Earnings Call: Q2 2021

Aug 9, 2021

Good day, and welcome to the Holiday Chek Group AG Half Year twenty twenty one Results Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mark Alhanis, CEO. Please go ahead, sir. Thank you so much. Welcome, everyone. This is Michael Hame speaking. First of all, I'm Sorry, if you hear the beach in the background or can feel the sun, I'm traveling myself today. I had to be a bit flexible and shift a lot my own vacation plans shift things left and right. So I'm dialing in from the road today. This probably also describes of holiday check very well. Traveling has become possible again, but there are many restrictions and we all need to constantly adapt both as travelers as well as we as a company. Holiday check is in a very solid situation. Thanks to our cost measures and the capital with we have sufficient capital even if the situation should remain uncertain as it is. We made the decision early in the year to remain very prudent in both costs as well as investing in marketing because we expect a continuation of travel restrictions and or at least burdens and requirements from the travelers. We believe this now pays off as we see various changes in the market from, for example, the Delta variant. So cost prudency and marketing prudency pays off at this point in time. On the other hand, we continue to invest in our product. We see that with our strong brands, we can and do collect quite a bit of bookings despite minimal marketing. This shows our very, very strong position despite uncertainties. So how was the market development in the first half of the year? Q1 was basically still very heavily affected by travel restrictions, but the relaxations led to a quick and strong increase in bookings and demand in Q2. Demand for both packaged tours and hotels grew significantly in Q2, even if we compare this to 2019 levels. However, with the rise of the delta variant and subsequent declarations of various areas, especially in Spain as high risk areas, bookings dropped again sharply and number of cancellations increased. How does this market development translate to our development as holiday check group pretty similar. After a very weak Q1, demand for holiday travel did recover in Q2, where most of the bookings and departures were planned for Q3 and Q4, so right now and the next quarter to come. The increasing spread of the delta variant, however, led to a damp demand as of mid June. This was a sharp decline. But we continued our cost discipline and targeted marketing and that enables us to both serve market demand and manage the bottom line at a breakeven in June. Please note, our revenue right now shows only departed trips until 30th June 20 21. So we only recognize revenue once the traveler is actually departed. If you look into our order book, we have bookings of well above €100,000,000 total transaction volume with the departures for the next half year in our systems. If and only if this is all traveled and we do assume some of this will continue to be canceled, But if all of this is traveled, we could see as much as €80,000,000 revenue from this order book over the next month realizing. We also see people traveling despite Delta and we see more bookings incoming. But obviously, this is not on a very high level, people have delta in their minds. So all in all, H1 was challenging. Right now, it's not a perfect picture, but July August might be okay months and the rest of the year really depends on incident level and the spread of the delta variant. With that, let me hand over to Markus for all the details and the actual financials. Thank you, Mark. So also a warm welcome From my side here in sunny Munich, so if we look at the comparison of the financials, Basically, we saw that revenue was of course up compared to 1 of last year and also to Q2 of last year. One has to say, however, as Marc just pointed out, There is a difference in revenue recognition. Last year, in Q2 and also for H1, we still had Revenue recognition at the point of booking, while this year it is at the point of traveling. So if you take the €4,900,000 for Q2 in 2020. That basically is not it's kind of like an apples and oranges comparison to the 7 point If one was to kind of like eliminate all the other factors in the 4.9 That would be significantly less because there's a couple of spillover effects from Q1. And in addition, there's also basically bookings that did not happen in Q2 of 2020, but actually at a later point. So, in Q2 of 2020, but actually at a later point. So if you're really looking for the performance of people who have actually traveled and where there's no risk of any revenues being canceled. The 7.3 for Q2 is really the best figure you can take. And the comparison, as I said before, to the previous year is actually very difficult because of the differences in revenue recognition. That basically also leads us If you go to the bottom line, if you look at the operating EBITDA, it looks like that with more revenue, we We only made kind of like the same operating EBITDA. Because of the incomparability of those two periods, That picture is slightly skewed. And I'm going to walk you through the quarter by quarter view in a bit, which I think is a lot more telling And just comparing those 2 quarters. So but overall, as you can see, most figures are clearly up. If you go further, Again on page 8, we have the H1 figures. Given that Q1 twenty 'twenty one is a really weird one with the negative revenues and all of that. I think it's worthwhile going forward and looking at the quarterly view on the next page, which I think is a lot more telling of how the business has evolved. And here you can clearly see that in terms of the top line, especially now with the revenue recognition at Point of departure, Q2 really was in the right direction of where we want to see. You have just to recall That even in 2021 April and to some extent May were still very much ruled by travel restrictions and very little travel activity. So a lot of the revenue that actually happened, happened in June. And that's also what Mark already said That single month of June, we actually had a breakeven result already. So there are clearly an upward trend with the lifting of travel restrictions. People were booking and already people were traveling quite a bit already in June. Again, already pointed out, marketing expense still at a very low level. Despite those low levels, we're able to really collect a healthy number of bookings and revenues. Personnel expenses are down and basically are now at the level that I pointed out in some of the last Quarterly calls already that with the €5,500,000 we kind of like have a steady state of our personnel cost that we're aiming for. And basically then other expenses also down quite a bit despite Bookings picking up, so we're able to manage those cost positions quite nicely, leaving us