Trainline H1 2025 Earnings Call Transcript

Quartr
Provided by Quartr
November 7, 2024

There are 7 speakers on the call.

Operator

and welcome to the Trainline Half Year twenty twenty five Results. My name is Ezra, and I will be your coordinator today. I will now hand you over to your host, Joe D. Ford, Chief Executive Officer. Please go ahead.

Speaker 1

Good morning, everyone. Thank you for joining us today for our half year results presentation.

Speaker 2

I will

Operator

now hand you over to your host, Joe D. Ford, Chief Executive Officer. Please go ahead.

Speaker 1

Good morning, everyone. Thank you for joining us today for our half year results presentation.

Speaker 3

I will

Operator

now hand you over to your host, Joe D. Ford, Chief Executive Officer. Please go ahead.

Speaker 1

Good morning, everyone. Thank you for joining us today for our half year results presentation.

Operator

I will now hand you over to your host, Joe.

Speaker 1

We'll try that again. Good morning, everyone. Thank you for joining us today for our half year results presentation. I'm Jody Ward, CEO of Trainline, and I'm joined by Pete Wood, our CFO. Let's first go through the disclaimer.

Speaker 1

Onto the agenda for today. I'll give an introduction, briefly discussing the progress we've made in the first half of the year. I'll also recap on the opportunity ahead and update on the regulatory backdrop. Pete will talk you through our financial performance. I'll then update you on how we're progressing against our strategic priorities.

Speaker 1

After that, we'll hand back to the operator for questions. The group scaled well in the first half, processing over 110,000,000 transactions, 18% higher than last year. In the UK, we continue to digitize rail travel, with industry e ticket penetration rising to 51%, and our share of the commuter travel segment grew to 24%. In international, we further positioned ourselves as the aggregator in Europe, with combined net ticket sales across Spain and Italy up 23%. The group delivered a strong financial performance in the first half, with net ticket sales up 14% and revenue up 17%.

Speaker 1

Together with the benefits of operating leverage, this drove a 44% increase in adjusted EBITDA to £82,000,000 We are Europe's number 1 rail app. In the first half, our app was downloaded almost twice as often as number 2 and 3, SNCF and Deutsche Bahn respectively. This scale brings benefits, which we are leveraging. Platform 1 underpins the transactions of multiple tenants, from our branded businesses to our retailing partners. As transaction volumes grow, our investment in the platform becomes increasingly efficient.

Speaker 1

We can integrate new supply and roll out product innovation more quickly, leveraging a scaled customer base across our geographies. And as we scale, we can increasingly turn our focus to monetizing our customer relationships to drive faster revenue growth. All of this is driving our business to outperform, which Pete will discuss shortly. Before I hand over to Pete, let me update you on the regulatory backdrop, starting in the UK, where the new government is providing more clarity, stability and full momentum for the industry. First, they have reset and stabilized relations with the unions, ending the long running industrial dispute.

Speaker 1

They have kicked off their nationalization agenda, which as a reminder, focused solely on bringing rail operators into public ownership over the next few years. Importantly, it does not extend to train leasing companies nor to retailers like Tradeline. They have also launched Shadow GVR to unify track and train, and we're already engaging with them around how to drive industry growth. Finally, they remain supportive of an independent retail market, committing again through the King's speech to accelerating the rollout of innovation. And we have recently been invited into a consultation on digital pay as you go trials in urban areas outside of London.

Speaker 1

In Europe, the countries in Europe, the EU continues to prioritize initiatives to enable growth in rail travel. It aims to triple high speed passenger volume by 2,050 and is championing carrier competition to encourage mobile shift. As we've seen in Spain, this has had the effect of reducing fares, increasing choice and growing passenger numbers. Furthermore, the EU has shown strong support for 3rd party ticket retailers, with a recent report from the European Commission citing their value in promoting carrier competition. With that, I'll hand over to Pete to talk through our financial performance.

Speaker 1

Thanks, Jody, and good morning. Before I step into the financial performance

Speaker 4

for the group, I will briefly unpack the performance of our business units. Starting first with UK Consumer, net ticket sales grew 15% to CHF 2,000,000,000 as our investments continue to support the adoption of digital tickets, with e tickets now 51% of all industry sales, up from 46% in H1 last year. It also reflected a market that's returning to normal, with industry passenger volume back to near pre COVID levels, including the ongoing return of commuters, and fewer strike dates, which were also less severe in their impact. I'm pleased to say our trading since half year has remained strong. And in addition, the expected headwind from Transport for London's project oval expansion is now delayed until next year.

Speaker 4

International net ticket sales grew 6% to £583,000,000 As Jody said earlier, the strongest performance came from markets with the greatest levels of carrier competition, Spain and Italy. By innovating on our customer proposition and investing in brand marketing, we delivered net ticket sales growth in these markets of 23% year on year. Net ticket sales across France and Germany slowed, reflecting our decision to pause brand marketing in France until we see more widespread carrier competition. Similarly, industry wide changes to the presentation of Google's search engine results, as we first discussed a year ago, continue to subdue web sales in international consumer, with the impact most pronounced in foreign travel. However, growth in app sales remains strong, with the share of our transactions through the app increasing to 67% from 62% last year.

