Good morning, ladies and gentlemen, and I warmly welcome you. So my name is Sarah, and I will be your host for today's earnings call of the Havila Coastal Route AS. So with me today is CEO Bent Martini and CFO Alexander Røynesdal. So the gentleman will speak shortly and guide us through the Q2 and first half-year figures of 2024. After their presentation, we will move over to our Q&A session, in which you will be allowed to ask your questions via audio line directly to the management or place your questions in our chat box. So having said this, Bent, I hand over to you.
Thank you very much, Sarah, and welcome to our quarterly Q2 presentation for 2024. Next slide, please. We will repeat some background. This is kind of our, in a way, mission. We have a mission from the majority owner to focus on the sustainable operation. Environmental operation is extremely important for us, and whatever we are doing should be sustainable. And that, for us, makes a lot of sense going forward. Next, please. The historical Norwegian Coastal Route, I guess most of you know it quite good. We operate four out of eleven vessels in this route. The competitor have seven, and we have four.
Starts in Bergen, up to Kirkenes in the north and then, southbound, back to Bergen. The voyage takes eleven days. This is a concession by the Norwegian government, and the contract ends in 2030. The government has an option to extend the contract with one year. For your information, the Norwegian government have initiated the process now for the next concession from 2030 to 2040. We are in dialogue with the consultants that are supporting the government in looking into the different needs and demands, and of course, future requirements, especially related to the environmental side of the operations.
The majority owner of the company is the Sævik family. Havila Holding is the majority owner of the company. Next, please. We are still very proud to say that we do operate and have the most environmentally friendly cruise fleet still in the world. We have done a lot of investments in the initial phase of designing the vessels and have the ability to deliver on both climate neutral operations today and also future zero emissions if that is a requirement going forward. Next, please.
Also proud to show you that we actually this summer was appointed or from the TIME magazine as one of hundred places you really should visit and experience, which is quite an important part of our of course targets also as cruise operators to really attract and be a preferred place to go. So this is extremely good for us to have such kind of a recognition. Next, please. The highlights of Q2. We have had some downtime on two of the vessels. One of the vessel was out of operation to round trips in May due to technical issues. But overall the performance has been very good.
We do still deliver on the Net Promoter Score. The customers are very satisfied with the operation and to sail with us, the product and the concepts. We continue to deliver on kind of reducing the CO2 emissions. Q2, 36% reduction compared to the 2017 figures. And we still continue to deliver on food waste, which is of course a part of the food concept on board to reduce the food waste. So extremely important for us in the high season to still be able to do that. We have a lean operation still... more than 50% of all sales is through own channels. This is good for us.
Still have kind of a very good relationship with agents and operators in the market. But converting more and more of the business through our own channels is important for us. Lastly, this is the Q1 we have been able to deliver a positive EBITDA and certainly will continue doing that going forward. We are quite pleased to at least be able to transfer the business now from negative to partly positive. Next, please. And then Alexander, please.
Okay. Thank you, Bent. So going into a bit more details on the operational performance, as Bent mentioned, this is the Q1 in the company's history with a positive EBITDA, which is, you know, we are celebrating. This is driven by, you know, a continuous increase in revenues. We are growing revenues quarter by quarter, and we're growing revenues first half this year compared to last year, first half of last year. This is also positive on a ship per ship basis. I mean, adjusting for the number of ships growing from two to four, we are still growing 7%-15% top line compared to last year. And this growth in revenues is driven by both pricing.
So now we are realizing higher revenues per cabin night compared to last year, and we are experiencing a higher occupancy. We are kind of building the book, underlying book of occupancy, quarter by quarter. I think going forward, the focus is really on continue to build the top line. Our cost base is quite stable, you know, over the past few quarters. And the focus is really to grow the top line and improve the margins, and I'll explain a little bit about that, on this slide. We see quite a high potential for price increases compared, you know, for next year compared to this year. We've had, and we mentioned this the last time as well, we've had a lot of cancellations over the past few years, mainly because of the sanction issues.
