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. I'll also recap on the opportunity ahead and update on the regulatory backdrop. 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 scaled well in the first half, processing over 110 million transactions, 18% higher than last year. In the UK, we continue to digitize rail travel, with industry e-ticket penetration rising to 51%, and our share of the commuter travel segment grew to 24%. In international, we further positioned ourselves as the aggregator in Europe, with combined net ticket sales across Spain and Italy up 23%. The group delivered a strong financial performance in the first half, with net ticket sales up 14% and revenue up 17%. Together with the benefits of operating leverage, this drove a 44% increase in adjusted EBITDA to £82 million. We are Europe's number one rail app. In the first half, our app was downloaded almost twice as often as number two and three, SNCF and Deutsche Bahn respectively. This scale brings benefits, which we are leveraging. Platform One underpins the transactions of multiple tenants, from our branded businesses to our retailing partners. As transaction volumes grow, our investment in the platform becomes increasingly efficient. We can integrate new supply and roll out product innovation more quickly, leveraging a scale customer base across our geographies. And as we scale, we can increasingly turn our focus to monetizing our customer relationships to drive faster revenue growth. All of this is driving our business to outperform, which Pete will discuss shortly. Before we hand over to Pete, let me update you on the regulatory backdrop. starting in the UK, where the new government is providing more clarity, stability and momentum for the industry. First, they have reset and stabilised relations with the unions, ending the long-running industrial dispute. They have kicked off their nationalisation agenda, which, as a reminder, focused solely on bringing rail operators into public ownership over the next few years. Importantly, it does not extend to train leasing companies, nor to retailers like Trainline. They have also launched Shadow GBR to unify track and trail, and we're already engaging with them around how to drive industry growth. Finally, they remain supportive of an independent retail market, committing again through the King's Speech to accelerating the rollout of innovation. And we have recently been invited into a consultation on digital pay-as-you-go trials in urban areas outside of London. In Europe, the countries In Europe, the EU continues to prioritise initiatives to enable growth in rail travel. It aims to triple high-speed passenger volume by 2050 and is championing carrier competition to encourage modal shift. As we've seen in Spain, this has had the effect of reducing fares, increasing choice and growing passenger numbers. Furthermore, the EU has shown strong support for third-party ticket retailers, with a recent report from the European Commission citing their value in promoting carrier competition. With that, I'll hand over to Pete to talk about financial performance.

Thanks, Jody, 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 15% to 2 billion as our investments continue to support the adoption of digital tickets, with e-tickets now 51% of all industry sales, up from 46% in H1 last year. It also reflected a market that's returning to normal, with industry passenger volume back to near pre-COVID levels, including the ongoing return of commuters, and fewer strike dates, which were also less severe in their impact. I'm pleased to say our trading since half-year has remained strong. And in addition, the expected headwind from Transport for London's Project Oval expansion International net ticket sales grew 6% to 583 million. As Jody said earlier, the strongest performance came from markets with the greatest levels of carrier competition, Spain and Italy. By innovating on our customer proposition and investing in brand marketing, we delivered net ticket sales growth in these markets of 23% year on year. Net ticket sales across France and Germany slowed, reflecting our decision to pause brand marketing in France until we see more widespread carrier competition. Similarly, industry-wide changes to the presentation of Google's search engine results, as we first discussed a year ago, continue to subdue web sales in international consumer, with the impact most pronounced in foreign travel. However, growth in app sales remains strong. of our transactions through the app increasing to 67% from 62% last year. Net ticket sales within Trainline Solutions grew 19% to 449 million. As a reminder, this business unit provides B2B retailing capabilities to rail carriers and other travel platforms. For rail carriers, our IT carrier solutions business delivered a strong performance supported by feature releases and market recovery. Our B2B distribution business also performed well, increasing our global API sales in both the UK and Europe. To date, Trainline has focused on net ticket sales as the primary driver of revenue growth. However, as the business scales, we are now more effectively monetising our customer relationships, which in turn is growing non-commissioned revenue. This includes launching ancillary products and services within the booking flow. In H1, we saw strong growth in demand for hotels, particularly in Europe. Similarly, we saw good take-up of travel insurance products, most notably in the UK. In