Trainline Plc

Good morning, everyone. It's great to see you all in person. And thank you for joining us today for our full 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. On to the agenda for today. First, we'll recap on the year and then discuss our strategic growth priorities. That will include a deep dive into the international opportunity. After that, we'll open to the floor for questions. This year, the group delivered a record operating performance. We grew net ticket sales 12% to £6 billion and also revenue 12% to £442 million. In the UK, net ticket sales were up 13% as we continued to drive the adoption of digital tickets, with e-ticket penetration rising to 52%. In international, we further position Trainline as the aggregator of choice, particularly in Spain, where sales have almost tripled over the last two years. And in Trainline solutions, we are scaling our global API with sales from international B2B distribution up 63%. Our strong top line growth, together with the benefits of operating leverage, resulted in 30% increase in adjusted EBITDA to 159 million pounds. We are Europe's number one rail app, having built a market-leading user experience and a significant customer base. As we've previously flagged, there are a few near-term headwinds, and Pete will talk about those later in more detail. But I want to make it clear upfront that our strategy remains strong. We are building long-term value, adapting quickly to the changing e-commerce landscape, while staying focused on the significant long-term growth opportunities ahead. These include deploying our aggregation playbook on routes across Europe as they open to carrier competition, helping us scale our base of 27 million customers. Rolling out innovation like digital pay-as-you-go, where we have a solution ready ahead of pilots in the UK later this year. Growing B2B sales internationally through our global API. and leveraging AI, which has the vast potential to transform our user experience. With our scale and our leadership in product and tech, we are in a compelling position to capitalize on these growth opportunities. Before I hand over to Pete, let me discuss the regulatory backdrop in the UK. It's been more than two months since the government published its wide-ranging consultation document, the precursor to its railways bill. This clarified that the government are considering replacing TOC online retail sites with a single public sector app and website. However, it also made an unequivocal commitment to a fair and open retail market, while expressing the fundamental role that independent retailers play, which we welcome. Since its publication, we've had time to reflect and decide how best to respond. Alongside other independent retailers, we are taking an increasingly assertive stance to ensure the UK government delivers on its commitment to a fair and open retail market. This includes escalating issues that prevail today, including examples where operators self-preference their own channels so that they don't persist in the future. At the highest level, we expect level playing field safeguards for independent retailers. Such safeguards are typically seen in other regulated markets in the UK, including telecoms, water and energy. And our view is supported by the CMA, who advocate for building these safeguards into the design of the future retailing market. With that, I'll hand over to Pete to talk through our financial performance.

Thanks, Jodie, and good morning, everyone. Before I step into the financial performance for the group, let's briefly unpack the performance of each of our business units, starting first with UK consumer. Net ticket sales grew 13% to 3.9 billion, an outperformance versus expectations and the main driver behind our increasing guidance during the year. This was partly driven by our success in growing e-ticket adoption, particularly for on-the-day travel. eTickets now represents 52% of all industry sales. It was further supported by increased industry rail fares, a market that's returned to normal, and less impact from rail strikes. In February, we saw the first phase of Project Oval, the expansion of TfL's contactless zone. Rolling out over the next year or so, in total, we estimate Project Oval will put 150 million of our sales at risk. Despite that, we continue to expect good growth in the year ahead. Turning next to international, where net ticket sales grew 4% to 1.1 billion. Within that, different markets grew at different speeds, aligned with their degree of market liberalization. And web sales remain subdued, given further changes to Google's search results page. Let's spend a couple of minutes unpacking these points. This slide shows the different market segments within International. Note each segment includes domestic and foreign travel sales. As you can see, their respective growth rates vary as we actively manage marketing, focusing investment on the routes with carrier competition. This is most evident in Spain, which represents around 15% of net ticket sales and grew 41%. Across France and Italy, which represents around 70% of net ticket sales, growth was flat as we await the arrival of further carrier competition, while non-core markets like Germany and the rest of Europe were down 6%. This year, Google made further industry-wide changes to its search results page. This further suppressed organic results while increasing the prominence of paid ads, in turn impacting web sales. Web sales represents around 30% of all international transactions, though higher in foreign travel and lower in domestic. Alongside the post-COVID surge in inbound