Speaker 4

Net ticket sales within Tradeline Solutions grew 19% to 449,000,000. As a reminder, this business unit provides B2B retailing capabilities to rail carriers and other travel platforms. For rail carriers, our IT Carrier Solutions business delivered a strong performance supported by feature releases and market recovery. Our B2B Distribution business also performed well, increasing our global API sales in both the UK and Europe. To date, Trainline has focused on net ticket sales as the primary driver of revenue growth.

Speaker 4

However, as the business scales, we are now more effectively monetizing our customer relationships, which in turn is growing non commission revenue. This includes launching ancillary products and services within the booking flow. In H1, we saw strong growth in demand for hotels, particularly in Europe. Similarly, we saw good take up of travel insurance products, most notably in the UK. In aggregate, the ancillary revenue generated from these two lines 3 times larger than last year, and I see further opportunity ahead.

Speaker 4

Bringing that together, in the first half, group net ticket sales grew strongly, up 14% to 3,000,000,000. This was ahead of our previously stated guidance for the full year. Revenue grew 17% to GBP229,000,000 again ahead of our previous guidance, reflecting the mix effect of faster growth in UK consumer as well as non commission revenue generation. Gross profit was up 20% to £181,000,000 This outpaced top line growth in part due to the reduction in the fulfillment fee we pay to the UK rail industry when a customer uses a barcode ticket. Turning to costs, marketing declined 9% to €34,000,000 in the half, reflecting our continued investment to drive efficiencies in new customer acquisitions as well as our decision to pause brand marketing in France.

Speaker 4

Other admin costs were up 15% to £65,000,000 with increased system costs reflecting our greater scale. And bringing this all together, we are seeing the benefits of operating leverage with adjusted EBITDA growth of 44 percent to £82,000,000 outpacing net ticket sales and revenue in the first half. As we scale, we are reaping the benefits and efficiencies of 100 of millions of transactions coming through Platform 1. In the last year alone, our cost to income ratio reduced 5 percentage points, during which time we continue to invest in international, where we have now built the foundation of a significantly enhanced user experience and product market fit. This now gives us scope to further optimize our cost base, which we are doing in H2, including reducing headcount where it makes sense to do so.

Speaker 4

We expect this exercise will generate around £12,000,000 of annual cash savings, of which £8,000,000 will be operating expenses. And we expect the cost to deliver these savings to payback in less than 1 year. The business delivered strong cash generation in the first half with operating free cash flow of CHF 100,000,000 driven by increased EBITDA plus working capital inflows, partly offset by CapEx, reflecting investment in products and tech innovation. As we generated more cash, our leverage further reduced to 0.2x EBITDA and Trainline would have been net cash positive had we not bought back £46,000,000 of shares in the first half, in line with our stated capital allocation framework. To date, we have repurchased and cancelled £83,000,000 of shares or around 6% of issued share capital.

Speaker 4

Altogether, I'm delighted with our performance in the first half. And as you will shortly hear from Jody, our team is delivering against a clear strategy. Trading has remained strong in the second half and we are now optimizing our cost base. As I look ahead, we are well positioned for further growth. Having already improved guidance for this fiscal year in September, we again increased our guidance in October.

Speaker 4

We now expect net ticket sales growth of 12% to 14%, above the original 8% to 12% revenue growth of 11% to 13%, originally 7% to 11% and adjusted EBITDA as a percent of net ticket sales of around 2.6%, originally 2.4% to 2.5%. And today, we have announced we expect our EBITDA margin to continue to widen next year too. This reflects the benefits of operating leverage as well as our disciplined approach to managing costs. And it's despite the 25 basis point reduction in our net commissions in the UK as we agreed back in 2022. We now expect EBITDA as a percent of net ticket sales of between 2.6% and 2.7% in fiscal year 2026.

Speaker 4

Thank you, and I'll now hand back to Jody.

Speaker 1

Thanks, Pete. Let's now talk about the progress we're making against our strategic priorities, starting with the UK Consumer. We operate in a large rail market in the UK worth over GBP 11,000,000,000 In the last 12 months, online sales were over GBP 6,000,000,000 the majority of which were e tickets. However, over GBP 3,000,000,000 of sales remained offline. Those are mostly tickets bought at the train station on the day of travel, primarily for commute and short distance journeys.

Speaker 1

We believe we are uniquely placed to expand the market, driving modal shift to rail and grow adoption of online and digital ticketing. This comes down to having all the tickets, fares and value saving features in one easy to use mobile app, with strong brand affinity and trust from our customers, reinforced with our scale and expertise to continue to invest and improve our proposition, together with a scalable tech platform that's purely optimized for the complexities of rail travel. We are the scale retailer in UK Rail. As you can see on the chart, we are the number one traveler altogether with 12,000,000 monthly active users. That equates to more than 60% of people in the UK who travel by train each month.