And these travelers have been offered to rebook at the same price, and a lot of them have traveled this year. So that's. We're estimating that effect to be close to NOK 60 million. So we see that next year we'll see a positive effect on pricing just from that. If you look at the route historically, it's been very focused on round trips, you know, sailing all the way from Bergen up to Kirkenes and down again, 11 days round trip. Havila is offering, you know, the clients to take shorter trips. So I mean, we are offering, for example, Bergen to Trondheim. We're offering Trondheim to Tromsø and vice versa.
We are offering shorter trips and, you know, over time, we believe that that will attract a different audience, higher paying travelers compared to the round trip. And that over time, we'll have, you know, a broader audience and have a different segment to target. That it takes time to build the product, and we see that we have a bit of an imbalance in the occupancy on the routes. I mean, we're very... The ships are full going out to Bergen, and then we have gaps during the voyage, where we have a lower occupancy. And to kind of fill those gaps and develop the you know shorter travels in terms of a product is the key focus going forward.
And that, you know, any additional travelers that we will have on board the ships during the route is, you know, a net positive, so I mean, we're traveling with a crew tailored to the highest occupancy on the route. It's quite difficult to change the crew on the ships, on both the operations and on the hotel, so we do expect this growth in the top line to continue, and we do expect the next quarter also to be a positive quarter in terms of EBITDA. Next, slide, please. Looking at the booking status and sales channel mix, we are currently 70% sold for the year. For next year, we have sold about 30% of the capacity.
And for the year, in total, we are guiding around 75% occupancy, which is, you know, it's slightly down compared to the guiding in the last quarter. And part of this is, you know, if we want, we can fill the ships, but it's partly a pricing issue. And second, we've had quite a few allocations that were canceled prior to the high season, and which has been difficult to resell in kind of a short window. So we have, for next year, we have a better underlying occupancy, which means we can move into a situation where we overbook. And we also tighten in the terms and conditions for these group allocations, which means that we think this is going to be less of a problem next year.
In terms of booking channels, we are, you know, we have successfully managed to grow sales through our own channels, and a lot of this is digital through our webpage. Going forward, we are looking at, you know, different ways to package to be able to offer package deals to our clients. Offering both hotel and flights in a modern way, so through digital tools. So that is something which is on the agenda for the company and which is part of the product development of shorter trips throughout the route. Next slide, please. We are going back over to the financing and the balance sheet.
We established an overdraft facility in April, in the Q2, of 200 million NOK. This facility is there to weather, you know, the seasonality in cash flows on the route. We have drawn 150 million of the 200 at the end of Q2, and this was really to weather the last year's low season. If you look at the asset values, the ship value of the four ships, the book value is about 4.2 billion NOK. What we see is that there's a significant positive value adjusted equity in the company based on market values for these ships. The average broker value is at present 700 million in total for the four ships, 700 million EUR.
And we've seen ship, you know, shipbuilding indications not far from that, which is reflective of the, you know, massive increase in shipbuilding prices that we have seen since these ships were contracted back in 2018. So if you look at the value of just the equity of the company, it's significantly positive. We still have, you know, high interest rates on our loans, which is really reflective of the sanctions issues, and it's kind of unintended sanctions effects on the company. We are looking to refinance that debt in probably most likely next year. You know, on one hand, we're working to grow the operational results, to grow the top line.
On the second hand, there are, you know, core protection mechanisms in the existing loan agreement that you know, favors a refinancing in twenty twenty-five compared to 2024. But I think we have quite, you know, good interest from potential lenders. They like the asset. They see, you know, that there's a lot of room on the asset values. They like the infrastructure element of our operations. The contract with... which is, you know, the contract with the Norwegian government. It's the kind of ferry business that we do, transporting port-to-port passengers. And also, we have also a bit of cargo operations, which kind of falls under this infrastructure element. Next slide, please. Yeah, a few words on the key performance indicators.
This is really for, you know, for you to have a look at, at your own, but what we can see is that, compared to the same period last year, the key metrics are improving. You know, pricing is improving. The occupancy is improving, and it's very positive to see that the cabin factor has increased, you know, from below 1.7, and we are now in the Q2, very close to 1.8, and if you look at the rest of the year, it's looking to end above 1.8, which is very positive because, you know, every person in addition that we have on board is a person that spends, so from a margin perspective, that's very positive. Next slide, please.
