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

The UKs leading online retailer of beach holidays Interim Results for the six months ended 31 March 2016

Agenda

2

 Evolution of Key Drivers  Summary and Outlook

Simon Cooper CEO

 Financial Performance H116

Wendy Parry CFO

 H116 Highlights

Simon Cooper CEO

 Q and A

H116 highlights

3

 21% YOY increase in H116 Revenue to £35m  Direct contracting averaging 57% of all hotel buying  Proof of concept flight programme more than 50% sold

Leverage £ Revenue

 Continued investment into IT function allows us to increase the pace of innovation  YOY RPUV increases on smartphone, desktop and tablet of +18% +19% and +6% respectively  >40% of all visits to site now on smartphone

Optimise Customer Proposition

 17% YOY increase in daily unique visitors to site in H116  Noticeable shift in consumer appetite away from the Eastern Mediterranean  Shift towards a later booking pattern – expectation of a strong lates market

Structural Market Growth & Market Share Growth

 Fixed and variable costs as % of Revenue -16% YOY  37% YOY growth in H116 EBITDA to £11.6m and 53% growth in group underlying PBT  Traffic in Sweden growing 140% YOY and brand share of traffic almost double H115

Drive Operational Leverage & Expand Internationally

 Efficiencies in online marketing reduced spend from 48.8% of revenue in H115 to 46.3% in H116  54% of H116 traffic to site from brand and direct sources  National TV campaign has continued to increase front of mind awareness of OTB brand

Drive Efficient Share Growth & Strengthen Brand

OTB continues to disrupt the retail of beach holidays through innovative technology and customer value proposition

Business Model

£ Revenue per booking Conversion Unique visitors Revenue per unique visitor OTB share of market traffic Online penetration Revenue Marketing investment

EBITDA

Fixed and Variable Costs Unique visitors Marketing spend per unique visitor Short haul beach holidays dynamically packaged

OPTIMISE CUSTOMER PROPOSITION & LEVERAGE £ REVENUE DRIVING EFFICIENT SHARE GROWTH & STRENGTHENING BRAND STRUCTURAL MARKET GROWTH & MARKET SHARE GROWTH SCALE DRIVES OPERATIONAL LEVERAGE

ADDRESSABLE MARKET

+17% +4% +21% +37% 4

 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

• 16%

On the Beach has the product advantages of a tour operator with the model advantages of an OTA

5

LOW HIGH Basket Value /Margin Opportunity LOW HIGH Cost base

Disruptive retailer of beach package holidays

OTB £MPB £177 OTB £25 Cost base 3-5 x OTA

 Majority offline sales  Legacy technologies  High fixed cost base  Limited product coverage  Limited product flexibility

TOUR OPERATORS PRODUCT ADVANTAGES

High margin tour

• perator product with

a low cost, no risk OTA model

Cost base £20-40 per booking

 Majority online sales  Technology led businesses  Low fixed cost base  Broad product coverage

£MPB often £30-50

 Generalised offering  Single element, commodity

purchase

 Low basket values  Lower margin opportunity relative

to multiple-element

GENERALISED OTAS PRODUCT DISADVANTAGES

£MPB 5 x higher than OTA  Specialised offering  Multiple elements  High basket values  Higher margin opportunity  ATOL Financial protection

TOUR OPERATORS MODEL DISADVANTAGES GENERALISED OTAS MODEL ADVANTAGES

Profit & Loss Account – UK Segment

H116 EBITDA growth of 37% YOY

 YTD growth year on year:  Revenue +21%  EBITDA +37%  Efficient increase in our market traffic share

with marketing spend excluding offline as a %

• f revenue falling to 46.3%

 Investment in place in supply function supports

increasing % of direct contracting and fixed and variable cost per booking dropped from 15.9% to 13.4% of Revenue

