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Edited Transcript of CTD.AX earnings conference call or presentation 16-Feb-21 10:00pm GMT

·52 min read

Half Year 2021 Corporate Travel Management Ltd Earnings Call Sydney, New South Wales Feb 17, 2021 (Thomson StreetEvents) -- Edited Transcript of Corporate Travel Management Ltd earnings conference call or presentation Tuesday, February 16, 2021 at 10:00:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Cale Bennett * Jamie Michael Pherous Corporate Travel Management Limited - MD & Executive Director * Neale James O’Connell Corporate Travel Management Limited - Global CFO ================================================================================ Conference Call Participants ================================================================================ * Belinda Moore CIMB Research - Research Analyst * James Bales Morgan Stanley, Research Division - Equity Analyst * John O'Shea Ord Minnett Limited, Research Division - Senior Research Analyst * Mark Wade CLSA Limited, Research Division - 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 -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Thank you for standing by, and welcome to the Corporate Travel Management Half Year Results Conference Call. (Operator Instructions) I would now like to hand the conference over to Mr. Jamie Pherous, Managing Director. Please go ahead. -------------------------------------------------------------------------------- Jamie Michael Pherous, Corporate Travel Management Limited - MD & Executive Director [2] -------------------------------------------------------------------------------- Thank you, Izzy, and good morning, everyone. Firstly, what we might do is go straight to Slide 5, if we can. And before -- obviously, it was a very tough half in travel. And the first thing I really do want to do is acknowledge the challenges faced by our staff globally. We're terribly grateful to all of our staff for their resilience, their adaptability, particularly their professionalism that they've continued to demonstrate during this pandemic. They've been going about their business with no fuss, and it's been a large part of why we think we've had a good half considering the macro backdrop. So firstly, if we go on the group financial highlights page, firstly, to underlying EBITDA loss of $15.7 million. Again, I just want to reinforce that this is after absorbing travel and transport losses for 2 months, which we flagged. So I guess the key takeaway is that our business is in very good shape. Firstly, we're winning business and that business is transacting. So in that sense, new revenue growth has driven this result. And we've had strong revenue with the recovery at 33% of the PCP, we think, is a very high standard. Secondly, it's our liquidity. We've actually come through this stronger than when we went into COVID. You can see there, we still have 0 debt, $119 million of cash and an undrawn $178 million committed facility. So really, what this means now, we've got minimal cash burn and it's no longer about survival at CTM. It's all about recovery. And with this in mind, you can see we're very well positioned to be a significantly larger business post-COVID because of the strategic acquisitions we've made in the first half, and we'll talk about all of those. The integrations are on track. But also the organic growth that's occurring through new client wins. And of course, there's no interim dividend payable because we're making a loss. Just to want to touch on one thing, just the TTV, you'll see it's down 88% versus revenue being down 67%. As we've always said, it's revenue to EBITDA and EBITDA-revenue margins that matter. As you could appreciate with the large abnormal level of cancellations during this period because of COVID, it's really materially overinflating a very high yield of revenue to TTV, and there's nothing that we think suggests margins shouldn't be consistent with the prior year. Okay. If we go on to Page 6. We said we had a better-than-expected performance, and I want to go into 3 criteria, which we talked to. Firstly, underlying EBITDA. In our market update when we capital raised for travel and transport, we said that we'd lose around $2.9 million a month until 31 October. And as we absorb travel and transport, we'd lose $4.8 million a month from 1 November. So that implied a loss of roughly $21.2 million for the half. You can see the loss was $15.7 million for the half. But more importantly, it's -- we're creating momentum in this business. So the January '21 loss was only $2.8 million, but that did include travel and transport. And this is despite January, as you can all appreciate, if you look back in time, had a lot of ongoing lockdowns. It was possibly the worst month macro -- in macro sense in the whole financial year for lockdowns. So I guess the question is, so why do we do a little better than we all thought. And it's really 2 things. Firstly, it's managing costs that we set up very early in the picture back in the last financial year, but it's really about the growing revenue. We come to revenue again. At the market update, we suggested that revenue was roughly around $9.5 million a month, and that would, of course, grow to $14 million a month as we absorbed travel and transport, which implied around $66 million of revenue for the half but revenue was $74.2 million for the half. And the key point here is December 2020, which is typically our lowest activity month of the half because corporates are on holidays, it delivered our best revenue result of the half of $17.3 million. Also, what's nice to say is that group revenue is accelerating in the second half due to significant client wins transacting immediately, which we'll touch on as we go through this presentation. So as a result, our cash burn really is minimal. So as you can see, the cash we had -- at the AGM, we had $120 million of net cash of client moneys. At 31 December, it was $119 million. And as of last Friday, it was $115 million. So you can see we're really not burning too much cash. We're sitting on a very good liquidity outcome. So our focus is really now on recovery. So if we go to Slide 7, we talked a lot about what we're doing and why we're doing things differently, and I want to touch on this slide for a few minutes in terms of how we're executing. As you can see, there's a couple of attributes here, and the first one is our capital light model. We said that we had lower fixed costs versus our peers, and that was an advantage to us. And as you've seen in the business, we could swiftly resize the cost base to limit losses and preserve cash, which is good news, costs remain under control. But more importantly, and this is the piece that I want to really reinforce is that we can move that cost base in line with activity quickly, so our service levels are not interrupted. I've said this before, we've been through a number of these. And what we found in every situation is those that can manage the recovery are the ones that win market share. And I think we're doing that now. And because we've been able to keep more people, it's going to be a big advantage as things do come back. And thirdly, for our shareholders, we didn't need to emergency raise. And I think CTM was one of the very few exceptions in the world in the travel supply chain that could say that. Next, we talked about our high exposure to essential travel clients and what that meant was solid recurring earnings despite any border lockdowns. And I think we've proven that again in this half because you can see our recurring revenue is very resilient despite was a clear worsening in COVID-19 in the last quarter of last calendar year. But as we said before and we'll touch on, we've got significant client wins accelerating revenue into the second half. We also talked about our geographical diversity, and we leveraged the largest markets. So what does that mean? We've talked now about Northern Hemisphere representing 80% of our group revenue. And as we'll touch on later, there is no doubt that the U.K. and U.S. are light years ahead in terms of vaccinating their people. So we'd expect that, that