Covid: 19 and Banking Facilities Update
08/04/2020 07:00
RNS Number : 1842J
On the Beach Group PLC
08 April 2020
8 April 2020
On the Beach Group plc
("On the Beach", "OTB" or the "Group")
COVID-19 and Banking Facilities Update
On the Beach provides the following update in light of the ever changing COVID-19 situation. First and foremost, the health and wellbeing of our team members and our customers is and always will be the Group's top priority. Everyone across the team has responded with speed and professionalism to the current challenges.
In line with market-wide communications made by OTB prior to and since its listing in September 2015, the Group has an asset light, flexible, no inventory risk model and has no fixed commitments on hotel rooms or airplane seats.
For context, a tour operator or airline will generally have an almost immovable committed inventory cost (aircraft and/or hotels) and infrastructure cost of 60-70% of its aspirational total sales (transaction value) with or without any demand. An online travel agent like OTB without any inventory commitment only incurs inventory costs on each sale made and under normal conditions will have an underlying operating cost of approximately 8% of sales of which almost 70% is flexible marketing spend. If demand falls away completely then the fixed cost base will drop to c.3% of aspirational sales (or one twentieth of the costs of a similar sized asset heavy operator).
Perhaps more importantly in the current scenario, OTB is also the only listed UK travel business that operates a fully ringfenced customer trust account in which customer funds are held until the point of travel. Therefore the Group, unlike the majority of online travel agents, tour operators and airlines, does not rely on cash received for forward bookings to trade. 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.
Notwithstanding the advantages of the OTB model, the Group took early action in February to manage risk and conserve cash. In this environment of limited demand and therefore limited revenue, the Group's marketing costs have reduced to almost nil and the Group has taken further actions to limit other non-essential costs meaning that monthly cash costs are now less than £2m across the entire Group. The Group has, however, maintained all costs associated with the delivery of its future strategy.
Further to the above and in light of the current market uncertainties, OTB is suspending full year guidance until such time that the overall impact of COVID-19 on the Group becomes clearer. The Board also announces that it will not be declaring an interim dividend in the current financial year to 30 September 2020. The Group's CEO is forgoing his salary and the remainder of the Board have voluntarily agreed to a 20% reduction in salary and fees. This is alongside no bonuses being awarded across the Group in the current financial year.
Banking Facilities
In 2019 the Group renewed its existing Revolving Credit Facility to provide up to £50m to manage seasonal working capital requirements. The Group has recently reached agreement with its Bank to: extend the £50m RCF to all months of each year; extend the term to December 2023; and reset covenant tests for all periods up to and including June 2021.
The Group has also run theoretical stress tests of the Group's business model. It should be noted, however, that this is a stress test and not any expectation of the Group's future trading.
The stress test applied the following assumptions:
· There would be no bookings taken between now and the end of September 2020 across the travel industry for travel on any dates in the future;
· All flight programmes would be cancelled until the end of September 2020;
o All forward bookings until the end of September 2020 would therefore have to be cancelled. All OTB customers would be refunded in cash within 14 days of the receipt of cash refunds from airline providers
o In the event of airline failure, monies paid for flights would be available via chargeback, as was the case with Thomas Cook Group and Monarch Travel Group
o Concerns over the financial viability of any airline would lead to that airline being taken off sale by OTB
· Although bookings would return slowly once airspace reopens, bookings would remain at a significantly reduced level YOY until at least the end of March 2021 (H1 FY21).
In the above scenario, the Group would end H1 FY21 with only a limited drawdown of its facilities and significant headroom. This headroom would allow the Group to take advantage of the multitude of opportunities that these market conditions would present. The aforementioned position, of course, does not include any customer funds received for untraveled holidays, as these would be held separately in the Group's ringfenced trust account.
The Group will provide a further update to shareholders as and when appropriate.
Simon Cooper, Chief Executive of On the Beach Group plc, commented:
"The travel industry is prone to shocks: global recessions, natural disasters, terrorist attacks, and major airline failures to name a few. A closure of airspace was deemed inconceivable during contingency planning for a no-deal Brexit, but we now find ourselves in a position where airspace may be closed for a number of months due to the spread of COVID-19, and the travel industry needs to brace itself for a potentially prolonged period of significantly reduced, or even zero revenue.
"On the Beach was created with an asset light model to ensure its survival in the inconceivable market conditions in which we now find ourselves. Unlike the majority of larger tour operators, online travel agents and airlines, all OTB customer funds are held in a ring-fenced trust account so that if the scenario above prevailed and all forward bookings were to seek a refund of their prepaid holiday monies, in the main this could be facilitated without impacting Group cash. This is not the case across the industry where customer funds are often held on balance sheet and if refunds were requested en masse, the funds would not be available.
"Against the backdrop of the impossible market conditions in which we find ourselves, the resilience of On the Beach's asset-light and flexible business model becomes clear. The benefits of using a trust account structure (as opposed to the use of customer funds for working capital), become obvious, for consumer protection, for the financial stability of the business, and ultimately for the protection of the taxpayer. It would appear obvious that, as an industry, we need to reflect on financial protection and on how we can make our industry robust enough to withstand future shocks.
"In the days leading up to the closure of airspace, we were able to put a detailed plan in place to ensure that we are best placed to deliver operational and customer service excellence throughout this difficult time. As a technology company, we are also well placed to facilitate remote working for all of our staff. I am hugely proud of the efforts of everyone at OTB and would like to praise the dedication of my colleagues who have been working around the clock to provide the very best level of support for our customers.
"Whilst the coming months will continue to present a huge challenge, I look forward to the multitude of opportunities which lie ahead."
For further information:
| On the Beach Group plc Simon Cooper, Chief Executive Officer Paul Meehan, Chief Financial Officer | via FTI Consulting |
| FTI Consulting Alex Beagley Fiona Walker Sam Macpherson | Tel: +44 (0)20 3727 1000 |