 EBITDA % revenue at 33% in H116 up from 29%

in H115

6

P&L UK Segment Six months ended 31 March (£m) H1 FY16 H1 FY15 Change % Revenue 35.0 28.9 21.1% Marketing costs excluding offline (16.2) (14.1) Offline (2.2) (1.5) Total Marketing (18.4) (15.6)

• % of Revenue (excluding offline)

46.3% 48.8% Revenue after marketing costs 16.6 13.3 24.8% Variable costs (1.9) (2.2) Overhead costs (2.8) (2.4) Holding Company costs (0.3) (0.2) EBITDA 11.6 8.5 36.5%

• % of Revenue

33.1% 29.4% Daily Unique Visitors '000 26,377 22,528 17.1% Revenue per daily UV 1.33 1.28 3.9% Variable cost % Revenue 5.4% 7.6% Overhead cost % Revenue 8.0% 8.3%

Profit and Loss Account - International

Investment continues in Sweden to build scale and brand

 Success in international markets will be

profitable performance within 2-3 years of launch at scale

 OTB has invested to grow its share of market

both online and offline

 Improvements delivered to site to support

growth are expected to increase efficiency of future market rollout

7

P&L International Segment Six months ended 31 March (£m) H1 FY16 H1 FY15 Change % Revenue 0.51 0.24 112.5% Marketing costs excluding offline (1.09) (0.66) Offline (0.25) Total Marketing (1.34) (0.66) Revenue after marketing costs (0.83) (0.42) Variable costs (0.11) (0.03) Overhead costs (0.10) (0.10) EBITDA (1.04) (0.55) Daily Unique Visitors 1,131,702 471,300 140.1%

Profit and Loss Account - Group

Underlying profit before tax +53.2% increase YOY

 External financing costs reduced significantly

through renegotiation of facilities post IPO

 Shareholder loan interest and amortization

• f acquired intangibles below underlying

profit before tax

 Effective tax rate in FY15 affected by

disallowed shareholder interest

Note: Effective tax rate is based on corporation tax divided by retained earnings excluding deal fees and amortisation of intangibles

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P&L Total Six months ended 31 March (£m) H1 FY16 H1 FY15 Change % EBITDA UK segment 11.6 8.5 36.5% EBITDA International segment (1.0) (0.6) Group EBITDA 10.6 7.9 34.2% Depreciation and amortisation (1) (1.0) (0.8) EBIT 9.6 7.1 35.2% External Financing costs (0.1) (0.7) Non trading costs

• (0.2)

Profit Before Tax 9.5 6.2 53.2% Corporation Tax (1.9) (1.1) Profit after Tax Underlying 7.6 5.1 49.0% Shareholder Interest

• (3.8)

Deal Fees

• Amortisation of acquired intangibles

(2.1) (2.1) Deferred tax on amortisation of acquired intangibles 1.0 0.4 Retained Earnings 6.5 (0.4) Effective tax rate 20.0% 45.8%

Balance Sheet

 All customer monies are paid into a trust account which is

effectively a debtor to the business

 Net debt has reduced from £22.3m to £6.6m  The bank loan related to a term loan of £22m raised in

October 2013 as part of the financing for the investment by Inflexion. This was repaid in full out of the Group’s existing cash balances post IPO

 Seasonal cash flow requirements are covered by a

revolving credit facility of up to £35m which is drawn down as required

9

Balance Sheet H1 2016 H1 2015 Tangible Assets 0.9 0.7 Intangible Assets - IT development 3.0 2.3 Intangible Assets - Acquired Intangibles 42.0 46.2 Intangible Assets Goodwill 21.5 21.5 Total Fixed Assets

67.4 70.7

Trade debtors 89.4 77.9 Trust Account 38.9 34.0 Cash

• Other debtors

3.0 2.0 Interest Rate Hedge

• 0.1

Total Current Assets

131.3 114.0

Trade creditors (98.6) (80.2) Corporation tax payable (3.3) (1.3) Other taxes and social security 0.2 (0.4) Accrued expenses (11.6) (9.5) Derivative Financial Instruments 3.1 (0.7) Total net current liabilities

