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

Ladies and gentlemen, welcome to the Half Year Results 2022 of lastminute Group Conference Call. I am Sandra, the Chorus Call operator. [Operator Instructions] And the conference is being recorded. [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, your Head of Investor Relations. Please go ahead, sir.

Thank you, Sandra. Good morning, everyone. Thanks for taking out the time and attending this call. Differently from what originally planned, and due to the circumstances, the company has decided to anticipate the publication of its financial results for 1 -- first half 2022. On the call here today, we have Laurent Foata, Chairman of the Board of lastminute.com; Laura Amoretti, Interim Chief Executive Officer; and Sergio Signoretti, Chief Financial Officer. The company management that will provide an opening statement, the most recent update in terms of both the business update as well as financial performance, and post that we will have a Q&A session. Over to you, Laurent.

Good morning, ladies and gentlemen, and welcome to the half year '22 presentation of lastminute.com. I'm here with you to introduce the call, which is a bit unusual. As you most likely know, 2.5 weeks ago, the Public Prosecutor's Office of the Canton Ticino launched unexpected investigation into the activities of our Swiss subsidiaries where we reacted promptly to the investigation and put our senior management and staff at the complete disposal of the authority. We managed to stay focused and keep our heads down. The goal was and is to keep down -- to keep doing our best to deliver a good semester season in line with the positive trends, experiences so far through 2022. Please bear with me a little longer as Laura, Sergio and Pier will take you through that very shortly. On the investigation, I would like to reiterate that the criminal investigation is not directed against the company, but only specific individual managers. We are very limited contact with the Swiss authorities. And we are also, for legal reasons, not in the position to give further information although than what was already communicated publicly. Also in the future, we will restrict our comment on the investigation to what will be legally authorized to disclose. Any update the company should become aware will be promptly communicated through a press release. And I would like to thank you in advance for your understanding. The key decision taken by our Board soon after the event was the appointment of an interim CEO. We have chosen from within our ranks, and Laura Amoretti has been our obvious choice. Laura knows the business inside out, as she has been in the online travel market for more than 15 years. She knows lastminute very well, as she has been with the company for over 10 years. Laura has been managing the group's largest unit in terms of employees. She can successfully manage our organization and focus it on day-to-day operation. Most importantly, Laura is very close to our customers, as she has been our group's Chief Customer Officer since 2019. Our Board is now closely engaging with Laura and the management team in the current circumstances, of course. We have full confidence in Laura to lead the company through such stage and have also launched a talent search aimed at filling the CEO position on a permanent basis. Moving from governance to performance to date, the later has been quite good, as you will hear shortly in light of such performance together with the rest of the Board, I'm confident that our experienced leadership can contribute further to our position as a travel tech -- as a travel tech leader in Europe. On that note, let me hand over to Laura, Sergio and Pier who will together take you through the business highlights and financial results of the first half year 2022 and a high-level overview of our current trading, too. Thank you.

