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Edited Transcript of WEB.AX earnings conference call or presentation 16-Feb-21 11:00pm GMT

·48 min read

Half Year 2021 Webjet Ltd Earnings Call Feb 17, 2021 (Thomson StreetEvents) -- Edited Transcript of Webjet Ltd earnings conference call or presentation Tuesday, February 16, 2021 at 11:00:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * John Guscic Webjet Limited - MD & Executive Director * Tony Ristevski Webjet Limited - CFO & Company Secretary ================================================================================ Conference Call Participants ================================================================================ * John O'Shea Ord Minnett Limited, Research Division - Senior Research Analyst * Quinn McComas Pierson Crédit Suisse AG, Research Division - Co-head of the Small Cap Research * Timothy Piper RBC Capital Markets, Research Division - Analyst * Wei-Weng Chen JPMorgan Chase & Co, Research Division - Research Analyst ================================================================================ Presentation -------------------------------------------------------------------------------- John Guscic, Webjet Limited - MD & Executive Director [1] -------------------------------------------------------------------------------- Good morning, and welcome to the Webjet results for the first half of '21. Joining on the call this morning is Tony Ristevski, our CFO. The last 6 months has continued to see the devastating impact of COVID on the global travel industry. Webjet is not an exception. However, the last 6 months has provided us with the cover to transform our business to be stronger when markets return. We have worked hard to position ourselves as being powered for travel recovery. Let's review the first half in a little bit more detail. The most significant and positive impact to underlying trading was the Webjet OTA business returning to profitability. What we saw in November and December as the domestic markets opened, that leisure started to perform well, and we saw the Webjet brand took significant share over our competitors and propelled us to a profitable position. What we also saw on the WebBeds side is an improved performance. However, the market was substantially impacted by lockdowns and travel restrictions. The focus for our business in WebBeds over this 6-month period has been transformative in delivering a new strategy that will reduce in a step-change to our cost base when we get to scale. Our anticipated return on the investments we are making is that we will have at least a 20% improvement in the efficiency of our WebBeds cost structure. On the capital position, our monthly cash burn rate declined. When we last caught up after our AGM, we were on a $6 million a month cash burn rate for the full 6 months. We had a cash burn rate of $4.8 million and a closing cash balance of $283 million. On the B2B debtor side, the risk has been mitigated, and we continue to have strong support from our banking partners with bank waivers extended from 30th of June 2021 to the 31st of March 2022. Overall, the business is well captured -- is well positioned to capture demand when travel markets return. Most importantly, notwithstanding the redundancies that have been made during the course of COVID, we still have our global footprint intact, and our highly diverse customer base provides us with the broadest exposure to travel recovery and, in particular, significant exposure to the domestic leisure markets across all 3 of our business units. Let's look at the group results. The most significant item has been the cost reduction in all businesses, which has created leverage when the markets do reopen. If we look at our revenue side, we have seen a decline of 90% compared to the first half 2020. On the expense side, we have seen a decline of 52% and, most importantly, a significant decline compared to the second half of '20 for the first half of '21. On the EBITDA, we made $87.3 million in the first half of 2020; and we lost $40.1 million in the first half of 2021, an improvement on the second half of 2020, where we did lose $59.7 million. So let's have a look at what happens as markets do reopen. What we have seen is that domestic leisure has been the driving force between the improved performance across all of our businesses. If you reflect and have a look at the graph on the right-hand side, you'll see the decimation that occurred between April and June, where there was nominal revenues across our 3 businesses, and you've seen that improve over the course of the first half of 2021. WebBeds itself has improved, but ongoing lockdown and travel restrictions in all regions have muted that growth in the last couple of months, whilst the Webjet OTA and Online Republic businesses saw bookings pick up as domestic leisure markets reopened. The Webjet OTA business, in particular, was the standout performer with 40% of pre-COVID-19 average bookings in December 2020 and were driven by the reopening of domestic borders in November and December. Online Republic is at 25% of pre-COVID-19 average bookings in December, and that's driven by the suitability of our product mix to the domestic market when international -- while international borders are closed. Our cash position improved during the course of the half primarily as a consequence of the net capital proceeds from the convertible note. Our monthly cash burn is down to $4.8 million after working capital inflows. Our monthly cash burn before working capital inflows was $9 million for the first quarter, $8.3 million in the second quarter, giving an $8.7 million average per month over the 6-month period. The additional cost savings we're able to achieve helped absorb the impact of staff returning to 100%. We received lower government subsidies in the second quarter of 2021, and that was more than offset by the improvement in trading from the Webjet OTA business. As I had mentioned at the AGM, there was positive working capital improvements which did slow down in the second quarter. So WebBeds saw a lower uplift in the second quarter due to the travel restrictions and lockdowns. Webjet OTA, Q1 included the exclusive supplier refunds, which was positive for us. And Online Republic, the negative working capital unwind of Cruise was completed in October '20, resulting in a net uplift in the second quarter. So that leaves us with $283 million at the end of December of 2020. As I've already touched on, we have strong support from our banking partners. We have $283 million and a strong capital position. The most significant development from our banking partners was the extension of the debt covenant waivers, which have been extended from all tests from the 30th of June 2021 to the 31st of March 2022, which provides us with the flexibility to withstand a protracted market recovery should it expand into 2022. Our next covenant test is for the quarter ending 30th of June 2022, based on a modified test. And the key criteria that we have agreed with the banks is the minimum liquidity requirement of $125 million, and that remains unchanged since the last time we caught up. In addition, our debt exposure risk has been mitigated. We have written off all remaining debtors over 180 days, and the balance of debtors are all governed by the tighter credit policies that we've introduced in the second half of 2020. The FY '20 interim dividend payment has been deferred. So given the ongoing travel market uncertainties, the dividend payment that was due to be paid on the 16th of April has been deferred. It will be reviewed following the first half '22 results later this year. And naturally, under these circumstances, no interim dividend has been declared. Let's get into the detail of the individual businesses. We'll start off with our pre-COVID largest business, which is WebBeds. So the summary is that we have had a step-change in the cost base within the WebBeds business. We've seen that cost base reduced by 42% over the corresponding period. And what we've seen is that the transformation strategies that we will talk about are going to deliver at least 20% more cost efficiencies at scale as our business recovers when travel markets open up. All travel markets were impacted by lockdowns during the course of the first half of 2021. Some domestic markets did open in some regions, but we have seen a sporadic introduction and closure of markets over this 6-month period. The TTV margins that are represented by this are not typical of what we expect to see going forward. The margins have been artificially reduced as a consequence of cancellations that have been made in period. Once these -- once a more normal environment was to operate for the travel sector, we would expect to see our TTV revenue margins revert closer to the 8.7% that we had pre-COVID. So where is -- how is our business positioned? And what are we focusing on at this point? Well, the most important is that the global infrastructure of our WebBeds business remains intact, and we are in a position to capitalize on growth when the markets do open. Our stated objective is to become the #1 B2B player in the world, and we're well positioned to do that. We've got a strong push into domestic leisure markets. That's been a focus over our last 6 months. And as they open up, we believe we'll be well positioned to participate in that recovery. Of our bookings, 75% intraregional, and we have over 44,000 travel provider customers worldwide. Our customer mix, from wholesalers to retailers to OTAs, to corporate travel agents, to super apps, to tour operators, provides us with a diversified customer base. And we expect, in a post-COVID world, that we would see an increased penetration of our online customers to where we anticipate, over the course of the next 2 years, the OTA market will be the largest segment that we'll be selling into. What we have done is focus on building a market position using our global infrastructure and footprint; expand our domestic offerings; building out on the key customer and supplier relationships, including the previously mentioned OTAs that I just discussed; and enable us to become the low-cost (sic) [lowest-cost] global B2B provider, which is where we were pre-COVID; and build an even more efficient delivery mechanism for our customer base to ensure that when markets do open up that we are in a position to ensure that we can deliver the lowest cost to that customer base and continue on our mission to be the #1 OTA -- B2B player, sorry, in the world. If we have a look at Slide 10, we have a series of [transformation initiatives] documented there. And our strategic objective is to become #1 in the global B2B space. And to do that, we have rethought how we do business. We have looked at the technology that we have adopted and how we can accelerate and streamline our technology road map. We have continued to lever the data that we have within our business, the way that we analyze that data, and we've got a deeper set of automation tools to enable us to manipulate that data to drive better insights into customer and supplier behavior, which we believe we can lever through AI and robotics to make more efficient data decisions based on pricing, based on resource allocation, et cetera. We've also sharpened our focus on cost reduction opportunities. We've already started to see that play through in the results for the first half of 2021. And in addition, we've refined the risk management process, which I spoke about earlier when we've mitigated our B2B debtors risk and also minimize that debtors risk going forward. The consequence -- the expected outcome of all these initiatives, which we continue to work on as the #1 priority in our business, is to deliver a 20% cost efficiency at scale when the business returns to a more normal environment. Let's move to the Webjet OTA business. In the B2C division, Webjet was clearly the standout performer. We saw a return to profitability. Just for clarity, in our -- the way we have structured our business, this does not include any JobSeeker advantages -- or any of our EBITDA results do not have any of the government subsidies that are included. It's a pure trading result, which has seen -- as domestic borders reopened, in particular, in November and December, we saw significant pent-up demand and strong bookings immediately return to our business primarily driven by the incredible job that Webjet has done in building out the most compelling air brands in Australasia. And organic traffic drove the vast majority of that booking activity, which highlights, yet again, the underlying strength that the Webjet brand has in market. Our highly variable cost base has enabled us to see an immediate uplift into profitability. So what we have done is leverage our cost base, which was down 78% over the first half of '20. And during the last quarter, we returned all staff to 100% of their salaries. We have had significant cost savings due to a reduction in costs tied to TTV, such as marketing spend and other volume-related expenses. We have the ability to lever our marketing cost to be scaled in line with our demand. Our first half TTV margins reflect the closure of the Exclusives business and lock of -- loss of overrides and commissions earned on international bookings. The domestic leisure market, which is driving the performance of the OTA is the reason that we were profitable. We are uniquely positioned to benefit from the domestic-led growth of the Australian market. And we have, as previously mentioned, a strong brand presence. Prior to COVID, we were 50% of the entire OTA flights market. We are shifting that needle to become a more significant player in the OTA flights market and a more significant player across the broader market. We predominantly serve the leisure market, which is the first to return. We are benefiting from the structural shift from off-line to online, which is what everybody has become accustomed to. And I've had the opportunity of surveying everybody else's financial results over the course of the last week-or-so as they've come online, and clearly, the businesses that have a significant online presence have had a great reporting period, and that's going to help us when the travel market does open up. And in particular, strong international demand once borders reopen. Our flights business is 85% domestic by volume and 15% by international tickets. As you can see in the graph on the bottom left-hand side, as soon as the borders opened, we went straight to profitability. When there were outbreaks, we see a decline in volume. And then when borders reopen, we again see an immediate spike in booking activity. Return to profitable for us is based on the 3 themes that the Webjet brand has put forth over the course of its 20-plus