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Edited Transcript of FLT.AX earnings conference call or presentation 21-Aug-19 11:30pm GMT

Full Year 2019 Flight Centre Travel Group Ltd Earnings Call

Brisbane, Queensland Aug 26, 2019 (Thomson StreetEvents) -- Edited Transcript of Flight Centre Travel Group Ltd earnings conference call or presentation Wednesday, August 21, 2019 at 11:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Adam Campbell

Flight Centre Travel Group Limited - CFO

* Graham F. Turner

Flight Centre Travel Group Limited - Founder, MD, CEO & Executive Director

* Haydn Long

Flight Centre Travel Group Limited - Investor & Media Relations Officer

* Melanie C. Waters-Ryan

Flight Centre Travel Group Limited - COO

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Conference Call Participants

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* Aryan Norozi

UBS Investment Bank, Research Division - Associate Analyst

* Bryan Raymond

Citigroup Inc, Research Division - VP & Analyst

* Grant Saligari

Crédit Suisse AG, Research Division - Head of the Consumer Staples, Discretionary Retail & Agriculture and Director

* Morana McGarrigle

Macquarie Research - Analyst

* Peter Drew;Carter Bar Securities PTY Ltd.;Director

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by. Welcome to the Flight Centre Travel Group full year results conference call. (Operator Instructions) Pleased be advised that today's conference is being recorded.

I would now like to hand the conference over to your speaker today, Mr. Haydn Long, Global Media and Investor Relations Manager. Thank you. Please go ahead.

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Haydn Long, Flight Centre Travel Group Limited - Investor & Media Relations Officer [2]

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Good morning, everyone. Thanks for joining us for our 2019 fiscal year results presentation. We'll get things moving fairly quickly today.

Firstly, you'll hear from Adam Campbell, our CFO, who will run you through the results and key drivers for '19. Then our COO, Mel Waters-Ryan, will talk about the future growth strategy. And finally, our CEO, Skroo, will dive into the crystal ball and share some insights into how things for 2020 would pan out.

I'll now hand it over to Adam to kick things off.

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Adam Campbell, Flight Centre Travel Group Limited - CFO [3]

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Thanks, Haydn. So overall, while our underlying profit of $343.1 million is towards the middle of our netted guidance range and close to market consensus, it is disappointing for us to have gone backwards from our record profit in 2018.

Many of the key themes that we'll talk to today are the same as those that we covered at the half year, and they include record TTV, strong results from our overseas businesses, continued growth in our corporate businesses but offset by disappointing Australian leisure results.

TTV of $23.8 billion exceeded our record 2018 TTV by almost $2 billion and represents the 23rd year of TTV growth in the 24 years since listing. Less than 1% of the nearly 9% growth in TTV came from acquisitions, once again, highlighting our strong organic growth.

We're also proud of the achievements that we've made in increasing productivity, which we define as total TTV over total staff, with a 20% increase in productivity over the last 4 years.

Consistent with the first half, our international operations have driven our top line growth for the full year and generated healthy profit increases. This reflects both the strong growth overseas and also the Australian -- the soft Australian leisure result. We've seen record TTV in all of our countries and regions, apart from the small Nordics region, and record profits in Aussie dollars in the U.S.A., Canada, the U.K., UAE, South Africa, the Netherlands, New Zealand and China and Hong Kong. The Americas is now $100 million per year generator of profit with underlying earnings increasing nearly fivefold since 2016.

The other key driver of our growth has been at corporate businesses, both in Australia and overseas, with over 15% TTV growth globally to record $8.9 billion, which represents 38% of our group TTV. This also represents scalable organic growth through both our Corporate Traveller and FCM brands. And throughout the year, we've also continued our investment in systems and products through Upside, Savi, Sam and Claire to bolster our world-class offerings and benefit our customers. And Mel will talk to these investments again shortly.

We've also expanded in key global markets, including our startup in Germany. The acquisition of the remaining 75% in 3Mundi, which operates through by France and Switzerland, and a strategically important acquisition of Casto Travel through the West Coast of the U.S.A.

Then we have a significant presence across 4 key regions, delivering consistent organic growth and strong future prospects. We started late during the half year release [to the] factors that were impacting our Australian leisure business, including internal factors such as our brand consolidation, new wage model and EBA and the GDS changes. And the impact of these are having on both TTV and in particular, on our revenue margin. Skroo will update further on these, but it's fair to say that while we started to see signs of margin stabilization over the last couple of months, external consumer softness has further impacted TTV in Australia.

In positive signs, our investment in new leisure models is starting to show benefits. And globally, we have $1.3 billion in TTV from online-related brands with flightcentre.com.au growing at around 40%.

Our independent contractor network is now generating around $380 million in TTV per annum. Our partnership with Ignite in Australia is growing our Flash Sale and ready-made packaging by over 40%. And our specialist Flight Centre brand businesses are also contributing in excess of $400 million in TTV within Australia.

In terms of our P&L, there are 4 differences between statutory profit and underlying profit. The first 3 were included as differences at the half year, being: the pull-forward of land over our revenue due to enhanced data extraction from system enhancements; the second is the impact of adopting IFRS 15 for the first time this year; and thirdly, the impairment of our Olympus DMC.

The additional item excluded some underlying profit for the full year relates to fair value changes on taking full ownership of both 3Mundi and ETSC. Essentially, those businesses are now worth far more than they were when we first invested in them, and we need to recognize that value increase on consolidation.

Income margin decline of around 55 basis points this year at a group level is really due to the ongoing business mix changes that we continue to see as well as the impact of revenue margin decline within the leisure business in Australia. And broadly speaking, around 1/3 of that decline can be attributed to the leisure Australian decrease in margin; about 1/3 can be attributed to growth in our FX businesses, and that's mainly in EMEA; and about 1/3 due to other business mix changes.

Our underlying cost growth in constant currency is held to around 3%, which we're quite happy with, with full year trends consistent with the first half and leading to a 33 basis point reduction in our gross margin. From a wage perspective, the EBA in Australia, as we flagged through the course of the year, has contributed approximately $14 million to employee benefit costs in that segment. And in the Americas segment, the strong growth in profit we've had there has also led to an increase in wage costs.

The other item I'll call out is other expenses, which have increased due to independent agent consulting fees increasing as that independent agent network continues to expand, our ongoing technology investment across the group and also increased outsourcing costs as we look to operate in a more efficient manner.

On the balance sheet, you'll see that our cash balances have reduced year-on-year, which is largely attributable to the $160 million special dividend paid in April as well as minor movements in the timing of wage and general supplier payments.

In addition, our intangibles have increased due to the acquisition of the 3Mundi, Casto and Umapped as well as our ongoing investments in IT projects. And you see in the balance sheet, we've also had an increase in borrowings, which relates to the debt facilities that we obtained to fund acquisitions during the course of the year.

The total outstanding I'll just note are the $160 million of 30 June. We repaid $60 million of that in the first week of July. So that balance has come down subsequent to year-end.

Now before handing it over to Mel to talk around strategy, I'll first give a brief update on each of our geographical segments. I'll start with ANZ. We've spoken a lot about the ANZ segment over the last 6 to 12 months. But again, in summary, the results this year have been impacted by small increase in TTV, which is largely from our corporate brands, Travel Money and our new leisure models, offset by the decline in revenue margin.

As mentioned, we have seen some signs of stabilization in Australia leisure revenue margin late in the year, but that's been offset by some of the softening macro conditions and consumer confidence.

