Trainline Plc

So good morning, everyone. Thank you for joining us here today for our half-year results presentation. I'm Jody Ford, CEO of Trainline, and I'm joined by Sean McCabe, our CFO. And it's great to be here speaking to you in person rather than on the call. Let's first go through the disclaimer. And on to the agenda for today. First, I'll give an overview of how Trainline is taking a leading role in the industry recovery. Sean will talk to you through our financial performance, then I'll update on progress against our strategic priorities. Before discussing in detail our international opportunity with case studies showing how markets in Europe are evolving, as well as how our plans to invest to realize that opportunity will then open the floor to questions. We've taken a leading role in the rail industry's recovery, encouraging people back onto trains driven by our purpose to increase greener travel. We've helped accelerate the market shift to online and digital channels, leveraging our continued investment in our product and our technology through the pandemic. We've scaled our marketing investment, driving new customer acquisition to record levels, and we've increased transaction frequency with the cohort of customers purchasing tickets twice or more in a month, growing by 29% versus pre-COVID. As a result, we've delivered a strong recovery in net ticket sales, In the second quarter, our UK consumer business recovered to 95% of the same period two years ago and back to growth in August. Likewise, our top four domestic markets in Europe were back to growth versus two years ago, all of which helped the business return to profitability. The strength of our B2C proposition is playing a central role in this recovery. For our customers, we are continuously innovating to create the ultimate rail travel companion. First, we remove friction when traveling by train, enhancing our 4.9-star mobile app with innovative new features and a seamless digital ticket experience. Second, we provide unrivaled value with an array of products like Splitsave, digital rail cards, and Recoup Retard that help customers to save money. And third, we have the widest choice, aggregating all of the carriers and fare options, plus real-time travel information on the go. All of this makes making the train a more attractive proposition, empowering people to switch to a far greener mode of travel. Underpinning our B2C proposition is our scalable and secure global tech platform, within which we have invested significantly, developing proprietary functionality for both the front end and the back end. This includes Deep inventory connections into carrier APIs, allowing us to offer all journeys and fares, real-time data and pre and post sales. A customer-centric e-commerce layer with a simple standardized user experience across hundreds of carriers. And core reliability, scalability and security, all maintained by our team of 400 plus tech and product engineers. However, our platform doesn't just underpin our B2C proposition. Through Trainline Partner Solutions, we provide our cutting-edge technology and digital innovation to B2B customers and carrier partners as well. This reduces cost and complexity for them, while allowing us to realize more value from our platform investment. In May, the William Shapps White Paper was published, laying out the UK government's vision for rail and its proposals for reform. Since the White Paper's publication, we've continued to engage with government and the wider industry on how we can help support the delivery of its proposals. As expected, this process is taking time, and we await clarity on the proposals and their potential implications for third-party retailers. The White Paper has four proposals that are of most relevance to Trainline. First, the creation of Great British Railways, or GBR, as the new governing body for rail, This will subsume several pre-existing supervisory bodies, including the rail delivery group, in turn becoming the key counterparty for train operating companies and third-party retailers like Trainline. GBR's incorporation will require an act of UK Parliament not expected until 2024 at the earliest. Second, the creation of GBR as a ticket retailer, replacing many of the numerous subscale train operating company websites. As a result, this will likely have significant impact upon our carrier IT solutions business, which provides white label services to several train operators. However, it's not yet confirmed how the government plans to build and operate their online retailing platform. If they were to use a tech partner to do this, we are well placed to meet their requirements, given we are a leading provider of tech retail solutions to the rail industry. Either way, third party retailing licenses will continue with the government recognizing the competition and innovation that third party retailers bring to the market. So Trainline will continue to provide its best in class rail travel companion to customers alongside GBR's app when it launches. In that vein, the rail delivery group recently invited us to take part in a consultative process reviewing the broader retailing landscape and the commercial framework. It will include opportunities and objectives for reform, driving industry cost and revenue recovery, customer experience improvements and innovation. The consultation provides us with an opportunity to input into the future evolution of rail retailing in the UK in line with the government's aim of innovative competitive market. The resulting recommendations will be submitted to the government early next year. Third, the white paper proposes to expand pay as you go outside of London. This was reaffirmed in the government spending review last week, which announced an overall investment of 360 million to cover fares, ticketing and retail, including the expansion of Pay As You Go. While the detail will be for the government to set out, we believe it will present opportunities for train line. These include configuring our mobile app to support future Pay As You Go deployment, enhancing the experience with features like digital rail cards and real time travel information while giving customers increased control of their spend. And fourth, the white paper makes a clear commitment to rolling out digital ticketing. It also promised the launch of digital-only Flexi tickets, which have since gone live. And for the first time, the government committed to making season tickets available in digital format. Overall, the direction of travel towards online and digital retail is very encouraging. With that, I'll hand over to Sean to talk through our financial performance.

