On The Beach Regulatory News (OTB)

10 May 2018

On the Beach Group plc

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

INTERIM RESULTS FOR SIX MONTHS ENDED 31 MARCH 2018

19% GROWTH IN GROUP REVENUE AND 15% Growth in ADJUSTED GROUP PBT

Financial & Operational Highlights

Group

• Group revenue increased 19% to £45.3m (H1 2017: £38.1m)

• Adjusted Group profit before tax(1) up 15% to £14.0m (H1 2017: £12.2m) including the estimated impact of £1.1m for lost bookings due to winter seat availability and seat pricing following the Monarch failure

• Net debt at 31 March 2018 of £11.6m (H1 2017: £2.3m debt) reflecting normal seasonal working capital requirements and £12m for the funding of Sunshine acquisition.

• Monarch reimbursement asset of £5m recovered in full. FY17 provision of £7m has been fully utilised.

• Interim dividend declared of 1.1p per share (H1 2017: 0.9p)

(1) Adjusted Group profit before tax is profit before tax before amortisation of acquired intangibles of £2.1m (H1 2017: £2.1m), share based payments £0.7m (H1 2017: £0.2m) and litigation costs of £0.3m (H1 2017: nil)

(2) Adjusted earnings per share is Group adjusted profit after tax(1) divided by the average number of shares in issue during the period

UK

• UK revenue up 19% to £44.4m (H1 2017: £37.5m)

• UK revenue after marketing costs up 19% to £23.0m (H1 2017: £19.4m)

• Estimated impact of £1.1m for lost bookings due to winter seat availability and seat pricing following the Monarch failure

• Adjusted UK EBITDA(3) up 17% to £17.0m (H1 2017: £14.5m) 

• Strong booking and share growth supported by some modest and tactical discounting

• Daily unique visitors(4) increased by 23.9% to 34.1m (H1 2017: 27.5m)

• Branded and free traffic increased to 62% of overall traffic (H1 2017: 56.7%)

• Percentage of revenue spent on online marketing increased to 40.6% (H1 2017: 40.4%), with an accelerated investment in the Sunshine.co.uk brand to drive traffic growth and to offset Sunshine's historic under-investment in paid search

(3) Adjusted EBITDA excludes litigation costs and share based payments. See note 2 for the reconciliation to the nearest GAAP measure.

(4) Daily UVs: Number of individuals, as defined by an IP address, visiting pages from the onthebeach.co.uk or sunshine.co.uk websites during a 24 hours period

International

• International revenue increased by 51% (H1 2017: 20%), with Sweden enjoying its strongest period of trading since launch, supported by an increased investment in Sweden and Norway to accelerate growth

• Launch of third international market in Denmark planned for May 2018

• International EBITDA loss of £(1.6)m (H1 2017 £(1.0)m)

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

"On the Beach has delivered a solid performance in H1, with strong booking and share growth supported by some modest and tactical discounting. Booking growth strengthened towards the end of the period and has continued into H2.

"As referenced in our AGM update on 8 February 2018, the flight capacity constriction following Monarch's collapse has driven an increase in seat prices and a corresponding reduction in bookings. The position regarding flight capacity continues to recover as incremental capacity has been scheduled which alleviates this constriction.

"Given the resilient and flexible nature of our business model, the Board remains confident in delivering a full year result in line with management's expectations, taking into account the one-off impact of flight capacity constraints as a result of the Monarch failure and the accelerated investment to support International growth.

"To support our continued desire to attract and retain the best digital talent, we have signed a lease on a new digital HQ in Manchester which has the capacity to support our growth ambitions. Fit out work will begin shortly and we are scheduled to occupy this exciting new space by the end of 2018."

Analyst Meeting

A meeting for analysts will be held today at the offices of FTI Consulting, 200 Aldersgate, London, EC1A 4HD commencing at 09:30am.

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 and travel agents, we continue our journey to disrupt the online retail of beach holidays. Our model is customer-centric, asset light, profitable and cash generative.

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

Chief Executive's Review

Summary of Operating Performance

On the Beach continues to be a dynamic, entrepreneurial and ambitious business delivering value for money beach holidays that are personalised to our customers' individual needs. The Group maintains a daily focus to improve the quality of its customer proposition and the value that it provides to its growing customer base.

We have continued to grow market share in H1, with daily unique visitors to site(4) in the UK increasing 23.9% to 34.1m (H1 2017: 27.5m). In light of our expectation of a strong recovery in demand we have continued to invest in both online and offline marketing activity to build trading momentum into the start of H2. The phasing of our offline marketing investment has been significantly different YOY with a heavier weight of investment at the end of the period. This has driven online marketing expenditure as a percentage of revenue to 40.6% (H1 2017: 40.4%), delivering a revenue after marketing costs increase of 18.6% to £23.0m (H1 2017: £19.4m). Our continued growth has been delivered by executing a focused strategy to optimise our customer proposition to increase conversion rates and improve margin while driving an efficient increase in our market traffic share, further enhancing our ability to gain market share from traditional tour operators.