travel leveling off, particularly from the US, this resulted in foreign travel sales reducing two percentage points year on year. However, we are proactively responding to these changes, bringing customers direct to our website and app by investing in brand and doubling down on our own channels, including CRM, and increasingly utilizing affiliates and partnerships. Now turning to Trainline Solutions, which grew 20% to $941 million. As a reminder, this business unit provides B2B retailing capabilities to rail carriers and other travel platforms. Its growth was led by B2B distribution up 25%. This was particularly the case in Europe with international sales through our global API up 63%. This reflects travel management companies realizing the benefit of aggregated supply through a single API. We also saw strong growth in white label carrier sales supported by feature releases and market recovery. Bringing that together, the group delivered another strong set of results. Net ticket sales increased 12% to almost 6 billion, and revenue grew by 12% to 442 million, as non-commissioned revenue generation offset the dilutive effect on our take rate from faster growth in on-the-day travel in the UK. This included hotel bookings and insurance sales, which together more than doubled year on year. Gross profit was up 15% to $352 million. This outpaced top-line growth in part due to a reduction of the fulfillment fee we pay in the UK to the industry when a customer uses a barcode ticket. Marketing costs increased 5% this year to $71 million and other admin costs were up 6% to $122 million. Bringing this all together, you see the benefits of operating leverage. Adjusted EBITDA grew 30% to $159 million, outpacing both net ticket sales and revenue growth. And adjusted EBITDA as a percent of net ticket sales increased 39 basis points to 2.69%, a significant margin expansion. Strong EBITDA growth is translating into strong EPS growth. Adjusted EPS of 19 pence was up 56% year on year and 2.5 times higher than it was two years ago. At the same time, the business is generating strong cash flows. Operating free cash flow grew 20% to 110 million, driven by increased EBITDA. This was partly offset by a 43 million capex charge, reflecting our continued investment in product and tech innovation, as well as working capital movements. As we generate cash, we continue to return excess capital to shareholders, with 154 million pounds of shares repurchased and canceled as at the end of April. And in March, we commenced our third buyback program, committing to buy back up to 75 million pounds of shares in 12 months. As we grow, we increasingly benefit from operating leverage. Our cost to income ratio fell 11 percentage points in two years, against a backdrop of continued investment in international. And next year we will see the benefits of our cost optimisation plan, which we announced last November and completed in Q4. As a reminder, this exercise delivers 12 million of annual cash savings, 8 million from operating expenses and 4 million from capex. That said, we expect total capex next year of around 50 million, which would include one-off costs from relocating our London office. In the year ahead, we expect our growth to continue despite flagged headwinds, including the ongoing impact of Google search changes in international. And while domestic rail travel continues to demonstrate resilience, as in previous economic downturns, recent macro uncertainty is impacting foreign travel, including US inbound. We therefore expect net ticket sales to grow between 6% and 9%. Given a reduction in the UK commission rate, as announced in 2022, we expect revenue to grow slower than net ticket sales in a range between 0% and 3%. However, despite that, we expect adjusted EBITDA to grow broadly in line with net ticket sales at a rate of 6% to 9%, reflecting the benefit of operating leverage and our cost optimisation exercise. 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 our UK consumer business, where our priorities are to grow supply, provide customers with an excellent user experience, build demand, and increase customer lifetime value. We are proud to be the UK's number one travel app. However, we're not standing still. We continue to invest in our proposition, enhancing how we help customers, and in doing so, deepening our relationship with them. We particularly focus upon unlocking value, making it quick and easy to book, particularly on the day, helping customers navigate rail disruption, and increasingly using AI to supercharge the experience. We continue to innovate and scale our range of value saving products and features. This includes digital rail cards. We grow our base 9% this year to 2.3 million. Within that, our share of rail cards of 16 to 30-year-olds reached 43%. This is notable given rail card users are typically amongst our most frequent and loyal customers. By storing their rail cards in our app, we make it easier for them to save up to a third on travel while encouraging them to stay within the Trainline ecosystem. We're also the home of SplitSafe, where we help customers save £13 per booking on average. We continue to grow the routes where we offer splits, which are now available in 88% of the UK network. We launched our new app Home Screen, which makes it easier to search and quicker to book, reducing time to purchase by 36%. This is encouraging customers to book more of their on-the-day travel through Trainline, supported by our best price guarantee. While making it easy for customers to search and purchase tickets, our app helps customers navigate rail disruption