Trainline Plc

Good morning, everyone. Thank you for joining us today for our half-year results presentation. I'm Jody Ford, CEO of Trainline, and I'm joined by Pete Wood, our CFO. Let's first go through the disclaimer. Onto the agenda for today. I'll give an introduction, briefly discussing the progress we've made in the first half of the year. Pete will talk you through our financial performance. I'll then update you on how we're progressing against our strategic priorities. After that, we'll hand back to the operator for questions. The group delivered a strong financial performance in the first half, with net ticket sales up 23% and revenue up 19%. Together with the benefits of operating leverage, this drove a 26% increase in adjusted EBITDA, while our operating free cash flow increased by 166%. Our performance reflected the strong progress we're making against our strategic priorities. In the UK, we continue to digitise the commuter experience, growing our share of the commuter segment to 22%. While in international, we further positioned ourselves as the aggregator in liberalized European rail markets, with combined net ticket sales across Spain and Italy up 50%, partly offset by slower web sales in the heart. I'm delighted to add that we are now Europe's number one most downloaded rail travel app. As a reminder, Train Learning is a tech company with a clear purpose to empower people to make greener travel choices. We seek to do that by building the world's leading rail platform, which makes it much easier for people to travel by train. In addition, we champion the environmental benefits of rail, highlighting how it generates significantly lower emissions than driving or flying. Our approach is to inspire pride in those that take positive action. We launched I Came By Train initiative last year. gaining strong early momentum with industry and government stakeholders. We've now followed up with a new consumer campaign that celebrates all the heroes who travel by train. And we've also launched Your Sustainability Story, giving personalized information to customers on their emission savings. As I look ahead, I continue to see considerable tailwinds for our growth. We operate in a 60 billion euro rail market with significant planned investment in capacity growth. This investment is particularly focused around high-speed rail, including EU targets to triple high-speed passenger volume by 2050. People are increasingly using online and digital channels to book rail tickets, with e-ticket penetration in the UK more than doubling since pre-COVID to 46%. Yet there remains significant runway in our markets for further migration, Given our leadership in this space, we are not only well-placed to benefit from this trend, we are actively driving it. And liberalization of European rail markets is creating more fragmentation in supply and greater competition amongst carriers. In aggregate, new entrant carriers now compete on 12,000 kilometers of high-speed rail routes within Western Europe. The increasing competition this brings creates a greater need for a marketplace like Trainline. As a reminder, Trainline Invest provide all the carrier options and fares in one simple, easy-to-use mobile app. Underpinning these tailwinds is the increasing momentum around the need for a level playing field within rail retailing. This notably includes the recent regulatory developments in Germany and Spain. Altogether, these structural tailwinds represent significant and long-term growth opportunities for Trainline. With that, I'll hand over to Pete to talk through our financial performance.

Thanks, Jodie, and good morning. Before I step into the financial performance for the group, I will briefly unpack the performance of our business units. Starting first with UK consumer, net ticket sales grew 19% to 1.7 billion, despite the impact of 11 strike days in the first half. Growth was led by commuters and people booking on the day of travel, who increasingly benefit from Trainline's innovative set of products and features. Long distance and leisure travel also remained strong, having recovered more quickly post-COVID. Underlying demand strengthened as industry passenger numbers continued to recover, alongside a 6% fare increase and further growth in people using e-tickets. Looking forward, the recovery path for the industry appears to be normalising, and there are currently no signs of the rail strikes letting up. December will see the expansion of TFL's contactless payment zone around London and the South East as part of the next phase of Project Oval. As we've previously said, we expect Project Oval to put around 150 million of our net ticket sales at risk. However, given the underlying strength of the UK consumer business, I feel confident we will continue to demonstrate strong growth in the second half. Our international business grew 24% to 558 million as we further positioned ourselves as the aggregator in Europe's liberalizing braille markets. The strongest performance came from the markets with the greatest level of carrier competition, Spain and Italy, with combined growth of 50% year on year. French growth slowed following our decision to pause brand marketing, which we announced in May, ahead of further liberalization in this market. Growth in web sales also slowed as the half unfolded, most notably in foreign travel. This reflected a normalizing of demand following a strong recovery last year and more competition arising from rail carriers and keyword auctions. We also saw some impact from changes to the presentation of search engine results. Jody will provide more on this later. In contrast, our growth in mobile