U.S. markets close in 1 hour 41 minutes
  • S&P 500

    3,837.85
    -32.44 (-0.84%)
     
  • Dow 30

    31,424.52
    +33.00 (+0.11%)
     
  • Nasdaq

    13,048.32
    -310.47 (-2.32%)
     
  • Russell 2000

    2,226.13
    -5.38 (-0.24%)
     
  • Crude Oil

    61.28
    +1.53 (+2.56%)
     
  • Gold

    1,715.50
    -18.10 (-1.04%)
     
  • Silver

    26.32
    -0.56 (-2.10%)
     
  • EUR/USD

    1.2070
    -0.0018 (-0.14%)
     
  • 10-Yr Bond

    1.4650
    +0.0500 (+3.53%)
     
  • GBP/USD

    1.3960
    +0.0004 (+0.03%)
     
  • USD/JPY

    106.9840
    +0.2740 (+0.26%)
     
  • BTC-USD

    50,783.63
    +2,836.37 (+5.92%)
     
  • CMC Crypto 200

    1,016.88
    +28.78 (+2.91%)
     
  • FTSE 100

    6,675.47
    +61.72 (+0.93%)
     
  • Nikkei 225

    29,559.10
    +150.93 (+0.51%)
     

Edited Transcript of EXP.AX earnings conference call or presentation 17-Feb-21 11:00pm GMT