aggregate, the ancillary revenue generated from these two lines was three times larger than last year, and I see further opportunity ahead. Bringing that together, in the first half, group net ticket sales grew strongly, up 14% to 3 billion. This was ahead of our previously stated guidance for the full year. Revenue grew 17% to £229 million, again ahead of our previous guidance, reflecting the mixed effect of faster growth in UK consumer as well as non-commissioned revenue generation. Gross profit was up 20% to 181 million. This outpaced top line growth in part due to the reduction in the fulfillment fee we pay to the UK rail industry when a customer uses a barcode ticket. Turning to costs, marketing declined 9% to 34 million in the half, reflecting our continued investment to drive efficiencies in new customer acquisition, as well as our decision to pause brand marketing in France. Other admin costs were up 15% to 65 million, with increased system costs reflecting our greater scale. And bringing this all together, we are seeing the benefits of operating leverage, with adjusted EBITDA growth of 44% to 82 million, outpacing net ticket sales and revenue in the first half. As we scale, we are reaping the benefits and efficiencies of hundreds of millions of transactions coming through Platform 1. In the last year alone, our cost to income ratio reduced five percentage points, during which time we continue to invest in international, where we have now built the foundation of a significantly enhanced user experience and product market fit. This now gives us scope to further optimize our cost base, which we are doing in H2, including reducing headcount where it makes sense to do so. We expect this exercise will generate around 12 million of annual cash savings, of which 8 million will be operating expenses. And we expect the cost to deliver these savings to pay back in less than one year. The business delivered strong cash generation in the first half, with operating free cash flow of 100 million, driven by increased EBITDA plus working capital inflows, partly offset by CapEx, reflecting investment in products and tech innovations. As we generated more cash, our leverage further reduced to 0.2 times EBITDA, and Trainline would have been net cash positive had we not bought back £46 million of shares in the first half, in line with our stated capital allocation framework. To date, we have repurchased and cancelled £83 million of shares, or around 6% of issued share capital. Altogether, I'm delighted with our performance in the first half, and as you will shortly hear from Jodie, our team is delivering against a clear strategy. Trading has remained strong in the second half, and we are now optimising our cost base. As I look ahead, we are well positioned for further growth. Having already improved guidance for this fiscal year in September, we again increased our guidance in October. We now expect net ticket sales growth of 12-14% above the original 8-12%, revenue growth of 11-13%, originally 7-11%, and adjusted EBITDA as a percent of net ticket sales of around 2.6%, originally 2.4-2.5%. And today we have announced we expect our EBITDA margin to continue to widen next year too. This reflects the benefits of operating leverage as well as our disciplined approach to managing costs. And it's despite the 25 basis point reduction in our net commissions in the UK, as we agreed back in 2022. We now expect EBITDA as a percent of net ticket sales of between 2.6 and 2.7% in fiscal year 2026.

Thank you, and I'll now hand back to Jodie. Thanks, Pete. Let's now talk about the progress we're making against our strategic priorities, starting with the UK consumer. We operate in a large rail market in the UK, worth over £11 billion. In the last 12 months, online sales were over £6 billion, the majority of which were e-tickets. However, over £3 billion of sales remained offline. Those are mostly tickets bought at the train station on the day of travel, primarily for commute and short distance journeys. We believe we are uniquely placed to expand the market, driving modal shift to rail and grow adoption of online and digital ticketing. This comes down to having all the tickets, fares and value saving features in one easy to use mobile app with strong brand affinity and trust from our customers. Reinforced with our scale and expertise to continue to invest and improve our proposition. Together with a scalable tech platform that's purely optimized for the complexities of rail travel. We are the scale retailer in UK rail. As you can see on the chart, we are the number one traveler altogether with 12 million monthly active users. That equates to more than 60% of people in the UK who travel by train each month. And we have big ambitions to grow further in the UK. We focus on four key priorities, growing supply, providing an excellent user experience, building demand and increasing customer lifetime value. In terms of supply, we provide all the carriers and fares in one place. We also provide a comprehensive range of value-saving products and features, helping customers to unlock value. We are the home of SplitSafe, the original at-scale split-ticket solution, saving customers £13 per booking on average. And we have over 2 million digital railcard customers. That's about a third of all railcard users in the UK who are saving money seamlessly when booking their railtrails. We are priming our mobile app to better serve commuters, a segment where we have