lastminute.com N.V. (LMN) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the full year results 2021 conference call. I'm Myra, the Chorus Call operator. [Operator Instructions] And the conference is being recorded. The presentation will be followed by a Q&A session. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Pier Andrea Comoglio, Investor Relations. Please go ahead, sir.

Thank you. Ladies and gentlemen, welcome to the lastminute.com Full Year 2021 Results Call. Together with me, we have got Fabio Cannavale, Founder and CEO of lastminute.com; Andrea Bertoli, CEO and COO of lastminute.com; Sergio Signoretti, our CFO. I hand over to Fabio for an introductory.

Hello. Good morning to everybody. I'm very happy to here -- to be here for this call. We have this 2021 was another very challenging year, but the result are much better than 2020. And especially in the second half of the year, notwithstanding the Omicron, we are back to profit. And as you will see later, 2022 start very well and that we are going a very good volume of sales even if there is a war in Ukraine. We came out of the COVID in these 2 difficult years much stronger than before. We didn't need any capital increase because we have a very strong financial structure so we can support all the [ found ] and the losses of last year with our own resources. We didn't do any redundancy and layoff. We have to thanks all the team that work with us because at the end, the work was massive in the last year. We add some people in, let's say, part time, supported by the local government. But some people work a lot because we had to manage all the refunds. We're managing this 2 years 1 million of refunds for much than EUR 400 million of money give back to our customer. And at the end today, we have the most efficient -- more efficient cost structure. We have a smaller office, and we have saved some costs. So this is a -- we are a leaner structure for the future. And of course, we also use these years to improve our process, for example, all the change, the reimbursement. We use a lot of artificial intelligence for also the customer care and our internal process to be more efficient. Then last year, also, we have a new -- part of the new shareholder structure. We reconfirmed Marco Corradino, as you all know, last, last year. We have a new shareholder coming in. And also, the Board of Director was reinforced with a new Board member. That also decided in a difficult moment to buy also shares and support us. We keep investing on our people, our people with our core asset, our [indiscernible] asset and the end technology people. People is more important because also the technology done by people. We had this year a massive program of hiring developers. So we are hiring more than 100 developers all over the world because this -- the world. This is very good that most of the developer now we want to work remote. So it's very easy to -- for us to hire developer everywhere where we can find good developers. And this is also the same for customer care people. We have a lot of people there. And we have a lot of people working from remote also the customer care. We have a flexible work model, then people can be remote or also in presence. We think also presence sometimes is very important. And so we try to get to the people altogether every few weeks. Then we -- also, to reward all our team, we started a new stock capitalization plan that we did also last year. Last year, as you remember, we did that 25. This year, we -- the stock that we didn't choose, we cancel as we think we did a new stock appreciation plan at the average price of the last 2 weeks, that is around 36 [ franc ] per share. We think that this is very important because in the market, it's very difficult now to keep them to attract top talent. We think we gave in the last year with the COVID a very good reward to our shareholders. And by the way, the new stock appreciation plan, the 65% of this plan is -- will be effective only when the share is 60. So almost 3x of the price of 2 years ago. And so we think that when we give this kind of return to the shareholder, it's good that we give a good reward also to the people. We are an entrepreneurial company, lead bench entrepreneur. And we wanted our people and our team have a entrepreneurial spirit. And the way for that is to give a sub-stocks and to have skin in the game. Then we have in 2022 a significant growth opportunity. All the people we see, even if there are few flights, we have almost at the level of 2019. So we are increasing market share because we are still a very, very strong volume, despite they are not yet on the flight, but we're confident that in the summer, the volume will go further. And the customer habit also changed a lot. The off-line travel, especially in [indiscernible], our core business is going down. Travel agency, they closed. We see a huge opportunity in dynamic package where still a lot of the business is off-line, and we see a big trend in online. And for this, we have a massive growth in this segment. So -- and last point, we decided not to give dividend, but to do buyback program. We started that program for the month when we approved with the Board a EUR 20 million of investment in that. Basically, it is the most efficient way fiscally to give a dividend. So all the shareholder can decide if they want to sell a part of the share so that dividend or just, in a way, don't do nothing and reinvest because, in the moment, we are doing buyback. We are, let's say, buying share. And so everyone will have better shares and higher share of the company. So I'll give the word to Andrea that will give you the presentation of where are we going and then to Sergio that give the result of last year.

