Trainline Plc

Good morning, everyone. Thank you for joining us today for our results presentation. It's great to be here. 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. I'll give an introduction, briefly discussing the progress we've made this year and updating you on the regulatory backdrop in the UK. Pete will talk you through our financial performance, I'll update you on how we're progressing against our strategic priorities, and we'll finish with an overview of our AI strategy, which is becoming a core part of how we compete. After that, we'll open up to the floor for questions. Trainline is Europe's number one rail app, built on a market-leading customer experience. Our core purpose is to empower greener travel choices, and each of these three business units is a leader in its market segment with clear opportunities to scale. In the UK, we are the number one traveler. We are helping to grow the rail market and increasing the value of our 18 million customer base. In international, we are the largest rail aggregator in Europe. We will deploy our proven aggregation playbook across France, Italy, and Spain. Markets expected to be worth 23 billion euros by 2030, including 12 billion on aggregated high-speed routes. And in Trainline Solutions, we have the leading B2B rail platform across the UK and Europe, which now generates over a billion pounds of net ticket sales. We plan to grow further into the 6 billion euro business travel opportunity in European rail. This year, we've made strong progress in each of our business units. In the UK, we've delivered growth while strengthening customer engagement through new rail disruption features and digital railcars. In international, our aggregation playbook drove positive momentum in the southeast France following Trinicalia's expansion. And in train and solutions, B2B sales grew strongly, particularly in Europe. We delivered robust net ticket sales and revenues, as well as double-digit growth in profitability. And we've delivered strong EPS growth, further accelerated by ongoing share buyback. Before I hand over to Pete, let me update you on the UK regulatory and industry backdrop. A key focus for investors is the UK government's intention to launch GBR online retail. It's consolidated app and website, as well as the design of the future retail market. In November, the government published the output of its GBR consultation. This included plans to develop, for the first time, a code of practice, owned and managed by the independent regulator, the ORR. This will codify how GBR should interact with third-party retailers. In December, the government published pre-tender documentation outlining procurement plans for the launch of GBR online retail. It included a stated aim to award a contract by January 2027. However, the tender process is yet to begin. We'll engage positively with both processes and maintain our assertive stance with government to live up on its commitment to a fair, open and competitive retail market. Today, there are instances where operators self-preference their own retail channels. Through our sustained engagement, we are making progress to remove these instances. The government has confirmed our access to all temporary fares and granted our ability to advertise in stations and on trains. Furthermore, in March, they announced that once GBR is established, passengers will be able to train delay repay compensation from wherever they purchase their ticket, including through Trainline. This was a meaningful step forward. However, it will take some time for this change to come into effect, so delay repay remains a pain point for our customers. Similarly, we remain unable to offer customers access to train operator loyalty schemes. It continues to engage government stakeholders and the wider industry to remove examples where we are discriminated against. We're also engaging with the industry to protect and grow the UK rail market. We're trialling our digital pay-as-you-go technology with East Midlands Railway. Our technology is performing strongly and we've received excellent customer feedback. The trial is due to end in the summer and we'll look to update you thereafter. We continue to take steps to protect industry revenue by blocking fraudulent processes and refunds, and we're sharing data with operators to enhance their revenue protection while assisting their forward prevention measures. And with that, I'll hand over to Pete to talk to our financial performance. Thanks, Jody. 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 6% to 4.1 billion. This reflected market recovery within the commuter segment in the first half, as well as growth in leisure travel sales. Growth slowed in the second half, reflecting the impact of Project Oval, as well as operators self-preferencing their own retail channels with features such as one-click delivery pay. Coming next to international, where we maintained a disciplined focus on our core markets. Net ticket sales grew 3% to 1.1 billion. We saw strong momentum on newly aggregated routes in Southeast France. Growth in Spain moderated, reflecting a more balanced approach to growth and profitability, as well as a series of tragic rail accidents, the impact of which is ongoing. In foreign travel, growth re-accelerated to 5% in the second half as we lapped the headwind from changes to Google's search results page. As a reminder, Google made a series of changes that suppressed organic results while increasing the prominence of paid ads. This disproportionately affected foreign travel sales, which relied more heavily on web acquisition. Growth rates varied across our international markets as we prioritized marketing investments en route with carrier competition. Starting with Spain and Southeast France, which together represent 22% of international net ticket sales, growth was up 9%. Elsewhere in France and in Italy, growth was more modest, up 2%. These markets