(110.2) (92.1)

NET CURRENT ASSETS

21.1 21.9

Deferred Taxation (7.7) (9.2) Bank facility (6.6) (4.6) Bank term loan

• (18.9)

Amortised Term Loan fees (FRS4)

• 1.2

Total Bank

(6.6) (22.3)

Net assets 74.2 61.1 Net Debt

(6.6) (22.3)

Net Trade Drs/Crs

29.7 31.7

Cash Flow

Cash is invested in areas that drive growth

 Working capital movement relates to the seasonality

• f the business with c.50% of bookings travelling

between June and August

 The Board intends to adopt a progressive dividend

policy, declaring a first dividend in respect of FY16

 £3m of deal costs accrued in FY15 relating to the IPO

have been paid in H116

Source: Company Information

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Cash Flow H1 2016 H1 2015 Opening Cash Balance Total 34.8 31.0 Opening Cash Balance Trust 23.9 20.5 Opening Cash Balance excluding trust balance 10.9 10.5 EBITDA 10.6 7.9 Decrease/(increase) in working capital (7.6) (5.3) Movement in Trust balance (14.9) (13.5) Purchase of plant and equipment (0.6) (0.2) Capitalised Dev Expenditure (1.2) (0.9) Operating Cash Flow

(13.7) (12.0)

Operating cash/EBITDA

• 129.2%
• 151.9%

Corporation tax (0.7) (0.7) Deal costs paid (3.0)

• Non underlying costs
• (0.2)

Interest received 0.1 0.1 Interest paid (0.1) (0.6) Livingbridge exit/Inflexion investment Primary raise Repayment of borrowings (1.6) Proceeds from issue of share capital Net increase/(decrease) in cash excluding trust account

(17.5) (15.1)

Closing Cash Flow excluding trust balance (6.6) (4.6) Closing Cash Balance Trust 38.9 34.0 Closing cash balance Total 32.3 29.4

Key Drivers of Growth

Innovate through in house technology

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

Service management, monitoring and alerting Management information system

Technology platform Data aggregation

Basket CMS

Personalisation

CRM Services Geolocation Search Service Order Processing Manage Your Booking API app Recommendat ion engine Hotels app Flights app Deals app Backoffice App Currency App

Data acquisition

myOTB 12

Technology platform architecture

 Continued investment in our technology capability will allow us to

innovate at an increasing pace

 Team is currently 75 specialists  Talent sourced from all over Europe  Ruby Academy allows us to home grow talent  Evolution to an ever more agile way of working  Increase throughput of benefits-driving ideas  Insight from MVP delivery uncovers further opportunities  New features building on our existing platform  Further enhancements to personalisation technology  Enhance exposure and dynamic pricing capability for exclusive

flight and hotel stock

 Extend app functionality  Build price tracking and price promise functionality  Extend product choice for long haul beach  Enhance multi-dimensional discounting capability

£- £0.50 £1.00 £1.50 £2.00 £2.50 Smartphone Desktop Tablet H115 H116

Optimise Customer Proposition

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

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Device level RPUV H115 vs H116

Revenue per booking Conversion Revenue per unique visitor

 Increases to Revenue per UV driven through multiple projects:  Device level optimisation  Real time personalisation powered by detailed in house MI  Off site personalisation  Cross device personalisation  Flexible payment options  Traffic shaping

The features we are developing are supported by the infrastructure that has been built into the heart of our platform over a number of years

Leverage £ Revenue

We are well positioned to scale our supply function to achieve significant incremental net margin contribution

