Trainline plc (TRN) Earnings Call Transcript & Summary

Good morning, everyone. Thank you for joining us here today for our full year results presentation. It's great to see you all again. I'm Jody Ford, CEO of Trainline, and I'm joined by Shaun McCabe, our CFO. Let's first go through the disclaimer. On to the agenda for today, I'll intro with the key highlights for the year, including our recent MOU agreement with Rail Delivery Group. Shaun will talk to you through our financial performance. And then I'll update you on progress against our strategic priorities. After that, we'll open the floor for questions. As a reminder, at Trainline, we are centered around our core purpose to empower greener travel choices. Our vision is to build the world's leading rail platform, making it seamless for customers to find the right ticket at the right price online and delivering that experience, either through our branded channels or through our travel partners. In doing so, we're making rail travel more attractive, encouraging millions of people to take the train rather than driving offline. We believe this will make a huge difference for every 1% of air and car journeys we switched to rail in the U.K. alone will save 5 million tons of CO2 each year. This year, we've made significant progress against the priorities I laid out 12 months ago, encouraging people back to rail as COVID restrictions eased. As a result, we supported the rail industry recovery, while delivering a strong performance in net ticket sales and a return to positive EBITDA. In addition, I'm really encouraged by our underlying customer metrics. In the U.K., we have helped drive industry e-ticket penetration to 42%, double where it was 2 years ago. Our customer acquisition has reached record levels and we have significantly increased the amount of customers who transact with us. Likewise in international, with domestic rail liberalization becoming a reality, Trainline is in a unique position as the only retailer to aggregate all high-speed rail routes in our target markets. By aggregating this inventory and scaling our brand marketing, we are positioning ourselves for the very significant opportunity ahead. And in Trainline Partner Solutions, we've expanded our white label business into Europe with the new white-label contract with NTV Italo, providing regional Italian travel inventory. You have seen our announcement at the end of March that we signed a Memorandum of Understanding or MOU with Rail Delivery Group. This agreement means we'll now enter a new phase of discussions around the future retailing framework, which should conclude before the end of the calendar year. The MOU also includes the legally binding backstop should mutually acceptable terms not be reached. The backstop sets a floor of 25 basis point reduction in our net commission rate effective in 3 years' time. This will be made up of a 50 basis point reduction in the headline commission rate, offset by 25 basis point benefit to Trainline from the removal of shared industry costs. The MOU gives Trainline considerably more certainty around our future economics, while we continue to work with RDG on a shared agenda to reform rail retailing. And with that, I'll hand over to Shaun to talk through our financial performance.

Thanks, Jody. Good morning, everyone. So as Jody discussed, last year was one of strong recovery for Trainline, particularly for our U.K. Consumer and International businesses. Of course, it was not without some bumps along the way given the periods of COVID disruption. However, as you can see from the graph, with each wave of COVID the subsequent recovery in combined net ticket sales was much faster. This is particularly evident with the Omicron wave and the U-shaped recovery thereafter. Omicron impacted sales from around mid-December. However, by February, both U.K. Consumer and International had already returned to year-on-2-year growth. The strong recovery in U.K. Consumer and International has driven a significant recovery in net ticket sales, revenue and gross profit. The Group generated GBP 2.5 billion of net ticket sales, up 222% on last year. And this was 68% of the same period 2 years ago. Revenue increased to GBP 189 million, up 181% year-on-year and 72% over the same period 2 years ago. And gross profit increased to GBP 153 million, up 214% on the year and 76% of the same period 2 years ago. As a result, the business returned to positive EBITDA. Direct and central costs increased to GBP 114 million, up from GBP 74 million last year, but broadly in line with where it was 2 years ago. And as trading conditions normalized, we scaled our costs back of particularly in performance marketing as we seek to generate new rail bookings and to attract new customers. We also made strong progress against our investment plans in International. We've opened a new tech hub in Barcelona to recruit tech talent at a lower cost than London. And we've opened a local office and team and launched a team in Milan to focus on that key Italian market. In addition, we stepped up our investment in brand marketing to grow customer awareness in our focus markets in Europe. We reported an adjusted EBITDA of GBP 39 million versus a GBP 25 million loss last year. Net debt has reduced significantly from GBP 241 million a year ago to GBP 90 million at the end of February. As you can see from the waterfall chart, the biggest driver was a cost, the strong working capital inflow of GBP 156 million as net ticket sales recovered, together with the EBITDA generated in the year. As the net debt reduction and that net debt reduction were despite the GBP 29 million CapEx, reflecting continued investment in our tech and product roadmap. The significant reduction in net debt, combined with the improvements in EBITDA means that we are now operating comfortably within our banking covenants for the first time since the onset of COVID. And with that greater visibility, we can once again provide full-year guidance for the Group. Assuming no further significant disruptions to rail travel, we expect to generate strong growth this coming year with net ticket sales in the range of GBP 3.8 billion to GBP 4.2 billion, above the pre-COVID year, revenue of GBP 280 million to GBP 310 million and adjusted EBITDA of GBP 70 million to GBP 75 million, split broadly evenly between H1 and H2. And with that, I'll hand back to Jody.