account for around two-thirds of international net ticket sales and are expected to benefit from the expansion of carrier competition in the coming years. Germany and the rest of Europe declined 6% as we prioritized our core markets with these regions representing longer-term growth opportunities. Overall, our international business is becoming increasingly profitable. It's benefiting from higher margin foreign travel, strong growth in ancillary revenue, and disciplined marketing investments, including in Spain, as we balance growth and profitabilities. Two years ago, our international business broke even on a pre-transaction fee basis. And in the year ahead, we expect international to break even on a headline post-transaction fee basis. Now turning to train line solutions, net ticket sales grew 14% to 1.1 billion. Growth was led by B2B distribution, which grew 36%. This reflected new and expanding travel management company partnerships. It was particularly evident in Europe, where B2B sales through our global API grew 58%. Sales growth was partly offset by the loss of Trainline's white-label contract with UK rail operator Cross Country, and we expect the loss of our ScotRail contract this year, as they seek a different partnership to better align their online and offline sales. In the long run, the rail industry anticipates that operator apps and websites will be replaced by GBR online retail. Bringing this together, group net ticket sales grew 7% to $6.3 billion. Revenue grew 2% to $453 million, given the reduction in the UK commission rate. Gross profit was up 6% to $374 million, outpacing revenue growth. This reflected lower cost of sales, given step reductions in UK industry costs, and group-wide efficiency savings in customer service and payment processing. We continue to drive strong cost discipline across the business. Our cost-to-income ratio reduced four points to 70%. This represents operating leverage, cost optimization in the prior year, and ongoing cost discipline. Importantly, these efficiencies have more than offset the impact of the UK commission rate reduction. As a result, adjusted EBITDA grew 11% to $177. growth and landing within our previously upgraded guidance range. We continue to execute our share buyback program at pace, supported by a strong cash generation. Since September 2023, we have repurchased £294 million of our shares, equivalent to 23% of issued share capital. Upon completion of our current £150 million programme, we will have returned a total of £350 million to shareholders over a three-year period. Together, with strong earnings growth, this has driven a significant increase in earnings per share. EPS has more than quadrupled over the past three years, with a compound annual growth rate of 62%. Altogether, I am pleased with our performance, particularly the strong earnings growth and cash generation. Looking forward, we see opportunities for growth alongside some near-term headwinds. And in the year ahead, we expect net ticket sales of around 6.2 to 6.45 billion, revenue of around 440 to 455 million, and EBITDA of around 2.9% of net ticket sales, which would represent a 10 basis point increase, reflecting the benefits of international consumer breaking even. 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. We are the UK's number one travel app. Our app is designed to meet the everyday needs of rail users. Rail is a high-frequency mode of transport, but booking can be complicated, and travelers often face journey disruption. Our app provides end-to-end booking flow and travel companion features that support customers on the go. It has become central to our customer experience and our core customer touchpoint. In fact, the app is used for over 90% of our customer transactions in the UK. Our UK customer flywheel is strengthening the competitive position of our app. It focuses on unlocking value, solving customer needs, building loyalty, and increasing engagement. Let's look at some examples from the year. In terms of solving customer needs, this year we launched AI power disruption features in the app, helping customers navigate the rail network. They include travel forecast, our AI travel assistance, and delay repay notifications. We supported the launch with a targeted brand campaign highlighting a better way to train for our customers. I'll talk more about these features later in the AI section. Trainline has cultivated strong brand affinity with customers over many years. We are the most trusted brand in UK rail retailing, and our brand consideration significantly outperforms all other rail retailers. This has supported Trainline's continued growth in the UK, even in the face of strong competition. And it's becoming increasingly important in an AI-driven search world. We are scaling in-app rail cards as a way to drive customer engagement. We've enhanced upselling within the booking flow, highlighting to customers how much they could save by buying a rail card alongside their ticket. And we've improved the renewals process too. As a result, we now have 2.7 million digital railcard users, up 16%. We're gaining good traction with younger cohorts. Our share of the 16 to 30-year-old railcard segment has now increased to 45%. This is driving greater customer engagement, with railcard users transacting four times more often than non-railcard holders. We increasingly focus on growing our ancillary products and services, This year, we delivered strong double-digit growth in hotel bookings and insurance sales, having enhanced their prominence within the app. This includes visually engaging placements as well as improved benefit-led copy for our insurance products. We'll continue to broaden our ancillary products, testing adjacent services like car hire and investing behind those we see resonating with our customers. We are taking steps to enhance advertisements within the app. We are shifting from traditional ad placements