with an overall EBITDA of minus €2,300,000 for Q2 2021. And also, as you can see, depreciation slightly down, of course, a factor of fewer people where basically we're activating Less owned software developments, so that's slightly down, leading us to an EBIT of minus 3.8 and an EBT of minus 3.9. So overall, as you can see, not very not Any big surprises at all, I would say, just given the whole direction of our cost positions remains fairly steady. And with demand having picked up especially in June, we're actually on the right direction. And this trend It has been continuing to some extent in July as well. Delta is a big unknown of course and still puts Some restrictions on travel and that's why some consumers are a little hesitant. But overall, we see that There's still on a weekly basis a healthy basis of incoming bookings and also which is even more important that people are traveling. So departures are also in a healthy area. So there's of course, there's some cancellations, But the overwhelming part of all the bookings are actually traveled and not canceled. That's I think quite an important statement to make. So if we look forward and I'm already I was already going into the current situation. Looking at cash levels with EUR 62,100,000 as of end of June. I think we're in a very healthy and very solid Spot there. What needs to be potentially deducted, of course, we still have the COVID Plus loan in Switzerland with €13,200,000 where the first installment is due in September of next year. We fully repaid all other loans that we had with our banks during Q1. So we're absolutely fine there. And of Of course, the proceeds of the capital increase contributed to us being in this healthy cash position. One additional thing, we managed to change some of the contracts with the tour operators, while in the past only about 50% of them paid us at the time of booking and only 50% paid us at the time of departure. Now most of them are actually paying us at the point of booking. So right now, we have another kind of like €8,000,000 to €9,000,000 in liabilities in there for bookings that have already been made where tour operators already paid us, But the departure is still in the future. And also for the tour operator, our own Hatze Horizon, Well, we basically have about €3,000,000 in customer prepayments that's already part of this cash position. So if you were to deduct and correct for all of that, we're still at a very healthy net cash position just south of €40,000,000 which gives you a good sign that even if delta or lambda or whatever Greek letter might come out there, We're actually very well prepared and quite positive that we can even sustain that. On the measure side, I think cost wise, I just mentioned all of the things. Marketing, we're still very cautious. And I think The delta spread actually proved us right to be very cautious there Because all the cancellations that are happening now for us don't have any implications on the marketing spend. So while Some market participants might have spent more on the marketing side because of the cancellations. This is something that they cannot recoup. We actually haven't spent that. So there's no need for us to try and to recoup some of those spendings. And we're continuing this very cautious Going forward, of course, we're also looking for when is the market going to open up again, what are the opportunities. But we probably on the side of caution rather than be too aggressive too soon. Personnel, as I said, I think reached The steady state that we're looking for that gives us the ability to scale up when the market opens up again. And also the other expenses are pretty much in line and we're continuing our very prudent spending approach there. Outlook for 2021, and again, Like this is still the unknown. I still have not found a properly working crystal ball that gives me the right answers. So the rising vaccination rates clearly are a good sign or were a good sign. Now with some of those rates Stalling, one has to see how that actually plays out. But the good thing is even if some areas are proclaimed as high risk areas. People who are fully vaccinated can travel with very little if any restrictions at all. And also families with children below 12 years should not have any major restrictions. So the bulk of all the bookings that we see should be fairly safe in terms of people being able to travel. Some of them might choose not to travel and that's a totally valid decision on their part. But we see that cancellations rate cancellation rates are actually in a range that are well below any of the new bookings coming in. So net net, we're actually in a good place where people continue to book and really want to have their vacation. And I think there we really need to see how it plays out with new variants now coming. But given the current behavior that we see People, if they can travel, they want to travel, and most of them actually do. So that's actually quite healthy also for Our order book, as Marc mentioned before, where we already have over €100,000,000 in TTV in bookings. And if every single trip that is actually departed is safe revenue for us that cannot be canceled then going forward. So overall, given all this uncertainty that is still in the market, we still don't see ourselves in a position to really give you more concrete guidance other than what we already said that we're very likely having those two scenarios. But in both of them where we see that overall gross margin should be above previous year. I think once the main summer months are over and we really see what actually has traveled, we should be in a better place to narrow down this guidance. But at the moment, especially with delta spreading and potential new variants popping up at some other parts on the globe, This is something where we don't feel comfortable really being more concrete on that yet. Right. So overall, I think as we said in any of the last calls as well, Clearly, leveraging our content and our position as a trusted authority is really what we see as a driving force. And I think just seeing how many bookings and how much traffic we can generate without any or very little marketing, I think is a very good Proof that this is the right way going forward and that we've built over the years a very solid foundation where people CSS's trusted authority and that is something that we can certainly further build on. Secondly, of course, we continue to It built and expanded booking platform to really meet the customer needs and being always on the side of the customer. There I think with some changing booking behaviors, we're able to follow those behaviors and really to pay what customers really need and what they want to what they need as information these days, which is even more important than in the past. So this is something where we also see great progress. And of