Profits soar at holiday firm despite heat wave and World Cup fever

Manchester-based beach holiday specialists On the Beach is basking in the glow of better annual revenues and profits.

This was despite exceptionally hot Summer weather, and the 2018 football World Cup.

Through the year to September 30, the group managed to increase sales by 24.5% to £104.1m, while pre-tax profits of £26.1m were a 23.7% improvement on the previous year.

Shareholders will receive a 17.7% rise in total dividends payable at 3.3p per share.

However, after significant growth of 51% in the first half, international revenue decreased by 5.9% to £1.6m for the full year.

The business said 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.

The results announcement today said: “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.”

During the reporting period the group launched a third international market in Denmark.

In August On The Beach acquired Classic Collection Holidays for a net consideration of £20m.

Chief executive Simon Cooper said today: “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.”

He said: “In August, we completed the acquisition of Classic Collection Holidays, 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.”

Looking forward he said: “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 the group’s financial year is, historically, its quietest trading period, but Mr Cooper said he is pleased to report a strong early trading performance, supported by a slightly earlier release of Summer capacity by major low-cost carriers, lower year-on-year 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.”

He said: “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.”

Russ Mould, investment director at Manchester investment firm AJ Bell, said: “On The Beach has demonstrated the benefits of being agile and able to adapt to changing market conditions.

“In stark contrast to Thomas Cook’s profit warning on November 27, On The Beach has managed to grow revenue, profit and its dividend by a substantial amount, clearly showing that you can still make decent money from selling holidays.

“The business wasn’t immune to the hot Summer weather putting people off booking overseas breaks, yet it managed to reduce the impact of this situation by slashing marketing spend.

“On The Beach’s ambition is to be Europe’s leading online retailer of beach holidays.

“It has identified its niche, continues to invest in people and technology, and fine-tune its proposition to a) capture the public’s attention, and b) make it easy for them to browse, research and, ultimately purchase.

“These are the basics of retailing in the modern age and companies which don’t tick all these boxes will find life very hard.”