Thanks, Shaun. Let's now talk about our progress against our strategy. As a reminder, here are our 4 stated strategic priorities. I'm really encouraged by the progress we're making against each of them. Let's first discuss our progress in our U.K. Consumer business before discussing International and finally TPS. Our U.K. Consumer business remains resolutely focused on providing an excellent customer experience. By removing friction for customers what offering them unrivaled value we have supported rail industry recovery getting people on to trains and into towns and cities. We've also shifted more people to online and digital ticketing with e-tickets, a core part of our mobile app proposition. In the U.K., e-ticket penetration has doubled in 2 years as more people opt to buy their tickets through their mobile phones rather than queue at the station. At 42%, there's plenty of runway for future growth. The continued growth in the availability of road journeys where e-tickets can be used is removing a key constraint for e-ticket adoption. ScotRail's rollout of a barcode tickets last year took availability to over 80% and last month Southeastern, an important rail operator for commuters began their rollout. Once complete, it will take e-ticket availability above 90%. That broadly solved the supply issue. And on the demand side, there is a clear tailwinds for growth, including a step change in customer preference for digital tickets and a long-term industry ambition to shift people away from paper tickets. Likewise, the commuter segment represents a significant growth opportunity for digital ticketing. It's a segment underserved with digital ticket options historically. Pre-COVID, we estimate commuters made up about 40% of the U.K. rail market, about half of which were season tickets. Season tickets were almost entirely fulfilled by paper tickets with no digital season ticket available to the mass market. COVID has changed the way we work and travel with more hybrid travel driving a makeshift away from seasons to singles returns and more recently digital flexi tickets. And as commuter journeys become more ad hoc, there is a greater need for flexibility on the days people do travel as well as more on-the-go information. We flagged this opportunity a year ago. And since then, we have primed our mobile app to meet the needs of the new commuter with features such as Save Your Commute, allowing commuters to personalize their commuter journeys and rebook tickets in a couple of clicks, as well as the launch of Flexi tickets within our app. We're already seeing positive changes in customer behavior. Prior to COVID, many commuters used our app, but due to a lack of digital ticket options, only a minority bought their tickets through Trainline. As you can see on the left, we have a large cohort of app users, we specifically called time-checkers, who serves as a good proxy for commuters. In the last 2 years, we've converted 27% more of them into ticket purchases. This is a great start. There's clearly still a lot more headroom to go after. We will convert more time-checkers into ticket purchases when we have a full suite of commuter ticket types in digital format. And this coming year, we're rolling out the digital seasons products following a successful pilot. Moving on to our second priority in the U.K., building demand. As COVID restrictions eased this year, we lengthened scaling our marketing investment to attract new customers. As you can see on the left, new app customers acquisition has surpassed pre-COVID levels with October, our best month ever. As we add new customers, we are increasingly targeting under 30s. Not only are they more tech savvy, they tend to use rail far more frequently. Adults in the U.K. below 30 are 4 times more likely than the rest of the population to take the train at least once a week. In the last several months, we run successful brand-led campaigns including for flexi tickets and digital railcards. Let's move on to our third priority, increasing customer lifetime value in the U.K. and stepping into digital railcards. Railcards are a key loyalty proposition for the rail industry. I think if customers access to discounted tickets particularly relevant now as people become more cost conscious. When we launched our digital version 18 months ago, we estimated there were around 6 million in circulation. Since then we've made significant progress selling over 1 million digital railcards in the last year alone. Think about that for a moment. More than 1 million railcards are now stored in our customer mobile apps making it far easier to book cheaper tickets and removing the need to carry a physical card. This is helping Trainline attract and lock in younger audiences to rail travel with over half of the railcards sold to under 30 year olds. It's also improving transaction frequency with digital railcard customers 58% more likely to transact 3 or more times a year. Digital railcards are a good example of how our enhanced product offering and broader marketing efforts are helping people make better everyday travel choices. All of this is helping increase our relevance for more of our customer travel needs. In the U.K., customers are increasingly booking their regional travel through Trainline and more recently their commuter travel too. This has driven a notable increase in repeat usage. In Q3, the number of customers transacting twice or more each month was up 39% versus 2 years ago. As you all know, this is a particularly tough metric to shift. While helping drive faster growth, the increased customer lifetime value allow us to invest more in customer acquisition as well. Now let's turn to the progress against our strategic priorities for our International business. I'll start first with enhancing the customer experience as we become the retailer of choice in our priority markets, France and Italy. The European rail market is liberalizing at pace. This is a map of rail carrier competition in Europe at the end of 2020 prior to the EU's fourth railway package. At the time, Italy was the only country with major competition across its high speed routes following NTV Italo's market entry several years earlier. Roll forward to today and competition has now arrived in France and Spain. Ouigo, SNCF's low cost carrier brand, entered the Spanish market last summer, launching on the Madrid to Barcelona route and soon onwards to Valencia. They'll be joined by Iryo, a Trenitalia JV, who will add a number of Spanish routes this year. And in response, incumbent carrier, Renfe has launched its own low cost brand, Avlo. Whilst in France, Trenitalia entered the market in December, launching a service between Paris to Lyon, France's busiest high speed route. Fast forward to 2024 and 4 brands will compete across both the French and Spanish markets. Fast forward further into the future and we see a world where European customers benefit from far greater choice. They will also use rail far more often with the EU targets to double high speed passenger traffic by 2030 and triple it by 2050. The future of rail liberalization is exciting. But even today, we already have a lot to go after. In fact, carrier competition now exists on 6 of the top 10 routes in Europe, on which all carriers are fully integrated into our platform. This competition pushes down prices and drives up service levels, stimulating incremental rail demand. As competition grows, customers will increasingly need help to find the right ticket at the best value. We will fulfill this role by positioning ourselves as the rail app of choice for European rail travel. We are aggregating all the carriers, fares and journey options in one place. So customers can compare and select the right option for them. They can also