(4) Daily UVs: Number of individuals, as defined by an IP address, visiting pages from the onthebeach.co.uk or sunshine.co.uk websites during a 24 hour period

Strategy and growth

The Group has a mission to make it simple for customers to plan, find and book their perfect beach holiday and a vision to be Europe's leading online retailer of beach holidays.

On the Beach has delivered significant growth within a growing market over the last three years by evolving a strategy based around the following drivers:

1. Out-innovating through agility and investment in talent and technology

· Improvements to agile working methodologies continue to increase throughput of benefits-delivering features and functionality

· Continued evolution of core platform to support future innovations

2. Driving an efficient increase in market traffic share

· Daily unique visitor growth of 23.9% in H1 and significant market share growth

· Branded and free traffic increased to 62.0% of overall traffic to site (H1 2017: 56.7%)

· Percentage of revenue spent on online marketing (H1 2018: 40.5% vs H1 2017: 40.5%)

· Third year of full national TV advertising campaign and second year of Benidorm TV programme sponsorship

3. Optimising and personalising our multi device customer proposition

· 5.8m logged sessions in H1 2018, a 16% increase (H1 2017: 5.0m)

· Responsive site now serves 60.7% of UK traffic on smartphone (H1 2017: 52.7%)

· Repeat purchase rate increased to 42.9% (H1 2017: 40.3%)

4. Leveraging increased revenue through direct and differentiated supply

· 68% of all hotel buying through direct contracting (H1 2017: 66%)

· Further progress made to increase percentage of rate and access of exclusive hotel supply throughout FY18 and beyond whilst maintaining risk-free model

5. Expanding our model into new source markets and products and driving operational leverage

· Fixed and variable cost as a percentage of revenue 12.9% (H1 2016: 12.5%) reflecting completion of integration of the Sunshine brand

· Branded and free visits to ebeach.se and ebeach.no continue to increase and repeat purchase rate continues to improve to 23% (H1 2017: 18%)

· Denmark website (ebeach.dk) launches during May 2018

We have continued to invest in our people and our platform which allows us to innovate at an increasing pace and, in doing so, stay ahead of the competition. To support our continued desire to attract the best digital talent, we have recently signed a lease on a new digital HQ in Manchester which has the capacity to support our growth ambitions. Fit out work will begin shortly and we are scheduled to occupy this exciting new space by the end of 2018.

Recent market trends

As referenced in our AGM update on 8 February 2018, the flight capacity constriction post Monarch's collapse drove an increase in seat prices and corresponding reduction in bookings. This short term flight supply constriction had a detrimental impact on trading in H1 whilst airlines rescheduled capacity to fill the demand left by Monarch. Supply is now returning to a more normal pattern, together with a return in demand for peak departures and since the period end we have seen a notable improvement in trading.

Marketing

In light of our expectation of a strong recovery in demand we have continued to invest in both online and offline marketing activity to build trading momentum into the start of H2. The phasing of our offline investment is significantly different YOY with a heavier weight of the investment in the end of the half. This investment has delivered strong momentum into the start of H2.

Sunshine.co.uk

Following the integration of Sunshine onto the OTB platform we have driven strong revenue growth through H1. We have continued to invest the majority of this incremental revenue to drive traffic growth and to offset Sunshine's historic underinvestment in paid search marketing. Sunshine volumes are also helping to support volume growth with key hotelier partners.

Board changes

As announced separately today, Richard Segal has informed the Board of his intention to step down as Non-Executive Chairman, a position he has held since October 2013. Richard has led the Group through a period of strong change and growth, as both a private and listed business, and the Board expresses its deep gratitude for his contribution and guidance during that time.

After a period of transition Richard will be succeeded by Lee Ginsberg, currently Senior Independent Non-Executive Director, at a date yet to be confirmed. At that time, David Kelly will become Senior Independent Director. Lee and David have both been on the Board of the Company throughout its life as a listed entity. The Nomination Committee has commenced the process for recruiting a new non-executive director.

Current Trading & Outlook

We are efficiently executing our strategy of investing in our people, brand, supply and technology and we continue to realise the benefits of operational leverage from our low fixed cost base. A number of the technological developments that we have been working on throughout H1 will be fully rolled out in H2 and we expect will deliver significant benefits.

