Avis Budget Group Inc (CAR) 2004 Q2 法說會逐字稿

Thank you for standing by and welcome to the quarter 2 and interim results 2004 conference call. All at this time all participants are in a listen-only mode. There will be a presentation followed by a question and answer session at which time if you would like to ask a question, you need to press star 1 on your telephone keypad. I must advise you this conference is being recorded today on Monday, the 16 of August, 2004. I would now like to hand the conference over to your speaker, Latasha Malik. Please go ahead.

Thank you and hello, everyone. Today ebookers PLC recorded its second quarter 2004 financial results. By now you should have received a copy of the press release issued this morning. If you have not, then you can find it on our Investors Relations website which is www.ebookers.com. On the call today are Dinesh Dhamija our Chief Executive Officer and Michael Healey, Chief Financial Officer. As a reminder, some of the comments made during this call by management and responses to your questions 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 listings, particulars dated 17 day of April, 2001 are supplement by the Company's supplementary listings particulars dated 20 April 2001 and the Company's annual report on form 20S for the year ended 31 December, 2003 that was filed with the U.S. Securities and Exchange Commission on March 25, 2004. Please note that all figures referred to in the call are in U.S. dollars and in accordance with U.S. generally accepted accounting principles, UK GAAP Pound Sterling figures are in today's press release. Solely for the convenience of our listeners, the financial information in this call is expressed in U.S. dollars, translated at a rate of 1 pound to U.S. 1.18126. I will now turn the call over to Dinesh Dhamija, CEO. Please go ahead Dinesh.

Thank you very much Latasha. Good morning to those participants in the U.S. and good afternoon to those participants from Europe, Before we looking at the financials it's important to put these in the context of ebookers overall strategy. Ebookers' strategy has been to acquire offline companies for their product content and then to transfer their offline businesses to the Internet. We then eliminate any remaining low profit elements that are suitable for online conversion. Consequently, this year, we have divested ourselves of 9 offline retail shops. The cost saving impact of these closures and other offline cost saving measures is expected from quarter 3 of 2004. We now have 8 retail units left. 8 retail offline units left.

At the same time, we have been reinforcing the continuing high growth of our online business and pushing the transfer to online sales channels. With significant incremental investment in technology and other support. Investment in fine margin non-air technologies is a priority, particularly cars, hotels and travel insurance. We believe that this strategy is the right one for ebookers' long term strength. Without further adieu I would like to turn the call over to Michael Healey, our Chief Financial Officer.

Thank you Dinesh, and hello to everybody. I am going to go through the presentation, which you should find on the - - which you should have on your website and I'm just about to go through the financials in some details. Gross sales for quarter 2, 2004 increased 14% year on year, from 214 million to 244 million in seasonally our weakest quarter. This has been driven by excellent online sales growth of 60.4%, web enabled sales increased by 47%, meanwhile the offline part of our business increased by 15%, as we divested ourselves of low profitability retail outlets, giving, as I said an overall gross sales increase of 14%. If you were to adjust for the closure of the 9 shops during the year, gross sales increased on our like for like basis would be 30%.

Looking at revenue growth by channels, pretty much mirrors that of the gross sales, online revenue grew strongly, increasing 44% year on year. Web enabled revenue increased by 55%. Meanwhile revenue for the offline part of our business decreased by 11%. Overall, total revenues increased by 11.7% and on a like for like basis by 28%. Margins, that is revenue as a percentage of gross sales has on a U.S. basis decreased from 4% in quarter 2, 2003, to 11.7% in quarter 2, 2004. This differs from our UK GAAP accounts where our margin went up from 12.6% to 12.8%.

This is due to U.S. accounting differences for our air business. With our air business an increased proportion of revenue was the rise from performance related incentive payments from airlines and GDS suppliers rather than fixed percentage commission based revenue. Under U.S. GAAP that had has the effect of reducing our margin until the revenue can be recognized in meeting performance targets. Overall, as Dinesh will explain we have explained we have successfully improved our mix of high margin non-air products in the quarter. Overall operating expenses improved from 35.7 million in quarter 2, 2003, to 52.6 million in quarter 2, 2004.