Speaker 1

And we have big ambitions to grow further in the UK. We focus on 4 key priorities: growing supply, providing an excellent user experience, building demand and increasing customer lifetime value. In terms of supply, we provide all the carriers and fares in one place. We also provide a comprehensive range of value saving products and features helping customers to unlock value. We are the home of SplitSafe, the original at scale split ticket solution, saving customers £13 per booking on average, and we have over 2,000,000 digital Railcard customers.

Speaker 1

That's about a third of all Railcard users in the UK who are saving money seamlessly when booking their rail trip. Trip. We are priming our mobile app to better serve commuters, a segment where we have historically under indexed. This is particularly the case in season ticket sales. As a reminder, until a few years ago, no carrier accepted digital seasons on their respective networks.

Speaker 1

The rollout since then has been gradual, and to date, just over half of all journeys are enabled for digital seasons. Nevertheless, we've been making good progress in growing sales of digital season tickets. On routes enabled for a year or more, 21% of customers now benefit from using digital season ticket, with no need to carry around a physical copy. For commuters who instead buy their ticket, on the day of travel we are making it quicker and easier to buy through the app on their way to the train station. First, we can use geolocation technology to determine which station the customer is walking up to.

Speaker 1

Leveraging machine learning, we then surface the most relevant route suggestions from that particular station at that time of day. The customer can buy a ticket for one of those journeys in a few clicks and all would ensure that our best price guarantee. This is helping support the recovery in the commuter market and grow our sales, with our segment share reaching 24%. Our 3rd priority in the UK is to build customer demand with marketing campaigns that focus upon our value and commuter propositions, often with an underpin of sustainable travel. Under our flagship brand campaign, Great Journey Start With Trainline, in the first half, we told customers how we can help them save money, including our best price guarantee when buying tickets on the day.

Speaker 1

And we're trialing new partnerships to grow demand too. For example, we recently partnered with online bank Monzo to offer their customers our digital railcards. As a reminder, digital railcard users are some of our most frequent and sticky customers. These campaigns have contributed to active customers in the UK growing 12% year on year. As we grow our customer base, we are increasing the frequency at which those customers transact through us, further driving up sales growth.

Speaker 1

As you can see, the longer the customer is with Trainline, the more frequently they transact through us. That's true across newer as well as older cohorts. The customers we've acquired since COVID are transacting more frequently than customers acquired prior to COVID and now represent over half of our transactions in the UK. Moving on to international, the rail market in Europe represents significant headroom for trade with an addressable market worth €44,000,000,000 Within that, carrier competition is due to expand in France, Italy and Spain over the next 2 years and beyond. We believe we occupy a unique position that we can leverage to win in Europe with a clear remit to aggregate carriers across multiple geographies, the expertise and scale to invest in new markets and our scalable tech platform.

Speaker 1

We plan to increasingly position ourselves as the aggregator of choice as carrier competition becomes widespread across Europe. We're making strong progress against those plans, focused on growing supply, enhancing the user experience, building demand and increasing customer lifetime value. When it comes to supply, we aggregate carriers in 1 highly rated mobile app. This brings clear benefits to our customers who can search all the options to find best value. And through Topconvoy, they can stitch together different carriers for return in multi leg journeys.

Speaker 1

We also bring distinct benefits for new entrant operators. By rapidly adding their inventory as they launch services and leveraging Topconvoy, we could put more passengers on their trains more quickly, accelerating the payback on their investment. We are now testing how we can increase the prominence of new entrant brands. For example, within our search function, we recently elevated WIGO as the best placed option between Madrid and Barcelona for a test group of customers, notably increasing their sales versus their control group. So as we hone our aggregation playbook, we are also creating the virtuous cycle of the marketplace and we add more as we add more inventory, we become more attractive for passengers and as we attract more passengers, we become increasingly relevant for rail operators.

Speaker 1

As Pete mentioned earlier, we've now significantly enhanced our product market fit in international, giving us scope to optimise our cost base. However, you should expect us to continue innovating at pace. In our core markets, we continue to create a unique proposition with exclusive products and features aimed at domestic customers. In France, we became the 1st and only aggregator to integrate PassRail discounted tickets giving younger customers cheap travel during the summer months. In Spain, we are the 1st and only aggregator to wire on certain urban and suburban route travel.

Speaker 1

And in Italy, we're the only app to auto apply promo codes where applicable discounts for train tickets are available, saving customers on average €20 per high speed booking. While improving the travel experience for domestic customers, we continue to enhance our offering for inbound and cross border travel. This includes our recent launch of Eurail passes. These are multi leg rail tickets primarily geared towards leisure travelers touring around Europe. As I look ahead, I remain excited by the prospect of our core European markets liberalizing and what that means for Trendline.

Speaker 1

Let's start with the Spanish market, which already has 4 carrier brands in operation. On the top 3 high speed routes in Spain, these carriers compete directly Here's what I found. Compete with one other, and that competition continues to expand with low cost new entrant wingos set to launch services from Madrid to Seville and to Malaga by the end of this year. What's happening in Spain is coming to Italy and France too. In Italy, Renfade Back to Renoways and SNCF are planning to launch from 2026.

