On the Beach Group H2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
December 3, 2024

There are 2 speakers on the call.

Operator

Welcome to the On the Beach results presentation. Me and John will start by talking through this year's performance, and I will then provide an update on our growth strategy. Before we jump into the financials, I will call out some of the key highlights for the year. We've had another very good year. Sales of GBP 1,200,000,000 were 15% ahead of last year, and it was another record summer with 13% volume growth.

Operator

Adjusted profit before tax grew by 25 percent to £31,000,000 and reported profit before tax grew by 84% to £26,500,000 Our business model has the advantage of being capital light and cash generative, and we ended the year with cash of GBP 96,000,000 which excludes GBP 140,000,000 held in the trust account. We are declaring a final dividend of GBP 2.1 per share, in line with our capital allocation policy, taking the full dividend for this year to 3p per share. In addition, reflective of our strong balance sheet and disciplined approach to investment, we have today commenced a share buyback of up to £25,000,000 We also lay out today our medium term ambition to more than double the size of the business to £2,500,000,000 sales and £85,000,000 adjusted profit before tax. Now over to John to run through financial performance.

Speaker 1

Thanks, Sean. I will now take you through the financial performance, starting with a group overview and then looking at the segmental performance. It's worth noting that following changes made to our B2B operations in the year, our revenue recognition policy is now simplified with all revenue now recognized on an agency basis at the time of booking. As Sean said, we've achieved strong TTV growth of 15% in the year with bookings up 13%. There was significant volatility during the year in respect of ABVs with growth of 6% in the first half of the year, partially offset by deflation in the second half, and this was principally on airfares as a result of excess capacity from the low cost carriers.

Speaker 1

This peaked in late Q3 at circa -ten percent but recovered to flat by the end of the year. Statutory revenue grew by 14% with adjusted revenue shown after deducting the refund settlement achieved with Ryanair during the course of the year. We continue to focus on driving efficiencies through our marketing and overhead spend as we look to bring EBITDA margins back towards pre pandemic levels. And we're pleased to see further improvements here with spend increasing significantly below the rate of bookings growth. Group headcount was down by 14% in the year as a result of the changes made to the B2B operations and continued efficiencies in our contact center through increased automation.

Speaker 1

Adjusted PBT of CHF 31,000,000 is in line with the company compiled consensus. And it's worth noting that we have not adjusted for CHF 3,000,000 of costs incurred in keeping Ryanair on sale pre the integration, which is something we spoke about in our half one results. And finally, on a statutory basis, PBT was up 84% on the prior year at CHF 26,500,000 Turning to Slide 6 and our B2C performance. Given the simplification of the P and L in the year, the OTP segment here largely reflects the group income statement. So I'll talk to a couple of the KPIs on the right hand side of the slide.

Speaker 1

Adjusted revenue per booking was down slightly on the prior year and this is in line with the half one results where revenue was reduced by the GBP3 1,000,000 of costs incurred keeping Ryanair on sale. Also impacted slightly by the deflationary environment mentioned during the second half of the year. We continue to achieve greater efficiency on our marketing spend with a reduced spend per booking. And our offline, in particular, was increasingly efficient across both radio and TV channels. We've shown on this slide the EBITDA margin percentage both before and after adding back those Ryanair costs.

Speaker 1

And after taking those into account, show a 3.5% improvement on the prior year. Turning to Slide 7 and an overview of our cash position. We've had strong cash generation in the year and a continued increase in our trust balance as the business continues to grow. On the waterfall chart, we show the use of those funds with significant investments in the year in terms of the development of our platform. And Sean will talk later about how the positive results we're seeing from this continue to set us up for future growth.

Speaker 1

This cash position is shown after continued working capital investment into the business with the low deposit funding increasing by £4,000,000 on the prior year. And this current cash generation enables us to pay a dividend and have further surplus cash at the end of the year as we'll discuss shortly. In terms of our B2B operations that are shown as discontinued within the segmental analysis, those discontinued operations are expected to be cash neutral following the sale of the office premises at the end of the calendar year. And in terms of our facilities, we've now exercised the second plus one option, which means those facilities are now extended until December 2027. On Slide 8, in terms of our capital allocation framework, this remains unchanged from the FY 'twenty three year end, but I'd like to talk about how this has been applied during the year.