·32 min read

Half Year 2021 Experience Co Ltd Earnings Call WOLLONGONG Feb 18, 2021 (Thomson StreetEvents) -- Edited Transcript of Experience Co Ltd earnings conference call or presentation Wednesday, February 17, 2021 at 11:00:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * John O’Sullivan Experience Co Limited - CEO & Executive Director * Owen Kemp Experience Co Limited - CFO ================================================================================ Conference Call Participants ================================================================================ * Allan Franklin Canaccord Genuity Corp., Research Division - Research Analyst & Senior Analyst * James Tracey Veritas Securities Limited, Research Division - Director of Industrial Research * John Hynd Wilsons Advisory and Stockbroking Limited, Research Division - Senior Equities Analyst * John O'Shea Ord Minnett Limited, Research Division - Senior Research Analyst ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Thank you for standing by, and welcome to the Experience Co Limited First Half FY '21 Results Conference Call. (Operator Instructions) I would now like to hand the conference over to Mr. John O’Sullivan, the CEO. Please go ahead. -------------------------------------------------------------------------------- John O’Sullivan, Experience Co Limited - CEO & Executive Director [2] -------------------------------------------------------------------------------- Thank you, Anastasia. Good morning, ladies and gentlemen, and thank you for your time this morning. With me is Owen Kemp, Experience Co's Chief Financial Officer. And today, we'd like to walk you through our half year results for the financial year 2021. As per previous calls and updates, our presentation this morning is 3 parts. I'll provide a business update to commence with. I'll then hand over to Owen to run through the financial results, and then to finalize things, we'll give a brief trading update and outlook on the business. And from there, we're happy to take your questions and answers. Turning to Slide 4 and the highlights of the first half of FY '21. As the business continues to trade its way through our COVID-impacted sector, sitting here this morning, we are extremely pleased with the management team with our overall progress through financial year 2021. As we progressed through the half, despite some interruptions caused by interstate lockdowns and border restrictions, our business performance has continued to improve, particularly during that peak trading month of December. I'm also pleased that our business divestment and simplification program that we announced to the market late in 2019 is now completed, and this has allowed us to reduce our net debt level to the lowest point it's been for some time at $2.6 million. And finally, with a combination of our working partnership with the Queensland government, a stronger balance sheet and our desire for growth in our North Queensland business, we've been able to allocate capital to some value-accretive projects, in particular, our reef pontoon, which Owen will give you an update on briefly during his financial update. Turning to Slide 5. The thematics I'd like to pull out for the first half's financial snapshot of the business really revolved around improved trading during the financial year-to-date and also our balance sheet health. Our underlying EBITDA was $4.4 million. Our continuing operations were just below breakeven. And very importantly, with our balance sheet, we have cash and cash equivalents of $15.7 million. And as I said before, our net debt levels are at $2.6 million. Going over to Slide 6 and going through an update on our COVID-19 recovery before I hand over to Owen to take you through our financials. As we outlined to you during 2020, the mindset of our business, as we've approached this financial year, was really to break it down into 4 distinct quarters and approach each quarter in the thematics that we've outlined there on the slide in front of you. As we stand here today, as we go through quarter 3, there's no doubt there have been some disruptive events caused by some further interstate lockdown, which has led to some consumer uncertainty, but also, we're now experiencing the domestic shoulder season in February or March, which will see some quieter trading, particularly in North Queensland and over in New Zealand, but pleasingly, we're seeing in our Skydive Australia business some strong trading, in particular on weekends. That said, as we look forward through to the fourth quarter of FY '21, we remain confident in the sector and our business, in particular, will benefit from the vaccine rollout in Australia and New Zealand, which we believe in Australia, particularly, will lead to better stability for interstate travel and also increased consumer confidence. We also know that from talking to our partners in regional tourism organizations that the holiday periods ahead for the financial year and Easter and also June and July are looking particularly strong. And we also expect that during the quarter, we will get better visibility on international market opportunities as the year progresses. So that's a bit of an update on the business. I'll now hand over to Owen to walk you through our financial results for the first half. -------------------------------------------------------------------------------- Owen Kemp, Experience Co Limited - CFO [3] -------------------------------------------------------------------------------- Thanks, John, and good morning, everyone. So we're now on Slide 8 for those of you with the presentation before you, where we just give you some highlights on the financial performance, which I think the key takeout that we want to share with you today is that we're trading in line with expectations. You may recall, the group started the half cautiously looking forward, having only recently recommenced operations following suspension of activities in March 2020. Today, I present to you, as John shared, a result that