Thanks, Laurent, and good morning, everyone, and thanks for joining this call. Just weeks ago, I was appointed as a CEO of lastminute.com. Even if the change was fast, I mean, really fast, I have experience within the company, and I can count on the full support of the Board of Directors, my colleagues and the leadership team and our employees for which I'm extremely grateful. Let's move on to discussing the highlights of the first half year results, and I'm happy to start with some very positive news. The appetite for travel is strong. Travelers are determined to make up the time they were lost and finally say goodbye to one of the darkest phase our industry has seen. Looking back, we see that the recovery in January was still weak with the Omicron variant just started rising, followed by the news of the war in Ukraine, which was deeply felt, but had no repercussion on the business. In April, we had a positive wave of growth. This was added when the authority stopped the usage of mandatory masks on planes and in airports. It indicates a sort of psychological exit from the pandemic in our mind. May was a great month. In June, we experienced there is more of what is usually the peak season, but we are immediately reacting by shifting our lastminute demand to September, October in order to push the late summer concept. In the first half, we continued to grow holiday packages, which is our core product. The shift that the company realize is evident. From being a flight-centric company in 2014 year of our IPO to becoming a travel tech company, leader in holiday packages now. In each one, 64% of our margin contribution was generated by holiday package, which is a new record for the company. But flights continue to be an important piece of our business. They are an entry point for travelers and the base leverage to sell other products for our company. Thanks to our unique proposition and the strategy we already defined, we are riding the postpandemic phase. And then we start to touch quickly the relevant for periods, but in the next slide, I will go through one by one. First, our focus remain dynamic packages where we differentiate ourselves in the market, thanks to a unique distinctive technology that guarantee access to millions of holiday combination. B2B2C is another important channel for distributing our product. It's a strategic alliance that determine a boosting volumes that make us gain distance from our competitors. Our interest is in the online travel market. Travel is one of the most important industry in numerical terms. We are in a sector that is still fragmented. The expectations of growth are really high, and we want to keep the momentum. We want also to continue with geographical differentiation. Our company was born with [Indiscernible] operating in the Italian market. But thanks to the organic growth and the excellent work of merge and acquisition, we were able to diversify our geographical presence. And now main markets are north of Europe, very far from our original DNA. Our dynamic package technology is at the core of our offering today because it's combined in real time flight solution and total room availability to create for our customers a very customized product. And we also offered them a cheaper price compared to booking individual services, and we become for them a single point of contact for customer care and the guarantee for the execution of the package. But dynamic packages are not only good for consumers, it's also good for our suppliers. We manage for them an inventory of millions of product, which we are able to distribute in the market in what we call opaque to protect the price integrity. That is why supplier see lastminute as a distribution channel and not a competitor. Let's now analyze the company from a China point of view, because also in this area, we were able to diversify our business. We started by selling our product in our website, but over the year, we experimented a new distribution channel through the B2B2C model. In 2018, we started collaboration with other market players. We offer them our platform, content, and airline inventory and our customer service support, and this overall solution is branded with the brand of our partner, but our platform is integrated in their website. Collaboration was timid, but it became extremely strategic during the pandemic. And in 2022, we reached a 47 share of booking volume through the world level model. Let's look now on the overall market. The total value of European travel market is estimated to be EUR 300 billion, but the sector is still very fragmented for supply and for distribution. The top 10 players combined represent just 30% of the share of the cake. The rest is just medium, small players. The expectation of growth in the online segment are really high, especially for some markets south of Europe. To address this large market opportunity, we have developed the dynamic package technology. Our focus is maintaining the edge with continue to investment into technology. Considering our strategy and the market fit, we can say that we are in the right place at the right time. Our geographic footprint covers the European main country that is extending in the Nordic area. The strategy is better to store the share in our 5 core markets, specifically Germany and U.K. where we're still growing, plus entering in the new one. And the key element of our strategy is to gain traction to our B2B2C model, open some new market in parallel where we have distributed to partner, especially East of Europe. Geographical distribution is very helpful to mitigate the risk in case of momentary issue in some markets. Something in the industry we experienced in the past as well, such as terrorist attacks, volcanos eruption. But before I conclude, I would like to talk now about something that's very important to me, people. Our company is not just a business. Our main assets are people and our internal capability. And I would like to tell you how we will distribute it, and we are able to manage the presence in the various markets. And then we are able to guarantee a solid technology that support the strategical part. Our headquarter is in Switzerland. Switzerland is the heart of our company, is one of our primary location in terms of number of people, but above all, -- it's where we have our digital capability, data scientists, product designers, cloud experts, all which is fundamental for our business, and we want to continue to invest in Chiasso. In the rest of the country, we decided to invest more on the customer service area because during the COVID, we experimented how is it important to our customers. We have to be able to provide a better and faster quality of services. And in the last 6 months, we added more than 400 people in this area, mainly in Spain and in India, but also we are opening some of the office in different countries, to be very close on the culture of our customers. And we review our operational organization passing from a mainly outsourced to a more balanced model between in-house and external stuff. Our aim is to internalize all activities with high complexity that can bring an average value for our customers. Thank you for all your attention. I'm happy to take your question on the Q&A section. But before that, Sergio will discuss the financials. Sergio, please?