book multi-carrier journeys. For example, on the Paris to Lyon route, around 22% of ticket sales involve a connecting journey. Recently, our travel on the train service Trenitalia service in France and chatting with another passenger, he explained to me for his ticket from Rennes to Lyon they had booked through Trainline. We were the only place that he could go to get the combination of regional, Ouigo and Trenitalia trains. For the rail customer that means Trainline has a uniquely differentiated customer proposition. On the other side of the equation, Trainline is rapidly becoming the partner of choice for new entrants, attracted by our ability to rapidly add their inventory into the new domestic market, bring incremental demand in the form of new customers and offer multi-carrier connections to the broader rail market, the net of which means we are beginning to see the early signs of the virtuous cycle of the marketplace. As we have more inventory, we've become more attractive for passengers. And as we attract more passengers, we've become increasingly relevant for rail operators. Let's take a closer look at 2 recently liberalized routes. Starting first with Madrid to Barcelona, the busiest domestic air route in Europe prior to liberalization. With a journey time by train of 2.5 hours, it's a route right for modal shift. 3 different rail carriers now run service on this route and the competition between them is hotting up. As the aggregator, we are benefiting. The number of tickets sold are up more than 5-fold since before COVID and a quarter of the new customers we're acquiring in Spain are from this route. And second, Paris to Lyon. This is another route right for modal shift, particularly given the recent flight ban in France for domestic journeys that can be done by train in under 2.5 hours. Having entered the market in December, Trenitalia are already competing fiercely with incumbent SNCF. And by June, we'll operate 5 services a day. As the aggregator, the total number tickets we've sold in this route have doubled since the launch of the competitive service and we account for more than one in 5 of Trenitalia's ticket sold, a contributable step-up versus our prevailing market share in France. There are still more work on our part to become the marketplace for rail travel in Europe. In November, we outlined our plans to step up investment in international. This investment will increase the pace of which we optimize and differentiate our product. In France, we recently launched the second iteration of Recup Retard or delay repay. This makes it far easier for customers to submit a claim for a delayed train and it's not available through the incumbent carriers website or app. We've built new search capability of virtual departure board and a global live tracker, keeping customers up to speed while on the go. And we've also launched airline style seat maps in France and Italy. We're increasingly positioning Trainline as the marketplace of choice and we're well placed to succeed in Europe and significantly grow our share. We're also investing more in marketing to drive up customer demand. This includes expanding our performance marketing capability to acquire more new app customers. Acquisition has since grown to its highest ever level. However, as you can see on the right, there remains a large opportunity to drive wider app adoption, which remains significantly behind U.K. levels. Likewise, there is an opportunity to drive up customer awareness and we're now starting that journey with meaningful investment in brand marketing. We launched our first major brand campaign in Italy in the second half. This include full station takeovers in Milan and Rome and nationwide TV campaign and leveraging influences on social media to target younger audiences. As we acquire more customers as the aggregator, we are driving up customer lifetime value by making ourselves increasingly relevant for more of their travel needs. This dynamic was reflected in our regional sales growth in Italy, up 125% versus 2 years ago and in France, up 106% despite there being no carrier competition on those routes. Finally, our fourth priority, growing Trainline Partner Solutions or TPS. Before we step into our progress here, I'd like to briefly talk about Platform One, our single global tech platform. Platform One's functionality includes broad yet deep inventory connections, end-to-end eCommerce solutions, powerful data assets and core reliability, scalability and security. Platform One has many tenants. Alongside our own Trainline branded business, we offered B2B customers and carrier partners access to our cutting-edge technology and digital innovation as well. In doing so, we reduced their cost and complexity, making TPS an obvious choice of partner for that online retailing capabilities. This is being increasingly recognized outside of the U.K. Recently, we have taken steps to broaden our white label business into Europe with a multi-year deal with Italian carrier, NTV Italo. This will enable them to sell regional train and bus connections alongside their high-speed rail tickets. And we continue to position for growth our global distribution business. We're signing up more B2B partners to our global API including recently Travelport, our first GDS customer. Published a year ago, the Williams-Shapps white paper included proposals for GBR to launch its own retailing app and website. There are still no confirmed plans on how GBR will develop retailing capabilities. However, RDG has taken preliminary steps to begin the formal tender process to procure platform services for its consolidated online retailing solution or CORS. This potentially may be novated to GBR at some stage in the future. The contract length would be 4 years with the opportunity to extend for further 4 years. We've engaged with the preliminary stages of CORS tender process and are ready to engage more fully once the official process begins. So before we open the floor to questions, let me recap on some of the key takeaways. Over the last year, we've continued to support the rail industry recovery as reflected in our strong performance in net ticket sales and our outlook for next year with sales to be above pre-COVID levels. Our U.K. Consumer business is growing strongly as we shift more customers towards digital ticketing including in the commuter segment and in digital railcards. And the MOU with RDG gives much more certainty around our future economics, whilst we continue to engage on ways to reform the retailing framework in the U.K. In Europe, as competition between operators and mergers, we have stepped up our investment to become the aggregator for rail. We are already seeing accelerating growth on routes that we have liberalized. In return, these new entrants act as propellants for new customers to Trainline, attracted by the low fares, the aggregator proposition and the unique inventory. And in TPS, we have broadened our white label business into Europe and further expanded our global API partnerships. Over the last 6 months, I finished building out my executive leadership team, hiring 2 highly experienced senior leaders, Mike Hyde, our new Chief Data Officer previously at Facebook and Martin Sheehan, our Chief Corporate Affairs Officer with years' experience at Number 10. And as Shaun referenced, we have opened offices in Barcelona and Milan as we aggressively expand into Europe. Looking forward, I am as positive as ever about the opportunity and long-term tailwinds for growth and hugely excited about the journey ahead. Thank you for listening. We'll now open the floor for questions. Please raise your hand if you have a question. And before you ask your question, please state your name and your organization. Thanks.

