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RNS
On the Beach Group PLC  -  OTB   

PRELIMINARY RESULTS

Released 07:00 28-Nov-2018

RNS Number : 7311I
On the Beach Group PLC
28 November 2018
 

28 November 2018

 

On the Beach Group plc

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

 

PRELIMINARY RESULTS FOR YEAR ENDED 30 SEPTEMBER 2018 ("FY18")

 

17.9% Growth in GROUP ADJUSTED PBT

 

Financial & Operational Highlights

 

Group

 

 

12 months to
30 September 2018

12 months to
30 September 2017

Change

Group revenue(1)

 

£104.1m

£83.6m

24.5%

Group gross profit(2)

 

£92.6m

£83.6m

10.8%

Group profit before tax

 

£26.1m

£21.1m

23.7%

Group adjusted profit before tax(3)

 

£33.6m

£28.5m

17.9%

Basic and diluted earnings per share

 

16.5p

13.8p

19.6%

Adjusted earnings per share (4)

 

21.2p

17.6p

20.5%

Total dividend payable

3.3p

2.8p

17.9%

 

Overview

•     Group gross profit (2) increased 10.8% to £92.6m (FY17: £83.6m)

•     Group adjusted profit before tax(3) up 17.9% to £33.6m (FY17 : £28.5m)

•     Strong cash conversion (5) of 79% (FY17: 79%) - adjusted (5) operating cash conversion 90% (FY17: 88%)

•     Net external cash(6) at year end of £47.3m (FY17: £33.0m)

•     Proposed final dividend of 2.2p per share, totalling 3.3p per share for the year (FY17: 2.8p per share), an increase of 17.9%

 

Core (Onthebeach.co.uk and Sunshine.co.uk)

•     Core revenue up 9.0% to £89.3m (FY17: £81.9m)

•     Core revenue after marketing costs up 15.8% to £52.0m (FY17: £44.9m)

•     Adjusted Core EBITDA(7) up 14.2% to £37.9m (FY17: £33.2m)

•     Core EBITDA as a percentage of revenue increased to 42.4% (FY17: 40.5%)

•     Branded and free traffic increased to 63.9% of overall traffic (FY17: 59.3%)

•     Percentage of revenue spent on marketing decreased to 41.8% (FY17: 45.2%)

 

 

 

International

•     After significant growth of 51.0% in H1, International revenue decreased by (5.9)% to £1.6m (2017: £1.7m) for the full year (FY17: 48.0%). Revenue was heavily impacted by the unprecedented hot summer in Scandinavia leading to lower demand for holidays and widespread discounting of distressed product by Sweden's leading tour operators. We therefore reduced marketing activity to a background level, with a significant impact on revenue but a saving versus forecasted losses with a view to reinvesting at the start of the new financial year

•     Launch of third international market in Denmark

•     International EBITDA loss of £(2.2)m (FY17 £(2.0)m)

 

 

Classic Collection Holidays ("Classic")

•     Acquired Classic on 15 August 2018 for a net consideration of £20.0m (total consideration of £23.3m, less a working capital adjustment of £3.3m).

•     As it is a principal rather than an agent, Classic reports on a "travelled" basis

•     EBITDA £1.1m in period since acquisition

 

 

(1)      Group revenue includes revenue from Classic Collection Holidays Limited ("Classic") for the period since acquisition (15th August 2018) of £13.2m. Classic accounts for revenue on a "travelled" basis as a principal and therefore reports revenue on a gross basis

(2)      Group gross profit includes revenue from Classic less cost of sales and agents commission of £1.7m

(3)      Group adjusted profit before tax is profit before tax, amortisation of acquired intangibles of £4.6m (FY17: £4.3m), share based payments £1.4m (FY17: £0.5m), exceptional costs of £0.6m (FY17: £2.7m) and one-off property and litigation costs of £0.9m (FY17: nil)

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

(5)      Cash conversion is operating cash flow divided by EBITDA. Underlying cash conversion is operating cash flow divided by EBITDA excluding the impact of the acquisition of Classic and capital expenditure for the new HQ

(6)      Net external cash is defined as cash and cash equivalents excluding the trust accounts

(7)      Adjusted Core EBITDA excludes exceptional costs, share based payments and one-off property and litigation costs. See note 2 for the reconciliation to the nearest GAAP measure. 

 

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

"I am pleased with the Group's performance, having delivered a 17.9% increase in Group adjusted profit before tax, in line with market expectations and a further improvement in the market-leading performance for Core EBITDA as a percentage of revenue at 42.4% (FY17: 40.5%). This performance was delivered despite the previously highlighted exceptionally hot weather that was prevalent over the summer in the UK and in the Nordics, which combined with the football World Cup, supressed holiday demand. Whilst this impacted our headline revenue growth during the period, the weaker demand also drove a significant reduction in the Group's marketing spend, ensuring growth in revenue after marketing costs remained strong. This is further testament to On the Beach's resilient and flexible business model.

 

"In August, we completed the acquisition of Classic Collection Holidays Limited, which gives On the Beach a "business to business" channel through which we can access the five million short haul beach holidays that are booked offline each year. This will be through both the existing business (Classic Collection Holidays) and via the launch of an online agent-only booking portal (Classic Package Holidays) through which agents can book mainstream beach holidays, which is due to be launched early in 2019.

 

"We remain confident in the resilience and flexibility of our business model to capitalise on any structural changes in the market. On the Beach continues to successfully build a leading position as more consumers discover the ease of use and wide choice of beach holidays that our platforms offer.

 

"The first quarter of our financial year (calendar Q4) is historically the quietest trading period for the Group. We are pleased to report a strong early trading performance, supported by a slightly earlier release of summer capacity by major low cost carriers, lower YOY seat prices for winter departures and a continued efficiency in marketing spend. This current performance is in line with our expectations and the Board believes the business is well positioned for the key trading period that commences in late December and continues into Q1 2019."

 

"Whilst the consumer environment continues to be challenging, we remain confident in the resilience and flexibility of our business model. The Board will also continue to evaluate acquisition opportunities that will both increase scale and deliver value for shareholders."

 

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: 

 

On the Beach Group plc

Simon Cooper, Chief Executive Officer

Paul Meehan, Chief Financial Officer

 

via FTI Consulting 

FTI Consulting 

Jonathon Brill

Alex Beagley

Fiona Walker

Laura Saraby

 

Tel: +44 (0)20 3727 1000

 

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 online 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 OFFICER'S REPORT

On the Beach continues to be a dynamic, entrepreneurial and ambitious business. We deliver value-for-money personalised beach holidays to our customers and maintain a daily focus to improve the quality of our customer proposition and the value that we provide to our growing customer base.

We have focused on driving traffic to site efficiently with improvements to our bespoke bid management capability driving Group online marketing spend as a percentage of revenue down 4.1 percentage points to 37.2%. Our revenue after marketing costs increased 15.8%.

In FY18, Group revenue increased 24.5% to £104.1m (FY17: £83.6m). This included £13.2m of revenue from Classic Collection Holidays Limited ("Classic") which was acquired on 15 August 2018. Group gross profit increased 10.8% to £92.6m (FY17: £83.6m). Whilst Core revenue growth was slower than expected, increased marketing efficiency led to strong growth in revenue after marketing costs and group adjusted profit before tax was up 17.9% to £33.6m (FY17: £28.5m).

At the year-end, On the Beach's balance sheet was strong with net external cash balances of £47.3m (FY17: £33.0m) and the Board is pleased to propose a final dividend of 2.2p per share, totalling 3.3p per share for the year, an increase of 17.9%.

Our continued growth has been delivered by executing a simple strategy to personalise our customer proposition to increase conversion and improve margin while driving an efficient increase in our market traffic share. This provides further evidence of our ability to gain market share from traditional tour operators and other online travel agents (OTAs), particularly in the summer period where unprecedented weather conditions weakened demand for beach holidays.

The business has also appropriately adapted its model to cope with significant legislative change within the financial year including the implementation of the second Payment Services Directive (prohibition of credit card charges for consumers) ("PSD2"), the General Data Protection Regulation ("GDPR") and The Package Travel and Linked Travel Arrangements Regulations ("PTRs").

Growth

The Group has delivered solid growth in the year due to the following reasons:

-      Driving an efficient increase in our share of market, while investment into our brand has also increased awareness with branded share of traffic at its highest ever level of 63.9% of overall traffic (FY17: 59.3%).

-      Optimisation and personalisation of our market-leading multi-device customer proposition driving an increase in both the number of unique visitors, and the revenue per unique visitor. Smartphone traffic is now 66% of total traffic and smartphone bookings have increased 48% year on year.

