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

Good morning, dear listeners. Welcome to Novaturas Investor Conference. I'm [ Emilia ] 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 CEO of the company, Kristijonas Kaikaris; and the CFO, Vygantas Reifonas. Please, the floor is yours.

Okay. Thank you, Emilia, and very good morning, dear shareholders. I want to welcome you to the presentation of Novaturas' performance in Q4 2003 (sic) [ 2023 ] and full year of 2023. Let me start with executive summary slide. I'm skipping the disclaimers very quickly. So it's my pleasure to present today that Novaturas has demonstrated a very strong financial and operational performance in 2023. And we have achieved a 6% increase in income, reaching EUR 209 million, which is a significant growth also in our EBITDA, which soared to EUR 5.5 million. And this marks a sevenfold increase from 2022. If adjusting for onetime factors, our EBITDA stands even higher, around EUR 6.5 million in 2023. Our operational efficiency has been -- has seen also a remarkable improvement with a drastic reduction of number of flights delayed over 3 hours now constituting less than 1% of total flights. This efficiency has contributed to our customer satisfaction. And our Net Promoter Score was steadily growing throughout 2023, reaching a commendable 50% by the end of the year. In addition, we have empowered our employees by rolling out a share option program, facilitating the acquisition of Novaturas shares and further aligning our team with the company's long-term goals. This move has not only invested into our workforce and continues the investment into that, but also strengthens their ties to the company's success. Going to our key financials of Q4 last year and 12 months of 2024. It's very nice for me to announce that we have maintained Q4 sales at prior year level despite the unrest, what we saw in Gaza strip. The passenger number is only marginally below the prior year volumes, only by 2,000 less, however, at the cost of a lower profitability. So during Q4, we had to optimize Egypt destination by over 9,000 seats, which contributed to high load number and enabled us to avoid the last-minute sales driven profit reduction. Our quarterly EBITDA has been downwards, adjusted with one-offs. And that's about the potential GetJet court case provision at the level of EUR 430,000, unrealized loss of derivative portfolio at a level of EUR 213,000 and the change of accounting policy at the level of EUR 371,000 in respect to IFRS 15, and we have some details later, you can see on Slides 16 and 17 in the annexes, which totals to EUR 1 million. And our quarterly EBITDA without one-offs that I mentioned is -- would be higher by EUR 1.4 million. In year-over-year comparison, our sales increased by 6%, reaching EUR 208.5 million in 2023. And despite a slight decrease in passenger numbers, around minus 3%, that indicates higher revenue per passenger. Our gross profit for the year saw a significant increase to nearly EUR 27 million with a gross profit margin standing strong at 12.9%, reflecting effective competition strategies. Our 2023 EBITDA stands at EUR 5.5 million, again, EUR 6.5 million if one-offs excluded, and is -- and it is our highest EBITDA since 2019 and third best in the history of Novaturas. Next to that, our load factor is up by 1 percentage point, and it stands at 95% in 2023, which indicates a robust demand and efficient capacity management. We have also managed to improve sales profit per passenger. There was a noticeable improvement from EUR 29 per passenger in 2022 to EUR 57 per passenger last year. Despite the turbulent Q4 performance, it is a testament to Novaturas' ability to maintain the relevant profitability per customer. Moving to the next slide, focusing now on the passengers. In Q4, our passenger numbers showed a varied trend across the Baltic countries. Lithuania experienced a steady growth over 3 years, reaching 26,700 in 2023. In contrast, Latvia and Estonia saw a decline in 2023 with passenger numbers dropping from 10,800 and 11,600, respectively, per country. The reason behind is the difference in speed at which mass summer and winter destinations, which are, as we see, Turkey and Egypt, are being diversified within the respective countries. The average selling price of trips increased consistently from '21 to '23, indicating a positive trend in customer -- in revenue per customer. The diversification strategy -- our diversification strategy as we see is paying off as reliance on highly competitive and also top-level destinations like Turkey and Egypt has decreased from 73% in 2021 to 61% in 2023, which showcases a successful redirection of our customer into new markets and also a possibility -- possibly a more robust business model, which is less dependent on a few destinations. Looking at the market dynamics, Turkey and Egypt remains, as previously, our top summer and winter destinations. And these two countries account approximately around half, 50% of our total passengers served. At the time, both are facing very intense competition. During 2023, Novaturas has successfully introduced for its customers, customer benefits of Tunisia and Montenegro and combined increase in PAX share from 6% in 2021 to 14% at the end of 2023. Looking at Bulgaria, Spain and Canary Islands, these destinations remain stable, while Greece Islands went down from 14% in 2022 to 11% of passengers served in 2023. Most notable Greece losses relates to Heraklion and Rhodes islands, latter Island being affected by July wildfires. I think everyone remembers the wildfires we had last summer in Rhodes. So among other destinations, if we look at Italy and Portugal, mainly that's Madeira island, and long hauls are also our key markets. While Italy and Madeira increased their share to 0.5%, long hauls contributed to 1.2% share