Trainline H2 2025 Earnings Call Transcript

Quartr
Provided by Quartr
May 7, 2025

There are 8 speakers on the call.

Operator

Good morning, everyone. It's great to see you all in person, and thank you for joining us today for our full year results presentation. I'm Jody Ford, CEO of Trainline, and I'm joined by Pete Wood, our CFO. Let's first go through the disclaimer. On to the agenda for today.

Operator

First, we'll recap on the year and then discuss our strategic growth priorities. That will include a deep dive into the international opportunity. After that, we'll open to the floor for questions. This year, the group delivered a record operating performance. We grew net ticket sales 12% to GBP 6,000,000,000 and also revenue 12% to GBP $442,000,000.

Operator

In The UK, net ticket sales were up 13% as we continued to drive the adoption of digital tickets with e ticket penetration rising to 52%. In international, we further position Trainline as the aggregator of choice, particularly in Spain, where sales have almost tripled over the last two years. And in Trainline Solutions, we are scaling our global API with sales from international B2B distribution up 63%. Our strong top line growth, together with the benefits of operating leverage, resulted in 30% increase in adjusted EBITDA to GBP 159,000,000. We are Europe's number one rail app, having built a market leading user experience and a significant customer base.

Operator

As we've previously flagged, there are a few few near term headwinds, and Pete will talk about those later in more detail. But I want to make it clear upfront that our strategy remains strong. We are building long term value, adapting quickly to the changing e commerce landscape while staying focused on the significant long term growth opportunities ahead. These include deploying our aggregation playbook on routes across Europe as they open to carrier competition, helping us scale our base of 27,000,000 customers rolling out innovation like digital pay as you go, where we have a solution ready ahead of pilots in The UK later this year growing B2B sales internationally through our global API and leveraging AI, which has the vast potential to transform our user experience. With our scale and our leadership in product and tech, we are in a compelling position to capitalize on these growth opportunities.

Operator

Before I hand over to Pete, let me discuss the regulatory backdrop in The UK. It's been more than two months since the government published its wide ranging consultation document, the precursor to its railways bill. This clarified that the government are considering replacing Tock online retail sites with a single public sector app and website. However, it also made an unequivocal commitment to a fair and open retail market, while expressing the fundamental role that independent retailers play, which we welcome. Since its publication, we've had time to reflect and decide how best to respond.

Operator

Alongside other independent retailers, we are taking an increasingly assertive stance to ensure the government The UK Government delivers on its commitment to a fair and open retail market. This includes escalating issues that prevail today, including examples where operators self press preference their own channels so that they don't persist in the future. At the highest level, we expect level playing field safeguards for independent retailers. Such safeguards are typically seen in other regulated markets in The UK, including telecoms, water, and energy. And our view is supported by the CMA, who advocate for building these safeguards into the design of the future retailing market.

Operator

With that, I'll hand over to Pete to talk through our financial performance.

Speaker 1

Thanks, JD, and good morning, everyone. Before I step into the financial performance for the group, let's briefly unpack the performance of each of our business units. Starting first with UK consumer. Net ticket sales grew 13% to £3,900,000,000 an outperformance versus expectations and the main driver behind our increasing guidance during the year. This was partly driven by our success in growing eticket adoption, particularly for on the day travel.

Speaker 1

E tickets now represents 52% of all industry sales. It was further supported by increased industry rail fares, a market that's returned to normal and less impact from rail strikes. In February, we saw the first phase of Project Oval, the expansion of TFL's contactless zone. Rolling out over the next year or so, in total, we estimate Project Oval will put 150,000,000 of our sales at risk. Despite that, we continue to expect good growth in the year ahead.

Speaker 1

Turning next to international, where net ticket sales grew 4% to 1,100,000,000. Within that, different markets grew at different speeds, aligned with their degree of market liberalization, and web sales remain subdued given further changes to Google's search results page. Let's spend a couple of minutes unpacking these points. This slide shows the different market segments within international. Note each segment includes domestic and foreign travel sales.

Speaker 1

As you can see, their respective growth rates vary as we actively manage marketing, focusing investment on the routes with carrier competition. This is most evident in Spain, which represents around 15% of net ticket sales and grew 41%. Across France and Italy, which represents around 70% of net ticket sales, growth was flat as we await the arrival of further carrier competition, while noncore markets like Germany and the rest of Europe were down 6%. This year, Google made further industry wide changes to its search results page. This further suppressed organic results while increasing the prominence of paid ads, in turn impacting web sales.

Speaker 1

Web sales represents around 30% of all international transactions, though higher in foreign travel and lower in domestic. Alongside the post COVID surge in inbound travel leveling off, particularly from The US, this resulted in foreign travel sales reducing two percentage points year on year. However, we are proactively responding to these changes, bringing customers direct to our website and app by investing in brand and doubling down on our own channels, including CRM, and increasingly utilizing affiliates and partnerships. Now turning to Trainline Solutions, which grew 20% to 941,000,000. As a reminder, this business unit provides b to b retailing capabilities to rail carriers and other travel platforms.

Speaker 1

Its growth was led by b to b distribution, up 25%. This was particularly the case in Europe with international sales through our global API up 63%. This reflects travel management companies realizing the benefits of aggregated supply through a single API. We also saw strong growth in white label carrier sales supported by feature releases and market recovery. Bringing that together, the group delivered another strong set of results.

