The potential split of Webjet

Webjet (ASX:WEB) revealed a record result for the year ending March 31, 2024, after reporting a record result for the previous year, ending March 31, 2023, a year ago. This leads to the question: if things are going so well, why the proposed split up of the company? That will be answered later.

The headlines from Wednesday’s 2023-24 financial report were:

Webjet reported underlying EBITDA for 2023-24 of $188.1 million, a record and an increase of 40% over 2022-23. Bookings in the year were up 21% to 8.7 million. Total Transaction Value (TTV) was up 29% to $5.6 billion, while revenue for the year was up 29% to $471.5 million.

The company stated its WebBeds TTV was $4.0 billion, "with all key metrics significantly ahead of FY23 levels – Booking volumes were 26% higher than FY23, FY24 EBITDA reached $162.4 million (up 39% on FY23), and the EBITDA margin stood at 49.5%."

Webjet OTA (online travel agency) "continues to see a material increase in international market share – strong growth over FY23 for all key metrics; FY24 EBITDA reached $54.2 million (up 25% on FY23), with the EBITDA margin at record levels (44.7%)."

Webjet also reported a strong start to 2024-25 in "trading and earnings."

All of this left group net profit for the year up 401% at $72.7 million as the company’s recovery from the pandemic accelerated in the year to March, following the initial surge out of the restrictions in the back end of 2022-23.

Despite this rebound, there’s no reward for shareholders, with Webjet again not paying any dividends. The shares are up 13% in the past year, so there is some modest capital gains, but all of that and a bit more has come in 2024 with a 145% gain year to date.

Now, what seems like a record-setting success story will be broken up if the company’s suggested move happens.

Chairman Roger Sharp justified the idea on Wednesday in a statement separate from the results.

“Having carefully weighed up the arguments for and against a demerger, the Board sees significant value enhancement through a potential separation of our two industry-leading businesses and brands.

"Our B2C businesses will continue to deliver organic growth through the shift to online, while separation will support our WebBeds business in its relentless focus on achieving scale in all markets, in a post-pandemic landscape characterized by a reduced number of smaller competitors."

WebBed is the company's global bedbanks business, and Webjet B2C includes Webjet OTA, GoSee, and Trip Ninja.

The plan is that the demerger will see two companies listed on the ASX on a standalone basis "with leadership positions in their respective industries and with their own distinct operating profiles, strategies, and growth opportunities."

The bottom line from the separate statement is that the two arms of Webjet are now starting to grow apart, and the previous idea of complementary businesses is exhausting itself, with pressures growing on both sides, especially capital needs.

"The decision to explore the separation reflects the attractive but divergent growth opportunities available to the respective businesses and that independent capital structures will enable both divisions to make optimal investment decisions on their own,” Webjet explained.

Webjet sees both companies benefiting from separate managements, with different strategies for their sectors, “independent capital structures, streamlined capital allocation decisions, and strong balance sheets to support growth; a stronger ability to respond to the continuously evolving travel industry and consumer travel preferences; and access to new investors with different investment preferences.”

From Wednesday’s results and statements, the original rationale for Webjet’s decade of rapid growth, takeovers, and building travel operations has changed. It has been too successful to the point where the company is finding financial and operational pressures starting to appear.

In other words, it's a financial and operational divorce after 26 years of marriage (since Webjet started in 1998) and surviving a near-death experience in the pandemic in 2020-2021.

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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