Speaker 1

In France, Trenitalia who already run trains between Paris and Lyon are set to launch services between Paris and Marseille next year. Following that, Renfei are due to launch services on both routes. And thereafter, 3 new carrier brands are set to launch high speed services across France, Elisto, Latram and Proxima. These new challenges are already ordering rolling stock and obtaining the regulatory clearances needed to operate train services in France. As we've shared previously, our progress in Spain creates a highly positive route across for when we deploy our playbook in Italy and France.

Speaker 1

The first Spanish high speed routes liberalized 3 years ago. Since then, passengers have enjoyed more choice and significantly lower fares. In turn, passenger volume has risen dramatically with new entrant carriers quickly taking share. By honing our aggregation playbook, we are growing 3 times as fast as the market on each route, and we have doubled our market share to 12%, reaching as high as 16% on Madrid to Valencia. A key part of our playbook is investing to grow brand awareness of Trainline as the market aggregator.

Speaker 1

In Spain, we use innovative ways to capture attention, including whole station takeovers, train line branded music festivals, and most recently sponsoring Real Betis of Seville based football team. This coincided with Wiga's imminent launch of services from Madrid to Seville. All this has driven up brand awareness in Spain to 25%. That's over 3 times where it was 2 years ago when we launched our 1st brand campaign. As our brand awareness grows, so too does our customer base.

Speaker 1

In the last 12 months, over a 1000000 customers in Spain transacted through Trainline. And those customers are becoming more engaged with Trainline too, with 50% being repeat customers in the first half. As a result, our net ticket sales have tripled over the last 2 years. Here's a quick video that brings to life some of the progress we're making in Spain. Finally, turning to Trainline Solutions.

Speaker 1

As you know, this business unit leverages the strength of our single global tech platform, Platform 1, to support our travel partners. For white label carriers, we continue to make available products and features to enhance their mobile apps. This includes split ticketing and travel companion features, and we are actively engaging in several carrier tender processes for their online retailing solutions. This follows the cancellation of the previous government's plan to create a centralized retail app and website. For B2B travel partners, we are seeing sales increase through our global API.

Speaker 1

Here too, we are actively seeking and winning new business, including from notable clients like SAP Concur. At the same time, we continue to amp up our own branded B2B offering. In May, I discussed how Trainline has brought together our offering. In May, I discussed how Trainline has brought together our business and consumer app, meaning customers can now flick between their businesses and personal travel, while keeping their bookings separate. Since then we've enabled client company admins to book train travel on behalf of their employees, and we've allowed clients to embed travel policies into the app, giving them greater control over their travel spend.

Speaker 1

As you know, Platform 1 underpins our whole business and increasingly leverages AI and advanced machine learning to improve the user experience and reduce our cost base. It also provides AI driven tools and features that reduce friction and remove complexity for customers who are on the go. We see generative AI as additive to what we're already doing in this space, and so we are developing proprietary AI systems within our domain. This is widening the opportunity to create smarter and more personalized experience, including the future in the future an end to end personalized travel assistance, so watch this space. Before we open the call to questions, let me recap on some key takeaways from today's presentation.

Speaker 1

In the UK, as the number one traveler, we are making great progress in driving adoption of rail travel while digitizing the 3,000,000,000 of sales still made at the station. At the same time, we're getting increasing clarity on the direction of the UK rail industry. In Europe, we are further honing our aggregation playbook, particularly in Spain, the most liberalized market in terms of carrier competition, where our net ticket sales have tripled in 2 years. This creates a highly positive read across for when we deploy our playbook on routes in Italy and France as they liberalize over the coming years. Overall, the business has delivered an excellent performance in the first half, reflecting the progress we continue to make in delivering for our customers in the UK and across Europe.

Speaker 1

Top line growth was very strong, with our growth in profitability and cash flow generation faster still, reflecting the increasing benefit from operating leverage. Therefore, we have again increased our guidance for this fiscal year with strong growth and increasing EBITDA margin that will sustain into next year. Thank you very much for listening. I'll now hand over to the operator for questions. When asking, please state your name and your organization.

Operator

Thank you. Our first question comes from Ed Young with Morgan Stanley. Ed, your line is now open. Please go ahead.

Speaker 5

Good morning. It's Ed from Morgan Stanley. Three questions, please. First of all, on the regulatory side, you mentioned the consultation of the pay as you go trial in the King's speech. What kind of timeline do you see for the potential implementation of that?

Speaker 5

Should the consultation be successful? And then what kind of impetus and potential timeline do you see around the other areas you flagged as a digital season tickets being expanded and automated delay repay? My second question, you've seen good growth in non commission revenue in both U. K. And international, and you talked to both hotels and insurance in the presentation.

Speaker 5

I wonder if you could talk a bit more broadly about the scale of that opportunity. How much further is there to go in areas like partnerships? Or are you sort of are you already sort of on the main areas you think are addressable? And then finally, just for clarification, the project oval expansion, you said it's delayed until FY 'twenty six. Do you expect any change to the scope of that impact to go along the delay?

Speaker 5

Or is it just the timing of that implementation? Thank you.

