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The UKs leading online retailer of beach holidaysH118 Results Presentation – May 2018
Agenda
2
Evolution of Key Drivers Summary and Outlook
Simon CooperCEO
Financial Performance H118Paul MeehanCFO
H118 Highlights and Market DynamicsPaul MeehanCFO
Q and A
Cautionary statement
This presentation may contain certain forward-looking statements with respect to the financial condition, results, operations and businesses of the Company. Forward looking statements are sometimes, but not always, identified by their use of a date in the future or such words as ‘anticipates’, ‘aims’, ‘due’, ‘will’, ‘could’, ‘may’, ‘should’, ‘expects’, ‘believes’, ‘intends’, ‘plans’, ‘targets’, ‘goal’ or ‘estimates’. These forward-looking statements involve risk and uncertainty because they relate to events and depend on circumstances that may or may not occur in the future. There are a number of factors that could cause actual results or developments to differ materially from those expressed or implied by these forward-looking statements, including factors outside the Company's control. The forward-looking statements reflect the knowledge and information available at the date of preparation of this presentation and will not be updated during the year. Nothing in this presentation should be construed as a profit forecast
H118 Highlights
24% YOY increase in daily unique visitors to site with incremental investment to grow Sunshine share Flight supply constriction post Monarch collapse drove YOY increase in winter seat pricing Incremental capacity now available is alleviating seat constriction
3
19% increase in UK Revenue after marketing to £23.0m (H117: £19.4m) with increased offline spendYOY at end of period
Direct contracting averaged 68% of all hotel buying (H117: 66%) with 30% of hotels exclusive
Leverage £ Revenue
Continued investment into IT function is increasing the pace of innovation
16% increase YOY in logged in sessions to 5.8m sessions (H117: 5.0m)
61% of all visits to site on smartphone (H117: 53%)
PersonaliseCustomer
Proposition
Structural Market Growth & Market
Share Growth
15% growth in Adjusted Profit before tax to £14.0m (H117: £12.2m)
50% growth in H1 International Revenue with Denmark launching May 2018
Board continuing to review options for value enhancing acquisition opportunities
Drive Operational Leverage & Expand
Internationally
Online marketing spend of 40.5% of revenue despite incremental investment in Sunshine.co.uk
Offline investment supporting strengthening brand awareness
62% of traffic to site from brand and direct sources (H117: 57%)
Drive Efficient Share Growth &
Strengthen Brand
OTB continues to disrupt the retailing of beach holidays through innovative technology and value proposition
H118 Market DynamicsThe failure of Monarch airlines led to a supply / demand imbalance that has improved throughout H1
4
YOY booking growth and seat prices for Oct – March travel Monarch failed on the 2/10/17
As shown in the chart opposite, the lack of seats in the market for winter departures led to a significant increase in the price for these seats
‒ Where incremental capacity was scheduled to replace the Monarch programme this was for departures post April 1st
‒ This effect was more profound where Monarch had a high share of seats on a route
The impact of this in H1 18 is estimated as £1.1m
Across the period that followed Monarch’s collapse incremental capacity was scheduled covering most of the seats that were lost
Seat price inflation for summer departures has been less noticeable‒ Seat prices for summer departures are approx. +10% YOY
Hotel prices fairly flat YOY (modest inflationary increase)
YOY seat prices for April – October travel
(20.0%)
(10.0%)
-
10.0%
20.0%
30.0%
40.0%
Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar
(30.0%)
(20.0%)
(10.0%)
-
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar
Bookings YOY Seat price YOY %
Monarch collapse
Profit and Loss Account – UK SegmentH118 EBITDA growth +17%
UK growth year on year
Revenue +18%
Revenue after marketing +19%
EBITDA +17%
Efficient increase in share of traffic with marketing spend excluding off-line maintained at 40.5%
17.2% increase in Offline Marketing spend to further drive brand awareness. Incremental spend at end of H1 £0.5m expected to pay-back in H2
Overhead % increase includes Sunshine
EBITDA % revenue at 38.3% despite the acquisition of Sunshine.co.uk which was dilutive at 33% EBITDA % pre-acquisition