Thank you very much, Laura. I'm pleased to meet you all again in this call. So let's see how what Laura was describing in terms of overall context, has translated into numbers. For the first half, and we start on the Page 14, which is dedicated to the overall size of the gross travel value of the OTA, and of the group revenue trend comparing 2022 versus 2021 and 2019. As you know, 2020 has been a roller coaster year. So it's not just really inserted because it doesn't give any benefit in terms of comparison. So first of all, I would mention that in terms of process volumes, so in terms of gross travel value, we reached the first half the all-time high record. So EUR 1.7 billion, which is even higher than 2019, 14%, and which is 3.5x higher than 2021. This is also generated by the mix of sales towards holiday packages and the mix of sun and beach destination within the holiday packages, which of course, have an average ticket value higher than the usual city breaks. But even more importantly, the revenue trend is very, very good because as you see, we are at EUR 160 million versus EUR 50 million of 2021. So we are more than tripled versus last year. And we are almost there in terms of comparison versus 2019 despite January, which was very weak. If you remember, in January, we had Omicron variant across the major markets in Europe. Even more importantly, if you compare the OTA, which is the magenta color, OTA is back, exactly back despite January to where it was in 2019. And this is in a context where all the available sources that we have in order to understand how the market is going show that, that still the travel market, except for the alternative accommodation segment is below 2019 on an average of approximately 20% below. So in a market, which is like that, we are back to revenues level of 2019. Metasearch business unit is blue color represented one, is still lagging behind. She is approximately 40% still down versus 2019. And this is generated by a different mix in the countries where we operate and in various categories that we offer. But again, as you see, 90 -- almost 95% of the revenue pie generated by the OTA, that is back where it should be. Passing to Page 15 and commenting the gross profit trend. So we are recovering very well also there. So EUR 61 million in terms of gross profit. Remember, gross profit takes into account all the variable costs that are generated by our sales. So the marketing spend, the processing fees, the customer care cost, which for us is a variable cost because, of course, it is related to the volumes that we sell. So EUR 61 million is triple versus H1 2021. It's 17% down versus 2019. But what is, I think, more important is to look at the second quarter trend, which is represented on the right. Because second quarter, again, is almost there. If you consider that as you -- I think all of you know, we are sponsoring Tour de France, which has just finished 10 days ago. This is an important investment to disclose and promote our brand awareness. This is something that was not there in 2019 and is in 2022. So if you stabilize incremental investment in marketing spend, we are basically also in second quarter back to the group gross profit level of 2019. In terms of cost structure, going to Page 16, we comment, first of all, the last part, which is related to the HR fixed cost, which gross of capitalized expenses because, as you know, most of our development activity are internal. We have a make strategy related to the website improvement activities. So we are back basically to 2019 level, EUR 32 million, gross HR cost in the first semester versus 31.2 in first half 2019. And then is intentional. We have just completed a massive program of tech talent acquisition plan. Several of these are also in Chiasso, some other are scattered around the globe. 130 people among developers and senior engineers hired in order to enhance and boost our tech capabilities and in order to improve the customer experience and all the functionalities of our website. In terms of running costs, if you look at the right of the page. So this is representing that still we have an important efficiency, which we are carrying on versus the pre-COVID situation, 24% down versus 2019 level which means, as you see at the bottom 2 percentage points in terms of lower incidents or everything else being equal in terms of improved EBITDA margin, which is something that we will keep on having going forward. Most of that is related to the adoption of the smart working model across the various countries where Laura was describing, which has led to a reduction of approximately 50% of the overall square meters that we were having prior to the pandemic. One comment about the acceleration of the trend, if you look at Page 17. So this shows in terms of revenues and EBITDA, what is the progression quarter-on-quarter. So we have passed from EUR 66 million to EUR 93 million in terms of revenues. So in second quarter, group revenues, as you see are higher versus 2019 and we have passed from EUR 9.5 million to EUR 15 million adjusted EBITDA, which is in second quarter double versus last year and absolutely in line versus 2019. In terms of overall EBITDA, again, if you look at the right-hand side at the bottom, EUR 24 million versus EUR 30 million. We were having 1 month of 0 EBITDA, which was January. So we are closing at EUR 4 million to EUR 5 million per month, which is what we were doing in 2019. And we were at breakeven last year, as you see, so EUR 1.6 million at the end of the first half. Just 1 more comment about the differences that were huge up to first semester of 2021 in terms of a comparison between the adjusted EBITDA. Adjusted EBITDA does not take into account cancellation of the impact and the IFRS EBITDA, which on the contrary takes into account the cancellation impact. So from this year, you don't see any more huge gaps and reductions among the 2 KPIs. In the first half, I think it's important to note that overall cancellations are at a rate which is -- I mean, not back to what was the pre-COVID level, mostly because the operational disruption that we are experiencing on the travel market in Europe. We will come back to that later on, when it's in the region of 5%. And we have EUR 8 million positive effect of the vouchers redemption considered that the outstanding vouchers related to the massive campaign launch during pandemic is now only EUR 30 million approximately. So EUR 30 million is the outstanding portion as of the end of the first half which will expire in the next 3 to 4 months. So 30% on average of the vouchers which expire are not redeemed by our clients. And this is mostly related to low-value vouchers, of course. And this has generated EUR 8 million positive contribution to our P&L in the first semester. So going to Page 19. Page 19 shows the full usual cascade, which leads to EUR 13 million bottom line, positive results, which is even higher than what we were recording in 2019. In 2019, we were having 11.6. Of course, there is a huge swing versus the first semester 2021, where we were recording EUR 18 million. I anticipate one possible question that I -- that could be arriving on the Q&A -- on the Q&A session. So there is no provision at this stage for the investigation simply because we are in the very early stage, but also because the company, as Laurent said at the beginning, is not actually investigated. So there is no ground at all at this stage to make any kind of provision. We have, of course, disclosed for those of you who have read the financial statements attached and stipulated this morning in the subsequent event, the opening of the investigation, which, by the way, was a subsequent event, okay? So it started on the 19th of July, and of course, we'll be monitored in the coming weeks, months and possibly years. One more, let me go to the cash position, which as we stated also in the press release, is a record. So EUR 220 million, I'm talking about Page 20 of the deck. One year ago because we always need to compare versus the similar seasonality, it was EUR 154 million. In December, it was EUR 110 million. The -- even more importantly, I would say, the net financial position has tripled versus last year, 1 year ago. So EUR 157 million. The net financial position takes into account the financings that we have towards banks. No credit line is expiring this year. We have comfortable repayment terms over the next 4 years. One comment more on the usual cash flow on Page 21, which shows that we have generated, thanks to the business rebound, EUR 151 million of cash generation is enough one, and we have repaid EUR 17 million debt, as you saw in the various pieces of the cash flow movement towards the beginning of the year. If Laura will allow me, I may give a bit of flavor about how we see the summer about what we are experiencing. So going to Page 23 of the deck. So we see a huge strong summer travel demand. But as you -- as maybe some of us has also experienced personally and based on what we are reading every day on the newspapers, there are continuous disruptions in the travel market in Europe generated by strikes of the airline from Lufthansa to Ryanair, from EasyJet to Iberia, consider that I was reading a couple of days ago that Ryanair in Spain will have, for example strikes, as Spain of the major destinations for us and for the other major European players; 10 days of strike overall [Indiscernible]. So this is the difficulty that every traveler is facing together with the limited capacity that in some important European Airport has been set, like the U.K. airport. So of course, this has generated chaos. This is generating disruption. This is generating on top of the increase of cost of fuel, an increase of the cost of travel. And so this is the reason why -- I'm talking about Page 24. What we are seeing is a more different behavior of our consumers towards last year. So this is going to be very likely and early summer started in April, and it's going to be a late summer, probably start ending in October. This is a trend which basically is the daily OTA contribution margin trend, which, as you saw, considering that we mentioned here, the 2 major, I would say, potential important news and the fact that have happened. First of all, the war in Ukraine has allowed, saying -- the war in Ukraine has generated zero impact on our current trading. Russian and Ukraine destination were 0.7% of our GTV. Then the other reason, investigation stuck on the 19th of July, zero impact on the current trading. What we expect, though, is that as you see, July is substantially in line with June. In the beginning of August, so looking at this first 4 to 5 initial days, volumes have increased -- but of course, we want to see what is going to be the August and September framework because, again, we expect something that will be very different from the usual pick -- peaking in July and August that we were experiencing up to, let me say, up to even last year. I am done. So I think I can pass over to Pier Andrea and to the moderator for eventual questions.