-      Increasing the directness of our relationships with end suppliers to achieve 70% of hotels sourced directly.

-      Continuing to provide the highest possible level of customer service by investing in our service staff and function to increase repeat purchase volumes by 14% year on year.

-      Driving an increasing proportion of sales into exclusive product while maintaining our lean cost base and risk-free model.

-      Investing to increase the visibility of the sunshine.co.uk brand in the paid search auction.

-      The acquisition of Classic, which supports our strategic goal to gain a share of the offline market by providing third party agencies with an online portal which allows access to a wide range of value for money beach holiday product.

Market

We believe that overall demand for short haul beach holidays was marginally down on the previous year because of the unprecedented warm weather from May through to August. These weather conditions had a particularly noticeable effect on the lates market. We expect that a continued growth in online penetration resulted in our addressable market remaining broadly flat year on year.

We have observed the following market trends:

-      A strong return in appetite for customers to travel to destinations in the Eastern Mediterranean, most notably Turkey

-      A shortfall in seat capacity following the Monarch collapse for departures in the winter and spring followed by a significant increase in seat prices

-      Lower seat price inflation for summer departures because of a reprogramming of capacity and a reduction in demand in the lates market

-      Aggressive discounting of tour operators in the lates market to fill risk capacity

Investment in Brand

We have continued to invest in an efficient multi-channel approach supported by our sophisticated bid management capability and have enhanced our cross-device attribution capability, giving us greater clarity on the return on marketing investment of multi-device traffic. This has allowed us to continue to take share of market traffic, with increased efficiency. The auction dynamics have remained relatively benign throughout FY18 with transient periods of aggressive spending by a range of competitors.

Our brand continues to strengthen, supported by our investment into a fully national offline marketing activity and sponsorship of the ITV show Benidorm. We have optimised our in-house econometric modelling to monitor the effectiveness of our offline marketing spend and are well advanced with our planning for our largest ever campaign for 2019.

In the three years since we have launched iPhone, iPad and Android apps, we have achieved of more than one million downloads and an increasing percentage of traffic and bookings comes via our mobile apps. We have also invested to build booking management capabilities and reminder functionality into our apps so that customers can interact with us via the app before, during and after their holidays.

Investment in People

We have increased our investment to multi-skill our customer-facing staff to ensure that we can provide an even higher level of customer support for all of our valued customers and support the sale of package holidays post the implementation of the new PTRs on 1 July 2018. We are delighted to have maintained our excellent Net Promoter Scores and our repeat purchase rates have increased significantly through FY18.

The Group has recently moved its headquarters into a bespoke facility close to the centre of Manchester and believes this will better support our drive to recruit and retain the best digital talent, allowing us to lead innovation across the market. The contact centre team will continue to operate from its base in Cheadle, where we will refit the existing contact centre with 50% more desk space to support growth.

We continue to recruit and grow talent internally and have recently moved to a twice annual Ruby Academy to train 20 internal and external candidates each year to join our technology teams. In October we welcomed our new Chief Technology Officer, Stefan Nordin, into the business and we believe his prior experience as CTO of the Betsson Group will greatly assist us in our ambition to double the size of our digital capability over the next 3-5 years.

We also welcome the team of 124 specialist staff from Classic who will continue to operate out of Classic's existing office in Worthing.

Investment in Product

We have been able to drive growth in our direct contracting function which builds on the strong foundations put in place in previous years. The Group delivered 70% of total hotel buying through direct contracting in FY18, with significant incremental margin contribution. The increasing proportion of directly contracted product has continued to support the improved customer satisfaction scores as complaint ratios on directly contracted product are significantly lower than third party sourced product. Our continued focus to strengthen our relationships with key overseas suppliers is giving us increased access to exclusive rates, ring-fenced capacity and OTA exclusivity while maintaining our no risk, lightweight business model.

We have also added resource to build our portfolio of directly contracted hotel product in longer haul destinations to support our expansion into Dubai and over the coming year we will add resource and product in the Indian Ocean, Thailand and the Caribbean, expanding our long-haul offering.

In FY18 more than 30% of our hotel product was contracted on an exclusive basis with us delivering significant incremental volume for our key partners and our focus will be to continue to build on this base throughout 2019 and to convert our differentiated supply position into incremental margin. We continue to explore opportunities to contract with partner airlines on a more strategic basis to deliver incremental revenue for partner airlines.

We have also invested significantly in our search technologies to support our strategic objective to drive an increasing proportion of differentiated flight and hotel product via an opaque booking path and to allow us to build innovative search tools for customers who are destination agnostic.

International

After significant growth of 51% in H1, Scandinavia experienced similarly unprecedented warm weather for the period from early May until August. Amongst this backdrop, demand weakened and our competitive position in the market was severely impacted by widespread discounting of distressed product by Sweden's leading tour operators. In these conditions, across the four-month period, the necessary course of action was to cut marketing activity to a background level, with a significant impact on revenue performance but a saving versus budgets with a view to reinvesting the savings made at the start of the new financial year.

During FY18 we launched ebeach.dk in Denmark to complete the Scandinavian rollout. Against the backdrop of the warm summer the investment into this brand was naturally limited by lack of demand in the market.

Strategy and Growth

The Group's vision remains to be Europe's leading online retailer of beach holidays.

On the Beach continues to deliver significant growth of its Core and adjacent markets by evolving a strategy based around the following principles:

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

2.            Driving an efficient increase in traffic through branded and direct channels

3.            Personalising our customer proposition

4.            Leveraging increased revenue through direct and differentiated supply

5.            Expanding our model into new search technologies, source markets, destinations, channels and products

 

Our key strategic pillars for FY19 are:

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

-      Continuing to invest in our people and our platform to allow us to innovate at an increasing pace and, in doing so, stay ahead of the competition

-      Reinforce company-wide values based on innovation, simplicity, communication, respect and great customer experience

-      Use our new digital HQ in central Manchester to ensure we are well placed to attract and retain the best talent

2.  Driving an efficient increase in traffic through branded and direct channels

-      Investing in an efficient multi-channel approach supported by our sophisticated bid management capability

-      Increasing investment offline in conjunction with econometric modelling capability to strengthen brand awareness and to ensure marketing investment is efficient

-      Driving performance improvements in Sunshine.co.uk and reinvesting a proportion of these synergies to drive increased online visibility

-      Seeking further value-enhancing M&A opportunities

3.            Personalising our customer proposition

-      Driving an increasingly simplified customer experience across multiple devices by continually testing changes to the website versus a control to increase conversion

-      Encouraging login and showing the most relevant product to all site visitors on all devices at the earliest possible opportunity

-      Enhancing personalisation by supplementing capabilities with data science and machine learning

-      Building a multifunctional app to engage directly with users and provide a higher standard of service in an efficient manner

4.            Leveraging increased revenue through direct and differentiated supply

-      Building a programme of direct and differentiated supply to leverage margin and gain market share

-      Building our in-house capability to increase visibility of differentiated product

-      Differentiating an exclusive product offering through innovative and attractive customer and supplier payment terms

5.            Expanding our model into new search technologies, source markets, destinations, channels and products

-      Building online functionality to inspire customers who are destination agnostic

-      Leveraging our core capabilities to expand internationally

-      Expanding our long haul offering to monetise existing search volumes

-      Building and launching an online portal to allow third party agencies to offer our product to the five million holidaymakers booking through offline channels

-      Expanding our product offering to include a wider range of hotel and villa product

Board changes

The Group saw a number of Board changes during the year, which were overseen by the Nomination Committee:

Richard Segal, who served as On the Beach's chairman since 2013, stepped down in September 2018. The Board expresses its sincere thanks for the valuable contribution made by Richard over the years and wishes him every success for the future. Following the recommendation of the Nomination Committee, Lee Ginsberg took up the role as Chair of the Board and of the Nomination Committee, and stepped down from the role as Senior Independent Director and Chair of Audit Committee, in September 2018. In November 2018, Lee stepped down from his position as Chair of the Board yet will remain on the Board as Non-Executive Director. David Kelly, Senior Independent Director, will take over the Chair of the Board role on an interim basis and will also Chair the Nomination Committee. An executive search firm will shortly be appointed to assist with the search for a new Chair of the Board.

Elaine O'Donnell was appointed as a Non-Executive Director in July 2018 and took up the post of Chair of Audit Committee in September 2018. Elaine brings to the Board a wealth of experience across a range of businesses and her expertise will be of enormous benefit.

David Kelly was appointed as Senior Independent Director in September 2018. He continues to Chair the Remuneration Committee.