area recovers a lot faster than the others. And lastly, U.S.A. will show it's clearly our largest revenue market now and also our largest winner of new clients in the first half. We also touched on domestic and how we could be profitable just on domestic-only. And that was really important because in December, we actually got the chance to prove that to ourselves as well. Because in December, when they opened the borders in Australia, we actually got our own little test case of what that would look like. And December, again, which is a very quiet month typically for corporate travel in ANZ, that region made $1.9 million of profit when they opened domestic borders for a few weeks. It just proves again we can do it. We have less reliance on international travel versus our peers. And of course, the fifth thing is our proprietary client-facing technology. We said it's going to give us an ability to swiftly deploy client requests to capture market share through COVID, but also it's going to allow us to continue to have a lower cost base. And I'm pleased to say it's a significant driver of new client wins as evidenced by revenue. It's also meant that we were nimble to adapt to changing client needs for COVID. And again, it means we've got lower transaction costs, which means we can drive productivity and we have a much lower breakeven, which we'll touch on shortly as well. And of course, our strong balance sheet. We said we went into this in a much better shape than everyone else, which meant we were very well positioned to lead industry consolidation. Of course, you all know about the Travel & Transport acquisition, which is one of the biggest acquisitions in corporate travel in the last decade. Also, we made the Tramada software acquisition that we executed in November. And of course, in Asia, it's been really interesting as well because we're acquiring or securing client books from agents with no capital outlay that are leaving the industry. So that also means, as we said before, we've got very strong liquidity and surplus cash to take advantage of further opportunities as they arise in the coming months. And lastly, what we made very clear was where we were going to be different. We're going to be a much larger and leaner business post-COVID. And again, I think with the acquisitions we've made, CTM is well positioned now to be significantly larger post-COVID due to the strategic acquisitions we've made, the organic growth we're achieving and the lower permanent cost base that we have driven. So on to Slide 8. So what does larger look like? As you can see from Travel & Transport acquisition, it is transformational. In that first chart, you can see we're now the fifth biggest in the world. That's come straight out of our capital raise documents. But what I do, I want to draw your attention to the bottom right-hand graph there, the pro forma revenue uplift. So as you can see, it really is a much bigger business. And just to put perspective of how close we are to breakeven, you can see here that monthly revenue is over $60 million a month combined. January '21, when we were combined, we only lost $2.8 million in what was a pretty horrible month macro with all the border lockdowns. So it shows that we are very, very close to breakeven with that loss being around 5% of our monthly revenues. So we're a lot closer to breaking even than you might first think. So let's go on to our regional performance on Slide 9. And then we might go straight to Slide 11, if we can. Slide 10 is more a holding summary, and we'll go around the grounds by region. Firstly, on ANZ region on Page 11. So as you can see, Australia actually made underlying EBITDA profit of $3 million, which is an extraordinary achievement on 29% revenue of last year. And that's based on a couple of factors. Firstly, it's the competitive advantage we're building with productivity and automation. Also, it's really about December '20 when they opened the borders as well. As you can see there, in that month, the region made $1.9 million. And as we said before, it proves that we can operate a successful domestic-only business when things allow us to. But we're also really pleased in terms of how the business is operating. Over that period in the second half of FY '20, we worked really hard on productivity and taking more of our automation across our customers. It's nice to share with you that our December '20 productivity was up 10%, which bodes really well for recovery in terms of the efficiency and the cost base of the business. But also the Tramada acquisition we made, which is a mid-office system that is really prevalent in Australia and New Zealand, but we can take overseas. It's allowing us to create greater automation and synergies into calendar year '21. So the outlook in Australia is pretty good. January '21 was profitable despite the border shutdowns. In fact, it was the second most profitable month of the financial year, and that's because of new client contracts. And we expect the region to grow profitably -- larger profit than the first half on the provisor that the Brisbane-Sydney-Melbourne triangle remains largely open. On to Slide 12, if we can. And this is the ANZ case study in activity recovery, and what this graph shows is the total booking comparison of this year versus last year. And of course, this year, there's no international travel. So when you look at that -- the green circled area when the border is open, you can see that on a 14-day moving average, the domestic travel came back to 70%. Now this is getting close to full recovery, actually. And in that point, there's a couple of things I wanted to note. Firstly, when activity recover, we could clearly make a profit, which shows the leverage we've got because of the automation. The second point is, which is really good, it wasn't about essential travel clients anymore. In fact, 49 of our 50 top clients were all traveling since November. So clearly, now that recovery was much wider and a good case study of what we think can happen when things open up. And I also want to point again to New Zealand, a smaller part of this region, but the region has remained above 100% of the prior year despite no international, again, because of growth, but it shows that -- again, it proves a couple of points that there appears to be little structural corporate travel impact from COVID on the provisor there's no quarantine restrictions and travel -- it's still safe to travel. So again, this is very encouraging for where we leverage in the U.S.A. and Europe, where the vaccine programs are more advanced as we move through the year. So on to 13 -- Slide 13 in Asia. Again, this is a much better result than we thought because as we said over and over again, Asia is more exposed like normal travel to international travel, which really isn't happening too much. But to lose only $3.6 million in the half is quite a bit better than we expected, and that's because the team is focused on minimizing losses until international returns. But clearly, they are winning business through the CTM technology platform. That was a key driver as well as our financial stability, which has been very helpful as well in winning business. So I think as we said before, don't look at TTV because of all the big refunds and revenue is a more accurate reflection of activity. And we think to only be down 72% is a lot better than we thought and that helped with the result. But the reality is Asia is mostly international. So we do not expect any significant change in the second half to profitability. It's really now we depend on vaccine rollouts being a key catalyst. But we are building market share and we're doing things cleverly. So as competitors depart the industry, we are able to secure client -- books of clients with no capital outlay. And that's a good way, again, to build the business for a recovery. On to Slide 14, Europe. So again, Europe lost $2.2 million. And if we back out the 2-month contribution of Travel & Transport, only lost $1.4 million in the half. Again, a strong revenue performance despite the ongoing COVID disruptions. We all know it's heavily skewed to domestic travel. But I want to touch on a