Yes. I mean, thanks a lot, Sergio. So I don't know if it's -- I will open the floor for any kind of questions you may have, please. Thanks you.

The first question comes from [Indiscernible] from [Baader Bank].

First of all, I would like to congratulate Ms. Amoretti to be announced as the Interim CEO. I wish you all the best and a good start in new position. The first question I would ask Mr. Foata, if I got the message right, the Board of Directors decided to look for a new permanent CEO. So does it mean regardless of the outcome of the investigation that Mr. Cannavale, as well as Mr. Bertoli will not return in charge of top management position at lastminute.com again. And maybe I have 3 questions. So maybe I continue with 3 or do you want to take it 1 by 1?

Yes. Maybe Laurent, you would like to comment on that.

About Fabio intention, we do not speculate, of course, about Fabio intentions. And our focus, as you have understood, is developing lastminute as an independent company.

Okay. And my second question will be to Mr. Signoretti. Congratulations on the great figures of the results in the first half. And I would like to get your intention what indications you said as a guidance for the first half -- EUR 24.5 million adjusted EBITDA, if you have now [EUR 6.425] million, which is the current run rate of adjusted EBITDA, we would come up to around EUR 55 million EBITDA in '22. Is that a fair assumption? Or is that what you would like to imply and give us in your statement?