To sum up, you know, the focus going forward for the management and the company is really to grow the top line, to develop the product, develop the you know, the concept of offering shorter trips throughout the route, while at the same time, you know, keeping focus on cost and maintaining a very lean organization and a low-cost base. We will continue to be very focused on sustainability, and we support stricter environmental requirements on the route, both in this period and also in the next concession period. We can today, you know, reduce emissions further, both by developing the charging grid along the route, but also by blending in biogas.
So we are having, you know, discussions with vendors on biogas, and also with the regulators and the government, in terms of the economics of it. Our refinancing is definitely a key milestone for the company, which will kind of mark the, you know, end of the issues that we've had with sanctions. So to achieve that in 2025 is the key goal, and it will be a game changer for the share. And in terms of growth and the next concession period,
I think that's also a very important milestone to achieve that refinancing and position ourselves for the next concession period. These ships, you know, are well suited for the route. They've been built at a, you know, low cost compared to what you can build these type of ships for in the future. And, you know, we do believe that environmental requirements will be tightened in the next concession round. I think that marks the end of our presentation, and then we'll open up for questions, Sarah.
All right. Thank you so much for your presentation and the dive into your first half year. So we will now move over to our Q&A session. And for a dynamic conversation, we appreciate it if you would ask your questions in person by our audio line. To do so, please press the virtual Raise Your Hand button. And if you have dialed in by your phone, you can use the key combination star key nine to enter the queue, followed by pressing star key six to unmute yourself. And if you're not able to speak freely today, you can also submit your questions in our chat box. So we already received the first virtual hand by Tim, so you should be able to ask your questions.
Yes. Thank you. Good morning. I have a few questions, actually. The first and the most pressing one is, in terms of occupancy. You said you have an improvement, but it's only a slight improvement compared to Q1. And actually, your cabin nights and passenger cabin nights went down from Q1, which is a bit sort of contradictory to the normal seasonality. So it would be great if you could comment on that. And in your report, you mentioned these group allotments. Yeah, can you maybe just shed some light on how those normally function and how those cancellations affected the Q2, and what we can expect for Q3?
You know, the occupancy in the Q1 was quite good to begin with. I mean, it was quite high compared to, you know, historical levels for the Q1. And then if you go into the Q2, you know, pricing-wise, it's a lot higher. So I mean, we have focused on pricing as well in what kind of the start of the high season. But then we also had the Havila Pollux out for two round trips in May, you know, which gave us an uptime of 94%. So that kind of explains, I think, the number of cruise nights compared to the Q1.
Okay. So those were excluded. It was. And can you also, in maybe that, in that respect, comment on how your loss of hire insurance actually covered, financially covered these, this effect, in Q2? Thank you.
Yes. So we have a loss of hire insurance that covers the revenue shortfall in case of you know, prolonged off-hire periods. You know, there's a deductible period and which is kind of normal for these type of insurances, but the off-hire insurance kind of covers the revenue loss on these cancellations.
Okay, but it does affect your cabin nights KPI, and then-
Uh.
Does it also compensate for onboard revenue, or is it only the cabin fees that the insurance covers?
It's, I mean, the amount is fixed based on, you know, expectations for overall revenue, but there's not like, you know, a designated part for onboard or contractual or operational revenue. I don't know, Bent, if you have.
I think, certainly it does not cover everything, Tim.
Okay.
But if you look at the governmental contract and kind of an average of normal cruise revenue will be covered, except from the kind of grace period of the insurance. But it gives a quite okay coverage, but certainly it doesn't cover everything. So it is a loss for the company.
Okay. Okay
Yeah
Understood. Alexander, could you maybe comment on LNG hedging costs in Q2, and how that affected your other operating expenses, and maybe give an outlook for the second half? Yeah, what your expectations there are.
Yeah. So we secured 70% of the LNG fuel consumption in the first half of this year, and it was secured at a level around 60 EUR per megawatt hour, which is almost the double of the spot price. So, but, I mean, that doesn't mean that we've had double the energy cost because it's, you know, comprised of margins and CO2 taxes, et cetera, and VAT. But, the second half, we have not fixed the LNG price, so we are now in the second half paying spot price.