Cost control in Australia and New Zealand have been effective where we've only had minimal movement in our cost margin, and that's off the back of a small TTV growth and additional costs coming in from the EBA and our ongoing technology spend.

Our corporate business in Australia is performing well at both the top and bottom line, and that's despite a couple of outlier dynamics during the course of the year and impacting the bottom line in the order of around $2 million.

New Zealand also continues to operate very strongly for us with a record profit contribution, largely driven by strong leisure results. While they haven't been standout segment this year, the Americas have seen strong profit growth continue through the second half against the much stronger prior year comparative. That profit contribution, as we mentioned, is now seeing in excess of AUD 100 million, and that's off the back of TTV growing by 16% to around $5.5 billion. And that TTV growth is, in turn, driven mainly through corporate with our corporate brands now contributing around $3 billion in TTV.

Importantly for us, that growth in TTV is now fitting into economies of scale, and we're now seeing those evident though improvement in both our productivity metrics and also our cross-margin metrics through the Americas.

In terms of leisure, we've had a higher profit contribution from Liberty since its acquisition 11 years ago in 2008. And we're continuing expansion of our premium model to the U.S. through Travel Associates. Canada is also continuing to perform well. And over the last 5 years, the growth trajectory in that business has been very, very strong for us, and net profit growth has continued through 2019 financial year.

Turning our attention now to EMEA. There's been a little -- a bit of disruption, as everybody knows, and a lack of confidence coming through the U.K. in particular, through Brexit, really, over the last 2 years. And I think we've been able to handle that pretty well through our U.K. business, with TTV increasing by 4% and costs held flat in that country over the last 12 months.

Our investments in the start-up in Germany and our expansion through 3Mundi in France and Switzerland has added to our existing European footprint. And down in South Africa, we continue to see strong TTV contribution from both our corporate and leisure businesses. And importantly, in a fairly high inflationary environment, we have been able to maintain good cost control.

Asia also gave another strong performance for us this year, off a smaller base but a really strong results for us. Our leaders in that region have had a focus on the fundamentals over the last 12 to 18 months, and that resulted in a $12 million PBT off the back of TTV growth of 40% that's being driven across all of the countries. And the Asian TTV should top $2 billion in 2020. We have seen revenue margin decline through the region. That's due -- predominantly due to the leisure rationalization that took place during the 2018 financial year as well as the growth in low-margin businesses, particularly regarding FCM and also our Indian FX business that's grown from $350 million TTV in FY '18 to well in excess of $800 million TTV during FY '19 and operates at very low revenue margins.

I'll finish with the Other segment, which includes all our global areas as well as our touring businesses at DMC and our hotel management businesses. The primary drivers of the underlying PBT movement was flagged in April, and they include an increase in our global technology and digital spend; investments in development costs within Upside, which we've invested in during the course of this year; increased M&A costs; reduced DMC profitability, which resulted in increased impairment; and also an increase in net interest expense following the take-up of the debt facility during the course of the year.

I'll now hand over to Mel to talk through our strategic update.

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Melanie C. Waters-Ryan, Flight Centre Travel Group Limited - COO [4]

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Thanks, Adam, and hi, everyone. Our strategic approach remains fairly consistent, as outlined by Adam as well, at the group level from our midyear, and we're largely happy with the progress. Our enduring purpose that we've restated there, to open up the world for those who want to see, remains unchanged. And we are proud of our commitment to opening up that world to our customers, our people and to our investors.

Our core values also remained unchanged, and we believe our culture built on these values of egalitarianism, ownership and irreverence is a major competitive advantage for our group. However, we have updated slightly our vision, and I'm going to read it in the moment, and our strategies have been slightly amended to reflect this vision, more in terms with prioritizing.

Our 2025 vision: in 2025, FCTG will be a thriving global travel company with a distinctive entrepreneurial culture, famous brands and winning models. We will amaze our customers across 3 core segments: corporate, leisure and at destination. It's worth explaining those 3 core elements, just to remind and underpinning that vision, and they're obviously being worked on continuously via our strategic plans.

The first is a commitment to our entrepreneurial culture, as I mentioned previously. Our distinctive culture of ownership, accountability in the egalitarianism define us, and we believe it's our biggest asset. And it's certainly alive and well in all our businesses globally and have been easily transportable across borders and into acquisitions.

We're also obsessive about famous brands that reflect their DNA, are visually distinctive, well known, relevant, trusted and customer-fit, although some is the same, it's not as high as we would like in certain areas.

Our drive to ensure winning models is probably something that's come to the forefront more recently, and we've defined winning models as models that are growing, productive, material and replicable. These 3 elements are shared across all our businesses and give us consistency in our vision.

Our transformation goals outlined some, I think, 2 years ago now, are still also front and center to the group. So we haven't forgotten them. We're still very committed to them. A 7% compounding annual TTV growth, which, pleasingly, we achieved last year; an underlying margin or cost margin of less than 10%; and a return to a 2% net revenue margin. Again, apart from Australian leisure, we believe we had solid progress towards these goals.

In terms of transformation, we've presented also a 3-year -- sorry, 3-phased approach last time, and we are well into phase 2 and making significant investments into engineering all our businesses to remain or become market-leading. Our transformation work is now really configured into those 3 pillars of leisure, corporate and at destination, although the transformation work is still, again, strongly in our focus.

I will talk briefly then about those 3 particular pillars and the strategy and transformation work that is going on within them. So start with leisure. Our leisure strategy can be summarized across 3 pillars but with 2 parts. We are focused on mass, premium and youth travel. And post our latest brand change with Student Flights just becoming the Universal Traveller, we are happy with our collection of leisure brands, although not all are in all markets.

The 2 parts of our leisure strategy really reflect the slight difference between our Southern Hemisphere approach and our Northern Hemisphere approach. In the Southern Hemisphere, we are committed to being the mass market leader, and we will not let that position slide. The nuance in the Northern Hemisphere is that we are taking a more specialist and targeted approach. Most of the other strategies there are shared across our 2 hemispheres in leisure.

And I'll quickly just go through those 6 areas of strategic focus for our leisure pillar. Just the 6 key ones is an update or overhaul in some instances of our customer systems and centricity; our continued focus on digitization, both online and offline; products and pricing; ensuring we have famous brands and modern marketing of those brands; our network plan; and a model shift.

Just to give a bit of details to some of those specific strategic pathways. In terms of customer systems and centricity, we have a customer culture embedded at the consultant level in our leisure businesses, and we're now building upon that of both brands and systemic level. Things like customer reviews and NPS are being embedded in many of our leisure brands. And we, I think, launched the Trustpilot system in U.K., been using first few years in Australia last year and very pleased to see some amazing reviews from our customers.

Our reward systems are now also reflecting this new customer centricity and fairly soon, our rem models will all include customer metrics as well as sales. Our lead management business, particularly the RedConnect platform that we've been developing and piloting and rolling out in the U.S.A., is also built on customer systems as we ensure faster response to our customers and routing to the right consultants is often based on the customer score they have.

And our second key strategic focus is digitization, both on and offline. We've had huge progress with our web and native apps globally, and will, in fact, be releasing packages on the flights and the brands' websites early next calendar year. Our native apps continue to drive business for us and becoming one of the major access points to our brand.

In terms of offline, our consultant and collaborate -- or collaboration tool with Trips, which was the Umapped acquisition, is now used by more than 6,000 users globally and allows the digital collaboration between our consultants and our customers.