Speaker 1

As I mentioned on the cash slide, we continue to invest into our proposition with increased low deposit funding and investment into the platform and product teams. And this remains our priority to invest into the business to deliver organic growth. We continue to appraise any relevant M and A opportunities. There's nothing at this time that we believe fits with our strategy. We're committed to paying a dividend of 25% of net earnings, and so we're pleased to announce a 2.1p final dividend is being recommended by the Board, giving a 3p total dividend for the year.

Speaker 1

And following those significant investments, the Board believes that surplus cash exists and that given the current share price and potential EPS improvement, it's right to announce an on market buyback today of up to £25,000,000 The Board has concluded that £25,000,000 is the appropriate amount for distribution, taking into account our ambitious growth plans for next year that Shaun will talk to shortly and having reviewed the forecast cash flows for next year to ensure that we maintain an appropriate level of headroom. And finally, turning to the outlook slide. Current performance remains strong and year to date, we have bookings up 15% and TTV up 14% on the prior year. And the full order book remains strong with winter 'twenty five bookings at plus 25%. And whilst it remains very early in the booking period for summer 'twenty five, current performance gives us confidence it will be significantly ahead of summer 'twenty four.

Speaker 1

Taking all of that into account, the Board remains confident in delivering adjusted PBT for FY 'twenty five of GBP 37,900,000 as per the company compiled consensus, which is available on our website. I'll now hand you back to Sean.

Operator

Thanks, John. I'll now talk through some of the strategic progress we've made this year. We've delivered several key milestones that will form the foundation for future expansion. Key highlights being signing the partnership agreement with Ryanair, completing significant upgrades to our technology, extending Perks to even more customers, expanding our proposition from pure play beach to beach and city and commencing the sale of package holidays from Ireland. So I'll move on to talk about the Ryanair partnership.

Operator

Following a period of significant disruption this year, we signed a partnership agreement with Ryanair. This agreement results a long standing risk for the company around access to seats and enabled us to move on from all litigation. Worth saying that also that prior to signing this agreement, there was not a single corner of our operation that was unaffected by this challenging relationship we had. I'm pleased to report now that this agreement is working well and it has helped to improve customer experience and the customer service we can offer, has simplified our operation, has enabled us to enhance automation and has removed barriers to growth. Moving on now to talk about our technology.

Operator

2024 has been a step change for the business in terms of our core platform capability. We have significantly upgraded our technology, enabling us to expand our addressable market at pace. These upgrades include the introduction of smart caching technology, which enables billions of additional holiday combinations delivered at speed the introduction of live pricing capability, which has significantly improved pricing accuracy and fulfillment success. We have upgraded airline and hotel integrations, increasing the level of automation of bookings, amendments and cancellations. We have re platformed both Android and iOS apps, which has and will unlock further native app functionality.

Operator

And we are leveraging AI powered content to reduce hotel onboarding time by as much as 99%. These upgrades enable us to scale up the business quickly to increase supply and meet customer demand as well as improving customer experience on our web or native apps. Moving on to the proposition. We continue to differentiate from others with our Perks. As a reminder of why we use Perks, we present the diagram on the left.

Operator

The Perks give us a unique value proposition and a communicable point of difference versus our competitors. Having this differentiation increases the effectiveness of our offline marketing activities. It gives us the opportunity to talk about quality in a tangible way, which strengthens our brand, broadens our appeal and helps attract new customers. And to complete the loop, the value add element enhance our customers' holidays and increases the likelihood they will rebook or recommend those to friends and family. During the year, we have delivered 150,000 airport lounge spaces, 250,000 fast track passes through security and we have reduced mobile phone bills for 67,000 of our customers with our mobile data perk.

Operator

The perks have supported the growth of our 4 and 5 star holidays in particular, which now represent 80% of our total sales. These perks, combined with the successful partnership with Paddy McGuinness, have also enabled us to efficiently maintain record levels of brand awareness and consideration. So now I'll move on to talk about our strategic priorities for the next 3 to 5 years. I'll start with a recap of our central investment case. As laid out on the left, we are an asset light business independent of airlines and hotels.

Operator

This means we have more capacity and flexibility than any stand alone tour operator, airline or hotel chain and can pivot or expand quickly depending on demand and opportunity. Combine this with our well invested technology and we can serve billions of holiday combinations to our customers every day. And on the right, we are a well invested and well recognized brand in the UK. We send around 2,000,000 holiday makers away every year and over 10,000,000 people have holidayed with On the Beach. And we have a differentiated customer proposition and have been consistently expanding our addressable market.

