COVID-19 Trading and Financing Update

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THIS ANNOUNCEMENT AND THE INFORMATION CONTAINED HEREIN ARE FOR INFORMATION PURPOSES ONLY AND DO NOT CONSTITUTE AN OFFER OF SECURITIES IN ANY JURISDICTION. PLEASE SEE THE IMPORTANT NOTICES AT THE END OF THIS ANNOUNCEMENT.

 

THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION.

 

For immediate release

 

21 May 2020

 

On the Beach Group plc

 

("On the Beach", "OTB", the "Company" or the "Group")

 

 

COVID-19 Trading and Financing Update

 

On the Beach Group plc (LSE: OTB.L), one of the UK's leading online retailers of beach holidays, today provides an update on the impact of the COVID-19 pandemic (the "Pandemic") and the Group's response to date, including announcing revised banking facilities and a proposed non-pre-emptive placing of new ordinary shares of 1 penny each in the capital of the Company representing up to approximately 19.9 per cent. of the Company's existing issued share capital ("Placing").

 

Trading update and OTB's response to the Pandemic

 

As outlined in the AGM Trading Update released on 6 February 2020, in the first four months of FY20 and following the collapse of the Thomas Cook Group, the Group priced competitively and increased market share with sales growth of 29 per cent. (excluding Classic Collection Holidays) for Summer 2020 departures. This performance was supported by a significant increase in offline marketing spend which resulted in the Group's highest ever year-on-year growth in brand awareness. Prior to the Pandemic, the Group anticipated that a proportion of this offline investment would payback in H2.

 

In late February, with the spread of COVID-19 into the Canary Islands, the industry witnessed a dramatic fall in holiday booking volumes and airspace subsequently closed in mid-March. The length of this airspace closure remains unknown and the Board is of the view that the vast majority of bookings taken in H1 will not travel as planned in H2. As a result, the Board now expects the Group's H1 results scheduled for release on 30 June 2020 will include a material exceptional charge, subject to how assumptions continue to develop, of approximately £35m, to reverse the revenues related to these bookings. The Group's H2 results are also expected to be impacted, dependent upon how long travel restrictions remain in place.

 

Anticipating that the impact of COVID-19 on the travel industry would likely be deeper and longer lasting than on most other sectors, and as a result would lead to a dramatic change in the competitive landscape, the Group took swift and decisive mitigating actions to reduce its cash burn and to amend and extend its existing £50m revolving credit facility ("RCF").

 

As a result of these mitigating actions, outlined in OTB's COVID-19 and Banking Facilities Update on 8 April 2020, net debt as at the end of April 2020 was £9.7m, down from £25.3m as at the end of February 2020. Net debt will not be affected by the exceptional charge referred to above. The net debt position does not include customer monies (excluding flight monies paid to airlines), which are ring-fenced in a trust account.

 

The actions aim to ensure that the Group is better placed to survive than its peers, while it prepares to capitalise on the multiple opportunities that these market conditions are likely to present.

 

Rationale for the revised banking facilities and the Placing

 

Since OTB's COVID-19 and Banking Facilities Update released on 8 April 2020, the Group's theoretical stress test of airspace being closed until the end of September 2020 has become increasingly plausible. This implies greater pressure on all travel companies and a more profound reset of the competitive landscape. The Board therefore believes it is in the Group's best interest to seek supplementary financing now to:

 

·      provide OTB with even greater resilience, flexibility and firepower through the current downturn;

·    ensure that, in the event of a recovery scenario involving accelerated demand, OTB will have sufficient funding available to increase marketing spend and to support the necessary short-term investment in working capital to meet that demand;

·      enable OTB to capitalise on commercial opportunities that may present themselves; and

·    ensure that, even in more pessimistic scenarios than outlined on 8 April 2020, OTB is able to protect its strong market position and position itself for the eventual recovery in demand.

 

The Directors believe the additional headroom will allow the Group to simultaneously increase investment in its digital platforms; continue to drive brand through investment in online and offline marketing activity; improve conversion with attractive low deposit schemes; and react to commercial opportunities in the UK and internationally.

 

A disciplined approach to investment will be maintained, in line with the Group's track record.

 

Revised banking facilities

 

In conjunction with the Placing, OTB confirms it has also agreed an increase to its existing banking facilities, in the form of an incremental £25m RCF under the Coronavirus Large Business Interruption Loan Scheme ("CLBILS") with Lloyds Banking Group plc ("Lloyds"), expiring in May 2022. The recently renegotiated £50m RCF remains in place, expiring in December 2023. As a result, the Group now has available to it maximum working capital facilities of £75m.

 

Furthermore, Lloyds has agreed to further amend existing financial covenants, giving the Group greater operating flexibility to support incremental investment.

 

For as long as the CLBILS facility remains in place, the Group will be subject to certain restrictions on paying dividends. The revised banking facilities outlined above are inter-conditional on the Placing.

 

Proposed Placing

 

OTB has separately announced today its intention to conduct the Placing. The Company intends to issue new ordinary shares representing up to approximately 19.9 per cent. of the Group's existing ordinary share capital. All of the Directors of the Company and certain members of the executive management team intend to participate in the Placing.

 

Together with the extended banking facilities now available to the Group, the Placing will allow the Group to emerge from this crisis in a strong position. The Board has concluded the Placing is in the best interests of shareholders and will promote the long-term success of OTB.

 

Summary

 

The Board believes that the mitigating actions taken by OTB management, combined with the net proceeds proposed to be raised from the Placing and the revised banking facilities, will enable OTB to protect and preserve the Group's strong market position; ensuring a high level of preparedness for market recovery over time. The Group will have sufficient flexibility to operate through and beyond a prolonged period of continuing disruption, whilst having the headroom available to invest to drive the maximum possible market share gain as the recovery begins, and to react fully to commercial opportunities when they arise.

 

As a result of these actions, On the Beach continues to progress towards its long-term vision to become Europe's leading online retailer of beach holidays.

 

The person responsible for releasing this announcement is Kirsteen Vickerstaff, Company Secretary.

 

For further information, please contact:

 

On the Beach Group plc: Simon Cooper, Chief Executive Officer Paul Meehan, Chief Financial Officer	via FTI Consulting (Contact details below)
FTI Consulting:	+44 (0)20 3727 1000
Alex Beagley Fiona Walker Sam Macpherson

 

 

IMPORTANT NOTICES

 

This announcement is not an offer of securities for sale in the United States. The securities referred to herein have not been and will not be registered under the U.S. Securities Act of 1933, as amended (the "Securities Act"), and may not be offered or sold in the United States, except pursuant to an applicable exemption from the registration requirements of the Securities Act and in compliance with any applicable securities laws of any state or other jurisdiction of the United States. No public offering of the Placing Shares is being made in the United States.