An area we're now actually implementing changing as well is payment. It's not just cash or credit card anymore. There's a plethora of payment options. And we've got an overhaul of that going on at the moment so that we can have a marketplace of digital payment options for our customers.

Our third strategic area in leisure is product and pricing. And staying true to the brand of DNA -- for the DNA of our brands, we're really focused on being a house of irresistible deals. Post, our Ignite acquisition, we've now incorporated Flight Centre Exclusives and Flash Sale products as the core product within our range. We're also fully committed on our product strategy to having full content, and we're at the forefront of NDC discussions with our partners as well as technology so that we can ensure we've got all content again for our customers.

Our service products, things like Captain's Package and Price Drop Protection, are also, again, being continuously monitored and improved for our customers. And we've also just recently moved to channel pricing. You would have seen billboards and advertising, I'm sure, everywhere, reflecting our now online booking fee.

Offline, we had tiered pricing available with a good, better, best 3-tier system in our Flight Centre brand, ensuring we have no sticker shock value for our customers and transparent pricing.

In branding and marketing, some of the things that are happening: membership for Flight Centre brands will be launched early next year in Australia. And in the Americas, they're launching a loyalty program as we speak across their collection of brands. We've done much work with our brand DNA workshops about what is special about all our leisure brands and currently going through and filling any gaps in terms of the customer experience.

Over the next year, we're also investing far more in advertising and marketing, and we're looking in monitoring particularly uplift in marketing in U.K., Canada and U.S.A. after some major work in terms of product and pricing in their brand. Universal Traveller, as I just said, has been renamed from what was Student Flights, a new brand for travelers, not just tourists, focused on youth, not just students.

And of course, we just launched universal -- or StudentUniverse in Australia to reflect that focus on the student brands. So again, as I said, we're happy with our collection of brands in our leisure business.

Our fifth strategy in leisure reflects our network obsession, and shops are important, and people are important in our leisure offering. But it's not just more shops, but better shops that are important. We've had an ongoing evolution as well of our shop model in our hyper stores, our flagships, our community and our newest model, our satellite model, which has been imported from New Zealand, which allows us to operate a lot more cost effectively in highly regional areas.

We're focused on relocations and optimal positioning, and this is still ongoing work, which I'm sure Skroo will speak to a little bit about later in Australia. The mix of staffing and a commitment to reducing our legacy cost base.

Perhaps most of our work in leisure can be summed up with our final strategy, which is the model shift, which Adam also referred to. So this is a shift both to new brands with these models and within established brands like Flight Centre brand. We have, through M&A or expansion, all the models that we now want to win in the leisure business, although some of them are also being further transformed. For example, we've made a lot of foray now into the independent agent model, largely as a host model. But we want that to become a referral model where our brands and our marketing produce leads that we then send to the independent agent.

We're also launching our social entrepreneur model within our new brand Universal Traveller, so stay tuned on that one. We are committed to growing our global premium leisure network with our Travel Associates brand, and you would have seen that we completed the Les Voyages Laurier Du Vallon purchase in Canada.

Online is also a major focus for us. And you heard that over the last year, we've done about $1.3 billion in online sales globally. That number will be achieved in Australia alone next year.

So in summary, there are our leisure strategies that we believe will allow us to win in the future. There's a slide there, by the way, that's reflecting some of the change in the Flight Centre brands model mix that's already showing in the Australian business. Again, you'll see much more push into the edges of that graph over the next few years.

And also, we also have a slide there of the strategic road map that was outlined with the Flight Centre 2.0 program under Atle Skalleberg. The membership, product and pricing self-service, sales technology and modern marketing pillars of that program are still in place, and we've been deploying many of the strategies. You would have just heard that most of those things are now within the general leisure program as well.

Looking at corporate mix. We're very happy with our house of brands in corporate out to some small consolidations, a couple of brands that you may not have really heard of about a few years ago, [4G] and Campus, which has now been turned into product lines within those brands.

Just to sum up our brands on the SME space, our Corporate Traveller brands; in the TMS space, our FCM brand; and in the NICHE of special, there are the corporate [FCIs] in France and Stage and Screen. This level of diversity, we believe, is a strength across mass and specialist Corporate Traveller and some things that we will not give up unlike some of our competitors.

We've articulated our business strategy segment on the next page, clearly showing the strategic intent of our 2 core corporate businesses, Corporate Traveller and FCM. Our obsession with the SME segment is reflected here and our approach to being a truly global TMC business with FCM.

The 6 core foci underpinning future entire success of corporate are: number one, our hyper-investment in sales and marketing; an investment in technology; our people. And our secondary focus there is our continued focus on cost reduction and efficiency gains, the continued development of market-leading and unique products and further geographic expansion. I'll actually just go through the primary focus in corporate.

Firstly, we have an ongoing commitment, as always, to a hyper-investment in sales and marketing, which, over the last year, resulted in a record year of new business wins, I think, in excess of $2 billion globally across all our corporate brands and business. That hyper-investment is also demonstrated by our continued increased investment in business development managers. We now have 500 of these plus worldwide again across our collection of corporate brands.

We've done brand reviews underway. And currently, FCM's branding is being [outsourced], so that we can better differentiate from the other TMCs and represent the customer value proposition of that brand and the DNA. It's fair to reflect that the culture, and the models in corporate are strong but the visual branding and frame of those brands does need some work.

The investments in sales and marketing was also strongly supported by clients, the high client retention rate, 98%. At the end -- the retention in FCM last year was excellent. So it's not just about winning. It's also about retaining our customers.

Adam also mentioned we've made significant investments in technology in our corporate areas. In fact, last year was a record year of technical investments. We completed the Sam acquisition, the Claire one and made the initial investment in the Upside platform.

The technology priorities in corporate are very much customer-focused, although there is work also being done on efficiency and operations at the back end. Again, I won't read through those, but lots of work is being done, heavy M&A activity where we have sought specialists to provide us with market-leading technology that can be deployed globally and is being deployed globally.

Corporate is also -- has a major focus on our people, and it's the core part of our offering and customer value proposition, proactively blended with systems and technology. In fact, what's interesting is that years ago, we're talking about blending as something that we were doing in leisure, which is happening a little more slowly than we'd like. But corporate has embraced and prospered with that blending of people and technology, and we believe makes us market-leading in both the SME space and the TMC space.

The secondary strategies in corporate are really in line with a lot of what's going on in the Flight Centre group. As previously mentioned, it's the continued focus on cost reduction and efficiency, a continued development of market-leading products, and this is not just travel products, digital and technology products, services products and even payment products as well, which, again, we're working on in the corporate space.

And further geographical expansion is part of the strategic outlook for our corporate area, particularly in the Europe region. And you heard just about the final tranche of the 3Mundi acquisition and in Asia, we believe there's a huge opportunity to further expand in region on routes.

Our third pillar, you might have noticed of the name change, used to be called the Travel Experience Network is now called The Travel Group after some slight reallocation of businesses into our leisure area. The Travel Group is made up of a procurement business, our global experiences business, our touring area, our hotels area and the bedbank. And these are all serviced by our global services area where things like treasury, technology, legal, et cetera, service the entire range of those businesses.

I've put a page in there representing some of the new brands work that we've done in The Travel Group because we have thought to change some of those brands in line with the strategies in this area. Note though, that these businesses -- many of the businesses in The Travel Group area currently small, but we have big future plans for them.