few things that we did last year and how that's helping us win business. We've always said that our service and technology expertise is always going to be very valuable, and it was going to shine in times of crisis where people really rely upon it. And again, using this project expertise, we provide the travel services to support the U.K. repatriation program. And in that, we moved over 38,000 people in that last quarter to get the U.K. citizens home very successfully and seamlessly. So the key point in Europe is we are winning clients that are transacting immediately. And again, to make this claim, we expect monthly revenue to actually double on the first half average from February due to large new client contracts awarded that are transacting. In fact, January breakeven, and that's despite the lockdowns that are well publicly known in the U.K., and we expect that region to become profitable from February straight up. And of course, this region is really leveraged to an impact of vaccine success on travel recovery, which we'll touch on shortly. If we go to Slide 15, North America. Had underlying EBITDA loss of $9.1 million, but we need to look into this number to really see what's going on. There's 2 key factors here. Firstly, it did include 2 months of T&T. And as we flagged, we have roughly AUD 2 million loss from T&T straight up as we eliminated costs moving forward into calendar year, and we've broken that out in that bottom chart for you. So you can see in isolation, CTM lost $5.6 million for the half, which we think is a pretty good result because the second key point is it is the only region in the world that is not getting any government assistance. So if we like-for-like it, on JobKeeper, North America with T&T would have actually broken even. That's why we think it's a better result than it first looks. The important point to note here is 2 things. Firstly, it is our largest contributor to revenue. It's also our largest contributor to new client wins. And secondly, with the integration which we'll touch on later in this presentation, it's been very successful. We've been able to merge a strong leadership team, and they're executing really well. We touched on that we hope to find USD 18 million of duplicated synergies, and we've done that already. We've eliminated those costs. Of course, they're based on a return to full run rate. And of course, there's additional synergies to come from the large IT and finance projects that are underway, which we'll talk about a little later. But let's talk about the outlook. There's no doubt that North America has amazing resilience in travel activity despite the high COVID infection rates. We referred to the TSA data, and you can see that travel still is increasing week on week, which is incredible and that's America. But the key point is they are actually winning new business at an accelerating rate. And what's really pleasing for the company, the reasons we're winning is both the technology, but also the story of coming together with T&T. They are the key drivers that's winning us business at accelerating rates. It's really pleasing for the company. And also, this region is also most leveraged to the impact of vaccine success on travel recovery. So what is the relevance of the vaccine rollout? Let's go to Slide 16. Now the graph you can see here is from Airfinity who are a COVID-19 data specialist, and this was released in December just before Christmas. So there's been a few slight changes since here. But what this graph is trying to show is 2 things. There's a view that -- the yellow triangles is when all the frontline staff, i.e., health care stuff and all the high-risk population, which is 65 years and above, and those with -- that have exposure to risk immunized. Now the fact of the matter is, whilst this was done in December, the United States is slightly behind the 22 February target but the United Kingdom is well ahead of the 9 April target. So what that means is that they're really well advanced, and they're actually hitting those marks really shortly. So you can see, again, if you compare it to what we know down in Australia, the U.S., as of Friday, they rolled out 52 million doses on a population of 329 million, which is nearly there. And the U.K. just surpassed 15 million doses on a population of 67 million. So that's -- and again, the U.K. has said that they expect to have all adults vaccinated by the end of April. So again, the theory is that travel restrictions are expected to be relaxed when that high-risk segment of population is fully vaccinated. So when you take a view of that, you've got the U.S. and U.K. are contributing around 70% of our CY '19 pro forma revenue to CTM, and these are the regions where we think there is a biggest incremental revenue and hence, profit gain upon hitting these markers. So if we go to Page 17, I now want to hand over to Neale O’Connell, our CFO; and Cale Bennett, our Deputy CFO. Neale, over to you. -------------------------------------------------------------------------------- Neale James O’Connell, Corporate Travel Management Limited - Global CFO [3] -------------------------------------------------------------------------------- Thanks very much, Jamie. Good morning, all. You would have seen from this morning's announcement that I am standing down and retiring from my role as Global CFO. But I'm very pleased to hand the reins over to our Deputy CFO, Cale Bennett, who most of you on this call are already familiar with. This was a succession plan that we put in place, and I'm very, very pleased that it's come to fruition. I'll hand over to Cale to run through the slides, and thank you all. -------------------------------------------------------------------------------- Cale Bennett, [4] -------------------------------------------------------------------------------- Thank you, Neale, and good morning, everyone. We're on Slide 18. As Jamie mentioned earlier, TTV is a poor indicator of performance in first half '21 due to the impact of COVID-related refunds, particularly in the first 2 months of the half. This has served to depress TTV and inflate our revenue to TTV margins. Revenue and other income fell 67% in the half to $74.2 million, assisted by global government assistance of $13.7 million. This government assistance has helped us to maintain our staffing levels globally, ensuring continued high-quality service for our clients through a difficult and complex environment. We moved on costs very early when COVID hit, making difficult decisions to ensure we put ourselves on a stable footing, and this cost discipline has continued through the first half of '21. Underlying EBITDA has come in at a loss of $15.7 million for the half, down from a profit of $64.5 million in the p.c.p. Underlying NPAT for the half was a loss of $26 million. Going forward, we expect amortization of computer software to be in line with first half '21 in the order of $9 million to $10 million. Moving on to the next page, Page 19. At our FY '20 results, we informed the market that we were not expecting any further material nonrecurring impacts from COVID. Pleasingly, we've been able to deliver on this with nonrecurring costs overwhelmingly related to the acquisition of travel and transport. In the half, we incurred $6.6 million of acquisition costs, which is $2 million lower than indicated when we announced the transaction. Integration costs were $4.5 million in first half '21. Our expectations for integration costs of the Travel & Transport acquisition remain unchanged from previous indications at USD 10 million... (technical difficulty) -------------------------------------------------------------------------------- Operator [5] -------------------------------------------------------------------------------- We now have him back on the line. Please go ahead. -------------------------------------------------------------------------------- Cale Bennett, [6] -------------------------------------------------------------------------------- Thank you. Sorry, I think we just got lost for a moment there. So we came into first half '21 with a strong balance sheet with no debt and positive net cash. Following the