Speaker 1

Net ticket sales increased 12% to almost £6,000,000,000 and revenue grew by 12% to £442,000,000 as non commission revenue generation offset the dilutive effect on our take rate from faster growth in on the day travel in The UK. This included hotel bookings and insurance sales, which together more than doubled year on year. Gross profit was up 15% to 352,000,000. This outpaced top line growth in part due to a reduction of the fulfillment fee we pay in The UK to the industry when a customer uses a barcode ticket. Marketing costs increased 5% this year to 71,000,000, and other admin costs were up 6% to 122,000,000.

Speaker 1

Bringing this all together, you see the benefits of operating leverage. Adjusted EBITDA grew 30% to 159,000,000, outpacing both net ticket sales and revenue growth. And adjusted EBITDA as a percent of net ticket sales increased 39 basis points to 2.69%, a significant margin expansion. Strong EBITDA growth is translating into strong EPS growth. Adjusted EPS of 19p was up 56% year on year and 2.5 times higher than it was two years ago.

Speaker 1

At the same time, the business is generating strong cash flows. Operating free cash flow grew 20% to a hundred and 10 million, driven by increased EBITDA. This was partly offset by a 43,000,000 CapEx charge, reflecting our continued investment in products and tech innovation as well as working capital movements. As we generate cash, we continue to return excess capital to shareholders with £154,000,000 of shares repurchased and canceled as at the April. And in March, we commenced our third buyback program, committing to buy back up to £75,000,000 of shares in twelve months.

Speaker 1

As we grow, we increasingly benefit from operating leverage. Our cost to income ratio fell 11 percentage points in two years against the backdrop of continued investment in international. And next year, we will see the benefits of our cost optimization plan, which we announced last November and completed in Q4. As a reminder, this exercise delivers £12,000,000 of annual cash savings, 8,000,000 from operating expenses and £4,000,000 from CapEx. That said, we expect total CapEx next year of around £50,000,000 which would include one off costs from relocating our London office.

Speaker 1

In the year ahead, we expect our growth to continue despite flagged headwinds, including the ongoing impact of Google search changes in international. And while domestic rail travel continues to demonstrate resilience as in previous economic downturns, recent macro uncertainty is impacting foreign travel, including US inbound. We therefore expect net ticket sales to grow between 69%. Given a reduction in The UK commission rate, as announced in 2022, we expect revenue to grow slower than net ticket sales in a range between 03%. However, despite that, we expect adjusted EBITDA to grow broadly in line with net ticket sales at a rate of 6% to 9%, reflecting the benefits of operating leverage and our cost optimization exercise.

Speaker 1

Thank you. And I'll now hand back to Jody.

Operator

Thanks, Pete. Let's now talk about the progress we're making against our strategic priorities, starting with our UK consumer business, where our priorities are to grow supply, provide customers with an excellent user experience, build demand, and increase customer lifetime value. We are proud to be The UK's number one travel app. However, we're not standing still. We continue to invest in our proposition, enhancing how we help customers and in doing so, deepening our relationship with them.

Operator

We particularly focus upon unlocking value, making it quick and easy to book, particularly on the day, helping customers navigate rail disruption, and increasingly using AI to supercharge the experience. We continue to innovate and scale our range of value saving products and features. This includes digital railcars. We grew our base 9% this year to 2,300,000. Within that, our share of railcars of 16 30 year olds reached 43%.

Operator

This is notable given railcard users are typically amongst our most frequent and loyal customers. By storing their railcards in our app, we make it easier for them to save up to a third on travel while encouraging them to stay within the train line ecosystem. We're also the home of SplitSafe, where we help customers save £13 per booking on average. We continue to grow the routes where we offer splits, which are now available in 88% of The UK network. We launched our new app home screen, which makes it easier to search and quicker to book, reducing time to purchase by 36%.

Operator

This is encouraging customers to book more of their on the day travel through Trainline, supported by our best price guarantee. While making it easier for customers to search and purchase tickets, our app helps customers navigate rail disruption too. Two out of three customers in The UK say they have experienced disruption when travelling by train. Our app serves as a travel companion, providing features like real time delay and disruptions alerts. And soon, we'll have notifications to inform customers if they're entitled to delay repay compensation.

Operator

Now we are transforming our travel companion experience. We are introducing the new AI travel assistant, giving customers their own Rail Expert in their pocket. It's just been rolled out to all iPhone users, and it includes real time travel and disruption information, personalized for the customer's specific journey. But it's not just a chatbot. Our assistant gets things done.

Operator

It performs tasks on behalf of the customer, such as processing refunds, saving them time and hassle. In fact, we see the traveler system as a key differentiator for Trainline. And this is just the start. The AI traveler system is underpinned by scalable agentic AI system built on proprietary multi agent architecture. As it expands, we will build more agents to handle more tasks.

Operator

This will include a disruption planning agent recommending alternative routes for the customer to get from a to b. We're also exploring how we can use AI to build customer demand. We're running a small trial with OpenAI to integrate into their ChatGPT operator tool. It provides a valuable learning opportunity, particularly given the potential for AI to revolutionize organic search. Moving on to building demand.

Operator

Under our great journey start with train line campaign, we highlight to customers how we can help them find the best value rail tickets. Our campaign tends to focus on younger audiences and hero rail as a more sustainable way to travel. This year, I Came By Train initiative partnered with several Premier League football clubs as well as Glastonbury, allowing fans to access discounted travel through Trainline. As a result, our customer base has grown from 15 to 18,000,000 in two years. As we grow our customer base, we are increasing the frequency in which they transact with us.

