Havila Kystruten AS (HKY) Earnings Call Transcript

Good morning, ladies and gentlemen, and a warm welcome to today's earnings call of the Havila Kystruten AS, following the publication of the Q3 figures of 2025. We are delighted to welcome the CEO, Bent Martini; and the CFO, Aleksander Røynesdal. The gentlemen will speak in a minute and guide us through the presentation and the results. After the presentation, we will move on to a Q&A session, in which you will be allowed to place your questions directly to the gentleman. We are looking forward to the results. And having said this, Bent, please, the stage is yours.

Thanks a lot, Ingmar. Welcome to our results presentation for third quarter 2025. Next, please. I would like to start with this slide just to inform all of you that 2 days ago, we started this voyage from the north in Norway, Hammerfest in Norway. We filled -- bunkered the biogas and will sail the whole route, the 5,000 kilometers of the historical route on biogas and batteries, reducing the actual CO2 emissions by more than 92%. This has never been done before with such a big vessel. And the first few days have been very successful, and we will continue southwards from Hammerfest and continue having some more biogas filled in Bergen and then sail northwards up to Kirkenes and back to Hammerfest. And then the first time in -- yes, it had never happened before that we actually have been able to do so. And this is one step closer to zero emission. And we will continue doing this going forward, blending in biogas. And the target for the company is that in the end of 2028, we will have 100% of the bunker is biogas. So we will deliver by the targets and ambitions we have put forward as a company. So this is for us, great and for the environment, even better. Next please. And I will take you through some general updates and then Aleksander will go more into the financial details. For those of you who not have seen this before, we are part of the concession with the Norwegian government sailing the historical route between Bergen and Kirkenes. There are in total 11 vessels operating in this route. We have 4 vessels and our competitor, Hurtigruten, has 7 vessels in the same route. The company is part of the Havila group, a family-owned company established in area around Ålesund on the coastal Norway, founded by Per Sævik. So he is the majority owner of the company. Next please. We continue doing kind of positive operation. We -- also in the third quarter this year, no operational downtime, meaning 100% operational uptime and that is positive. The vessels are functioning and operating very good. So this is very positive for the operations. Next, please. Some highlights. We continue to increase the revenues. The operational revenues grown by 13% year-on-year, driven by 17% increase in the average cabin revenues and 5% increase in passenger nights. We reached an EBITDA of NOK 283 million positive, positive increase from the last -- third quarter last year. We have been able to continue to increase the onboard sales, not as much as we hope to, but we are still focusing on that as a part of the growth of revenues. Operating costs increased by 9% due to growth in activity and general inflation. Happy to say that we continue to reduce emissions. Third quarter down -- reduced by 38% CO2 reduction. And also the focus on food waste in third quarter, 60 grams per passenger nights per guest, which is very, very low in this market. So in total for 2025, we will have a total reduction of plus 75 tons for 4 vessels, and that is a great news. We have completed a comprehensive refinancing, and Aleksander will say more -- give you more details about that later on. And the same when it comes to the adjustments we have and the agreement we have reached with the Norwegian government related to the concession and the contract. Next please. Yes. And we show this slide each time, we have focused on selling the tickets on our own channels. We have been able to grow it so that more than 50% of all sales are done through our own channels. This is very positive for the company when it comes to reducing the cost of commissions. It is positive when it comes to reduce the risk for cancellation, FIT bookings is very positive for us, very seldom cancellations. And this, in addition to that, we have adjusted the contracts with the tour operators' agents so that we have longer lead time related to potential cancellations. So this is very positive. We have started or launched the campaigns for '26, and the bookings are very solid for '26. Next, please. When it comes to kind of the passengers traveling with us, we have been able to balance the differences between the northbound and the southbound voyages. This is an additional challenge in this route, meaning that most of the travelers really would like to start in Bergen, but we have focused on shorter trips, enabling people to have more flexibility and for 2025, been able to balance the northbound and the southbound voyage, which is very positive when it comes to total occupancy, but also to optimizing the cost of operating the vessels. The U.S. market is growing and the U.S. market is now the second largest market for us. Still, the biggest market is the German-speaking countries, which is very, very good. But we see that the English-speaking market is also growing, which enable us to optimize also the product and the different segments of travelers. So this is very positive also when it comes to what kind of spend each type of customers are giving back when they are traveling with us. Next, please. Yes. More than 57% of our capacity is -- and the target capacity or the bookings for next year are sold. So when we speak today, more than 44% of the total capacity of the vessels are booked. This is more than 5% higher than we had at the same time last year. And the price is good. So a lot of the kind of KPIs we are monitoring are very positive for going into 2026. And as mentioned, the high bookings from free independent travelers, FITs, this -- the high bookings are very positive for the company and contributes to much higher margins. And of course, the risk of cancellations are reduced. Next, please. Then I will pass the word to Aleksander, that will give you more flavor on the financial highlights. Please, [ Aleksander ].