Gareth Davies from Numis. I will start with a couple. First one is on marketing investment in Europe. You obviously announced the plan in November. The U.K. is moving a little quicker than probably we hoped at the time and it feels like could over-deliver in the current year. What's the right level of investment into Europe in the near-term? And should we just assume you reinvest any over-delivery into that opportunity? And sort of what are the pockets of investment that you'd like to do that you're probably holding back on at the moment? The second one, interesting to see Germany flag on the European map. We never really talked about it. I think you do reference this in the statement. Could you just expand on where we are in Germany, what that opportunity is and kind of any developments there? And I think leave it at that.

Thanks a lot. I'll start with Germany, then pick up marketing and hand over to Shaun on the economics part. So Germany remains a really interesting, exciting large market. Our focus on France and Italy is predicated on a number of different sort of things being in place and at Germany at the present time, there isn't the commission structure frankly that allows us to go and do that and invest it fully and strategically as we'd like in France and Italy. That said, as you may have seen, there is an interim decision from the BKartA, the Competition Authority in Germany. And so over the coming weeks and potentially months, we'll expect to learn more there and that if it goes the right way will allow us to invest in a far more strategic way in Germany. I think the other thing to keep an eye on is what happens with regard to competition as we know FlixTrain offer services in Germany. That's not yet a level that we see in some of the other markets. But long-term, I think Germany will absolutely be a priority for us and we will be engaging there, but we need certain safe conditions to be in place. And then with regards to the marketing question, look, we are building up, but I think I've talked about last couple of times, we are building up if you like, the marketing muscle. We are really good at performance marketing and we can dial that up back and look at opportunities and cut those markets in various number of ways. And so that's something we will keep pushing on as hard as we can. In terms of the brand marketing, we've had our first campaign in Italy, which I showed you and we will launch shortly the French campaign and that's really, we've got to build the muscle to be able to effectively deliver those marketing campaigns at scale to drive awareness and consideration to get people to fully understand our differentiated proposition relative to the incumbent carriers. So that's kind of how we think about it, but we are pushing as aggressively as we can on that and the more kind of investment dollars we have, the harder and faster, we will push. Shaun, do you want to pick up on the ROI?

So the way we think about the investment, if you look the year we just closed, we had about GBP 16 million marketing investments internationally. If you look at consensus, consensus says that marketing investment for International will be around about GBP 30 million and we're pretty comfortable with where consensus is at. If you step back from that I think more holistically about how we think about marketing, it's really about identifying pockets of customer acquisition that we can go out, find those customers at the right lifetime value and we're always thinking about equation of acquisition cost versus lifetime value to get a reasonable payback. So wherever we see sustainable economics and a decent payback, we'll absolutely lean in to that opportunity and that is most true in our first focus markets, so Italy and France, but it's also true in the other market as well, right? And so as Jody says, if we see Germany open-up because the conditions change and the economics of Germany improve and that not lifetime value -- key components of the lifetime value is the commission that we earn. If the conditions improve, we'll absolutely lean into Germany because Germany is the biggest rail market in Europe and we see it as a big opportunity going forward.

So to be clear, marketing is the swing factor. It's not an infrastructure investment that needs to go in, in terms of more people more kind of...

Yes. So not over and above what we've already talked about, Gareth. So if you remember back to the international investments that we talked about it was 2-fold. Yes, there was a step-up in marketing, but there was also an investment in people. That was a combination of product and tech folks to build-out the product in each market and to make it relevant for local customers in each market. But it was also marketing folks and it was also a government relation folks to help us win these arguments against the carriers where we think they're misbehaving. So look, I think in that sense, the market is coming our way and we're excited about it and we look forward to the next few months and what those developments bring.

Navina from Morgan Stanley. And thanks for the presentation and the guidance. So just want to get a sense on the ranges that you sort of laid out for next year. Can you sort of give us some scenarios on either end what would have to happen for you to achieve the top-end and then the lower end. And then also just within the U.K. piece, maybe a boring accounting question but, so your cokes were quite a low percentage of sales and generally have been coming down, just wondering whether that is sort of a structural thing. Are you doing some sort of measures there? Is that a mix thing? And then also just lastly in terms of your market share gains within Europe. You just mentioned double digit shares within I don't know 3, 4 years, where is that going to be coming from mainly? Is that France and Italy and what about Spain as well?