Speaker 1

Thanks very much for the questions. We'll sort of pick through those between Pete and myself. As it relates, first of all, to the pay as you go kind of consultation process and ultimate kind of a rollout where customers would be able to use it. I think we probably need to see this as a multi year journey. I think the trials over the likely coming year I think will inform that process And I suspect we're looking at kind of multiple years before we got to the point where this was an at scale product that kind of customers had in their hand where we're using, but we are definitely encouraged that we're now moving into a trial phase which is kind of critical for the development of this product to get it into kind of thousands of users' hands and to get it right and ultimately design a scheme which we think will work for kind of customers throughout the country.

Speaker 1

As it relates to digital seasons specifically, we've got just over half of the addressable market as I said online there. There's really 3 tops where the most of the remaining digital seasons would be kind of rolled out from if you like when those tops adopted it. And if you think about kind of greater Anglia, GWR and SWR being the 3 talks that constitute most of the remainder. We don't have a timeline as it stands. I think probably the way to think about it was as they were bought into public ownership.

Speaker 1

That would be an obvious moment where potentially the government would choose to push those products forward. It could, of course, happen earlier. And then let me just pick up on the 4th question around over expansion and I'll ask Pete for the hotels question. As it relates to an overall expansion, this is we don't believe a change to scope. We just think it's a series of kind of operational delays.

Speaker 1

And so we're expecting that phase 1 of the first 50 stations to be kind of early next year. And then Phase 2, which is kind of the next 50 to be beyond that, we don't have kind of concrete timelines, I would think, over the following year potentially, but that's on the best guidance we can do at the moment. Pete, do you want to pick up on the hotel and non commission revenue point?

Speaker 4

Yes. So we've made very good progress over the last 12 months in these two verticals. And I still see some opportunity ahead as well as we further optimize the implementation. Really the success boils down to finding the right way, the right time, the right moment to share it with someone. Of course you don't want to interrupt someone's commute journey with a hotel and that's that's the sweet spot that we found here and I think there's there is a bit more juice still to go on on these 2 and we'll continue to explore other opportunities where you know that I where there's a kind of synergy between 2 verticals, I don't know, maybe experiences or something like that, we'll find some way of scaling and testing a learning way there as well.

Speaker 4

So yes, we'll continue to innovate in this area.

Speaker 1

Thanks for the question.

Speaker 2

Thank you.

Operator

Our next question is from Alastair Johnson with BNP Paribas. Alastair, your line is now open. Please go ahead.

Speaker 6

Morning, guys. Thanks for taking the questions. Firstly, you mentioned getting more clarity from the UK government generally. So I was wondering if you had sort of further color specifically on what the government meant or Labour Party meant when it originally talked about reducing the number of platforms online ticketing platforms in the UK or what it intends to do on ticket simplification. And then secondly, your growth in Italy and Spain is very clearly being offset by the declines in France and Germany.

Speaker 6

I think I'm right in saying we lapped negative impact from that in the second half of this year. So should we expect kind of an acceleration in international from now effectively? And lastly, I just wanted to ask more about the B2B distribution deal that you mentioned at the end of the presentation. Kind of what really are those? What are you providing?

Speaker 6

And how do you monetize that? Thank you.

Speaker 1

Thanks for the question, Alastair. I'll start with the GBR point and then pick up Spain and then I'll speak. I think it's probably just worth pulling back a little bit on sort of the broadly labor rail agenda just to kind of level set and then kind of dive a little bit into what we're seeing around the retail environment. And I think that as I said in the PowerPoint, I think where we're getting to here is we're getting increasing clarity with regards to their strategy which as a sort of reminder they launched in April back in our offices. And I think it's an agenda that lasts the full term of the government which is helpful I think given sort of previously we were dealing with things that were more focused on the sort of next 12 months and that provides increasing stability for the industry but also for third party retailers like ourselves and I guess the note here is everyone's familiar with things tend to move fairly slowly as it relates to kind of RAD and the government engagement here.

Speaker 1

So I think what they've done is lay out where they want to go over the term of this government. And the key activities we see going on there within kind of that's the GBR area is the first is designing what that looks like kind of creating a blueprint of how UK rail should be constructed. And that's pretty complicated because of the operational, financial and legal complexities of delivering that and designing. And so we kind of anticipate that may take 12 to 18 months to come up with that blueprint. Secondly, there's obviously the nationalization of the talks that is going on and they've laid out an agenda for that.

Speaker 1

Exactly how long that takes to bring them all into the DOHL way to be seen. I suspect it takes the majority of the current parliament to do that. And then I think 3rd and this is kind of important, they want to deliver of course meaningful impact for customers that isn't all predicated on if you like the next term of government over the coming months and years. And those short term wins I think initially were around getting resolving the disputes and getting the trains so they weren't being canceled so people could trust rail but increasingly will be things that I think we can engage and work with them around. And some of these were in the kind of commitments around the King's speech.

Speaker 1

We've already kind of touched on digital seasons, but digital delay with pay and then the idea of kind of a mobile pay as you go would be other areas that they've referenced like to deploy. And that's an area where we can really engage and deliver good things for government. So those are that's sort of the high level where we see GVR. But then to really turn to your questions here around the broader retailing environment. I'd just say it upfront, back us to ultimately compete and win however the environment evolves.