Thank you, Fabio. Thank you very much. I will try to go briefly, throw a few points that I think very important to explain before diving into the numbers of last year and what is our current trade. Basically, first of all, it's important to explain that lastminute.com is European travel tech. We are a leader in a dynamic holiday package, which is a very important segment in the market and a segment that has been disrupted by technology. Our story started in 2004 in Italy when there was the start-up of [indiscernible]. It was a service that was focusing on comparing price of low cost and traditional airlines. We grew throughout the years via acquisition and organically. In 2011, there was a big acquisition of Rumbo. That was a market leader in Spain and Portugal, doubled the size of the company. In 2010, so 14 -- so 10 years after the IPO, we went public on the Swiss stock market. And the year after, we acquired the lastminute.com. That again doubled the size of the company and substantially changed the nature of the business, moving away from the flat business and focusing and growing more and more the holiday package business. As you can see on the Slide 8, this is a comparison of what was the business mix before the acquisition of lastminute.com, so in 2014, where 96% of the contribution margin of the group was coming from Flight. And what is in 2021 is now a very different company, with 57% of the contribution coming from holiday package and 13% coming from other services, mainly hotel and rental. This trend will keep on becoming stronger and stronger because, as we have been stating already in many investor call and in all the communication we do, we are convinced that we have a very strong position in this segment, which we believe is very important because we have a unique technology that is considered one of the best in the European market. And it -- what is important to highlight, and you can see on Slide 10, the dynamic holiday package is bringing back in the distribution chain both to the suppliers and the consumers. It's very important for the suppliers because we are seeing that soon as a partner of the supplier, the distribution channel and not a competitor as it often happens when you are distributing the individual services that the supplier prefers to sell direct. And we are offering to the suppliers in a back channel where they can distribute their inventory, protecting the pricing integrity of the entire channel, and they can manage this in real time. So compared to a traditional tour operator that agrees fixed rate throughout the season and with allotment and so on, we work on the real time. That means that the supplier can decide in every single moment whether they wanted to have a more aggressive pricing if their occupation rate is not good or if they want to price at a premium if the occupancy is really good. This factor -- so it gives us the possibility also to give a good value to the consumer because we are able with this technology to offer a very personalized and flexible solution to every customer. We don't have a defined catalog of vacation with a given destination and duration and start date. If a customer does make a search, defining himself where he wants to go, for how many days, and when to depart. So very flexible, very personalized offering. And it's important that you can do it with a single attach point. So the convenience and the peace of mind is very important for the consumer. Consumer experience during COVID, the cancellation or disruption can change plans. You -- when you buy a package, you are protected financially by the private director. So you are assured that you get your refund in case of cancellation or disruption. And you don't need to manage it by yourself all the different part of the package, of the travel that you booked. The fact that our technology is very good, and the market is driven by our trend in the B2B2C partnership segment. This is a business line we started in 2019. And it's been growing really significantly over the last year as a share of the total dynamic holiday package revenue. You see here in the Slide 11 some of the partner we have. So we are partnering and providing our technology to other OTA, to booking.com and to HolidayPirates. But we are offering this technology also to all kind of chains or frequent flyer program like MilleMiglia in Italy. So not only the technology is important, but it's important also to understand that we are addressing a very huge market. Travel market in Europe before COVID, that was estimated at EUR 300 billion. And it's very fragmented because if you take the top 10 players, so including us, but including also some giants like booking.com or Expedia, the combined share of the top 10 players is only 30% of the market. It's a market where there are a lot of niche player and is a market where the shift from online -- from offline to online is changing the dynamic and giving a lot of opportunity to a player like us that are 100% online. Talking about the recovery. We all keep on reading market research and studies from different sources. What we want to highlight on the Slide 13 is that even if the total travel market is not expected to recover at pre-pandemic level before 2023, somebody even says at 2024, I want to highlight that we compete in a segment of the total travel market, we compete on online leisure travel. So we are not impacted by the decline, decrease in the spending for business travel, which is -- has been very big in the last year. That probably will take some time to recover. And we are competing only online, which is the segment that is recovering faster because of traditional high street travel agency having gone through a very difficult time. And especially, the lockdown that was forced on the population or the population across Europe during the last 2 years have accelerated digitalization. A lot of sectors, from education, to public service and to shopping had to move online simply because people couldn't meet in person. So there has been an acceleration that we see every day in the numbers that we did. The other big advantage compared to some of our competitors is that we are very well diversified across the different major European markets. As you can see on Slide 14, our first market in 2021 has been Germany with a 23% per share of total revenue, with France and U.K. very closer to this level. This means that the 5 major core European market makes up almost 90% of our revenue. But the balance across market is very healthy, in our opinion. And it gives us the possibility to generate a good result even if a specific market is suffering. As you know, 2021, the U.K. market has probably been the one most affected by the pandemic because of travel restriction. But this has been compensated, in our case, by very good result in Germany and France. Last slide from my part is #15, where we give you a historical trend of the daily contribution margin across the period from January 2029 until 3 days ago, 4 days ago, so on the March 20. This is to show what has been the impact on our results of the first COVID. When that started in February 2020, there was really the whole travel industry got to halt and all the airplanes across the world were grounded, so there was no business. So this was really tough and it lasted for 3 months. You can see during summer in 2020, there was a small rebound. But then the second and third wave of COVID, really another impact. And you will see, going towards the end of 2021 and especially the start of 2022, we see that the market is recovering and our results are improving very substantially. And despite the Omicron variant impact that outbreak in November, there was a strong impact, but very short in time. So it lasted only a month, basically, a bit more than a month before the market picked up again. What we see in our data every day is that there is a huge pent-up demand. People have been -- locked it on. They couldn't travel. They couldn't see their parents. They couldn't take some time off with their family, with their beloved ones. And there is really a need from the people to travel and go back to some sort of normal life. Of course, the war in Ukraine is concerning all of us. It's a disaster for the people in Ukraine, for the people in Russia that are protesting against the war, to all the people in the world that are very concerned that this could escalate. But in terms of impact on the trading, so far, we didn't see any material change. Maybe a bit slowdown in the expected growth for March. But as you can see in the graph, it's not really impacted materially our result. So I will now leave the word to Sergio, who will walk through you the 2021 results and give you also some preview of the Q1 2022 result -- pre-closing results.