Topdeck and Back-Roads, of course, our touring brands will not -- remain unchanged for the brand. But we've just launched Discova, which is -- was Buffalo and Olympus, our new global DMC brand. We've renamed or rebranded our hotel at the group level to Cross Hotels & Resorts, which formally was BHMA. And we've just launched The Travel Junction, which is our new external B2B boutique bedbank.

The strategies under The Travel Group are outlined as 5 key areas: one business DMC strategy, a new brand for hotels, global platform for distribution businesses, The Travel Junction or external sales or Travel Bank and the Topdeck repositioning of product development and sales, which I'll outline a little bit.

In terms of the specifics of those strategies, one global DMC is our plan with Discova. As I mentioned, between Buffalo and Olympus. And that was just launched within the last few weeks.

We have a new platform implementation underway for enhanced distribution capability and efficiency offset DMC, and we are currently implementing one business with one set of standard operating procedures from what was 2 very disparate businesses. We're also looking to expand our DMC network, both geographically and with further B2B sales, again, to customers outside the Flight Centre Travel Group.

In the hotels area, our new brands architecture under the Cross Hotels & Resorts brand has been put together with hotels from 3.5 to 5x, including resort. We have an ongoing prudent expansion within this region. In Southeast Asia, we've got a pretty good pipeline now as we fixed it to include products that would be distributable through the Flight Centre Travel Group network.

We're also looking at slightly different models within the hotel space, so that we have the more low-risk entry [put there], a way into newer markets.

The third strategic focus in the travel growth area is our global distribution platform, which was under project called Copernicus, and the product is called Helio. This platform and project has been going really well and will be launched in U.K. in December '19, which is really the start of a full global rollout. It will allow us to deliver to our next-generation procurement and enhance distribution capability by aggregating and curating content for faster quoting and sales delivery for our travel consultants, both internally and as we take that business externally as well. It also allows for a much greater enhanced product and packaging capability often done by algorithms and not by human design.

The Travel Junction is the newer part of the strategy in The Travel Group, and it's really our foray into starting our external sales journey. We've been doing this very softly and pleased with the results. We will be differentiated in this business compared to other bedbanks in the market because we'll offer a full-travel range in one portal. This platform will have something like about 100 APIs linking it to various products. This will be a small growth and establishment, and then we'll expect to put it on steroids in the future.

In our touring area of Topdeck and Back-Roads, there's a few things going on. Topdeck is shifting its position, not its branding, to become the world's leading socially inclusive youth brand with social experiences for 18 to 30s. This is a mouthful, isn't it?

This reflects a lot of work we've done in terms of customer research and product development. They'll be expanding as well into small-group touring. And both for the current brands of Back-Roads, but Topdeck will be also moving into this space. And we've just kicked off the global sales strategy to develop new markets and grow channels to both those businesses. Back-Roads has also just expanded to the U.S.A., although we did have to call it Blue-Roads there for various reasons, but it kind of resonates because it's the concept well-known in the U.S.A. about traveling on a non-major road.

So there, the strategy is reflected in our 3 pillars. There are 2 other major programs that are happening across the group, and I'll very quickly articulate them. One is that we currently have a technology transformation program just in place. We're working with a U.S.-based travel tech consultancy firm, Hudson Crossing, and that was Atle Skalleberg will be leading that from the company. It's a company-wide, 5-phase IT review to deliver meaningful change in a much more significant way than we have to date.

The program has 5 objectives: total visibility into our current projects, spends and outcomes, including a very long tail of projects throughout the world; then a rationalized road map, in line with business priorities; identification of further required investments to match strategy because there will be some areas we want to spend small; implement a new revised IT organization and processes with a focus on product management; and an M&A strategy for technical and digital capability if required.

And finally, we have a cost and efficiency program as well working in 4 areas: robotics and automation, outsourcing, head office real estate efficiency and support costs.

In summary, our 2025 vision to be a thriving global travel business with a distinctive entrepreneurial culture, famous brands and winning models is well structured with strategies and programs delivering strongly in our global network in corporate and in U.S.A., and we expect it to deliver in Australian leisure business, albeit a little in the future.

Thank you. Skroo?

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Graham F. Turner, Flight Centre Travel Group Limited - Founder, MD, CEO & Executive Director [5]

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Thank you, Mel. Hello, everyone. Sorry, I was late. That quarter was [detailed]. Just going on through looking in the outlook for 2020. There's certainly still some uncertainty, certainly we've heard about Brexit in the U.K., and Australia certainly still seems to be fairly soft in some areas from our point of view. There's also a bit of unrest in Hong Kong, which is affecting a little bit at this stage our Southeast Asian businesses. But we'll -- at the AGM in November, we'll probably had an indication of how things are going in the first quarter. So we certainly will be looking for pretty good growth of that 7-or-so percent that Mel mentioned, and we certainly would like to see profit growth as well in 2020.

Let me update further on that. Our credit drivers will probably be, in the next 12 months, like the last 12 months in corporate and our international businesses. And particularly in the U.S. or North America, it's a significant contributor there, and it's interesting that we've really been there now for 20 years in -- significantly in North America.

So we're also expanding the EMEA, which is particularly in Europe. I think -- and obviously, Asia is now contributing a meaningful result. And we obviously want to drive that further. The potential there, just for example, in the U.S., although we have a significantly profitable business there now is only a couple of percent of the corporate market that we have and see a lot of potential.

For Australia, our growth drivers are looking -- basically some of the things that impacted our 2019 results, particularly in leisure, and we have some clear strategies there. We are getting small TTV growth. We've still got a lot of work to do in Australia, particularly in the leisure area.

In Flight Centre brand and Universal Traveller, we have an ongoing focus on costs and sales discipline with our [user] quality response targeting. And we're also -- as Mel mentioned, we're having some new different businesses, channels, models to drive TTV, which -- like online, our specialist, our Flight Centre Business Travel, as well as we have flagship and hyper stores.

Also, our network planning is very important and we're about a year, a year, 18 months, being able to track with that. It is a long-term process. And you'll see a slide about our approach with what we're planning. And it's about looking at individual shopping teams, consultant performance, looking at the market review and the demographics in those areas and then seeing what we do with these locations. And we have obviously got quite a few new growth opportunities to open new shops. We do like planning with the right location. We will be relocating a reasonable number of shops in what we consider more appropriate locations. And as -- Mel also mentioned some of the model pivots.

One of the interesting thing is, obviously, we are quite a large tenant of major shopping center businesses, and we are working out with the shopping centers to make sure that this is a profitable and a sustainable model into the future. And that -- I think that has given us a lot of traction with the increased shopping sales.

With that network work review, we are indeed getting towards completion. But obviously, this takes quite a long time to finalize with leases traditionally being about 5 to 7 years. And the main aim is to get right shops at the right location with the right staffing levels.

We hold out 900 to 1,000 leisure locations. There'll probably be about 30 to close and there will certainly be some re-branded from Flight Centre to Travel Associates or Universal Traveller.

In the Flight Centre brand, we will have about 200 new roles, which will bring Flight Centre brand to about 5,200 top line people. With -- in leisure, there'll probably be about 6,300 for the lot. And as I said before, there will be relocations and it will be -- I think it's probably 20 to 30 over the next year.

Some of the recent developments in leisure. Obviously, with new business coming in and Universal Traveller launched, this is a crowd that -- something we are aiming for in the new marketing, particularly in the satellite model, which was improved from New Zealand, is quite successful in a way to keep our locations and convenience and [boomer] effect for customers, by cutting our costs and -- without cutting our capabilities.