 Investment made in FY15 to scale our supply function ‒ All shuttle transfers directly contracted ‒ Contracting and support teams recruited and technology

platform built

‒ Scale and disintermediation drives margin growth  Direct contracting hotels performs ahead of expectations ‒ H116 57% of all buying versus FY16 target of 52% ‒ Incremental margin performance in line with budget ‒ Direct contracts in 33% more hotels ‒ 28% of direct bookings through direct integration with

hotelier systems

 Future opportunities include:  Flights: Progress made on flight seat distribution agreements –

target incremental sales and increased margin

 Ancillaries: Increased ancillary margin and marketing

contributions from in resort suppliers

 Product: Expand product offering to address long haul and luxury

segments

 Technology used to optimise point of sale margin

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Direct contracting - share of hotel sales Q114 to date Revenue per product type H115 vs H116

Hotels (3rd party) Hotels (direct contract) Transfers (direct contract) Flights Other 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0%

Target exclusivity

Driving an increasing % of exclusivity presents a huge margin opportunity

 Independent hoteliers want to spread their distribution across

multiple source markets and between tour operators, OTAs and direct

 B2B airlines need a distribution partner  If we can ensure UK OTA exclusivity we can drive significantly higher

margin at point of sale

‒ OTB does not compete against tour operators on price

because of their cost base

‒ Maintain risk-free model and lightweight cost base

Flights

 FY16 proof of concept flights programme of c.72,000 legs is 50%

sold

 Winter 2016 and summer 2017 programmes in discussion  Target >25% exclusive flying by FY20

Hotels

 FY20 target to drive 25% exclusive supply at 5% incremental margin

which would drive an incremental £6m EBITDA

15

3-4% 6% 10% >10% Incremental Margin Opportunity

HIGH LOW

Sales Volume and Margin Opportunity

UK OTA exclusivity UK rate exclusivity Standard direct contracts – disintermediate 3rd parties Long tail 3rd party stock Total UK exclusivity

Hotels: Incremental margin opportunity

Drive Efficient Share Growth

Superior customer proposition delivers increased margins and fuels market share growth

 The business has invested c.50% of revenue in marketing to drive

share growth

 Growth in Revenue per UV is in excess of increase investment per

UV

 Spend balances short term sales and EBITDA growth and longer

term investment into strength of brand which underpins longer term EBITDA growth

 A multi-channel strategy supported by sophisticated in house bid

modelling and attribution tool allows efficient share growth

‒ % of Revenue spent on marketing has reduced without a slowdown

in share growth

‒ Bespoke in house attribution tool replaced 3rd party tool ‒ Redeployment of online spend to offline advertising supports

strong growth of brand

Growing share cost effectively

16 +£0.17 EBITDA per daily UV +£0.48 Revenue per daily UV +£0.22 Marketing cost per daily UV

Marketing spend as % of Revenue 46.0% 50.7% 49.9% 48.6%

% Revenue spent on online marketing – monthly evolution

0.2 0.4 0.6 0.8 1 1.2 1.4 FY12 FY13 FY14 FY15 H116

46.3%

35% 40% 45% 50% 55% 60% 65% 70% 75% Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep FY14 FY15 FY16

Strengthen Brand

Continued investment offline has strengthened awareness of our brand

 FY16 offline campaign was fully national  Prompted awareness of our brand has increased to 46% post

campaign

 We continue to close the gap on tour operators  Repeat purchase volume and rates continues to increase ‒ Continued investment into service infrastructure ‒ 90% of outbound CRM now fully personalised with 4 x CTR ‒ Repeat bookers have an increased propensity to bypass paid

channels

H1 Repeat booking volumes and % of overall business

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Repeat as % of all bookings

Prompted Brand Awareness 2013-2016

70% CAGR

10.5% 25.5% 17.8% 32.4%

15% 16% 18% 19% 29% 31%

0% 10% 20% 30% 40% 50% 60% Low Cost Holidays Travel Republic First Choice On the Beach Thomas Cook Thomson

First / All Mentions – Beach Holidays

First mention All mentions

37.4%

10,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000 90,000 H1 12 H1 13 H1 14 H1 15 H1 16 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% FEB '13 APR '14 DEC '14 FEB '15 DEC '15 FEB '16