Thank you. Thank you very much, Andrea. Good morning, all. I will start from Page 17. Just as a background that Fabio was anticipating in his introduction. Remember, 2021 has been another rollercoaster year. Much better than 2020 though, but we had logically 3 phases. First 4 months, which were very weak, impacted by the lockdowns that we were still having in the initial period of the year. Then a good summer, very strong recovery from May to October, it has been a late summer for us. And then Omicron raised in the month of November, so the second half of November and December have been impacted by this. As a result, starting from Page 17, our gross travel value has been EUR 1.3 billion, which is a plus 21% versus 2020 and minus 50 -- minus 54% versus 2019. But more importantly, if you compare the revenue trend and if we take out January and February from both years, 2020 and 2021, considering that January and February in 2020 were not impacted by the pandemic, the overall level of revenues have been substantially double versus the year before, as you see in the percentage reported on the right. So EUR 142 million versus EUR 74 million. The -- remember, going to Page 18, that we have, as we said also last year, a very -- we say, very high -- very low operating leverage. So we have a variable cost structure for 70% of our cost base. This is very, very important because it allows us to adapt basically our cost base to what is the business trend. So just 30% is substantially fixed, which is the composition of the HR cost and the other operating expenses, which are related to IT and facilities mostly. This has allowed, both in 2020 and in 2021, to react to the swings of the business impacted to the pandemic. Remember also that we are a lot light in terms of assets in our business. We don't own airlines. We don't own accommodation structures. And this is another strength that accompanies the expansion on the holiday packages and packages business that Andrea was commenting before. As a result, going to Page 19, which is representing the gross profit trend net of the variable costs that I was commenting before, the -- we have closed 2021 at EUR 69 million versus EUR 59 million in 2020, which apparently is a plus 17%, minus 54% versus 2019. But again, if you net out January and February figures from both years, we have doubled versus 2020, which we believe is a good result. Going to Page 20. Page 20 represents the trend of our cost base and also the expectation of the 2 biggest chunk of the fixed cost base that I was anticipating before. So starting from the left, which represents the trend of gross HR cost, the gross of, what, the gross of eventual subsidies that we have received in 2020 and 2021 for the various furloughs and work in our reduction programs that we have access to in the various jurisdictions and market where we operate. So in 2021, we have been 22% less versus 2019. And this has been driven by lower count, not necessarily due to redundancies, as Fabio was anticipating, but due also to the market dynamics, that we are now facing a rebuilding and reinvesting strongly in hiring plans for technology talent. Fabio has already anticipated. At the beginning, there is a strong program in place where we're going to hire about 130-plus developers and technology talent in order to strengthen our tech feed. So in 2022, we expect to raise approximately 20% the overall HR costs, progressively bringing up to similar levels to what we had pre-COVID. Whereas on the right part of the slide, you see the trend of the other operating expenses, which is where the strongest cost reduction actions have been done. In 2021, we have closed with approximately 50%, 45% less of the overall cost base versus what we were sustaining in 2019, EUR 17 million versus EUR 30 million. Both on the IT side and on the overhead side, an immediate impact of the adoption of the smart working model, which Fabio was describing at the beginning, has been the strong reduction of the overall facilities. Today, we have 50% of the square meters in the various offices around the world, which -- versus what we were having in 2019. Here in 2022, we expect an increase because part of this cost will be, of course, especially on the IT side, related to manage bigger, stronger volumes. But the 21% gap versus 2019 will remain over time, and represents approximately 1%% of incremental EBITDA margin that we should expect going forward. Going to Page 21. Page 21 represents the fact that we have gone back to positive EBITDA in 2021 despite the roller coaster. So you see in first half, we were slightly above breakeven. In second half, we have done approximately the whole EBITDA of the year, '18 versus '19, versus minus 3, which was the result of 2020. And even more importantly, if you look at the bottom line, the -- at the bottom of the slide, the net results have gone from a minus EUR 18 million of loss in first half, which again was impacted by 4 months of strong -- or weak volumes, to EUR 8 million positive net income in the second half, despite the raise of Omicron in the second half of November. As a result, the net loss for the year have been minus EUR 10 million versus minus EUR 60 million of 2020. We will now in a minute show what is the current trading trend also in terms of bottom line. Going to Page 22. Page 22 represents the usual cascade of our P&L. So starting from EUR 19 million of EBITDA adjusted, which, as we explained in our press release and even also in the annual record, is the combination of the profitability of the 3 business unit: OTA, META and Media, prior to eventually effects related to cancellations. So basically, the extraordinary items that you see there and amounting to EUR 22 million are for the most part related to cancellations effect. Still, most of that related to 2020. So it's a long tail of the COVID disruption that has affected to a portion also 2021. As a result, the IFRS EBITDA is a breakeven in 2021. After that, of course, we need to deduct the