The main reason for this decrease was a decrease in stock compensation costs from 20 million in Q2 2003, to a credit of 1.5 million in quarter 2, 2004. Trends within our operating expense also reflects the increased investment in online technology. For example, with our general and administrative spend, salary and costs increased by approximately 1.1 million, following out a strengthening of senior personnel teams particularly in non-air and online operations. Sales and marketing costs also increased from 15.6 million in Q2 2003 to 16.7 million in Q2 2004, this is due to increased online marketing spend as we focus on our high growth online channels, particularly search engine placement expenses.

Again, within overall operating expenses depreciation forced increase from 1.8 million in Q2 2003 to 2.68 million in Q2 2004. This underlies a commitment to capital expenditure investment on key technology implementation, including a new voice and data network, website development costs and new technologies to support online non-air sales including carbookers, insurancebookers and to some extent hotelbookers. As a result of these foregoing factors our net loss improved from 26.9 million in Q2 2003 to 7 million in Q2 2004. Moving on to page 5 of the presentation, this shows us how Internet drives our organic sales growth. Where we're seeing in Q2 '04, that between online businesses and our web business, are generating 56% of our overall raw sales compared with 41% in the same period last year.

Our offline business performance has reduced its part to the overall business from 59% in Q2 '03 to 44% this year. Moving on, we're seeing strong Internet sales growth and good levels of margins in our offline business but some margin decline in our online business, and I think that's for the reasons demonstrated earlier whereas under UK we're seeing 12.8% overall margin for Q2 2004 compared to 12.6% in Q2 2003. That was under U.S. was 11.7% compared with 12% for the same period last year. Looking regionally, in page 7 of the presentation, we're seeing good levels of growth, particularly coming from our European operations which for Q2 2004 now represent about 32% of our total sales, total growth sales or TTV compared with 28% in Q2 2003. Our UK business has grown from 155.6 million in Q2 2003 to 166.4 million in Q2 '04 as showing an increase of 6.9%, but on a like for like basis, stripping out the effect of the shop closures we are seeing 25.8% growth in these sales. Also, I'd like to highlight in Holland and Belgium which is is showing a 22.3% reduction period on period.

If we adjust for the closure of the offline shops within Holland then we are sitting at 12.8% like for like. And overall, which currently shows a total increase of sales of 14%, we're actually on a like for like basis we have a growth sales of 30.2%. Turning now to page 8, which is focusing on product mix, here we're seeing an improved overall improvement in product mix, compared with last year, quarter 2, 2004 is 37%, for non-air business compared with 34% for quarter 2, 2003. Also highlighting this, strong margin growth within hotels of 33.6% margin, with insurance 58.5% margin, and cars 20.6% margin. We're seeing strong growth in revenues in hotels in particular, at 46% and insurance of over 80%.

Turning now to page 10, just looking more closely at operating expenses as a percentage of growth sales, excluding stock compensation we're seeing overall percentage of growth sales of costs as a percent of sales of 15.3%, which compares with 15.2% for the same period last year. Within that, we see increased costs in absolute terms, as with driving costs awards and investing in our online businesses. So we are seeing increased costs in product and technical staff, increased management staff in respect to these businesses for hotels, insurance, and carbookers as well as increased marketing costs. Moving on to page 11 and our balance sheet. Not too many changes in our balance sheet. But it's probably worth pointing out that cash and cash equivalents amount to 89.7 million U.S. dollars at the end of quarter 2 '04 that's a modest reduction from quarter 1, which was 92.9. Just to highlight some of the major movements without going through too much detail on half 1 numbers, total growth sales for the half year, $530.2 million, compared to $411.3 million. That's a growth of 28.9%.

In terms of total revenue $65.6 million, compared with $51.9 million, that's a growth of 26.4%, for overall margins of 12.4%, compared with 12.6%. Looking at bottom line net income loss, here we're showing a net income for the half year of 5.9 compared with a loss for half 1 '03 year of 17.5. In terms of current trading, following difficult trading conditions in June, particularly bearing the effects of the Euro 2004 Football Championships were held in Europe, quarter 3 trading from July to date have been encouraging. And we are comfortable to say that they are entirely in line with our expectations.