18

£ Fixed / Variable Cost Per Booking

We continue to drive further operational leverage of a lightweight cost base

Drive Operational Leverage

Fixed / Variable costs as % Revenue H115 vs H116

 OTB fixed and variable cost per booking is well below tour operator

competitors

 Tour operators fixed and variable cost per booking is in excess of

OTB Revenue per booking

 94% of OTB bookings are transacted online versus c.50% and

c.40% for TUI and TC respectively

 OTB fixed and variable costs as a % of revenue are reducing through

• perational leverage

‒ Investment has been made to support direct contracting

• bjectives

‒ 16% YOY reduction in fixed and variable costs as % of Revenue ‒ Scalable model supports further leverage of a low fixed cost base

50 100 150 200 250 OTB TUI TC

7X OTB 8X OTB

0.00% 2.00% 4.00% 6.00% 8.00% 10.00% 12.00% 14.00% 16.00% 18.00% H115 H116

• 16%

Expand Internationally

19

We continue to deliver growth in Sweden

 Sweden has the following characteristics  High online penetration  Propensity to travel to the same beach destinations as UK  Expanding LCC penetration  Dominated by legacy tour operators  The key drivers of success in new source markets will be:  Driving non-branded cost per click efficiencies  Improving non-branded conversion  Increasing branded share of traffic  Our objective in Sweden remains to deliver a positive return within

• ur 3rd year of operation while achieving significant share

200000 400000 600000 800000 1000000 1200000 H1 15 H1 16 Brand UVs Non Brand UVs

137% 405% 10.2% 19.5%

Branded share

Traffic and brand growth in Sweden H115 vs H116

£0.00 £0.20 £0.40 £0.60 £0.80 £1.00 £1.20 £1.40 £1.60 H1 15 H1 16

Non branded cost per UV H115 vs H116

• 27%

Summary & Outlook

20

We have enjoyed a strong first half and performance is in line with the Board’s expectations

 Target increasing % of direct and exclusive supply

Leverage £ Revenue

 Maintain the throughput of innovation to personalise the customer proposition

Optimise Customer Proposition

 Continue to grow our share of market with increasing efficiency

Structural Market Growth & Market Share Growth

 Drive EBITDA growth in the UK and expand internationally

Drive Operational Leverage & Expand Internationally

 Strengthen OTB brand and repeat purchase rates

Drive Efficient Share Growth & Strengthen Brand

Appendix

Market Growth & Market Share Growth

Our addressable market is growing and OTB continues to grow share of market

 Overall short haul beach holiday volumes are growing  Online penetration continues to increase  Forecast growth in online short haul beach is +7% CAGR (2015-19)

versus historic growth at +5% CAGR (2010-2015)

 Dynamic packaging offers greater value and flexibility than traditional

package

 OTB continues to take share of this growing market whilst tour

• perators continue to cut mainstream short haul capacity

Short haul beach online versus offline (UK)

22

2 3 4

OTB share of market traffic FY12 – FY15

FY12 FY13 FY14 FY15 Brand Share Non Brand Share

14.5%

2000 4000 6000 8000 10000 12000 14000 16000 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Short haul beach offline Short haul beach online

+5% +7%

On the Beach sells high margin tour operator style product with a lightweight OTA style fixed cost base

Competitive Landscape and Barriers to Success

Tour operator short haul volumes (m pax) UK Short Haul Beach Online - Estimated Market Share

17% 14% 27% 7% 11% 24% On the Beach Thomas Cook TUI Jet2Holidays Travel Republic Other

FOCUS SCALE AGILITY EXPERTISE BRAND

23

1 2 3 4 5 6 7 8 9 10 2008 2009 2010 2011 2012 2013 2014 2015 TUI TC 0.5m (1.04m) Volume drop 2011-14 OTB gain 2011-14

8.66 7.58 7.51 7.44 6.40 6.86 6.76 5.88

Cash Flow – Flow of funds

On The Beach provides clear and comprehensive consumer protection

* £1,200 holiday for 2 people via low deposit scheme includes 2 bags and assumes a direct debit card. £4.95 fee each balance payment, so in the example it is paid three times