Speaker 1

I think as we think forward over that period of time, I think it's unlikely there will be 20 plus apps in a few years' time. And so we do expect some form of consolidation. And we kind of think they'll work out what that looks like, if you like, during the design phase that I've sort of said is going on right now. And I wouldn't be surprised if there is some noise around that as they think through what that might look like and they consult more widely. But I would be surprised equally if anything really happened in the next 2 or 3 years in that area.

Speaker 1

And I think, as I've said before over what I said 2 years ago on this was the most likely thing is we'll be here 2 years later and nothing will have happened and I suspect that's the most likely thing in 2 years time nothing will really have happened. Whatever does evolve we continue to invest with our sort of smart customer trust, our base of railcard users and additional season ticket users now and we feel very well positioned for whatever competition arrives there. And then just to pick up on your point on simplification around fares, Look again, there is an interest in this broader area of looking at the tickets. It has been looked at a number of times over the last 3 years and the intent has always been can we simplify ticketing for customers, make it easier to understand. And I think the challenge in inerrant in that is that that complexity is really around price discrimination and charging different groups either discounts or or or enhanced fares.

Speaker 1

And therefore, to simplify, you had either have to kind of invest quite a lot of money, increase the subsidy, so everyone's either sort of flat or a winner or you have to charge a lot of people more and they get losers. And I'd be really surprised if there's the political will to make a lot of losers here. And there's definitely been a statement that they aren't going to be increasing the subsidy. So whilst I do think that we'll see some evolution here, the kind of what we saw in sequel that pricing from LNER, I suspect could be more broadly rolled out. I don't think we'll see anything radical as it relates to simplification just because it's too expensive.

Speaker 1

And then if I take the Spain, Italy question and what we are seeing there as it relates to kind of France and Germany, yeah, you're right in that we have definitely seen some very strong growth in Spain as we've kind of laid out today. And then as it relates to Italy, Italy growth is definitely positive. It's not at Spanish levels. I think just to kind of emphasize what I said, we are very excited about the moment that SNCF will enter Italy. Potentially, we expect with there we go branded trains kind of along a wide number of routes and that will be a pretty transformative moment for the Italian market in terms of bringing down fares and it will position us very nicely as it relates to Italy because we've worked a lot with Vigo Spain, we'll be able to work with Vigo Italy, but we start from a far higher base in terms of brand awareness, in terms of understanding of our product and in terms of our kind of feature set.

Speaker 1

So we're, you know, over the next 12 or so months, we will be focused on making sure that works. And then as it relates to France, yes, you're right and we've been pretty open about that. We pulled back French brand spend just over a year ago. We do see that lapping out, but we don't expect the acceleration there that we've seen in Spain and Italy until we see more the arrival of those challenger brands. Now the good news is that is happening on the already happened in Paris, Lyon, Paris, Marseille is coming and we see that Renfro is entering their markets.

Speaker 1

That's great, but that's maybe like a 5th of the total market. We need to see the other players launching on some of the other lines down to Bordeaux, to Straub, to Lille and so forth before we see the sort of Spanish and Spain levels. And then Germany is very much a different market where we don't yet have the kind of the commission and broader competitive framework that will allow us to invest in the way we plan to and have done in the other three markets. And so I suspect that growth will be essentially pretty low for the next year or 2. And then we would beyond getting the right commission structure, we would need to see stronger, if you like, challenger brands coming in so that we could really invest behind that and offer kind of the aggregation playbook, which looks like it will be a few years off.

Speaker 1

Pete, should I pass back to you on the forward distribution point?

Speaker 4

Yes. Thanks for the question, Alastair. So at the heart of the solution here is is an API that allows allows people to book rail travel and that that can be through their own system that is then pushed on to a corporate or an end user or it can be through an agent and it both allows people to book but also of course to make changes because business travel there's often changes to plans and refunds and things like that. And really the benefit here for the travel management company is that by coming to Trainline they get the benefit of aggregating all that supply together. So all that work we've done for consumer customers we also get to package up and sell to business travelers via travel management companies.

Speaker 4

So they only need to make one connection into Trainline and then as the different APIs evolve and adjust for all the rail companies we're doing that lifting work for them and they just get to stick with the the one API. So they get that benefit from a tech perspective. And then in terms of the economics of how this works, of course, we have a relationship and a commercial relationship with the travel management company and they then in turn have a relationship with corporates and so we're just part of that ecosystem if you like. And then if I kind of step back from all of that we have been encouraged in the last 12 months with making some progress in this space. Coming out of COVID a lot of travel management companies have really pared back as you would imagine in terms of investing and rail was one of those areas that they didn't really turn to.

Speaker 4

But increasingly we are seeing more conversations and the results are beginning to come through in a positive way as

Speaker 1

well, which is very encouraging. Thanks for the question and answer.

Operator

Thank you. Our next question is from Sean Keayley with Panmure Liberum. Sean, your line is now open. Please go ahead.