We have new hyper-stores, generally in the CBD, and we have 4 of them now. And they are major, for example, that generally do $30 million or $40 million in TTV. And these are, we have these evaluated in Victoria and Sydney and Brisbane. And those are quite successful large locations.

In corporate, as we said, we're going to further develop our global network. We are building the leisure channel. We now have 100% of our business in the upside business. We probably -- we have mentioned that, but we're looking to that. And we have held great hopes for that. And Mel mentioned also the new global [B2C] and [HR] sectors.

So that's it. Thank you.

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Haydn Long, Flight Centre Travel Group Limited - Investor & Media Relations Officer [6]

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I think we're now ready to go to questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) First questions comes from the line of Aryan Norozi from UBS.

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Aryan Norozi, UBS Investment Bank, Research Division - Associate Analyst [2]

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Just 2 quick ones for me, please. Just firstly around the online profitability piece. So I think you guys have previously mentioned PBT margins of around 1%, 1.5% in that business. Have you guys seen any shift in terms of the profitability once you've changed or removed the booking fees, please?

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Melanie C. Waters-Ryan, Flight Centre Travel Group Limited - COO [3]

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Yes, it would be correct to say we've seen a bit of a decrease in the profitability with the United States. But the strategy was to go on a strong acquisition path with customers. The other thing is some of the back-end percentages from that volume take a little bit of time to talk through, if you like. So yes, it has gone down a little bit, but it's specifically about customer acquisition and market share and allowed us to put some commoditized product on that, particular products that doesn't have margin, that our consultants can really justify. So we'll be monitoring and watching it, but we do expect to see a slight dip to come back a little bit. But yes, absolutely, some of the margin has been given a line.

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Aryan Norozi, UBS Investment Bank, Research Division - Associate Analyst [4]

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And the absolute sale -- the absolute PBT from the online business, has that going up post this or is that down as well?

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Adam Campbell, Flight Centre Travel Group Limited - CFO [5]

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The absolute will come down a little bit, with significant growth going through there, as Mel said, particularly late in the year, we took off the fees, and that has had a direct impact on it.

So all that I would say is that it's come up a little bit in absolute term, but as Mel said, more from a strategic basis that we've done there.

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Melanie C. Waters-Ryan, Flight Centre Travel Group Limited - COO [6]

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By the way, that's in the Flight Centre brand. If you check our BYO business, where we're also having exponential growth, now that is increasing in profitability and is having a direct contribution to profit. So a little bit of a tale of 2 different paths.

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Aryan Norozi, UBS Investment Bank, Research Division - Associate Analyst [7]

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Got it. But all up, it's still down, Flight Centre apart from BYO brand? Is that...

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Adam Campbell, Flight Centre Travel Group Limited - CFO [8]

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The Flight Centre stuff only happened late in the year, so it's late April and May. So it might have had a big impact over the full year. But with the remainder of the booking fee, that represents some of the profits for an IPA. And our businesses are pretty heavily weighted towards flight. So the wholesale margin would tend to be a bit higher, obviously, but that's not really what we're telling you. We're happy to sell it to you. But generally, people are looking for the cheap flight.

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Melanie C. Waters-Ryan, Flight Centre Travel Group Limited - COO [9]

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Moving forward would be really quite significant growth we're expecting at both businesses, BYO and Flight Centre. No, I wouldn't expect an absolute decline in the combined profitability moving forward.

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Aryan Norozi, UBS Investment Bank, Research Division - Associate Analyst [10]

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And just last one for me is just around acquisition contribution. Can you just please just give us an idea around what the PBT contribution was for this year and what are you annualizing in the next year, please?

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Adam Campbell, Flight Centre Travel Group Limited - CFO [11]

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Yes, actually, fairly minimal, to be honest. We've had -- TTV was around $200 million, was only about 1% of our overall growth. In terms of contribution coming in, in terms of PBT, there's positive contribution coming in from the likes of a tax code, which is about $500,000 contribution into it.

But we also have offsetting that we had investments we made in both new [marks] and also upside. And they are investments that we're making and we'll check [place] for, so we're not actually getting PBT contributions.

So between them, there's about $3 million downside PBT contribution, but again, other acquisitions like Buffalo Travel Partners have all contributed positively. So it simply net itself out to a very minimal profit contribution. We're talking here a couple hundred thousand dollars.

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Operator [12]

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Next questions comes from the line of Morana McGarrigle from Macquarie.

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Morana McGarrigle, Macquarie Research - Analyst [13]

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My first question is just on weakness in Aussie and Asia. Could you just provide a little bit more color on just the split of the drivers of that? So is it mix shift in destination or products? What should we be keeping an eye out for?

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Graham F. Turner, Flight Centre Travel Group Limited - Founder, MD, CEO & Executive Director [14]

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Yes. So it's fairly complex. I suppose the main thing is there is an element of weakness in the market. Yes, we're pretty flat in TTV, but we did lose some gross margin last year. And also, with the [EBITDA], the costs went up. So with the EBITDA , we are doing quite a bit of sales coaching and performance management. So we expect over the next 6 months this to have, hopefully, a positive impact. But it's utilized a fair bit of how the overall market is traveling in this leisure. And although we don't believe the weaker Australian dollar has much impact, just the overall leisure market is a bit weak at the moment. So we certainly -- if that comes back into a more positive territory, we'll be happy. And also -- but we've got reasonable operational things to do in terms of their performance management and sales coaching as well as I think we did say that we are down in staff, particularly in the Flight Centre brand.

So -- and there's also a little bit of pivoting, as we talked about in the models in the more specialized areas, and that's an ongoing project.

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Adam Campbell, Flight Centre Travel Group Limited - CFO [15]

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Morana, the mix probably [will do] at the revenue margin overall. We had some pricing low-margin businesses. In Australia, one of the issues, though, has been around attachment. When we closed a couple of brands last year, they were brands that had high attachments. And we didn't necessarily maintain the attachments when those brands were taken out, so say [prosthetically] it's an Escape Travel shop of the re-brands like Escape Travel tend to have higher attachment than a Flight Centre brand shop, but maybe not as good on the net margin side or the productivity side. When that Escape Travel became a Flight Centre, the attachment rate dropoff, basically. So that comment, I think, that you're asking about is more related to the attachment side in Australia.

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Morana McGarrigle, Macquarie Research - Analyst [16]

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And then you've said that there had been some stabilization towards the back end of FY '19. Could you just tell us a little bit about what that stabilization looks like? And then maybe just a comment more broadly on both retail and corporate in Australia post the election because it [seems something, backup] sentiment has improved.

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Adam Campbell, Flight Centre Travel Group Limited - CFO [17]

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I'd like to -- why don't I take the first of that and hand that to Skroo for a bit more of that sentiment and impact the same there. In terms of the stabilization, I think what we've seen through the course of the year with revenue margin in Malaysia was it was certainly impacted in the first half, I think, particularly from the rest of September, October, we're focusing to address the impact of that. And that -- so that [kicked on] through -- ran that from the half year release and went through to about April and May, we're seeing that quite heavily impacting. Where we've begun to see some stabilization, certainly in the last 2 months of the financial year and the first month of sales this year have seen that our margins are coming back to a more comparable level with the prior year. And there's a little bit of volatility in there, but we're certainly seeing that they're coming back more in line in the gross margin and FCB particularly in Flight Centre brand.

