million. To explain a bit why we are not changing the guideline despite the fact that during the 3 quarters, you already see the results, which are on the upper end of the guideline is due to the fact that the fourth quarter is typically in our business as a low season quarter. So we are incurring a lot of so-called intellect costs during the third quarter, which basically should lead us to almost neutral profitability performance during the fourth quarter. So at this point, I will stop and you are welcome for questions.

Thank you, Vitalij, for the comprehensive presentation. And now I will proceed with the questions. And since we currently do not have any questions, I would like to remind you that you can submit those at the bottom of your screen. So please take the opportunity if you have anything on your mind. If you're still typing in, you still have a minute. Yes, we received one question. Could you please share some thoughts on outlook for the next year 2024?

Yes. So we're going to give our, let's say, more detailed guideline with the presentation of annual results. The few snapshots, which I can share currently, I would say so that we have current situation, worst situation in Israel and Palestine is having a temporary but having an impact for our winter operations. So this is first thing. However, as we are well diversified and especially during the winter season, we extended our selection into the long hauls, more ski destinations, it should help us to balance. And then looking forward into the summer '24, and it's currently quite early to predict on how it's going to be. But so far, we do not see any negative macroeconomic indicators, which could limit the growth of the business. So we see the strong demand for early bookings. And it should be probably on a similar level as last year or even above. So that's it probably.

We have one additional question. Maybe you have some idea about the outlook for Poland market players and [ Toy ] in particular?

So far, our knowledge, there are no new plans of any market entries to the Baltic markets. So yes, that's the only information we have.

So it looks that no more additional questions are coming in. We have one, one more. Any update on the dividend outlook?

Yes. So we have a valid dividend policy, which states that from 70% to 80% of net profit should be distributed to the shareholders. And as you saw the results and the forecast would be profitable this year. Of course, it's subject to shareholder decisions. So that's the only thing I should -- I can say.

Alright. So as all questions are answered. On behalf of Novaturas and Nasdaq Vilnius, thank you, everyone. It was a pleasure being with you today. The recording of the presentation will be available on Nasdaq Baltic YouTube channel. Vitalij, thank you for a very informative conference. Have a great day, and goodbye.

Thank you.