On The Beach Regulatory News (OTB)

8 April 2020

On the Beach Group plc

("On the Beach", "OTB" or the "Group")

COVID-19 and Banking Facilities Update

On the Beach provides the following update in light of the ever changing COVID-19 situation. First and foremost, the health and wellbeing of our team members and our customers is and always will be the Group's top priority. Everyone across the team has responded with speed and professionalism to the current challenges.

In line with market-wide communications made by OTB prior to and since its listing in September 2015, the Group has an asset light, flexible, no inventory risk model and has no fixed commitments on hotel rooms or airplane seats.

For context, a tour operator or airline will generally have an almost immovable committed inventory cost (aircraft and/or hotels) and infrastructure cost of 60-70% of its aspirational total sales (transaction value) with or without any demand. An online travel agent like OTB without any inventory commitment only incurs inventory costs on each sale made and under normal conditions will have an underlying operating cost of approximately 8% of sales of which almost 70% is flexible marketing spend. If demand falls away completely then the fixed cost base will drop to c.3% of aspirational sales (or one twentieth of the costs of a similar sized asset heavy operator).

Perhaps more importantly in the current scenario, OTB is also the only listed UK travel business that operates a fully ringfenced customer trust account in which customer funds are held until the point of travel. Therefore the Group, unlike the majority of online travel agents, tour operators and airlines, does not rely on cash received for forward bookings to trade. Monies that have been received for holidays that are cancelled by a closure of airspace can be repaid to customers in cash with limited impact on the Group's working capital.

Notwithstanding the advantages of the OTB model, the Group took early action in February to manage risk and conserve cash. In this environment of limited demand and therefore limited revenue, the Group's marketing costs have reduced to almost nil and the Group has taken further actions to limit other non-essential costs meaning that monthly cash costs are now less than £2m across the entire Group. The Group has, however, maintained all costs associated with the delivery of its future strategy.

Further to the above and in light of the current market uncertainties, OTB is suspending full year guidance until such time that the overall impact of COVID-19 on the Group becomes clearer. The Board also announces that it will not be declaring an interim dividend in the current financial year to 30 September 2020. The Group's CEO is forgoing his salary and the remainder of the Board have voluntarily agreed to a 20% reduction in salary and fees. This is alongside no bonuses being awarded across the Group in the current financial year.

Banking Facilities

In 2019 the Group renewed its existing Revolving Credit Facility to provide up to £50m to manage seasonal working capital requirements. The Group has recently reached agreement with its Bank to: extend the £50m RCF to all months of each year; extend the term to December 2023; and reset covenant tests for all periods up to and including June 2021.

The Group has also run theoretical stress tests of the Group's business model. It should be noted, however, that this is a stress test and not any expectation of the Group's future trading.

The stress test applied the following assumptions: 

In the above scenario, the Group would end H1 FY21 with only a limited drawdown of its facilities and significant headroom. This headroom would allow the Group to take advantage of the multitude of opportunities that these market conditions would present. The aforementioned position, of course, does not include any customer funds received for untraveled holidays, as these would be held separately in the Group's ringfenced trust account.

The Group will provide a further update to shareholders as and when appropriate.

Simon Cooper, Chief Executive of On the Beach Group plc, commented:

"The travel industry is prone to shocks: global recessions, natural disasters, terrorist attacks, and major airline failures to name a few. A closure of airspace was deemed inconceivable during contingency planning for a no-deal Brexit, but we now find ourselves in a position where airspace may be closed for a number of months due to the spread of COVID-19, and the travel industry needs to brace itself for a potentially prolonged period of significantly reduced, or even zero revenue.

"On the Beach was created with an asset light model to ensure its survival in the inconceivable market conditions in which we now find ourselves. Unlike the majority of larger tour operators, online travel agents and airlines, all OTB customer funds are held in a ring-fenced trust account so that if the scenario above prevailed and all forward bookings were to seek a refund of their prepaid holiday monies, in the main this could be facilitated without impacting Group cash. This is not the case across the industry where customer funds are often held on balance sheet and if refunds were requested en masse, the funds would not be available.

"Against the backdrop of the impossible market conditions in which we find ourselves, the resilience of On the Beach's asset-light and flexible business model becomes clear. The benefits of using a trust account structure (as opposed to the use of customer funds for working capital), become obvious, for consumer protection, for the financial stability of the business, and ultimately for the protection of the taxpayer. It would appear obvious that, as an industry, we need to reflect on financial protection and on how we can make our industry robust enough to withstand future shocks.

"In the days leading up to the closure of airspace, we were able to put a detailed plan in place to ensure that we are best placed to deliver operational and customer service excellence throughout this difficult time. As a technology company, we are also well placed to facilitate remote working for all of our staff. I am hugely proud of the efforts of everyone at OTB and would like to praise the dedication of my colleagues who have been working around the clock to provide the very best level of support for our customers.

"Whilst the coming months will continue to present a huge challenge, I look forward to the multitude of opportunities which lie ahead."

For further information:

About On the Beach

With over 20% share of online sales in the short haul beach holiday market, we are one of the UK's largest online beach holiday retailers. We have significant opportunities for growth and a long-term mission to become Europe's leading online retailer of beach holidays. By using our innovative technology, low-cost base and strong customer-value proposition to provide a structural challenge to legacy tour operators, we continue our journey to disrupt the online retail of beach holidays. Our model is customer-centric, asset light, profitable and cash generative.

About On the Beach's business model and trust account

When an OTB customer books a holiday, all funds paid to the Group, excluding any flight costs which are paid immediately to the flight operator, are held in a ringfenced trust account until the travel date, at which point the funds are released to OTB to pay the hotel and transfer providers. As such, should any customer be due a refund for a holiday cancellation, this is paid directly from this trust account or from any supplier refunds and not from Group cash.

www.onthebeachgroupplc.com

Cautionary statement

This announcement may contain certain forward-looking statements with respect to the financial condition, results, operations and businesses of the Company. Forward looking statements are sometimes, but not always, identified by their use of a date in the future or such words as 'anticipates', 'aims', 'due', 'will', 'could', 'may', 'should', 'expects', 'believes', 'intends', 'plans', 'targets', 'goal' or 'estimates'. These forward-looking statements involve risk and uncertainty because they relate to events and depend on circumstances that may or may not occur in the future. There are a number of factors that could cause actual results or developments to differ materially from those expressed or implied by these forward-looking statements, including factors outside the Company's control. The forward-looking statements reflect the knowledge and information available at the date of preparation of this announcement and will not be updated during the year. Nothing in this announcement should be construed as a profit forecast.