Operator

Monthly active customers now transact 2.8 times per month, up from 2.6 times two years ago. This reflects our focus on commute and short distance travel, with on the day bookings now representing more than two thirds of all the transactions in The UK. And that's driving strong growth in net ticket sales as Pete outlined earlier. Moving on to train line solutions, but sticking with the theme of commute and short distance travel in The UK. Our digital pay as you go solution offers another way to grow in this space.

Operator

It leverages geolocation technology we acquired through the Signalbox deal. And it's given it given it's app based, it can offer capabilities not typically available through traditional tap and go, like integrated rail cards, real time pricing, and family tickets. We are bidding to participate in RDG trials running later this year. We hope these trials will offer us a great opportunity to ready our digital pay as you go solution for the mass market. Within train line solutions, business travel represents our biggest growth opportunity.

Operator

We estimate business travel in rail to be worth about €6,000,000,000 across our markets. We focus on growing business travel sales through our own branded channels, as well as through our b to b travel partners leveraging our global API. The global API gives partners the ability to offer European rail options to their customers through one simple, seamless connection, rather than tackle the complexity of connecting to multiple different carrier APIs. Many of the world's largest b to b travel providers and platforms have already connected to our global API, accessing its reach, feature set, and content options. And sales are beginning to scale with international b to b distribution up 63% this year.

Operator

And it's helping to make take more share in Europe, adding another 10% to international overall sales. Now turning to our international business. Our growth in Europe depends upon liberalization, and significant proof points are unfold. The aggregation opportunity, I'm more confident ever it will enable Trainline to win in Europe. Let's start with Spain, Europe's most liberalized rail market.

Operator

There are now four carrier brands competing across the top five high speed routes following Wego's launch on the Southern Corridor. New entrant competition is coming to France and Italy too. In France, liberalization is due to arrive in three waves. Wave one starts next month when Trinitallia expands its presence on the Southeast network. Following that, Renfya are due to launch services too.

Operator

For context, the Southeast network is worth more than a billion euros, which is around two thirds the size of aggregated routes in Spain. The second wave will arrive from around 2027 to 2028. '3 new carrier brands are to launch high speed domestic services across France, liberalizing a further €1,500,000,000 of routes. The new challengers are already ordering rolling stock and obtaining the regulatory clearances needed to operate services in France. And in the third wave, several new entrant challengers are also planning to launch services on the lucrative €1,700,000,000 channel tunnel network towards the end of the decade.

Operator

This includes London to Paris, a major cross border route that until now has been held back by relatively high fares. The three waves of liberalization are expected to transform the French rail market, providing a growth runway for train line into 2030 and beyond. Similarly, in Italy, carrier competition is expected to ramp up in the next couple of years. Today, two carriers run service on its €2,000,000,000 high speed network. However, experience shows us that aggregation flywheel really starts to spin when three carriers compete.

Operator

As such, we see SNCF's planned launch nationwide from 2027 as a pivotal moment. Today, the combined rail market of Spain, Italy, and France together are worth about €17,000,000,000. Within those markets, liberalized high speed routes account for around 4 and a half billion euros. By 2030, we expect our core markets to grow to around 23,000,000,000, providing considerable headroom. And over that same period, we expect liberalized high speed routes to scale to around €12,000,000,000, creating a significant catalyst for growth.

Operator

Let's discuss how we plan to leverage this growth opportunity, starting with Spain. Liberalization has transformed the Spanish high speed rail market. In just a few years, new entrants have expanded across the high speed network. Of the top five routes, new brands have taken about 50% share. Average fares have reduced by 45%, while industry passenger volumes have increased by 80%.

Operator

During this period, we have honed our aggregation playbook in Spain, where we, one, rapidly add new inventory, including most recently, Wego service on the Southern Corridor. 2, make it easy for the customer to find the best value option and make the right choices. Three, build demand and grow awareness, particularly in cities served by the new services, like our recent sponsorship of Seville based football club team Real Betis. In Spain, our brand awareness is now almost four times larger than it was three years ago. And four, increased customer engagement, growing transaction frequency, integrating non aggregated routes such as the Circoneus network, and growing retention with repeat customers now making up four 54% of our sales in Spain.

Operator

As we position ourselves as the aggregator of choice, we are also creating the virtuous cycle of the marketplace. As we add more inventory, we become more attractive for passengers generating incremental demand. And as we in in generate incremental demand, we become increasingly relevant for rail operators. In Spain, we have gone from having next to no footprint in a a few years ago to now being the carrier's number one retailing partner by sales. As you can see, we have grown our share across the top five high speed routes from 5% to 12% in two years.

Operator

And over the same period, we have almost tripled our net ticket sales, making Spain a €200,000,000 business. This provides a positive read across to France and Italy, where our app is primed and ready to aggregate all new entrants, being bringing clear benefits to our customers who can search all the options to find the best value. Through Top Combo, they can stitch together different carriers for return and multi leg journeys, and they can rely on our travel companion features and post sale support too. Likewise, we start in a strong position in both world markets. Our customer base in both France and Italy is bigger than in Spain.

Operator

Likewise, we already have strong brand recognition and trust scores, so we don't have to start from a low base like we did in Spain A Few Years ago. All of this gives us confidence we can scale quickly in France and Italy as they liberalize. Before we finish up, I'd like to spend a few minutes discussing France's Southeast network, our next aggregation opportunity. In the next couple of months, new entrant Trinitallia will almost double its current service between Paris and Lyon, the busiest domestic route in France, and they will launch four daily services on Paris to Marseille, France's Third busiest domestic route. Thereafter, there are more carriers set to launch, including the Spanish operator, Renfei.