Okay, thanks. Good morning, everyone. So, as Jodie discussed, the story of the first half was one of recovery for Trainline. This was led by domestic travel within our international business, fast followed by our UK consumer business. As you can see from the bar charts, the recovery was particularly evident in the second quarter. Net ticket sales in the top four domestic markets of France, Germany, Italy and Spain returned to overall growth up 5% versus the same period two years ago. UK consumer recovered to 95% at the same period two years ago and returned to growth in August up 12%. In the UK, the recovery began with short distance leisure travel, which returned as lockdowns eased. Longer distance leisure travel then came back over the summer, with commuter travel coming back more recently in September and October. As you might expect, corporate travel has remained subdued. But I do think we're seeing the same green shoots as we saw in our B2C business six months ago, with business travel in the second quarter doubling versus quarter one. International inbound has also yet to return in a meaningful way. But as travel restrictions begin to lift, we're seeing more positive signals there too. For example, Eurostar sales in September were back up to 36% of where they were two years ago, up from just 5% in Q1. The strong recovery in UK consumer and international has driven a significant recovery in net ticket sales, in revenue and in gross profit. The group generated a billion pounds of net ticket sales, up 179% on last year. And this was 54% of the same period two years ago. Revenue increased to 78 million, up 151%, or 60% of the same period two years ago. And gross profit increased to 61 million, up 181% year on year, or 62% of the same period. two years ago. With our business recovering, we returned to positive EBITDA in the first half. Direct and central costs increased to 47 million from 38 million last year. As trading conditions began to normalize, we scaled our cost-based backup, having significantly reduced it last year to mitigate the impact of COVID on our business. Despite costs normalizing, We reported an adjusted EBITDA of 15 million versus a 60 million loss in the first half last year. With trading improving and net ticket sales recovering, our net debt reduced to 169 million from 241 million six months ago. The main drivers were a working capital inflow of 73 million as ticket sales recovered. as well as the 15 million of EBITDA in the period. As Jody mentioned, we maintained our investment in tech and product in our roadmap throughout COVID. And this continued into H1 as reflected in the 16 million capex charge. With visibility improving, we have reinstated our full year guidance. We expect to generate net ticket sales in the range of 2.4 to 2.8 billion. And we expect to deliver an adjusted EBITDA of 35 to 40 million. Our guidance factors in a step up in investment for our international business from the second half of this year, which Jody will talk more about later. And with that, I'm going to hand back to Jody.

Thanks, Sean. Let's now talk about our progress against our strategic priorities. As a reminder, our four stated strategic priorities are to enhance the customer experience, continually improving and optimizing our mobile app, build customer demand, scaling up customer acquisition, increasing their engagement with us, increase customer lifetime value, growing our relevance for more of our customers' travel needs, and grow train line partner solutions, serving the B2B and carrier markets. I am delighted with the progress we're making against these long-term priorities. Let's step through each of them. First, enhancing the customer experience. As I said earlier, we maintained our investment in product and tech through COVID, removing friction for customers while offering them access to unrivaled value and the widest choice. As a result, the strength of our mobile app has helped support the rail industry recovery, giving people an easy way to book online and use digital tickets to travel. Take e-tickets in the UK as an example. which we have championed for many years as a core part of our customer proposition. Demand for e-tickets has significantly increased, partly reflecting a greater prevalence of people buying products and services without cash and using an app. It also reflects customers appreciating the easier refund process and having clear, on-the-go travel information. At the same time, availability of rail journeys where e-tickets are accepted has now risen to 80%. following ScotRail's rollout of barcode tickets across their network. Taken together, e-tickets have doubled to 40% of the entire market over the past 18 months. In the UK, commuters made up about 40% of the rail market pre-COVID, or about £4 billion of sales. But historically, they have been underserved with digital ticket options and have not been an area of focus for TrainLine. Commuters are now returning, However, they are doing so in a new way, reflecting more hybrid working, with some days in the office and some days working from home. Recent RDG data shows commute has now recovered to 45% of trips. We've invested to meet the needs of this new commuter, launching features like Save Your Commute, allowing customers to personalize their journey and rebook tickets in just two clicks. Commuter Calculator, helping customers find the cheapest way to travel by train. and real-time push notifications, alerting customers if their train is delayed. We also launched Flexi tickets on the app and have plans to roll out digital season tickets soon. Our investment is already driving positive change in customer behavior. For example, we have a cohort about users we call time checkers. They serve as a good proxy for commuters. And in September, we converted 26% more of them to purchasing customers versus pre-COVID. Moving on to our second priority, building demand. As COVID restrictions