increase along with widening selection of destinations. So to enable our customers to plan their trips, we usually announce our winter and summer destination trips sales at about half a year before the season starts. Full summer '24 program has been announced on September 13. As of now, Novaturas already sold summer '24 travels for 56,000 passengers, which is 2,600 down from the previous year. Shift towards less mass destination is being continued with Turkey and Egypt being 38% of total April, December '24 bookings against 46% from previous years -- previous year. This reduction is balanced, increasing tours to Greece, Italy and Spain. Okay. Looking from a customer perspective, we have seen steady increase in Net Promoter Score over 4 quarters of 2003, starting from 37% in Q1 to peak of 55% in Q3 before a slight dip to 51% in Q4 during the winter months. Our 4 quarters NPS, Net Promoter Score, lands at 50% with Lithuania market being at 60%, Latvian market at 58% and Estonian market at 30%. From quarterly perspective, Estonian market is on equally upward trend from 11% in Q1 to 41% in Q4, following improvements on a number of on-time flights. So among best traded customer destinations are Greece Islands, Bulgaria, Turkey, Tunisia and Montenegro, with Egypt being slightly below average. As mentioned -- as I already mentioned, we have significantly improved our on-time performance, reaching OTP of 93% at its peak in Q3 last year, indicating a more reliable flight schedule and enhanced customer experience, which is very, very important. The Q4 OTP reflects the anticipated seasonal impact with winter weather conditions necessitating additional de-icing procedures contributing to a slight decline from 93% peak of OTP achieved in Q3. The number of flights delayed over 3 hours has decreased 3x from 68 to 23. During last year, all markets experienced single-digit delays over 3 hours. Lithuania, Latvia only 7, Estonia a bit more, 9, which is down from double-digit delays in 2022. While Lithuania had 10, we had 23 in Latvia and 25 over 3-hour delays in Estonia. So the improvement is really significant. Again, I want to stress that it's 3x better compared to last year and 2022. Moving to the next slide. The recovery of sales decline following the launch of our website in August, which we discussed a quarter ago, actually is more challenging than it was anticipated. And during Q4, web sales dropped by 32% compared to the last quarter of the previous year. Our own retail has been resilient to web technical challenges and shows only marginal deduction of its share during Q4. Travel agencies share has, during the quarter, increased by 5 percentage points and drove up quarterly effective commission from 5.7% to 6.4%. The development and strengthening of our own sales channel, including both retail and web, continue to be a priority for us, for Novaturas, aiming for greater control over our customer experience and margins. On 12 months basis, share of retail continues to be on growing mode, growing its share within sales about 2 percentage points each year. Web share, as mentioned, has been negatively affected by unplanned post-launch challenge last year, removal of which, and again, respective web sales increase is our current top priority. The share of our own channel continues to be above 30%. Effective annual commission rate stays at 5.8%. Novaturas will remain the web traffic leader, and we hold almost half of the total traffic in the Baltics, it's 46%. Our main developments during Q4, its web search functionality, which was upgraded down to the hotel level. We have also introduced a flexible travel planner calendar and also the labeling of hotel sustainability or exclusivity. Moving to expenses. The growth of Q4 expenses has been limited to 5%, half of which relates to certain staff one-offs. The SG&A to income ratio saw a slight increase from 6% in 2022 to 6.3% in 2023 and -- but -- which remains within the expected range, and it demonstrates a controlled growth in line with our revenue increases. Staff expenses, which constitute 62% of our group's expenses, have increased by EUR 1.6 million, which is 38% year-over-year, driven by introduced means of staff acquisition and retention. That's basically reward programs. Promotion of our own channels and destination diversification as well as maintaining of general market presence causes increase in advertising and marketing expenses. Selling, general and administrative expenses to income ratio remains slightly below 5.2% and 5.5%, which has been usual for the group in even normal operating years and past periods. What is our look forwards? And looking at 2024, at the current year, we are projecting our passenger numbers to be from 240,000 to 280,000 with revenues of EUR 200 million and EUR 220 million. In a broad sense, we aim to match the previous year's results. However, due to current market dynamics, an exact forecast is not available. Our technical (sic) [ tactical ] objectives for 2024. We -- first one, we continue developing our sales channel, focusing on operational efficiency and customer service. Second, we will enhance our revamped, renewed website to fit for purpose state and further digital initiatives, ensuring early access and improved convenience for our customers and partners across all digital touch points. The third one, we want to sustain our diversification program by offering the widest selection of destinations in the region, which allows us to balance profitability in a highly competitive environment. And the fourth one, it's about restructuring the organization to support customer-centric and data-driven operations with a specific emphasis on execution. Okay. So I covered all the slides. I hope you have seen a lot of useful information. But as always, I believe that you have some questions. So let's move to Q&A session.