Current trading and outlook

The first quarter of our financial year (calendar Q4) is historically the quietest trading period for the Group. We are pleased to report a strong early trading performance, supported by a slightly earlier release of summer capacity by major low cost carriers, lower YOY seat prices for winter departures and a continued efficiency in marketing spend. This current performance is in line with our expectations and the Board believes the business is well positioned for the key trading period that commences in late December and continues into Q1 2019.

Whilst the consumer environment continues to be challenging, we remain confident in the resilience and flexibility of our business model. The Board will also continue to evaluate acquisition opportunities that will both increase scale and deliver value for shareholders.

 

The Board will provide a further update on trading at our AGM on 7 February 2019.

 

Simon Cooper

Chief Executive Officer

28 November 2018

 

CFO Report

 

The Group now organises its operations into three principal financial reporting segments, being Core (Onthebeach.co.uk and Sunshine.co.uk, the Group's established market), International (the "International Segment" being the Group's international markets) and business-to-business (B2B) (the "B2B" segment is the Group's recently acquired business Classic and its subsidiaries). For FY18, the B2B segment includes the performance of Classic and its subsidiaries from the date of acquisition, 15 August 2018. As a principal, Classic and its subsidiaries account for revenue on a "travelled" basis and therefore report revenue on a gross basis. In each of the Core Segment and the International Segment, the Group offers dynamically packaged holidays but with options to book single element products such as flights or hotels, in each case acting as an agent rather than a principal.

 

Core Segment performance

 

 

2018

£m

2017

£m

Change

%

Revenue

89.3

81.9

9.0%

Revenue after marketing costs

52.0

44.9

15.8%

Variable costs

(6.6)

(4.9)

 

Fixed costs

(6.7)

(6.2)

 

Holding Company costs

(0.8)

(0.6)

 

Share based payments

(1.4)

(0.5)

 

Depreciation and amortisation(1)

(3.0)

(2.4)

 

EBIT

33.5

30.3

10.6%

EBITDA(2)

37.9

33.2

14.2%

 

 

 

 

EBITDA %

42.4%

40.5%

 

 

(1)      Excludes amortisation of acquired brand and website technology intangible assets of £4.4m (2017: £4.3m)

(2)      Excludes share based payment charges of £1.4m (2017:£0.5)

 

Revenue and marketing costs

Revenue increased by 9.0% to £89.3m (FY17: £81.9m). Revenue per daily unique visitor increased by 8.5% to £1.27 (FY17 £1.17). During the year we also continued to increase the directness in our relationships with our suppliers through the volume of in-house accommodation bookings to 70% (FY17: 65%).

Marketing expenses (excluding offline) for the year to 30 September 2018 as a percentage of revenue decreased to 37.2% (FY17: 40.9%) with total spend of £33.2m (FY17: £33.5m). This reflects further optimisation of our online spend, a continued increase in the share of branded and direct traffic together with lower demand during the summer.

We have again increased spending in the year on offline TV advertising campaigns to £4.1m (FY17: £3.5m). Continuation of the full national campaign together with the second year of sponsorship of the ITV Benidorm programme, both drove greater brand awareness.

EBITDA

Overhead as % of revenue

 

2018

£m

2017

£m

Variable costs % revenue

7.4%

6.0%

Fixed costs % revenue

7.5%

7.6%

Overheads % revenue

14.9%

13.6%

Holding Company costs % revenue

1.0%

0.7%

Total

15.9%

14.3%

Overheads excluding Holding Company costs increased to 14.9% of revenue reflecting higher average booking values, operational investment ahead of Package Travel Regulations and the impact of the sunshine.co.uk acquisition

Holding company costs have increased in the year to £0.8m (FY17: £0.5m) due entirely to National Insurance charges on share based payments.

Adjusted Core EBITDA of £37.9m (FY17: £33.2m) increased by 14.2% and Core EBITDA as a percentage of revenue increased from 40.5% to 42.4%. The closest GAAP equivalent measure to Adjusted Core EBITDA is Core operating profit which increased by 18.4% to £27.7m (FY17: £23.4m).

International segment performance

 

2018

£m

2017

£m

Change

%

Revenue

1.6

1.7

(5.9%)

Revenue after marketing costs

(1.4)

(1.6)

12.5%

Variable costs

(0.3)

(0.2)

 

Fixed costs

(0.5)

(0.2)

 

Depreciation and amortisation

(0.2)

(0.2)

 

Operating profit/(loss)

(2.4)

(2.2)

(9.1%)

International EBITDA

(2.2)

(2.0)

(10.0%)

 

 

 

 

In addition to the international platforms in Sweden and Norway, operating under the 'www.ebeach.se' and 'www.ebeach.no' domains respectively, the Group also launched a further international platform in Denmark in FY18, operating under the ''www.ebeach.dk'' domain.

Losses are derived almost entirely from the marketing investment required to drive brand awareness and share of traffic which will in turn improve efficiency. The closest GAAP equivalent measure to International EBITDA is operating loss which increased to £(2.4)m (2017: £(2.2)m).

B2B Segment Performance

 

2018

£m

Revenue

13.2

Gross Profit after marketing

1.6

Variable costs

(0.1)

Fixed costs

(0.4)

Depreciation and amortisation

(0.2)

Operating profit

0.9

B2B EBITDA

1.1

 

On 15 August 2018, we completed a further acquisition, Classic, which gives On the Beach a "business to business" channel through which we can access the five million short haul beach holidays that each year are booked offline.

As a principal (rather than an agent) Classic accounts for revenue on a "travelled" basis and therefore reports revenue on a gross basis.

Group gross profit

Group gross profit now comprises core, International and B2B revenues and has increased by 10.8% in the year to £92.6m (FY17: £83.6m), this is a result of growth in the Core revenues of 9.0% and the inclusion of Classic revenues since the date of acquisition. The resulting increase in Group profit before tax is 23.7% to £26.1m (FY17: £21.1m), the prior year having been impacted by the exceptional costs relating to the Monarch failure.

 

Adjusted profit before tax

The Group reports adjusted profit before tax to highlight the impact of one-off and other discrete items and to allow better interpretation of the underlying performance of the business.

 

2018

£m

2017

£m

Change

Group profit before taxation

26.1

21.1

23.7%

Amortisation of acquired intangibles

4.6

4.3

 

Share Based Payments

1.4

0.5

 

Exceptional costs

0.6

2.6

 

Non-underlying costs(1)

0.9

-

 

Adjusted profit before tax

33.6

28.5

17.9%

(1) Non-underlying costs comprise one-off property and litigation costs

Finance costs

The net finance cost for the year was £0.1m (FY17: £0.1m). With strong cash management, the maximum revolving credit facility drawdown during the year was £29.5m. During the year, the Group extended the revolving credit facility to 31 December 2019 and reduced the facility from £35.0 million to £28.5 million to cover seasonal working capital requirements.

Share based payments

The Group implemented a long term incentive plan in May 2016 as detailed in the remuneration report. Further options under the scheme were granted in May 2017, October 2017 and December 2017. In accordance with IFRS2, the Group has recognised a non-cash charge of £1.4m (FY17: £0.5m).

Exceptional items

Exceptional items for the year to 30 September 2018 were £0.6m (FY17: £2.7m). These costs relate to deal costs in relation to the acquisition of Classic amounting to £0.6m (FY17: £0.7m). In FY17 exceptional costs also included costs related to the failure of Monarch Airlines Ltd. amounting to £nil (FY17: £2.0m).

Taxation

The Group tax charge of £4.6m represents an effective tax rate of 17.6% (FY17: 12.0%) which was lower than the standard UK rate of 19.0% (FY17: 19.0%).

Earnings per share

Basic and diluted earnings per share, calculated for the current and comparative period, is based on the weighted average number of shares in issue and has improved by 19.6% to 16.5 pence in FY18 (FY17: 13.8 pence).

The adjusted earnings per share based on adjusted earnings increased 20.5% to 21.2 pence (FY17: 17.6 pence). The table below shows the adjustment from actual earnings:

 

2018

£m

2017

£m

Change

 

Profit for the year

21.5

18.0

19.4%

Add backs:

 

 

 

Share based payments (net of tax)

1.2

0.4

 

Exceptional  and non-underlying costs (net of tax)

1.2

2.2

 

Amortisation of acquired intangibles (net of tax)

3.8

3.4

 

ATCA(1) tax adjustment

-

(1.1)

 

Adjusted profit for the year

27.7

22.9

20.9%

Number of ordinary shares in issue at year end assumed to be outstanding for the full year and comparative period (millions)

131.0

130.4

 

Adjusted earnings per share (pence)

21.2

17.6

20.5%

(1) The adjustment in respect of FY17 is in relation to an agreed Advanced Thin Capitalisation Agreement (ATCA) for financial years ended 30 September 2014 and 2015.