to integrated, targeted, and contextual advertising through the customer journey. This improves relevance for our customers and effectiveness for our partners. Now, turning to international, where we are positioning ourselves as the aggregator of choice ahead of the next wave of liberalization, increasing our focus on foreign travel, and driving improved profitability. starting first with Southeast France, where Trenitalia significantly expanded their services this year. As the region liberalized, we rolled out our aggregation playbook. We leveraged our highly rated mobile app to showcase all the fares from high-speed carriers. We launched Sponsored Search, a paid service that allows carriers to increase their prominence within our search function. And we deployed features to unlock value for customers, like Top Combo, which allow customers to stitch together different carriers for return and multi-leg journeys. We've also resumed brand marketing in Southeast France. Through innovative campaigns and sponsorship deals, we've increased brand awareness to 50% across Paris, Lyon, and Marseille. As a result, we've grown net ticket sales by 26% in the region. Our success in Southeast France builds on the aggregation playbook that we refined in Spain over recent years. As a result of our investment, we significantly scaled net ticket sales. This has given us considerable lead versus other market aggregators. While we continue to see runway for further growth in Spain, this year we evolved our approach to strike more of a balance between growth and profitability. We are normalizing brand investment while placing more emphasis upon customer engagement and monetization. As a result, Spain's EBITDA took a big step towards break-even in the second half of the year prior to recent rail disruptions. Spain and Southeast France represented the first wave of carrier competition in Europe. We're now preparing for the second wave, which will sweep across Italy and the rest of France. This is set to commence from late 27, with FNCS entry into Italy, followed by several new entrants launching in France from 2028 onwards. This includes Velva, the Tram and the Lisbon, who are due to launch domestic services, and Trinitalia and Virgin Trains, who are due to launch services between London and Paris. The second wave of carrier competition in Europe will open a considerably larger market for train line over the coming years. By 2030, the French and Italian rail markets are set to be worth around €20 billion, €10 billion of which will be from aggregated high-speed routes. And the market opportunity for newly aggregated routes may expand further. Newsbow last week suggested that from 2028, Italian operator Italo are planning to launch high-speed services in Germany, one of the largest rail markets in Europe. Foreign travel represents a large and attractive broker opportunity. It comprises global customers from the US, UK, and the rest of the world traveling in Europe by rail alongside intra-EU cross-border travel. The foreign travel market in Europe today is estimated to be around €4 billion, so offers significant headroom of growth. Foreign travel provides favorable economics with a less quite elastic customer base and a greater skew towards long-distance travel. It's also a high-margin business, generating double-digit revenue takeaways, given higher tax rates for ancillary products, and carried willing to pay higher commission rates for inbound customs. As a result, foreign travel is a major contributor towards international profitability. We see signals of generative AI playing an increasing role for foreign travel, given its ability to inspire travel plans and compress research time. Trainline is the early market leader in geo, which currently contributes around 3% of new foreign travel customers. Foreign travel is an area of competitive advantage for Trainline. We can provide combined broad inventory coverage, including recently wiring on Poland and Ireland, alongside helpful travel content to inspire customers' travel plans. And that's delivered through our market-leading user experience, offering a wide range of features tailored to international travelers, such as multi-language support, flexible payment options, and consistent post-sale support. So foreign travelers can plan, vote, and manage their journey seamlessly and with confidence. Moving on to Trainline Solutions, our fastest-growing business unit, which now generates over £1 billion in net ticket sales. Business travel is our main growth opportunity here and represents over 50% of train line solution sales. This is primarily generated through our B2B distribution business and our own branded channels. B2B distribution allows travel management companies and other business travel platforms to offer rail tickets to their respective customers. We increasingly support our partners to sell tickets from multiple European couriers as well, diversifying ourselves into a truly international business. They can do all through one simple seamless connection, our global API, rather than tackle the complexity of connecting to multiple different carriers. As a result, international B2B distribution grew 58%. Trainline-branded business travel also performed well. We invested to improve the experience for users and client companies over the past few years and now serve over 35,000 business customer clients, an increase of 47% year-on-year. Let's now move on to AI, which is rapidly becoming a core capability for Trainline, powering our product, our distribution, and how we operate. Before we start, it's worth spending a minute discussing the barriers that AI sits into mediation. Rail retailing is inherently complex. Customers expect a simple, consistent, and reliable user experience with end-to-end transaction capability from search to purchase to post sales. and that's across multiple carriers with all fares, ticket types, and rail cards