Shaun, shall I take the last question and then I hand over. The first and second will hand over to Shaun. So in terms of market share gains, France and Italy are the priority markets. They are markets where we have awareness at levels that allow us to kind of really invest in the product and then take there. That will be the places that we see, and it will be, if you kind of roll back on the, if you like the Trainline playbook here we start with leisure. We start with long distance and those aggregated routes I talked about those are places where we will see share significantly ahead of the average of the market and we are already seeing that. And so as aggregation kind of gathers pace that will drive our share, but then we absolutely see that roll forward across the routes that aren't aggregated where there's not competition into regional, and so I think you'll see it play out in the way that we've seen it play out in the U.K. And yes, starting with France and Italy and then I think Spain is a very interesting market although a bit smaller than the other 2. Shaun, do you want to pick up on the other?

Sure. So let me take the guidance question first of all, Navina. So what has to happen to get to the top of the range? I think the most obvious answer to that is speed of recovery. So we've baked in an assumption around recovery. We are pleased to see -- the recovery of post-Omicron was pretty U-shaped. So if you looked at the previous periods of disruption and COVID lockdowns, after every one, the speed of recovery has got faster, and that was also true of Omicron. So in February, we're already back into year on 2 year growth and that strength has continued into March and into April. So we feel positive about that. So I would say that's the key thing. And then the rest is really about continued good execution, I would say. And then in International, it's things like the opportunity in Germany could push us faster and we'll see how quickly or not that that opportunity opens up for us and it's just the progress that we make in each of those international markets with our marketing investments and product and tech investments and how successful we are there. And some of that is it's just hard to quote, hard to forecast because we're somewhat new and we're small and so we could grow more rapidly than we've got forecasted. The cost question is an easy one I would say. In the year, we've just closed in FY22, we have a one-time benefit from a rebate around fulfillment fees and that was something we've been in conversation with RDG and DfT for quite a long time and that was rebated to us in last year. So don't expect that to continue. What I would say though is we're always looking at ways to optimize our cost base. And so the components of our COGS, which are payment fees, fulfillment fees and Christmas service, we're always looking to ways to make us more efficient and payment fees in particular look at the mix of things like Apple Pay and Google Pay, which tend to be cheaper forms of payment. We're always looking to push those and it's not only because they are cheaper forms of payments, it's because it's also a better experience. And so we are really optimizing for that and as a second order impact, it's a lower cost of payment as well. James?

It's James Lockyer from Peel Hunt. A follow-up question from the ROI question earlier in terms of marketing and investment. You spoke about balancing LTV with customer acquisition. I was wondering if you could talk about or give an idea about LTV to CAC ratio is today, how that's improved over-time and whether or not you have a target in the long-term. And secondly, on recruitments. Obviously we've seen significant wage inflation across different sectors within Dev teams and Dev employees. Just wonder if you could talk about your strategy about how you're going to mitigate that and how do you ensure that you devs are continuously engaged and it's used to stay at Trainline versus going elsewhere. And then finally, first international white label deal announced -- rather than going I guess into the deep depth of your pipeline, it would be good to understand say the mix between international and U.K. pipeline where your key focus is.

Sure. Do you want to take the first question, Shaun?

Sure. The LTV to CAC today versus sizes. So we do look at LTV to CAC on a market by market basis of course. And where we are today is we are in the kind of 3 to 4 year payback range for international and it varies by market and it also varies by time of year, but it's moving in the right direction. Our cost of acquisition continues to improve and our lifetime value continues to increase and it increases through a number of levers. Obviously, what we earn on each ticket is an important factor of that, but also things like frequency. So we're driving improved frequency. For example, we're reducing churn. We're improving conversion with a better product market fit. So all of those are factors in driving up the lifetime value. So they continue to improve. In terms of the targets, I would say, near-term target, we should be looking to get to a three-year payback. And that's a kind of this year target, but in time, I would expect once we got scale in each of those markets, I would expect us to get to something that is sub 2 years. And then if I contrast that to the U.K. and of course in the U.K. we have a significant share and we've been around for quite a long time and our payback period in the U.K. is less than 6 months and fewer than 2 transactions. So it's a really positive model that we've built over a number of years.