 

Cash flow and net debt

The Group continues to see strong cash generation with operating cash flows 18.0% higher at £28.9m (FY17: £24.6m), resulting in cash conversion of 79% (FY17: 79%). Excluding the working capital movement resulting from the acquisition of Classic, adjusted operating cash conversion (1) is 90%.

 

FY18

£m

FY17

£m

Change

EBITDA excluding share based payments charges

36.8

31.2

17.9%

Capitalised development spend

(3.8)

(2.7)

33.3%

Movement in working capital

(1.9)

(3.3)

 

Capital expenditure

(2.2)

(0.6)

 

Operating cash flow

28.9

24.6

18.0%

Operating cash conversion

79%

79%

 

(1)      Underlying cash conversion is operating cash flow divided by EBITDA excluding the impact of the acquisition of Classic

 

Net external cash at the year-end was £47.3m (2017: £33.0m).

Dividend

The Directors are recommending a final dividend of 2.2p per share, totalling 3.3p per share for the year (FY17: 2.8p per share), an increase of 17.9%. Subject to shareholders' approval at the Annual General Meeting ('AGM') on 7 February 2019, the dividend will be paid on 14 February 2019 to shareholders on the register of members at the close of business on 11 January 2019.

Paul Meehan

Chief Financial Officer

28th November 2018

CONSOLIDATED INCOME STATEMENT AND STATEMENT OF COMPREHENSIVE INCOME

Year ended 30 September 2018

 

2018

 

2017

 

Note

£'m

 

£'m

 

 

 

 

 

 

 

 

 

 

Revenue

 

104.1

 

83.6

Cost of sales

 

(11.5)

 

                     -  

Gross profit

 

92.6

 

83.6

 

 

 

 

 

Administrative expenses

 

(66.4)

 

(62.4)

Group operating profit before amortisation and exceptional costs**

 

34.0

 

30.3

Exceptional costs

 

(0.6)

 

(2.7)

Amortisation of intangible assets

 

(7.2)

 

(6.4)

Group operating profit

 

26.2

 

21.2

 

 

 

 

 

Finance costs

 

(0.3)

 

(0.2)

Finance income

 

0.2

 

0.1

Net finance costs/(income)

 

(0.1)

 

(0.1)

 

 

 

 

 

Profit before taxation

 

26.1

 

21.1

Taxation

 

(4.6)

 

(3.1)

 

 

 

 

 

Profit for the year

 

21.5

 

18.0

Total other comprehensive income

 

 

-

 

-

Total comprehensive income for the year

 

21.5

 

18.0

 

Attributable to:

 

 

 

 

Equity holders of the parent

 

21.5

 

18.0

  

 

 

 

 

Basic and diluted earnings per share attributable to the equity Shareholders of the Company:

 

 

 

 

Basic and diluted earnings per share

 

16.5p

 

13.8p

 

 

 

 

 

Adjusted earnings per share *

 

21.2p

 

17.6p

 

 

 

 

 

Adjusted profit measure *

 

 

 

 

Adjusted PBT (before amortisation of acquired intangibles, exceptional & non underlying costs and share based payments) *

 

33.6

 

28.5

 

 

 

 

 

 

 

 

 

 

* This is a non GAAP measure, refer to glossary for reconciliation to the nearest GAAP measure.

** This is a non GAAP measure, please refer to note 4d

 

 

 

 

 

 

 

 

 

The company has no other comprehensive income in the current or prior year

 

In 2018 revenue is a combination of revenue received as an agent and revenue received as a principal. This is a result of the acquisition of Classic Collection which accounts for revenue on a "travelled" basis and therefore reports revenue and cost of sales on a gross basis.

 

CONSOLIDATED BALANCE SHEET

 

 

 

 

 

 

 

 

 

 

2018

 

2017

Assets

Note

£'m

 

£'m

Non-current assets

 

 

 

 

Intangible assets

 

88.1

 

72.5

Property, plant and equipment

 

4.5

 

1.4

Investment property

 

0.8

 

-

Total non-current assets

 

93.4

 

73.9

 

 

 

 

 

Current assets

 

 

 

 

Trade and other receivables

 

71.1

 

56.5

Assets held for sale

 

0.5

 

-

Derivative financial instruments

 

0.1

 

-

Corporation tax receivable

 

0.7

 

-

Cash and cash equivalents

 

85.7

 

71.6

Total current assets

 

 

158.1

 

128.1

Total assets

 

251.5

 

202.0

 

 

 

 

 

Equity

 

 

 

 

Share capital

 

1.3

 

1.3

Retained earnings

 

245.6

 

226.9

Capital contribution reserve

 

0.5

 

0.5

Merger reserve

 

(129.5)

 

(132.1)

Total equity

 

117.9

 

96.6

 

 

 

 

 

Non-current liabilities

 

 

 

 

Deferred tax

 

7.2

 

6.4

Total non-current liabilities

 

7.2

 

6.4

 

 

 

 

 

Current liabilities

 

 

 

 

Corporation tax payable

 

-

 

2.4

Trade and other payables

 

126.4

 

89.5

Provisions

 

-

 

7.0

Derivative financial instruments

 

-

 

0.1

Total current liabilities

 

126.4

 

99.0

 

 

 

 

 

Total liabilities

 

 

133.6

 

105.4

Total equity and liabilities

 

251.5

 

202.0

 

 

 

 

 

 

 

 

 

 

CONSOLIDATED STATEMENT OF CASHFLOWS

 

 

 

 

Year ended 30 September 2018

 

 

 

 

 

 

 

 

 

 

 

       2018

 

     2017

 

Note

        £'m

 

      £'m

 

 

 

 

 

 

 

 

 

 

Profit before taxation

 

26.1

 

21.1

Adjustments for:

 

 

 

 

Depreciation

 

0.5

 

0.4

Amortisation of intangible assets

 

7.2

 

6.4

Finance costs

 

0.3

 

0.2

Finance income

 

(0.2)

 

(0.1)

Share based payments

 

1.4

 

0.5

 

 

35.3

 

28.5

Changes in working capital:

 

 

 

 

(Increase)/decrease in trade and other receivables

 

(7.8)

 

(9.6)

Increase in trade and other payables

 

6.1

 

11.0

Increase in trust account

 

(0.2)

 

(4.7)

 

 

(1.9)

 

(3.3)

 

 

 

 

 

Cash flows from operating activities

 

 

 

 

Cash generated from operating activities

 

33.4

 

25.2

Tax paid

 

(7.1)

 

(5.1)

Net cash inflow from operating activities

 

26.3

 

20.1

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

Purchase of property, plant and equipment

 

(2.2)

 

(0.6)

Purchase of intangible assets

 

(3.8)

 

(2.7)

Interest received

 

0.2

 

0.1

Contingent consideration

 

(3.0)

 

-                

Acquisition of subsidiary, net of cash acquired

 

1.0

 

(5.8)

Net cash outflow from investing activities

 

(7.8)

 

(9.0)

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

Equity dividends paid

 

(3.9)

 

(4.0)

Interest paid

 

(0.3)

 

(0.2)

Net cash outflow from financing activities

 

(4.2)

 

(4.2)

 

 

 

 

 

Net increase in cash at bank and in hand

 

14.3

 

6.9

Cash at bank and in hand at beginning of year

 

33.0

 

26.1

Cash at bank and in hand at end of year

 

47.3

 

33.0

 

 

 

 

 

 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

 

 

 

 

 

Year ended 30 September 2018

 

 

 

 

 

 

 

 

 

Share capital

Merger reserve

Capital contribution reserve

Retained earnings

Total

 

 

£'m

£'m

£'m

£'m

£'m

Balance at 30 September 2016

 

1.3

(132.1)

0.5

212.4

82.1

 

 

 

 

 

 

 

Share based payment charges

 

-

-

-

0.5

0.5

Dividends paid during the year

 

-

-

-

(4.0)

(4.0)

Total comprehensive income for the year

 

-

-

-

18.0

18.0

Balance at 30 September 2017

 

1.3

(132.1)

0.5

226.9

96.6

 

 

 

 

 

 

 

Share based payments

 

-

-

-

1.2

1.2

Share issued during the year

 

-

2.6

-

-

2.6

Dividends paid during the year

 

-

-

-

(4.0)

(4.0)

Total comprehensive income for the year

 

-

-

-

21.5

21.5

Balance at 30 September 2018

 

1.3

(129.5)

0.5

245.6

117.9

 

 

 

 

 

 

 

                   

 

On 15th August 2018 the Group issued 607,747 shares as part of the acquisition of the Classic Collection Holidays. The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Group.