Speaker 3

Good morning, everybody. Thanks for the presentation. I'll just ask a few questions. I've got 3 if I can. First of all, a little slide in there talking about competition, in particular.

Speaker 3

I'm curious how or is there anything you guys would call out with respect to Uber, TrainPal? And then in particular, obviously, Uber has their own subscription where they're trying to combine different offerings across a lot of different verticals. I'd love to get your views on that. Secondly, we've talked a lot about Spain so far. Could we also talk a little bit about Italy?

Speaker 3

I think I understand that the market is sort of in a bit of an in between stage between sort of Spain and France. And then just finally, with respect to new guidance, am I right thinking that some that's a bit of cost optimization? Can you talk about how that would flow through the financial statements, please?

Speaker 1

Sure. Let me pick up there. So we'll start on the Uber point. So look, as a reminder in the UK Uber launched around about 2 years ago now and there's obviously been fairly significant investment particularly in their go to market strategy. We've seen and in fact you've seen fairly significant takeovers of London Terminus which was actually kind of outside of London in the 2nd round that they did that.

Speaker 1

They've done a lot of notifications and kind of CRM stuff to their existing base. And obviously, they've had the 10% credit kind of kickback, which is a pretty aggressive go to market strategy. We triangulate and I don't know the exact number, but we triangulate there at about 1.5 points hovering around that area in terms of market share. And I think if you asked me 3 years ago, the number 2 travel company was going to enter and derail from my job, I would have potentially anticipated that they would have had more market share at this point. So look, I take this as sort of a validation.

Speaker 1

I'm really pleased with the way trend lines responded and the teams have responded. And I think it speaks to underlying kind of the brand affinity, the trust that our customers have in us and our overall overall feature set has proved very compelling. And I think they've been challenged. So the kind of numbers speak for themselves there. I think the other point, I guess, the kind of new thing to note here is that they've launched in Spain as well but as yet they haven't really deployed the full go to market suite of activity.

Speaker 1

We'll have to see what they do. They do have the 10% credit. I think the other kind of other couple of thoughts as it relates to Spain is they are not the number one rate hailing app there. They are in competition with Capify who are the number one. And so they'll have a little bit more kind of difficult decisions about where they divert their resources between trying to promote rail versus the core product.

Speaker 1

And actually we formed a partnership with Capify that's working pretty nicely in terms of looking at their base and offering their travel. And I think there's some sort of symbiotic relationship within that. And then the broader sort of point on combining transport notes, I think overall, I think the results speak for themselves. We increasingly are looking at things like those partnerships and ways we might be able to do that. So is it related to Italy?

Speaker 1

Do you want to speak briefly to Italy?

Speaker 4

Yeah. So if I understood the question, I think it was around how we look at the 3 different markets and the kind of stage of investment we're at. And really, as you've heard today, Spain continues to be really front and center. It really continues to be very dynamic we've got more routes opening up into the south and actually CNMC have announced that they want to look at introducing more competition up into the northeast northwest as well over time. So that's kind of our focus from an investment perspective and we're experimenting and learning from a brand perspective.

Speaker 4

At the other end of this scale if you like we've kind of got France which as Jodie's just said is in more of an incubation stage until more competition and aggregation arrives on the tracks at which point we'll continue to invest there and then Italy kind of sits somewhere in the middle. We've obviously got 2 premium players that are operating on high speed and that has been that's allowed us to really make good progress in Italy but the growth is a little slower than it is in Spain and what will really set that market alight is when SNCF enter the market in 2026 and bring perhaps their low cost brand. We go with them and that will really change the market and the great thing about Italy is that the investments that we've made to date have really pushed our brand awareness up to the high 30s at this point and so we'll be in a much better position at that point to really make the most of the increased aggregation there whereas in Spain we started really from a very low base once that market started unfolding. So that's really where Italy sits

Speaker 1

overall.

Speaker 4

And then the last one on cost optimization. Yes so I think the mechanics are relatively simple in terms of how it hits the P and L. So it's a £12,000,000 cash saving that we've announced today. £8,000,000 of that fits into EBITDA and then there's a capex saving as well. But really the step back here is how we've we really continue to benefit from scale here and how the operating leverage is dropping through.

Speaker 4

And if I zoom out and think about where we were 3 years ago, we made that decision to increase our investment to make the most of the opportunity in Europe and we've made pretty good progress over that time. We've more than doubled net ticket sales versus pre COVID but really importantly we significantly improved the product market fit for Spain, Italy and France so that foundational investment is somewhat complete and it looks much more like the UK experience from there and then looking ahead we're now in a position to be able to really tailor our investment going forward perhaps on things like how we further build out our aggregation playbook in Spain and then take that into Italy and France as it emerges And we're able to do that with a slightly skinnier team than we've had to date and that's where some of these savings come from.

Speaker 1

Thanks for the question.

Speaker 3

Thank you very much guys.

Operator

Our next question is from Kieran Donnelly with Berenberg. Kieran, your line is now open. Please go ahead.