So that's all saying that stabilization was quite late in the year and it's not a conservative accounting coming out, but we've really been just modest of that over the next couple of months as well and make sure it has become a trend rather than just a bit of an uptick for us. So you want to come up with...

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Graham F. Turner, Flight Centre Travel Group Limited - Founder, MD, CEO & Executive Director [18]

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Yes, I mean, the sentiment, we're certainly, in looking at leisure, we haven't seen any major recovery in sentiment. So with what's happened with the election and seen some of the tax changes, we certainly are hoping to see it, but it's still seems to be fairly flat, that sort of sentiment. So I don't think -- there's no major change at the moment. We've got plenty of work to do anyway that we can impact on with sentiment not obviously doing that. And it's interesting to see the growth in our leisure online brands, which is quite strong. But a lot of that is domestic travel, rather than the more complex international travel, as Mel said.

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Operator [19]

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Next questions comes from the line of Bryan Raymond from Citi.

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Bryan Raymond, Citigroup Inc, Research Division - VP & Analyst [20]

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Look, a lot of retailers have talked about an improvement into June, July and August. I mean I'm just wondering if you guys have seen any of those trends in terms of improving TTV or growth, overall, in the Australian leisure business over that time frame.

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Graham F. Turner, Flight Centre Travel Group Limited - Founder, MD, CEO & Executive Director [21]

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Bryan, yes, like I said before, we are not really seeing it this time. Obviously, leisure travel is probably a little bit different from some of the other retail areas because in each one of those categories of product that does take a while to turn around. So yes.

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Melanie C. Waters-Ryan, Flight Centre Travel Group Limited - COO [22]

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Can I just add to that, too? The other thing is to remember the seasonality of the market. So you're already in the peak traveling time to Europe and U.S.A. in this booking period in that sort of June, July, and August. So it's a little bit dependent on the cycle of booking. We would expect, hopefully, to see some recovery in that heavy inquiries period which is through January, February, March time frame.

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Graham F. Turner, Flight Centre Travel Group Limited - Founder, MD, CEO & Executive Director [23]

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Yes, helpful. I mean yes, these sort of periods, given those are forever, but as long as the macro and global issues don't get worse. So yes, we're positive that we just haven't seen sort of a change for the positive, obviously, I know, over the last few months. And yes, I have seen that some of the retail sectors have seen some small improvements. But it hasn't -- we haven't really noticed it in travel.

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Bryan Raymond, Citigroup Inc, Research Division - VP & Analyst [24]

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Okay, great. And apologies for the double up on question, of doubling the call.

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Graham F. Turner, Flight Centre Travel Group Limited - Founder, MD, CEO & Executive Director [25]

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No.

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Bryan Raymond, Citigroup Inc, Research Division - VP & Analyst [26]

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Okay. So then just on your 2% PBT margin target that you reiterated longer term. Just interested in the path to that. You obviously gone backwards since you announced it in terms of margin. Just wanted to know sort of how you're thinking about the time frame and the steps towards it. Just if you can build a bit of a bridge around what elements are required to reach it and when that could be reached.

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Graham F. Turner, Flight Centre Travel Group Limited - Founder, MD, CEO & Executive Director [27]

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Yes. Look, it's a good question. The main impact on our margin this year in this main leisure in Australia, particularly the Flight Centre brand in Australia, it's gone back to about a 1% net margin, where it was over 2% last year, and it's a big lump of our business. So really, this mainly relies on us getting the Flight Centre brand, and some of the other leisure brands in Australia, back to the -- back to that 2% margin.

And generally, now, most of the overseas I think are over 2%. I think the...

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Melanie C. Waters-Ryan, Flight Centre Travel Group Limited - COO [28]

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Just not quite there yet.

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Graham F. Turner, Flight Centre Travel Group Limited - Founder, MD, CEO & Executive Director [29]

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I think the corporate strategies are around 2% I think. So it's really that leisure Australia went down. We don't expect this to happen overnight for various reasons. But we certainly feel, in the next 2 or 3 years, and I think, by 2022, we want to get it overall to that 2% or above. And as I say, relies almost, to a very large extent, on the Flight Centre brand in Australia, which is a big lump of our TTV with about $5.5 billion, I think, of the $24 billion. And that's what really happens, right?

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Bryan Raymond, Citigroup Inc, Research Division - VP & Analyst [30]

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Well, currently, the net 1% net margin, you referred to in Australia for leisure, is that including online or is that just bricks and mortar?

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Graham F. Turner, Flight Centre Travel Group Limited - Founder, MD, CEO & Executive Director [31]

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Yes, that includes online.

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Bryan Raymond, Citigroup Inc, Research Division - VP & Analyst [32]

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Includes online. You defined that I think, is that right, from your previous comments online and the other one?

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Adam Campbell, Flight Centre Travel Group Limited - CFO [33]

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Yes. I think again, that impact is in line in the year with the Flight Centre brand when we decided before that the overall online Australia included things like Jetmax, which I believe a touch higher than that as well. So that's the brand we're talking about with that.

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Bryan Raymond, Citigroup Inc, Research Division - VP & Analyst [34]

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Okay, great. And then from the Americas, you've seen growth moderate a bit as well, quite a lot in the second half, obviously. A very low base down cycle in the first half in the Americas, but 13% growth in the second half, still quite strong in absolute terms. But I'm seeing that the outlook for '20, should that be a realistic run rate to maintain for '20? Or was there a few one-offs that we need to be aware of in the Americas in second half '19? And then -- or perhaps you could expect it to weaken the PBT margin might end up in the Americas based on how you're seeing that business evolve.

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Adam Campbell, Flight Centre Travel Group Limited - CFO [35]

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Yes, Bryan, I'll start and I'll hand over to Mel, she's had a lot of involvement in the Americas. To answer your question, obviously, there's really no significant one-offs or anything like that, that would be impacting in that second half result. So all things being equal, yes, the sort of run rate that we saw there, they were kind of off a far more comparable second half. But that second half run rate we see, there's nothing that would stand there for us to say that, that should not continue. Having said that, the rest of the business will track that over the first 3 to 4 months this year. And at the AGM, we'll be in a position to give better guidance for what that looks like. But Mel, if you want to focus generally around...

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Melanie C. Waters-Ryan, Flight Centre Travel Group Limited - COO [36]

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I mean generally, the outlook in the Americas is strong. And if I just touch on the 4 kind of key reasons that you mentioned some of the net margins. We started the leisure business, which we indicated have had its best profit since the acquisition back in 2008. It's still not at 2% net margin. But we feel we've got a good base, we've got rid of all the rubbish. And also with some of the model shifts we're planning there, particularly in the referral-independent contractor model and non-premium model, we believe we can get beyond the 2% net profit margin in the U.S. leisure business, although that will take a little bit of time.

If I then look to the 2 corporate business, which are very strong in the U.S.A., the SMA one with corporate travel and the FCM one. FCM U.S.A., by the way, is in fact over that 2% net margin. It is our best productive corporate business in the world. And I think they've done a lot of work over the last few years in terms of the backbone, productivity and efficiency with the implementation of the platform. And the SME business is really just a sales machine. And obviously, we're looking then at the upside technology, I think, launching in The States in the next financial year.