Thank you for the comprehensive presentation. Now we'll proceed with the questions. [Operator Instructions] The first couple of questions we received were in advance, and they're regarding the proposed dividend payout.

Okay. So our position on dividends. The issue of dividends will, as usual, be decided after the publication of the audited results for 2023. And the audit is being conducted in accordance with a scheduled procedure with the results expected to be announced in April. And the distribution of dividends is subject to a decision made at the General Meeting of Shareholders as well as the requirements and permissions of company's creditors. So stay tuned for this. And first, we are waiting for the audit results, which, as I said, will be in April.

Any update on Board priorities presented during first half investor call?

I'm sorry, I didn't hear the question. What was the question?

Any update on Board priorities presented during the first half investor call?

Actually, since the current economic uncertainties and also the conflicts what we have in different places in the continent, we keep the priorities, which we have set half year ago. We continue developing on them. But because of the mentioned uncertainties, we are currently revising, not our tactical strategies, as already mentioned in the presentation. But we are also looking into organizational structure, so to have our own answer to increased competitive environment. And of course, we mentioned the uncertainties. So to answer, we stay on the same line. We continue the same direction. But since we have shown at Novaturas throughout our history and this year, we are celebrating 25 years, our experience and know-how allows us to be very dynamic and very quick decision-making reaction, do quick decisions and react to the market situation with the aim of keeping our EBITDA profitable, positive, which is our main target also for 2024.

Would you please elaborate more on the competition?

Yes. Lithuania, Latvia and Estonia is seeing probably the highest competition levels in our history, which is very good for our customers. And it shows that the supply of seats, the destinations. And looking at the destinations, we have the highest variety of destinations. It is really very appreciated by our customers. So we are always looking at all the destinations at sales speed and our customer demands and also the competition to really focus our priorities on certain destinations. And we are, as I said, having the long experience and know-how. We are always reacting quickly with our tactics and strategy if needed. And we are competing as last year showed with the results, very successfully. So competition is high. It's good for the customer. Customers have very wide selection of packages to select. And this is the environment, 5 or even 6 tour operators now competing in Baltic countries.

In the first slide, net profit for the year 2023 is lower than 9 months profit given in the Q3 update, although Q4 was very profitable. Could you explain how did that happen?

I'll take over that question. So in fact, our Q4 is not profitable. I think we can see on the slide that we experienced a loss of -- the EBITDA is negative, like EUR 2.4 million. The net profit is minus EUR 2.7 million during the Q4. So basically, why this happened. So as already have been mentioned, about EUR 1 million is one-offs, which mainly is the provision for -- for a court case. Then we have some unrealized losses from derivatives, which previously we didn't book as either income or expenses. And finally, we also have some impact from the change in accounting policies, which we implemented this year, that basically improved our prior year results on the cost of the current year. So totally, this was the impact during Q4 accounted is EUR 1 million. Then the rest is from Q4, like normal operations, which mostly driven by two factors. So one of them is the, I would say, the Egypt destination, the lower profitability than we've been expecting previously. And that's been, again, driven by the -- all these turbulences in Q4 related to the Israel war. The second thing is the problems that we faced with launching our new website, which again, slightly reduced our like -- or negatively impacted the share -- the distribution share, moving sales more towards the commission-based channels out from commission-less channel. And totally, we've got EUR 1.4 million loss on Q4 because of 2 of these factors mainly. So this is why Q4 was unprofitable, and this is why our annual profit is lower than the Q3 profit.

Do you plan to change current strategy?

There will be -- we currently are not planning the total overhaul of the strategy. As I mentioned, we continue on the same priorities. The only thing, as I also said, also by answering one of the question, is to -- we -- as all businesses, we need to be very agile and then responsive to the market situation and also to the competition in Lithuania, Latvia and Estonia. So we are looking at certain technological advances, what we can implement very quickly or midterm, especially on digital customer experience and also on tools to make us more effective in executing the best holidays for our customers. So I think more or less, destination-wise, performance-wise, we are not currently planning any strategic overhaul but mostly very dynamic market, as we all know, we need to be reactive. We need to know very well what's happening and how to react. So if that requires a bigger strategy change, of course, we will implement it as soon as possible. And we can talk about that after the quarter.