Given the resilient and flexible nature of our business model and the expectation that demand for peak summer departures will continue to improve, the Board remains confident in delivering a full year result in line with management's expectations, taking into account the one-off impact of flight capacity constraints as a result of the Monarch failure and the accelerated investment to support International growth.

The current market dynamics are presenting the Group with many opportunities to leverage its scale and technological capability to strengthen its market leading position, such as the recently completed acquisition of Sunshine.co.uk, and the Board continues to evaluate opportunities to enhance the Group's profitability and market share position.

Financial Review

The Group organises its operations into two principal financial reporting segments, being UK (the "UK Segment"), the Group's established market and International (the "International Segment"), the Group's developing market. In each of the UK Segment and the International Segment, the Group realises 93% of revenue from dynamically packaged holidays with the remainder single element products such as flights or hotels.

UK Segment performance

* Adjusted EBITDA excludes litigation costs and share based payments. See note 2 for the reconciliation to the nearest GAAP measure. 

UK segment revenue and marketing costs

Revenue increased by 18.5% to £44.4m (H1 2017: £37.5m) with On the Beach's agile business model allowing the Group to react to rapid changes in consumer demand. The acts of terrorism in recent years, have continued to impact Egypt but we have seen a return of demand to the Eastern Mediterranean in H1 2018, together with continuing strong demand for holidays in the Western Mediterranean. 

Marketing expenses (excluding offline) for the first half as a percentage of revenue were 40.6% (H1 2017: 40.5%) with total expenditure of £18.0m (H1 2017: £15.2m) reflecting both the accelerated investment in the Sunshine brand to offset the historic underinvestment in paid search marketing and a continued investment overall to drive traffic to build trading momentum for H2. We have increased expenditure in H1 on the Group's offline TV advertising to £3.4m (H1 2017: £2.9m) with a fully national campaign and a continuation of the Benidorm television programme sponsorship on ITV.

UK segment Adjusted EBITDA*

Whilst we continue to benefit from scale and improve operational leverage, the combination of Sunshine.co.uk (historically a lower margin, lower Adjusted EBITDA* % business) into On the Beach impacts overall blended cost ratios and Adjusted EBITDA* %, whilst we grow and invest in the business as part of the enlarged Group:

Adjusted EBITDA* increased 17.2% to £17.0m (H1 2017: £14.5m). Adjusted EBITDA* as a percentage of revenue was 38.3% (H1 2017 38.7%).

*Adjusted EBITDA excludes litigation costs and share based payments. See note 2 for the reconciliation to the nearest GAAP measure.

International Segment performance

The Group has focused on growing international share both online and offline supported by a TV campaign in December. We also launched a site in Denmark in May 2018.

Losses in the first half were £1.6m (H1 2017: £1.0m) and are derived almost entirely from the marketing investment required to drive branded awareness and share of traffic which will in turn improve efficiency.

Adjusted group profit before tax and retained earnings

The Group reports adjusted group profit before tax and amortisation of acquired intangibles to allow better interpretation of the underlying trend in profit before tax.

(6) Includes amortisation of development costs of £1m but excludes amortisation of acquired brand and website technology intangible assets of £2.2m (H1 2017: £2.1m) and share based payments of £0.7m (H1 2017:£0.2m).

Finance costs

The Group has in place a revolving credit facility of up to £35.0m with Lloyds. The drawdown at 31 March 2018 was £23.5m (H1 2017: £9.0m) and the peak drawdown for the period was £23.5m. Borrowing limits vary under the RCF to reflect the seasonal requirements of the Group and as a result of the flexible payment options given to customers.

Share based payments

The Group has an LTIP scheme in place and there have now been four sets of awards granted, which vest based on performance criteria between September 2018 and September 2020. In accordance with IFRS 2, the group has recognised a non-cash charge of £0.7m (H1 2017: £0.2m).

Taxation

The Group tax charge of £2.3m represents an effective rate of 21.3% (H1 2017: 19.6%) which was higher than the average standard UK rate of 19% (H1 2017: 20%). The current tax charge is affected by a deferred tax credit of £0.4m (2017 H1: £0.4m) which is released in line with the amortisation of £2.1m on the valuation of acquired intangibles on the investment by Inflexion in October 2013.

Cash flow and net debt

(7) Adjusted operating cash flow is stated as net cash (outflow)/inflow from operating activities before tax paid and after deducting capital expenditure on PPE and intangible assets.

* Adjusted EBITDA excludes litigation costs and share based payments. See note 2 for the reconciliation to the nearest GAAP measure.