This has also been underscored by a recent announcement from the British Air Force Authority which has indicated that UK airport traffic statistics on the long haul are now back to pre 9/11 levels. Looking at - - on to page 14, just very quickly going through some of the things that we are doing in each of our businesses and I guess Dinesh will talk to this later in the presentation. In hotels as I mentioned earlier we appointed Ranjan Singh as Managing Director for Hotels, he started in July. Ranjan Singh is from Expedia Group, where he headed their European operation. He's been focused on strengthening the whole sales team, establishing new technology for hotels and currently is developing a long term strategy for this business.

In insurance brokers we have Simon Powell as the Senior Manager in charge of those operations. He's focusing on developing technology which is now life in UK and he's functioning rural life to the second half to our European website. Carbookers we have Chris Sharloff who is focusing on this operation. He's rolled out carbookers sites to 12 of our 13 subsidiaries he's also actively engaged in white labeling to third parties and we're hoping for great things from carbookers in the second half of the year. Moving on to page 15, of technology, we have been committed to continually to improve technology to ease the walk through of our site.

We now have click-to-talk live, we have Round the World planner live, and we have various agreements with mobile telephone companies for booking arrangements. In addition, we have advanced systems integrations through global, centralized voice and data systems which allows to us monitor our business much more carefully and to monitor our business channels. In India, our BPO has strengthened the senior management team. On the one hand, they really are continued to be focused on controlling costs and our BPO facility there allows us to do that. But secondly, we are also looking to continue the development of third party business, and to help us to do that we have included a Head of Marketing who is now based in the United States.

And we have 4 third party pilots in progress which have added 100 seats. On to page 17, I think it's worth just taking a step back and looking at our overall track record, to put some context on our results to the first half of this year. Way back in 2000 and 2001, we were reporting losses 40 and 45 million respectively. By the end of 2003, those losses had been adjusted 13.5 and for first half of 2004, we're starting under the U.S. GAAP, in any case to show some levels of profitability. In each case, the gross margins have either grown or luckily remained fairly stable. And I think we're - - at the end of today's session, we'll be able to confirm to you the comp trading continues to be encourage. And we're looking to grow on that towards the end of the year.

In summary, today I can say that we are pleased with the results showing strong levels of Internet growth. We're happy that we continue to cut costs wherever possible, particularly in our offline businesses. And we'll see the full benefit of that coming through in the second half of the year. And our increased investments in the business, through technology and non-air and management and online marketing we believe will provide results, positive results for the group in the coming months and years. So that ends my - - that concludes my financial summary. I will now hand it over to Dinesh.

Thank you very much, Michael. As Michael has just outlined, ebookers sales growth is being driven by strong Internet sales. What this tells us is that despite some difficulties in the travel environment in general, the fundamental dynamic of the shift of travel to the Internet in Europe remains strong. Additionally we have become increasingly convinced that the ebookers' long and mid-haul positioning is the correct in enabling to avoid the shortfall pricefalls that are happening. Ladies and gentlemen, thank you for listening. It would now be our pleasure to answer any questions. The question and answer session will be conducted by our operator who will remind you of the technical procedure for asking questions.

If you would like to ask a question, please press star 1 on your telephone keypad and wait for your name to be announced. If you wish to cancel your request, please press the hash key. Your first question comes from Ashish Thadhani from Brean Murray. Please go ahead.

Yes, good evening a couple of questions. You've indicated that the quarter was impacted to some extent by the Euro 2004 Football Championships. Can we expect some type of fallout from the Olympics as well? What have you factored in as a result of that?

Ashish, we thank you for that question. We can't tell what's going to happen with the Olympics, but they're - - I remembered Summer 2000 in Sydney, there wasn't much of an effect. But those were early days and heavy days and bookings were moving online so fast. We are in our - - excuse me, we are in our high season at the moment.

Mm-hmm.

And as we said, sales for July and first 2 weeks of August have been in line with our expectations.

Mm-hmm.

But we do not know if the trends are going to be lower. We have had 2 or 3 days of the Olympics already and we can't see any difference at the moment.

Okay. Also in your presentation, you know, there is a lower TTV margin on online bookings, roughly 9%, compared with 13% for the rest of the business. Can you just explain how that comes about?

