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On the Beach profits shine despite impact of hot weather and World Cup on demand

On the Beach said it had a strong start to the new financial year in what is usually the quietest period for the group

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Life's a beach for On the Beach

Online beach holiday company On the Beach Group PLC (LON:OTB) weathered the impact of hot weather and the World Cup on demand to deliver an increase in full year profit and revenue.

In the year to September 30, adjusted pre-tax profit rose to £26.1mln from £21.1mln a year ago on revenue of £104.1mln, up 24.5% on 2017’s £83.6mln.

Luxury holiday business Classic Collection Holidays Limited, which OTB bought in August for £20mln, contributed £13.2mln to revenue.

READ: On the Beach buys luxury holiday firm Classic Collection Holidays for £20mln

Core revenue, including the Onthebeach.co.uk and Sunshine.co.uk brands, edged up 9% to £89.3mln. The group said growth in core revenue was slower than expected as the summer heatwave meant more people stayed at home instead of booking beach holidays.

“This performance was delivered despite the previously highlighted exceptionally hot weather that was prevalent over the summer in the UK and in the Nordics, which combined with the football World Cup, suppressed holiday demand,” said chief executive Simon Cooper.

“Whilst this impacted our headline revenue growth during the period, the weaker demand also drove a significant reduction in the group's marketing spend, ensuring growth in revenue after marketing costs remained strong.”

Core revenue after marketing costs gained 15.8% to £52.0mln as the percentage of revenue spent on marketing decreased to 41.8% from 45.2% last year.

Heatwave in Scandinavia hits international revenue 

The company’s international arm, however, posted a 5.9% drop in revenue to £1.6mln due to a hot summer in Scandinavia and discounting by Sweden's leading tour operators. The business made a loss of £2.2mln, compared to a loss of £2.0mln last year.

The group’s branded share of traffic rose to a record 63.9%, compared to 59.3% last year.

On the Beach hikes dividend, makes strong start to new fiscal year

OTB declared a dividend of 3.3p, up 17.9% on the previous year’s 2.8p payout, as its net external cash balance rose to £47.3mln from £33.0mln.

For the first quarter of the new financial year, usually the quietest period for the group, OTB said early trading has been strong thanks to the slightly earlier release of summer capacity by major budget airlines, lower fares for winter departures and efficiency in marketing spend.

“This current performance is in line with our expectations and the Board believes the business is well positioned for the key trading period that commences in late December and continues into Q1 2019,” said Cooper.

"Whilst the consumer environment continues to be challenging, we remain confident in the resilience and flexibility of our business model. The board will also continue to evaluate acquisition opportunities that will both increase scale and deliver value for shareholders."

Shares jumped 5.1% to 422p in morning trading.

On Tuesday, sector peer Thomas Cook Group PLC (LON:TCG) issued a fresh profit warning and said it would suspend its dividend after the summer heatwave dampened demand. 

READ: Thomas Cook scraps dividend and issues another profit warning two days before full-year results

"In stark contrast to Thomas Cook’s profit warning on 27 November, On The Beach has managed to grow revenue, profit and its dividend by a substantial amount, clearly showing that you can still make decent money from selling holidays," said Russ Mould, investment director at AJ Bell

"The business wasn’t immune to the hot summer weather putting people off booking overseas breaks, yet it managed to reduce the impact of this situation by slashing marketing spend.

Mould said the group has identified its niche in beach holidays, continues to invest in people and technology and fine-tune its proposition to capture the public’s attention and make it easy for them to browse, research and ultimately purchase.

“These are the basics of retailing in the modern age and companies which don’t tick all these boxes will find life very hard," he said.

Quick facts: On the Beach Group

Price: 475 GBX

LSE:OTB
Market: LSE
Market Cap: £622.98 m
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