On the Beach Group plc (OTB) Earnings Call Transcript & Summary

Good morning, everyone, and thank you for joining me today. I'll be presenting our results for the first half of FY '26. This has been another period that has and will continue to test the resilience of the industry. What I want to demonstrate today is that our model is particularly resilient to these shocks, and that the strategic direction we've set is working. Normally, I would be joined by our CFO, Jon, but he's currently waiting for a minor medical procedure. Therefore, I'll be taking you through the full presentation today. On to the agenda, I'll follow the normal structure, starting with key highlights, moving on to financial performance and closing with strategic progress and outlook. I will, of course, leave time for questions at the end. So on to highlights. Four things I'd like you to take away from this slide. Firstly, record half 1 booking volumes. In a very challenging environment, bookings grew by 7% year-on-year, and we delivered that volume growth significantly ahead of the market. Secondly, significantly more people went on holiday with us during this period than last year. Departed volumes were up 22% across the half and 35% in quarter 2. This has been driven by strong growth in Winter Beach and expansion areas. City breaks more than doubled year-on-year. Bookings from Ireland grew by 74%. These are substantial numbers and show real progress. Third, investment in our technology is delivering results. Search conversion is up 24%. So people searching on our site now, 24% more likely to make a booking. Nearly 40% of all bookings are made on our mobile app and every loyalty metric we have is improving. In-year repeat bookings up 24% and 2-year repeat rates up 17%. Finally, we are profitable and generating cash. The last 6 weeks of booked volumes are up 9% even in the context of the challenging environment we find ourselves. This, therefore, gives us confidence to reinstate guidance for the year. And given the strategic progress, we remain confident in the medium term. Before we get into the trading detail, I wanted to spend a moment on this slide because it gives some really important context for understanding where we are today as a business and why we're confident about where we're going. Over the last 4 years, we've been through 3 very deliberate phases of transformation, and I'll take you through each one briefly. Starting with simplification, we have simplified our business model. This meant exiting the B2B channel last year and transitioning to a single tech platform powering all products and markets. That includes our expansion areas in city breaks and selling holidays from Ireland. Our tech investment is mobile-first and with a focus on self-service through our mobile app. Secondly, increased levels of automation. Today, 98% of our bookings are automatically fulfilled. This compares to 60%, just 4 years ago. This is a real transformational change, particularly in the context of increasing our offer to 80 billion holiday combinations, up from around 1 billion only a few years ago. This, amongst many other examples, has enabled us to grow from 1.4 million passengers traveled to 2 million, more than 40% volume growth whilst reducing head count by the same amount. And then there's AI. We were the first U.K. package online travel agent in ChatGPT, which we launched early this year, and further integrations are in progress. Our share of voice overindexes for package holidays, which means we're well positioned as customers increasingly use these products. Traffic from these products are still small, but is growing fast. There's 10x more traffic coming directly from large language models this year, and I'm sure more of our customers are using it as part of their research journey. And it's not just customers who are increasingly using AI, all areas of our business are benefiting from it. Agentic AI is deployed across engineering, supply, operations and customer service. This is improving both quality and productivity across the business. Overall, whilst each of these phases can be delivered to some extent on their own, to achieve the best results, you must deliver against all 3 of these, and that's why we've not seen them as separate initiatives, but as one program of transformation. And lots more to come. Moving on to trading for the period. I think important for me to give you some more context on the trading picture. Even before the war commenced, booking patterns had changed. People were booking their holidays much closer to departure. This is market-wide, not specific to us, and it reflects a challenging consumer environment. Despite this, October to February, bookings were up 10% year-on-year, with significant growth in bookings for city breaks and winter travel, including Winter Beach. From the 1st of March, there was a significant change in demand. Customers planning holidays to the Middle East and East Med destinations slowed significantly. That reduced our half 1 bookings growth from 10% to 7% and has shortened lead times even further. These dynamics mean that first half bookings have a lower average booking value, and some of the summer volume we'd normally take in half 1 is coming later. Our forward orders for the second half of the year are about flat to last year, but this later booking curve means there's significant volume still to come, and we know that most people are still planning to spend at least as much this year on their holiday plans. Important to note, and I do remind people of this, that unlike others in the industry, we report on a booked basis. Others report on a traveled basis. Therefore, these trends are more apparent in our half 1 financial performance than some of our tour operator and airline peers. This will normalize across the full year, and by the time we get to the end of the year, we'll all be judged on the same travel period. In terms of traveled volume, this was well ahead of the market, up 22% in the half. For me, this shows that what we're doing is working, and our outperformance has been very consistent. Every quarter has been in volume growth since COVID. That's 18 quarters of consecutive volume growth. I have another slide, which gives some context on how lead times are impacting, I suppose our booked performance. This slide is really important context for that, and hopefully it will give people confidence about how our forward order position will evolve. The chart on the right-hand side shows how each number on this slide represents the forward order position for May '26 travel, and that's important because it's the first month of the summer. So I think it's a good indicator of what's still to come. As you can see from this slide, May departures are currently 5% up year-on-year, but all of this growth in May travel has been driven by later bookings. Bookings for May departures since the 1st of April are up 27% year-on-year. And this isn't just a flash in the pan for May. This is the pattern that we've now been seeing for several months and we expect to continue. The booking curve has shifted. Customers are still planning to travel. They're just making that decision closer to departure, and that's what you can see in our half 1 reported numbers. For a business with an asset-light model, this is very manageable. We don't have the complexity of managing this demand shift. We don't have aircraft seats or hotel room inventory to worry about. Our business will naturally