P&L UK SegmentSix months ended 31 March (£m) H1 FY18 H1 FY17 Change %
Revenue 44.4 37.5 18%
Marketing costs excluding offl ine (18.0) (15.2)Offl ine (3.4) (2.9)Total Marketing (21.4) (18.1)- % of Revenue 48.2% 48.3%- % of Revenue (excluding offl ine) 40.5% 40.5%
Revenue after marketing costs 23.0 19.4 19%Variable costs (2.4) (2.0)Overhead costs (3.6) (2.9)EBITDA 17.0 14.5 17%- % of Revenue 38.3% 38.7%
Daily unique visitors '000 34,100 27,500 24%Variable cost % Revenue 5.3% 5.3%Overhead cost % Revenue 8.1% 7.7%Total costs % of Revenue 13.4% 13.0%
Revenue increased by 50% to £0.9m driven by growth in both Sweden and Norway
OTB continues to invest both online and off-line to grow market share
Denmark launching May 2018
Profit and Loss Account – InternationalH118 Revenue growth +50% - Investment continues in Sweden to build scale and brand
P&L International SegmentSix months ended 31 March (£m) H1 FY18 H1 FY17 Change %
Revenue 0.9 0.6 50%
Marketing costs excluding offl ine (1.5) (1.1)Offl ine (0.6) (0.4)Total Marketing (2.1) (1.5)
Revenue after marketing costs (1.2) (0.9)Overhead costs (0.4) (0.1)EBITDA (1.6) (1.0)
Profit and Loss Account – GroupAdjusted profit before tax +15% increase YOY
Adjusted profit before tax increased by 15% to £14.0m
Adjusted profit after tax increased by 15% to £11.1m
Adjusted EPS increased by 15% to 8.5p
P&L TotalSix months ended 31 March (£m) H1 FY18 H1 FY17 Change %
EBITDA UK segment excluding share based payments 17.0 14.5 17%EBITDA International segment (1.6) (1.0)Group EBITDA excluding share based payments 15.4 13.5 14%Depreciation and amortisation (1.5) (1.2)EBIT excluding share based payments 13.9 12.3 13%Finance costs / Other Income 0.1 (0.1)Adjusted Profit Before Tax 14.0 12.2 15%Corporation Tax (2.8) (2.5)Adjusted Profit after Tax 11.2 9.7 15%Non-underlying costs (0.2) -Share Based payments (0.6) (0.2)Amortisation of acquired intangibles (2.2) (2.1)Deferred tax on amortisation of acquired intangibles 0.3 0.4Retained Earnings 8.5 7.8 9%
Earnings per ShareBasic 6.5 6.0 8%Adjusted 8.6 7.5 15%
Dividend per Share (pence) 1.1 0.9 22%Effective tax rate 20.0% 20.5%
Working capital movement relates to the seasonality of the business with c.50% of bookings travelling between June and August when Trust cash unwinds
YOY operating cash flow £(12.7)m due to an increase in working capital requirements:
Increase in bookings & low deposit funding
Trust timing differences due to Easter weekend
£3m deferred consideration re acquisition of Sunshine.co.uk paid in the period (£12m total)
Cash Flow
Cash flowH1 FY18 H1 FY17
Opening Cash Balance Total 71.6 51.7Opening Cash Balance Trust 38.5 25.6Opening Cash Balance excluding Trust balance 33.0 26.1
EBITDA excluding share based payments 15.4 13.5Increase in working capital (28.7) (11.8)Movement in Trust balance (19.9) (23.0)Purchase of plant and equipment (0.8) (0.4)Capitalised Development Expenditure (1.7) (1.3)Operating Cash Flow (35.7) (23.0)Operating cash/EBITDA (232%) (170%)Corporation tax (3.3) (2.5)Non-underlying costs (0.3) -Acquisition of subsidiary (3.0) -Interest 0.1 -Dividends paid (2.5) (2.9)Net decrease in cash excluding trust account (44.7) (28.4)
Closing Cash excluding Trust account (11.7) (2.3)Closing Trust account balance 58.4 48.6Closing Cash balance Total 46.7 46.3
All customer monies are paid into a trust account which is effectively a debtor to the business
Seasonal cash flow requirements are covered by a revolving credit facility which is drawn down as required
Net debt has increased from £2.3m to £11.7m
Balance sheet
Balance SheetH1 FY18 H1 FY17
Tangible Assets 2.0 0.9Intangible Assets - IT development 4.4 3.6Intangible Assets - Acquired Intangibles 34.8 37.7Intangible Assets - Goodwill 31.6 21.5Total Fixed Assets 72.8 63.7Trade and other receivables 156.9 111.8Trust Account 58.4 48.6Cash - -Total Current Assets 215.3 160.4Trade and other payables (164.4) (123.2)Corporation tax payable (1.7) (3.7)Derivative Financial Instruments (0.9) (1.0)Total current liabilities (167.0) (127.9)NET CURRENT ASSETS 48.3 32.5Bank facil ity (11.7) (2.3)Deferred Taxation (6.1) (6.6)Net assets 103.3 87.3
Net Debt (11.7) (2.3)Net Trade Drs/Crs (7.5) (11.4)
£0.0
£5.0
£10.0
£15.0
£20.0
H113 H114 H115 H116 H117 H1180.0%
5.0%
10.0%
15.0%
20.0%
25.0%
H113 H114 H115 H116 H117 H118
£0.0
£5.0
£10.0
£15.0
£20.0
H113 H114 H115 H116 H117 H118£0.0
£10.0
£20.0
£30.0
£40.0