year history: Number one is that, in an environment where convenience and choice for leisure travel is a critical commitment, based on the difficulty and the unforeseeable travel challenges that people are faced with, we're basically being able to offer a superior solution and facilitates our ability to pick up share. Our brand strength has enabled bookings to grow well ahead of any targeted marketing spend. As I mentioned earlier, the vast majority of that booking activity has been organic, and we have been able to successfully lever a highly variable cost base. For what that looks look like vis-à-vis the broader market, we go to Slide 14. You can see that, as of December, our domestic bookings performance was nearly 2/3 of what it was this time last year, whilst the market was barely 1/3 of what it was this time last year. Over the course of the last 8 months, we've seen that the overall market in Australia for the domestic bookings is 13.7% of what it was over the corresponding period, and our performance is 26.9% over those 8-month period. We have outperformed the market in the recovery -- as part of this recovery by a factor of 2x. Again, the reason that we've been able to do that is that the competitive landscape has clearly changed. The significant closure of bricks-and-mortar retail agencies has facilitated that growth. The second element is our mix and match offering, which is unique to Webjet, is well suited to a constantly changing and reduced airline schedule as well as the addition of new entrants as evidenced by REX becoming a player on the major triangle of Melbourne, Sydney and Brisbane. In addition, we also have a strong focus on servicing the leisure market with wide payment choices, intra- and interstate leisure routes and product innovations, which I'll now cover. As we move to Slide 15, you can see that the addition of pay-later hotel options has increased. Our hotel portfolio -- and our hotel portfolio performance improved, and we're seeing a better level of conversion based on the offerings that we now have in our hotel performance. We've partnered with Cover-More to provide a specific COVID coverage, which has been added to the Webjet cover -- travel insurance policy, and we're seeing travel insurance attachments improve by 44%. 44% appears to be the number for these particular initiatives because, Afterpay, we've seen that 44% of Afterpay transactions at Webjet were made by Gen Y, Millennials; and the top, controlling the youth market, heavily skewed to females in transactions booked. We're seeing Afterpay share of our checkout at Webjet grow ninefold over the 6-month period, up to 11.3% of all sales made during the 6 months. In addition, we've introduced the first carbon offset program for an OTA in Australia and New Zealand. And during the course of the year -- during the course of the half, 7.6% of flight bookings are now purchased with carbon offsets, with Sydney, Gold Coast as the #1-ranked city pair for carbon offset purchases. Let's move to Online Republic, an improved performance as domestic borders have reopened. A recovery strategy has been undertaken and is underway for us to improve the outcomes of the Online Republic business. And the key drivers that will continue to propel that business will be the opening up of international borders. Our Motorhomes business, which is heavily skewed as an inbound tourism business in New Zealand, has obviously been dramatically impacted by the closure of the New Zealand and Australian borders to international travelers. The Cars business has performed okay under the circumstances. It has been impacted by lockdown in a number of key markets. [Given that] the Cars business is predominantly a domestic offering, it's been the key driver of the sales results that you see there on the graph -- on the table from -- at the top of Page 17. Similar to our other 2 businesses, costs are down significantly compared to the first half of last year, and we were able to bring all of our employees back to 100% of their salary in the second quarter 2021. TTV margins are not reflective of what we'd expect going forward. They're a reflection of higher-margin motorhome bookings. And once that we get back to pre-COVID, we'll get back to a similar TTV-to-revenue margin of around about 10%, not the 19.5% that you saw that -- you see in the half we just completed. So what are doing to improve our performance? Our Online Republic business is predominantly a domestic business, where 70% of it is domestic, 30% is international. We do have significant exposure to leisure markets. 100% of Motorhomes in the leisure market, more than 80% of cars were booked for leisure purposes. Car bookings are 70% of their pre-19-COVID (sic) [pre-COVID-19] levels, which demonstrate that they're on the road to recovery quite quickly. And they're short lead time bookings, which align to domestic travel patterns as those domestic markets open up. Further, we expect to see those numbers get back to pre-COVID-19 levels very, very quickly. Motorhomes bookings were impacted, were 80% international with global travelers looking to -- now looking for domestic holiday activity. That's been a focus of what we were trying to do. So our focus on improving our underlying performance has been in getting domestic inventory for Cars and Motorhomes in our key markets, engaging in a better CRM to facilitate the continued support of our customers and technology where we've replatformed the underlying booking platforms to improve automation and remove the manual processes. So with that, I've given a high-level summary of the Webjet performance for the first half from a qualitative perspective as well as the initiatives that we have undertaken across our business. I'll now hand over to Tony, who will go through the financial summary for the first 6 months. -------------------------------------------------------------------------------- Tony Ristevski, Webjet Limited - CFO & Company Secretary [2] -------------------------------------------------------------------------------- Thank you, John, and good morning, everyone. We'll turn now to Slide 20, which is the presentation of our P&L, both at an underlying level and at a statutory level. The statutory results, as you can see there, has an NPAT of $132 million, driven primarily, which I'll go through in the next slide momentarily, by noncash accounting adjustments, particularly that as it relates to the bond, which I'll talk through in a little while. The other key takeaway to gain from this slide is our effective tax rate, which at an underlying level is close to 20%. We see that continuing to be the same for the remainder of the year. Obviously, at a statutory level, the underlying tax rate will be dependent upon any further accounting adjustments as it relates to the bond, which is unknown until we get to 31 March. But the key takeout is that the effective tax rate should continue all the way through in the current circa 20% for the remainder of the year. If you can then go to the next slide, being Slide 21, I'll take you through the 2 major items here. And the first one being is the most material as it relates to the convertible note. Last October at the AGM, we provided a slide or 2 slides to try and explain the accounting as it relates to the note. Now that we've obviously closed the books at December 31, the key driver as it relates to that adjustment was always