Operator

To date, we've made good progress on Paris to Lyon with sales up 58% over the last two years. And ahead of Trinitallia launching new services, we are seeing encouraging presales across the Southeast network. We have strong grandparent present awareness across all three cities, notably more than 45% in Paris and over 50% in Lyon. And having paused brand spend in France Two Years ago, we are now increasing our investment to further grow awareness in the region. This includes our recent sponsorship of Olympic Les Nets Football Club.

Operator

Before we open the floor for questions, let me recap on some key takeaways from today's presentation. This year, we have once again delivered strong growth, outperforming our original expectations while increasingly benefiting from operating leverage. And we have made further good progress against our strategic growth priorities. In The UK, as the number one travel app, we continue to invest to drive adoption of rail travel and digital ticketing. And we are taking an increasingly assertive stance with government to ensure it delivers on its commitment for a fair, open, and competitive future retail market.

Operator

In international, we are positioning ourselves as the market aggregator, particularly in Spain, the most liberalized rail market where our net ticket sales have almost tripled in two years. This creates a high highly positive read across for when we deploy our playbook on high speed routes in France and Italy as they liberalized over the coming years. Next up will be the Southeast network in France, where we already have a great starting position and are generating positive presale numbers. Looking beyond that to 02/1930, we expect liberalized high speed routes across our core markets to be worth EUR 12,000,000,000, providing a significant catalyst for train lines growth in Europe. So thank you very much for listening.

Operator

I'll now open the floor for questions. Raise your hand if you'd like to ask a question. When asking, state your name and your organization.

Speaker 2

Good morning. I'm Alastair Reid from Investec. Three for me, please. Firstly, you've obviously given us a sense today of the kind of addressable market in Europe on those liberalized routes. Can you Talk a little bit more about sort of market share.

Speaker 2

I think you've cited your sort of 12% in Spain. Is that a sort of sensible realistic sort of aim for sort of the sort of that market as a whole over that period or maybe you'd hope for more? And secondly, in terms of kind of more recent trends, whether it's with the impact of Google and international or maybe a sort of weaker dollar on some foreign travel, just give a bit of an update on sort of the latest trends you're seeing, any signs of improvement or worsening in those? And then lastly, sort of longer term on the sort of regulatory front in The UK. Could you sort of give us your latest thoughts on what a sort of financially independent stand alone sort of GBR app might do in terms of future reviews of your sort of take rate commission rate?

Speaker 2

Thank you.

Operator

Great set of questions. Why don't we we'll start, and I think we'll tag team through what is going to be a long a long set. So I guess the first point around market share across those markets, yeah, 12% is the average of all of the routes that we operate on in Spain. Some of those routes have been more mature and have had more competition for longer, particularly as you look out to kind of and Madrid, Barcelona, and we see a higher market share in those routes. We've talked about 16%, which we've seen nudge upwards.

Operator

And I think that when we think about our ambitions and expectations, we talk about openly within the company of getting beyond 20%, and I don't think that's all ridiculous, and that's very much our ambition, and then pushing beyond 20%. Obviously, it depends on the maturity, it depends on the intensity of the competition, but overall, that's certainly what we talk about, and I would be looking for those sorts of numbers down in the Southeast Corridor again. In terms of the latest trends and in terms of Google and what that looks like, I'll sort of do a little bit of a step back here, and I think it's probably worth talking a little bit about AI, and then Pete, maybe you can pick up on what we're sort of seeing day to day. I think what's going on here with regard to Google and it's not just happening in rail or travel, it's kind of happening across e commerce. You're seeing the SERP page on Google having significantly more AI features.

Operator

It's not just about a rail module. And that's meaning that there is a sort of SEO is being pushed down the page. I think what's pretty interesting and exciting for us is that we are indexing very well on those AI new kind of areas that Google is indexing. And as we look at the the data, which we're now beginning to report, we see ourselves as the number we can now compare ourselves to competition, we see ourselves as the number one in Europe in terms of the number of clicks we're getting from those pages. And that's really a function of two things.

Operator

One is our ongoing SEO authority. We've always been strong at SEO. As you know, we've generally been number one in The UK always, but generally number two European market behind the incumbent. But the other thing they index against is content, and we have really significant and fantastic rail content. And that is meaning in some markets, we're now indexing and getting more clicks than the incumbent themselves because we're kind of ahead of this.

Operator

And actually, it's whilst it's not yet kind of meaningful at a great scale, but it's three x since January, the number of clicks we're getting. So it's growing very, very fast and it's the sort of thing I think, you know, within next six, twelve months will become meaningful at a kind of SEO scale as as that grows faster. So that's really encouraging. And I think the other thing just to mention here would be ChatGPT. We are increasingly seeing clicks come through from other LLMs and ChatGPT being the lead there.

Operator

And again, that is growing fast. Over the last six months, we again see very strong growth there. So actually, we see opportunity here, and it's a way to differentiate ourselves versus the other players where scale, again, helps you index it. Pete, I'll let you talk a little bit about it.

Speaker 1

Yeah. I think I think it's worth remembering that the majority of our business is through app. Right? So in in The UK, that's north of 90%. In international, it's 70.

Speaker 1

So the the web bit is, you know, it it impacts us, but it is the minority there. And and really what we're doing is, you know, where we are investing in Google, we're we're still looking to iterate and improve the efficiency that we have got there. But CPAs as a result of there being more ads at the top of the page and and and SEO being suppressed, there is pressure, upward pressure on the CPAs that we're we're facing right now. And then then it's a question of diversification. So where we've got opportunities to lean in and brand, where we've got good signals that it's working well, we're we're exploring how we might go and do more there.