acquisition of T&T and the corresponding capital raise, we've exited first half '21 in a stronger position than we arrived. Net cash was $119 million at 31 December with continuing focus on collection of receivables, ensuring that no significant receivable losses have been recorded during the period. The group has no drawn debt and our banking syndicate has shown continuing support by extending our covenant waivers beyond 30 June '21 to December '21 with no restrictions or changes other than those communicated at the full year results. Bank guarantees have also been reduced during the half from $54.3 million to $29.3 million, driven by continuing discipline from our treasury team. On to the next page, our cash flow summary, Page 21. Our operating cash flows of negative $40.5 million have been driven by our statutory EBITDA loss of $27.4 million and the change in working capital which resulted in an outflow of $14.8 million. The largest impact of working capital during the half was the refunds to clients in Asia during the first few months as a result of cancellations. In second half '21, we are increasing our technology CapEx spend back to pre-COVID levels. So expect $10 million to $12 million to be capitalized in second half '21. Maintaining our technology advantage in the market remains our focus. And given we are on such a strong footing, we have absolute confidence this is the right thing to do. I'll now hand back to Jamie. -------------------------------------------------------------------------------- Jamie Michael Pherous, Corporate Travel Management Limited - MD & Executive Director [7] -------------------------------------------------------------------------------- Thank you, Cale. And we'll talk about the acquisitions now. If we can go to Slide 23. I want to touch on Travel & Transport... (technical difficulty) We've shared this with you before. The Travel & Transport acquisition, you can see it was large. It had roughly CY '19 TTV of USD 2.8 billion or roughly AUD 4 billion. And we said to you that this would really strengthen our position as one of the leading corporate travel managers in the world. In fact, we're ranked #5 now. And of course, it would give us a scale we always wanted in CTM's North America business. Again, we talked about the opportunity to leverage the Travel & Transport Radius Hotel Program and network. And what we always liked about this business was a leadership team and a strong cultural alignment, a really valued service and technology, and we'll talk about that strong combined team that we've created through this. So if we go to Slide 24, what's really important to note here is the integration is well on track. We said we would move quickly and take advantage of the quiet period in ownership in those first 60, 90 days, and we've accomplished an enormous amount in those first 3 months. Firstly, we've successfully combined the management team led by Kevin O'Malley, the CEO. And again, we've retained all the key leadership, and we've got a great combined management team that makes us a much stronger business. They're focused on -- you can see not only they're getting the integration underway, but you can see by the numbers they're really focusing well on client win service and the optimization of the business very quickly in the cycle. Secondly, we talked about operational expenses and the efficiencies we'd find from reducing duplicate spend. That's achieved. So we're very comfortable we found those USD 15 million or so of duplicated costs that will be permanently eliminated from the ongoing business. Same with property footprint. We said we had a bit of duplication there and we'd rationalize that quickly. And we've completed office managers in both London, Paris, Denver, Seattle and Boston. That's roughly around USD 1 million annualized savings as we move forward. And we also talked about the scale benefits and the buying power we'd get together. And we're seeing really good improved outcomes across key air and hotel suppliers very early in the piece. And we're very comfortable that the USD 2 million or so of annualized benefits will flow upon a return, of course, to full run rate base of revenue. And lastly, the IT. We said that the IT was a much bigger project, IT and finance. And we've already agreed on the best-of-breed client-facing technology moving forward. And it's really nice to share that T&T staff are already onboarding and winning clients because of the Lightning OBT, which is our way forward. But it's important to note that we are not done yet here with duplication costs and efficiencies. We're certainly retaining quite a large pool of resources -- excess resources to enable us to accelerate the completion of these projects while things are quiet. And as a result, the tech and finance rationalization is still on track, of course, to be completed in FY '22, and we expect to see further synergies on -- as these things complete. So on to Slide 25. And this really sums up how we think about the business post-COVID. So again, If you take a view that CY '19 CTM had TTV of roughly $6.8 billion and underlying EBITDA of $150 million. And the combined business based upon pro forma CY '19 numbers with Travel & Transport, we had a TTV of approximately $10.8 billion with EBITDA of $216 million. And that assumed the USD 18 million of synergies that we suggested we would find, which we have. So when you take that view, you can see the final column here, the group, where we're looking at. But the key point here to say is there's 2 things to add to that. There will be more cost synergies to come from IT and finance as we complete those projects and we integrate into FY '22, but also this does not include the other organic growth and other acquisitions that may happen along the way. So if we go into Slide 26 and then 27 -- sorry, just our technology competitive advantage. We've always said that having our own tech suite being built in region for clients is a big advantage. The key point is here, we've broken things in -- as you can see there, we're doing a lot of work with COVID in mind as it results in budget optimization, safety and hygiene. It's been integrated fully with our Lightning, proprietary, online booking tool, risk and also traveler well-being. But the key point we want to share is that we're really starting to spend now. We can see the recovery. So CapEx spend is starting to return to pre-COVID levels, which shows you the investment we want to make to keep that competitive advantage in the business. Okay. On to the outlook and on to Slide 29. So as you can appreciate, given the government decisions that are evolving and border restrictions and vaccine impacts aren't quite known, CTM is not in a position to offer 2H '21 guidance. But it is our expectation that ANZ profit will accelerate, and Europe will also be profitable in the second half. And I want to remind you that as combined business now, coming off pre-COVID of $60 million -- plus million of revenue per month, we're only losing $2.8 million in January, which was a soft month seasonally anyway that we're very close to breakeven. So those key catalysts for returning to group profitability, they're really broken down into 2 parts. Firstly, it's ANZ and domestic. We demonstrated we can make a respectable profit without international if they can keep Brisbane City and Melbourne, that triangle largely open. So we hope that, that does happen and continues to happen over time over this half and year. And the second is Rest of World. As we've said before, the Rest of World, particularly the U.S.A. and U.K. are moving significantly faster on vaccines, particularly with the high-risk population being vaccinated very soon. And we think they have much more incentive to open versus ANZ because of the economic circumstances in those regions. And I want to remind you that the U.S. and U.K. represent 70% of our pro forma CY '19 group revenue. So they are the 2 regions that we think has the most incremental upside in both revenue and profitability as those vaccines take hold. I also want to remind you that we've clearly got a lower permanent cost base as we return to a full run rate basis. We already told you that we've taken out costs from the CTM business pre-T&T. We've got that disciplined cost management that's still there, and we combine that with the already permanent cost reduction taken out and the duplication costs taken out with T&T, these -- all these things will aid profitability through the recovery phase. So in closing, just want to remind you that we're well positioned to be a significantly larger business post-COVID. We expect higher EPS due to the strategic acquisitions. And we also expect the organic growth and permanent cost out to be good attributes to make a much stronger business at the other end. I'll now pass it back to Izzy for any other questions. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) Your first question today comes from Quinn Pierson with Credit Suisse. -------------------------------------------------------------------------------- Quinn McComas Pierson, Crédit Suisse AG, Research Division - Co-head of the Small Cap Research [2] -------------------------------------------------------------------------------- I guess, firstly, can you please elaborate on a few comments you made regarding new client wins. Is that something to the effect of securing client books with no capital outlay, if you could potentially elaborate on that, please? And secondly, in Europe, you had mentioned, from February, revenues to double on the p.c.p. That sure seems like a big step-up. If you could maybe provide a bit of color or elaboration on what was actually won? That would be helpful, please. -------------------------------------------------------------------------------- Jamie Michael Pherous, Corporate Travel Management Limited - MD & Executive Director [3] -------------------------------------------------------------------------------- Yes. The first one on Asia. Again, what we're finding is in that market where things are difficult because it's an international market, people are really leaving the industry. So what we're doing there, we're acquiring their staff and their clients with a view to maybe paying a trailing revenue if those clients travel. But it's a good way again to build an organic base coming out the other end. And again, we're very strong in that region compared to our peers, it seems. So we're watching that space. We think it's a really clever way to grow our base without a capital outlay. A second one with the U.K., yes -- I mean, we don't talk about clients we've won. That's just our policy. But yes, we've obviously won -- to make that client, we've won an enormous amount of business. Most importantly, it's not phantom business in the sense that it's actually transacting. I mean we're winning a lot of business around the world. But obviously, in times like this when people can't travel, if someone was, for example, spending $10 million, they're not going to spend $10 million tomorrow. But in these circumstances, they're all transacting very quickly. So -- yes, so it's great for us. And again, we're winning business because of our expertise in about a service and manage things when borders are closed, but also the technology that we can overlay to make that happen. So those 2 competitive advantages we've always had. As we said in the full year results, they're really coming to the floor. We're very pleased with what we're winning, particularly in North America and Europe. -------------------------------------------------------------------------------- Quinn McComas Pierson, Crédit Suisse AG, Research Division - Co-head of the Small Cap Research [4] -------------------------------------------------------------------------------- That's helpful color. If you were to consider the business that you've won during COVID and consider that in terms of what these new customers were spending pre-COVID, are you able to give us some idea in terms of order of magnitude in terms of what kind of uplift to the group TTV that could be? -------------------------------------------------------------------------------- Jamie Michael Pherous, Corporate Travel Management Limited - MD & Executive Director [5] -------------------------------------------------------------------------------- Can you say -- I don't really think I can, to be honest with you. No. Sorry, mate. We're still seeing how it goes. I mean, it's hard. I mean if we could give guidance, we would have, right? If we had that clarity, as you know, we would give guidance. -------------------------------------------------------------------------------- Quinn McComas Pierson, Crédit Suisse AG, Research Division - Co-head of the Small Cap Research [6] -------------------------------------------------------------------------------- Yes. I guess, I mean it feels like there are lots of business being won in different regions. Europe, you were able to give us some idea in terms of scale. I guess I'm trying to think once business returns in terms of what kind of uplift? Is it maybe when, one, a double-digit percentage of what your pre-COVID volumes were? Any kind of color like that? -------------------------------------------------------------------------------- Jamie Michael Pherous, Corporate Travel Management Limited - MD & Executive Director [7] -------------------------------------------------------------------------------- All I can say to you is that what we've won in the 8 months is really pleasing for us, and it's what we've always aspired to win in terms of a combined business with T&T. So that's all I can say. But again, to make some of the claims we're making, we wouldn't be making them, would we? So yes, we're winning well. -------------------------------------------------------------------------------- Quinn McComas Pierson, Crédit Suisse AG, Research Division - Co-head of the Small Cap Research [8] -------------------------------------------------------------------------------- That's helpful. And then just on synergies. So of the $25 million, that's a full run rate. How much should we be expecting to see flow through, I guess, in the June half and over CY '21, given that we're obviously not at a full run rate? -------------------------------------------------------------------------------- Jamie Michael Pherous, Corporate Travel Management Limited - MD & Executive Director [9] -------------------------------------------------------------------------------- Yes. It's really -- you need the run rate. You need revenue to come back to see those costs. You can pull the costs out. But of course, it's just how they don't come back as the revenue grows. So it should be a journey as things come back is the best way to describe it. But again, we thought that would take a good year to come out, but we're very comfortable. We're really proud of the team, how they've come together and how we're monitoring that progress. We're really pleased that it's happened so quickly. But then again, that's what we thought it should, right? Because things were quiet November, December, particularly over there with the election and other issues going on over there. The guys really rolled their sleeves up and got stuck into it. So it just puts in a really good momentum. I mean all that work is done now. Now it's about, as I said, focusing over there, which they are doing on winning business and getting the technology and finding the bigger projects integrated. So we've got teams really set aside to do that. So the day-to-day business is business as usual, and that's what's most pleasing about the project of where we're at. -------------------------------------------------------------------------------- Quinn McComas Pierson, Crédit Suisse AG, Research Division - Co-head of the Small Cap Research [10] -------------------------------------------------------------------------------- That's helpful. And then just lastly for me, also on synergies. In terms of the tech and finance rationalization, it looks like that's kind of an FY '22. I guess kind of a 2-part, which is, firstly, can you give us some idea in terms of the quantum of potential savings from that process? And then secondly, what that slope looks like as in -- does it get to FY '22 and then you almost just turn off the old tech and realize it then? Or is