flex with this demand, and we are confident that people are still going to want a summer holiday this year. We can see it coming through in the numbers. Now on to financial performance. Traveled bookings were -- of 201,600, were up 22% year-on-year. As I said earlier, that's the real demand picture for our business and for the industry. Booking volumes were 324,200, up 7%, and total sales of GBP 626 million were up 2% year-on-year. Adjusted revenue of GBP 52.9 million was down GBP 6.4 million on last year, and that movement has several drivers, which are largely a function of market-wide dynamics. The Middle East conflict has had an impact on booking volumes and particularly higher-margin summer bookings. There is mix dilution from growth in lower-value, shorter-duration holidays, city packages and winter travel. And of course, in this environment, there is competitive pricing, which obviously we would respond to. Some of these dynamics, we would expect to unwind in the second half of the year, which will be more weighted towards bookings for summer travel. Further down the P&L, marketing costs fell by GBP 4.5 million year-on-year. That's down to efficiency. A greater share of bookings is coming through the app, through brands and through repeat customers, all of which cost far less to acquire than paid search. As a result, marketing as a proportion of revenue fell from 44% to 41%. Overheads increased by GBP 3.1 million to GBP 21.6 million. That's primarily driven by the investment in technology, which enables us to scale into new areas, increase site conversion and drive marketing effectiveness and operational efficiency. These investments cannot be viewed as a snapshot point in time. They should be viewed in the context of overall strategic delivery. EBITDA and profit before tax was around GBP 6 million lower than the prior year. This change is explained by the revenue shortfall resulting from the external and mix-driven factors I mentioned earlier, which we expect to be short-term impacts. On to the balance sheet. Net debt reduced by GBP 2 million year-on-year to GBP 27 million, with GBP 88 million of headroom on our facility. This is after committing GBP 33 million of capital to buy shares and pay dividends during the period. The balance sheet remains a genuine strength. The trust account balance is GBP 210 million. The year-on-year reduction of around GBP 14 million simply reflects the shift to shorter lead time bookings. Customers are paying later, so less sits in trust at every given point. This is simply a consequence of the later booking curve. An interim dividend of 1p per share has been declared consistent with the prior year. This is a demonstration of confidence in profit and cash generation. We have a profitable, cash-generative business with a strong balance sheet. We can manage through volatility and periods of weak consumer demand without compromising our strategic investments. Now some slides going into a bit more detail on our strategic progress, starting with an overview. Our addressable market is large and rapidly expanding, and we've been expanding our share of it. Customers booking closer to departure is a market-wide trend, and our significant growth in traveled volumes tells us the demand for our product is strong. The Middle East conflict is a headwind for the whole sector, but travel has always been prone to these shocks and challenges. In my experience, long-term structural growth has always reasserted itself. And our asset-light model is a key competitive advantage in exactly this kind of environment. Our strategy is working. We are taking share in this market. And we have, as the next slide shows, a clear strategy for growth, which many of you will be very familiar with. It is consistent and key to delivering our medium-term ambition. As a reminder, stickiness is about increasing how often customers book with us. Choice, making us more relevant for more customers and more of our existing customers' holiday spend. Scale and automation, this is about designing for 10x scale, not plus 10%, and scaling the business potential at a much faster rate than the structural cost base increases. And peace of mind, making sure the experience customers have with us builds trust. By delivering on these pillars, we will attract more new customers to the brand, and we expect those customers to book with us more often, generating greater value. Some proof points of how we're delivering against these strategic pillars. On stickiness, monthly active users on our app are up 29% year-on-year, and nearly 40% of bookings are now made on the app. We are now in a position where more than 90% of our customers access the app at some point between booking and traveling. Every retention metric we measure is up. Our customers are traveling with us more often in any given year, and they are more likely to book with us again in subsequent years. In-year repeat bookings are up 24% year-on-year, and 2-year repeat rates are up 17%. On choice, we continue to address more of our customers' holiday needs, adding more choice for our customers and now offering more than 80 billion holiday combinations. We continue to perform well in all of these expansion areas, and I'll come on to that shortly. Each product expansion or market we add uses the same technology, the same brand and the same people. The execution risk of adding new products or markets is, therefore, very, very low. On scale and automation, we have created a scalable business. Earlier, I shared our focus on simplification, automation and AI, and this means that over the last 4 years, we have scaled our offer from 1 billion holiday combinations to 80 billion. We are sending 40% more people on holiday every year, and we have a head count which is 40% lower. This shows real progress against our pillars. On to our addressable market. Two years ago, our addressable market was 16 million passengers, represented by the 3 blocks in the bottom left of this chart. As well as beach, our market now includes city breaks, cruise and the Republic of Ireland as a source market. Therefore, today, our addressable market is 3x as big as it was 2 years ago, 50 million passengers and growing. Ireland growth year-to-date is 70%. City bookings have more than doubled. These areas continue to grow. And in a very short space of time, we are an established and significant player in these markets. It's our pre-existing technology investment that has enabled us to establish a presence in these areas so quickly and for a relatively low level of investment. That's a structural advantage that we have that newer entrants cannot easily replicate. And finally, on to current trading and outlook. So despite the challenging environment, we continue to trade profitably and generate cash. Demand has improved and settled since our last update in March, and momentum is building for the summer. Over the last 6 weeks, bookings are up 9%, and month-to-date bookings for summer are up 17%. These recent trends and our experience in the industry gives me confidence that consumers value their summer holidays very highly. And therefore, despite the current challenging environment, we are confident in delivering adjusted profit for the year of between GBP 18 million and GBP 25 million. Looking further ahead, we have made significant progress this year and are well positioned for the medium term. Excellent. Well, thank you very much for listening to me and really appreciate it. Thank you.