AB Novaturas consolidated interim financial statements for the nine-month period ended 30 September 2018 (unaudited)

2018 nine-month highlights:

• Novaturas’s turnover was EUR 140.2 mln, or 30% more than in the same period of 2017.
• Gross profit amounted to EUR 20.3 mln and was 1% higher than in the same period of 2017.
• Operating expenses totaled EUR 13.1 mln, or 16% more than in the same period of 2017. Excluding the impact of commissions and one-time expenses, operating costs increased by 9% from the same period a year earlier.
• EBITDA amounted to EUR 7.4 mln and was 20% smaller than in the same period of 2017.
• The effective tax rate was 15.9%, compared to 9.8% in the same period of 2017. The main reason was dividends the Estonian subsidiary paid to the parent company which resulted in a tax payment of EUR 600,000 in Estonia.
• Novaturas had a net profit of EUR 5.7 mln, which is 25% less than in the same period of 2017.
• The company served 243,573 clients, 32% more than in the same period of 2017.

2018 third-quarter highlights:

• Novaturas’s turnover was EUR 60.0 mln, or 16% more than in the same period of 2017.
• Gross profit amounted to EUR 6.2 mln and was 36% lower than in the same period of 2017.
• Operating expenses totaled EUR 4.8 mln, 6% less than in the same period of 2017. Excluding the impact of commissions and one-time expenses, operating costs decreased by 3% from the same period a year earlier.
• EBITDA amounted to EUR 1.5 mln and was 69% smaller than in the same period of 2017.
• Novaturas had a net profit of EUR 1.3 mln, which is 69% less than in the same period of 2017.
• The company served 109,110 clients, 21% more than in the same period of 2017.

Management comment:

The company served 243,573 clients in nine-month period of 2018 which was 21% more than compared to same period of 2017. After very strong profitability in the first half of the year third quarter profitability was weaker compared to 2017 year’s third quarter. Slower profit growth during summer months was influenced by abnormally hot and dry weather in all three Baltic countries. Hot weather lasted through June, July and August. Hot weather decreased demand for outbound travelling which influenced last minute prices – we had to reduce prices and profitability trying to stipulate demand.

Flight package tours continue to be our main product. The most popular destinations remain Turkey, Greece and Bulgaria for the summer season and Egypt for the winter season. For each season we introduce new destinations on the market or reintroduce older ones. For the summer of 2018 we added Tunisia, and for the upcoming winter season we have added Jordan and Cuba. The wide variety of destinations in our portfolio enables us to satisfy our clients’ diverse needs. All major destinations grew during the reporting period.

The number of clients served grew in all source markets where Novaturas operates. The strongest growth was recorded in the Belarusian market, where the number of clients rose 106%. We do not fly from Belarus, but rather sell our Lithuanian products through Belarusian agencies. The Lithuanian source market grew 32%, while the Latvian market grew by 34% and the Estonian market was up 29% compared to last year.

Passenger growth was strongest for flight package tours, at 33%, with a growth rate of 29% for other products. The other products passengers bought were mainly flight tickets for charter flights which we operate. Our flight tickets are sold through travel agencies and also via the GDS channel, reaching very diverse types of travelers.

Travel agencies’ share in our sales increased by 1.8 percentage points to 72.1%. Rather than focusing on our own retail share (which decreased by 1.9 percentage points to 11.4%), we have mainly focused on growing web sales. Web sales’ share of revenue rose by 0.2 percentage points during reported period to 14.6%, while that of GDS sales remained very similar at 1.9%. As planned, in June we introduced a new version of the company’s webpage in all thee countries where we operate. The responsive design of the new webpage is much better suited to mobile devices, which customers are using more and more not only to search for information but also to make purchases online.

We kept our operating expenses under control during the reporting period. They grew at a much slower pace than sales, increasing the efficiency of the company. Direct marketing expenditures were 0.6% of sales, similar to last year’s level of 0.7%. Salaries and related items increased by 13% over the same period last year. Excluding the impact of commissions and one-off expenditures, operating expenses increased by 9% versus the same period last year. One-time expenses, incurred mainly in the IPO, amounted to EUR 429,000. Including one-time costs, operating costs less commissions paid rose by 5%. Total costs, including commissions, grew by 16%. Commission expenses remained stable at 5.2% of sales, compared to 5.3% in the same period last year.

Profit tax expenses include EUR 600,000 paid in Estonia on dividends paid by the subsidiary there to the parent company.

“Other current financial assets” mainly consist of restricted cash (EUR 2.4 mln), which is used to issue guarantees covering prepayments received from customers, as required by the law in each country of operations. The remaining amount of other financial assets is mainly the market value of open hedge contracts.

The company in September 2018 renewed its overdaft agreement through the end of 2020 and will be able to use the overdraft in the January-June period each year. Servicing of the long-term loan is in accordance with the loan agreement and EUR 1.25 mln of the loan has already been repaid. The high level of advances received from customers was due to a strong increase in passenger volumes and very good advanced sales at the end of the period.

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