Avis Budget Group Inc (CAR) 2003 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the ebookers PLC Q3 2003 conference call. (OPERATOR INSTRUCTIONS). I would now like to turn the conference over to Oliver Strong, ebookers PLC Investor Relations Manager. Please go ahead, Mr. Strong.

Thank you and good day to everyone. Today ebookers reported its quarter three 2003 results. By now, you should have all received a copy of the press release issued this morning. If you have not, then you can find it on the Investor Relations section of the ebookers Website, www.ebookers.com.

On the call today are Dinesh Dahamija, Chief Executive Officer, and Nigel Addison Smith, Chief Financial Officer. As a reminder, some of the comments made during this call by management and responses to your question may contain some forward-looking information. These statements are subject to risks and uncertainties which may cause actual results to differ materially from those in such forward-looking statements. These and other risk factors are described in detail in the Company's listing (inaudible) dated 17 April 2001 and supplemented by the Company's supplementary listing dated 20th of April 2001 and the Company's annual report on Form 20F for the year ended 31st December 2002. It was filed with the U.S. Securities and Exchange Commission on June 27, 2003.

Please note all the figures referred to in the quarter are in U.S. dollars in accordance with U.S. Generally Accepted Accounting Principles. UK GAAP pounds (inaudible) figures are given in today's press release, adjusted to pro forma measures used throughout this quarter in defining detail in consideration to U.S. GAAP figures in the appendix for Q3 presentation.

I will now turn the call over to Dinesh Dahamija, CEO.

Thank you very much, Oliver. Good morning to those participants in the U.S. and good afternoon to those participants from Europe. Welcome to the ebookers quarter three 2003 conference call.

Without further ado, I would like to hand the call over to Nigel Addison Smith, our Chief Financial Officer. Nigel?

Thank you and hello to everybody. After a more difficult first two months to the quarter, September saw an improved situation, allowing ebookers to achieve a positive outcome for the quarter with an adjusted profit of $2.6 million, in line with U.S. broker expectations. As a reminder, adjusted profit is calculated as the pre-tax loss of $5.4 million for the quarter and adding back stock compensation costs and one-off items, which are $6.3 million and $1.7 million respectively.

The adjusted profit of $2.6 million in this quarter compares to an adjusted loss of $1.7 million for quarter two and an adjusted loss of $1.1 million in quarter three of last year. In other words, despite earlier difficult trading, ebookers Internet model is now delivering results. Fundamentally our revenue is increasing. Our margin is strengthening, and our cost base decreasing. These are trends indicative we believe of the major profitability potential of our business.

Looking at sales growth, gross sales for quarter three were $241 million, up 99 percent from quarter three last year. The group saw strong sales in the quarter to Asia and Australia, including travelers to the Rugby World Cup. Part of the business that performed particularly well included subsidiaries in the northern region, Germany, Switzerland and Ireland. Travelbag also delivered very encouraging sales growth benefiting from its conversion to online sales channels.

Revenue increased 113 percent year-on-year to $30.7 million, up from $14.4 million in quarter three last year. We expect this rapidly increasing scale to have an ongoing positive impact on our negotiating power with suppliers and also economies of scale with our cost base. An encouraging result for the quarter was our margin. This was 12.7 percent for the quarter compared to 11.9 percent in the same quarter last year. This continues a trend of steady margin improvement by ebookers. This result is due to both the positive impact of Travelbag, improved bargaining power with the suppliers, and also ebookers strategy to increase the sale of high margin non-air products.

Including GDS income, 36 percent of our revenue is now non-air compared to 31 percent in the same quarter last year. This is a very pleasing shift in mix, which we are taking strategic measures to push forward as Dinesh will go on to explain. Our cost base is also moving in the right direction, driven in particular by our BPO. Adjusted operating expenses, that is operating expenses of $36.2 million adjusted for stock compensation charges and one-off items of 6.3 and 1.7 million respectively, were 28.2 million in quarter three 2003 compared to 15.8 million in quarter three of 2002. This figure is higher, of course, due to the effect of the Travelbag acquisition, but if we look at these costs as a percentage of gross sales, then our cost base was 11.7 million -- sorry, 11.7 percent in quarter three of 2003 compared to 13.9 (ph) percent in quarter three of 2002 -- a significant improvement even given the impact of Travelbag. We're moving in the right direction towards our target of 8.5 percent.