going to be the share price. If you can recall back in October, when we settled the bond, the instruments at the time was bifurcated between debt and the derivative value. The PEG was [$3.16]. And for every $0.10 movement, plus or minus, from that value would result in an accounting adjustment of $2.8 million. Now that we finalized the accounting, the bifurcation resulted in the split of that debt at roughly EUR 77 million to debt and EUR 23 million to derivative value. That accounting adjustment was closer to $3 million rather than $2.8 million. We closed the share price at $5.07. So therefore, the accounting adjustment put through is roughly $59 million for the half, which is all noncash. And this is something we'll have to live with going forward. But as a reminder, back in October when we talked about this, we made decision to raise the money in euro because it made a lot of commercial sense along with the cost of funds being a lot lower at that point in time. The other point there to talk through is obviously the write-off of the residual debtors that are greater than [180]. When we started this journey back in 1st of April, we presented at the time of raising the money that we had a debtors exposure, something in the order of around $102 million to $117 million. And then at the full year results, we did take a write-off of close enough $40 million. And we'd also mentioned at that stage that we had a residual exposure of close enough to $15 million, of which $12 million has now been taken through the P&L for [11 -- $9.5 million] of provision. So that now concludes the adverse impact of COVID as it relates to our debtors book. And in total, over the course of the last 10 months, we would have taken a P&L impact close to up to $50 million, $52 million across that journey. The other item there to talk about, as John mentioned, is the government subsidies. They start to diminish over time. The bulk of that $3.9 million was earned in the first quarter, less than in the last quarter, and it'll continue to diminish into the next 3 months as we close our books for March 31. I will then go to the next slide, which is looking at our corporate costs. What you'll see there is cost for the first half in the $6.7 million that are marginally up on the second half of '20. Despite the fact that the Board, John and the executive team did take a salary reduction, that was offset by the ever-increasing cost of director and officer insurance. Unfortunately, that will continue to be the case into the next financial year. But outside of that is, largely, other costs were in line. If I then move to the next slide, which is the balance sheet. Here, the key callouts are obviously the strong cash position that we ended in December at $283 million. Trade debtors has come down. And John mentioned the creditor -- debtor policy that we've implemented that is resulting in a better collection process and hence contributing to the reduction and, equally, the cash conversion, which I'll talk through in the second slide. The other callout there is the fact that we had a big increase in our borrowings of $73 million and the other noncurrent liability there of $90 million, both of which are driven from the convertible note. And for those who are keen to get more detail, there is a detail note in our actual statutory accounts in Note 6, which goes through the accounting in a lot more detail. I will then turn to the next slide, which is cash flow. Here -- or as you can see there is that we've seen a significant drop in the cash burn or cash flow from operations, being minus $17 million as compared to the second half of last financial year of $255 million. The working capital unwind was largely was completed last year, and what we find ourselves now is picking ourselves up off the ground as we came out of quarter 1 into quarter 2. And as I've said earlier, the debtors policy is contributing to that outcome, whereby we have a bit more restraint around credit, and hence, the frequency of payments from our debtors is shorter. So we are seeing the benefits of the policy being applied there, which will continue to hold us in good stead as the recovery comes out of it and potentially to produce a better outcome in terms of capital positive inflows as due course. I'll then turn to the next one, which is the CapEx summary. And here, as you can see, consistent with our approach around cost management and cost control, we have managed to materially reduce our spend as it relates to the B2B business. This is primarily as it relates to third-party providers. As we continue to rationalize our technology platforms, we'll also continue to rationalize the providers in that instance. This isn't primarily [our people] as it is primarily third party as a result -- because the people who are being retained, they're now focused on the projects that John mentioned earlier. So as we closed the half, we closed at just shy of $10 million in spend. As we see the year unfold with the remaining 3 months at 31 March, we'll see the run rate continue all the way through to March. And then incrementally, in the quarter, we do expect a [sort of circa] $3 million around the ERP project as that kicked out late last calendar year and [yet at full swing] during this calendar year, due to be implemented next financial year. And as I conclude the finance lines, I would like to say a big thank to the team globally for, again, another stellar year as far as getting books closed in a shorter period of time than we did last year given the circumstances. Thank you. -------------------------------------------------------------------------------- John Guscic, Webjet Limited - MD & Executive Director [3] -------------------------------------------------------------------------------- Thank you, Tony. So moving on to Slide 27. Now I've been the Managing Director of Webjet now for 10 years, and it's been a great business to be involved with. We've got a great team. And over the course of the last 10 years, we've been able to demonstrate, irrespective of the division, whether it's our consumer-facing division or our B2B division, that we were able to outperform the market. And clearly, the last 10 or 11 months have been the most challenging in our lifetime. The -- and obviously, all travel businesses have been massively impacted notwithstanding their size. They're all reporting lower results than they did prepandemic. However, the one thing I do like about our business is that we're in a very strong position that when the recovery does come, that we will be first cab off the rank to take advantage of that recovery. As you can see on Slide 27, the things that consumers in U.S., U.K., Italy, France missed the most as a consequence of COVID is leisure travel. Irrespective of your age group, irrespective of your income, leisure travel is the #1 thing that people are missing as a consequence of COVID. As we've seen in our results, in particular in Webjet, when the domestic market starts to open up, the first thing people do is get on a plane. And I have no doubt that will happen on a global basis as the market does recover, and we're well positioned. As we can see, consumer confidence remains strong in key flights and hotel markets. So according to the Amadeus study, 96% of global travelers say they'll continue to fly, 94% of global travelers say they'll continue to keep using hotels. So how does that look