£50.0
H113 H114 H115 H116 H117 H118
£0.00
£0.50
£1.00
£1.50
H113 H114 H115 H116 H117 H1180
50001000015000200002500030000
H113 H114 H115 H116 H117 H118
UK KPIs: H113 to H118Revenue per Daily Unique Visitor (£)
Revenue (£m)
Traffic Growth ( ‘000 Daily Unique Visitors)
10
Revenue after Marketing Spend (£m)
Fixed and Variable costs as a % of Revenue EBITDA (£m)
Key Drivers of Growth
Innovate through investment in talent & technologyContinued investment into in-house technology extends our ability to out innovate the competition
12
Technology platform Retention – we have implemented reward schemes to our teams are incentivised for the long term
Recruitment – The business will be moving to a new digital HQ to support a
drive to double the size of the digital function in the next 3-5 years
‒ Our contact centre specialists will remain in our current office in Cheadle
‒ We continue to grow our technology team via a twice annual Ruby Academy
Reorganisation – of our modular platform architecture and our reporting lines to allow for greater team scalability
Our working methodologies are becoming increasingly agile
We continue to build innovative new features to benefit our customers
Personalise Customer PropositionOur ambition is to drive a fully personalised cross-device experience for all users on all devices
13
Revenue per booking
Conversion Revenue per unique visitor
Continued innovation‒ Rebuilt deals engine powers new destination agnostic search
functionality‒ Full site rollout in H2 18‒ Supports opaque pricing and long haul proposition
Enhanced split test capability drives improvements to revenue per UV‒ Large volumes of traffic required to reach statistical
significance‒ Supported by continued improvements to agile working
methodologies
Continued improvements to personalisation technology and login‒ 16% growth in logged in users with increased levels of
engagement and conversion‒ Probabilistic matching drives virtual login‒ Data management platform integration ensures better first
time personalisation
Split testing
Deals functionality
0.0%10.0%20.0%30.0%40.0%50.0%60.0%70.0%80.0%90.0%
Jan-
14Ap
r-14
Jul-1
4O
ct-1
4Ja
n-15
Apr-
15Ju
l-15
Oct
-15
Jan-
16Ap
r-16
Jul-1
6O
ct-1
6Ja
n-17
Apr-
17Ju
l-17
Oct
-17
Jan-
18Ap
r-18
Jul-1
8O
ct-1
8Ja
n-19
Leverage Direct & Differentiated Supply Driving an increasing % of exclusivity continues to present a huge margin / volume opportunity
Investment made to scale our supply function‒ Scale and disintermediation drives margin growth
Direct contracting function performed in line with expectations‒ 68% of hotels directly contracted, driving >50% of Group
revenues
‒ 140% increase in sales to Turkey with slightly lower % directly contracted
‒ 500%+ increase in long haul sales
FY17–FY18 use differentiated supply to drive volume and market share gains
FY19-FY20 convert differentiated supply position into incremental margin
14
Hotel contracting: Incremental margin / volume opportunity
HIG
H
Volu
me
/ M
argi
n O
ppor
tuni
ty
UK rate exclusivity
Standard direct contract
3rd party provided long tail
UK OTAexclusivity
30%
38%
32%
% H118 sales
Direct contracting - share of monthly arrivals
70%
0
20000
40000
60000
80000
100000
H113 H114 H115 H116 H117 H118
Drive an Efficient Increase in ShareWe continue to invest in proprietary tools to allow us to grow traffic share efficiently
Multi-channel strategy supported by attributed in house bid modelling allows efficient share growth
Efficiencies in online spend allow for increased investment offline
‒ Offline spend phasing in H118 different to H117 with a higher proportion of spend later in period
‒ Supported by in house econometric modelling tool
Brand share of traffic continues to increase
Repeat purchase volume and rates continue to increase and complaint ratios continue to fall
Econometric Modelling
15
Repeat booking volumes and %Repeat as % of
all bookings 26.9% 31.6%30.0% 35.8% 40.3% 42.9%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
H113 H114 H115 H116 H117 H118
16
OTB vs Tour Operators £ Fixed / Variable CPB
We are ready for legislative changes in July 2018 whilst maintaining our lightweight cost base
Drive Operational Leverage
OTB Fixed / Variable costs as % Revenue
OTB fixed and variable cost per booking is well below tour operator competitors
OTB fixed and variable costs as a % of revenue have consistently reduced through operational leverage
‒ Scalable model supports further leverage of a low fixed cost base