Next, unadjusted loss after tax for quarter three was $5.4 million compared to a profit of $2.4 million in quarter three of 2002, largely due to a credit for stock compensation in quarter three of 2002. The one-off item in quarter three 2003 of $1.65 million relates to an award to Tani Dhamija, Executive Director, as detailed in the press release. Please note that the $10 million Tecnovate investment announced in October will be accounted for in our quarter four 2003 financial results.

Finally, quarter three saw a significant strengthening of our cash position to $108 million on the 30th of September, up from $92.5 million at 30th of June 2003.

That concludes my financial summary for the quarter. I will be delighted to take any detailed questions on the financials at the end of the call. I would now like to hand you over to Dinesh Dahamija, our CEO, to review operational progress and then give a statement of trading and outlook.

Thank you, Nigel. I would like to begin my section of the call with an update on trading. I am pleased to say that trading for October was strong. Our Travelbag acquisition is delivering a particularly impressive performance within the group. This is being driven by our confirmation of the business into one with an Internet group culture, with rapidly increasing Internet sales to match.

By October, 44 percent of Travelbag's passenger bookings were Internet-based compared to 16 percent when ebookers acquired the company in February. In October, Travelbag's passenger bookings were 58 percent up on the same period last year. In terms of shareholder value, it should be noted we acquired Travelbag at around 23 percent of sales. The price was so low because when we bought them Travelbag was not an Internet company. Other companies have paid more by buying companies that are already Internet based.

For example, InterActive's recent acquisition of Hotwire was at 95 percent of annual sales, and their acquisition last week of ANYWAY in France was at 66 percent of sales. Lastminute.com's acquisition of Travelprice in France was at 74 percent of sales. We believe that our forward strategy of buying off-line companies and converting them to online ones is proving a unique way of creating value for our shareholders. It is a strategy we intend to continue.

We are focused on delivering growth throughout the business as well. During the quarter, we have upgraded our technology infrastructure to improve the user Website experience and to ensure that we have capacity for future growth. Another central area is our non-air sales. We are launching new initiatives and dedicating more management focus and resource to this.

In particular, we are focusing on leveraging group buying power. With our new size, there is vast opportunity to negotiate on a pan-European scale with key ground suppliers in priority destinations. We're now getting more favorable, high-value deals by negotiating direct deals by our new locally based buyers or renegotiating group-wide contracts with major car companies and insurance groups.

Another development for growth is our companywide CRM implementation. This is utilizing epiphany power technology, while we also use Expedia in the U.S., which is aimed at delivering increased revenue through better conversion rates, cross-sell and customer retention. The core elements of the CRM system are already live in the UK, and we are on track for a full multilingual European rollout by the end of February 2004. This will be closely followed by a rollout into our call centers, ensuring that we have a single view of our customer across all sales channels.

Finally, we have strengthened our management team during the quarter. Chris Sherlock joins us to head up our non-air product sales from British Airways Airmiles where he was responsible for car rental and the Executive Club's partnership marketing team. Simon Powell joins us with responsibility for travel insurance. Previously he was head of UK Business Development with Mondial Assistance, one of the largest travel insurance and assistance companies and part of the Allianz Group. Kevin Hall joins us with responsibility for car sales. Previously he was with Alamo National as Director of Global Sales. We have also appointed a Head of CRM, Yashish Dahiya, who came from Spain, having previously played a lead role in implementing the CRM system of a major international mobile phone company. Also appointed is Obi Nwosu, who joins us as Head of E-Solutions from Autonomy.

In terms of outlook, ebookers is very well-positioned, and I am increasingly optimistic. We have an advantageous, high-value, long (inaudible) focus, which means we're not competing with no growth short fall airlines. We are investing in clear strategies for growth, and we are strengthening our management to achieve these. We are well set to take advantage of the continuing upsurge in European online travel.

Ladies and gentlemen, it would now be our pleasure to answer any questions on the results or any other aspect of our business. The question-and-answer session will be conducted by our operator, who will remind you of the technical procedure for asking questions.

(OPERATOR INSTRUCTIONS). Ashish Thadhani.

Congratulations on a good quarter. I have a couple of questions. The first is, could you quantify the impact of this IT issue that you had referred to in your prior communication?