there gradual savings towards that? -------------------------------------------------------------------------------- Jamie Michael Pherous, Corporate Travel Management Limited - MD & Executive Director [11] -------------------------------------------------------------------------------- Yes. I think there'll be step changes. It's -- and we're still working through that. But clearly, what we've done, which we've learnt from the past, where we haven't done as well, we're keeping a lot of people just focused on those projects. So that's the learning we've had from other times in the state. So there's quite a significant cost of people just totally focusing on getting those projects completed and that cost will go away. And it will be in step stages as we get through the process. But most importantly, we've agreed with the tech stack and what it should look like, and the whole team is selling that. The brand is there, CTM, and that's the most pleasing thing. And hence, the outcomes that we're receiving in the market. And I just want to stress -- because we look at when we win things, why we win it and the 3 reasons that are coming up, it's the tech. It's clearly the story. They're coming together with the story. It seems to be well received in the market by travel procurement. And thirdly, our financial stability as well, which is very important, particularly in the U.S. market. Those 3 things are playing well. So we just have to see how it pans out. -------------------------------------------------------------------------------- Operator [12] -------------------------------------------------------------------------------- Your next question comes from John O'Shea with Ord Minnett. -------------------------------------------------------------------------------- John O'Shea, Ord Minnett Limited, Research Division - Senior Research Analyst [13] -------------------------------------------------------------------------------- Can you hear me okay? -------------------------------------------------------------------------------- Jamie Michael Pherous, Corporate Travel Management Limited - MD & Executive Director [14] -------------------------------------------------------------------------------- Yes, we can. -------------------------------------------------------------------------------- John O'Shea, Ord Minnett Limited, Research Division - Senior Research Analyst [15] -------------------------------------------------------------------------------- Just questions from me. Just wanted to give you a bit of a sense of the competitive landscape in the different markets, sort of what you're seeing there. I know you've made some comments around it at a high level. Perhaps you can give a bit of color what you're sort of seeing there with your competitors? And how that's sort of playing out in the different markets? -------------------------------------------------------------------------------- Jamie Michael Pherous, Corporate Travel Management Limited - MD & Executive Director [16] -------------------------------------------------------------------------------- I think it depends where the market is open and how evolved it is. So for example, in Asia, there's really nothing going. There is no real competition at the moment, it seems. But -- I mean, to be honest, we're really focused on ourselves at the moment. We know -- we've been through this before. We know what it looks like. We know what clients -- I think we said this here before, clients give you a bit of goodwill when you're in a cycle like this because they understand the difficulties of the travel industry, but that goodwill evaporates very, very quickly when things open up. We know we're in a much better position than our peers because we've got a lower -- I guess, we've got a very good capital light model, which means we can carry more people and bring people back quickly. That's the key thing. And we're seeing that be a key driver in wins as well as technology. I mean I can't speak for the other competitors, but all I know is that in markets -- the first quarter, things went -- obviously, when people are shut down, there's not really much going on in client wins because there's no one on the other end of the phones. That's changing in different markets. So I think as borders open up and airlines get flying, I expect that to continue. But it's really about we take a long-term view because we've been here before. It's about positioning. And we all know those with -- those that can come back quickly. I mean, don't underestimate. You look at where we're at, right? You look at the revenue. If this was to come back in a year, it's like getting 10 years of growth in 1 year. That's quite challenging for businesses. And I don't think the market quite appreciates that. And that's going to really create a chasm and gap of winners and losers. And I think because we've got this with a strong balance sheet, we've got a lot more people per head than the others. We feel very confident that we're putting ourselves in the best position to manage it. -------------------------------------------------------------------------------- Operator [17] -------------------------------------------------------------------------------- (Operator Instructions) Your next question comes from Tim Piper with RBC Capital Markets. -------------------------------------------------------------------------------- Timothy Piper, RBC Capital Markets, Research Division - Analyst [18] -------------------------------------------------------------------------------- Just a couple of questions on Europe. Can you just remind us what the rough split was between government and corporate pre-COVID? And what the activity levels within those 2 sectors in the U.K. are looking like at the moment? And just given your client win commentary, what that mix kind of looks like post-COVID versus what it was pre-COVID? -------------------------------------------------------------------------------- Jamie Michael Pherous, Corporate Travel Management Limited - MD & Executive Director [19] -------------------------------------------------------------------------------- Yes. Government's around 1/3, give or take. Obviously, everything is closed down right now, right? I mean I don't -- you've got to look at these numbers through the lens of what's happened in November, December, January over there. And you've all seen North America and Europe infections go through the roof. So there really is no nonessential travel going on at the moment. It's very, very little. That's -- so that's number one. Number two is it shows you how many essential travel clients are winning. That's all I can say. And that's a good thing for us because they transact immediately. It's not -- like I said, it's not pie in the sky stuff that you win someone. A client spending $10 million, they spend $0.5 million, which is often the case at the moment. So in that sense, it's really good for the business. And again, we just don't -- our philosophy, we don't talk about customers. -------------------------------------------------------------------------------- Timothy Piper, RBC Capital Markets, Research Division - Analyst [20] -------------------------------------------------------------------------------- Right. But the activity skew at the moment is skewing more towards government as opposed to corporate. -------------------------------------------------------------------------------- Jamie Michael Pherous, Corporate Travel Management Limited - MD & Executive Director [21] -------------------------------------------------------------------------------- I wouldn't say. It's more essential travel clients. -------------------------------------------------------------------------------- Timothy Piper, RBC Capital Markets, Research Division - Analyst [22] -------------------------------------------------------------------------------- Okay. And just around your assumptions that revenue run rate in Europe can double in the second half versus first half, is that just based on client wins or do you have an assumption around continued increase in activity with... -------------------------------------------------------------------------------- Jamie