like outside of Australia? Well, I'll give you the example from Dubai -- or UAE to the U.K. You can see the blue line is the performance of travelers booking to go to the U.K. from the UAE, and the red line is the underlying UAE to the rest of the world. Significant -- or modest underperformance over the course of 1st of September till the 10th of November. As soon as the exemption from quarantine rules were announced, you see a significant surge, so much so that the week of the 1st and the 8th of December were actually higher than the corresponding period last year. And then conversely, you see that as soon as there is something negative that concern -- that occurs that you see a significant drop-off in demand, in this case, the new COVID variant. So let's move to a macro picture and one that -- even though the grass look ugly, one that gives me the most comfort for our business and one that supports the hypothesis that we've put out there today. So this is provided by the Oxford Economics company, which focuses on tourism economics. It's their expectations broken up by international business, international leisure, domestic business, domestic leisure to see what will happen to those respective markets using 2020 -- 2019 as the base and then rolling forward through to 2024. The assumption that we have made in -- we made in the annual report, and we will state it again, is we believe that we can get back to our EBITDA levels of 2019 in 2023. Data supports that. Let's look at the graph on the right-hand side, domestic leisure business in 2023 is higher than the 2019 base. International leisure business is modestly lower. Let's assume in our mix that nets out to 0. So basically, volumes in 2023 will be the same as 2019. We have just covered a number of slides that highlight cost efficiency and the transformative strategies that we have in place from the various businesses, from Online Republic, Webjet OTA plus WebBeds in particular, which has been the heaviest cost base in our organization. And we believe that, at the same level of books, we can deliver at a 20% lower cost, which certainly makes us have a higher degree of confidence today than we did 6 months ago about what the EBITDA levels would look like in 2023. We think that -- moving to Slide 30, we think that we will capitalize on that travel recovery from the thematic that I touched on the first slide, which is that we are well powered for travel recovery because our global footprint remains in place. We have a diverse customer base, allowing the demand to be captured when and where the borders are open. All of our businesses retain #1 and #2 market positions. And most importantly, all of our key management remain in place. So we have all the infrastructure to enable us to compete when markets do open up. The structural shift from off-line to online continues to accelerate, and that's good for all of our businesses. The Webjet OTA is already growing at twice the rate of the market. We believe that is sustainable going forward. Our continued focus on our superior technology offerings, which focus on the needs of consumers today, in line with the fact that the number of physical stores continues to decrease augurs well for the continued superior performance of the Webjet OTA business. Online Republic has a global presence, broad content, strong online marketing capability. It's a pure-play OTA business operating in the ancillary component of the OTA space, and we have appropriate technology infrastructure improvements to enable us to be more effective in that particular business. And WebBeds remains a key part of the supply chain. Every indicator, every conversation we have with our hotel partners is that they will continue to provide inventory and continue to rely on the distribution channel that is the B2B element of the marketplace. And we were, pre-COVID, fastest-growing segment, with the desire to be the #1 player, and we believe that we can continue to pick up where we left off. In particular, our focus has been on getting the right level of inventory to support our OTA partners. And all of our -- all of the 5 largest OTA companies in the world are now customers of the WebBeds business, which augurs well again for what the recovery cycle looks like for our business. As Tony has mentioned and I've spoken about, we have got a strong capital position which provides us with financial and strategic flexibility. Our capital strength provides significant flexibility to weather any uncertainty about when travel returns and take advantage of any opportunities that may occur as a consequence of the difficult trading environment for travel stocks, and we are starting to see consolidation and rationalization occur. As we have highlighted, a number of our competitors have come out of business, and we're starting to see significant financial pressure on a number of others. We believe that will change the competitive landscape for us once COVID passes. As we've touched on the transformation program, we expect to lower our cost by at least 20% across the entire group when we are at scale. Let's move to Slide 31, outlook. Second half 2021 continues to be impacted by the ongoing travel restrictions and border closures. Trading for the remainder of '21 is expected to be in line with the first half of '21. To put that into perspective, we only have a 3-month second half, so it will be roughly 1/2 the losses that we incurred in the first half, is our expectation. That's directionally what we think will happen. We are not providing earnings guidance at this point. Our results will be announced on the 19th of March, reflecting on our 9-month financial year for 2021, then we moved to April 1 -- 31st March 2022, new financial year. As I've touched on, our strong capital position provides us with financial and strategic flexibility. The Webjet global travel business is well placed to benefit as domestic leisure markets open up. After essential worker travel, domestic leisure markets of the first open up. 75% of WebBeds bookings are intraregional, and customer mix provides strong exposure to leisure markets. And 85% of the Webjet OTA flight bookings domestic and predominantly serve the leisure market. Online Republic is primarily a leisure business. 100% of Motorhomes and more than 80% of Cars are booked for leisure purposes. Both offer strong domestic opportunity. Let's summarize what's our focus and what are we trying to do. We've got strategies in place to expand and pursue leadership positions across WebBeds and our B2C businesses. WebBeds' stated objective is to become the global #1 B2B provider. Webjet OTA is to increase our market share leadership. Online Republic is to improve our underlying performance. And underpinning all of those initiatives, there is an expectation that, when we get to scale, our group cost will have been reduced by at least 20%. So that provides an environment in which we can operate a more scaled business, better margins and ride the upside of the travel recovery at a faster clip than we would have historically. So with that, operator, I'm happy to take any questions. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) We will go first to John O'Shea of Ord Minnett. -------------------------------------------------------------------------------- John O'Shea, Ord Minnett Limited, Research Division - Senior Research Analyst [2] -------------------------------------------------------------------------------- Just one question from me. In relation to the cost side, your initiatives there, obviously, you've given us some very basic details there. Can you just talk us through kind of where you start targeting that from a rationale perspective and more color on what it is you're actually trying to do here and where you see that you have that -- is it a situation where you're reducing the manual tasks in the business and increasing automation? Or is it something that you've -- COVID has given you the opportunity to do this that you wouldn't otherwise would? Or can you just give us a bigger picture view on it rather than -- I've seen the slide, but talk us through sort of where that kind of fits. -------------------------------------------------------------------------------- John Guscic, Webjet Limited - MD & Executive Director [3] -------------------------------------------------------------------------------- I think, John, you've touched on a number of key elements that we are addressing at the moment. What I do plan to do is, in the month of March, put out a document and support it with a road show, subject to domestic borders being opened, that covers this in some scale. So I will preface my answer by saying I'll give you a lot more detail in the next 2 to 3 weeks, but the high level is elimination of manual processes, reduce the risk -- lever the blockchain initiatives that we have in place to reduce -- increase the level of quality that we're able to deliver at the back end, ERP solution across the board... -------------------------------------------------------------------------------- John O'Shea, Ord Minnett Limited, Research Division - Senior Research Analyst [4] -------------------------------------------------------------------------------- Do you mean -- the quality of the earnings, do you mean? -------------------------------------------------------------------------------- John Guscic, Webjet Limited - MD & Executive Director [5] -------------------------------------------------------------------------------- No, the quality of the support that we provide both our customers and our internal customers within the organization. Then the third element would be a focus on AI with regard to pricing and minimizing the manual interventions for the various contracts that we currently have in play, which is quite laborious and tedious for many of our employees. And then on top of that, we have a series of other initiatives that are related to the simplification of the 4 tech platforms that we have run historically, and we've been able to accelerate some of the changes that we're making on those tech platforms. And again, all of those, I'm happy to go through in quite considerable detail next month. -------------------------------------------------------------------------------- John O'Shea, Ord Minnett Limited, Research Division - Senior Research Analyst [6] -------------------------------------------------------------------------------- Sure. And just without preempting next month, do you expect that to have -- what are the capital expenditure costs of that? Are you expecting that to be material? And can you give us some feel for that? -------------------------------------------------------------------------------- John Guscic, Webjet Limited - MD & Executive Director [7] -------------------------------------------------------------------------------- With the exception of the ERP program, the capital numbers that Tony spoke about on his slide earlier in the presentation are the ones that we would expect to roll forward with and annualize. The ERP one is a one-off that will be on top of that. -------------------------------------------------------------------------------- John O'Shea, Ord Minnett Limited, Research Division - Senior Research Analyst [8] -------------------------------------------------------------------------------- And do you have any feel for what that would be at this point or we wait till March? Or what's -- what can you tell us there? -------------------------------------------------------------------------------- John Guscic, Webjet Limited - MD & Executive Director [9] -------------------------------------------------------------------------------- We'll give you more color in March when we go through the whole presentation. -------------------------------------------------------------------------------- Operator [10] -------------------------------------------------------------------------------- We'll move to our next question from Quinn Pierson of Crédit Suisse. -------------------------------------------------------------------------------- Quinn McComas Pierson, Crédit Suisse AG, Research Division - Co-head of the Small Cap Research [11] -------------------------------------------------------------------------------- John, maybe just firstly on WebBeds. I think there's reasonable -- I think there's good reason to believe that this business could be a market share beneficiary post travel resumption, whether it's being a good financial counterparty, industry consolidation, contracting sensibly during COVID. Is there anything you can talk us through in terms of what you think the WebBeds business could look like in terms of market share? I believe it went into COVID with around 4% of share, but what do you think you're on track for in terms of the resumption of travel? And I think related to that, you made the comment you have the goal to be #1 a B2B provider. Could you just talk us through kind of on what metric that's referring to? -------------------------------------------------------------------------------- John Guscic, Webjet Limited - MD & Executive Director [12] -------------------------------------------------------------------------------- Thanks, Quinn. So the #1 player -- you're correct. We're roughly 4% pre-COVID. The #1 player was 13% pre-COVID. Our objective is to be at least 13% of the market. We're not relying on the #1 player falling over. We're relying on our outperformance to get us to the #1 position. That's the driver. In many ways, this question is a follow-up of John's question just before, which is to deliver that, we've gone back and said -- we've looked at every line item of our business, every function within our organization and said how can we do it better. And what do we need to stop doing? What do we need to accelerate? And how can we do that using better tools than we currently have? So that's been the modus operandi. That's the hypothesis. So to go to the -- to answer the question, we would have to be at least 13%. And I think you're bang on, correct in your assessment that the market will recover and we will -- and the distribution of hotel rooms will be an important component. The ability to aggregate disparate supply is still a characteristic that very few organizations have. And our focus is ensuring that we can do that at the lowest cost and with the broadest range of hotels and ensure that we can deliver it using the fastest technology tools, whether they're API tools or HTML sites, to enable our customers to book with confidence. So to flesh that bit out, then we go, what do we think the market will look like in a recovered world? And it certainly isn't the numbers that we highlight on our graph -- sorry, on our pie chart, which talks about what used to be. The world is going to change and will change quite