On the Beach optimistic despite £35m H1 Covid hit

Prior to the crisis the group was trading well, with holiday sales growing 29% in the first four months, following the collapse of Thomas Cook.

However with the onset of the pandemic, revenue of £21.4 million was down 66% on prior year due to cancellations and a significant reduction in demand from mid-February. Adjusting for the exceptional cancellations H1 adjusted revenue of £52.8 million was down 17%.

H1 adjusted profit before tax of £2.3 million was down £13.4 million on prior year, impacted by the reduction in consumer demand and increased offline marketing spend which will now not pay back in H2.

The group added total exceptional costs in the period of £34.7 million represented the estimated cost of Covid-19 to trading in H1 – largely due to cancellations or expected cancellations and associated administrative expenses.

Actions to conserve cash during the period include the Group’s CEO Simon Cooper forgoing his salary and the remainder of the board voluntarily agreeing to a 20% reduction in salary and fees.

In terms of access to cash, in April the group reached agreement with its bank to extend the £50 million revolving credit facility to all months of each year, and last month agreed an increase to these facilities, in the form of an incremental £25 million RCF under the Coronavirus Large Business Interruption Loan Scheme, expiring in May 2022.

As a result, the group now has available to it maximum working capital facilities of £75 million.

On the Beach’s board believes the above measures allow it to “simultaneously increase investment in its digital platforms; continue to drive brand through investment in online and offline marketing activity; improve conversion with attractive low deposit schemes; and react to commercial opportunities in the UK and internationally as demand begins to normalise”.

During April OTB Group bookings were at about 10% of normal volumes as consumer appetite for booking holidays remained subdued. From mid-June there has been a significant increase in demand for summer 2020 departures, albeit from a very low base.

Booking volumes for summer 2021 remain low, but are significantly ahead of the prior year, partially due to the early release of flights for next year by most major airlines.

On the Beach’s board believes the business is well-positioned to grow market share as demand for holidays recovers. It says it is confident in the resilience and flexibility of its business model and believe there is an “exciting opportunity to increase our market share over the short to medium term”.

It added in the financial update that it “remains the only listed UK travel business that operates a fully ring-fenced customer trust account in which customer funds are held until the point of travel".

“Therefore, the group does not rely on cash received for forward bookings to trade,” it said. “Monies that have been received for holidays that are cancelled by a closure of airspace can be repaid to customers in cash with limited impact on the group’s working capital.”

Cooper said: “In the aftermath of the Thomas Cook collapse, the Group made excellent progress in the first four months of the financial year, driving record levels of brand awareness and achieving sales growth of almost 30% for holidays departing in summer 2020.

“We also made significant progress against our strategic objectives in the year with Classic Package Holidays going live in over 2,600 agencies alongside the continued expansion of our long-haul offering.

“The onset of the Covid-19 pandemic led to a rapid slowdown in demand for foreign travel followed by the total closure of airspace across Europe by mid-March.

“Our staff responded brilliantly to ensure that the group delivered the highest possible customer service standards in the most difficult of circumstances.

“On the Beach continues to successfully build a leading position as more consumers discover the ease of use and wide choice of beach holidays across our platforms.

“The flexibility and asset light nature of our business model together with our recently strengthened balance sheet and the actions we have taken since the middle of March means we are well placed to capitalise on the inevitable structural changes in the market post Covid-19.

“As a result, the board continues to look to the future with confidence.”

Meanwhile, On the Beach’s chief financial officer, Paul Meehan, has resigned the board “in order to pursue other business interests”, stepping down on 17 July.

Shaun Morton, the group’s director of finance, will be promoted to chief financial officer and will join the board as a director.