Clearly it is always difficult to describe a profit effect to any one event. We have endeavored to do this, but it is probably in the region of about $1.6 million on the bottom line.

1.6 million on the bottom line?

Yes.

Okay. This was in India, or was it in the UK?

It was in the UK.

Okay. Much larger than I would have thought.

Unfortunately it took a number of our top sellers out within Travelbag during quite an important trading period.

Right. I am assuming that when you said this was 1.6 million, that means about 5 cents in ADR. So in the absence of this, your earnings would have been higher by 5 cents in ADR?

It looks like it. Well, clearly -- we have done the analysis, and that is the indication of the scale.

Okay. Secondly, it seems that you have had a very good October. I am just trying to understand what this implies for the quarter. This has been your best month since which month? Is it January or so? And then as a follow-up, including Travelbag, should a normal November and a December be as good, better or worse than October?

You are really coming up with them. In terms of October, it is probably the best month since January because really we have had war, SARS and then the hot summer, and clearly we are still resolving the Travelbag IT problem during September. So from a trading perspective, October is then effectively the quarterly peak, and then trading drifts downwards a bit as we get towards Christmas as people spend more time Christmas shopping and less time buying travel products.

Okay. The third question I guess was this award to Tani Dhamija. Could you talk a little bit about what the original amount was because it appears that this seems to be a reduced amount relative to that one? And just a little bit of background as well as to you said this was based on third-party advice and related to I guess both the BPO operation, as well as the integration and things like that. I just wanted to understand what is the thinking behind the revision and what the original amount was?

The Remuneration Committee, which was made up of non-executive directors, were independent offered Tani Dhamija for 1.5 percent of the company in May 2002. This was the recommendation to the Executive Board by the Remuneration Committee. This is for leading the setup of the BPO in India. As you know, we received $10 million for 6.25 percent of the BPO in India a month ago, which values the BPO at about $160 million. Also, the integration of Flightbookers and ebookers.com, which really was the steppingstone for us to buy Travelbag, as Flightbookers is only a 50 million pound sales company, while Travelbag was 200 million.

So given this options award of 1.5 percent, our shares in the next few weeks took off. This is in 2002. So we went to a Top Four accounting firm to get external advice because we did not want to do things that were out of the ordinary in terms of companies that are listed. And they came back and said that that would come to around about $4 or $5 million, which was high. So they thought that it was by using Black-Schoales, they came up with about 960,000 pounds as a one-off bonus. That was the median, and then the lower end was taken of 880,000 pounds, plus some national insurance, which is a tax that the company has to pay when one pays a bonus or a salary of 113,000 pounds.

This money has not been taken by Tani Dhamija or paid to Tani Dhamija. The decision was made in the quarter by the Remuneration Committee. We have to approve for it. This will not be paid this year, and it will be paid either next year or the year after depending on our profits and how we do.

And this is the final amount that has been provided for related to this issue, right?

That is right.

It seems to me if my math is correct that the prior number was closer to $5 million, but you're saying it's 1.5 percent of the company about a year ago?

That is right. It is more reasonable, but it's not that Tani Dhamija -- she is successful and an independent businesswoman in her own right, and she was quite keen to be recognized for the value she had created for the group. And not just because she is a woman or she is a wife, that should not be taken into account.

No. We are just trying to establish a full picture here. That is helpful. Last question is about a month -- sorry, about a quarter ago, you had talked about an enhanced hotel booking engine. Could you provide an update on where that stands and just again an update?

The hotel and the package booking engines are alive, so that is one of the reasons why we're seeing more and more room nights being booked.

(inaudible). All this technology indicates continuous system updating with hotel bookers. Hotel bookers is live in the UK. The technology is continuing to be updated and also the product behind it as well, which is equally important. That is making good progress.

Randall Hack (ph).

Thanks for taking the call. I may have missed this on the presentation or in the release, but did you talk about pro forma revenue growth apples-to-apples without the acquisition of Travelbag and the others, if there were others, what that number might be in terms of revenue growth?

Yes. In terms of the way we are now running the UK business, effectively since we completed the integration at the end of June, we're running as a single UK business in that were trying to split out the revenues of Travelbag versus the world or ebookers within a particular period. It is somewhat difficult because there's actually a lot of numbers that pass between those various businesses. So basically we felt that it was no longer appropriate to split out one particular aspect of the business.