available. With no GDF for rail, online retailers must deeply integrate into a wide array of carrier APIs that offer full functionality. Those carrier APIs are non-public, so the retailer needs commercial relationships and accreditations with those carriers supported by bonding obligations. This complexity creates a clear barrier to disintermediation. And that's exacerbated by the relatively low commission rates offered by carrier partners. In that context, we see AI as less of a threat, more of an opportunity. And we've been on the front foot for a number of years, building our foundational investment in data and our broad application of machine learning. Our strategy centers on bringing AI capabilities to rail around three core areas. AI-powered products and features, extending distribution through emerging AI channels, and AI-enabled acceleration across the group. Let's discuss each area in turn. We increasingly use AI together with industry and first-party data to enhance the user experience of our app. This is reflected in our new rail disruption features, which are underpinned by our scalable multi-agent AI systems. To bring our AI disruption features to life, let's take the example of Callum, a train line customer who has booked a 9.30 a.m. LNER train from London to Edinburgh. Unfortunately, there is disruption elsewhere on the rail network. Our travel forecast feature notified Callum that his journey is likely to be affected. Estimating his train will arrive in Edinburgh an hour later than scheduled. This feature is powered by our proprietary algorithms trained on complex datasets. So as a trainline customer, Callum gets more accurate real-time insights. Travel Forecast also provides a map view interface powered by our Signalbox technology so customers can see the location of their train in real-time. Since launch, Travel Forecast has delivered updates to over 3 million users. Given the expensive delay, Callum consults the AI Travel Assistant, our in-app conversational support feature. It provides real-time travel advice, giving Callum options for alternative trains he can take. It offers agentic refund processing, allowing Callum to get his money back at the click of a button. Our AI Assistant has handled over 2 million conversations since launch, reducing workloads for our customer service teams. Callum decides to stick with his original booking. As predicted, his train arrives in Edinburgh an hour late and Callum receives a delay repay notification. Trainline's AI system identifies the delay, calculates he's entitled to compensation of £37, and provides a punch-out for LNER's website to complete the claim. Since launch, we've redirected over a million customers to complete their claims. Moving on to emerging AI channels, which present a new way for Trainline to attract customers and drive incremental demand. We've made a strong start, and we are showing clear leadership in geo. In fact, we're the most cited rail app in Google AI search in all core markets, as well as in ChatGPT across all but one core market. This reflects our strength in SEO and the power of our brand. Building on this progress, we've recently integrated the Trainline app within ChatGPT. Users can now seamlessly search for routes and compare options, all within a conversational interface, before completing their booking with Trainline. While we've made good early progress, GA still represents relatively low levels of sales traffic, making up less than 1% of new customers within international. As mentioned earlier, though, it's playing more of a role in foreign traffic. Moving on to AI-enabled acceleration. driving faster execution, greater agility, and more scalable innovation across the group. Our software development teams increasingly use AI to code, as well as to accelerate auxiliary tasks like updating documentation, generating tests, and reviewing code. Their focus is increasingly shifting towards AI agents, moving from experimentation to scaling agent capabilities. In marketing, AI agents now generate around 20% of our in-house studio content, creating and applying imagery and copywriting that's aligned to train our brand. This enables us to scale the production of performance marketing ads to 19 times our previous output using traditional design methods. And in customer service, we'll soon roll out Voice AI in partnership with 11 labs to progressively automate inquiry handlings. We've also introduced Zendesk, a new CRM system providing AI agent tools and language translation. Taking all of this together, AI is enhancing our product, expanding our distribution, and increasing the velocity at which we execute. Before we open the floor for questions, let me summarize the key takeaways from today's presentation. This year, we have delivered a robust operating performance, double-digit growth in EBITDA, and a significant increase in earnings per share. We've maintained our assertive stance with the UK government to deliver on their commitment to a fair, open, and competitive retail market. And we've made strong progress against our strategic priorities. In UK Consumer, we are strengthening our app proposition while deepening engagement with our 18 million customers. In International Consumer, we are positioning ourselves as the aggregator of choice ahead of the next wave of liberalization, increasing our focus on foreign travel, and driving improved profitability with the business set to break even this year. And in train line solutions, we continue to grow business travel sales within B2B distribution, enabling partners to expand their rail offering across Europe. Finally, we're increasingly leveraging AI to power our products and services, extend our distribution, and accelerate our execution. Thank you very much for listening. I'll now open the floor for questions. Raise your hand if you'd like to ask, or when asking, please state your name and your organization.

Thank you.