Incremental investment made in H118 following integration of sunshine.co.uk and in readiness for PTD implementation in July 2018
‒ With majority of own product directly contracted, strong customer service and feedback functions and 24/7 in resort support OTB is well placed to support sale of package product cost effectively post implementation of Package Travel Directive in July 2018
0
50
100
150
200
250
OTB TUI TC
7X OTB
8X OTB
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
Apr-
15
Jun-
15
Aug-
15
Oct
-15
Dec-
15
Feb-
16
Apr-
16
Jun-
16
Aug-
16
Oct
-16
Dec-
16
Feb-
17
Apr-
17
Jun-
17
Aug-
17
Oct
-17
Dec-
17
Feb-
18
Apr-
18
Expand Model into New Source Markets
17
We remain encouraged with the improvement to KPIs being achieved in Sweden
Scandinavia has a number of characteristics which made it attractive for international expansion
Driving improvement in 3 KPIs will determine success in new source markets− Cost per click, conversion and branded share− Branded share is key as it reduces cost per click and improves
conversion
Our objective in new source markets remains to reach a positive return within 3 full years of launch
50% revenue growth in international markets in H118− Repeat purchase rate continues to strengthen− Investment in H1 increased to support growth
Performance in Sweden gives us confidence to launch our 3rd
market, Denmark in 2018 having launched Norway in FY17
Repeat purchase rate monthly Sweden FY15 – H118
18
Opportunities exist to add significant value through acquisition
Evaluate acquisition opportunities
Complementary OTA
Like for like OTA
As core UK plus:
‒ Remove execution risk
‒ Acquire trusted brand
‒ Accelerate international expansion
As Like for Like OTA plus:
‒ Remove execution risk
‒ Expand product offering / expertise
‒ Broaden addressable market
Core - UK International - Expansion
Leverage OTB technology to personalise customer proposition
‒ Drive conversion
Leverage OTB direct supply position‒ Drive revenue growth
Consolidate market
Rapidly increase traffic and passenger numbers‒ Volumes support differentiated supply
Leverage OTB bidding capability‒ Increase share of voice
Leverage OTB cost base
Summary
19
We have delivered a strong performance in H118 and invested for growth in H2
Driving increased % of direct and exclusive supplyLeverage £ Revenue
Out innovating through agility and investment in talent and technologyPersonaliseCustomer
Proposition
Building share of a growing addressable market with increasing efficiencyStructural Market Growth & Market
Share Growth
Driving PBT growth in the UK and expanding model into new source markets and productsDrive Operational
Leverage & Expand Internationally
Strengthening OTB brand and repeat purchase Exploring further value-enhancing acquisition opportunities
Drive Efficient Share Growth &
Strengthen Brand
Appendix
0
200000
400000
600000
800000
1000000
1200000
1400000
1600000
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Passenger numbers
2007250,000 passengersFirst round private equity
2009-11Technology team recruited, complete platform rebuild
2005-6First version website, paid search
2004Excess charter supplyGrowing online penetration
2008-10Executive and senior management team recruited
End 2011Tech and MI platforms relaunched
2013-14Investment into offline advertising and direct contracting
20132nd round private equity
2015Ebeach.se launchedIPO
2016Launched drive to contract exclusive product
Online share of short haul beach
9%
16%
17%
14%
13%
OTB history
21
18%
21%
Business Model
£ Revenue per booking
Conversion
Unique visitors
Revenue per unique visitor
OTB share of market traffic
Online penetration
Revenue
Marketing investment
PBT
Fixed and Variable Costs
Unique visitorsMarketing spend per
unique visitor
Short haul beach holidays dynamically
packaged
PERSONALISE CUSTOMER PROPOSITION & LEVERAGE £ REVENUE
DRIVE EFFICIENT SHARE GROWTH & STRENGTHEN BRAND
STRUCTURAL MARKET GROWTH & MARKET SHARE GROWTH
SCALE DRIVES OPERATIONAL LEVERAGE
ADDRESSABLE MARKET
22
OTB’s business model is centred on driving efficient growth in market share while maintaining and improving both conversion and £ revenue per booking
Our strategic initiatives are focused on driving the performance of all of these levers
EBITDA growth is the cumulative effect of improvements in performance of all of the levers individually
On the Beach has the product advantages of a tour operator with the model advantages of an OTA