too. Two out of three customers in the UK say they have experienced disruption when traveling by train. Our app serves as a travel companion, providing features like real-time delay and disruptions alerts. And soon, we'll have notifications to inform customers if they're entitled to delay repay compensation. Now we are transforming our travel companion experience. We are introducing the new AI travel assistant, giving customers their own rail expert in their pocket. It's just been rolled out to all iPhone users. And it includes real-time travel and disruption information, personalized for the customer's specific journey. But it's not just a chatbot. Our Assistant gets things done. It performs tasks on behalf of the customer, such as processing refunds, saving them time and hassle. In fact, we see the Travel Assistant as a key differentiator for Trainline. And this is just the start. The AI traveler system is underpinned by scalable agentic AI system built on proprietary multi-agent architecture. As it expands, we will build more agents to handle more tasks. This will include a disruption planning agent recommending alternative routes for the customer to get from A to B. We're also exploring how we can use AI to build customer demand. We're running a small trial with OpenAI to integrate into their ChatGPT operator tool. It provides a valuable learning opportunity, particularly given the potential for AI to revolutionize organic search. Moving on to building demand. Under our Great Journey Start with Trainline campaign, we highlight to customers how we can help them find the best value rail tickets. Our campaign tends to focus on younger audiences and Hero Rail as a more sustainable way to travel. This year, our I Came By Train initiative partnered with several Premier League football clubs, as well as Glastonbury, allowing fans to access discounted travel through Trainline. As a result, our customer base has grown from 15 to 18 million in two years. As we grow our customer base, we are increasing the frequency in which they transact with us. Monthly active customers now transact 2.8 times per month, up from 2.6 times two years ago. This reflects our focus on commute and short distance travel, with on-the-day bookings now representing more than two-thirds of all the transactions in the UK. And that's driving strong growth in net ticket sales, as Pete outlined earlier. Moving on to train line solutions, but sticking with the theme of commute and short distance travel in the UK. Our digital pay-as-you-go solution offers another way to grow in this space. It leverages geolocation technology we acquired through the Signalbox deal. And given it's app-based, it can offer capabilities not typically available through traditional tap and go, like integrated rail cards, real-time pricing, and family tickets. We are bidding to participate in RDG trials running later this year. We hope these trials will offer us a great opportunity to ready our digital pay-as-you-go solution for the mass market. Within Trainline Solutions, business travel represents our biggest growth opportunity. We estimate business travel in rail to be worth about 6 billion euros across our markets. We focus on growing business travel sales through our own branded channels, as well as through our B2B travel partners leveraging our global API. The Global API gives partners the ability to offer European rail options to their customers through one simple, seamless connection, rather than tackle the complexity of connecting to multiple different carrier APIs. Many of the world's largest B2B travel providers and platforms have already connected to our Global API, accessing its reach feature set and content options. And sales are beginning to scale, with international B2B distribution up 63% this year. And it's helping to take more share in Europe, adding another 10% to international overall sales. Now, turning to our international business. Our growth in Europe depends upon liberalization. And significant proof points unfold the aggregation opportunity. I'm more confident ever it will enable TrainLine to win in Europe. Let's start with Spain. Europe's most liberalized rail market. There are now four carrier brands competing across the top five high-speed routes following Wego's launch on the Southern Corridor. New entrant competition is coming to France and Italy too. In France, liberalization is due to arrive in three waves. Wave one starts next month when Trenitalia expands its presence on the Southeast network. Following that, Renfe are due to launch services too. For context, the Southeast network is worth more than a billion euros, which is around two thirds the size of aggregated routes in Spain. The second wave will arrive from around 2027 to 2028. Three new carrier brands are to launch high-speed domestic services across France, liberalizing a further €1.5 billion of routes. The new challengers are already ordering rolling stock and obtaining the regulatory clearances needed to operate services in France. And in the third wave, several new entrant challengers are also planning to launch services on the lucrative 1.7 billion euro channel tunnel network towards the end of the decade. This includes London to Paris, a major cross-border route that until now has been held back by relatively high fares. The three waves of liberalisation are expected to transform the French rail market, providing a growth runway for the train line into 2030 and beyond. Similarly, in Italy, carrier competition is expected to ramp up in the next couple of years. Today, two carriers run service on its €2bn high-speed