rapidly, and the players still need inventory. There'll be more hotel rooms sold in 2025 than there was in 2019. And they're going to need to get it from somewhere, and we're going to make sure that our objective is to make sure they're getting it as much as possible from us and we're able to fuel all those channels that explode. So if I look at that pie chart, yes, I would expect OTAs to be a much more significant player for us. Super apps, based on what's happening in the Asian market, will be much more relevant for us. That's where a lot of the growth will be. And then there'll still be retail groups, corporate groups, a smaller tour operator market, et cetera, but they'll still be there, and they will be meaningful to our overall customer mix. The other element I'll just touch on is we expect that, in a recovery, if we roll forward enough years, and we'll say 3 years post recovery, the Asian business will be the most substantial element of our geographic mix, and we will see a significant change in underlying performance from our North American business, which as you're well aware, has been the smallest element of the geographies that we have targeted. So there are specific things that we're doing to address that as we speak, and they will open up a broader base of opportunities than we have currently got in our geographic mix across our portfolio. -------------------------------------------------------------------------------- Quinn McComas Pierson, Crédit Suisse AG, Research Division - Co-head of the Small Cap Research [13] -------------------------------------------------------------------------------- That's very helpful color. And secondly -- and lastly for me, kind of also on the strategic side of things, the travel that is occurring in the industry, we're seeing some mix shift towards supplier direct, I think, in large part due to sensitivity around refunds and the like. I guess, if you could talk us through your thoughts on that impacting your business, given you operate an intermediary and a supplier to intermediaries, I guess, if you think -- I guess, how your business is managing that and what your outlook on that is. In other words, do you think the bedbank industry could potentially reduce due to kind of a permanent change in supplier direct? -------------------------------------------------------------------------------- John Guscic, Webjet Limited - MD & Executive Director [14] -------------------------------------------------------------------------------- Supplier direct. We're not seeing supplier direct in the consumer-facing businesses. The [work share] performance clearly is [passing] supplier direct because nobody else can [grow on] what their market share is, and we're growing at 2x that. So we haven't seen that play out yet. It's a little bit more difficult for me to be as dogmatically or emphatically correct about what's going to happen to B2B because the market that we have seen operate, because of the uncertainty of COVID, that has been primarily a last-minute booking market, and that skews heavily to supplier direct. So in the hotel side, with shifting travel restrictions and border openings, that has facilitated that. In a more normal environment, I don't believe that people will continue to book with the last-minute bent that they have over the course of the last 6 months. -------------------------------------------------------------------------------- Operator [15] -------------------------------------------------------------------------------- We'll move next to Tim Piper of RBC. -------------------------------------------------------------------------------- Timothy Piper, RBC Capital Markets, Research Division - Analyst [16] -------------------------------------------------------------------------------- Just a couple of quick ones, a simple one to start. Sorry, when you talk about the second half outlook and trading for the remainder of FY '21 in line with first half, are you referring to the new financial year-end of March, so effectively until the end of March, not until the end of June? -------------------------------------------------------------------------------- John Guscic, Webjet Limited - MD & Executive Director [17] -------------------------------------------------------------------------------- Yes, end of March, Tim. -------------------------------------------------------------------------------- Timothy Piper, RBC Capital Markets, Research Division - Analyst [18] -------------------------------------------------------------------------------- Okay. Got it. And then just looking at -- in the B2B business. Obviously, within the European segment of that business, the summer holiday period is a key profitability period for you guys. As you kind of look forward now, and it's probably too early, obviously, to see forward bookings. What are you kind of doing in terms of contracting of rooms and securing supply? How bullish are you on the for that period from, say, June through August? -------------------------------------------------------------------------------- John Guscic, Webjet Limited - MD & Executive Director [19] -------------------------------------------------------------------------------- Yes. We typically contract [that] period now. It's a February, March activity. And we would -- or January, February, March activity, and we load that for effective April sale through to October. That's what we've done historically, and this year looks no different. The inventory that we're able to secure for the hotels that are open is similar in volume and, we believe, similar in pricing advantage that we've had historically, so no change. The only change that occurred is that there's still -- some hotels haven't decided whether they're going to open for the summer or not. So there is a restriction on some supply to those that are open. We're having at least the same level of success that we've had historically in recontracting those individual hotels. -------------------------------------------------------------------------------- Timothy Piper, RBC Capital Markets, Research Division - Analyst [20] -------------------------------------------------------------------------------- Right. Is it -- and is there any change in sort of the way that you're having to contract those rooms now in terms of putting down deposits or the refundability of those rooms if the bookings don't come through? -------------------------------------------------------------------------------- John Guscic, Webjet Limited - MD & Executive Director [21] -------------------------------------------------------------------------------- Yes. We don't participate in prebuying or blocking rooms or putting deposits. We have historically done it for less than $1 million worth of deposits. So it's negligible in the overall sense of our inventory portfolio. Our inventory portfolio is procured on the basis of best endeavors, guaranteed room, fixed rate and on the best endeavors that we will sell it. And then if we don't, it gets returned to the hotel. So that hasn't changed. -------------------------------------------------------------------------------- Timothy Piper, RBC Capital Markets, Research Division - Analyst [22] -------------------------------------------------------------------------------- Sure. Yes, I just wanted to know if that had changed or not. That's fine. Sorry, just one last one on -- and you called