Could you please elaborate a bit more on the pricing environment for travel abroad? Have the PAX prices stabilized or maybe some downward pressure due to jaded customers and competition?

As always, when there is more offers on the table, the prices are fluctuating. Sometimes, they go to some lower levels. But again, that allows us and our competitors to sell the travels earlier. So it's not that simple to do any predictions currently. And this is why we are not presenting the very detailed forecast for each quarter for the passenger numbers as I have shown in the slide of looking forwards. So yes, the prices at the first 2 months of the year have shown some lower costs in certain destinations. But I think -- which is -- this is very good for customers because the loads are coming in, and the travels are selling earlier. So hopefully, that will allow to have less last-minute discounts, which can be negative.

Please elaborate more on the 36% staff cost growth.

Yes. So basically, that was some reworked things, which is share option program and the annual bonus. Compared to prior year, you can also see this on the annual profit levels that this year, the profits is positive while last year, it was negative. So this, I think, contributed roughly about EUR 0.5 million. Then we have increased in staff about 12%. So that's again from annual perspective, about EUR 0.5 million. Plus salary inflation, roughly at 8%, so EUR 400,000. So this basically drives staff costs up during the year.

What is the plan for customer growth looking forward?

For us, the main priority is profitable business. So we want our EBITDA as high as possible and we want our net profit also to be not less than last year. It doesn't mean that with the passenger number growth, our financial results are becoming better because competing for the market, it has its own cost. So this is one of the areas where we are carefully and dynamically looking at the situation -- at the competitive situation, at market uncertainties and doing adjustments, optimizations in various areas to ensure that our business results show profit. So answering on the growth, it's not necessarily more customers taken to the destinations. If we compare to the -- our key KPIs, which is a profitable business.

What is the EBITDA margin that you are aiming at during the normalized cycle? And how are you managing cash on hand?

Also, EBITDA margin we're aiming just about, I think, 3 percentage points up from sales. Given the current, like structure of Novaturas, it shall change along with our kind of digitalization that we're aiming also to perform. But at the moment, it's about that. How we're managing cash, via cash flow forecasts on one hand. On the other, we are also have some bank limits. So it's basically a combination of those two.

Where do you see the share of own web sales in 2024? And have any Novaturas website problems been solved?

Yes, we have a comprehensive plan, which is basically focused on solving the technical and launch issues, which prevailed for a much longer period than anticipated. The task was very complex and big. Basically, we are talking not only about just the website. We're talking about the e-commerce channel as a whole. So it's rather normal that with the -- an update of e-commerce website, it organically goes down, but then it has to pick up the cadence and start growing. In our case, we faced, last year, certain technical issues, which are being solved, but we have a very strong road map to really make our website, our e-commerce site, the best in the market. And we are now looking at the technologies like artificial intelligence to really transfer the physical experience of our customers to the virtual experience with the aim of helping the customer in the most simple way and most convenient and convincing way to get the destination, the hotel or hotels for selection for their dream vacation. So we -- one of our main focuses is on this channel, developing our own channel because our e-commerce site, our website also contributes not only to us, to our sales through the web page, but also it contributes to our travel office, to our own agents and also to our partner agents because this is the source of information for a selection, for understanding of the availability, et cetera. So our website, our e-commerce channel is our main priority currently. And talking about the share, I see the high ambition this year to go to 1/5 or 1/4 of our sales moving to our own website.

Do you expect audited results to be different?

Not at the moment. I mean, if we would be expecting probably already presenting them. So not at the moment.

Was Egypt positive or negative during Q4?

Negative.

Any guideline on CapEx plan for 2024?

Yes, as we want to strengthen the digital channel, there are some investments assigned for investment into the digital channel, not a massive amount, but there are some.

What is the current dividend policy? Is it still 70% to 80% of the net income to be paid out?

Yes, the policy remains the same. However, as Kristijonas has already mentioned, the final decision on dividends is to be taken after we have audited results at the Board meeting.

It looks like we've covered all your questions so far. On behalf of Novaturas, thank you, everyone. It was a pleasure being with you today. The recording of the presentation will be available on Nasdaq Baltic YouTube channel. Thank you for a very informative conference.

Thank you, everyone. Bye-bye.

Thank you.