The UKs leading online retailer of beach holidays H118 Results - - PowerPoint PPT Presentation

The UKs leading online retailer of beach holidays H118 Results Presentation – May 2018

Agenda

2

 Evolution of Key Drivers  Summary and Outlook

Simon Cooper CEO

 Financial Performance H118

Paul Meehan CFO

 H118 Highlights and Market Dynamics

Paul Meehan CFO

 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 spend

YOY 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%)

Personalise Customer 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 Dynamics

The 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 Segment

H118 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 Segment Six months ended 31 March (£m) H1 FY18 H1 FY17 Change % Revenue 44.4 37.5 18% Marketing costs excluding offline (18.0) (15.2) Offline (3.4) (2.9) Total Marketing (21.4) (18.1)

• % of Revenue

48.2% 48.3%

• % of Revenue (excluding offline)

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 – International

H118 Revenue growth +50% - Investment continues in Sweden to build scale and brand

P&L International Segment Six months ended 31 March (£m) H1 FY18 H1 FY17 Change % Revenue 0.9 0.6 50% Marketing costs excluding offline (1.5) (1.1) Offline (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 – Group

Adjusted 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 Total Six 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 0.4 Retained Earnings 8.5 7.8 9% Earnings per Share Basic 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

• f 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 flow H1 FY18 H1 FY17 Opening Cash Balance Total 71.6 51.7 Opening Cash Balance Trust 38.5 25.6 Opening Cash Balance excluding Trust balance 33.0 26.1 EBITDA excluding share based payments 15.4 13.5 Increase 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 48.6 Closing 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 Sheet H1 FY18 H1 FY17 Tangible Assets 2.0 0.9 Intangible Assets - IT development 4.4 3.6 Intangible Assets - Acquired Intangibles 34.8 37.7 Intangible Assets - Goodwill 31.6 21.5 Total Fixed Assets 72.8 63.7 Trade and other receivables 156.9 111.8 Trust Account 58.4 48.6 Cash

• Total Current Assets

215.3 160.4 Trade 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 32.5 Bank facility (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 H118 0.0% 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 H118 5000 10000 15000 20000 25000 30000 H113 H114 H115 H116 H117 H118

UK KPIs: H113 to H118

Revenue 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 & technology

Continued investment into in-house technology extends our ability to out innovate the competition

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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 Proposition

Our ambition is to drive a fully personalised cross-device experience for all users on all devices

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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-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 Apr-18 Jul-18 Oct-18 Jan-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

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Hotel contracting: Incremental margin / volume opportunity

HIGH

Volume / Margin Opportunity

UK rate exclusivity Standard direct contract 3rd party provided long tail UK OTA exclusivity 30% 38% 32% % H118 sales

Direct contracting - share of monthly arrivals

70%

20000 40000 60000 80000 100000 H113 H114 H115 H116 H117 H118

Drive an Efficient Increase in Share

We 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

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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

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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

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

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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

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We have delivered a strong performance in H118 and invested for growth in H2

 Driving increased % of direct and exclusive supply

Leverage £ Revenue

 Out innovating through agility and investment in talent and technology

Personalise Customer Proposition

 Building share of a growing addressable market with increasing efficiency

Structural Market Growth & Market Share Growth

 Driving PBT growth in the UK and expanding model into new source markets and products

Drive Operational Leverage & Expand Internationally

 Strengthening OTB brand and repeat purchase  Exploring further value-enhancing acquisition opportunities

Drive Efficient Share Growth & Strengthen Brand

Appendix

200000 400000 600000 800000 1000000 1200000 1400000 1600000 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Passenger numbers

2007 250,000 passengers First round private equity 2009-11 Technology team recruited, complete platform rebuild 2005-6 First version website, paid search 2004 Excess charter supply Growing online penetration 2008-10 Executive and senior management team recruited End 2011 Tech and MI platforms relaunched 2013-14 Investment into

• ffline advertising

and direct contracting 2013 2nd round private equity 2015 Ebeach.se launched IPO 2016 Launched 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 visitors Marketing 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 SCALE AGILITY EXPERTISE BRAND

24

JET2

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 Thomas Cook 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) Checkout stage Immediately after booking Holiday build up Return date CUSTOMER £1,300 SUPPLIER

Transfer to OTB of flight

• n 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

• n receipt

into trust from customer £328

OTB £MPB £175

26

Cash Flow - Seasonality

Peak 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 Profile

Facility 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

Millions

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

Millions

Bank Balance Profile FY17