On The Beach keeps powder dry after exceptional summer

Adjusted profit before tax increased 18% to £33.6m in the 12 months to 30 September as revenue swelled 25% to £104.1m. Adjusted earnings per share rose 21% tp 21.2p and a final dividend of 2.2p per share was proposed, taking the total dividend to 3.3p, up 18% on last year.

The core UK business, based around the Onthebeach and Sunshine websites, grew sales 9% to £89.3m, or up 16% if excluding marketing costs, including a difficult second half where revenue after marketing costs grew 14%. UK adjusted earnings before interest, tax, depreciation and amortisation climbed 14% to £37.9m.

Mid-August acquisition Classic Collection, which sells luxury beach holiday packages through a network of third party offline travel agencies, contributed EBITDA of £1.1m in the month and a half since it was incorporated. As a principal rather than an agent, Classic revenue is booked on the date the customer travels, hence the material profit in the short ownership period.

The Scandi business, where the heatwave matched that in the UK, saw 48% revenue growth, as the rate of expansion slowed from 51% in the first half to a decline of 6% in the second. EBITDA losses increased to £2.2m from £2m last year.

In the UK business the percentage of revenue spent on marketing decreased to 41.8% from 45.2% and in the Nordics, marketing activity was reduced to a "background level", with management taking the view that the significant impact on revenue was worth it for the saving that could be reinvested at the start of the new financial year.

Chief executive Simon Cooper said highlighted the further improvement in the "market-leading" proportion of core EBITDA as a percentage of revenue, which increased to 42.4% from 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, suppressed 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."

He said the Classic acquisition provides a "business to business" channel through which OTB aims to access some of the 5m short haul beach holidays booked offline each year, via both the existing business and the launch of an online agent-only booking portal through which agents can book mainstream beach holidays, which is due to be launched early in 2019.

Cooper also reported that the first quarter of the financial year, while historically the quietest trading period for the group, has seen a "strong" early trading performance, supported by a slightly earlier release of summer capacity by major budget airlines, lower seat prices than last year for winter departures. He said OTB had continued with its efficient approach to marketing spend.

"Whilst the consumer environment continues to be challenging, we remain confident in the resilience and flexibility of our business model," he said.

OTB shares rose 5% to 420.84p in early trading on Wednesday.

Broker Shore Capital said the results were ahead of consensus forecasts, with revenues expected to come in at £95.3m and the EBITDA figure of £37.9m beating the average analysts estimate of £36.4m.

"This growth demonstrates an increased brand awareness and strong core trading," ShoreCap analyst Greg Johnson said.

Analyst Ivor Jones at Peel Hunt said the results were in line with his forecasts but "with a slightly different mix" than expected, as UK profits were lower than expected but this was offset by lower International losses and the contribution from Classic.

The results "highlight the flexibility of On the Beach’s business model", as it coped with difficult conditions in the second half.

Looking at strategic developments, Jones added: "The investments in brand and technology in the core UK business are paying off; long haul is starting to grow now that airline content has been integrated and Classic provides a platform from which to address the offline market. Management is planning its largest ever offline marketing campaign for 2019 which will, we expect, result in positive news with the next update in February next year."

However, Peel Hunt has trimmed its earnings per share forecasts for the coming year by 3% and for 2020 by 8% due to the effect of possible Brexit impacts on the UK business, offset only partly by lower losses from the Scandi business and higher profits from the Classic acquisition.