At present, I think it's, you know, high thirties. If you look at historical average for LNG prices in Northern Europe, it's been close to 20. So it's still quite high. We are looking actively at ways to hedge and diversify the LNG purchase and the way we bunker the ships. But I think you'll see an effect in the second half of the year compared to the first half of the year. Based on current pricing, I think it's about NOK 20 million in difference.
Okay, thank you. Maybe looking at your competition, they increased capacity on the route, which is obviously not the contractual routes, but there are two more ships sailing now on the route. In general, I gather from their presentation, and I also see they're selling very heavily for 2025. So can you comment on that and how that affects your pricing and occupancy expectations for next year? I mean, I gather they're still in quite financial distress, so every euro they can get in this year probably helps them. But yeah, can you maybe comment on how you see that?
I think if we are kind of inward looking at ourselves, we are quite ahead of on the sales side compared to last year for 2025 if you look at the timing and the pace of bookings, so we still are selling quite good into 2025 and are ahead of the kind of pace we need, so still quite positive for us. Certainly there are kind of questions out in the market whether why are we not dropping the prices when the competitor is doing that, but still we are focused on ourselves and the product we deliver, and certainly people are willing to pay the price also for our product.
Okay, then maybe one final question, and I'll jump into the queue again. In your refinancing presentation, you had, like, a, you know, midterm outlook of 35%-40% EBITDA margin. We're now at 16% in Q2. Obviously, there were some headwinds in the quarter, but what's your expectation sort of going forward? What is needed to reach these kind of profitability levels from your point of view? And what is your sort of your expectation in when you can run into normal, completely normal sort of operation status?
We have not changed kind of the target of the margins we have indicated, so that's still the ambitions. I think what we also said in the Q1 is that this is the first year of full operation. We are still kind of working a lot with the optimization of all aspects of the operation. Building the brand will take time, like also Alexander mentioned on the concepts, different products. We do see that we attract other kind of travelers, younger, more active travelers. So that is kind of the focus of developing the product, and we get more activities into the kind of upsell side of the operation. It will take this year to kind of optimize and develop kind of the business further, but we are quite optimistic for next year also.
Okay, thanks a lot. I'll jump back in the queue. All the best. Thanks.
Thank you so much for your questions, Tim. In the meantime, we received a couple of questions in the chat box, so we will read them one by one. The first is from Jan: "Can you indicate the rate differential that you aim to achieve in refinancing? How much lower interest rates do you expect to achieve through refinancing?
I think what you see at present in the banking market for you know, similar type of transactions, you know, see EURIBOR or LIBOR plus 2%, plus minus, depending on how you know, the type of security package and the kind of contract profile of the ships. So that's where the banking market is, you know, the mortgage lending. And the unsecured bond market is also quite active and affordable at the moment. We see you know, ferry companies in Scandinavia issuing unsecured bonds at, that's of course Norwegian kroner, but Norwegian three months interest rate plus 3% unsecured.
So I think there's you know, certainly a lot of room between where, you know, debt could be sourced at, compared to what we are paying. And as I mentioned earlier, the debt that we have and the rate that we are paying is really reflective of the situation last year, and especially the sanction issue, where the company was kind of cornered by the situation. It's not reflective of the ships or the quality of the ships or the earnings potential on the coastal routes.
All right. Thank you so much. So we have further questions concerning the interest rate, and it's a bit longer. "So what is the current interest rate you are paying on the loans, and what do you have to pay to the lenders at the end of the loan period? You have paid NOK 165.7 million in interest during the first half year, which indicate an interest rate of 8.11%, but that must be far from the real cost. Can you please clarify?
I think in the annual report, in the notes, we have listed the interest rate that we have on different loans. On the mortgage debt, we are paying around 12.5% interest. Part of that is that, you know, there's a PIK element that we can select to pay or pay as payment in kind. And on the shareholder loans, the interest rate is around 13%, and all that is payment in kind interest, so it's accumulating on the outstanding loan. And then on the maturity of the mortgage loan, there is a call premium at 6%, which is also published and available information.
Thank you so much. So the next two questions are about the EBITDA. "Is there any indication on EBITDA growth in the next two quarters that you can provide?