app sales remained strong in H1, more than 60%. This reflected our long-term investment in our brand and app experience to grow habitual app use for more regular journeys. I said in May that I expected EBITDA to approach breakeven on a pre-internal transaction fee basis this year. And in the first half, we tracked in line with that guidance. This partly reflects our disciplined approach as we prove our way into new markets, closely managing lifetime value and cost of acquisition for new customer cohorts. Trainline Solutions grew 38% to 378 million. As a reminder, this business unit provides B2B retailing capabilities to rail carriers and other travel platforms. IT Carrier Solutions delivered a strong performance in the heart, while business travel in the UK continued to recover from a low base. Bringing that all together, the group achieved strong growth in net ticket sales, up 23% year on year to 2.6 billion. Revenue increased 19% to 197 million. This was slower than net ticket sales, given the mixed effect of faster growth in international and train line solutions. In addition, the take rate of our UK consumer business saw some dilution from faster growth in commuter and short distance traveled, as these segments provide less scope for monetization. Jodie will discuss later how we are nurturing ancillary revenue streams, which should help mitigate the dilution. Gross profit was up 17% to $151 million. This was slower than net ticket sales, reflecting in part industrial action in the UK, with train line incurring higher customer service costs as a result. Profitability growth outpaced net ticket sales and revenue, reflecting the benefits of operating leverage. Marketing costs increased 15% to $37 million as we acquired more customers and continued to invest in our brand. Other admin costs increased 11% to $57 million as we incurred higher AWS costs within Platform 1 from processing more transactions. It also reflected the additional costs of having increased the size of the team to scale the business, the hiring for which we completed last year. Net of these costs adjusted EBITDA was $57 million. The business continued to deliver strong cash generation with operating free cash flow of 77 million. This reflected increased EBITDA and working capital inflows, with our working capital profile normalizing following a period of COVID-related volatility. It was partly offset by higher capex investment in product and tech development. As a result, our cash generation leverage further reduced to 0.7 times EBITDA, Given this progress, in September we formally laid out our capital allocation framework, in line with which we announced a £50 million share buyback programme. All in, we have made a strong start to the year. As I look ahead, we remain well positioned for further growth and, as you will surely hear from Jodie, our team is delivering against a clear strategy. As a result, we are tightening our guidance for this fiscal year towards the upper end of the range. We expect for the group net ticket sales growth of 17% to 22%, revenue growth of 15% to 20%, and adjusted EBITDA as a percent of net ticket sales of between 2.15% and 2.25%. Thank you, and I'll now hand back to Jodie.

Thanks, Pete. Let's now talk about the progress we're making against our strategy, starting with our UK consumer business. Our first key priority in the UK is to provide customers with an excellent user experience, offering them unrivaled value and removing friction when searching for trains and booking tickets. We have a strong and consistent delivery of new products and features. I'd like to touch on a couple of recent highlights that are helping unlock value for customers and remove friction. We launched a new weekly price calendar displaying to customers the days that are cheapest to travel. We also launched Strikes Safe, which tells customers whether the journey they are searching for could be affected by rail strikes and also enabling them to book with confidence. We are priming our mobile app to better serve commuters, including developing a full suite of ticket types within the app. This includes digital season tickets, which we have rolled out to almost a third of the UK network. We have driven strong take-up so far, with our share reaching around 20% of all season tickets sold on routes where digital seasons are enabled. And we are seeing positive retention benefits with digital season customers exhibiting twice the retention levels of our overall customer base in the UK. This is contributing towards our continued growth in the commuter segment, with our share now 22%, up from 20% a year ago. Our second priority is to build customer demand. Our flagship brand campaign, Great Journeys Start with Trainline, has focused on telling customers how they can save 35% on average when booking a journey through Trino, which is clearly relevant given the higher cost of living. The campaigns also point to the environmental benefits of rail travel, reflecting our core purpose to encourage greener travel choices. In the second half, the campaign will highlight more the convenience of digital ticketing, including digital seasons. On to priority number three, increasing customer lifetime value. We're making good progress encouraging more customers to use our 4.9 star mobile app, which now makes up almost 90% of our transactions in the UK. This is driving our transaction frequency, given app customers in the UK transact 50% more than web customers. Having significantly scaled net ticket sales over the past few years, we'll now look to enhance monetization to drive faster revenue growth. This includes ancillary products, leveraging