Operator

So moving on to our business model and strategy for growth. On this slide, I'll lay out our business model based on 4 key pillars, taking you through them 1 by 1. Firstly, customers are shopping around as much as ever. So we are having to reacquire them every year. We therefore must design for stickiness, providing reasons for more of our customers to engage with our brand all year round and not just when booking their holiday.

Operator

We do this by offering great value, providing flexible payment options and compelling perks and by using our mobile app as a central utility. Our mobile app will be the vehicle for stickiness. Customers who book in this way are generally more satisfied and more likely to rebook with us. Secondly, we are currently only competing for a small share of our customers' holiday wallet. So we must design for increased choice.

Operator

As well as we can deliver someone's annual beach holiday, for any of their other holiday needs, we have been handing them off to the competition. We therefore plan to increase the share of holiday wallet we compete for by expanding our existing beach holiday offer and adding other holiday options. At the moment, this means adding cities. It was the obvious choice in terms of customer spend, simplicity and ability to leverage existing technology supply and operations. Also, our existing customers have told us they would book city breaks with us if we sold them.

Operator

Thirdly, we know that customers want the choice, value and flexibility that an online travel agent like Ola Beach can provide, but they also want peace of mind and hiccup free holidays. Therefore, we must design for peace of mind. We do this by leveraging our technology and mobile app to reassure customers through delivery of real time holiday information. We use technology to anticipate and respond to issues, whether at home or in resort. When we get this right, we see fewer inbounds into our contact center and higher customer satisfaction scores.

Operator

And finally, we have significant opportunities to expand our customer base. Therefore, we must design for scale. We are designing our systems and processes for 10 times scale rather than plus 10%. This will ensure theoretically limitless expansion in existing markets and will also enable us to open up in others where it makes sense to do so. And on that note, move on to our addressable market.

Operator

The significant upgrades to our technology and following the design principles just laid out, this now enables us to increase the size of our addressable market significantly. Represented on this diagram is how we plan to double our addressable market. In the 1st 3rd, we show beach package holidays from the UK as our core market. This part of our proposition is well established and growing. We estimate that this market is around 20,000,000 passengers.

Operator

Our next leg of growth will be enabled by expanding our proposition to include city destinations. We expect that this will increase annual customer spend by enabling us to capture a greater share of our customers' holiday wallet, make us a stickier brand as we serve more of our customers' holiday needs, and enable us to attract new customers to the brand. We have also launched on the beach. Ie to sell package holidays from Ireland. Expansion into Ireland was an obvious next step.

Operator

Similar trends and tastes to the UK and, of course, in the same language. The possibility of selling packages from Ireland was previously complicated by pending litigation with Ryanair, which has now been solved by the partnership agreement. We estimate that these developments will more than double our addressable market, and the opportunity to expand into further markets remains open to us. And so we then move on to our medium term targets. Our medium term ambition through this strategy and by expanding our addressable market is to more than double sales with an EBITDA margin of 40% and adjusted profit of €85,000,000 The top line growth will be delivered through applying our design principles to expand existing markets and open up new ones.

Operator

We expect to achieve a higher level of repeat customers by leveraging the much improved app experience and differentiated proposition, increase annual customer spend by satisfying holiday needs beyond beach, attracting new customers to the brand for both city and beach breaks in the UK and in Ireland and potentially beyond. EBITDA margin improvements will be delivered through efficiency created through leveraging scale, laser focus on automation will mean that doubling volumes does not require doubling operational headcount. Improved customer acquisition efficiency will be created through focus on customer retention and an increasing customer annual spend. And I will finalize by recapping on the long term delivery of this group. We have grown our summer packs numbers by 27% since summer 2019.

Operator

We have grown passengers significantly ahead of the growth in beach seat capacity over the same period, which was plus 15%. We've grown our total transaction value year on year every year since we IPO ed in 2015, excluding the COVID impact period. We have surpassed our historical peak reported PBT this year. We have resolved our long standing litigation with Ryanair, securing seat access to Europe's largest airline. We have entered 5 new markets since FY 'seventeen, comprising B2B, Long Haul, 5 Star and now this year, Ireland and Cities.

Operator

So thank you for listening, and we look forward to keeping you updated on progress through this year and beyond.

Powered by Quartr
Earnings Conference Call
On the Beach Group H2 2024
00:00 / 00:00