 

1

 Accounting Policies

a)

Basis of preparation

 

 

On the Beach Group plc (the Company) is a company incorporated in the United Kingdom and its registered office is 5 Adair Street, Manchester, M1 2NQ. The company is listed on the London Stock Exchange. The consolidated financial statements for the year ended 30 September 2018 have been prepared in accordance with International Financial Reporting Standards as adopted by the EU (Adopted IFRS) and were approved by the Directors of the Company on 28 November 2018 along with this preliminary announcement. The consolidated financial statements are prepared on the historical costs basis except for derivative financial instruments and certain investments measured at their fair value. The financial information set out in these preliminary announcement does not constitute the company's statutory accounts for the years ended 30 September 2018 and 2017. Statutory accounts for 2017 have been delivered to the registrar of companies, and those for 2018 will be delivered in due course.

These financial statements are presented in pounds sterling (£'m) because that is the currency of the primary economic environment in which the Group operates.

 

The auditor has reported on those accounts; their reports were i) unqualified, ii) does not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying the report and iii) did not contain a statement under Section 498 (2) or (3) of the Companies Act 2006. The auditor has consented to the publication of the Preliminary Announcement as required by Listing Rule 9.7a having completed their procedures under APB bulletin 2008/2.

 

 

b)

Going concern

 

The financial results relating to the Group have been prepared on the going concern basis. The Directors believe the Group is well placed to manage its business risks successfully and therefore have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future.  Accordingly, they continue to adopt the going concern basis in preparing the consolidated financial statements.

 

 

c)

New standards, amendments and interpretations

 

The following Adopted IFRSs have been issued but have not been applied by the Group in these financial statements. The Group is currently assessing the effect of these standards on the financial statements.

 

 

 

IFRS 15 introduces a five-step approach to the timing of revenue recognition based on performance obligations in customer contracts. Our initial impact assessment of IFRS 15 included a systematic review to ensure the new standard is fully understood in advance of the effective date. Management have concluded that there will be no material impact upon adoption of this standard on either revenue from customers or overrides from suppliers.

With respect to revenue from customer bookings, management believes adopting IFRS 15 will have no material impact because of the following:

 

·     For customer bookings made as agent, the group performance obligations, to make the travel arrangements on behalf of the customer, will be met once the booking has been confirmed to them, this is at the same point under IAS 18.

·     For customers bookings made as principal, the Group will recognise revenue once it has fulfilled its performance obligations to provide the package holiday. This is at the  same point under IAS 18.

 

With respect to revenue from supplier overrides, management believes adopting IFRS 15 will have no material impact. For the majority, according to the override agreement, the Group's performance obligations are met and overrides are earned when the customer has booked. Although we do not consider there will be a material impact upon adoption of the standard, we will continue to monitor adoption in the travel industry as we progress towards the date of adoption.

 

 

• IFRS 9 Financial Instruments (European Union effective date 1 January 2018).

The revised standard replaces IAS 39 Financial Instruments: Recognition and Measurement and introduces new guidance for classification and measurement, impairment of financial instruments and hedge accounting.


On the basis of our initial impact assessment our view of the new standard is that we expect there to be no material impact upon adoption of this standard. The new standard represents a more principle based standard. This is not expected to impact the Groups ability to hedge account, although there will be additional disclosures required to complement its principle based approach.

 

 

• IFRS 16 Leases (European Union effective date 1 January 2019). IFRS 16, "Leases" provides guidance on the classification, recognition and measurement of leases to help provide useful information to the users of financial statements. The main aim of this standard is to ensure material leases will be reflected on the balance sheet. The new standard will replace IAS 17 "Leases" and is effective for annual periods beginning on or after 1 January 2019 unless adopted early. The Group's property lease commitments will be brought onto the consolidated statement of financial position using the prospective method, as a liability with a corresponding asset. Total costs incurred remain unchanged over the life of the lease but the timing of when those costs are recognised within the consolidated income statement will be impacted. Based on analysis of property lease commitments' held by the group at 30 September 2018, and using an estimated discount rates, the net impact on profit is not expected to be material. There is no impact on the Groups cash flows.

 

2

Segmental report

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The management team considers the reportable segments to be ''Core'', "B2B" and ''International''. All segment revenue, operating profit assets and liabilities are attributable to the Group from its principal activities.

 

Core and International recognise revenue as agent on a net basis. Classic, included within the B2B segment recognises revenue as a principal on a gross basis.

 

Sunshine.co.uk Limited is disclosed within the "Core" segment.  The 2017 numbers include transactions since acquisition.

 

 

 

 

 

 

 

 

 

 

 

 

 

2018

 

2017

 

 

 

Core

B2B*

Int'l

Total

 

Core

Int'l

Total

 

 

 

 

 

 

£'m

£'m

£'m

£'m

 

£'m

£'m

£'m

 

 

Income

 

 

 

 

 

 

 

 

 

 

Revenue

89.3

13.2

1.6

104.1

 

81.9

1.7

83.6

 

 

 

 

 

 

 

 

 

 

 

 

 

EBITDA

37.9

1.1

(2.2)

36.8

 

33.2

(2.0)

31.2

 

 

Share based payments

(1.4)

-

-

(1.4)

 

(0.5)

 

(0.5)

 

 

Non underlying costs

(0.9)

-

-

(0.9)

 

 

-

 

 

 

EBITDA (after share based payments and non-underlying costs)

35.6

1.1

(2.2)

34.5

 

32.7

(2.0)

30.7

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortisation

(7.3)

(0.2)

(0.2)

(7.7)

 

(6.6)

(0.2)

(6.8)

 

 

Segment operating profit/(loss) before exceptional costs

28.3

0.9

(2.4)

26.8

 

26.1

(2.2)

23.9

 

 

Exceptional

(0.6)

-

-

(0.6)

 

(2.7)

-

(2.7)

 

 

Group operating profit

27.7

0.9

(2.4)

26.2

 

23.4

(2.2)

21.2

 

 

 

 

 

 

 

 

 

 

 

 

 

Finance costs

 

 

 

(0.3)

 

 

 

(0.2)

 

 

Finance income

 

 

 

0.2

 

 

 

0.1

 

 

Profit before taxation

 

 

 

26.1

 

 

 

21.1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-current assets

 

 

 

 

 

 

 

 

 

 

Goodwill

31.6

8.0

-

39.6

 

31.6

-

31.6

 

 

Other intangible assets

37.3

11.2

0.1

48.6

 

40.6

0.3

40.9

 

 

Property, plant and equipment

2.5

2.0

-

4.5

 

1.4

-

1.4

 

 

Investment property

-

0.8

-

0.8

 

-

-

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

* Results are from the acquisition date to 30 September 2018

 

 

 

 

 

                               

 

3

Business combinations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquisition of Classic Collection Holidays Limited

 

 

 

 

 

 

 

 

 

 

 

On 15 August 2018 the Group acquired the entire share capital of the Classic Collection Limited in exchange for cash, shares and contingent consideration. The primary reason for the business combination was to increase market share and gain access to the Classic Collection Group's B2B network.

 

 

 

 

 

Asset acquired and liabilities recognised at the date of acquisition

 

 

 

The amounts recognised in respect of identifiable assets and liabilities relating

 

 

to the acquisition are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

Recognised values on acquisition

 

 

 

 

 

 

 

 

£'m

 

 

Net assets acquired

 

 

 

 

 

 

 

Intangible assets

 

 

 

 

11.2

 

 

Property plant and equipment

 

 

 

2.0

 

 

Investment property

 

 

 

0.8

 

 

Trade and other receivables

 

 

 

5.0

 

 

Cash and cash equivalents

 

 

 

18.2

 

 

Trade and other payables

 

 

 

(20.0)

 

 

Deferred tax liabilities

 

 

 

                           (1.9)

 

 

Net identifiable assets and liabilities

 

 

 

                          15.3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consideration paid

 

 

 

 

£'m

 

 

Cash paid

 

 

 

 

 

                          17.2

 

 

Contingent consideration

 

 

 

                            2.7

 

 

Deferred working capital cash

 

 

 

                            0.8

 

 

Shares issued

 

 

 

 

                            2.6

 

 

Total Consideration

 

 

 

 

23.3

 

 

Less excess net working capital

 

 

 

 

(3.3)

 

 

Net consideration

 

 

 

 

20.0

 

 

 

 

 

Goodwill

 

 

 

 

 

                            8.0

 

 

 

 

 

 

 

 

 

 

 

Under IFRS 3 Business Combinations, the Classic collection brand, including the domain name and customer relationships have been identified as an asset separate from Goodwill with a value of £11.2m. The recognition of the assets has resulted in a deferred tax liability of £1.9m.