out on slide -- the OTA side -- what was it? Slide 15, the pay later and the Afterpay volume coming through. I mean, obviously, Afterpay charge and merchant fee margin on the funds that they're basically funding, the average is 4% [and odds]. Are you paying that on the TTV of a booking? And I assume you're getting a better rate than 4%. -------------------------------------------------------------------------------- John Guscic, Webjet Limited - MD & Executive Director [23] -------------------------------------------------------------------------------- I'm not going to go through the commercial relationship we have with Afterpay, but I will say that it's not materially impacting on the margin that we previously sold hotel rooms for. -------------------------------------------------------------------------------- Timothy Piper, RBC Capital Markets, Research Division - Analyst [24] -------------------------------------------------------------------------------- That's what I was trying to get to. Is there an impact on margin? -------------------------------------------------------------------------------- John Guscic, Webjet Limited - MD & Executive Director [25] -------------------------------------------------------------------------------- Yes. No. -------------------------------------------------------------------------------- Operator [26] -------------------------------------------------------------------------------- And we'll go next to Wei-Weng Chen of JPMorgan. -------------------------------------------------------------------------------- Wei-Weng Chen, JPMorgan Chase & Co, Research Division - Research Analyst [27] -------------------------------------------------------------------------------- A couple of questions. My last one was about the Afterpay one, but my questions are mostly focusing on revenue. So the first one was you mentioned that you're going to be selling more to OTAs going forward. Just wondering if that had any impact on margins or how we should think about that. And does that -- does selling into that channel differ to, I guess, selling to the retail channel and how? -------------------------------------------------------------------------------- John Guscic, Webjet Limited - MD & Executive Director [28] -------------------------------------------------------------------------------- Margin-wise, it's pretty similar, no great change from our historic margin. The offering is a little bit different. There are 2 offers that we make. There are wholesale rates that need to be [actively price]. So they're well suited to retail agents, corporate agents. The consumer doesn't see the price of a naked hotel because it's in conjunction with a flight ticket or some other ancillary products. So there's that rate. Then there -- and what the OTAs are now doing to facilitate their ability to sell at rates that are different from dynamically priced rates is they have members-only rates we need to log in. So it's not a naked screen that you're looking in, but it's one that's got a password associated with it. As that business continues to thrive for them, they look to partners like us to provide that inventory because, clearly, that's what we do better than anybody, which is get great rates across the broadest range of hotel supply partners on a global basis. And that's where the -- that's why I said -- that's why we're optimistic about the growth shifting into the OTA channel, and we're really well positioned to facilitate that growth. -------------------------------------------------------------------------------- Wei-Weng Chen, JPMorgan Chase & Co, Research Division - Research Analyst [29] -------------------------------------------------------------------------------- Yes. Okay. And then I just wanted to clarify something you said before. I think you said that you're assuming FY '23 activity is in line with FY '19, which will drive an EBITDA outcome which was in line with FY '19. But if you were successful in reducing your cost base by 20%, does that mean you're baking in a reduction in your revenue take rate? -------------------------------------------------------------------------------- John Guscic, Webjet Limited - MD & Executive Director [30] -------------------------------------------------------------------------------- Well, I wasn't putting -- look, logically, you are 100% correct, Wei-Weng. I wasn't baking in a forecast number for calendar year '23. But the logic would be that if we got to those volumes, there's no assumption in any of our thinking at this point that [would see us] with lower margins. So that would suggest a better profit margin, better EBITDA margin, and that's a factor built into that assumption. I can look at that, and I was going to clarify it at the point, but I pressed on, which was we get 20% less volume and deliver the same EBITDA or do the same volume and deliver at least 20% more EBITDA. So there are ways that we are thinking about our business once we get back to scale, which is why I had the preamble one slide earlier, which is to say travel has been a great industry over a long period of time. It's had phenomenal growth as anyone who's listened to me over the years, has heard me say on numerous occasions. It's one of the few industries where the underlying growth rate is higher than the GDP of their respective markets. So I have no doubt that will return at some point in time. And as a consequence, I think we've got a portfolio of assets across our B2B and B2C business that are going to be able to lever the advantages of us being a participant -- or a significant participant in those elements of the predominantly retail leisure business -- online retail leisure business. -------------------------------------------------------------------------------- Wei-Weng Chen, JPMorgan Chase & Co, Research Division - Research Analyst [31] -------------------------------------------------------------------------------- Yes. So just to clarify, you're saying that you aren't taking in a reduction in the revenue take rate. Is that correct? -------------------------------------------------------------------------------- John Guscic, Webjet Limited - MD & Executive Director [32] -------------------------------------------------------------------------------- You'll see that WebBeds is down 30%, 40% on its margin, and you'll see that Online Republic is up 90%, and you'll see that Webjet OTA is down 10%. The only one that's approximately where we think we'll end up is closer to the Webjet OTA one. The other 2 are just a reflection on cancellations being positive and negative to the business and then changing those margins. Our assumption is the Online Republic business will -- and the WebBeds business will have similar margins to what they've had historically. -------------------------------------------------------------------------------- Operator [33] -------------------------------------------------------------------------------- And with no other questions in the queue, I'll turn the call back to our presenters. -------------------------------------------------------------------------------- John Guscic, Webjet Limited - MD & Executive Director [34] -------------------------------------------------------------------------------- With no other questions, thank you very much, operator. Thank you very much, everyone, for turning into our call, and wishing you all a pleasant day. Cheers.