Speaker 1

Partnerships and affiliates have been a good source of diversification. It allows us to get into, say, young audiences. So we'll continue to explore that as well as well as looking at other channels like CRM. And as Jody said, you know, we're kind of pivoting our SEO efforts into generative engine optimization at this point as well. So that's kind of we're rolling with the evolution that's kind of unfolding in front of us.

Speaker 1

And then as that relates to foreign travel, you mentioned, of course, they typically are doing they're a bit more web based, in general. They're doing more research about what their trip to Europe might look like. And so there's a a kind of the the the impact is felt a bit more more keenly there. But it's great that we're seeing traffic build from ChatGPT and others as well, so we are beginning to capture some of that demand shift.

Operator

And if I take the third question on really GBR, it's probably worth a bit of a stand back because there's there's quite a lot in in in this space, and I I couldn't give you a high level view, then we can dive into what it might look like as financially independent and any commission implications. So I think, like, just stepping back, like, we have faced a number of different competitors over the last the last decade. And and, you know, most recently, Uber coming into the market, what, nearly three years ago now, that's a very well funded West Coast Tech Company, which has got, you know, it's kind of the number two travel app, has got a large user base. And after almost three years, we see them, we still triangulate at less than 2% in terms market share. And that kind of gives me huge confidence.

Operator

We can compete with kind of whatever comes as including a GBR app, the kind of combination of our kind of 18,000,000 customers, the trust in the brand, the app UX, the broader ecosystem we've got around kind of rail cards and features, and the broader personalization coupled with being able to do the things we're talking about around AI. So I think it's important you hear that from me. As we think about GBR, just to give a little bit more color on this level playing field and where we get to, what the government have clearly said already is they're committed to an open and fair kind of competition in third party retail. I think what we're pushing for now is the codification of what that means. And we very much talk about a separation between the rail operator and then GBR retailer, which is I think where the question's going, with no cross subsidy, and have an expectation equally of parity of access to all of the fares and all of the services.

Operator

And when we talk about being kind of more assertive, if you like, here, there have been an increasingly kind of abuses, of what we consider that that, open and fair basis. And things here I'm talking about, like access to one click delay repay, where we believe, obviously, the train line customers should have access to that. So expect us to be pushing the government as in the near term, frankly, to get to a position where that truly is level and fair. And I think more broadly, we're not going to stand still. We will keep pushing as you see here today.

Operator

We don't know how many years away the GBR app could be, but our expectation is that it is ultimately a way in terms of where you're going, independent and standalone and having to operate within the same commission structure that us and all other third party retailers are. So I think standing back on all of that, we will continue to invest, we'll continue to compete, and we'll wait and see exactly what comes from GPR.

Speaker 3

Peter McNally from Stifel. Just following that last one. Look, the digital the pay as you go backbone is going to be, what, 2027 maybe by its completion date. But once we get there, what is your consumer value proposition? Because, I mean, historically, it's been ease of use and value.

Speaker 3

Now if GBR has an app, they obviously won't market it probably as much as you guys will. But if it's there, how will it what's the value proposition to the consumer at that stage? And then second question is customer data. I mean, think one of the reasons the government wants to have an app is so it can collect more customer data to provide better service. Do you plan to share customer data with the government?

Speaker 3

Is that one of the reasons or is that something that you would consider going forward? Or do you have a view on that? And then the third question, just on marketing. You've waited for carrier liberalization for some time. At what point, because you know it's coming, do you just say, okay, let's just go for

Operator

Sure. So I'll deal with the first one and Pete, you should should come in on this one. So I think there's there's sort of two parts to break off here. What are you reference pay as you go? And if we sort of forward out and we don't really know how that landscape is going to going to expand.

Operator

We've been pretty clear that there's a 150,000,000 sort of at risk, if you like, from the tap in, tap out pay as you go that people in this room will use to get in and out around London, and that expands to a certain point. I don't I don't expect it to expand further than that. What what that does well, think, is for commute, it's an ease of travel where you have high confidence. For many other users, and pretty much all leisure users, when you think about using it with your family, when you think about rail card users, and when you think about being in control of what can become by the edge of that zone, maybe £50 return, that doesn't really work for most people. And that's why we've invested in our digital kind of app based pay as you go platform.

Operator

we think that's got And we think that's got a very strong value proposition for, if you like, all of those users and for the rest of the country. The proposition for, if you like, the government and GBR and the treasury in many ways is the cost to roll that out is nothing like as high because you don't need gates. You can do it all kind of location based. So that's why we think that's so interesting.

Operator

And we've seen that technology in various other European markets begin to take off, And it gives the customer control, and it allows them to get the value and helps drive travel. And it actually gives the government a real sense of understanding in terms of what's going on, to your later point, around data. So I think that's, you know, it's it's a it's a kind of the the the the commute and the smaller short editions regional market. I think just because I think there's a risk of conflating it with a broader point vis a vis the GBR app. You know, there are lots of apps out there that that already sell tickets.

Operator

I think the the the train line value proposition sits very clearly on top of that. And that relates to what we do to customers to help them find great value. And whether that's around rail cards, whether that's around split save, whether it's about alerts, price recos, those are things that we continue to build on. And we are on the customer side, and they trust us to find the best value for them. And that that has been what our value proposition has been around, frankly, for the last ten years and and will be going forward.