Thank you, Bent. Yes. Next slide. So overall positive trend in financial operational performance for the quarter. We had -- as you can see from the bar chart, operational revenues grew from NOK 367 million to NOK 422 million compared to last year, that is about 13% growth. If you look at the contractual revenues, increased substantially from around NOK 100 million to NOK 227 million. And that includes a one-off adjustment of both 2025 revenues from the government contract, but also about NOK 100 million related to previous years. And just a short comment on this adjustment, that the contract with the government is indexated every year. So with the base year starting the year of signing of the contract in 2018 and is indexated to give the operators as correct as possible compensation for the services that is provided. And the indexation is published by the Bureau of Statistics each quarter, and it's consisted of different components, but among other fuel. And in 2022, a new index was introduced containing LNG as fuel, which was not published prior to that. And what we've seen through this revision is that it should have been constructed in a different way, the energy component of the indexation. And we have done a thorough review with both the Bureau of Statistics and the Ministry of Transport. And it's been going on for some time, but this was finally concluded now in the third quarter, which is positive. And it also lifts the expected revenues for next year from the government contract, originally estimated at NOK 365 million, and now it's revised, of course, to NOK 426 million for next year. On the operational revenue side, the focus is now on increasing the margins and getting into that plus 30% EBITDA margin level. I'll go through a bit more detail on the targets for next year, but it's comprised of ACR growth, the growth in the average cabin rate. We have targeted initiatives to grow onboard sales. We have signed a new or revised supply contract for LNG, and we do expect about NOK 30 million in cost savings on LNG compared to this year. And we are also working on doing what we do better in terms of fine-tuning and optimizing operations now that the operations has matured somewhat. Next slide, please. Key performance indicators. I think all of these are moving in the right direction. The occupancy going back to '23 at 65%. We've had 2 years of around now 73%. We do expect around 73% for this year. But that reflects also a huge growth in the ACR of about 20%, compared to last year. So occupancy is trending upwards. The cabin factor is a measurement of how many guests we have per cabin per night. And the more guests we have, the more onboard spend we have. So it is a positive sign to see that, that is slowly trending upwards as the company matures, as the product is more known, et cetera. Cabin revenue up as well, highest ACR recorded in the company's history of NOK 6,100 per cabin. And the onboard spend ended at about NOK 760 for the quarter. And I'll go into that on some of the next slide, kind of the focus on onboard sales going forward. Next slide, please. On the cost side, as you can see, costs move with occupancy. And we're showing on the left-hand side, the cost per category charted against occupancy. So you can see that it moves somewhat with occupancy. I'll give you some details on the next slide on the variability on occupancy. In terms of share of OpEx, crewing and manning is certainly a large cost component of about 30%. LNG this quarter was about 20%. And then cost of goods is also a large component, but very, very dependent on the occupancy and also the number of people on board the ships. Next slide, please. Yes. So going into the details of the cost side. On the left-hand side, you can see the different quarters charted in each category. On the COGS side, we have a large cost increase, but that also reflects a high number of passengers in the third quarter. So going from 78% occupancy to 80% occupancy, combined with a higher number of people on board the vessel in each cabin as well as somewhat higher sales per guest leads to a higher cost of goods sold. The payroll crew is also adjusted as we adjust manning according to occupancy. OpEx vessel is more trending with inflation. So it's more fixed, and it's not easy to do anything with the operating cost -- underlying operating cost, maintenance, et cetera, of the vessel. For the LNG side and the power, the cost is also very dependent on the fuel price, but there's also some fixed components in the energy costs such as supply margins and especially CO2 tax, which is becoming a rather large component of the fuel cost. And the CO2 tax compared to last year is about 20% higher. So it's certainly a part of the cost of fuel for us, which also is kind of leading us into a future where we will start blending in biogas as and when we see that, that makes both economic sense and also fits with our strategy of becoming climate neutral. Admin OpEx is pretty fixed and it follows inflation more or less. On the right-hand side, you can see the occupancy charted against total operating costs. And you can see that we are moving along this line, which means that the operating cost is quite linked to the occupancy that we have on board the ships. Next slide, please. Yes. Going into the outlook and the targets for the next years. We do have a target of NOK 600 million in next year, NOK 600 million in EBITDA, and we're maintaining that target from previous indications. The NOK 600 million, how are we going to achieve that? So it's comprised of somewhat higher occupancy. So if we grow occupancy by, say, 1 percentage point, that is net approximately NOK 10 million in EBITDA. And we do have a target, as Bent mentioned, we are 5% higher on the occupancy compared to last year. So we have a target of increasing occupancy by 45% next year, which will then mean close to NOK 50 million in EBITDA growth. If you look at the average cabin revenue, the list price has been increased throughout the different cabin categories by 10% to 15%. And that hits directly on the EBITDA line and 10% or it's about NOK 100 million plus in the EBITDA for a full year. So we are expecting between NOK 100 million and NOK 150 million from just price growth. We have, as I mentioned earlier, expectations of savings on LNG fuel compared to this year. And then there's a large focus on growing onboard sales. We have initiated a lot of new activities and focus on this on board. We have not seen the full effect of these initiatives yet, but we do expect them to come to fruition in 2026. And if you say NOK 100 per guest per night is not a lot, and NOK 100 per guest per night is about NOK 35 million in increased revenues, where we have a very high margin on onboard sales. For '27, we do expect that there's a potential to grow the ACR further and more than inflation. We have a target of 5% to 10% ACR growth. And we do think that as the brand and the product is more recognized, there is a potential to achieve a higher growth than the underlying inflation. So we're still in a ramp-up buildup process, where we have effects of better brand recognition for each year. We do expect EBITDA margins to trend in the 30% to 40% from '27 onwards, bringing us into kind of a range of NOK 600 million to NOK 800 million in EBITDA. And some of the additional revenues is also expected to come from pre and -- what we call pre and post activities or additional revenue streams, and that is offering full package deals to our customers, including flight, combining it with train, combining it with hotel stays onshore, giving like a full package deal to our customers and really trying to develop the route to more than just a round trip or half trip product to a more specialized product where we utilize the benefits of each leg of the route. For 2025, we have previously indicated about NOK 400 million. We have revised that slightly to more than NOK 400 million following the verification from -- and the final verdict from this compensation adjustment from the Norwegian government. Next slide, please. The debt overview. So this is really the picture for the third quarter, which is prior to the refinancing that we published earlier -- published and completed earlier this week. In the third quarter, in July, we did an amendment with the -- on the existing bond financing, extending maturity to 2027 and also settling the call premium on the bond. And the old bond was structured in a way where there was a call premium at the end on maturity of 6% to 8%. And there was also a make-whole provision that made it kind of expensive to refinance early. But again, I think to wait further was not in the company's interest. So I think this transaction of doing an amendment with the existing bond, it positioned us to do a refinancing, and it made it possible for us to utilize a window of opportunity. The credit markets have been extremely supportive and open for the last 12 months, barring a few periods with some volatility. But I think we have utilized a window of opportunity. And this was kind of the first stage to get to that refinancing that I'll discuss more in the next slide. The accounting effects of this amendment, you can see on interest costs. And it's really a reflection of call premium and make-whole provisions that were settled in the third quarter. Next slide, please. So we announced on the 24th of November that we had closed a NOK 456 million debt facility structured as a financial lease with our majority shareholder, Havila Holding. It refinances all of the company's debt, secured debt and unsecured shareholder debt with a very long maturity of 15 years. So the maturity of the new facility is in 2040. So it gives us stability, but it's also structured in a flexible way that we can refinance once we have kind of achieved the targets that we went through on the previous slides. But once we have reached this NOK 600 million to NOK 800 million in EBITDA, we should be in a position to refinance and improve the cost of our financing. But this transaction effectively reduces interest costs from including call premiums and make-whole provisions from like high digit -- double-digit figures to approximately 10% blended cost for the whole facility. It's structured in a way that is tailored to our ramp-up in terms of cash debt service. So the estimated debt service for the first year is about NOK 395 million, and it slightly increases in year 2 as we do expect operational revenues to be a lot higher at that point. The covenants are kind of customary for these type of transactions, but I can briefly go through them. It's a debt service coverage ratio of 1.0. There's a liquidity covenant of EUR 10 million, which is below kind of market for these type of facilities. And there's a value-adjusted leverage covenant of 65%, and that is a value-adjusted covenant, which means it takes into account the broker value of the vessels, market value of the vessels, but also excludes the junior portion of the financial lease. I think we are very happy with having secured this refinancing now being able to take advantage of the window that was there and kind of cutting the effective interest cost by half -- to half. And it positions us to achieve operational -- to focus on the operations, but also participate in the next concession round, which is expected to be announced next year. Next slide. The equity side. So the book equity is, of course, impacted by the settlement of the old bond in the third quarter, but also currency effects from incorporation of the company, where the company has had asset and balance sheet in kroner, but debt in euro, which is a large part of the negative book equity. But if you adjust for market value of the vessels, which is quoted in euro and at the third quarter, we had an average valuation of NOK 683 million for the 4 vessels, which is substantially higher than the book value of the ships in kroner. So taking into account that market value, the value-adjusted equity is about just below NOK 3 billion. And it's also supported by a positive stock valuation of about NOK 1 billion. Next slide, please. Yes. So a few words on the share. We -- as previously announced earlier this year, we completed a reverse share split, where 50 shares were consolidated into 1 share. It was completed in November. And this exercise was done to kind of achieve a more robust pricing for the shares. And we do have fairly large number of international investors, which get quotes for the share in euro and dollar. And I think for these investors, the reverse share split was well received. There is substantial asset values in the 4 vessels. And with the refinancing, the vessels are still recorded on our balance sheet. So it's structured as a financial lease where there's options to repurchase the ships at certain pre-agreed pricing. So there's a lot of upside to the value of the company built in the value of the ships. We secured a refinancing now in November that we think it's a good platform for taking the company into the next stage. And it can be optimized or refinanced when the company is in a position to do that. We do have a high focus on the environment and achieving the sustainability goals that we have set forth. The completion or the start of the historic voyage that Bent mentioned, fueling the ship with biogas for a full round trip is part of that. And we are well positioned to take on stricter environment requirements in the next concession round. We do expect that the requirements will be tighter and our ships are compliant without any modifications to comply with these requirements. I think that next slide, KPIs, I think we've been through. This is more for the analysts. So I think that, Ingmar, concludes the company presentation. I think we will open up for a Q&A from those who would like to post questions or ask questions.