Michael Pherous, Corporate Travel Management Limited - MD & Executive Director [23] -------------------------------------------------------------------------------- No. Client wins. -------------------------------------------------------------------------------- Timothy Piper, RBC Capital Markets, Research Division - Analyst [24] -------------------------------------------------------------------------------- Just -- so it all double is on the back of client wins. -------------------------------------------------------------------------------- Operator [25] -------------------------------------------------------------------------------- Your next question comes from Mark Wade with CLSA. -------------------------------------------------------------------------------- Mark Wade, CLSA Limited, Research Division - Research Analyst [26] -------------------------------------------------------------------------------- Jamie, what gives you the confidence that corporate demand for traveling will get back to where it was pre-COVID eventually? Or is it just a bit too early to tell at this point? -------------------------------------------------------------------------------- Jamie Michael Pherous, Corporate Travel Management Limited - MD & Executive Director [27] -------------------------------------------------------------------------------- Well, Mark, I think we said -- I'll go back to that slide in Australia, that's just the facts. We've been through a number of these. And as we said over and over, the past historic facts proof it up, and we've given you a graph of Australia. And we've said before that when -- they're the facts now. So everyone can say what they want. I'm giving you data that Australia opened up for 2 weeks and the 14-day run rate was at 70%. Now considering that international for us is probably 15% or 20%, that's getting very, very close to full recovery, and that was only opened for 2 weeks. And typically, we know it can take 3 or 4 months to get back. I mean other than that, all I'm saying is that it gives us more confidence that there won't be structural issues like people may suggest because I've got real data from New Zealand. I've got 8 months of it now, and New Zealand has been above 100%. It's been as high as 130% actually, Sure, we're growing. But when there's no international, that's a pretty bullish sign that things get back to normal in domestic land. And I think that ANZ -- it was the only time when all the borders are opened, right? It was interesting to see -- it surprised us. -------------------------------------------------------------------------------- Mark Wade, CLSA Limited, Research Division - Research Analyst [28] -------------------------------------------------------------------------------- Yes. It's a positive sign, for sure. And just turning to Tramada. This acquisition, I was a bit surprised to see that they're a bit over $9 million. I mean -- so they were a supplier to you guys. And I'm just trying to understand, given you've got such great technology, what does it really bring to the offering that makes you a better business? -------------------------------------------------------------------------------- Jamie Michael Pherous, Corporate Travel Management Limited - MD & Executive Director [29] -------------------------------------------------------------------------------- It's a mid-office player. What we're trying to do is control the technology that's critical. It was the last one that wasn't. I think by integrating further with that and -- it's a great piece of software that we think -- the software itself does 5 or 6 things. In the Rest of the World, you need 5 or 6 pieces of software to do that. So I think in that sense, we've worked with them very closely for many years. This just brings it even closer again. And the outcome from this already, we're seeing more automation and synergies we can create. And there's a very big opportunity for us to use this offshore and again, make us more efficient, more productive and so forth. So we think it was a very smart acquisition. -------------------------------------------------------------------------------- Operator [30] -------------------------------------------------------------------------------- Your next question comes from Wei-Weng Chen with JPMorgan. -------------------------------------------------------------------------------- Wei-Weng Chen, JPMorgan Chase & Co, Research Division - Research Analyst [31] -------------------------------------------------------------------------------- Jamie, just a question about synergies. So you're talking about cost synergies. But are you able to talk about whether you're anticipating any revenue synergies? And can you speak to how we should think about the quantum or where they might come from? -------------------------------------------------------------------------------- Jamie Michael Pherous, Corporate Travel Management Limited - MD & Executive Director [32] -------------------------------------------------------------------------------- Yes. I think when you go back to that slide, we talk about the synergies there on slide -- yes, Slide 24. So the scale benefits are really revenue synergies. So as we're going through contracts, we're getting more favorable contracts and so forth, which we think is -- we should because we're a big business and we're a business that's actually transacting revenue at the moment compared to many peers in the States and Europe that are not. So in that sense, of course, if you get a better contract, a better margin, you're going to see that upon a full recovery. So as revenue comes back, the margin is going to be better. And -- but we're very comfortable with the contracts we've done and when we extrapolate that out, we're pretty comfortable saying we're going to find at least USD 2 million. -------------------------------------------------------------------------------- Wei-Weng Chen, JPMorgan Chase & Co, Research Division - Research Analyst [33] -------------------------------------------------------------------------------- Okay. And then I just wanted to go back to the slide on Page 12, the ANZ recovery. And you're saying that it's a full recovery. If I think about just within my company and maybe even the broader sort of investment industry, I don't think anyone's traveling domestic or otherwise or in -- at least in that period. Just wondering if you could give some color on where that travel is coming from? Is it more based... -------------------------------------------------------------------------------- Jamie Michael Pherous, Corporate Travel Management Limited - MD & Executive Director [34] -------------------------------------------------------------------------------- Yes, it is. I mean 49 of our top 50 clients travel. The only one that didn't was a charity, which probably shouldn't be traveling, right? So 49 of 50 of our biggest, they're all traveling. So again, I think that's pretty broad-based and the data is there for you to see. You just don't knock out a $1.9 million profit in December either like that. So it really came back. And It was really surprising to us as well. Again, we have a very diverse customer base. So it's very clear that's not essential travel. That was a good -- that was the encouraging part about it. It was a lot -- it was really broad in terms of that recovery. -------------------------------------------------------------------------------- Wei-Weng Chen, JPMorgan Chase & Co, Research Division - Research Analyst [35] -------------------------------------------------------------------------------- Yes. Okay. Great. And how much of an impact would client wins be on that year-on-year comparison? -------------------------------------------------------------------------------- Jamie Michael Pherous, Corporate Travel Management Limited - MD & Executive Director [36] -------------------------------------------------------------------------------- It's just so hard to tell with activity and different things doing. There's no doubt we're winning business, right? It's like New Zealand, how can you be above 100%, right? I mean it's -- we're clearly winning business. We'll