Release Date: August 20, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Revenue increased by 9% and EBITDA grew by 21% to AUD201.7 million.
- Strong performance in North America and ANZ regions with significant second-half turnarounds.
- Revenue per full-time equivalent employee increased by 35% compared to pre-COVID levels.
- Cash conversion rate was strong at 89%, providing flexibility in cash management.
- Client retention rate remained high at 97%, with new client wins amounting to AUD970 million.
Negative Points
- FY24 underperformed due to specific issues, including macro impacts in North America and changes in government policy affecting the Bridging Accommodation contract.
- One-off war-related humanitarian work tapered off faster than anticipated, impacting second-half results.
- Second-half EBITDA in Europe dropped by 48% compared to 2H '23 due to the completion of one-off projects.
- The increase in the underlying tax rate from 24.6% to 26.4% due to changes in the UK company tax rate.
- CapEx investment was high at AUD47.6 million, primarily in proprietary technology, which may impact short-term cash flow.
Q & A Highlights
Q: Could you talk a little bit about the new business win pipeline? Are we seeing any slowing there in terms of opportunities? And maybe just can you talk to the competitive dynamics for new business wins heading into FY25?
A: Look, it is how it is. I think as long as we hit our targets, but I don't want to go into it too much, but July set up really strongly for us. I think that's the key takeaway. In terms of competitive dynamics, it's always competitive, of course, and you've got the GBT's CWT merger, which seems to be delayed or may be delayed further. It is what it is. But obviously, from our point of view, we want to make sure that we can partake in a scheme in that what might happen with some of those customers that might be disillusioned with that acquisition.
Q: How should we think about the impact of upcoming elections? What do you typically see in terms of general corporate travel market activity and then also company-specific contracts when you're heading into an election?
A: Elections can have a short-term impact, but we've built that into our guidance in terms of our approach and projections due to our targets.
Q: It feels like this is a bit more than just an unwind to Europe work. What's happened in the Northern European regions?
A: Look, I think we will focus on the growth front. The market's pretty steady. And as you see, the rest of the world was AUD122.5 million. If you're saying roughly, it's AUD165 million, that's pretty strong growth, right? In a market that's steady and like I said, it's a reset. We're moving forward in the next five years, and I think anyone will see that's pretty big growth.
Q: You made a comment earlier in the call that you let some accounts go. Can you maybe talk about how that conversation goes with the clients you're letting go?
A: It's more when it comes up to retender. It's how you position things. The takeaway you have to look at in North America is that second half turnaround, where revenues are at, where profits are at. I think it's a really good result and sets up momentum. We talked about the fourth quarter as well, which we think is a really good outcome and will give us momentum for next year.
Q: Could you just talk to the MHRA and what you're seeing in the pipeline of measures particularly?
A: As we said, the fourth quarter, we had transactions up 21%. I won't talk to July revenue other than to say that catch-up has been pretty significant in July. So we think we're in a good position there. When you put that to our target metrics and we talked about Tim Price across [10%] rest of the world and that margin expansion, America will be leading that outcome.
Q: I just wanted to understand the $7 million of setup costs for Project Atlas in FY25. Is that expensed in any core prices into the guidance?
A: Yes, those costs are included in the margin and group cost numbers that we provided in the target metrics.
Q: It seemed like the message at the half year was that the rail payments would unwind in the second half and you're expecting close to 100% cash flow conversion. Do you still expect a 100% conversion going forward?
A: We expect cash conversion in the region of 80% to 90% going forward. We are exposed to the volatility in the settlement cycle in the travel sector. But I think 80% to 90% is a good base to model the business, and coming in at 89% as we have for this year is a good result.
Q: What was the driver of the increase in CapEx? Was there a change in the practices around what you're capitalizing versus expensing?
A: The increase is due to investments in Sleep Space and Scout automation. We are getting good returns on these investments. We expect CapEx to be relatively flat next year and are looking at opportunities to reduce that cost in future years.
Q: To what extent do you think the management team of the group has been distracted by challenges around the UK contract and humanitarian work?
A: The biggest change we've seen is that everything is integrated now. The accountability, the laser focus on winning business, getting more revenue per transaction, and cost out through AI and automation are the differences. We are laser-focused on doing three or four things very well as we set up for a five-year growth plan.
Q: How is American Airlines revamping their model going back to the agent network going to impact you?
A: We think it's going to work out pretty well. American Airlines took an aggressive decision that they didn't want to value corporate distribution and lost $1.5 billion with that experiment. It's all going to unwind, and it's really healthy for the distribution of corporate travel. We see it as a very positive move.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