historically under indexed. This is particularly the case in season ticket sales. As a reminder, until a few years ago, no carrier accepted digital seasons on their respective networks. The rollout since then has been gradual and today just over half of all journeys are enabled for digital seasons. Nevertheless, we've been making good progress in growing sales of digital season tickets. On routes enabled for a year or more, 21% of customers now benefit from using digital season ticket with no need to carry around a physical copy. But commuters who instead buy their ticket on the day of travel, we are making it quicker and easier to buy through the app on their way to the train station. First, we can use geolocation technology to determine which station the customer is walking up to. Leveraging machine learning, we then surface the most relevant route suggestions from that particular station at that time of day. The customer can buy a ticket for one of those journeys in a few clicks and all with the assurance of our best price guarantee. This is helping support the recovery in the commuter market and grow our sales, with our segment share reaching 24%. Our third priority in the UK is to build customer demand with marketing campaigns that focus upon our value and commuter propositions, often with an underpin of sustainable travel. Under our flagship brand campaign, Great Journeys Start with Trainline, in the first half, we told customers how we can help them save money, including our best price guarantee when buying tickets on the day. And we're trialling new partnerships to grow demand too. For example, we recently partnered with online bank Monzo to offer their customers our digital rail cards. As a reminder, digital rail card users are some of our most frequent and sticky customers. These campaigns have contributed to active customers in the UK growing 12% year on year. As we grow our customer base, we are increasing the frequency of which those customers transact through us, further driving up sales growth. As you can see, the longer the customer is with Trainline, the more frequently they transact through us. That's true across newer as well as older cohorts. The customers we've acquired since COVID are transacting more frequently than customers acquired prior to COVID and now represent over half of our transactions in the UK. Moving on to international, the rail market in Europe represents significant headroom for Trade Night with an addressable market worth 44 billion euros. Within that, carrier competition is due to expand in France, Italy and Spain over the next two years and beyond. We believe we occupy a unique position that we can leverage to win in Europe with a clear remit to aggregate carriers across multiple geographies. The expertise and scale to invest in new markets and our scalable tech platform. We plan to increasingly position ourselves as the aggregator of choice as carrier competition becomes widespread across Europe. We're making strong progress against those plans. Focus on growing supply, enhancing the user experience, building demand and increasing customer lifetime value. When it comes to supply, we aggregate carriers in one highly rated mobile app. This brings clear benefits to our customers who can search all the options to find best value. And through Top Combo, they can stitch together different carriers for return and multi-leg jams. We also bring distinct benefits for new entrant operators. By rapidly adding their inventory as they launch services and leveraging Top Combo, we can put more passengers on their trains more quickly, accelerating the payback on their investments. We are now testing how we can increase the prominence of new entry brands. For example, within our search function, we recently elevated Wego as the best placed option between Madrid and Barcelona for a test group of customers, notably increasing their sales versus the control group. So as we hone our aggregation playbook, we are also creating the virtuous cycle of the marketplace. And as we add more inventory, we become more attractive for passengers. And as we attract more passengers, we become increasingly relevant for rail operators. As Pete mentioned earlier, we have now significantly enhanced our product market fit in international, giving us scope to optimize our cost base. However, you should expect us to continue innovating at pace. In our core markets, we continue to create a unique proposition with exclusive products and features aimed at domestic customers. In France, we became the first and only aggregator to integrate PassRail Discounted tickets giving younger customers cheap travel during the summer months. In Spain, we are the first and only aggregator to wire on circuneers, urban and suburban rail travel. And in Italy, we're the only app to auto-apply promo codes where applicable discounts for train tickets are available, saving customers on average €20 per high-speed booking. While improving the travel experience for domestic customers, we continue to enhance our offering for inbound and cross-border travel. This includes our recent launch of EurRail passes. These are multi-leg rail tickets, primarily geared towards leisure travelers touring around Europe. As I look ahead, I remain excited by the prospect of our core European markets liberalizing and what that means for Trendline. Let's start with the Spanish market, which already has four carrier brands in operation. On the top three high-speed routes