Operator

And we will continue to innovate, if you like, well ahead of all of the other apps because we have the scale to do that. And so I think that's the that's the core part. And then what you're seeing us do today, which I think is pretty exciting, is beginning to add to that value proposition through supporting the journey around disruption because we know that is an area that customers and when you think about rail travel, rail travel is great until you are disruptive on that journey. And being there for them and helping them understand what's going on, what they should do in those difficult moments, we can be even more trusted. And so we're evolving our value proposition on that point.

Operator

So that's, I think, the first question. Do you want to take the second one around customer data?

Speaker 1

Yes, certainly. In short, yes. We're open to sharing more data with the government and the industry in order to support the developments of the rail industry. And of course, we already do some of that today. There's, you know, for for each journey pair, there's an origin and a destination.

Speaker 1

They they understand that. And I think maybe where you're what you're getting at is is the customer data on top of that and understanding what services and how they might evolve to better suit customer needs. I think sharing data that would support that would would would certainly help the industry and and in turn help us. And look, we already do a good job today in developing demand and trying to sell rail and and kind of as ever the private sector works best when you incentivize them to deliver on certain outcomes and that that's what we've been doing, driving the digitization of the industry and and removing certain costs associated with with that shift as well. So, yes, in short, I think there is an opportunity there.

Operator

And then final question was around international marketing. What point do we pull the trigger? And we've had sort of ongoing conversations around this over the last sort of two or three years. And look, we are always running tests, like just assume that we're doing that in marketing. And I think when you break that into the two kind of parts, right, we've got the ongoing kind of almost evergreen performance marketing.

Operator

And in each of those markets, we, you know, we have pretty tight cycles and attribution frameworks, and we continue to sort of lean in and and wherever we can, we continue to invest there because we understand the ROI. And then as it relates to more kind of top of funnel brand building, again, we we we continue to test that. It's very clear when we look in Spain, we just see the number of new customers we get can justify really quite significant kind of marketing to drive up the awareness. We have kept kind of ongoing marketing in Italy, and then as you know, we pulled back in France about two years ago because it we just couldn't justify that level of spend at that moment in time. And now we are leaning back in on a kind of regional basis, and it's encouraging to see the awareness going up, frankly, in Lyon Marseille, and it's always been relatively good in Paris on that route.

Operator

And then we will continue to lean into those other regions as they come on over the next And at some point, there will be a tipping point where bringing customers on in one region will encourage them to take tickets elsewhere, and and we'll begin to understand that better. But it didn't it wasn't true two years ago, and we'll we'll look at that over the next twelve months.

Speaker 1

Great. Katie?

Speaker 4

Katie Cousins, Shaw Capital. Just on that marketing and international, appreciate the trends and when you ramp up that spend. But how should we think about that in terms of EBITDA? Should we continue to expect that to improve year on year? Is there a balance there?

Speaker 4

You still want to keep that trend? Also, Japan. I've had a marketing thing that user offer and trains in Japan. So just wondered what your plan there is that region. And then also in that digital pay as you go trials, just a bit more clarity on who you're competing against, if possible?

Operator

Sure. I'll take the Japan question and maybe pass back to you on the EBITDA and stuff. So you should definitely buy a ticket in Japan if that's where the question going. Like, what we are doing there is we are tipping our toe in the water, if you like, to to sell the the travel around Japan. And actually, we did previously have this, and it's something pre COVID that kind of then got removed.

Operator

And we are doing that and selling rail passes in Japan because it's a lucrative market and it allows us to begin to kind of build relationships there. But there's no plans to beyond that at the moment for Japan. So I think that's the Japan question. Do want to go on the international market?

Speaker 1

Yes, certainly. We're trying to unlock longer term value creation here and a little bit to the question we had earlier. There might be moments where we need to accelerate marketing investments ahead of the curve. You know, the the point at which liberalization in France really takes hold. We don't wanna be shy and miss the moment.

Speaker 1

And so we're kind of driven more by that than trying to manage some EBITDA profile per se. We don't have kind of false flaws or anything like that. And we'll narrate and indicate ahead of time as we get towards that.

Operator

Do you want to take off?

Speaker 1

Yeah. And then the digital pay as you go trial. So we're we're in the process of going through the tender process at the moment and, you know, we don't know exactly who else might be interested. I'm sure there'll be names like Fetek, which is a Swiss based company. Traxxas, for example, might be interested in these things.

Speaker 1

But at the moment, we're we're focused on putting our submission in and seeing what comes.

Operator

Great.

Speaker 5

Ivar Kelly from UBS. For the trainee operating companies in Spain and Italy and France, it makes an awful lot of sense for them to work with you as they're trying to build up their market share. Looking at some of the routes in Spain, their market share seem to have stabilized. So is there a risk that actually they don't want to work with you in the future or maybe put it a different way that could take commission rates, get negotiated down? So do we have a view on when that will happen or if it could happen?

Speaker 5

Secondly, in a lot of the press that I read, it seems to suggest that capacity allocations between the different countries aren't quite fair. Looking at Italy specifically, the SNCF seems to be not being given as much capacity as they actually want to run their services. Competition in Europe has been a big pillar of your growth for a long time, but it seems to be pushed out further and further to the right. So at what point do we actually have comfort that we are going to see meaningful competition there coming up? And then in The U.

Speaker 5

K, and this may be a small element, but it seems like you're investing more and more to keep people within the app. So is there a chance that actually the time people spend in the app is increasing? So can your take rates increase from higher commission rates from a higher share of eyeballs?