Thank you very much for the question. As I said before, the reason for which we are not disclosing guidance now is because the summer trend this year is quite different from the pattern that we observed last year. So we would rather see if August, September and maybe also the half of October because remember, in October, there are a lot of concentration of holidays in some of the core markets that we have, which is U.K. and Germany, confirm the flat and long summer let me say. So this is the reason -- this is again to highlight what is the reason for which we are not disclosing a guidance now. But yes, I mean, we would tend to, I mean, go in the direction of recover what is the 2019 target, everything else being equal, I would say, at least not being too far from that. Consider that we still have January, which was a 0 EBITDA okay month.

Yes, yes. In understand the difference since 2019 market. Could you see that your business did not suffer from the Ukraine war either from the investigation. However, on the back of the rising inflations and economic uncertainties, consumer confidence dropped across Europe significantly, do you expect this to have any impact on second half or in 2022 then, sorry, for us already on 2023. But to give you idea of understanding the business going forward and perhaps did you see any cautiousness in regards to winter bookings already means, for example, the number of websites whether is slowing down or the number of searches for '22, so for next year is already declining? Or any indication you could give us on them would be helpful.

Yes. If you want, I can answer to that. No, the traffic is there. Traffic session searches are very, very strong. So what we see, and this is mostly related to, again, the peak months, which is July is people who maybe postpone the decision of purchases because the costs are too high. And so this is -- either because they went to vacation before or because they are looking for the right occasion in order to go for vacations. So the combination of disruption and cost is causing the early and late summer in our view. There is a different pattern of behavior, which, again, is quite, I think, visible. So that will be my answer.

Your next question comes from Johannes Wilde from Wild Family Office.

I was delighted that you canceled the extraordinary general meeting. So now given that you have a very low share price now, and you have a lot of cash in your balance sheet. So is it planned to go for another share buyback program to buy shares from the open market?

I apologize if you have to finish, I mean.

I just wanted to comment because it was planned to buy the shares from the free sellers vehicle. And I'm delighted that you canceled this, but now, I hope that you buy back shares from the open market instead.

Yes. I mean, I can't comment on that. On the buyback, as you know, we have always been very, let's say, interested about. Actually, we were advised by our legal team to suspend the share buyback in the situation because -- as you know, in order to proceed, you need to be in absence of, let's say, privileged information. And unfortunately, the investigation could sometimes give to the company some information that are privileged. And so I mean we will, of course -- the company will, of course, assess the restart of the share buyback, but when there's going to be much more clearance on the current situation.

Okay. But will you then buy back the shares from the free sale of [vehicle] or from the open market.

Sorry, could you repeat the question because I didn't get it.

To get back to -- if you are in the possibility to buy back shares again. So will you then restart buying back shares from the free sale of [vehicle], or will you buy back the shares from the open market?

I was referring to the share buyback on the open market.

Okay. So another question is you hired 400 people within the first half year. And as you showed your cost for headcount, I think it is Page 16. So including now the 400 people, what do you expect headcount costs for the second half year. So first half year, it was $31.9 million human resource fixed costs. What do we expect for the second half?

Maybe I can answer to that. We -- the increase of average cost per person is related to the tech talent acquisition plan. So as I said, we hired 150 people since September last year. And that's because we believe this is a key success factor for the company -- develop and to offer all these best-in-class solutions to our customers. Of course, this has a cost because any one of us know that the tech digital industry has exploded in terms of overall salaries and so on. So I mean, of course, we expect that Asia cost is going to be in 2023 higher versus 2022 and then moderate increase also in the overall second half. Consider that, as I was mentioning in Slide 16, what you see in terms of P&L charges in the first half is EUR 24 million -- EUR 24.9 million, so it's [Indiscernible], which takes into account EUR 6 million of capitalized costs and EUR 1 million of residual government subsidies that we have received in Switzerland in January and February. That, of course, is over. So is not going to be there anymore.

If I may, I want just to add something about the customer service area because we hired 130 people from the technology part, but we also to decide to invest more on customer service area, and we hired 400 people, mainly in Spain, in India, but also we decided to open a small hub in different countries in Europe to be very close to our customers. So I mean, this is not an impact on the P&L because it's just a shift, of course, because before we are a very outsourced organization. I mean, we manage our customer service with 6 outsourcer previously around the world, but now we decided to internalize more, so we closed 4 of our contract, and we decided to internalize all the task of complexity and also the task that we estimated that we can provide and have value for the customer. So it's just a question of shift, no incremental cost for the company, but change on a strategical point of view. We want to internalize all the tasks that can bring a higher value for the customer.

The next question comes from David Gibson from Rockland Capital.