The goodwill balance represents the value of the workforce and the realisation of the potential increase in market share through gaining access to the existing distribution network of Travel Agents. None of the goodwill identified on this acquisition is expected to be deductible for tax purposes.

 

The Board believes the acquisition will be earnings enhancing because it will give the Group a "business to business" channel through which the Group can access to the offline short haul beach holidays market.

 

 

 

The fair value of the contingent consideration at acquisition amounts to £2.7m which is the agreed payment amount. The contingent consideration will be reduced by any losses suffered or incurred resulting from any material breach of the Directors' Service Agreements. This is deemed to be remote, and therefore doesn't affect the fair value. The Directors will receive market rate remuneration for the period of the Service Agreement which is separate from the consideration amount.

 

 

 

Acquisition related costs amounting to £0.6m have been excluded from the consideration transferred and were recognised as an expense in the profit and loss account within the exceptional costs line.

 

The agreed purchase price for Classic Collection Holidays Group was £20m plus excess working capital of £3.3m which is equal to the total consideration of £23.3m.

 

Due to the relatively short time between acquisition and 30 September 2018, the intangible assets recognised are deemed to be provisional.

 

Included in the operating profit for the period ended 30 September 2018 is £1.1m attributable to the additional business generated by Classic Collection. Had the business combination been effected as 1 October 2017, the revenue for the Group would have been £147.4m and the operating profit for the period would have been £24.8m.

 

 

 

4

Operating Profit

 

 

 

 

 

 

 

 

 

 

 

 

a

Operating expenses

 

 

 

 

 

 

Expenses by nature including exceptional items and impairment charges:

 

 

 

 

 

 

 

 

 

 

 

 

 

2018

 

2017

 

 

 

 

£'m

 

£'m

 

 

 

 

 

 

 

 

 

 

Marketing

40.4

 

40.3

 

 

 

Depreciation

0.5

 

0.4

 

 

 

Staff costs (including share based payments)

10.9

 

6.9

 

 

 

IT hosting, licences & support

1.4

 

1.1

 

 

 

Rent

1.0

 

0.7

 

 

 

Credit / debit card charges

2.7

 

2.2

 

 

 

Other

1.7

 

1.7

 

 

 

Administrative expenses before exceptional costs & amortisation of intangible assets

58.6

 

53.3

 

 

 

 

 

 

 

 

 

 

Exceptional costs

0.6

 

2.7

 

 

 

Amortisation of intangible assets

7.2

 

6.4

 

 

 

Total exceptional and cost amortisation

7.8

 

9.1

 

 

 

Administrative expenses

66.4

 

62.4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

b

Exceptional items

 

 

 

 

 

 

Exceptional costs in the current year relate to £0.6m of costs incurred during the acquisition of Classic Collection Holidays Group.

 

 

 

 

Exceptional items in the prior period include £0.7m of costs incurred in relation to the purchase of Sunshine.co.uk Limited and a £2.0m provision following the failure of the Monarch Travel Group on 2nd October 2017.   The £2.0m charge is the net of a £5.0m asset relating to the amounts reclaimed from chargeback claims and a provision of £7.0m relating to our obligations under ATOL regulations.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

c

Adjusted PBT

 

 

 

 

 

 

 

 

 

 

 

 

 

Management measures the overall performance of the Group by reference to Adjusted PBT, a non-GAAP measure as it gives a meaningful year on year comparison of the Group's performance:

 

 

 

 

 

 

 

 

 

 

2018

 

2017

 

 

 

 

£'m

 

£'m

 

 

 

Profit before taxation

26.1

 

21.1

 

 

 

Exceptional acquisition costs

0.6

 

0.7

 

 

 

Litigation costs

0.4

 

-

 

 

 

Property costs

0.5

 

-

 

 

 

Monarch charge (net)

-

 

2.0

 

 

 

Amortisation of acquired intangibles

4.6

 

4.3

 

 

 

Share based payments charge*

1.4

 

0.5

 

 

 

Adjusted PBT

33.6

 

28.5

 

 

 

 

 

 

 

 

 

                               

*The first annual LTIP was granted in 2016. As the scheme reaches maturity (3 year cycle) there will be a material change to the charge each year. Therefore these charges have been added back to adjusted profit measures in order to reflect managements' view of underlying performance of the business.

d

Group operating profit before amortisation and exceptional costs

 

Management consider this measure to be relevant in understanding the trading performance of the Group as it excludes Amortisation of intangible assets and items that are not expected to recur.

 

  

 

5

Employees and Directors

 

 

 

 

a)

Payroll costs

 

 

 The aggregate payroll costs of these persons were as follows:

 

 

  

2018

 

2017

 

 

 

£'m

 

£'m

 

 

 

 

 

 

 

 

Wages and salaries

12.0

 

10.1

 

 

Defined contribution pension cost

0.1

 

0.1

 

 

Social security costs

1.2

 

1.0

 

 

Share-based payment charges

1.4

 

0.5

 

 

 

14.7

 

11.7

 

 

 

 

Staff costs above include £3.8m (2017: £2.6m) employee costs capitalised as part of software development.

 

 

 

 

b)

Employee numbers

 

 

Average monthly number of people (including Executive Directors) employed:

 

 

 

 

 

 

2018

 

2017

 

 

   By reportable segment:

No.

 

No.

 

 

UK

384

 

322

 

 

International

18

 

15

 

 

B2B

102

 

-

 

 

 

504

 

337

 

 

 

 

c)

Directors' emoluments

 

 

 

 

 

 The remuneration of Directors was as follows:

2018

 

2017

 

 

 

 £'m

 

£'m

 

 

Aggregate emoluments

0.8

 

0.8

 

 

Defined contribution pension

0.1

 

-

 

 

Share-based payment charges

0.7

 

0.1

 

 

 

1.6

 

0.9

 

 

 

 

 

All remuneration was paid by On the Beach Limited, a subsidiary company of the Group.

 

 

 The remuneration of the highest paid director was as follows:

 

 

 

2018

 

2017

 

 

 

£'m

 

£'m

 

 

Aggregate emoluments

0.3

 

0.3

 

 

Share-based payment charges

0.4

 

0.1

 

 

 

0.7

 

0.4

 

 

 

 

d)

Key management compensation

 

 

Key management comprised the six members of the executive team.

 

 

Remuneration of all key management (including directors) was as follows:

 

 

 

 

 

 

2018

 

2017

 

 

 

£'m

 

£'m

 

 

Wages and salaries

1.1

 

1.2

 

 

Short-term non-monetary benefits

0.1

 

-

 

 

Share-based payment charges

0.9

 

0.3

 

 

 

2.1

 

1.5

 

 

 

 

e)

Retirement benefits

 

 

Included in pension contributions payable by the Group of £0.1m (2017: £0.1m) is £42,000 (2017: £22,000) of contributions that the Group made to a personal pension scheme in relation to one Executive Director.

 

               

 

6. Taxation

 

 

 

 

 

 

2018

 

2017

 

 

 

£'m

 

£'m

 

 

 

 

 

 

 

 

Current tax on profit for the year

6.1

 

5.0

 

 

Adjustments in respect of prior years *

(0.4)

 

(1.1)

 

 

Total current tax

5.7

 

3.9

 

 

 

 

 

 

 

 

Deferred tax on profits for the year

 

 

 

 

 

Origination and reversal of temporary differences

(1.1)

 

(0.8)

 

 

Impact of change in tax rate

                    

 

                        

 

 

Total deferred tax

(1.1)

 

(0.8)

 

 

 

 

 

 

 

 

Total tax charge

4.6

 

3.1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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.

 

 

 

* The adjustment in respect of prior years for the year ended 30 September 2017 is in relation to an agreed Advanced Thin Capitalisation Agreement (ATCA) for financial years ended 30 September 2014 and 2015.

 

 

 

 

 

 

 

 

 

2018

 

2017

 

 

 

£'m

 

£'m

 

 

 

 

 

 

 

 

Profit on ordinary activities before tax

26.1

 

21.1

 

 

 

 

 

 

 

 

Profit on ordinary activities multiplied by the effective rate of corporation tax in the UK of 19.0% (2017: 19.5%)

5.0

 

4.2

 

 

 

 

 

 

 

 

Effects of:

 

 

 

 

 

Adjustments in respect of prior years

(0.4)

 

(1.1)

 

 

 

 

 

 

 

 

Total taxation charge

4.6

 

3.1

 

 

 

 

 

 

 

 

The tax charge for the year is based on the effective rate of UK Corporation tax for the period of 19% (2017: 19.5%). A reduction in the UK corporation tax rate from 20% to 19% (effective from 1 April 2017) was substantially enacted on 26 October 2015. Further reductions 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 30 September 2018 has been calculated based on these rates.