Operator

Great. I'll start at the top and kind of tag team. So the relationship with carriers, that's it's a sort of evolving relationship. We're kind of it's in some of these markets, they've never worked with with third party retailers in a meaningful way, and equally, they are new entrants. And all I can tell you is the direction of travel is is actually counter to what you suggest might happen.

Operator

As we've been in the the Spanish market, rail market, we have seen that effectively our take rate has continued to go up as we have understood that we actually can provide double digit share for them. And as that goes forward, actually, they begin to bake that into the models and they begin to meet those customers as they go forward into the following year. And that's really encouraging. I think the other thing that we haven't talked a huge amount about today, but you will begin to see if you went on the app is we're beginning to build tools for those rail operators to be actually able to help them drive share, to explain their proposition. And those are obviously additional kind of monetization tools.

Operator

And so as I think about the evolution of where do I imagine this going in two, three years' time, I think there's lots and lots of marketplace models, you know, whether in retail or food delivery, where actually they've created tools that aren't just about negotiating a take rate per se, but are about having demand that these suppliers or train operators are actually able to buy that demand. That kind of creates a mechanic, which I think is very helpful and sort of lets us almost step back and let them decide how that goes forward. And I think it's always worth remembering, like, the the unique inventory we bring in terms of cross border travel and inbound is is really, really special and very hard to get. And actually, many of those customers that we're bringing from The UK, from The US, and increasingly from those domestic bases that we're building up across Europe into other European countries almost wouldn't buy rail travel if we didn't make it so easy. And so they get very good take rates and commissions along the way.

Operator

And that's always the door opener that it's very interesting. And then I have to say, I'm getting kind of encouraged. We talked a little bit about the international distribution business, but of all the customers, maybe after US tourists, the next one they want are business travelers. And actually, we're beginning to get some really great relationships, as we're saying, and that is flowing through. It does take time, but when they arrive, they are very sticky, so that's another part of the discussion with those suppliers.

Operator

Let me pick off the last one and hand over to the middle one, sorry. International capacity allocation and and kind of when when is it happening. Look. This is I think we've always said this is know, it kinda comes in fits and starts. Like, you know, four and a half years ago or whatever it was, we weren't quite sure how Spain was opened up, and then Spain opened up very quickly and at scale almost like Big Bang all at once.

Operator

And clearly, is there, and the Spanish market is open. There is another phase coming, a smaller phase, that's kind of open. I think even nine months ago, are somewhat surprised by the scale of Trenatalier's entry to Marseille. They're not just running additional trains to Lyon, they are now increasing the size of those trains, and that means there's more capacity, more tickets to sell, and that means there's it's a helpful dynamic for customers and in turn train line. And that's, I think, how it's been.

Operator

There's other things we're a bit disappointed. Things have dropped back six months, and I think that's always going to be the way it works. In the end, I kind of go forward to this 2029, '20 '13. You think about the top 100 routes in Europe, and you just many of them will be liberalized, particularly across Italy, Spain, and France. And then I think you reference particularly Italy in terms of the sort of noise and the allocation.

Operator

I mean, frankly, you're hearing some of the same noise in France at the moment around allocation, and sometimes that turns into a safety conversation of, are the trains passed the safety certificate? There will be jostling and noise. In the end, I think there's only one outcome, right, which is that ultimately we're going to have competition from many operators on most of those high speed lines across those three countries. And so I'm very encouraged with the direction of travel. Did you wanna pick up with that?

Speaker 1

Yes, certainly. The last question around app and the take rate there. So yes, I think there is an opportunity here. We obviously had success with hotels and insurance where the kind of the ability to be able to scale it without having a material impact on the primary objective of selling rail tickets is is kind of what we've managed to achieve and that's really doubled over the last year. So that's that's a good lead indicator for us.

Speaker 1

And then it comes down to how do we allocate the resource and what are we focused on where developing the AI assistance or building out new revenue streams. There are some trade offs to make and of course we have the structural headwind of selling more on the day tickets without the booking fee which kind of offsets that. So, in the year ahead, I think we you should expect a bit of dilution net net of those moving parts. But that doesn't mean in the longer run that we don't see some opportunity here. Gareth?

Speaker 6

Yes. Hi, Gareth Davies from Deutsche Numis. A follow-up on pay as you go. Do you in terms of what you're bidding for at the moment, do you envisage that being Trainline branded? Or is it more white label type contracts?

Speaker 6

And is it are they going for kind of one exclusive partner in each region for now to trial? Or because it sort of makes if you're branding it train line, then why would you not allow more than one as long as the technology was suitable and sensible? And sort of how does pay as you go sit within level playing field? Or have you is that something you're kind of pushing on to ensure that it isn't sort of one big contract, I suppose, on a U. K.

Speaker 6

Level? Second one, just in terms of gross margin, decent step up this year, but as in, sorry, the year to February 25, but clearly feels like there could be a very meaningful shift in 2026 given the 25 basis point reduction in underlying cost. Can you just talk about the puts and takes in gross margin in The UK in particular? And then final one, you may not want to answer, but I'll ask it. I think you said two thirds of transactions are on the day is in The UK.

Speaker 6

Can you give a feel for the value of the on the day?

Operator

Great. Do you to do you want to not answer the third one and then go to the second one?

Speaker 1

Yes. So second one, gross margin, you're right. There are the costs that sit in this line or in cost of sale, there's payment costs and of course we're forever trying to seek optimization within that, but somewhat there's only so much you can do there. We have fulfillment costs, so when the tickets are issued, we pay a certain amount to the industry. And as you heard me say, there's a benefit, partial year benefit last year and it will follow through into this year where that cost has reduced somewhat because the CapEx of getting certain gate lines installed has dropped away and we're paying an OpEx charge at this point.