Just to go further on that, for example, Travelbag is a very good on Australia and New Zealand bookings, so more of ebookers Australia bookings were being passed to them to deal with. While the U.S. bookings of Travelbag and Bridge the World were coming across to ebookers because ebookers was better handling those. So even the product managers, there is one product team now rather than two; a whole host of things have changed. So we did split them out in Q1 and Q2, but since July the 1st, we have decided against that and run it as a proper business -- as one business, sorry.

Needless to say, the numbers to which you allude possibly were not as strong as they might have been due to the hot weather and the rest of it. Clearly the initiatives that we have announced with these results on the CRM front and the non-air production are specifically aimed at addressing any of those issues.

The last point I would like to say is our European businesses, which are non-UK businesses, were up about 30 percent organically, is that right? 22 percent organically.

I am sorry, you said Europe 9 and UK?

Non-UK because they were separate businesses anyway. The UK business was amalgamated on July 1st.

Could you give us an idea of how many merchant hotel rooms you sold during the quarter?

It is basically in quarter three of 2003 we sold 192,000 room nights, and in the same quarter last year, we sold 101,000 room nights. It is actually in our U.S. GAAP presentation, which is on the Website in the U.S. section of the Investor Relations Website. The U.S. GAAP presentation is out, and there's a table on page 21, which actually sets that out.

Okay. Lastly, in the BPO business, who are your third-party clients? Are they other travel companies, or are they other businesses altogether?

We have announced any third-party clients at the moment, but we are talking to other travel businesses, mainly our suppliers, people like airlines, hotel companies and car companies. We have not announced anything. We have a very small one, but that's not even worth announcing.

Okay. Thank you.

Raymond Sponger (ph).

Good afternoon. I was particularly impressed by the improvements of your margins. I wonder what you expect for 2004 in terms of net margins?

If I were to say that our strategic objectives over the next two to three years are basically to get gross profit as a percentage of gross sales or U.S. GAAP revenues essentially of gross bookings to 15 percent from the 12.7 percent that we announced for these results, and since we aim to get our operating expenditure as a percentage of gross bookings from the current -- I think it's 11.7 something like that; I will pull out the requisite figure -- 11.7 percent for quarter three to a target number of 8.5 -- and the reason why we picked such a low percentage, it just happened to be where Expedia rests at the moment on the run rates of sales of usually somewhere around $8 billion. That is our objective.

Now clearly that creates a fairly high net margin figure. I will just say if you then apply a bit of conservatism to both ends, you end up with a number of, let's say, 5 percent. That would be our objective of getting our pretaxed margin as a percentage of gross bookings to 5 percent over the next two to three years.

Yes. It would be quite nice, wouldn't it? And as a second questions, I was impressed by the cash flow generated in the third quarter. In what way would you say that it is representative as a result of the transactions rather than changes in working capital or (inaudible)?

We did have a further underlying improvement in our cash position in quarter three. However, the figures that you see within the results do reflect some seasonality that made them look better. What we find is in the second half of the year due to the seasonality of Travelbag, whereby people book quite a long way in advance and then pass to various points over the winter to places like Australia, we find we get big cash inflows during the autumn and then we have a big cash outflow at the back-end of the winter. And certainly if you went back and looked at our quarter one results this year (technical difficulty)-- you would see a substantial piece of cash outflow. I would not want you to necessarily believe that all cash flowing in today, that some of it doesn't actually flow out to some of our suppliers at the back-end of the winter. But the underlying position is one of strong cash growth.

(OPERATOR INSTRUCTIONS). There are no further questions at this time. Please continue.

Thank you for your questions and for joining in the call. If after this call you have any further questions for me or my colleagues, then please contact us via our Investor Relations Manager Oliver Strong on telephone number +44207-489-2239 or e-mail Oliver.Strong@ebookers.com, and we will get back to you as soon as we can.

Thank you for your time, and may I wish you all a good day.

That does conclude our conference for today. For those of you wishing to review this conference, the replay facility can be accessed by dialing the UK on country code 44-1452-550000. Callers from the UK 0845-245-5205. The reservation number is 588281. Thank you for participating. You may all disconnect.