On an annual basis the Group operates a highly cash generative business model and makes no stock commitment. The cash flow profile of the Group is seasonal with approximately 50% of customers travelling in the period June to August and hence the cash flows (excluding any cash held in the trust) experience a trough prior to June through to August and a peak following this. The movement in the trust account balance for the half year is £19.9m (H1 2017: £23.0m). At 30 September 2017 the Group recognised a £5.0m reimbursement asset as well as a £7.0m provision in respect of the failure of the Monarch Airlines Group. The £5.0m receivable was recovered in full by the end of H1 FY18. The £7.0m provision which represented the cost the Group incurred to fulfil its obligations to customers under the ATOL regulations to arrange refunds or alternative flights relating to the failure has been fully utilised. No further provision is required.

Dividend

The Board has declared an interim dividend of 1.1p per share (H1 2017 0.9p). The interim dividend will be paid on 29 June 2018 to members on the register at the close of business on 1 June 2018. 

Simon Cooper

CEO

10 May 2018 

Paul Meehan

CFO

10 May 2018 

On the Beach Group Plc

INTERIM RESULTS FOR THE 6 MONTHS ENDED 31 MARCH 2018

CONDENSED CONSOLIDATED INCOME STATEMENT AND STATEMENT OF COMPREHENSIVE INCOME

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 31 March 2018

1. Basis of preparation

This condensed set of financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU. The annual financial statements of the Group are prepared in accordance with International Reporting Standards (IFRSs) as adopted by the EU. As required by the Disclosure Guidance and Transparency Rules of the Financial Conduct Authority, the condensed set of financial statements has been prepared applying the accounting policies and presentation that were applied in the preparation of the company's published consolidated financial statements for the year ended 30 September 2017.

The Group's last annual consolidated financial statements have been prepared in accordance with IFRS as adopted by the European Union.

The comparative figures for the year ended 30 September 2017 are an abridged version of the Group's last annual financial statements and, together with other financial information contained in these interim results, do not constitute statutory financial statements of the Group as defined in section 434 of the Companies Act 2006. A copy of the statutory accounts for the year ended 30 September 2017 has been delivered to the Registrar of Companies. The auditor has reported on those accounts: their report was unqualified, did not draw attention to any matters by way of emphasis and did not contain a statement under s498(2) or (3) of the Companies Act 2006.

These interim financial statements were authorised for issue by the Group's Board of Directors on 8 May 2018

The financial information for the six months ended 31 March 2018 has been reviewed by KPMG, the Company's external auditor. Their report is included within this announcement.

Going concern

The Directors have, at the time of approving the financial statements, a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. The Groups current revolving credit facility expires in December 2018. The Group expects to renew this facility within the next few months. The lending profile of the facility will be consistent with the current facility.

Accounting estimates and judgements

In preparing these interim financial statements, management has made judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates.

The significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements as at and for the year ended 30 September 2017.

Standards issued but not yet effective

As of the date of authorisation of these interim financial statements, the following standards were in issue but not yet effective:

· IFRS 9 'Financial Instruments' was endorsed for adoption by the EU in November 2016 and is effective for accounting periods beginning on or after 1 January 2018.

· IFRS 15 'Revenues from Contracts with Customers' is effective for periods beginning on or after 1 January 2018.

· IFRS 16 'Leases' is effective for periods beginning on or after 1 January 2019 subject to EU endorsement

There has been no changes to management's opinion since the 2017 Annual report. We will continue to work towards quantifying the expected impact of the changes and will provide you with an update in the 2018 annual report.

The management team consider the reportable segments to be "UK" and "International". All segment revenue, operating profit, assets and liabilities are attributable to the group from its principal activities as on online travel agent.

Sunshine.co.uk Limited is disclosed within the "UK" segment.

3 Operating profit

The tax charge for the year is based on the effective rate of UK Corporation tax for the period of 19.5% (2016: 20%). A reduction in the UK corporation tax rate from 21% to 20% (effective from 1 April 2015) was substantially enacted on 2 July 2013. Further reductions to 19% (effective from 1 April 2017) on to 18% (effective 1 April 2020) were substantially enacted on 26 October 2015 and an additional reduction to 17% (effective 1 April 2020) was substantially enacted on 6 September 2016. This will reduce the Company's future current tax charge accordingly. The deferred tax liability at 31 March 2018 has been calculated based on these rates.

Basic and diluted earnings per share are calculated by dividing the profit attributable to equity holders of On the Beach Group plc by the weighted average number of ordinary shares issued during the year.

Adjusted earnings per share figures are calculated by dividing adjusted earnings after tax for the year by the weighted average number of shares.

Basic and diluted earnings per share are the same as there is no difference between the basic and diluted number of shares.

Adjusted basic earnings per share

Adjusted basic earnings per share are calculated by dividing earnings after tax of On the Beach Group plc by the weighted average number of shares:

Adjusted earnings after tax is calculated as follows: