On The Beach Regulatory News (OTB)

19 May 2016

On the Beach Group plc

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

INTERIM RESULTS FOR SIX MONTHS ENDED 31 MARCH 2016

53% Growth in group underlying profit before tax

Financial highlights

Group

• Revenue increased 21.6% to £35.5m (H1 2015: £29.2m)

• Operating profit, before amortisation and exceptional costs, up 35.5% to £10.3m (H1 2015: £7.6m)

• Operating profit up 54.2% to £7.4m (H1 2015: £4.8m)

• Adjusted underlying profit before tax(1) up 53.2% to £9.5m (H1 2015: £6.2m)

• Adjusted pro forma earnings per share of 5.9p is 51.3% up on last year (H1 2015: 3.9p)

• Significantly reduced net debt at half year to £6.6m (H1 2015: £22.3m debt)

(1) Adjusted underlying profit before tax is stated before exceptional costs of £0m (H1 2015: £0m), amortisation of acquired intangibles of £2.1m (H1 2015: £2.1m) and shareholder interest £0m (H1 2015: £3.8m)

UK

• Revenue up 21.1% to £35.0m (H1 2015: £28.9m)

• Revenue after marketing costs up 24.8% to £16.6m (H1 2015: £13.3m)

• EBITDA up 36.5% to £11.6m (H1 2015: £8.5m)

Operational highlights

UK

• Daily unique visitors increased by 17% to 26.4m (H1 2015: 22.5m)

• % revenue spent on online marketing decreased to 46.3% (H1 2015: 48.8%)

• Revenue per daily unique visitor increased by 3.9% to £1.33 (H1 2015: £1.28)

• First year of full national TV advertising has resulted in an increase in prompted brand awareness to 46% (H1 2015: 34%)

International

• Increased investment to drive market share growth in Sweden of £1.0m (H1 2015: £0.6m)

• Daily unique visitors increased by 140% to 1.13m (H1 2015: 0.47m)

• Revenue increased 112% to £0.51m (H1 2015: £0.24m)

Recent market trends

• The following key trends have emerged in H1 which are unlike previous years:

o A shift away from the Eastern Mediterranean in favour of the Western Mediterranean

o A sharp reduction in consumer confidence in the immediate aftermath of terrorist atrocities

o Some consumers choosing to delay the timing of booking a holiday, meaning that we expect FY 2016 to have a more predominant volume of bookings in the 'lates' summer period compared to previous years

Outlook

We continue to grow our share of market whilst driving YOY efficiency in our marketing spend, and realising the benefits of our operational leverage from our lightweight cost base. We are focused on profitable growth and remain on track to deliver management's expectations for the full year and our long term strategic goals.

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

"The business has delivered impressive financial results in the first half that highlight the resilient and flexible nature of our model. I am pleased that we continue to make strong progress in delivering our strategic objectives. The terrorist acts in late 2015 and early 2016 created uncertainty and volatility in the holiday market however the business has adapted to changes in typical consumer practices by focusing on securing incremental supply in the Western Mediterranean, enhancing margin, delivering operational efficiencies and retaining an efficient level of spend in driving demand to site. In the absence of any future negative market events, we anticipate stronger consumer confidence in the second half of the financial year, buoyed by a strong lates market, and are on track to meet our expectations for the full year."

Analyst Meeting

A meeting for analysts will be held today at the offices of FTI Consulting, 200 Aldersgate, London, EC1A 4HD commencing at 10.30am.

For further information:

About On the Beach

On the Beach is one of the UK's largest online retailers of beach holidays with a 17% share of the online short haul beach holiday market. The Company has a large opportunity to generate further growth, has a vision to become Europe's leading online retailer of beach holidays. On the Beach provides a significant structural challenge to legacy tour operators and travel agents as the Company continues its journey to disrupt the online retail of beach holidays with its scalable, flexible, innovative technology, combined with a strong customer value proposition and a low cost base. The business model is customer-centric, asset light, profitable and cash generative.

www.onthebeachgroupplc.com  

Summary

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. Driving an efficient increase in market traffic share

· Daily unique visitor growth of 17% in H1 and significant market share growth

· Reduction in percentage of Revenue spent on online marketing (H1 2016: 46.3% vs H1 2015: 48.8%)

· First year of full national TV advertising has resulted in an increase in prompted brand awareness to 46% (H1 2015: 34%)

2. Optimisation and personalisation of the customer proposition and customer experience

· Driving an increasingly simplified customer experience across multiple devices by continually split-testing changes to the website to drive increased conversion has resulted in an increase in revenue per unique visitor of 18%, 19% and 6% for smartphone, desktop and tablet respectively

· 93% of outbound CRM is now fully personalised to the individual user

· Repeat purchase rate has increased to 37.4%% (H1 2015: 32.4%)

3. Leveraging revenue through payment options and direct product sourcing

· Direct contracting has averaged 57% of all hotel buying compared to FY16 target 52% (H1 2015: 42.4%)

· FY16 proof of concept flight distribution programme of 72,000 flight legs on sale in January and more than 50% sold

· Plans in place to increase percentage of exclusive flight and hotel supply in FY17 and beyond whilst maintaining risk-free model

4. Drive operational leverage and expanding into new source markets in Northern and Central Europe

· Fixed and variable cost as a percentage of revenue reduced by 16% to 13.4% (H1 2015: 15.9%)

· 140% increase in daily unique visitors to Swedish site with 31% reduction in cost per unique visitor (excluding offline)

· 405% increase in branded traffic to Swedish site

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.

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 94% of revenue from dynamically packaged holidays with the remainder single element products such as flights or hotels.

UK Segment performance

(1) Excludes amortisation of acquired brand and website technology intangible assets of £2.1 (H1 2015: £2.1m)

Revenue and marketing costs

Revenue increased by 21.1% to £35.0m (H1 2015: £28.9m) with On the Beach's agile business model allowing the Group to react to rapid changes in consumer demand. The acts of terrorism in 2015 and 2016 have impacted Egypt and the Eastern Mediterranean resulting in stronger demand for holidays in the Western Mediterranean and a shortening of lead times. Revenue per daily unique visitor grew 3.9% in the first half to £1.33 (H1 2015: £1.28) driven by revenue per booking up 10.1% to £176.8 (H1 2015: £160.6) from the continuation of increasing the directness of relationships with our suppliers through the volume of in-house accommodation bookings to 57.4% (H1 2015: 42.4%).

Marketing expenses (excluding offline) for the first half as a percentage of revenue decreased to 46.3% (H1 2015: 48.8%) with total spend of £16.2m (H1 2015: £14.1m) driving an efficient increase in our share through the sophistication of our in house bid modelling and attribution tools. We have increased spend in the first half on the Group's offline TV advertising to £2.2m (H1 2015: £1.5m) with a fully national campaign resulting in an increase in prompted brand awareness to 46%.

UK segment EBITDA

Operational leverage continues to improve and as a result there has been a fall in costs as a percentage of revenue overall:

Variable costs, which comprise mainly contact centre wages and credit card fees, are closely linked to booking volumes but have gained from the benefits of scale and the new EU fee interchange regulations. Continued operational leverage and the revenue benefit of direct relationships reduced overhead costs as a percentage of revenue to 8.0% (H1 2015: 8.3%).

EBITDA increased 36.5% to £11.6m (H1 2015: £8.5m). EBITDA as a percentage of revenue increased from 29.4% to 33.1%.

International Segment performance

The Group has focused on growing share both online and offline and launched a national TV campaign in December at a cost of £0.2m. The first half of FY16 saw significant growth in traffic, which was up 140%, with efficiencies in cost per click which fell 31% to £0.97 (H1 2015: £1.40) and an increasing branded traffic share which grew to 19.5% (H1 2015: 10.2%).

Losses in the first half were £1.0m (H1 2015: £0.6m) and are derived almost entirely from the marketing investment required to drive branded awareness and share of traffic which will in turn improve efficiency.

Group underlying profit before tax and retained earnings

The Group reports underlying profit before tax before shareholder interest (2), amortisation of acquired intangibles and deal costs to allow better interpretation of the underlying trend in profit before tax.

(1) Includes amortisation of development costs but excludes amortisation of acquired brand and website technology intangible assets of £2.1m (H1 2015: £2.1m)

(2) Interest on shareholder loans will no longer be incurred following the IPO as shareholder loan notes were repaid in full by way of the issue of shares to loan note holders

Finance costs

Finance costs for the first half reduced significantly to £0.2m (H1 2015: £0.8m) with the bank term loan which was £18.9m as at 31 March 2015 repaid in full out of the Group's existing cash balances on 28 September 2015, post IPO. The Group has in place a new revolving credit facility of up to £35.0m with Lloyds. The drawdown on 31 March 2016 was £11.5m which was the peak level throughout the first half (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).

Taxation

The Group tax charge of £0.9m represents an effective rate(1) of 9.5% (H1 2015: 29.2%) which was lower than the average standard UK rate of 20% (H1 2015: 20.5%). This was affected by a deferred tax credit of £1.0m (2015 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 and in the first half of FY15 by disallowed shareholder interest under the Advance Thin Capitalisation Agreement.

(1)  Effective tax rate is calculated as taxation charge divided by underlying profit before tax plus shareholder interest

Cash flow and net debt

 (1) Movement in working capital has been adjusted to exclude £3.0m outflow from IPO deal costs

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 August and a peak following this.

Dividend

Whilst the Group operates a highly cash generative business model, the Board intends for the majority of profits to be reinvested to support future growth. The current intention is to pay a final dividend in relation to the financial year ending 30 September 2016. Thereafter, the Group will adopt a progressive dividend policy.

Simon Cooper

CEO

19 May 2016

Wendy Parry

CFO

19 May 2016

On the Beach Group Plc

INTERIM RESULTS FOR THE 6 MONTHS ENDED 31 MARCH 2016

CONDENSED CONSOLIDATED INCOME STATEMENT AND STATEMENT OF COMPREHENSIVE INCOME

For the 6 months ended 31 March 2016

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 31 March 2016

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the year ended 30 September 2015

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

For the 6 months ended 31 March 2016

Notes to the condensed consolidated interim financial statements

1. Basis of preparation

These interim financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting, and should be read in conjunction with the Group's last annual consolidated financial statements as at and for the year ended 30 September 2015 ('last annual financial statements'). They do not include all of the information required for a complete set of IFRS financial statements. However, selected explanatory notes are included to explain events and transactions that are significant to an understanding of the changes in the Group's financial position and performance since the last financial statements.

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 2015 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 2015 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 On the Beach's Board of Directors on 18 May 2016

The financial information for the six months ended 31 March 2016 has been reviewed by KPMG, the Company's external auditor. Their report is included within this announcement.

The company has not previously produced a half-yearly report containing a condensed set of financial statements. As a consequence, the review procedures set out above have not been performed in respect of the comparative period for the six months ended 30 March 2015.

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.

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 2015.

2. Segmental analysis

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

*this is a non GAAP measure

3. Profit/(loss) for the period

a. Operating expenses

b. Adjusted PBT

Management measures the overall performance of the Group by reference to Adjusted underlying PBT, a non-GAAP measure:

*this is a non GAAP measure

Exceptional costs relate the costs incurred during the Groups IPO.

This adjusted profit measure is applied by management to understanding the earnings trend of the group and is considered the most meaningful measure by which to assess the true operating performance of the group.

4. Taxation

The differences between the total taxation shown above the amount calculated by applying the standard UK corporation taxation rate to the profit before taxation on continuing operating are as follows. The Group earns its profits primarily in the UK therefore the rate used for taxation is the standard rate for UK corporation tax.

Other expenses not deductible in prior years relate to disallowable interest on shareholder loans

5. Earnings per share

Adjusted earnings per share

Adjusted earnings per share are calculated by dividing adjusted underlying earnings after tax of On the Beach Group plc by the weight average number of shares. The weighted average number of shares for the comparative figures have been stated as if the group reorganisation has occurred at the 1 October 2014:

6. Dividends

No dividend has been declared for the 6 months ended 31 March 2016 (2015:£nil) in line with the Group's stated policy.

7. Intangible assets

8. Cash and cash equivalents

Trust accounts are restricted cash held separately and only accessible at the point the customer has travelled.

9. Financial instruments

The following table provides the fair values of the Group's financial assets and liabilities:

Derivative financial instruments

The Group operates internationally and is therefore exposed to foreign currency transaction risk, primarily on purchases denominated in Euros and US Dollars. The Group's policy is to mitigate foreign currency transaction exposures where possible and the Group uses financial instruments in the form of forward foreign exchange contracts to hedge future highly probable foreign currency cash flows.

Rolling credit facility

The Group entered into a Lloyds Facility on 18 September 2015 with Lloyds. A revolving credit facility is being made available under the terms of the Second Lloyds Facility in an aggregate amount of up to £35,000,000.

The borrowing limits under the facility will vary monthly throughout the period of the Second Lloyds Facility to reflect the seasonal borrowing requirements of the Group, ranging from £2,000,000 in one month to the full £35,000,000 in another month. The Facility will be available up to the second anniversary of the closing date (or for a shorter period of time at the Company's discretion).

It is to be repaid in monthly instalments which vary in accordance with the Group's seasonal requirements. No early repayment fees are payable.

The margin contained in the Facility is dependent on gross leverage ratio and the rate per annum ranges from 1.10%. to 1.90% for the utilised facility and 0.39% to 0.67% for the non-utilised facility.

The terms of the facility include the following financial covenants:

(i) that the ratio of total debt to EBITDA in respect of any relevant period shall not exceed 2:1 (with a one-off increase to a ratio of 2.5:1); and

(ii) that the ratio of EBITDA to finance charges in respect of any relevant period shall not be less than 5:1.

There have been no changes to the fair value methodology and categorisation for financial assets and liabilities since the year-end.

Interest rate swap contracts

The Group entered into an interest rate swap instrument which was still in place at 31 March 2015. This instrument enabled the Group to mitigate interest rate fluctuation risk. Under interest rate swap contracts, the Group agrees to exchange the difference between fixed and floating rate interest amounts calculated on agreed notional principal amounts. Such contracts enable the Group to mitigate the risk of changing the cash flow exposures on the issued variable rate debt held.

As part of the group restructure, the loan and interest rate cap were settled prior to the year end. As a result the Group no longer has any outstanding contracts.

The fair value of the interest rate swaps at the prior year reporting date was determined by discounting the future cash flows using the curves at the reporting date and the credit risk inherent in the contracts.

Fair value estimation

When measuring the fair value of an asset or a liability, the Group uses market observable data as far as possible. Fair values are categorised into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows.

(i) Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities

(ii) Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices)

(iii) Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs)

If the inputs used to measure the fair value of an asset or a liability might be categorised in different levels of the fair value hierarchy, then the fair value measurement is categorised in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement.

The fair values noted above are approximates of the carrying amounts of the instruments

There is no difference between the carrying value and fair value of cash and cash equivalents, trade and other receivables and trade and other payables.

10. Share capital

Capital reduction

As contemplated in the prospectus dated 23 September 2015 for Company's IPO and pursuant to a resolution of the shareholders of the Company passed on 21 September 2015, the Company has completed a reduction of capital, cancellation of share premium account and cancellation of capital redemption reserve (the "Reduction & Cancellation").

The Reduction & Cancellation was formally approved by the High Court of Justice, Chancery Division, on 18 November 2015. Following registration of the order of the High Court with Companies House, the Reduction & Cancellation became effective on 18 November 2015.

Following the Reduction & Cancellation, the issued share capital of the Company consists of 130,434,763 ordinary shares of £0.01 each, as at 18 November 2015.

The effect of the Reduction & Cancellation is to create distributable reserves to support the Board's future dividend policy.

11. Related party transactions

Prior to 28 September 2015, the group was controlled by Inflexion Private Equity Partners LLP.

The following transactions were carried out with related parties:

Fees charged by related parties are settled in cash. All amounts owing had been settled prior to the year-end date. Included in the management fee above, an exit fee totalling £902,656 was paid to inflexion following admission. The Exit Fee is equal to the sum of 1% of the enterprise value of the Company (reduced proportionately to reflect the fact that the listing of the Company is not a disposal of the entire issued share capital of the Company).

12. Principal risks and uncertainties

There are a number of potential risks and uncertainties which could have a material impact on the Company's performance over the remaining six months of the financial year and could cause actual results to differ materially from expected and historical results. The directors do not consider that the principal risks and uncertainties have changed since the publication of the Annual Report for the year ended 30 September 2015. These risks are summarised below, and how the Company seeks to mitigate these risks is set out on pages 13, 14 and 15 of the Annual Report and Accounts 2015 which can be found at www.onthebeachgroupplc.com 

A summary of the nature of the risks currently faced by the Group is as follows:

· Consumer confidence risk

· Supply chain risk

· Reputation risk

· Competition risk

· Systems and technology risk

· People risk

· Foreign exchange risk

· Working capital risk

· VAT complexity

· Litigation risk

· Regulatory risk

RESPONSIBILITY STATEMENT

We confirm that to the best of our knowledge:

· The condensed set of financial statements has been prepared in accordance with IAS 34 'Interim Financial Reporting'.

· The interim management report includes a fair review of the information required by DTR 4.2.7R (indication of important events during the first six months and description of principal risks and uncertainties for the remaining six months of the year).

· The interim management report includes a fair review of the information required by DTR 4.2.8R (disclosure of related parties transactions and changes therein).

This responsibility statement was approved by the Board on 19 May 2016 and is signed on its behalf by:

INDEPENDENT REVIEW REPORT TO ON THE BEACH GROUP PLC

We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 31 March 2016 which comprises the condensed consolidated income statement and statement of comprehensive income, the condensed consolidated statement of financial position, the condensed consolidated statement of changes in equity, the condensed consolidated statement of cash flows and the related explanatory notes. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the DTR of the UK FCA.

As disclosed in note 1, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the EU. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU.

Our responsibility

Our responsibility is to express to the company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the Auditing Practices Board for use in the UK. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

The Company has not previously produced a half-yearly report containing a condensed set of financial statements. As a consequence, the review procedures set out above have not been performed in respect of the comparative period for the six months ended 30 March 2015.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 31 March 2016 is not prepared, in all material respects, in accordance with IAS 34 as adopted by the EU and the DTR of the UK FCA.

Mick Davies

for and on behalf of KPMG LLP 

Chartered Accountants 

1 St Peter's Square

Manchester

M2 3AE

19 May 2016