If one looks at the top line margin, one would think that online businesses are not worth going into. Versus offline you make more money. But the cost of fulfillment and the costs generally of running offline businesses are so much greater than online businesses that the bottom line margin is far greater for online businesses than offline businesses. The reason why margins are lower is because we cannot add on while speaking to a customer the various profit margins on the various aspects that they want. For example, if they want to do a tour in Sydney Harbor, we can't, you though, add on a huge margin or a nice margin to the customer. Offline, you know, one can get the feeling as to where they are and if they are going for 3 or 3 weeks, it's so much easier. Our online offering on cross sell is not good enough at the moment to offer tours and that sort of thing at their destination. But only hotels and cars are.

Understood. And a couple of other quick questions.

Yes.

The non-air revenue decline quarter on quarter, could you explain how that came about? And what one should expect going forward? Both, again, as a percentage of revenue, as well as in absolute dollar terms it was down from Q1.

Yep. Q2 is seasonally our worst quarter. And from the point of view of offline sales - - I'm sorry, from the point of view of non-air sales. As far as we can see, this happened a year ago and a year ago before that. Now, last year, of course we had the Gulf War and SARS.

Mm-hmm.

So one could have said that was an anomaly. But it happened the year before too.

Mm-hmm.

But when we looked at the total - - I think Q1 there was a huge increase in non-air revenue from about 29% to 40%.

Mm-hmm.

So that was, you know, perhaps too fast.

Mm-hmm.

But the trend is the same. It is to non-air. And that's why our margin in the UK for UK GAAP has increased otherwise it has decreased as you know for the U.S. GAAP.

And final question and then I will get off. In the U.S. presentation that you just went through, on the last page, the appendix, you have 2003 revenue of about 120 million. The reported number I recall was 110 million. Why the difference?

I believe it's because of exchange rate.

Yes, last year's revenue would have been calculated at the exchange rate ruling at the time. For the presentation purposes here we've retranslated the UK settlement rate at a fixed.

Understood. Thank you very much. That helps.

Your next question comes from Ben Harrington from Merger Market. Please go ahead.

Hi, there.

Hello.

Hi. Ben Harrington from Merger Market. Something I was interested in was - - I mean I see you've got 49 million on your balance sheet and also I was looking at the end of your forward-looking statements where one of the risks is that is not easy to acquire or integrate companies across Europe. I was just wondering whether ebookers has - - and I think they may - - there may have been some transmuted in the past to look at potential acquisitions and if there was the right opportunity, would you look to take it?

Sure, if it's the right opportunity and if we - - if it was non-dilutive, we would love to take it. By the way, just to correct you Ben, that was 49 million pounds cash, and not - - beyond this call, we are sticking to U.S. dollars. It's 90 million U.S. dollars.

Oh, yes, right, 90 million.

That's okay.

And do you - - I mean would you be able to be a little bit more specific. Are there any areas that you are particularly interested in? I mean --

I think that we can't be more specific.

Right.

The only thing we can say is that we will always want to improve the - - to increase our margins or decrease our costs.

Right.

So -- We haven't taken over a company since we took over Travelbag in February of 2003.

Yes.

And the reason for that is that it was a large transaction, and he wanted to digest it before we did this.

Right.

You know, we have almost digested it but that comes first - - integration comes to us before acquisition.

Right. Okay. But - - okay. So if the right opportunity was there, then you would contemplate on doing it?

Absolutely. That's always been our business model.

Right. Okay. And also you mentioned at the beginning, is that you've divested 9 offline items so farl. Was it "items" did you say? I didn't quite catch that.

It was premises shops.

Oh right premises shops, right and that you have 8 left. Are you planning on divesting those as well or --?

No, not at all.

Right.

We've - - we only divest shops that make a loss. These 8 are making a profit.

Right. Okay.

And - - but if ever and any part of our business not - - let alone shops, makes a loss it's incumbent on management to look at it and see if it's worth not going back - - you know, divesting those parts of the business.

Yeah.

That's normal.

So if they were to start making a loss, you would consider it?

Absolutely.

All right. Okay. I think that's everything, actually.

Thank you, Ben.

Thanks a lot.

If you would like to ask a question, please press star 1 on your telephone keypad and wait for your name to be announced. You have a question from Rob Girder from Polar Capital. Please go ahead.

Good evening. Can I - - looking at the ostensibly large net cash position on your balance sheet, can you explain why you have a net interest outflow in the course of whatever you've got on the liability side, which is where you are paying interest?

Yeah, we hope to fight that with Bartlands Bank about - - at the end of June 17.5 million pounds.

$13 million.