 

 

 

7. Earnings per share

 

 

Basic 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.

 

Diluted earnings per share is 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 period plus the weighted average number of Ordinary Shares that would be issued on the conversion of all dilutive potential ordinary shares into Ordinary Shares.

 

Adjusted pro-forma 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.

 

 

 

 

 

 

 

Basic weighted average number of Ordinary Shares

Total earnings

Pence per share

 

 

(m)

£'m

 

 

 

 

 

 

 

 

 

 

 

 

Year ended 30 September 2018

 

 

 

 

Basic EPS

130.5

21.5

16.5p

 

Diluted EPS

130.7

21.5

16.5p

 

 

 

 

 

 

Adjusted EPS

130.5

27.7

21.2p

 

 

 

 

 

 

 

 

 

 

 

Year ended 30 September 2017

 

 

 

 

Basic and Diluted EPS

130.4

18.0

13.8p

 

Adjusted  EPS

130.4

22.9

17.6p

 

 

 

 

 

 

 

 

 

 

 

Adjusted Earnings after tax

 

 

 

 

When reviewing profitability, the Directors use an adjusted EPS in order to give a meaningful year-on-year comparison. Whilst we recognise that the measure is an alternative (non-Generally Accepted Accounting Principles ("non-GAAP")) performance measure which is also not defined within IFRS, this measure is important and should be considered alongside the IFRS measures.

 
 
 

Adjusted earnings after tax is calculated as follows:

 

 

 

 

2018

2017

 

 

 

£'m

£'m

 

 

 

 

 

 

Profit for the year after taxation

 

21.5

18.0

 

Exceptional acquisition costs (net of tax at 19%)

 

0.5

0.4

 

Non underlying litigation costs

 

0.3

-

 

Non underlying property costs

 

0.4

-

 

Monarch net charge (net of tax at 19%)

 

-

1.6

 

Amortisation of acquired intangibles (net of tax at 19%)

 

3.8

3.6

 

Share based payment charges (net of tax at 19%) *

 

1.2

0.4

 

ATCA adjustment

 

-

(1.1)

 

Adjusted earnings after tax

 

27.7

22.9

 

 

 

 

 

 

* The share based payment charges are in relation to options which are not yet exercisable.

 
               

 

 

 

8. Intangible assets

 

Brand

Goodwill

Website & development Costs

Website technology

Customer relationships

Total

 

£'m

£'m

£'m

£'m

£'m

£'m

Cost

 

 

 

 

 

 

At 1 October 2016

30.1

21.5

3.8

22.5

-

77.9

Assets acquired on acquisition

1.4

10.1

0.1

-

-

11.6

Additions

-

-

2.6

-

-

2.6

At 30 September 2017

31.5

31.6

6.5

22.5

-

92.1

Reclassification as assets held for sale

-

 

-

-

-

-

Assets acquired on acquisition

4.4

8.0

-

0.3

6.5

19.2

Additions

-

-

3.8

-

-

3.8

Disposals

-

-

(3.8)

-

-

(3.8)

At 30 September 2018

35.9

39.6

6.5

22.8

6.5

111.3

 

 

 

 

 

 

 

Accumulated amortisation

 

 

 

 

 

At 1 October 2016

6.0

-

0.5

6.8

-

13.3

Charge for the year

2.1

-

2.1

2.2

-

6.4

At 1 October 2017

8.1

-

2.6

9.0

-

19.7

Charge for the year

2.2

-

2.6

2.2

0.2

7.2

Disposals

-

-

(3.7)

-

-

(3.7)

At 30 September 2018

10.3

-

1.5

11.2

0.2

23.2

 

 

 

 

 

 

 

Net book amount

 

 

 

 

 

 

At 30 September 2018

25.6

39.6

5.0

11.6

6.3

88.1

 

 

 

 

 

 

 

At 30 September 2017

23.5

31.6

3.9

13.5

-

72.5

 

 

 

 

 

 

 

 

Assets acquired on acquisition

 

 

 

 

 

 

These assets were recognised upon acquisition of Classic Collection Holiday Limited (2017:  Sunshine.co.uk Limited). The amounts recognised are at fair value at acquisition date.

 

 

 

 

 

 

 

9. Cash and cash equivalents

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

2018

 

2017

 

 

 

 

 

£'m

 

£'m

 

 

 

 

 

 

 

 

 

 

Cash at bank and in hand

 

 

47.3

 

33.0

 

 

Trust account

 

 

38.4

 

38.6

 

 

 

 

 

85.7

 

71.6

 

 

 

 

 

 

 

 

 

 

                               

 

10. Dividend

The Directors are recommending a final dividend of 2.2p per share, totalling 3.3p per share for the year (FY17: 1.9p per share).

Principal risks and uncertainties

 The Board has carried out a robust assessment of the principal risks facing the company, including those that would threaten its business model, future performance, solvency or liquidity. A summary of the nature of the risks currently faced by the Group is set out below.

 · Brexit: In the event of a "no deal" Brexit, there could be disruption to flights until new aviation rights were agreed. Although extremely unlikely, if this did happen, On the Beach would incur costs in repatriating/accommodating customers overseas and would lose margin on holidays cancelled as a result, and consumer appetite to book may be reduced. It is also possible that the disruption could lead to airline failure which would entail costs for On the Beach (see supplier failure risk below). Brexit also impacts on other risks including foreign exchange risk, consumer confidence risk, and people risk.

· Consumer confidence: A recession or reduced economic growth can lead to reduced job security and a reduction in consumer leisure spending capacity. A weak pound makes holidays more expensive.

· Regulatory changes: The Group operates in a highly regulated environment, with multiple changes which came into force in 2018 (including the new Package Travel Directive, the General Data Protection Regulation and the Second Payment Services Directive). An incorrect application of the rules could lead to fines and / or damage the Group's reputation.

· Security of supply: The Group does not have relationship agreements in place with a number of airlines. The Group is currently able to use technology to access flight data and place bookings on behalf of customers. Certain airlines have sought to hinder or block the Group's access to their websites using technological, legal or other means and may do so in the future. If successful, the Group's offering may be less extensive which could have a material adverse effect on the Group's business.

· Supplier failure: If a supplier were to collapse this could result in significant direct and indirect costs for the Group. In the case of the failure of a major low cost carrier, this could have catastrophic consequences for the Group.

· Competition risk: The Group operates in a very competitive market. If competitors offer a more compelling proposition, this could have a material adverse effect on the Group's financial position and prospects.

· Reputation risk: The Group relies on the strength of its brand to attract customers to its website and secure bookings. Any events which give rise to adverse publicity could cause reputation damage and lead to a loss of goodwill.

· Litigation: The Group is one of several online travel agents involved in litigation with Ryanair in connection with Ryanair's efforts to prevent OTAs from booking and selling its flights. The legal process is ongoing but remains at an early stage. The position remains as disclosed in our FY17 Annual Report, , which was that OTB issued a motion to compel delivery of full and proper particulars in May 2017 and in response to this motion, Ryanair is proposing to make amendments to its original statement of claim. This has resulted in a further delay to the anticipated timescales set out in the Prospectus. Litigation is unpredictable and if Ryanair were to prevail, this could have a material impact on the Group's business.

· System & technology risk: A significant business interruption could impact on the Group's ability to trade and/or manage the business. The Group is exposed to risks of security breaches associated with online commerce security (e.g. loss of customer data).

· People risk: The Group's ability to achieve its strategic objectives is dependent on certain key personnel, plus its ability to attract and retain skilled staff.

· Foreign exchange risk: The Company faces transactional exposure primarily relating to the cost of acquiring accommodation. The Company's main exposure to exchange rate fluctuations is in relation to the Euro/Sterling exchange rate. This risk is managed by forward buying foreign exchange to match requirements as they are generated by customer bookings. Tour operators purchase currency in advance whereas OTAs tend to purchase currency to match orders so if the pound weakens, tour operators have an advantage over OTAs.

· Working capital risk: Given the seasonality of the business, cash flow is volatile which could lead to a lack of liquidity and an inability to trade. The expectation, based on the detailed budgeting process undertaken by the Company, and the working capital facility the Company has in place, is that the Company will have sufficient cash resources to meet the financing liabilities that fall due on the base case and on sensitised forecasts.