Yes. Thank you very much for the presentation, and we will now move on to the Q&A session. [Operator Instructions] We have a participant with a question. Mr. Kruse, you should be able to speak now.

Can you hear me?

Yes, we can hear you.

Excellent. Yes, I'll ask my questions all one. First of all, congrats on reaching the 80% occupancy level in Q3. I think that's great news, shows the performance of your products. But I do have a few questions. So the first one would be, was the contract revenue, the revising contract revenue within your initial guidance for 2025 because without those adjustments, the NOK 400 million would have been very challenging, I think? The second question is in respect to the other revenue in your reporting. Could you please comment what that was? And yes, how we can look at that going forward? Was that maybe these hotel deals or things like that already? And then my third question would be, you mentioned some accounting effects relating to operational revenue in Q3. Could you also comment on that? And then the final question, if we look at the ACR increase for 2026, I know this is comparing apples and pears, but where do you see your ACR in relation to your main competitor then in the next period?

Thank you. A lot of questions. Tim, I think we'll need to -- I'll get back to you if I forget some of them. But I think for the first question, we have -- as I mentioned, we have been working with Bureau of Statistics and Ministry of Transport for quite some time on this adjustment. It's been first a big job internally to understand it and to take this forward. And then it's been, as people probably recognize, dealing with government contracts and kind of institutions like Bureau of Statistics, it takes time. So it has been included, but not to the full extent. So that is why we kind of raised the guidance for the year somewhat after the last confirmation that we just received, confirming the full completion of the review. Second question I think it was related to the NOK 6 million.

Yes, the other revenue [ report ].

So the NOK 6 million, it's a settlement of -- settlement with the yard for the guarantee for the ships. So we have had some repairs that we have incurred costs for since delivery, which were now confirmed refunded by the yard. So it's really a reduction in operating cost, but it's recorded as a revenue.

Okay. Then the accounting effect?