in Spain, these carriers compete directly. Here's what I found. Compete one other. And that competition continues to expand with low-cost new entrant Wigo set to launch services from Madrid to Seville and to Malaga by the end of this year. What's happening in Spain is coming to Italy and France too. In Italy, Renfe-backed Arenaways and SNCL are planning to launch from 2026. In France, Trenitalia, who already run trains between Paris and Lyon, are set to launch services between Paris and Marseille next year. Following that, Renfeo due to launch services on both routes. And thereafter, three new carrier brands are set to launch high-speed services across France, Elisto, Letran and Proxima. These new challenges are already ordering rolling stock and obtaining the regulatory clearances needed to operate train services in France. As we've shared previously, our progress in Spain creates a highly positive read across for when we deploy our Playbook in Italy and France. The first Spanish high-speed routes liberalized three years ago. Since then, passengers have enjoyed more choice and significantly lower fares. In turn, passenger volume has risen dramatically, with new entrant carriers quickly taking share. By honing our aggregation Playbook, we are growing three times as fast as the market on each route, reaching as high as 16% on Madrid to Valencia. A key part of our playbook is investing to grow brand awareness of Trainline as the market aggregator. In Spain, we use innovative ways to capture attention, including whole station takeovers, Trainline branded music festivals, and most recently, sponsoring Real Betis' Seville-based football team. This coincided with Wigo's imminent launch of services from Madrid to Seville. All this has driven up brand awareness in Spain to 25%. That's over three times where it was two years ago when we launched our first brand campaign. As our brand awareness grows, so too does our customer base. In the last 12 months, over a million customers in Spain transacted through Trainline. And those customers are becoming more engaged with Trainline too, with 50% being repeat customers in the first half. As a result, our net ticket sales have tripled over the last two years. Here's a quick video that brings to light some of the progress we're making in Spain. Finally, turning to train line solutions. As you know, this business unit leverages the strength of our single global tech platform, Platform One, to support our travel partners. For white label carriers, we continue to make available products and features to enhance their mobile apps. This includes split ticketing and travel companion features. And we are actively engaging in several carrier tender processes for their online retailing solutions. This follows the cancellation of the previous government's plan to create a centralized retail app and website. For B2B travel partners, we are seeing sales increase through our global API. Here too, we are actively seeking and winning new business, including from notable clients like SAP Concur. At the same time, we continue to amp up our own branded B2B offerings. In May, I discussed how Trainline has brought together a business and consumer app, meaning customers can now flick between their businesses and personal travel, while keeping their booking separate. Since then, we've enabled client company admins to book train travel on behalf of their employees, and we've allowed clients to embed travel policies into the app, giving them greater control over their travel space. As you know, Platform One underpins our whole business and increasingly leverages AI and advanced machine learning to improve the user experience and reduce our cost base. It also provides AI-driven tools and features that reduce friction and remove complexity for customers who are on the go. We see generative AI as additive to what we're already doing in this space. And so we are developing proprietary AI systems within our domain. This is widening the opportunity to create smarter and more personalized experience, including in the future an end-to-end personalized traveler assistance. So watch this space. Before we open the call to questions, let me recap on some key takeaways from today's presentation. In the UK, as the number one traveler, we are making great progress in driving adoption of rail travel while digitizing the 3 billion of sales still made at the station. At the same time, we're getting increasing clarity on the direction of the UK rail industry. In Europe, we are further honing our aggregation playbook, particularly in Spain. the most liberalised market in terms of carrier competition, where our net ticket sales have tripled in two years. This creates a highly positive read across for when we deploy our playbook on routes in Italy and France as they liberalise over the coming years. Overall, the business has delivered an excellent performance in the first half, reflecting the progress we continue to make in delivering for our customers in the UK and across Europe. Top line growth was very strong with our growth in profitability and cash flow generation faster still, reflecting the increasing benefit from operating leverage. Therefore, we have again increased our guidance for this fiscal year with strong growth and increasing EBITDA margin that will sustain into next year. Thank you very much for listening. I'll now hand over to the operator for questions. When asking, please state your name and your organisation.