· Tax complexity: Due to the complexity of VAT rules in the travel industry, HMRC could disagree with the VAT treatment the Group has applied, which could result in additional unrecoverable VAT, plus interest and penalties, and the costs of litigation if we chose to challenge the decision.

Responsibility Statement

The responsibility statement below has been prepared in connection with the Group's Annual Report & Accounts for the year ended 30 September 2018. Certain parts thereof are not included within this announcement. We confirm that to the best of our knowledge and belief:

· The consolidated financial statements, prepared in accordance with International Financial Reporting Standards as adopted in the European Union, give a true and fair view of the assets, liabilities, financial position, cash flows and loss of the Company and Group; and

· The management report, which is incorporated into the strategic report, includes a fair review of the development and performance of the business and the position of the Company and Group, together with a description of the principal risks and uncertainties it faces.

This responsibility statement was approved by the Board on 28 November 2018 and is signed on its behalf by:

Paul Meehan

Chief Financial Officer

28 November 2018

 

 

Glossary of Alternative Performance Measures (APMs)

 

APM

Definition

 

Reconciliation to closest GAAP measure

 

 

 

 

 

 

 

 

Adjusted Core EBIT

Adjusted Core EBIT is based on Core operating profit before the impact of certain costs / income that derive from events or transactions that fall outside of the normal activities of the Group. This also includes the non-cash cost of the share based payment schemes. These costs / income are excluded by virtue of their size and in order to reflect management's view of the performance of the Segment.

 

The first annual LTIP was granted in 2016. As the scheme reaches maturity (3 year cycle) there will be a material change to the charge each year. Therefore these charges have been added back to adjusted profit measures in order to reflect managements' view underlying performance of the business.

 

Adjusted Core operating profit (£m)

2018

2017

 

Core Operating Profit

27.7

23.4

 

Non-underlying costs

1.5

2.7

 

Share Based Payments

1.4

0.5

 

Amortisation of acquired intangibles

4.3

4.3

 

Adjusted Core EBIT

34.9

30.9

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted Core EBITDA

Adjusted Core EBITDA is based on Core operating profit before depreciation, amortisation and the impact of certain costs / income that derive from events or transactions that fall outside of the normal activities of the Group. This also includes the non-cash cost of the share based payment schemes. These costs / income are excluded by virtue of their size and in order to reflect management's view of the performance of the Segment.

 

Adjusted Core EBITDA (£m)

2018

2017

 

Core Operating Profit

27.7

23.4

 

Non-underlying costs

1.5

2.7

 

Share Based Payments

1.4

0.5

 

Depreciation and amortisation

3.0

2.4

 

Amortisation of acquired intangibles

4.3

4.3

 

Adjusted Core EBITDA

37.9

33.2

 

 

 

 

 

 

 

 

 

 

 

 

International EBITDA

International EBITDA is based on International operating profit before depreciation and amortisation.

 

International EBITDA (£m)

2018

2017

 

International Operating Profit

(2.4)

(2.2)

 

Depreciation and amortisation

0.2

0.2

 

International EBITDA

(2.2)

(2.0)

 

 

 

 

 

 

 

 

 

 

 

 

Classic EBITDA

Classic EBITDA is based on Classic operating profit before depreciation and amortisation.

 

Classic EBITDA (£m)

2018

2017

 

Classic Operating Profit

0.9

-

 

Depreciation and amortisation

0.2

 -

 

Classic EBITDA

1.1

-

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted Profit before Tax

Adjusted Profit before Tax is based on Profit before Tax adjusted for amortisation of acquired intangibles, and the impact of certain costs / income that derive from events or transactions that fall outside of the normal activities of the Group. This also includes the non-cash cost of the share based payment schemes. These costs / income are excluded by virtue of their size and in order to reflect management's view of the performance of the Group.

 

Adjusted Profit before Tax (£m)

2018

2017

 

Profit before Tax

26.1

21.1

 

Amortisation of acquired intangibles

4.6

4.3

 

Share Based Payments

1.4

0.5

 

Non-underlying costs

1.5

2.7

 

Adjusted Profit before Tax

33.6

28.5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted Profit after Tax

Adjusted Profit after Tax is based on Profit after Tax adjusted for amortisation of acquired intangibles, and the impact of certain costs / income that derive from events or transactions that fall outside of the normal activities of the Group. This also includes the non-cash cost of the share based payment schemes. These costs / income are excluded by virtue of their size and in order to reflect management's view of the performance of the Group.

 

Adjusted Profit after Tax

2018

2017

 

Profit for the year

21.5

18.0

 

Share based payments (net of tax)

1.2

0.4

 

Non-underlying costs (net of tax)

1.2

2.2

 

Amortisation of acquired intangibles (net of tax)

3.8

3.4

 

Adjustment in respect of ATCA

-

(1.1)

 

Adjusted Profit after Tax

27.7

22.9

 

 

 

 

 

 

 

 

 

 

 

 

Non-underlying costs

Non-underlying costs are certain costs / income that derive from events or transactions that fall outside of the normal activities of the Group. These costs / income are excluded from various performance measures by virtue of their size and in order to better reflect management's view of the performance of the Group.

 

Non-underlying costs

2018

2017

 

One-off property costs

0.5

-

 

One-off litigation costs

0.4

-

 

Acquisition costs

0.6

0.7

 

Monarch failure

-

2.0

 

Non-underlying costs

1.5

2.7

 

 

 

 

 

 

 

 

 

 

 

 

Operating cash conversion

Operating cash conversation is adjusted EBITDA (see above) divided by operating cash flows excluding cash flows that derive from events of transactions that fall outside the normal activities of the Group. These cash flows are excluded from various performance measures by virtue of their size and in order to better reflect management's view of the performance of the Group.

 

Operating cash conversion

2018

2017

 

Operating profit

26.2

21.2

 

Depreciation

0.5

0.4

 

Amortisation

7.2

6.4

 

Non-underlying costs

1.5

2.7

 

Share based payments

1.4

0.5

 

 

Adjusted operating profit

36.8

31.2

 

 

Capitalised development spend

(3.8)

(2.7)

 

 

Movement in working capital

(1.9)

(3.3)

 

 

Capital expenditure

(2.2)

(0.6)

 

 

Adjusted operating cash flow

28.9

24.6

 

 

Adjusted operating cash conversion

79%

79%

 

 

 

Acquired working capital adjustment

2.2

3.5

 

 

 

Assets under construction

1.1

-

 

 

 

Adjusted operating cash

32.2

28.0

 

 

 

Adjusted operating cash flow

90%

88%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Core revenue after marketing costs

Core revenue after marketing costs is revenue after "core" online and offline marketing costs

 

Core revenue after marketing costs

2018

2017

 

Core revenue

89.3

81.9

 

Core online marketing costs

(33.2)

(33.5)

 

Core offline marketing costs

(4.1)

(3.5)

 

 

 

Total core marketing

(37.3)

(37.0)

 

 

 

Core revenue after marketing costs

52.0

44.9

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted EPS

Adjusted EPS is calculated on the weighted average number of Ordinary share in issue, using the adjusted profit after tax.

 

Adjusted EPS

2018

2017

 

 

Adjusted Profit after Tax

27.7

22.9

 

 

Basic weighted average number of Ordinary Shares (m)

130.5

130.4

 

 

Adjusted EPS (p)

        21.2

         17.5

 

 

 

 

 

 

Operating profit before amortisation and exceptional costs

Operating profit before amortisation and exceptional costs is based on Group operating profit, adjusting for amortisation of acquired intangibles and the impact of certain costs that derive from events or transactions that fall outside of the normal activities of the Group.

 

Operating profit before amortisation and exceptional costs (£m)

2018

2017

 

Operating profit

26.2

21.2

 

Exceptional costs

0.6

2.7

 

Amortisation of intangibles

7.2

6.4

 

 

Operating profit before amortisation and exceptional costs (£m)

34.0

30.3

 

 

 

 

 

 

 

 

 

 

 

 

Core EBITDA as a percentage of revenue

Core EBITDA as a percentage of revenue is based on the adjusted core EBITDA divided by the revenue generated in the core business.

 

Core EBITDA as a percentage of revenue

2018

2017

 

Revenue

89.3

81.9

 

 

Adjusted core EBITDA

37.9

33.2

 

 

 

Core EBITDA as a percentage of revenue

42.4%

40.5%

 

 

 

 

 

 

 

 

 

 

 

 

International revenue after marketing costs

International revenue after marketing costs is based on International revenue after all marketing costs

 

International revenue after marketing costs

2018

2017

 

Revenue

1.6

1.7

 

Marketing costs

(3.0)

(3.3)

 

 

International revenue after marketing costs

(1.4)

(1.6)

 

 


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