Great. Picking up on the recruitment question and wage inflation. So I think there has been essentially kind of war for developer and data science product talent for a number of years. It definitely had a sort of a quieter period during lockdown and then we saw the spike like all tech businesses did and people did move and take other job. However, we've actually been very successful in hiring engineers. We had a very focused plan on that. As you know, we brought on new senior leadership across both the data science and tech functions. That's been pretty much their top priority. We have taken new space within our building to accommodate that increased talent. And we've really adopted a whole sort of series of flexible working practices that resonated well. I think the kind of the joker in our packet, if you like is that we are purpose-driven business and that really, really resonates. And I think helps us get the marginal employees who are kind of trying to work out between 2 competing offers. They really like the fact that we are doing good and that's very important for the demographic of engineers we're going after. And then something we both Shaun and I referenced is opening up the Barcelona tech hub, that's another way. We obviously have a number of partners we work with kind of around the world, in India and so forth, but this is a dedicated Trainline tech hub based in Barcelona which we're scaling up fast, which allowed us to tap into another talent pool and hopefully is based in one of our markets giving us an insight there. So feeling good about where we're at and our kind of engagement scores and so forth that we monitor. And then international white label, yes. So I think the way to think about this is, this is a sort of the U.K. business. It remains a very interesting white label business. We have renewed contracts with actually kind of potential new opportunities arising in that world. Think about the Italo business. There are a number of sort of pieces in the pipeline that sit behind that, but we are learning our way into this. This is a new world for us and we're hugely excited to be working with a partner and we will learn a lot through that will begin to understand the market a lot better. So I think for now, the U.K. white label business will be the majority of the revenue, but we see really exciting opportunities for growth across Europe and it's that what I talked about, when I talked about Platform One, we have this rail platform which is unparalleled within Europe and people we speak with international sort of incumbent players who are very excited about our international content and we make it very easy for them to sell international tickets or in this case regional tickets for new challenger brands. So there's a lot to look at here, but it's early days where we're positioned now.

Marcus?

I'm Marcus Diebel, JPMorgan. I have some questions, 2 on the U.K., one on International. You highlighted the e-ticket availability went up from 80% to 90%. Just to understand what does this 90% actually mean, is it volume weighted or is it by station, i.e. the frequent journeys obviously take a higher weighting. Just to understand what it actually means. And then the ticket penetration went from 21% to 42%. So going forward, if you draw the line, how should we think about it? And what are the levers to push as hard as possible? That would be the first question. The second question may be related to this. Obviously, a lot of focus in international marketing, but also in the U.K. I mean you highlighted order frequency is going up. Customers are very sticky. The GBR app is coming. So why not be as aggressive as possible that the highest amount of customers possible in the next, let's say, 2 years, which obviously will be then very difficult for others to steal from you rather than maybe not be so overly aggressive. So we'll be interesting how you actually think about it also in the U.K. And then lastly on international. You highlighted clearly that a lot is happening in terms of competition. As of now, maybe with the exception of Germany, which as you highlighted is special. But for the other markets, I mean in terms of volume, the routes with competition, what is the share in the overall kind of like ticket sales. I mean, I know you don't have the exact number, I guess, but just to get a feel for that.

Okay. Great set of questions. I think I'll start working through them and Shaun should probably just chip in as we go. The first one, e-ticket availability. So that represents of the tickets sold, which could have been bought by an e-ticket. That's the way to think about it in value terms. That's what that measure means. And so what that really means is, you can kind of see from the picture that by the end of the year, I think with 2 very small exceptions, our Merseyrail and c2c, every talk apart from the kind of core TFL London piece we'll have that. And I was on a train on Southeastern at the weekend and I forgotten how annoying it is to have to print out tickets, right? And so we will bring a large part of Kent online by the end of the year [indiscernible]. So that's the first part. In terms of the trend going forward on ticket penetration, I do think you can't draw a straight line between 21%, 42% up. This is a sort of once in a generational shift, right, in terms of everyone over lockdown using delivery, Netflix kind of unpicking cash out of their pockets. There has been a significant jump to e-tickets from paper seasons, but also just from paper tickets. In terms of where that trend is going forward, we have clearly now kind of solved the supply issue essentially with the exception of London. There will be continued move from paper to digital, but I don't expect that to be like the last 2 years. So it will continue to move up and it will continue to be a substitution. And I think it will be interesting to look at whether sort of the DfT get to on where paper tickets are going to go. So I think over-time, it continues to go up lots of headroom, but not at the accelerated rate over the last 2 years. Shaun, anything you'd add on that?

Not on e-ticket.

And then with regard to the U.K. in terms of marketing and how we're thinking about that. Obviously, we're talking a lot about international because that's new and we're building that capability. We have been really pretty aggressive. If you look in terms of railcards and getting to a million railcards that's been a big push for us because it's a new capability. As you'd expect, we remain very present in the performance marketing digital marketing channels. And actually without kind of giving anything away, we are teeing up for some big U.K. campaigns very much focused around value and trying to connect more with purpose and thinking about rail and helping customers understand why rail is a great form of transport and that's sort of thing we can do it in the U.K., because we've got the scale to do that. So those are areas to look out for going forward in U.K. and certainly we will continue to have put on the gas on all of that stuff. And then in international markets, I think the question was what share is competitive between the operating company or was it -- yes. And data is tougher to get in the European market. So we're having to do a lot of backing into stuff to try and work that out. I think if you look at Italy, the majority of that is competitive and have been for a number of years between Italo and between Trenitalia. So all the long distance routes essentially are competitive. When you then look at France, there is only Paris-Lyon so far. There is sort of full competition in the fact that Ouigo kind of compete with itself in SNCF actually with kind of the big principal 7 or 8 routes. So that is the beginning for the customer of like hang on there's 2 services here, but true competition where another operator is coming. Paris-Lyon is the route. That would be kind of high single-digit in terms of share. And then when you look at Spain, that's really interesting because we anticipate basically Madrid-Barcelona already competitive. We'll expect Iryo to launch later this year and then Madrid Valencia and then Madrid to Seville, all of those routes will be competitive, and that is a very large part of the high-speed network of Spain. So with 4 carriers, one of them being a sort of low cost incumbent one, but 4 carriers across the really all of the high-speed routes. So I think Spain is going to be a very interesting case, obviously a smaller market, but this has really got traction and I think if we would expect and anticipate more competition in France because basically the gloves are off between the various French, Spanish and Italian businesses. And they're all got to enter the market. Do you want to add to that?