we, as a team, are extremely pleased with, perhaps not in normal times, but certainly within the context of the pandemic and also our tourism business during its global pandemic. Domestic uncertainty with pandemic plus the interstate border restrictions and metropolitan lockdown added to the challenges and uncertainty faced during the half and will continue to feature in our near term. But overall, revenue of $20.1 million was a solid result and underlying EBITDA of $4.4 million, a stark improvement on the $1 million loss for the second half of 2020. And now I would note as a bit of accounting housekeeping, the results now include the impact of AASB 16 leases. And for each of the current and comparative period, the underlying EBITDA is $0.9 million higher than would otherwise be the case. We are extremely pleased with the reduction in the statutory net loss of after-tax to $0.2 million, down from $7.1 million in the comparative period, which follows the timely implementation of the business simplification strategy and has positioned the business well to navigate the pandemic. As John alluded to, month-to-month trading continued to improve through the half, with solid volumes and profitability in the key month of December, which, most will recall, saw the emergence of the Avalon cluster in New South Wales from mid-December, which, once again, was another short-term blip on the horizon. Looking at the results and the near-term prospects, it's a simple story. International travel has been a one-off feature in the near term, as John alluded to, and the domestic story is one of continued metropolitan self-drive markets trading well, but destination markets that require aviation access, such as Cairns and Queenstown relevant to our business, continued to be highly impacted. Overlaying that, we've got the vaccine developments, which are positive overall to our outlook, and we are cautiously looking forward with optimism in this regard. Now I promise not to dwell on net debt, as I usually do, too much today, but we're delighted to be where we are at the end of the period at $2.6 million net debt, which included a $1 million contribution in net terms to the pontoon project. And lastly, we continue to be grateful for the government support we see to date, enabling us to continue to prudently navigate the pandemic with our workforce. Turning to Slide 9. In the Skydiving business, we saw a strong finish to the half with our Victorian Drop Zones coming online in late November. Skydive continued to build over the half even with the emergence of the Avalon cluster and the peak season bookings in jump volumes, particularly in Australia and the metropolitan markets were quite strong. In Australia, we had 8 DZs operating for the half -- for the full period, with the 3 Victorian Drop Zones coming online in late November. Approximately 42% of volume was achieved for the half compared to the prior period. And if we look back to FY '18, FY '19 volumes for the key months of November and December, we're starting to see prior comps coming in around the 50% mark. Metropolitan self-drive markets within 2 hours of major cities have performed beyond our expectations heading into the period, but more sobering has been the performance of the destination markets in tropical North Queensland and Queenstown. And with the absence of international, we expect this to continue through the calendar year. That all said, we are extremely pleased with our market position in each key market and our pricing and cost structures across the Skydive business. The second half will be a story of continuing to stay on top of the emerging pandemic factors and managing profitability heading into the low season, which is typically from the May to August period. Moving on to GBR Experiences on Slide 10. The trading was once again improving through the half, but Queensland border uncertainty is impacting interstate demand. So it simply is a Queensland domestic border story in the near term. Our business was highly impacted by the border closures. And in simple terms, we just only have to remember that Greater Sydney and Victoria were open for approximately 2 months and 1 month, respectively, during the half. Interestingly, as at the end of January, we had seen over 21 border variations to Queensland since the pandemic commenced. So there's no judgment passed from the management here -- team here today, but it is clear that this uncertainty will continue to be a perception challenge to consumer sentiment. At a trading level, December and January volumes were pleasing. However, with the continued lockdown, we have seen that slow off that John has mentioned with the metro snap lockdown within Victoria, Perth and Brisbane. In particular, in the GBR Experiences business, we have welcomed strong support from the Queensland government through the growing -- through the tourism icons program and the growing tourism infrastructure, along with some rental relief from the Ports North statutory authority. But for this segment, uncertainty will continue to be a factor in the near term, given the Queensland government's demonstrated approach to state borders and emerging COVID hot spots. Moving on to the balance sheet on Slide 11. Net debt is once again down. And importantly, I would remind everyone that no capital raise has been required to navigate the pandemic to date, something we're extremely proud of in the tourism industry. Capital discipline has been the key part of the business strategy, and we continue to live within our means. With net debt down to $2.6 million at December 31 and including a $1 million net investment in the pontoon project, we are quite pleased with where that has all landed. We still have approximately $3 million in net surplus assets, which management will continue to sell down in an orderly manner. There is no need for a fire sale, so we're prepared to wait for value. On the debt facility, we've extended the corporate debt facility maturity out to February 2022, and the multi-option facility has