network. However, experience shows us that aggregation flywheel really starts to spin when three carriers compete. As such, we see SNCF's planned launch nationwide from 2027 as a pivotal moment. Today, the combined rail market of Spain, Italy and France together are worth about 17 billion euros. Within those markets, liberalized high-speed routes account for around 4.5 billion euros. By 2030, we expect our core markets to grow to around 23 billion, providing considerable headroom. And over that same period, we expect liberalized high-speed routes to scale to around 12 billion euros, creating a significant catalyst for growth. Let's discuss how we plan to leverage this growth opportunity, starting with Spain. Liberalization has transformed the Spanish high-speed rail market. In just a few years, new entrants have expanded across the high-speed network. Of the top five routes, new brands have taken about 50% share. Average fares have reduced by 45%, while industry passenger volumes have increased by 80%. During this period, we have honed our aggregation playbook in Spain, where we, one, rapidly add new inventory, including most recently Wego's service on the Southern Corridor. Two, make it easy for the customer to find the best value option and make the right choices. Three, Build demand and grow awareness, particularly in cities served by the new services, like our recent sponsorship of Seville-based football club, Team Real Betis. In Spain, our brand awareness is now almost four times larger than it was three years ago. And four, increase customer engagement, growing transaction frequency, integrating non-aggregated routes, such as the Cirque de Neas network. and growing retention with repeat customers now making up 54% of our sales in Spain. As we position ourselves as the aggregator of choice, we are also creating the virtuous cycle of the marketplace. As we add more inventory, we become more attractive for passengers generating incremental demand. And as we generate incremental demand, we become increasingly relevant for rail operators. In Spain, we have gone from having next to no footprint a few years ago to now being the carrier's number one retailing partner by sales. As you can see, we have grown our share across the top five high-speed routes from 5% to 12% in two years. And over the same period, we have almost tripled our net ticket sales, making Spain a 200 million euro business. This provides a positive read across to France and Italy, where our app is primed and ready to aggregate all new entrants, bringing clear benefits to our customers who can search all the options to find the best value. Through Top Combo, they can stitch together different carriers for return and multi-leg journeys. And they can rely on our travel companion features and post-sale support too. Likewise, we start in a strong position in both markets. Our customer base in both France and Italy is bigger than in Spain. Likewise, we already have strong brand recognition and trust scores, so we don't have to start from a low base like we did in Spain a few years ago. All of this gives us confidence we can scale quickly in France and Italy as they liberalize. Before we finish up, I'd like to spend a few minutes discussing France's Southeast Network, our next aggregation opportunity. In the next couple of months, new entrant Trinitalia will almost double its current service between Paris and Lyon, the busiest domestic route in France, and they will launch four daily services on Paris to Marseille, France's third busiest domestic route. Thereafter, there are more carriers set to launch, including the Spanish operator Renfe. To date, we've made good progress on Paris to Lyon with sales up 58% over the last two years. And ahead of Trenitalia launching new services, we are seeing encouraging pre-sales across the Southeast network. We have strong brand presence awareness across all three cities, notably more than 45% in Paris and over 50% in Lyon. and having paused brand spend in France two years ago, we are now increasing our investment to further grow awareness in the region. This includes our recent sponsorship of Olympic Lyonnais Football Club. Before we open the floor for questions, let me recap on some key takeaways from today's presentation. This year, we have once again delivered strong growth, outperforming our original expectations while increasingly benefiting from operating leverage. And we have made further good progress against our strategic growth priorities. In the UK, as the number one traveller, we continue to invest to drive adoption of rail travel and digital ticketing. And we are taking an increasingly assertive stance with government to ensure it delivers on its commitment for a fair, open and competitive future retail market. In international, we are positioning ourselves as the market aggregator, particularly in Spain, the most liberalized rail market, where our net ticket sales have almost tripled in two years. This creates a highly positive read across for when we deploy our playbook on high-speed routes in France and Italy as they liberalize over the coming years. Next up will be the Southeast network in France, where we already have a great starting position and are generating positive pre-sale numbers. Looking beyond that to 2030, we expect liberalized high-speed routes across our core markets to be worth 12 billion euros, providing a significant catalyst for train lines growth in Europe. So thank you very much for listening. I'll now open the floor for questions. Raise your hand if you'd like to ask a question. When asking, please state your name and your organization.