have to see what the peers come up with, but we know we're winning business. -------------------------------------------------------------------------------- Operator [37] -------------------------------------------------------------------------------- (Operator Instructions) Your next question comes from James Bales with Morgan Stanley. -------------------------------------------------------------------------------- James Bales, Morgan Stanley, Research Division - Equity Analyst [38] -------------------------------------------------------------------------------- I wanted to understand better a bit about the permanent cost reduction that you outlined in the outlook. So if you overlay that third point in the outlook with the information on Slide 25 about the pro forma earnings by putting these regions together, how much cost efficiency should there be there in the long run? -------------------------------------------------------------------------------- Jamie Michael Pherous, Corporate Travel Management Limited - MD & Executive Director [39] -------------------------------------------------------------------------------- Yes. I think on top of this is what the business has done. If you go back to things we've said before what the business has done pre-T&T with costs out, and we talked about that at the full year result. We don't expect that to come back either. So what we're trying to say, you can take a view on revenue, but clearly, we've got that sort of outcome on Slide 25. You've got more organic growth on top of that and you have 2 years of organic growth on top of that. You've got other acquisitions that are additional that might come along. So then I think we're giving ourselves quite a bit of room there to perform, but we've talked about what we've already taken out. Look, there's other costs outside of this integration that were already permanently out. So this -- that's not accounted for in that graph -- in that chart on Slide 25. -------------------------------------------------------------------------------- James Bales, Morgan Stanley, Research Division - Equity Analyst [40] -------------------------------------------------------------------------------- Yes. So I guess instead of -- it's about $550 million in cost base that's implied there at the group. What could that look like in 5 years' time when things have normalized and you're doing $10 billion or $11 billion in TTV? -------------------------------------------------------------------------------- Jamie Michael Pherous, Corporate Travel Management Limited - MD & Executive Director [41] -------------------------------------------------------------------------------- I think the key point is that we've said before, we expect that cost base, there's permanent cost out. And we'll see when we get there, but there's no doubt about it, right? Because through this process, there's continuous improvement. We've got more and more automation going through the business. You're seeing that in Australia. I mean if you go back to Australia, we talked about 10% better productivity in December than pre-COVID. That's a really outstanding result for the business. And that sort of proofs up what others might be claiming about permanent cost base coming out. -------------------------------------------------------------------------------- James Bales, Morgan Stanley, Research Division - Equity Analyst [42] -------------------------------------------------------------------------------- Got it. And maybe just one other quick one. I might have missed this at the start. But refunds in the first half, are you expecting any further refunds to come out from here? -------------------------------------------------------------------------------- Jamie Michael Pherous, Corporate Travel Management Limited - MD & Executive Director [43] -------------------------------------------------------------------------------- There's a little bit. There's a little bit of credits being used up and so forth, but it's going to get back to normal. I mean that margin of over 17% is artificially high. It will get back to where it was. So pretty quickly, we'd expect. Back to that mid-high 6s margin in terms of revenue to TTV. But as I've said over and over and over, we really look at revenue to EBITDA. -------------------------------------------------------------------------------- Operator [44] -------------------------------------------------------------------------------- Your next question comes from Belinda Moore with Morgans. -------------------------------------------------------------------------------- Belinda Moore, CIMB Research - Research Analyst [45] -------------------------------------------------------------------------------- Jamie, can you make any comments around sort of the U.S. and when do you think it sort of can get to breakeven, profitable? And then also, with your strong balance sheet, you're obviously alluding to further acquisitions. Can you give us any sort of flavor on what you're looking at? Is there anything sort of in the short term, et cetera? -------------------------------------------------------------------------------- Jamie Michael Pherous, Corporate Travel Management Limited - MD & Executive Director [46] -------------------------------------------------------------------------------- Yes. Firstly, the American, it's all going to be about -- I mean we're pretty comfortable with the cost where it is. And don't forget we're carrying this cost to get the integration done, the big projects. But putting that aside, it's all going to be about activity now. And it's really down to vaccines. It's going to be -- you can see -- if you look at TSA data, what we -- we're actually having a reasonable February actually over there in terms of client activity. So what you're seeing is grind up, this slow grind up. But for that to become a step change like it has in ANZ, we're going to need the vaccine outcomes, right? But the clear point is we've got a lot of capacity. So as we've said before, when it comes back, nearly all of that revenue is going to drop to the bottom line. That's why we're so close as a group to breakeven. And your second question about acquisitions, yes, I mean, we're in a good position because we've got no real issues with covenants and things like that. We've got net cash. And we think things aren't certainly getting better in the Northern Hemisphere. We're interestingly watching what's going to happen down here as well post 31 March with JobKeeper and so forth. But we're just well positioned, and we're always looking at things. And there's a couple of interesting opportunities we're always looking at that we think adds value, as I've always said, needs scale and so forth. So it's -- we're still very active in that space. As I said before, we said earlier on, we use -- we're using our leverage and our competitive advantage to create step changes in our business post-COVID. You can see we've done that in the first half. I mean, to be fair, most other people in travel are reducing their business to survive. We're doing the opposite, and we've got the cash to continue to do that should we want it and any opportunity stack up. -------------------------------------------------------------------------------- Operator [47] -------------------------------------------------------------------------------- Thank you. There are no further questions at this time. I'll now hand back to Mr. Pherous for closing remarks. -------------------------------------------------------------------------------- Jamie Michael Pherous, Corporate Travel Management Limited - MD & Executive Director [48] -------------------------------------------------------------------------------- Yes. Thank you, again, for your time this morning. And of course, we're on the road show in the next 3, 4 days. So please feel free to contact us for anything further. Thanks, and have a great day. -------------------------------------------------------------------------------- Operator [49] -------------------------------------------------------------------------------- That does conclude our conference for today. Thank you for participating. You may now disconnect.