depreciation and amortization. We have a positive effect on taxes, which is generated by the deferred tax asset, driven by the fact that the biggest operated companies are going to have a net loss position for 2022. As a result, net loss, minus EUR 9.6 million, as we were anticipating before. If we go to Page 23. Page 23 represents the 2 years in a row on a monthly basis trend of gross and net cash. So you see that we have closed the 2021 at EUR 110 million gross cash. So I would say, absolutely solid and strong level. Remember that we have a -- that we are a cash-generating business. So the more we grow, the more we generate cash. We cash in from our customers on average and the day after the booking date. And we pay our vendors, depending on which vendor we are talking about, between 15 days, if we talk about airlines, and 40 days, 45 days if we talk about hotel. So the more we grow, the more we generate cash. Of course, when the business swings, which happened in Feb -- in March 2020 and also in first quarter 2021, we absorb cash. But the overall trend this year has been absolutely, I would say, under control, with peak of EUR 150 million in the high season at the peak, I would say, of the recovery phase, which started in April. The net cash takes into account the overall financings that we have towards banks, which has a very comfortable repayment terms, in 4 to 5 years. The impact for 2022 will be in the region of EUR 10 million overall repayments. Going to Page 24. Page 24 represents the usual explanation of how cash has moved -- gross cash has moved between 2021 and 2020 and 2021. So I would highlight 3 components. EUR 70 million is the impact in terms of higher cash generated from the recovery, which we have experienced in May and October. This has been compensated by the overall COVID refunds. COVID refunds include for the biggest part the utilization of vouchers that we have issued in order to allow our customer to be refunded. This has been a tremendous success. Every time the customer use a voucher, it generates upsell for us. So it generates incremental gross level value on the new booking and incremental margin. This is compensated in terms of cash be a positive change in net working capital. Despite the fact that 6 months of 2021 were still impacted strongly by COVID, we have repaid EUR 18 million of financings, which is the other message that I think it's correct to highlight. So that we closed, as I was saying, with EUR 110 million cash gross and EUR 29 million cash net of mostly the EUR 80 million, EUR 78 million loan from banks that we have in place, and that have, as I was saying before, a quite comfortable repayment terms. So this was the part related to 2021. I think it's -- as already, Fabio and Andrea were anticipated, it's interesting to give you a snapshot of how 2022 has started. Starting from Page 26, which represents the trend of the OTA revenues and contribution margin for the first quarter of 2022. January and February are actual figures, whereas March, of course, is an estimate, which is based on the current trading of the first 3 weeks. And the red line, the magenta line represents 2022, which I think is useful to compare versus the green, which represents 2019. So you see that January started quite low. Remember, January for 2 weeks, for half of the month has been impacted by Omicron. So the strong recovery have started from the second half of the month of January. And we have had a February almost very close to what was the 2019 level in terms of overall revenues. March is growing, but the difference versus, as you see, 2019 is in the region of approximately 10%, both at revenues and contribution margin level. But the growth is substantially steady, I would say. Remember, the OTA represents 90% of the overall revenues, margins and profitability of the company. If we swing to Page 27, which is the figures at group level that we expect from the first quarter. We are talking about an expectation of approximately EUR 65 million of revenues and EUR 26 million gross profit. We are expecting a fixed cost base leaner. Remember, today, we don't have anymore any subsidies from the government. We are not anymore any, let me say, furlough scheme in place. 15% less versus the similar period of 2019. As a result, EBITDA, despite the first half of January, because, again, January has been much lower with respect to February and March in terms of EBITDA generation, we are going to be between EUR 9 million and EUR 10 million, so positive. Again, both in terms of EBITDA prior to cancellations, so the so-called EBITDA adjusted and in terms of IFRS EBITDA, which takes into account the net cancellations effect, where we expect that in 2022, this -- even if the situation remains, this, we are not going to have a significant impact. This means a bottom line positive of EUR 4 million to EUR 5 million, concentrated in the month of February and March, given the fact that, again, January was impacted by Omicron, which is not far from what we were doing in 2019, where, as you can imagine, also January was a good month. So EUR 6 million in 2019 means EUR 2 million per month, EUR 4 million to EUR 5 million in 2022, with the low January means a similar level of overall profitability. That's almost all of my side. Just a comment on Page 28, which is referring to the cash. Of course, we had a positive trend of gross and net cash from January onwards. So the red curve represent in steady the gross cash. The dotted one represents the net cash. We are going to close much significantly better in terms of upside, and it has versus the end of the year. And of course, this is the totally opposite trend versus the one that we were having in 2021, where, of course, the COVID-19 was impacted strongly. So the level of cash that we are going to close will be higher than EUR 140 million as of the end of March. That is actually all on my side. So I will give the word back to the operator in order to coordinate to answer questions that may arise.