eased, we scaled our marketing investment. We grew performance marketing, taking advantage of increased online demand. And we ran brand leisure campaigns over the summer, tapping into the staycation bump and demand for other domestic leisure travel. Our marketing activity generated a sharp rebound in new app customer acquisition, which reached its highest ever level. Likewise, customer engagement recovered to where it was pre-COVID. with 30 million unique monthly users active in August. We also increased our reach, integrating Trainline into the Google Maps for Android users, sorry, Google Maps for Android, broadening further the reach of Trainline. Customers can book by simply clicking through Google Maps direct to the mobile app, and those customers can seamlessly buy and store their train tickets as well. with Google Pass and Google Pay now integrated into our app. Our third priority is to increase customer lifetime value. This means not only do we want to increase the frequency of journeys they make with us, but we want them to use us for more of their travel needs, commuting, shopping trips, getting to university, business trips, family days out, buying a rail card, and indeed, international travel. Through our enhanced product offering and broader marketing efforts, we have significantly increased our ability to help people make these everyday travel choices. In the UK, more customers are increasingly booking their regional travel through train line, and more recently, their commuter travel. We've seen similar trends in international, where sales for regional travel also stepped up considerably in France and Italy, up 56% and 160% respectively versus two years ago. This has driven a notable increase in repeat usage, particularly in the UK, where customers transacting twice or more each month was up 29% pre-COVID. Look, having worked in e-commerce for the last 20 years, I can tell you how rare it is you see this kind of step up in frequency. While helping to drive faster growth, increasing customer lifetime value is also improving our customer economics, allowing us to, in turn, invest more in customer acquisitions. We also made strong progress against scaling digital rail cards, a big retention opportunity for Trainline. There are around 6 million rail cards in the UK today. They're applied on more than 40% of our customer transactions. And users of rail cards buy train tickets far more frequently. We launched digital rail cards in the UK a year ago to provide a much better experience than the paper alternative. So far, the customer response has been strong. with over a quarter of a million sold in the first half. Following our early success in the UK, we've now launched digital rail cards in France. Moving on to our fourth priority, growing train line partner solutions. As Sean mentioned earlier, demand for business travel remains subdued, but we are beginning to see some signs of recovery with net ticket sales doubling from Q1 to Q2. Despite the slower recovery, we continue to invest in our TPS business to ensure it is in the strongest position when demand returns. With our global distribution and business solutions division, we continue to scale the global API platform. This gives our B2B partners the ability to offer European rail options to their customers through our simple, seamless connection. 22 B2B customers are now signed up, including Flight Center most recently. Within carrier IT solutions, we renewed contracts with five white labeled train company clients. They will benefit from access to our core platform functionality and upgraded suite of features, including payment support and improved for management. So as the new CEO, I feel really good about the progress we're making against our strategic priorities. And looking forward, I'm excited about our opportunities, particularly for our European expansion. Our opportunity in Europe is huge. Pre-COVID, the European rail market was circa 50 billion euros in size, around five times that of the UK. And the European rail market benefits from significant tailwinds. For example, the EU has stretching targets to promote modal shift, seeking to double passengers on high-speed rail by 2030 and triple it by 2050. At the same time, the EU's fourth railway package has opened domestic rail to competition. As a result, carriers from France, Italy and Spain are beginning to compete in each other's markets. Italy is the most liberalized of the top markets in Europe, following the entry of challenger brand Italo in 2012. And Italy may yet see more carriers enter the market with SNCF recently discussing the possibility. In Spain, the market began to liberalize from May with two new carrier brands on the Madrid to Barcelona route, Wego and Avlo. Next year, competition in Spain will expand even further, with Wigo and Avlo launching more routes and Trinitalia due to enter the market. Trinitalia also due to enter the French market in the coming weeks, launching a service between Paris and Lyon, Europe's busiest high-speed rail route. Rail co-ops plan to enter the French market next year, linking Bordeaux and Lyon. And Spanish carrier Renfe are due to launch in 2024. With press speculation last week, they may also launch a channel tunnel service to compete with Eurostar. As a business, we've been talking about this for years, but liberalization is happening right now. By the end of the year, we will have carrier competition in three out of the top four rail markets in Europe. And then if we cast forward to 2030, we envisage a world where European customers use rail far more and will have much greater range of choice available. In turn, those customers will increasingly need help to find the right journey at the best value. We'll fulfill this role by positioning ourselves as the marketplace of choice for European rail travel. We will aggregate all the carriers, fares and journey options into one place. At the same time, we