Yes. I'll just come back on the marketing question, the middle question. So the thing to remember, Marcus, if you look the deal we just closed, we spent GBP 16 million in marketing in the U.K. If you look at consensus, consensus would say we're going to spend GBP 19 million in the year we're in now. So we are going to spend more in marketing those and consensus is about in the right place. And then think about our monthly active users in the U.K. We've got 18 million monthly actives thereabouts and that's unique that's not traffic, that's unique visits. Think of that as a proportion of the U.K. traveling public. They are already using our product. And then you've got all the people who've got the massive installed base of app downloads that we have. If you look at our customer acquisition in the U.K., 80% of our customer acquisition comes through 3 channels, combination of direct-to-app or through SCO or direct to our site. And if you look at that, that's driven by a very strong awareness in the U.K. I want to find the people who don't know who we are in the U.K. because I think most people do. And so our need to spend every increasing months in marketing dollars over-time. Marketing scenario we absolutely should get leverage over-time. I understand your point about why not spend more marketing dollars now just to really close out before GBR arrives. We are spending more marketing dollars. But we already have a huge installed base and a huge awareness in the U.K. Ciaran?

It's Ciaran Donnelly from Liberum. Two questions from me, just one on the addressable market opportunity in the U.K. I don't know if you've done any work to kind of do a comparison vis-a-vis pre-COVID. I think 12 billion with 2 billion being [indiscernible] used to be the number quoted. What's the view on that now with the digitization in season tickets some kind of change to working from home et cetera? And 2, if we could just think about the U.K. consumer take rate over kind of the medium term. Obviously the MOU has provided a backstop, but I wonder what your views on kind of the ancillary part of the consumer take rate. What levers can be pulled there and can it be increased or maintained over-time? Thanks.

Sure. I'll pick up. I'll start with the first one and hand over to Shaun and you can take the second one as well I guess. So in terms of kind of how does the market return. I guess the way we can of broad-brush, thought about that. Exactly to your point of 10 billion 40% leisure, 40% commuter, and then 10% business, 10% on international and that's the very broad-brush. Like leisure is back and we see that continuing to grow and I'm very bullish on where that kind of goes a market level within the U.K. Commuters, the big unknown and we don't have the answer to that question. Clearly from Trainline's point of view, this is not a market we really played in. I mean, half of that 40% was paper season tickets and we talked about our product that will offer that. Is that going to be half the size it was historic? Maybe, but we're kind of -- we'll have to see in what direction that goes in the coming months. And then on the singles and returns part like we just see more adoption coming to people who want to do sort of point to point once or twice a week and we think we're in a really good position to aggregate all of those different products and help people make the right choice within that market. International, we are very encouraged over the sort of the last 2 or 3 months. We definitely see that coming back strongly, and I think all the players are as well. So that market is only going in one direction. I think it's increasing demand for rail travel lots of articles around this. I think people want to travel sustainably. So international rail with the combination of the services will continue. And then look business travel is the final part and it's an important and profitable part for the railway, that is sort of -- that has kind of half returned. We will wait and see how that plays-out and we can all have own point of view in terms of how it does. I believe in the long run, this will come back and be really important part of the mix. And we haven't talked about it for months. We've got a lot of sort of functionality and interest for that segment of the market because we offer great solution whether you're a corporate or TMC or a small business in controlling that making really efficient. So we think however it comes back, there is real opportunity for growth. It's just the last sort of 6 months, 12 months have not been the focus in the way that leisure bounce back super quickly. So that's kind of my take. I don't know if you want to add any on that, but certainly pick that.