So if you look at those 3 factors, a stable leisure business, good prospects for the future an already strong template in FCM, that's already achieving those metrics and the same in SMA. And then you add Canada, where we've had 4 out of 5 years of profit growth, but over that 5-year period, a very good trajectory, which we see moving forward. And then you add smaller businesses like StudentUniverse, there's no major problems. We feel we've got all of the issues really dealt with. Overall, the outlook's pretty optimistic for the U.S.A., and should be no reason that we can't continue with the strong growth, both top and bottom line, and the improvement of that overall net margin, which is being definitely dragged down by leisure at the moment, but we've got pretty good plans, so I feel pretty comfortable on that one.

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Operator [37]

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Next question comes from the line of Grant Saligari from Crédit Suisse.

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Grant Saligari, Crédit Suisse AG, Research Division - Head of the Consumer Staples, Discretionary Retail & Agriculture and Director [38]

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So Flight Centre leisure Australia, can you use technology to significantly improve the productivity of that business? Because the perspective is the technology input into that business has been and probably still is quite low relative to where you are on corporate.

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Graham F. Turner, Flight Centre Travel Group Limited - Founder, MD, CEO & Executive Director [39]

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' Sure. That's a good point. But obviously, it's one of the things that we're really trying to solve to improve productivity. We have a series of projects called Flight Centre Brand 2.0. And this includes some of these productivity, but these things take time to both to get the technology right, but also to implement when you got a business with about 800 or 900 locations and 5,000 top line people there, so this just takes time.

We also -- in some of those projects or things like more self-service, so we can use technology to make sure our consults actually can handle more inquiry and that sort of thing. But we also have a carbon development and a couple of other things that we are -- because that is one of the secrets to get people more productive in the front line. And the reality is a lot of our people are very productive, there's just too many that aren't as well. So the technology we're developing in that, it just won't at the moment, all of them [at front].

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Grant Saligari, Crédit Suisse AG, Research Division - Head of the Consumer Staples, Discretionary Retail & Agriculture and Director [40]

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Do you think that lack of productivity in part to the business is due to lack of inquiry or softness in those market locations? Or is it an issue around capability and tech support for those people?

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Graham F. Turner, Flight Centre Travel Group Limited - Founder, MD, CEO & Executive Director [41]

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Look, nothing is ever perfect in the terms of the capability of technical support. But one of the things that we did mention with the network planning, for example, we know that the shopping center environment is under a bit of pressure generally. But we're finding a lot of our top shopping center locations are very profitable, very productive. And with network planning and people planning that goes with this, this is, probably, a 2-year process of relocation into both sites or somewhat better centers as well as opening in new centers as demographics change in the different geographies. And so it just doesn't happen overnight, I suppose. But we have a fairly good view of where we're heading in terms of our bricks and mortar, particularly, in the Flight Centre brand. And then, obviously, the specializations and the online plant is not only important as well, but still the bulk of our TTV comes through bricks and mortar on the ground, and that's where we're putting a lot of our effort. But it's just not going to happen overnight, although I'm happy if we were seeing a lot of progress in this area and partly through the productivity, but also through having the right shops in the right place with the right numbers of people in them, and that's really one of the major issues there, Grant.

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Grant Saligari, Crédit Suisse AG, Research Division - Head of the Consumer Staples, Discretionary Retail & Agriculture and Director [42]

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And just final one for me. Cruiseabout, you closed that brand wrapped it into Flight Centre. The impression is that you did lose quite a lot of visibility from people who were shopping cruise and presumably the TTV in that segment declined. Is that the case? I guess have you been able to rebuild the, I guess, the visibility around cruise within flight, please?

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Graham F. Turner, Flight Centre Travel Group Limited - Founder, MD, CEO & Executive Director [43]

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Yes. A good point. And yes, we did lose a certain amount of cruise. But cruise is not traditionally as high a margin as some of the other land, if you like, land products. But one of the things -- and particularly, the higher-end cruise with Cruiseabout did a reasonable amount of doesn't fit that well into the Flight Centre brand. But it certainly could slide into our Travel Associates brand, which we are growing. And for example, you will see the Travel Associates is just, I think, just opened a series of shops, will be up to 20 or 30 within a year that actually specialize in cruises and quite a few of the Cruiseabout shop.

So it was a solid (inaudible) in some areas, particularly a specific product like cruise, and it will take us a while to build that back up. I mean I think we had -- how many cruise shops did we have, about 70 or 80?

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Melanie C. Waters-Ryan, Flight Centre Travel Group Limited - COO [44]

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About 70.

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Graham F. Turner, Flight Centre Travel Group Limited - Founder, MD, CEO & Executive Director [45]

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Yes. So within the next couple of years, we'd like to think we'll get back to Travel Associates, cruise specialization, having about 40 or 50 locations that specialize in cruise. And I think that's probably about the right number.

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Operator [46]

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(Operator Instructions) We have questions from the line of [Gray Polson].

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Unidentified Analyst, [47]

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I'm actually going to the AGM later this year, having made booking through the Flight Centre shop only last week. Anyway, going back to my point. Online shops talk about typical lease being 5 to 7 years. When do the change in accounting standard now bringing risk commitments in those as a debt? Is there any thinking around going to shorter leases to reduce what that little debt will now show as?

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Graham F. Turner, Flight Centre Travel Group Limited - Founder, MD, CEO & Executive Director [48]

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I'll hand that over to our accounting expert. Thank you for your business. But the -- as I think I said before, one of the things that we've put a lot of time and effort into the last year or 2 is working with our landlords, particularly the major shopping centers because they had some issues with some of the other retailers and fashion in that as well. And it's really important to us that shopping centers are successful. And if we can help them be successful except we don't want to pay too much rent, obviously. And at the moment, we do have a lot of shops in what's called holdover. So I think it had about 1,000 or so locations, we have about 180 in holdover, which means that we're paying on a monthly basis.

But the downside to having 2 shorter-term lease, you could probably get 3 or 4-year new leases is that when you get into the right location in a shopping center, there's not a lot of choice. And obviously, it takes -- it can take up to 2 or 3 years for us to get to where we want to in a center. So yes, sometimes, tying in a 7-year tie or 7-year lease is in our interest, but I don't know what the implication of this will be.

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Adam Campbell, Flight Centre Travel Group Limited - CFO [49]

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Yes, right. I think I've worked long enough with [scrutineers. And a lot of accounts] can change. I think that's how we operate. So I don't think you'll be [fooling any scrutineers]. I don't think there would be a significant change from an accounting perspective for us in terms of P&L. We're not expecting significant impact when we look at our leases that we currently have at the moment in our lease profile. Certainly, it had a bigger impact early in the lease period as you get more of a benefit in the latter part compared to now that we won't need to expand at the moment. There will be a minimum task force as we transition during the course of this year.

But as Skroo said, I think we'll let that -- we'll explain to the market, the impact of that rather than letting it impact on our (inaudible).

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Operator [50]

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We have another questions from the line of Peter Drew from Carter Bar Securities.

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Peter Drew;Carter Bar Securities PTY Ltd.;Director, [51]

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Just a few questions. Firstly, could you just maybe outline what the cost of the network reorganization -- the planned network reorganization in Australia will be maybe in FY '20? And also, if there's any other planned changes in the Northern Hemisphere businesses? That's the first question.

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Graham F. Turner, Flight Centre Travel Group Limited - Founder, MD, CEO & Executive Director [52]

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[This is Graham]. Look, it won't be anything terribly abnormal. There will be some rebranding. And we do want to do a proper rebranding. So if it's a rebrand from -- we just rebrand from Student Flights to Universal Traveller, but we've kept the fit-outs, the color scheme, everything like that. So that was a minimum. It's mainly marketing, the extra marketing cost there.