course, the tour operator to really be a competitive player in the market, have the best offers and potentially have exclusive offers for the holiday check platform as a whole, which also puts us in a great position to really round off the overall portfolio that we have. So with all those building blocks in place and hopefully markets opening up at some point in the future. We feel very well prepared to really harvest then the desire of Olavos to going back on vacation. And I think, as we said always in the past, clearly our vision clearly stands. We want to be the most Ollieber friendly company in the world, especially in these days where there's a lot of uncertainty and consumers and Ullar was still are hesitant sometimes, need some more additional information. And just from looking at the market, probably there's no better platform right now out there for who will allow us to really get all the information they need. And if they've made up their mind to travel, really be there to provide them with the dream vacation they want to have. So with that, I'm going to hand over for questions on your side. To allow your signal to reach our We We can now take the first question from Felix Elmans from Warburg Research. Good morning, everyone. Thank you for the numbers. And I have one first technical question. With regards creation amortization in 2021, 2022. What is the normalized level with regards to your new development policy? What do we have to expect here for depreciation levels for this year and next year round is first question. The other question is you mentioned your new revenue recognition. Are you planning to keep this that way? Or are you planning to get back to the old system one day? Thank you, Felix. Two very good questions. So on the first one, the depreciation, I think the reduced figure now with the minus 1.5 probably is within the range that you can expect going forward. We like given the reduced staff size that we have, it's kind of like automatic that we have fewer hours that we could activate. So with the stock reduction also the depreciation goes down. We will more or less keep the same mechanisms of what we want to activate. Going forward for 2022, one can probably go somewhat lower than the 1.5, But it's going to be within that range of like probably 1.2 to 1.5 depending on how much we can actually activate regarding the owned software development. But other than that, it's going to be nothing more than that. On the revenue recognition, that's a very good question. And my honest answer is We have not made up our mind yet. So there's a couple of factors included. Number 1 is in order to really meet the IFRS guidelines, we need to have a high level of certainty that those revenues will actually happen. So right now, we don't have this high level of certainty. There are still way too many unknowns out there for us to really have a model that gives us the sense of security that we can actually gauge The level of cancellations with this necessary high level of certainty. So in the short to midterm, I don't expect us to go back to the old model. Going forward, That's a discussion we're also having with our auditors right now, at what point we could actually go back. There's pros and cons for the model. I have a tendency to at some point revert back to the old model. Why is that? Just given that the business model of holiday check as a booking platform is that we generate the bookings. And if we were to keep the new revenue recognition with date of departure, We would have a deviation between the marketing spend and the revenue recognized. So that would make our P and L even harder to read. And that's why keeping those 2 aligned, I think, gives a much more accurate picture of the value creation that the company has rather than kind of like erring on the side of absolute certainty that those revenues happen. But as I said before, like I have a tendency. I'm discussing that right now with my team and of course also with the auditors, but I would not expect anything to happen within this year. Okay. You just made one point with the marketing spend. Maybe you can give as far as you can go An indication of how it's going to be in the last part of the year with regards to the very, very little marketing spend you had in the half year. And so yes, maybe you can spend some words on this. Tough question. Again, so good one, but I don't have a clear answer for this is our planned marketing spend as it is right So what are we doing? We of course, we observe very carefully the market development. We track our market Segment share. And we of course know that at some point we need to be more active in the marketing game. So the first step certainly will be within the search engine marketing game, where we clearly have Measurable ROIs where we can really then bid on certain destinations and certain keywords where we know that we can actually have an ROI positive marketing. When it comes to above the line marketing, I would not expect anything major if anything at all to happen within this year. And the whole voucher The thing is right now actually up in the air. So we're quite frankly happy that we don't have any of the vouchers out there. And we would Hate for us to more let's go back into this game. But again, we're also not acting in a vacuum. We have to observe how competition is behaving. And of course at some point we need to become more active again to really defend our market segment share, which so far has been fairly stable despite us not engaging too much in the marketing game. Again, like giving credit Due to the strong SEO performance that we have and the brand trust that we have, but we have to more or less open The some of the marketing spend going forward. But how much that will be, I actually can't tell you right now. Okay. Thank you. Thank you very much. Thank you. It appears there are no further questions at this time. I'd like to now pass the call back over to today's host for any additional or closing remarks. Great. So I'm going to take that as Mark, as he said, is on the road on his way to his well deserved vacation. So thank you so much for dialing in. I think as you've seen, we're on a good track. We're still of course Part of this market and the whole volatility within the travel industry, but I think the signs are good that people are willing to Traveled, they want to travel. And I think Holiday Czech as a whole is very well positioned to benefit from that. And I think we're quite Quite excited to see how Q3 will play out and we're quite confident that it will actually turn out quite nicely. So thank you so much and have a great vacation yourself if you have not been already. And for those who have been, I hope you enjoyed that and are well relaxed and ready to roll. So thank you so much. This concludes today's call. Thank you for your participation. You may now disconnect.