23
Disruptive retailer of beach package holidays
Cost Base
Risk
Margin
Product Range
HIGH
HIGH
HIGH
NARROW
LOW
LOW
LOW
BROAD
Tour Operator OTA
Specialist Generalist
On the Beach sells high margin tour operator style product with a lightweight OTA style fixed cost base
Barriers to Success
Tour operator short haul volumes (m pax)UK Short Haul Beach Package Online1
FOCUS SCALEAGILITYEXPERTISE BRAND
24
JET20
1
2
3
4
5
6
7
8
9
10
2008 2009 2010 2011 2012 2013 2014 2015 2016
Note 1: Of all of the holidaymakers travelling to beach holiday destinations from the UK each year approximately 60% book a package / dynamic package. Of those booking package / dynamic package approximately 75% are travelling to short haul destinations (within 6 hours flight time) and approximately 50% of these holidaymakers are booking their holidays online
TUI
Thomas Cook
Jet2holidays
Monarch Holidays
Olympic Holidays
On the Beach / Sunshine
Travel Republic
Low Cost Holidays
Love Holidays
Easyjet Holidays
Other OTA
Other tour operator
Market - Europe
25
Similar trends in Europe to the core UK market represent an attractive expansion opportunity for OTB
Western European package holiday market (€bn)
Share of European Leisure Package Holiday market
TUI
ThomasCook
Kuoni
Other
Online penetration in Europe is low but growing at a faster rate than the UK
Low cost carriers continue to expand their fleets
The market is dominated by tour operators who held a stranglehold over seat supply
The key drivers of success in new source markets will be:− Driving non-branded traffic cost effectively− Optimising local market proposition to drive conversion− Strengthening branded share of traffic
Our objective is to reach scale and deliver a positive return in each new market in a finite time period
2.0 1.4
7.7
16.5
11.4
4.2
1.0
8.0
2.3
0%10%20%30%40%50%60%70%80%90%
0.00
5.00
10.00
15.00
20.00€bn TTV Online Penetration Rate
Cash Flow – Flow of funds On The Beach provides clear and comprehensive consumer protection
Trust account – funds flow for a £1,300 holiday The trust account is designed to ensure all
customer payments are protected until after the provision of holiday services
The trust account is governed by a deed which determines the inflows and outflows from the account
All customer receipts are paid into the trust account in full before the holiday departure
These payments are held in the trust account until the service is provided
On The Beach does not use customer pre-payments to fund its business operations
Customer Pays low Deposit
£222
£550 Flights
Customer returns
from holiday
£700 Hotel
Receive full
balance 14 days before
departure£750
Hotel and ancillary supplier
paid£560 + £26
ATOL Trust Fund (Protected)
Checkoutstage
Immediately after booking
Holiday build up
Return date
CUSTOMER£1,300
SUPPLIER
Transfer to OTB of flight
on receipt into trust
from customer
£222
Transfer to On the Beach of
balance of sales £750
Airline paid in full by OTB on booking
£539
Booking stage
£50 Coach
Transfer
Receive flight
balance 28 days
post booking
£328
Transfer to OTB of flight
on receipt into trust
from customer
£328
OTB £MPB£175
26
Cash Flow - SeasonalityPeak booking trading period between January and June and travelled June and August
Booked by month Revenue recognised on a booked basis
Calendar Q4 is quiet
Traffic volumes increase following Christmas as customers start to research for the following summer
Travelled by month Peak departure months are July and August
Funds Flow Invest in marketing and low deposits to drive bookings but
margin and cash are earned on a travelled basis
27
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep
% FY17 Booked by Month
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep
% FY17 Travelled by Month
Cash Flow: Cash ProfileFacility used to fund low deposits during peak trading periods between January and June
Annual cash cycle sees investment into working capital as bookings are achieved in Jan - June, with cash unwinding from the trust as customers travel
RCF facility renegotiated in May 17. The maximum facility available was £35m, maximum drawdown was £22m (2016: £13.5m)
28
(20)
(15)
(10)
(5)
-09/16 10/16 11/16 12/16 01/17 02/17 03/17 04/17 05/17 06/17 07/17 08/17 09/17
Mill
ions
Funding of Low Deposits FY17
-30
-20
-10
-
10
20
30
10/2016 11/2016 12/2016 01/2017 02/2017 03/2017 04/2017 05/2017 06/2017 07/2017 08/2017 09/2017
Mill
ions
Bank Balance Profile FY17