been reset to $20 million down from $40 million in light of the pandemic. We've exchanged fixed leverage and senior leverage covenants with a minimum cash requirement at any one time, something that's more suitable for our business as we go through the pandemic. Importantly, where we deploy capital in the near term will all be about the continued disciplined capital allocation in what is the new normal with the pandemic, certainly for the next 1 to 2 years. So we're certainly encouraged with the opportunity set that is emerging and that we're working on. On Slide 12, I've given a short update on the pontoon project and, importantly, it's on schedule and, secondly, on budget. John and I both had the opportunity to be hosted by English Engineering, our building contractor, last week in Cairns, and we were pleased with how this 170-tonne floating structure is coming to life. The project will be the first pontoon on the Northern Great Barrier Reef in over a decade, and it is great to see how proud and passionate our staff, our contract partners, government and local stakeholder groups are toward the project in what is a very difficult time in the region. Located on the presentation on the right, we can see the project coming together with tubes that are 35 meters long and 1.9 meters in diameter, which will weigh in each at 25 tonnes and will be the supporting structure that enables the platform to float. As we've indicated previously, we're on track to have this opened early in calendar year 2022, which we hope to be a well-timed new product launch as the markets return. And while we're on the calendar year in recent trading, I'll now hand back to John to take us through the trading update and outlook. -------------------------------------------------------------------------------- John O’Sullivan, Experience Co Limited - CEO & Executive Director [4] -------------------------------------------------------------------------------- Thanks, Owen. Turning now to Slide 14 in the presentation and just to conclude today's presentation before we open the floor up to question and answers. Our January performance was by and large, as Owen said, in line with our expectations and also previous trend across all 3 business units. Pleasingly, even though we saw a decrease in the financial impact of support from the JobKeeper program within Australia, the business continued to be profitable in the January month. And net debt remains low at $2.4 million as at 16 February 2021. As we've referenced before, we've now seen the onset of the traditional shoulder season within the domestic Australian and New Zealand tourism markets. And as a result of that, we are seeing quieter trading, particularly on our Great Barrier Reef experiences business and also our Skydive operations in New Zealand, but pleasingly, demand for our Skydive Australia product remains consistent and, in particular, strong over the weekends. We do remain confident about the outlook for Australia and New Zealand, as I said before, based on the vaccine rollout, which we do believe will continue to improve consumer confidence, and we also believe we'll also ensure that border certainty within Australia and potentially trans-Tasman travel will start to emerge as real possibilities as the year progresses. That said, due to the continuing uncertainty over FY '21, we don't intend to provide an earnings guidance for this financial year. So in closing this morning and before we hand it over to question and answers, again, I'd like to thank you for your time this morning. In particular, Owen and I would also like to thank the team members at Experience Co across our business in both Australia and New Zealand who have just been outstanding in responding to the many challenges thrown at them during this first half of the financial year and months before that and also to you, as investors, for your continued support of our business. Thank you. That concludes our presentation for this morning, and we're happy to take questions. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) The first question comes from John O'Shea with Ord Minnett. -------------------------------------------------------------------------------- John O'Shea, Ord Minnett Limited, Research Division - Senior Research Analyst [2] -------------------------------------------------------------------------------- I guess, a couple of questions from me. Firstly, just on the JobKeeper. During the half, what was the amount that you guys received? And secondly, if you can give us a bit of a sense of -- obviously, with the borders opening and closing, John, and that uncertainty, can you give us some sort of sense of the leverage in the business? In other words, when you spoke about in the presentation that when things were opened up, things were -- you saw some good growth in the business. Sort of -- can you give us some sort of extent of the scale of the leverage here? And let's say, for example, our borders do open up domestically; obviously, the international travel part perhaps after that, obviously, but what -- can you give us some sort of feel on the leverage inherent in the business with domestic borders opening fully, if you like? -------------------------------------------------------------------------------- Owen Kemp, Experience Co Limited - CFO [3] -------------------------------------------------------------------------------- Yes. Sure. It's Owen here, John. So I'll try and answer that question, and I'm sure John will chime in along the way. So if I start with the sort of the facts, the hard facts here, in terms of JobKeeper, we also -- we'll throw in the wage subsidy over in New Zealand in our business. That was -- that contribution was $5.4 million in gross terms, which we estimate that it gives us a net benefit to underlying EBITDA of $3.5 million. The reason for that, we're a bit unique in a way that we have a lot of people still on stand-down. So as you can imagine, there actually would be no work at the moment, unfortunately. So a different impact to