Which is 13 million U.S. dollars.

Okay. And is it fair to assume that the rates of your liabilities are higher than you can earn on your net cash? Is that part - -

Yeah, that's true. We're paying LIBOR plus 200 basis points.

Okay. Thank you. And the second question is: Looking at the evolution comment, they seem to be thinking that you are seeing an increasing percentage of short haul sales in your online business. Have you previously stated what percentage of your business is short haul versus long haul?

We have. One share is if it's online and it's a server that's selling this, it doesn't - - it's still very, very profitable.

Okay.

But it's it offline, it's a real loss. So to answer your question about percentages, 81% of our total sales or revenue is from long and mid haul and 19% to 20% is short haul.

Okay. And you clearly brand yourself as a long and mid haul specialist.

Yes.

But you also won't turn profitable business away. Do you have any targets in mind if short haul continues to outgrow long haul? Are you fine with that?

Well, all the stats from Boeing and Airbus tell us that it's the other way around. That long haul and the mid haul is growing faster than short haul over a 10 year period. And you know, subject to say, things like the Iraq war and SARS. So we're - - we think we're in the right segment, plus, of course we differentiate ourselves from our competitors who are mainly in the short haul side. We also stay away from the price wars that are being created by [Ryan Air] and Easy Jet and other no-frills carriers who can only work in the short haul space because of the aircraft types they have.

Okay.

And just -- just to finish that off, we, in the last 12 months have done 1.456 million passengers. So 1.46 million passengers.

Okay.

There's 20% of those were short haul, that's nearly 300,000 passengers. That's not a small amount.

No.

Not that we don't do short haul. We would love to do short haul. But we can't make money on it.

Okay. And final question, with regards to your statement the current trading is in line, or encouraging, what degree of visibility do you have? Are you talking about July and August to dates? Do you have any forward looking numbers?

I mean, that statement should be read in the context that at the end of July, we issued a trading statement which we set market expectations. So what we're seeing is current trading is encouraging, and is entirely in line with where we expect to be at the end of the year.

Okay.

So I think that's probably --

Which is profit somewhere between the lower end of what was the range and last year's results?

Well, I can't really comment on the profit.

That was what was said.

But we said that but there's quite clear guidance in the market.

Okay. Thank you very much.

Thanks, Rob.

Bye-bye.

You have a further question from Ben Harrington from Merger Market. Please go ahead.

Hi, sorry about this. I just have one question.

Well you are most welcome, Ben.

I was just wondering with ebookers long-term strategy, obviously there's, you know - - I was wondering whether there was any possibility if you would look to sort of continue to diversify so your non-air business, that's to say, would you look to - - I mean, I think Expedia mentioned that they were looking at corporate travel and I was wondering whether that was something that ebookers management were - - would contemplate or would ever consider?

Absolutely. We would like to stick in the travel field.

Right.

Obviously look at any parts of travel. The reason why Expedia has gone into corporate travel, is mainly in the States; although they did buy a small company in France.

Yeah.

In Europe, because we get 33 days of holidays versus 13 days in the States - -

Yeah.

The leisure market is far, far bigger than in the United States in Europe. Us, once we'll focus on the leisure market first. And we are 3 to 4 years behind the U.S..

Yes.

And thus we need to consolidate our position here, before we get into any of those - - any other parts of the travel business like conferences and incentives, or business travel and so on and so forth.

Right.

With that, we have small cells of business - - in our operation of business travel, of sports, far, luxury, these very small cells. And you know just so that we know what's going on in the rest of the travel market if we need to either develop these cells organically.

Yeah.

Or by companies in the space.

Right. Okay. So it's not something that you will probably look at further down the line in that they've - -

Well we are looking at it all the time. We've been in this business for such a long time that we have our tentacles.

Right. Okay. Thanks a lot.

Thanks. Thanks, Ben.

If you would like to ask a question, please press star 1 on your telephone keypad. There are no further questions at this time. Please continue.

Well, thank you for your questions and for joining in the call. If after this call you have any further questions for me and my colleagues, please - - have them please contact us via Latasha Malik on 44 for the UK 207-489-2451 or email latasha.malik@ebookers.com and we'll get back to you as soon as we can. Thank you for your time. May I wish you all a good day.

That does conclude our conference for today. Thank you for participating. You may all disconnect.