Speaker 1

And then there are some industry costs and as you rightly pointed out, those will drop away will have now dropped away when the commission change came through. So that kind of net 50 basis point reduction is offset by 25 basis points of cost forgiveness. So net net, there is another step forwards to come as a result of those drivers and we'll of course share more in due course as that unfolds. Yeah, the last one, yes, two thirds on the day, not on the day, I don't have the data at hand. Typically, they are a bit less expensive and the buy in advance are typically for longer journeys and are a bit more expensive.

Speaker 1

That's probably the only color I can give you on that one.

Operator

And then I'll just pick up and you can by all means add Pete. I think the thing to say around the pay as you go piece is this is very much in in process to get a trial that would we can't talk a huge amount around at the moment to to but that I think after that trial, the government would be in a better position to understand how they would ultimately want to go forward with that, but we very much want to be in the kind of heart of that, working with them. Really, we've done a small scale trial with our technology, and we think it looks really interesting, and it really is a very strong customer proposition, but we'd love to kind of get it tested in in with with, you know, scaled group of customers. And then I think where you're going on the level playing field is, you know, is right. My point about the sort of parity of access, ultimately, that's about being able to retail any fair, however it's deployed, whether it's selling a kind of post or prepaid ticket, if you like, we believe we should be able to do that.

Operator

Don't if there's anything Okay. Thanks.

Speaker 1

Great. James?

Speaker 7

Hi. It's James Lockheed from Peel Hunt. Yes. Three questions. Just on the assertive stance you're taking with the government, what does this mean in practice?

Speaker 7

What's the stance change in terms of what you're doing historically? Perhaps a sort of link to that, historically, you've spoken about when it comes to the commission and where that should sit. You've articulated around either your financials or how that might impact the customer experience. But you've also spoken historically about how Trainline is the lowest cost to serve. Is there a way you can articulate your fee in respect to the other options that the train carriers have?

Speaker 7

Are you cheaper? Is there a way of actually articulating that numerically, which would be quite useful? And then as a follow-up from that, given your scale, your unique data set, what more could you be doing to help carriers have better margins, say yield or fleet management? Or simply, you're a scale player, take away costs from them, do it at better margins to help the carriers make more money as well? Thanks.

Operator

Great. Thanks for the questions. I'll I'll take number one, maybe turn to number two. So look, the the assertive point, I I sort of briefly touched on it earlier, but just to to to go a little bit further there. I think what we we are engaged, as you would expect, in in longer term in terms of how the bill ultimately the consultation process is closed.

Operator

The legislation kind of come out in draft form autumn, we expect, and ultimately go into law next year, and GBR gets stood up in 2027. It's it's it's hugely important that the those points on the level playing field and and they it's the codification of their commitment to open and fair basis. And there's there's open questions like who will be the regulator of this, for example. Obviously, there's a lot of other questions for the government to ask answer around the whole of the railways, not just as it relates to retail. I think the assertive point really comes to, you know, for the last couple of years, we have been given space, if you like, for the government to work out its direction of travel and to decide what it was going to do.

Operator

Then obviously, there was a change of government there. I think what we're being very clear on now is that these short term abuses, if you like, need to be resolved, you know, ahead of GBR's bit being stood up. I you know, the the point I make here is around delay repay. We don't believe it's it's in their language for GBR sorry, for LNER customers to have one click delay repay or maybe some of those loyalty relatively rich loyalty programs that are beginning to exist with some of the government owned talks, it doesn't feel appropriate that they are not offered to train our customers. And so I think, you know, leaning in and just making that point clearly to the government is is is what we're doing there.

Operator

Pete, do wanna take the the cost of other options?

Speaker 1

Yeah. Certainly. I I think there's research out there, but I don't have the figures to hand. I think if you look at four and a half percent commission, which is what we charge today, like, a a an an efficient kind of payment cost would be around a point. So at three and a half points, it is very attractive and compared with the CapEx of putting machines in the ground, it does compare favorably, but I don't have the comparative figures to to hand.

Speaker 1

And then in terms of, you know, could can we help carriers and and essentially yield management? I think there is an opportunity like we have a good dataset, very strong dataset. We understand customer dynamics. We have the right engineering capabilities. But to date, it's never really emerged as an opportunity where we would then want to be able to or need to control the pricing and you get different pricing in different channels.

Speaker 1

So there's a more holistic kind of paradigm shift that carriers would need to get their head around in order to to offer that up. So that's not really gone anywhere today.

Operator

The the my one add on that would be in the in the nearer term, what we're increasingly doing is working with carriers in The UK and throughout Europe on those ticket types that do offer higher margin. And so that could be first class tickets, for example, we're increasingly leaning into supporting that or helping customers potentially upgrade and so forth that journey, or bringing those inbound tourists in and making sure they are marketing appropriately to them. Those are the types of things. And that's a kind of jumping off point, I think, for some of the stuff that Pete was talking about. So look, think we're going to have to kind of cut there.

Operator

We're just coming up on to the top of our. So thank you again, everybody, for all the questions and for attending the presentation. To recap, we've had another strong year. We're making really good progress against our strategic priorities for growth, and we're excited about the growth opportunity ahead. I look forward to speaking to you all again soon.

Operator

Thank you, guys. Thank you.

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Earnings Conference Call
Trainline H2 2025
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