the partnerships we have in place across hotels, car parking and taxes. In addition, we plan to launch new flex cover products, allowing customers to cancel plans for any reason to get a refund. And we're enhancing native ad placements within our sales channels to optimize advertising revenues. Now let's turn to our international consumer and first remind ourselves of our approach to growing the business. In May, we outlined how we are prioritising the rail markets where we have the strongest proposition. On the left-hand side are the domestic markets which enjoy widespread carrier competition, Spain and Italy. We are rapidly expanding in these markets as we seek to become the aggregator of choice and we expect our strong growth to continue into the second half. In the middle of the slide is foreign travel. This represents global, inbound and intra-EU cross-border travel and generates double-digit take rates. Taken together, Spain, Italy and foreign travel represent the 10 billion euro addressable market, similar in size to that of the UK. On the right-hand side are the markets which represent future opportunities for train line, France and Germany. These are large rail markets, each similar in size to the UK. Together they make up around 40% of our net ticket sales in international trade. And we also outlined in May, we are reducing the priority of these markets as they are less mature from the perspective of carrier competition. So for this year, I'd expect single-digit percentage growth rates for France and Germany combined. But when carrier competition does arrive, we plan to position ourselves as the aggregator in these two markets, giving train line a long runway of sustainable growth. In France, Paris-Lyon is the only domestic high-speed route that currently enjoys carrier competition. following Trenitalia's entry in December 21. On this route, our aggregation proposition is working well, growing at a similar pace to our growth across Spain and Italy. But one route doesn't offer enough opportunity to differentiate train line as the market aggregator, and therefore we have paused brand spending. However, there are encouraging developments of market liberalization. Spanish carrier Renfe has this year launched cross-border services between France and Spain. And from 2024, they plan to launch a service between Paris and Lyon which will mean four carrier brands competing on that route. And then in 2025, new entry carrier Evelyn plans to launch a London Paris service to compete with Durastar, while La Tram is planning new high-speed service in Western France. In May, we discussed how we are tailing our approach to each domestic market based on their respective level of maturity. As a recap, for phase one countries like France, we will continue to focus on providing a great user experience with all key journeys and prices. For phase two countries like Spain, we are making aggregation a key differentiator for train line. This includes ramping up marketing spend to grow brand awareness and acquire new customers. Finally, for phase three countries like Italy, as we establish ourselves as the number one aggregator, we can deepen customer relationships, including by encouraging greater app adoption. And as more carrier competition arrived in Italy, such as SNCF Wigo in 2026, we'll have an opportunity to shift our approach back to phase two, ramping up aggregation to stimulate faster growth. Let's now talk about the progress we're making against our growth strategy in international. We'll start with how we are enhancing the customer experience. In our core markets, we continue to add all new carriers and routes as soon as they come live. We've integrated rent through cross-border routes into France and are already taking a mid-teens percentage share. While in Spain, we are now integrating circuneus regional trends. This will allow us to increase transaction frequency and retention in this fast-growing market. At the same time, we are localizing our mobile app for each respective European market. In Spain, we've embedded Aereo Exchange, allowing customers to swap their tickets for a different train. And in Italy, we've added Satispay, an increasingly popular new payment method in that market. It's hard to imagine any other aggregate apps doing this depth of integration and product localization. The Spanish rail market is liberalising incredibly quickly. The top five high-speed routes in Spain have now opened to carrier competition, with new entrants already taking significant share. This is bringing a broad range of benefits on these routes, with service quality improving, fares roughly halving and rail ridership significantly increasing. Looking at the first two routes liberalised, passenger volume grew 36% year-on-year on Madrid to Barcelona and 86% on Madrid to Valencia. This is providing ideal conditions to position our mobile app as the market aggregator of choice, with our share on both routes having grown to 11% relative to a sub 1% share across Spain only a couple of years ago. Moving on to our second priority, building demand. In Spain and Italy, while providing all the carriers and journeys in our one mobile app, we are running nationwide brand campaigns. They primarily focus on train stations, where we can target 100% of the train traveling public. Since launching these campaigns, our brand awareness has almost doubled, reaching 34% in Italy and 15% in Spain. Turning now to how we are building demand in foreign travel. Last year, we saw a strong recovery in demand for foreign travel, particularly from the US. This year, we have sought to build on that. Using targeted advertising like