I mean, then the Q3 is really the, you know, the best quarter of the year if you look at seasonality. You know, you have July, August, which are a very high season type of months, and then you have September. So historically, and also for this year, you know, Q3 is looking to be the best quarter. And but we do see that we are, you know, we have a quite good booking situation for the last quarter of this year as well.
And at least looking at historically, the seasonality is not what it used to be. There are a lot of international travelers that are attracted to the winter season, especially, you know, February, March, where you can experience the northern lights. So if you look at the tourism in northern Norway, it's really February and March are kind of high season, which we are trying to tap into.
All right. So the second EBITDA question is: "Is there target EBITDA level that you would aim to achieve in the near future?
I mean, I think as Bent mentioned, you know, the target EBITDA margin still stands, and that's what we are working towards. We believe we can grow the top line, you know, significantly next year compared to this year. I'm not gonna, you know, give a definite figure, but we see costs stabilizing and, you know, we see, of course, potential efficiencies on cost, and especially this north south imbalance is kind of a key for us to achieve these margins. Because if we manage to get a more even occupancy throughout the route, that is gonna, you know, contribute on the margin on the EBITDA margin.
Thank you so much. So the next question: Havila trades on retail flows, retail trades on news flow. There has not been much news flow, so little press releases and not much on social media. How do you plan to improve your visibility for the investors?
I think we have, you know, a very large majority shareholder, and, you know, compared to a lot of companies, we have small free floats, so of course, there's limited number of shares out there trading. I guess, I mean, we are looking at how to increase activity. You know, we have started with quarterly webcasts. We, you know, plan on participating on different forums, and we're also in the process of reviewing, you know, what to guide on, what type of KPIs do we present, and when do we present them, so I don't know, Bent, if you have any
No, no additions.
Great, thank you. So with close to zero in booked equity, how are the board of directors planning to address this and improve the equity level? Do you think it will be necessary to raise new equity in order to improve the balance sheet?
As I mentioned during the presentation, if you look at the market value of the ships, you know, there is a substantial positive value of just the equity. You know, it's by billions of NOK. So I think the board is comfortable with the asset values, underlying asset values compared to the liabilities. We have a positive cash flow outlook for the next 12 months. So there's no immediate capital need, given the project projections that we currently have for the operations. So I think at present, the board and the company is comfortable with the values and the liabilities that we have. But if, you know, if It's of course something that we are monitoring and keeping an eye on, but at present, we don't see it as an issue.
Thank you so much. So, dear participants, by now we have two questions in the chat box left, so please feel still invited to submit your questions via audio line or chat. So the next question is: Can you comment on the split of the source countries of your customers, and has that changed over the last twelve months, and for bookings going forward? Is there any source countries that you're focused on for the future?
We have had quite a good increase if you look at the U.S., America in general, and that is an area where we will focus more. Still, German-speaking countries like Germany, Austria, Switzerland is representing just below 50% of the total volume of the travelers or our guests. So, but we have a very good increase from the U.S. market and Australia and New Zealand. That's very good, and Central Europe in general is coming. We also have seen an increase from the Asian market this year. I think from 2022 into 2023 and into 2024, it's been quite a decrease from the German market, from 50% to about 32%, and an increase, especially from the US market.
Thank you, Bent. So, and the last question so far: Could you confirm that the missed revenue from cancellations spillover from 2023 was approximately 60 million NOK?
That's confirmed. That's correct.
Okay, so just a quick answer for a quick question. So dear participants, by now we did not receive any further questions, so we therefore come to the end of today's earnings call. So thank you everyone for your shown interest in Havila and, all your questions. And, of course, a big thank you to you, Bent and Alexander, for the time you took today. So from my side, I wish you all a lovely remaining week and a happy weekend. And I hand back for some final remarks, which concludes our call for today. And just let me quickly switch around because we received the last question, so, and we will cover it for sure. Are you seeing any softness from customers coming from German-speaking countries, given the cost of living crisis and softness in the German macro?
No, we have, we haven't seen any effect related to that. Still, a lot of Germans, high interest from German, the German market also.
Okay, thank you. So but let me quickly check. So now all the questions are covered. So thank you again, and I hand back to Bent and Alexander for some final remarks, which concludes our call for today.
Okay. Thank you, Sarah, and thank you for everyone joining this earnings call. Yeah, thank you.
Thank you very much.