Yes. So not much on the overall TAM, I would say here. So if you look at the passenger numbers today and the DfTs and data says the passenger started back to around about 80% of what they were pre-COVID. Jody has identified the gaps and the gaps are corporate travel. That's definitely so significantly behind where it was pre-COVID, but it is improving. Our own view is this is going to take time. This is not going to be this year I think. It might not be even a next year thing. But in the long-term, I absolutely agree with Jody I think IT will come back and there is an impetus there for companies to encourage their people to use rail rather than road or short haul air as a mode of transport. So I think there is the environmental tailwind that supports that as well. So I do think in time, that will come back. Inbound travel, honestly, the last few weeks, if you'd ask me this question 6 weeks ago, I would have said, the inbound travel is not there yet. Actually inbound travel is there now. And it's already back into growth versus the pre-COVID period. So I feel good about that. And then commuter travel is the unknown. So it's not the commuters, now back they are, of course they are. I mean we're all standing on busy trains again. But most people are doing 3 days a week in the office. That's typically the pattern that we see and it goes Wednesday, Tuesday, Thursday, Monday-Friday. So this required sometimes on Friday. And we think that's likely to continue. But as Jody said, our share of the commuter market was single-digit pre-COVID and the product developments that we've done and changing customer behavior that we've seen, people are buying many more singles and returns, buying flexi tickets. The fact that we're developing digital season tickets and that is already in detail in [indiscernible]. So there's lots of reasons to believe we can gain significant share in that commuter sector and I think for us, whilst the market is back at 80% we're already significantly beyond that and into growth versus the pre-COVID period. So I feel good about that. For the take rate question, we've had take rate headwinds in the U.K. for a number of years and that's because our mix of customers and tickets we sell has changed over that time. And it's because we're selling many more on the day tickets, where we don't charge a booking fee and very short journeys where we don't charge a booking fee and become a bigger part of the mix. There if you think about the take rates on those, it's obviously going to be lower, but this isn't new sale for us. It's new customers and it's people like commuters where we are winning new customers. So that's a positive. But it does represent a take rate headwind, albeit an overall revenue opportunity obviously. And as I think about the MOU and how that plays in, it's a net 25 basis point risk for us and is just risk at this point, right? It's a backstop. We will go into this next phase of negotiations absolutely pushing to close that remaining gap and more. And we've got strong arguments to say there isn't room for any cut in commission. And those are both economic arguments and legal competition arguments and level playing field argument. So we feel good about our position as we go into this next phase of negotiations with the backstop is just 25 basis points haircut. And then we'll look to the levers that we can pull to close that gap if that's what we need to do, but we are always looking at how to optimize out of the revenue levers, whether that's advertising, insurance whether it's booking fees. And we are constantly AB testing booking fees and other service fees. That's just part of what we do at BAU. So yes, I'm not going to give you a forecast on will we close that gap through ancillary. We're always looking at those things, so I feel good about our guidance -- the consensus on where take rate will get to and whilst there are headwinds, our job is to close those gaps.

We've probably got time for one more question.

And I'll rush in before anyone else can. So Andrew Ross from Barclays. I've got 3 if that's okay. Is it okay?

That's okay.

Short-ones.

First one is just to come back on the MOU that you've agreed and the 25 basis point rebate on the fulfillment cost. I'm just kind of curious as to how that conversation went and when we think how 5, 10 years from now and perhaps more cost comes out of the industry as we all shift to digital, whether that's actually more flat, but you could negotiate as part of your cost of sales on a, let's say 5 to 10 year view, and where we kind of end up there. Second question is on kind of flexi season tickets. I am wondering if you've learned anymore about where that might end up. And I guess I'm thinking in terms of dilution on ticket price as you move from say a weekly past to operate a week and any progress you've made on the 2% commission that you guys charge. And then the final question is on international and about helpful map you put out on all the routes that will liberalized by 2024, do you kind of have a sense as to what the net ticket sales on those routes are overall to give us a sense as to how to quantify it. The stat you've given on share is helpful, but the kind of overall market size. Thanks.

Great. So I'll give sort of shortish answer to each of those and then I'll start with the international one. It's very hard to quantify basically in terms of the scale of the route that will become liberalized. I think in my mind, if we're in Spain, albeit we talked about Italy will be the largest. Spain is growing rapidly. I think the one to watch is France and that will be about whether other carriers, particularly Trenitalia decide to launch other routes and that really be the flip between, is this sort of single-digit teams or into the 20s plus. My expectation over the next 5 plus years is this is going to proliferate and there will be a meaningful part of the high-speed network will be competitive. But I think they're all learning their way at the moment to that point. In terms of flexi seasons, your point on the 2% commission that is absolutely the type of thing that will be discussing in the next phase, there is nothing we can talk about at the moment there. And then in terms of flexi seasons as a product, they are growing of a smaller base but they are growing and I think they're an important part of the portfolio of products that we offer commuters as they travel. And actually they are right for some people and actually they are the best choice and the best value choice, but people want, they still really work that patterns out and you have to come to know you're going to travel for X number of times in the month. So we're still working into that, but I see a slot for them especially once we get digital seasons established beyond that. And then regard to the MOU, we can't really talk about how the conversations have gone there. I think it's an industry-wide set of conversations between third-party retailers, which I think hopefully will include GBR as a third party-retailer in the future. That's our expectation. And so there'll be I think interest to look at how costs can be brought down across the whole industry, but I certainly wouldn't be targeting any future [indiscernible] on cost right now. And I don't know if Shaun want to add anything to that.

Just a clarification point, Andrew. So the cost forgiveness, the 25 basis point cost forgiveness is not fulfillment costs. It's central systems costs. Things like the [indiscernible] recharges but we get allocated those costs back on a per unit basis. But it's not fulfillment. The fulfillment cost -- the biggest elements of fulfillment cost is the infrastructure to support barcode rollout and of course, that CapEx will be amortized over-time. And so once that CapEx is amortized the barcode fulfillment cost will reduce over-time, but our focus now of course is we want to put more gates in the ground and that's how we're pushing. So that's how mechanically, how it will work, but it is in our focus where we absolutely want more gates in the ground and therefore the industry to spend more CapEx and putting those gates in place.

Great. Well, look, we'll close there on questions. Thank you all of you for joining and thanks for all of those questions. But just to sort of paraphrase what we said, strong sales performance. I think that the strategy is clear and I feel like we have made significant progress against that over the last 6 months and 12 months and that we're really excited about the opportunities we've laid out to take Trainline into Europe and across the U.K. Thank you everybody. Cheers.

Thanks.