Speaker 2

Yes. Thanks, guys. A few more just for me. I guess, firstly, just going into France a little bit more and the pause in marketing spend. I guess you've talked about needing to see more competition.

Speaker 2

Could you kind of give us some context when you think that might come through and when we should expect a reacceleration marketing spend in France in particular? And I guess the second question is more conceptual. Just at this point, there's less competition in these countries. I mean, do you think perhaps in terms of capital allocation, now is the time to build brand awareness whilst you might not see the near term financial impact? Obviously, the long term benefits of building brand whilst competition is low could obviously drive significant value over time.

Speaker 2

And then thirdly, just in terms of the U. K. Consumer business, how should we think about the relationship between revenue and net ticket sales growth? I mean, do you think we should expect revenue to continue to outpace net ticket sales? And that's, I guess, excluding the impact from the commission reduction in 2025?

Speaker 2

Thanks.

Speaker 1

Kieran, thanks for those questions. I'll sort of take the first two together and then I'll say that to Pete. So I think as it relates to the question about what when should we expect in France ultimately to see competition at rail level launching and allow us to play our full aggregation model. Just to be a bit more specific on this and as it relates to already there's a Paris to Lyon from Trenitalia who obviously have been running that service for a number of years. And to give a sense, we might be selling as much as 30% or so of their tickets, that sort of level.

Speaker 1

So we're really instrumental in driving that and we expect them to continue down to Marseille this in early around 25, which will open up another important number 3 routes. And then Renfay, we expect to launch on both of those routes. We expect next year as well. We never quite know how these things when they're going to get passed or the operators don't know as well. So that will actually mean that we've got 4 carriers on those 2, the number one route, probably the number 3 route because they SNCF themselves run their own WeGo route.

Speaker 1

So there'll be 4 different carriers, which is great. And then there's 3 private players who are all in various states. So there's Proxima, Elisto, sometimes referred to as Kevin Speed and Latran. And they I won't go through all of them today, but they are looking at linking services Bordeaux, Ren, Nantes and then also Lille Strasbourg potentially another service to Lyon and then more to Bordeaux and Loro Sharp. So what you can see is pretty much all of the principal high speed routes in France will have competition.

Speaker 1

Now those latter set I just described, I don't think anyone really knows quite when they launch. I think optimistically we'd be looking at kind of 27, but I think 28 would be realistic. And so see a number of those routes are right. What you can see there is that the end game here could be that there's something like 6, maybe 7 operators and then there'll be more operators, as you know, potentially going between London and Paris operating in addition to all the cross border different operators. And so France could be a really exciting place because they really will need aggregation, not just at a root level, but at a kind of national level in the way that we've had in the UK, where there was just such a kind of complexity of different providers and brands, people didn't even know which app sold which route, never mind which train on which route.

Speaker 1

So I think that a bit of a flavor of what that could look like and the kind of timelines that we'll work with. I think how to see how we are active. We will always be ready for the next one. There's more routes launching in the next few weeks in Spain and all new services launching there and we're ready and promoting those. And then your second question around brand building, yes, we obviously think that we want to be not just kind of doing that but we will build as we see those services coming.

Speaker 1

The great news is in Italy in France we already have a brand that is more widely known than we are in for example in Spain we have the kind of 30 plus percent approaching 40% brand awareness and as part of that we will be leaning in France into the area of kind of Paris, Lyon and Marseille as that competition has arrived over these next few months and we're already beginning to do that. So yes we are and we will take advantage of that and we will be ahead of the competition in doing that. Pete, do you want to pick up on that final question?

Speaker 4

Yeah thanks for the question on UK revenue and NTS. There are a number of drivers so let me unpack them. I think the first thing to say is that the last two halves we've seen a real step change in hotels and insurance and that we've talked about a bit earlier in the call and I do still see some opportunity ahead as I articulated but that step change is kind of somewhat complete with those 2 and we'll now have to lap through some of that. So and then there are a couple of other drivers and you'll all be aware that we are growing more quickly on the day travel where we don't charge a booking fee so there's a natural headwind to take rates that has been masked by the ancillary revenues over the last two halves but will is still sitting there and will become a bit more obvious going forwards and then you may also remember in May that I talked about the change of journey sorry the refund fees that was an industry change that also affects Trainline and if I look back at h1 we've got a partial half impact from that change looking backwards and of course looking forwards that will then wash through more fully and then finally again I think reasonably well understood we'll have the commission change from April next year which hits both revenue and then there's an offset in cost of sales as well so a number of moving parts there.

Speaker 4

Net net you're going to see a step down in take rates even where we are continuing to innovate and drive ancillary revenues which should go some way to offsetting that natural headwind we have from selling more on the day tickets.

Speaker 1

Thanks very much, Kieran, for the question. I think we're going to close questions. Okay. So just to everyone, thanks again for all of the questions. Thanks for joining today.

Speaker 1

As Pete and I have said, we have delivered a strong financial performance in H1 and improved our guidance. We're making significant progress against our strategic priorities both in the UK and international and we remain fully positive and energized about the growth opportunities ahead. Thank you.

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Earnings Conference Call
Trainline H1 2025
00:00 / 00:00