Good morning. Thanks. Good morning. It's Tim Ramskill from Bank of America. I'm going to try and tackle three, if that's okay. So just firstly, in terms of the guidance for 2027, and specifically with regards to NTS, there's obviously a lot of moving parts, whether that's overall self-preferencing kind of dynamics. I guess if you think about it long term, you've pretty much always grown ahead of the market. But it's likely that in 2027, that might not be the case. So just your observations around how much of that kind of guidance you think is a reflection of known factors like oval versus kind of that slippage in market share. Secondly, in terms of international, obviously very encouraging to see the guidance around breakeven. What do you think the key drivers of that are going to be to get from the, you know, 11 million of loss to flat? How much of that's likely to be marketing expenses or other cost actions versus growth in revenues? And then thirdly, you obviously referenced the kind of top combo product in international, which I guess is effectively the same as split-save. Just interested to know, are the kind of consumer savings opportunities kind of very similar to what we see here in the UK, or do they differ? Great. Thank you very much for the questions. I think we'll be tackling three of these ones. Pete, do you want to start with the guidance up front, and then I'll take the other two? Yes, certainly. Inevitably, UK consumer is a significant driver in... nearer term headwinds that will affect this year. And we've been talking about them for a while, but they unwind over time. So the expansion of Oval will eventually cease. There's a little bit more to go. We're halfway through also. The rail fares have been frozen this year. Our base case is that that won't extend beyond March 2027. So that will, again, provide some uplift going forward. And then finally, the self-preferencing. I think the delay repay announcement that we had a month ago or so is clearly a good step forward. We don't have that API available today, so we aren't able to wire it in. But the direction of intent is clear, and I do think we will resolve these issues that we've flagged. So let those all unwind. And then, you know, looking beyond that, there will be a moment when we are seeing the – GBR shutting down other websites and apps, and that will present an opportunity for us to acquire customers that are then in the market. And, of course, with digital pay-as-you-go, we've also created a seed here that could flourish as well. So in the longer term, I do see opportunity for further growth, but these headwinds remain with us in the meantime. great thanks pete and just to kind of add there i mean in terms of where the question is going absolutely you see these things um over the next couple of years that they've lapped through and then we're pretty well positioned and going forward vis-a-vis the competition and we're sort of picking that up we don't see particular growth from those third-party players in terms of the market and our sort of primary competition effectively remains the the 14 different top operators where a number of those, as we've discussed, have got this self-preferencing, which will be phased out and then we'll be competing on a kind of level playing field with them. Coming to your second question on international profitability, look, I think the drivers there really have been this very strong growth we have seen over the last three or four years, which is great. As we look forward there, Part of that story is foreign travel, which continues to be a nice growth driver, temporarily impacted by what's going on in the kind of Middle East right now. But that's a relatively small part. But we see the kind of appetite for cross-border travel increasing, and you can see new services launching. And we see the opportunity there, which helps drive profitability going forward as scale does. I mean, we're going on to the marketing point here. I think the way to sort of frame this around Spain is we have a launch period. And as a reminder, we were starting from zero brand awareness in Spain. And that ultimately... meant that we had to come out with a strong kind of above the line campaign supported by the usual below the line to get our brand awareness at the point that we had all operators launching on all routes over a pretty short period of time and having kind of worked through that we're now by a distance the number one third party player and we've moved to this kind of position of optimization of that spend having got our leadership position In France, Italy, we already have that leadership position. We shared strong brand awareness, and we will invest going forward as it makes sense in a kind of hub and spoke way. In France, of course, we'll invest in Paris, but we'll also invest in the cities where the new operators are going, for example, Bordeaux when Velva launches. But that will be much more targeted than it was in Spain where we compared the whole country at once. And so we will kind of keep this thing around that. If really big opportunities arise, we said before, we would lean in behind those as it required. But for now, we've kind of got this transition year where we think we're in pretty good shape. And then to your question, the final question on top combo versus split save in the UK. Yeah, they're slightly different in that SplitSafe is really arbitraging, if you like, the UK rail pricing system. TopCombo is really doing kind of a level above that by taking two different operators and putting those pricing together. But you're right, the spirit is helping the customer find value through the inherent complexity of rail. And the more carriers that launch, the more of those kind of opportunities become available, and the more rail cards we wire on in these markets and the more we're able to kind of support an advanced purchase and help customers understand how to navigate, the more we see value for growth in those markets. So, yes, and we keep finding those new areas to invest behind. And bringing TopCombat to life has been one of the kind of compelling points for customers. Thanks for the questions.