[Operator Instructions] The first question is from Johannes [ Wilde ] from [ Wilde ] Family Office.

Congratulations to your good numbers. I have a question concerning, you said in the beginning of February that packaged holiday business was growing quite -- was increasing, I think, 40% towards what it was in 2019. And the margins should be much higher than in the Flight business. So I would have expected even higher contribution than you had in 2019 in the months February and March. Why wasn't that the case? And the second question is, could you give an outlook what you would expect as EBITDA for 2022? At least a range, that would be very helpful.

Well, first of all, we also expected March to be stronger that what we are reporting today. And actually, the current trade of the first 2 weeks of the month of March were stronger. Then the start of the war in Ukraine slowed the growth. So we didn't have a decline, but we didn't grow as much as we would expect given the seasonality. So I think that the concern has spread around Europe because of the war is holding back a bit of the demand. Not a lot because, as you can see here, the result of March are 10% higher than February. But I agree with your analysis that in a normal situation, without the war in Ukraine, it would have been better. Regarding guidance for 2022, we don't give guidance. We are trying to be as transparent as possible on the current trade. But as you can imagine, giving guidance in this market condition is not appropriate because we don't know how long will the war in Ukraine lasts. And this we don't know how much stronger the demand will come. As I said, we see any moment that the consumer are free to book, so they don't have concern about travel restriction or COVID or they don't have concern about cost of the gasoline and cost of the energy, cost of the war that is happening in Ukraine. We see that the demand -- the pent-up demand is very, very solid. There are some studies from the Central European Bank, but also the different national banks, they show that savings has increased a lot during the COVID period, so the savings from the family, because they couldn't go out for dinner, they couldn't travel. They couldn't -- so there is -- the spending capability is there and the demand is there. We cannot give any guidance because we don't know what will happen in the coming month in Ukraine and if there will be any other disruption in the coming month.

[Operator Instructions] There are no more questions at this time.

So thank you very much. I hope we will have time also to meet in person with some of you and discuss on a call or in individual meetings if needed. As you know, Pier Andrea, who is on the call today, is taking the role of Niccolo Bossi, that left the company in beginning of February. And he is the key contact person if you need anything from our side. We also launched today morning a new corporate website. It's corporate.lastminute.com. It's very new. So we will improve it right in the coming weeks to make it as clear as possible the communication that we'll provide you and all the information that we gave you to give a good understanding of our company and the trend and our vision about the future. Thank you very much. Thank you, Sergio, Pier for the great work, and Fabio, which -- for being our leader and driving us to this very good result.

Thank you, all.

Thank you, all.

Thank you. Thank you. Thanks, Andrea. Bye-bye.

Bye.

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