some industries. Now how that plays out? I guess the best way of answering it is, look, the other factor is the results are driven by who is on JobKeeper and who isn't. It's month-to-month at the moment. That's the first point. But secondly, maybe the other factual point that we've got is looking at the December and January months and when we see the volume come back, which in those periods, yes, they are seasonal highs, but they're profitable on their own back those months, and we probably expect to see the volumes that we've now experienced in December, January, that usually, yes, that will be a season high. But we're hoping that the domestic stability comes in, the vaccine plays out, a question of timing, of course, John, but we are profitable without that support if that makes sense. And we -- so I think that's certainly the way we look at it. That's trying to give you the high-level read-through on that. So -- and maybe the other way of just finishing off that point, something John and I took at is, look, it's -- say, we go to the ultimate scenario that JobKeeper ends and there's no replacement, obviously, we would be a little discouraged by that. However, we would be -- we have contingency plans in place to navigate that through and ensure that it's not a catastrophic event for our business. -------------------------------------------------------------------------------- John O'Shea, Ord Minnett Limited, Research Division - Senior Research Analyst [4] -------------------------------------------------------------------------------- And I guess what I'm getting with that leverage question is, in an ideal world of domestic border openings, the sort of upside and the sensitivity in the numbers is quite significant, yes? -------------------------------------------------------------------------------- Owen Kemp, Experience Co Limited - CFO [5] -------------------------------------------------------------------------------- Absolutely. Absolutely. Once we push through, it's about 1/3, I guess, in very colloquial terms, John, but once we push through a 1/3 of the volumes of prior comps, that's where we start to see it being very accretive to profitability. -------------------------------------------------------------------------------- Operator [6] -------------------------------------------------------------------------------- The next question comes from James Tracey with Veritas Securities. -------------------------------------------------------------------------------- James Tracey, Veritas Securities Limited, Research Division - Director of Industrial Research [7] -------------------------------------------------------------------------------- Just a follow-up to John's question really. Could you be able to give us an indication of what sort of revenues and margins you'd be looking at with all of the Australian borders opened but the international borders closed? Because I think looking forward for the next 6 months to a year, that looks like the sort of the most likely scenario. So yes, would you be running sort of at 50% of prior year on the revenues? And what sort of percentage EBITDA margin would you be looking at on that basis? -------------------------------------------------------------------------------- Owen Kemp, Experience Co Limited - CFO [8] -------------------------------------------------------------------------------- I'm probably -- I'd tell you, as the numbers man, I'm probably naturally conservative on giving too much guidance here, James, and the reason why we haven't given a lot in this regard is the uncertainty attached to each of those. I get where you're going, but I think from where we stand today, we probably expect it not to be as fluid and stable as whether you keep on hitting 50% each month, just given what we've seen with the patchy closures. We are starting to cycle through the prior comps where naturally they are very high as we go through, given we were impacted by bushfires last year. But I think at a high level, I guess, John, chime in as well, but around -- if we started looking at comps and we went back to averages of FY '18, FY '19, James, which is probably [our best] reference, I think in -- if I sort of look around the markets, I'd probably say it'd be in that range of 50% of volume for the Australia Skydive business, probably something more in the order of 20% in New Zealand, and then on the reef. That's probably the variable. We haven't got a great read-through yet with the uncertainty around Queensland borders. But if we have a look at December and January, it's conceivable we might be able to get up into that high 40%, 50%. And that's not assuming any pickup, if you will, of people suddenly having pent-up demand for travel, that's sort of reading the tea leaves on the numbers we've seen when borders have been opened. But I would express they're very directional estimates, but they're the sort of trend lines that are starting to emerge. -------------------------------------------------------------------------------- James Tracey, Veritas Securities Limited, Research Division - Director of Industrial Research [9] -------------------------------------------------------------------------------- Yes. So I suppose you haven't really seen any period of properly opened borders, so you don't really have any experience of what that would look like. -------------------------------------------------------------------------------- John O’Sullivan, Experience Co Limited - CEO & Executive Director [10] -------------------------------------------------------------------------------- No, we don't -- we haven't because if you think about the geographic footprint of our business and then the states that have been impacted as well as the countries in New Zealand's case, but we've seen -- during that first half, we've seen Western Australia virtually closed off to the rest of the country. We've seen Queensland opened one day, closed the next. The state that's been the standout, from our opinion, has been New South Wales in the way