housing, native digital content on travel sites than pushing out-of-home advertising at prominent international airports, running PR campaigns and promotional offers for supply partners like Eurostar, working with influencers, and developing marketing to leverage popular sporting events like the Rugby World Cup in France. All of this helped to generate further good growth in foreign travel sales. As Pete referenced earlier, web sales growth slowed during the first half, following a strong rebound in demand last year, particularly for foreign travel. We saw the recovery in underlying demand normalized during the half. We also saw more competition from carriers on keyword auctions following a relatively benign period last year. And finally, Google are now including trains within their travel module, which in turn is pushing organic search down the page while increasing the prominence and so the cost of paid search. In response, we're investing to integrate trainline into the travel module. We are live on key routes in Spain and Italy and have a path to integrate for more than a thousand over the coming months. In addition, we will continue to strengthen our product market fit, including the future launch of URL and inter-rail travel passes. The slower growth in web sales has had a more pronounced impact on foreign travel, where a high proportion of our sales come through web rather than app. As a result, I would expect lower double-digit percentage growth rate for foreign travel sales this year. The slower growth in web sales has had less of an impact on domestic sales. This reflects our success in switching domestic customers onto our mobile app so they can access a superior user experience. As I mentioned earlier, over 60% of transactions now come through the app in international. Italy is the best example where the app now makes up over 70% of all transactions. As customers engage more habitually with Trainline, particularly through our mobile app, it increases our relevance for more of their travel needs. like in the UK, app customers in Europe transact far more frequently than web customers. In fact, in Italy, they transact as three times as often. This includes a greater propensity to use Trainline to book shorter distance regional journeys, even though no carrier competition exists on those routes. Over the last year, regional ticket sales in Italy grew 42%, and they were five times what they were pre-COVID. While growing app usage in transaction frequency, we are beginning to add more ancillary products as a means to improve the customer experience and enhance monetization. In the first half, we introduced hotels into the booking flow in partnership with Booking.com. While our primary focus remains to grow net ticket sales, there are early signs this could be a helpful revenue stream. Turning to our fourth priority, growing train line solutions. In the first half, we further strengthened platform one. and we leveraged that strength to better serve our travel partners. This included launching new innovations, including a new train loading feature for Greater Anglia's mobile app. This allows them to display the busiest train carriages to their customers. In addition, we enhanced the loyalty scheme options available within Italo's online retailing channels. And we've extended five white label contracts in the first half, giving the carriers continued access to our industry-leading core platform functionality and customer experience features. Within Platform One, we harnessed advanced machine learning to deliver data-driven features and greater personalization. Notable examples included split-save and price prediction. They also include recommended view, which makes personalized suggestions for new trips customers might like based on their purchase and search history. We see generative AI as additive to what we're already doing in this space. Within Trainline, we recently set up AI labs. Here we are developing our own proprietary AI models that will help us to solve more complex problems. By combining these models with our unique data sets, we are widening the opportunity to create smarter and more personalized experience across the whole user jet. It's still very early days, but our first experiment is already live. It's a new guidebook feature that generates recommendations of what customers might like to for staff. Before we open the floor to questions, let me recap on some key takeaways. We delivered strong performance in the first half despite the impact of strikes, with top-line growth, higher profitability and increased cash flow generation. As a result, we have tightened towards the upper end of our guidance range for the rest of the year. In the UK, we are digitising the ticketing experience, particularly for commuters, while our share is now 22%. While in Europe, we are driving particularly strong growth in Italy and Spain, the most liberalized markets in terms of carrier competition. This includes achieving 11% share on the top Spanish high-speed routes, and we are continuing to grow. We are well-placed to manage greater competition in web sales and international consumer, and we continue to encourage more customers to download and use our mobile app. This is giving them a better user experience, increasing the amount they transact through Trainline, and cementing our position as the number one rail app. Finally, as I look forward, I continue to be very excited by the opportunity ahead on long-term growth telewinds and the progress we're making in delivering to our customers in the UK and across Europe. Thank you very much for listening. We'll now hand back to the operator for questions.