And as we've said, there's probably about 30 locations that will be branded for Flight Centre to our Travel Associates or Universal Traveller. And there will be a significant cost at those rebrands generally probably around that, depending on how far we go with a $50,000 to $100,000 per shop. There's 20 that will close -- 20 to 30 that will close probably but they all -- nearly all of them will be out of lease and the fit-out will have been appreciated. So that won't cost a lot.

So the 20 new shops, we're doing the math for about $130,000 a shop. So I don't think it'll be a huge change in that cost of that work. Generally, we believe we've declined but in retail, we're getting savings each year on rentals and we get rent rolls, $100 million. I think we're generally getting down, again, 2% or 3% a year over the last few years.

So yes, and it's majorly going now, the bricks-and-mortar and shopping centers were, to certainly extent, but a lot of the strip shopping centers with small landlords are going to have to, I'm afraid, probably take less rent. It's just going to get harder in that sense, but which you could argue is a benefit to us, but the negative is, of course, that some of the strip locations don't have as much [warpath] and customer base at the moment.

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Melanie C. Waters-Ryan, Flight Centre Travel Group Limited - COO [53]

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Our (inaudible) on the north. To be honest, most of the network costs have happened already in the northern countries like Canada, they downsized over the last couple of years and now actually just in a very, very specific growth mode in terms of booking for those more high per flagship locations. And the same in the U.S.A. They'll literally look at places run-up. It might be 1 or 2, but very minimal cost in terms of actual change of network. And the U.K. hasn't got anything major clients there, again, just around the open kind of a hyper store mentality in a market channel. I think they've got a couple of those in line for this year as per normal business trading. So you won't see anything major in the north.

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Peter Drew;Carter Bar Securities PTY Ltd.;Director, [54]

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Yes. Okay. And then just on to the TTV margin uplift in leisure in Australia that you saw late in the financial year and into this year.

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Adam Campbell, Flight Centre Travel Group Limited - CFO [55]

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I don't think we said uplift. I think we said stabilization.

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Peter Drew;Carter Bar Securities PTY Ltd.;Director, [56]

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That stabilization, is that more just a function of you lapping a sort of like-for-like period where you've closed those Cruiseabout and Escape Travel stores that have higher attachment?

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Adam Campbell, Flight Centre Travel Group Limited - CFO [57]

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No, there's is a little bit of that. Some of that happens around about from March through to the end of the financial year back 12 months' period. So it's going to be a little bit of that. But no, what we're looking at is more around some of the discipline that we've been putting place. It's little things like attachment rates, whoever we have to sell those to, to be able to do that. The actual flow-through of the majority of the decline is more like September, October, November is where we saw most of that coming off. So we haven't got into that phase yet.

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Peter Drew;Carter Bar Securities PTY Ltd.;Director, [58]

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I see. And then just over to the U.K. It just looks like in local currency terms, our U.K. TTV was fairly flat in the second half. Could you just make a comment on that?

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Graham F. Turner, Flight Centre Travel Group Limited - Founder, MD, CEO & Executive Director [59]

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I believe that, Adam, have you heard about Brexit over there?

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Adam Campbell, Flight Centre Travel Group Limited - CFO [60]

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Yes. Every day.

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Graham F. Turner, Flight Centre Travel Group Limited - Founder, MD, CEO & Executive Director [61]

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Yes. Well, my daughter lives in London and she's bemoaning the fact the Brexit, that apparently she didn't vote. So I said, well, that's your problem then.

But yes, it's obviously had a bit on an impact and I think we're pretty happy generally with what's happened there, although the TTV hasn't had a lot of growth in the last 6. But yes, those you can imagine, it's just for business travel and a significant part of our TTV there is business travel. It just obviously could have been a dampener on it. But when Boris gets his way with a Brexit in October 31, yes, we're not -- we don't -- or I think Adam knows what's going to happen. I don't.

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Adam Campbell, Flight Centre Travel Group Limited - CFO [62]

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No. All right. Here's the thing. Really, the other thing I'd say about that. I do think we managed -- if you have any -- can feel uncertainly really over there for 2 years, there's no doubt there. And I think Chris and the team have done an exceptional job of managing that at 0 cost increase this year.

They've managed their client and customer relationships really well. What we saw was really the last 6 or 7 weeks when we really saw things start to come off, and that was around about the time of Theresa May stepping aside. That was a lot of when things really started to ramp up and that's kind of fueled the uncertainly really started to come through. So up until then, we would have said we're reasonably comfortable with how our growth at the top line is in travel.

As Skroo said, I think the best thing we can get there is certainty, whatever that looks like. So we're certainly looking to typically what that looks like in the next couple of months.

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Peter Drew;Carter Bar Securities PTY Ltd.;Director, [63]

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Yes. Okay, that's helpful. And just the last one, if I can. Just on Australian Corporate. Can you just sort of comment on what you're seeing in terms of TTV growth for that business in the early part of this year, please?

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Graham F. Turner, Flight Centre Travel Group Limited - Founder, MD, CEO & Executive Director [64]

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What -- you mean in 2020?

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Peter Drew;Carter Bar Securities PTY Ltd.;Director, [65]

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No -- yes, that's right, in FY '20. So the first quarter, just what you're seeing in terms of growth.

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Graham F. Turner, Flight Centre Travel Group Limited - Founder, MD, CEO & Executive Director [66]

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Look, the growth in TTV last year was modest, a couple percent but from a reasonably high level of TTV. And we're certainly -- we're going to lease now the pipeline. We'll be disappointed if we didn't get reasonable growth there. I -- it's too early to say this year, but we might be able to give different indication at the AGM.

But we'd be disappointed if we didn't get that 4%, 5% TTV growth over the year, but it is very early days yet. We've got a reasonable amount in the sales pipeline for our major brands. So it's just a bit early to say.

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Peter Drew;Carter Bar Securities PTY Ltd.;Director, [67]

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Yes. So you're sort of cycling a stronger period now and it gets a bit easier in the second half. Is that a sort of accurate read?

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Graham F. Turner, Flight Centre Travel Group Limited - Founder, MD, CEO & Executive Director [68]

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God, I'm not sure about that.

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Adam Campbell, Flight Centre Travel Group Limited - CFO [69]

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Yes. There's a couple of other things there. We had -- we, as you remember, we had a fairly large client went broke towards the end of the first half. We have actually debated earlier on. There was also -- I think my corporate travel probably felt the same thing. There was a bit of a slowdown in the second half around election time. So yes, I think that probably is fair to say.

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Operator [70]

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(Operator Instructions) We appear to have no more questions from the line. I'd like to hand the call back to the management for closing.

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Haydn Long, Flight Centre Travel Group Limited - Investor & Media Relations Officer [71]

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Thank you very much, everyone. We're obviously on road show tomorrow so if you have any further questions, just shoot me a text or an email. It's probably the best way and we'll come back to you when we can. Thank you.

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Melanie C. Waters-Ryan, Flight Centre Travel Group Limited - COO [72]

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Thank you.

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Graham F. Turner, Flight Centre Travel Group Limited - Founder, MD, CEO & Executive Director [73]

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Thank you.

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Operator [74]

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Thank you, ladies and gentlemen, that does conclude the conference for today. You may now disconnect your lines.