Trust account – funds flow for a £1,200 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

between On The Beach, the Civil Aviation Authority Air Travel Trustees, ABTA and independent trustees (Barclays Wealth) which determines the inflows and outflows from the account

 All customer receipts are paid into the trust

account in full before the holiday departure date

 These payments are held in the trust

account until the service is provided – for flights on payment to the supplier, and for hotels and ancillaries on the customers return from holiday

 On The Beach does not therefore use

customer pre-payments to fund its business

• perations

 If booked more than 45 days in advance of

departure, customers can secure booking with a deposit which is a percentage of flight cost plus hotel deposit

Customer Pays Deposit £226.95

£550 Flights

Customer returns from holiday

£600 Hotel

Receive full balance 14 days before departure £652.95 Hotel, Bed bank and ancillary supplier paid £516.00

ATOL Trust Fund (Protected) Checkout stage Immediately after booking Holiday build up Return date CUSTOMER £1,214.85* SUPPLIER

Transfer to On the Beach

• f flight sales

value on receipt into trust from customer £226.95 Transfer to On the Beach of balance of sales value £654.95 Airline paid in full by On the Beach on booking £539.00

Booking stage

£50 Coach Transfer Receive flight balance 28 days post booking £332.95 Transfer to On the Beach

• f flight sales

value on receipt into trust from customer £332.95

OTB £MPB £159.85

24

Cash Flow - Seasonality

Peak booking trading period between January and June (65%) and travelled June and August (51%) Booked by month

 Revenue is recognised on a booked basis  The period prior to Christmas is quiet, particularly November and

December

 Traffic volumes ramp up immediately following Christmas as

customers start to research and book their holidays for the following summer period

 January is the peak month for traffic and sales. In the remainder of

the year (Feb – September) sales are relatively stable

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

Source: Company Information

5.2% 3.3% 3.0% 14.1% 10.4% 10.9% 9.6% 10.3% 9.7% 9.6% 7.2% 6.8%

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

% FY15 Booked by month

7.9% 1.9% 2.8% 1.5% 2.2% 3.7% 5.9% 10.3% 11.6% 17.8% 21.7% 12.6%

0.0% 5.0% 10.0% 15.0% 20.0% 25.0% Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep

% FY15 Travelled by month

25

(16.0) (14.0) (12.0) (10.0) (8.0) (6.0) (4.0) (2.0) (14.0) (12.0) (10.0) (8.0) (6.0) (4.0) (2.0) 0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 16.0 18.0 20.0 22.0

Cash Flow: Seasonality and cash profile

Facility used to fund low deposits during peak trading periods between January and June

Source: Company Information

 Annual cash cycle sees

investment into working capital as bookings are achieved in Jan

• June, with cash unwinding

from the trust as customers travel

 FY14 has been

presented to provide a complete financial year

 Cash generated in FY15

will reduce the FY16 cash requirement despite projected growth in FY16

 Facility maintained with Lloyds

varying between £3m and £15m in FY15

 Cash flows are monitored via a

detailed cash flow modelling database

26

Funding of Low Deposits FY15 Bank Balance Profile FY15

Expand Internationally

27

Similar trends in Europe to the core UK market represent an attractive expansion opportunity for OTB

2014 Western European package holiday market (€bn) Share of European Leisure Package Holiday market 2014

TUI Thomas Cook Kuoni Other

 Online penetration in Europe is low but growing at a faster rate

than the UK

 Low cost carriers are expanding their fleets  The market is dominated by legacy tour operators who have held a

stranglehold over seat supply

 The key drivers of success in new source markets will be:  Driving non-branded cost per click efficiencies  Improving non-branded conversion  Increasing branded share of traffic  Our objective in Sweden is to deliver a positive return within a finite

time period whilst achieving significant share of market

 Expected breakeven 2-3 years, payback in 4-5 years  Fixed cost to divest <100k per market

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