will leverage our best-in-class mobile app with its simple-to-use interface and search functionality to offer customers a seamless booking experience. And we will provide real-time, on-the-go information to make their journey easier. By positioning Trainline as the marketplace of choice, we are well-placed to succeed in Europe and significantly grow our share. Let's bring that more to life by taking a closer look at Italy. As mentioned, Italy has experienced carrier competition for the past several years following the entrance of Italo. Italo competes fiercely with incumbent Trenitalia, having grown its share to around 30% of the long distance rail market. One notable manifestation of that competition is neither carrier providing the other's inventory on its respective websites. So we are positioning ourselves as the aggregator, which I saw firsthand when I traveled last week from Milan to Rome. And we are seeing strong early progress with net ticket sales for domestic travel doubling in Q2 versus two years ago. How are we more than just an aggregator? As customers use our mobile app to compare routes and prices, they experience its ease and reliability. This in turn prompts them to use TrainLane for all of their other rail journeys. This dynamic was reflected in our regional sales growth on Trenitalia, which was up 160% versus two years ago, despite carrier competition not yet existing on such routes. Likewise, we have good customer acquisition momentum with record new app customers in Q2. To accelerate this momentum will require greater customer awareness and so an increase in our brand investment. Let's take a closer look at Spain, zoning in on Madrid to Barcelona route. This is a prime route for flying. In fact, it's the busiest domestic airline route in Europe. However, high-speed rail provides a better alternative. Passengers can take a 386 mile journey in just two and a half hours from city center to city center, whilst generating significantly lower carbon emissions than flying or driving. And the arrival in May of new entrant Wego has only increased the attractiveness of rail for customers. Wego is SNCF's low cost brand, so while providing greater choice, it's also intensifying price competition with fares as low as nine euros. In response, incumbent operator Renfe has launched its own low-cost brand, Avlo. As in Italy, Wego does not offer Renfe and Avlo's inventory on its website and vice versa. So we are positioning ourselves as the aggregator here too, integrating Wego and Avlo onto our platform as they entered the market. Since then, we have taken a disproportionate share of ticket sales, tripling our transactions between Madrid and Barcelona in Q2. versus the same period two years ago. One in five of these tickets involved more than one carrier, generally where the customer was traveling to cities beyond Madrid or Barcelona. The only way to book a multi-carrier journey in one place is through an aggregator like Trainline. So we have a huge opportunity in Europe with considerable headroom that will increase with future modal shift. Alongside greater competition, the carriers, and with the market recovering, now is the moment to invest behind our growth ambitions. Therefore, we're stepping up our investment in international from age two onwards. We'll hire around 150 more people, predominantly software developers and data scientists, increasing the pace at which we can launch innovation and integrate new entrants onto our platform. We'll also accelerate our ability to meet the specific needs of each market. while filling any product gaps that might exist. For example, we recently launched airline style seat map selection in France and Italy, meaning customers can now choose a specific seat to enjoy for their journey. And this could be something we bring back to the UK. We will also increase our marketing investment, expanding our performance marketing capability and launching brand marketing campaigns to grow awareness. However, we remain agile and disciplined, only investing if trading conditions are favorable and where the unit economics are attractive and indeed sustainable. So before we open the floor to questions, let me recap on some of the key takeaways. Trainline has taken a leading role in the industry recovery, encouraging people back onto the train and accelerating the shift to online and digital. There continues to be ambiguity around GBR and the proposals laid out in the William Shapps white paper. We're engaging with the UK government and the industry, but as we've said, this will just take time. However, we remain on the front foot, making strong progress against our strategic growth priorities. We've continued to enhance our customer proposition, scaled up marketing to attract new customers, and very encouragingly, this has increased the frequency with which our existing customers transact with us. As a result, we've delivered a strong set of results for the first half. Looking ahead, we remain positive about our long-term tailwinds, including in Europe, where the liberalization of domestic rail is opening a new chapter of competition between operators and consequently choice for customers. And this provides a moment in time opportunity to step up our investment in Europe. So, reflecting on my first year in the business and first half as CEO, I'm delighted we've delivered such a strong operating performance, supporting rail recovery, making travel choices easier, and crucially, returning to growth. We've laid out a clear strategy against which we are making significant progress. And I remain excited about the opportunities that lie ahead. And finally, I'm proud to lead a business helping more people choose greener travel in the UK and Europe. So thank you all for listening. We're going to now open the floor for questions. Please raise your hand if you have a question. And before you ask a question, please state your name and your organization.