that Premier Berejiklian has managed this as well. And then obviously, Victoria has been opened and shut and, obviously, New Zealand, remembering they've had a number of lockdowns. So we haven't actually seen that, but as Owen said, we're pretty confident in those types of numbers. And remembering as well, we've done a lot of work during the first half of this financial year, renegotiating a lot of our distribution agreements, bringing back commission rates by an average between 5% and 10% and spending a lot of time building up that direct business. And I think as we go longer through this, I think what we're starting to see emerge in the travel sector is the parts of the travel sector that have been impacted the most by COVID. I mean we're all being impacted, but a lot of the pain point seems to be in that distribution side of things. So it will be interesting to see how that sort of what that landscape looks like in a post-COVID world compared to what it was pre-COVID, which will, ultimately, also get back to what sort of margin businesses like ours can generate. -------------------------------------------------------------------------------- James Tracey, Veritas Securities Limited, Research Division - Director of Industrial Research [11] -------------------------------------------------------------------------------- Yes. So it sounds like when there is a recovery, you guys will be potentially a higher-margin business than what you were just because of the work you've done around costs and efficiency? -------------------------------------------------------------------------------- John O’Sullivan, Experience Co Limited - CEO & Executive Director [12] -------------------------------------------------------------------------------- Yes. And I think we've already started to see that in these sets of numbers, right? If you look at some of the results, particularly in North Queensland, where we spent a lot of time, as you know, cutting a lot of costs out of that business. And certainly, our business is really well positioned when we start to get further out of this and the vaccines get rolled out to really take advantage of those international markets opening up because I think the important thing to remember as well is that the 2 markets that will come back first from a customer point of view will be the youth market. They are bulletproof. They will travel no matter what. They don't really care about COVID, and they are our core market, particularly for the Skydiving business and that FIT end of the market, which has also been a big part of our Skydive business, particularly in both Australia and New Zealand historically. -------------------------------------------------------------------------------- James Tracey, Veritas Securities Limited, Research Division - Director of Industrial Research [13] -------------------------------------------------------------------------------- And just a follow-up question. What's the market like for acquisitions? Have you seen any interesting companies come out of the woodwork because of COVID? -------------------------------------------------------------------------------- John O’Sullivan, Experience Co Limited - CEO & Executive Director [14] -------------------------------------------------------------------------------- Look, it is interesting. We're still -- as we've said previously, we're still very active in monitoring what's out there. There's been some opportunities that have presented themselves that we've assessed and decided to not necessarily pursue, and there are some opportunities out there that we're looking at. But we haven't seen any fire sales emerge as of yet. And look, I don't really think we'll see that until really when there's a clearer view on things like JobKeeper or ongoing support to the sector. I think there's a lot of operators out there that are probably existing on that welfare that may have a different view once we come out of that. And we'll just wait and see and look at the right opportunity. As we've said before in the numerous presentations, ultimately, we will be guided by what -- any investment, what the return on invested capital is, does it strategically fit within the business and can we integrate it correctly once we acquire it and does it generate value. -------------------------------------------------------------------------------- James Tracey, Veritas Securities Limited, Research Division - Director of Industrial Research [15] -------------------------------------------------------------------------------- And do you have any guidance on that JobKeeper piece? You said that the gross contribution was, I think, $5.4 million in the first half. Do you have any expectation for the second half and beyond? -------------------------------------------------------------------------------- Owen Kemp, Experience Co Limited - CFO [16] -------------------------------------------------------------------------------- Yes. So I think maybe [break out in the trends]. So we know what it will be for the first quarter after March. I think we can safely sort of get the numbers. It will be about half the monthly run rate, James, of what it was in the first half in gross terms. And then beyond that, I guess, we're in the hands of government policy, and we read the same news that many of you on the call today would read. And yes, I think that's probably the thing. Hopefully, you find out that in the next few weeks, give us a bit of certainty, but we're planning for both cases, to be frank. And I think that's just prudent for us to be doing at the moment. -------------------------------------------------------------------------------- James Tracey, Veritas Securities Limited, Research Division - Director of Industrial Research [17] -------------------------------------------------------------------------------- Okay. But regardless of that, if you've got state borders opening, you're comfortable with being profitable even without JobKeeper? -------------------------------------------------------------------------------- John O’Sullivan, Experience Co Limited - CEO & Executive Director [18] -------------------------------------------------------------------------------- Yes, with state borders open. That's the result we'd much rather take. Agnostically sitting here today, we'd rather borders be opened enough earning our keep and demonstrating that the strategies work rather than a continuation of JobKeeper. [That's not meant there to be any] value judgment on whether JobKeeper should continue or not, James. (inaudible). -------------------------------------------------------------------------------- Operator [19] -------------------------------------------------------------------------------- Next question comes from John Hynd with Wilsons. -------------------------------------------------------------------------------- John Hynd, Wilsons Advisory and Stockbroking Limited, Research Division - Senior Equities Analyst [20] -------------------------------------------------------------------------------- Could you give us an indication of the split of the 30,000-odd or 31,000-odd jumps from New Zealand to Australia this period, please? -------------------------------------------------------------------------------- Owen Kemp, Experience Co Limited - CFO [21] -------------------------------------------------------------------------------- Yes. So in terms of that, John, you're looking at about 5,000, if I just took some round turn, in New Zealand and the balance being in Australia. -------------------------------------------------------------------------------- John Hynd, Wilsons Advisory and Stockbroking Limited, Research Division - Senior Equities Analyst [22] -------------------------------------------------------------------------------- Right. And perhaps more, I guess, looking forward a little bit more, the pontoon is a great addition and operational in early '22. What -- how does that change your business up in far North Queensland? And what sort of revenue opportunities should we be thinking about? Is it incremental to what you're doing at the moment? -------------------------------------------------------------------------------- John O’Sullivan, Experience Co Limited - CEO & Executive Director [23] -------------------------------------------------------------------------------- So John, I think in terms of the project, I think, if I understand where you're going, is it incremental or not, it certainly will be a better product in terms of that, but the first protocol is that we were looking to refresh our product or we're at the end of its economic life in many respects of the existing pontoon out on the reef. So this enables us to really just lock in that economic life of 15-plus years. But in doing so, we have looked to, obviously, have a product there, but we haven't banked in that upside, but certainly, the first protocol is that we want to extend the economic life and make that capital work longer for us to protect that business. But in doing so and with the design of the pontoon, there's scope for increased revenue streams, either through additional activities, which we'll have the capability to do, and also in terms of things like scientific research and having the facilities onboard the pontoon to offer those. -------------------------------------------------------------------------------- John Hynd, Wilsons Advisory and Stockbroking Limited, Research Division - Senior Equities Analyst [24] -------------------------------------------------------------------------------- Okay. Maybe another way to ask that question is, from -- I mean, what sort of revenue contribution would you expect to make on a percentage basis to the overall operations up there? And then I guess, on a through-cycle or a mid-cycle basis, keeping in mind helping us understand it, I think the total cost is at $7 million. What sort of return on capital do you aim for? What's the internal -- what are the internal targets for projects like this? -------------------------------------------------------------------------------- Owen Kemp, Experience Co Limited - CFO [25] -------------------------------------------------------------------------------- Yes. Okay. That's probably a simple one to answer. For a project like this, John, we're talking sort of in the double digits and north. Now I would say, with a project like this, as you'd well know, when you try and work out what the incremental, et cetera, is quite a challenging one, but the return on this project is certainly something we're quite satisfied and exceeds the threshold of 10%. -------------------------------------------------------------------------------- Operator [26] -------------------------------------------------------------------------------- (Operator Instructions) Next question comes from Allan Franklin with Canaccord Genuity. -------------------------------------------------------------------------------- Allan Franklin, Canaccord Genuity Corp., Research Division - Research Analyst & Senior Analyst [27] -------------------------------------------------------------------------------- Three for me, if I may, 1 financial, 2 more operational. Just hoping for a bit of detail on the COGS line. Just looking sequentially relative to the second half, COGS was quite materially lower and gross margin higher. Just want to understand what aided that, if I may. And then 2 operational ones. Just on pricing, how are you sort of seeing the propensity to spend in each of the different markets? Do the markets have different pricing for the weekend versus weekday? Or is there a way for you to sort of drive volumes through that way? And then just the last one just on people management. I know a lot of the sort of experienced jumpers come in and out of your business sort of anyway, but just interested in how you're keeping a lot of those experienced jumpers busy and/or on your books. -------------------------------------------------------------------------------- Owen Kemp, Experience Co Limited - CFO [28] -------------------------------------------------------------------------------- So I'll kick off with the financial numbers, and then you can talk at length with the operational. So on the margin, there's a few things happening in that. Obviously, this is where we see the JobKeeper contribution coming in. So you'll have a workforce mix issue playing out, but overall in net terms it will be benefited in the period in the margin terms in that we're obviously operational when we're operational, the costs that come through from JobKeeper, we'll put it through, and it helped us improve the margin through that. The second bit is, we have been doing a lot of work around, as you know, the cost structure, that can be the commissions through all forms of distribution in terms of that and variable charges as well we've been working on, but there's no simple read-through, I guess, in terms of that. There's a lot of moving parts in that, but it's certainly an area we've been focusing just to maximize it in the short term. -------------------------------------------------------------------------------- John O’Sullivan, Experience Co Limited - CEO & Executive Director [29] -------------------------------------------------------------------------------- And then in terms of pricing and demand, certainly, as most of you are aware, we took quite an aggressive stance on pricing for Skydive Australia as we came out of COVID-19, we felt as a management team, and this was agreed with the Board that in history, in some years, our product in Australia, considering the quality of the product, the quality of the drop zones, quality of the aircraft and the instructors is that it was relatively underpriced. To give you an example, we had run in some years upwards of 20-odd different sales during the course of the financial -- during the course of the year, which is -- we've now brought down to 8. For skydiving, we have basically gone for a consistent pricing model in peak season across the drop zones in that there's no differentiation between midweek and weekend. As we're going into the shoulder season, however, we have just introduced a midweek offer, and that's in response to, as I said before, I guess, this quieter period, which will keep going until April. Up on the reef, again, we've either maintained or increased our pricing. As has been the tradition on the reef, there's been a lot of local discounts that have been provided by the operators generally in the vicinity of about 50%, but again, we have brought back our discounts on that round to the 30% mark. And unlike some of our competitors up there who have applied local rates to all of Queensland, we've maintained that to being in the local catchment area. And with respect to the question around the tandem masters, it's important to remember our tandem master workforce is a contractual workforce. So like any contractor, they can provide their services to other businesses, other operators, just like an electrician can fix my house and come fix your house, Allan. So they're able -- they've got a much more flexible work arrangement in and around that. A lot of them have been able to qualify for the JobKeeper program directly, but I guess, for us, what we're able to provide is higher volumes of work than our competitors do and again, importantly, the equipment that we have, the aircraft and the drop zones that we provide for them. Plus a lot of these contractors have contracted to us for a very long time. So there's a history and connectivity with the company. -------------------------------------------------------------------------------- Allan Franklin, Canaccord Genuity Corp., Research Division - Research Analyst & Senior Analyst [30] -------------------------------------------------------------------------------- Yes. Sure. And sorry, just one other quick one. So I think you've alluded to November and December being sort of circa 50% of normal volumes. So just to clarify, that's normal volumes including international, but relative to normal domestic, that would be at or even higher than normal sort of domestic volumes pushing through those months? -------------------------------------------------------------------------------- Owen Kemp, Experience Co Limited - CFO [31] -------------------------------------------------------------------------------- Yes, yes, yes. And I think that's one of the things that has been -- we have benefited from. If you think about, on a normal basis, Skydive Australia, generally around 35% of our customers are from Australia, and we're now seeing through some of the numbers, I think, in December, it was roundabout 54%. So we're seeing a higher number relatively to what we do in normal trading. Now obviously, there's an impact of COVID and the Australians have been as you were in Victoria, locked in your house for an extended period of time. You want to get out and jump out of an aircraft. So that's good. We realize that, that -- we haven't, but we're also doing a lot of work at the moment on CRM and direct sales so that we can continue that post pandemic. -------------------------------------------------------------------------------- Operator [32] -------------------------------------------------------------------------------- There are no further questions at this time. I'll now hand back to Mr. O’Sullivan for closing remarks. -------------------------------------------------------------------------------- John O’Sullivan, Experience Co Limited - CEO & Executive Director [33] -------------------------------------------------------------------------------- Thank you, Anastasia. And once again, thank you, ladies and gentlemen, for your time this morning and for listening in and your questions from the floor. I hope you all have a good day. Thank you very much. -------------------------------------------------------------------------------- Operator [34] -------------------------------------------------------------------------------- That does conclude our conference for today. Thank you for participating. You may now disconnect.