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Edited Transcript of SKB.AX earnings conference call or presentation 30-Aug-19 12:01am GMT

Full Year 2019 Experience Co Ltd Earnings Call

WOLLONGONG Sep 10, 2019 (Thomson StreetEvents) -- Edited Transcript of Experience Co Ltd earnings conference call or presentation Friday, August 30, 2019 at 12:01:00am GMT

TEXT version of Transcript

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Corporate Participants

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* John O’Sullivan

Experience Co Limited - CEO & Director

* Kerry Robert East

Experience Co Limited - Non-Executive Chairman

* Owen Kemp

Experience Co Limited - CFO

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Conference Call Participants

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* Allan Franklin

Patersons Securities Limited, Research Division - Industrial 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

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by, and welcome to the Experience Co's FY '19 Results Conference Call. (Operator Instructions) Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your speaker today, Mr. Bob East, Chairman for Experience Co. Thank you. Please go ahead.

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Kerry Robert East, Experience Co Limited - Non-Executive Chairman [2]

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Thank you and good morning all and thanks for joining Experience Co's Results Presentation for FY '19. I'm joined here by our newly appointed CEO, John O'Sullivan; and our CFO, Owen Kemp. So we'll share the deck somewhat and we'll try to call out the page numbers as we go through.

But first, if I may, just an update from the chair. The -- it's been quite a remarkable number of months and year, in fact, with the core business trading reasonably well but clearly some challenging trading conditions in -- particularly up in North Queensland. The -- just as a brief reminder, I took on the chair role in October of last year. And subsequent to that, we've -- we have newly appointed CFO in Owen Kemp, a newly appointed CEO in John O'Sullivan, who's only just commenced a number of weeks ago. We've also brought in Ian Douglas as GM of Corporate Development. And it is worth noting that Anthony Boucaut, the Founder of the genesis of this business in the skydive sector, has today, in fact, transitioned out of the -- a Managing Director role into a Nonexecutive Director role, which is good for the business and very good for Anthony.

So it's been a period of quite some significant changes. The strategic review that John will discuss very briefly is -- has been embarked on, and there's been some significant progress made in relation to understanding this business and its core components and the future direction of this business. And indeed, at the AGM, we'll have more details to go through at that stage.

The -- moving into FY '20. The strategic review, as I've said, quite significantly advanced and more details to come. The overarching theme is for business simplification and a focus back on the core business, the core component part to this business are actually trading reasonably well, do have upside potential and we are quite buoyant about the prospects of the core moving forward. There is undoubtedly going to be a streamlining process undertaken to simplify this business and to make it a little bit more nimble, very customer-focused. And obviously, as we embark on these things, those assets that are subpar or noncore will be exited. And this will give us, obviously, a stronger balance sheet. And we will -- Owen will discuss the balance sheet in broad terms, but we'll have optionality around our balance sheet moving forward.

So all in all, the business is reasonably well-placed. We're clearly delighted to have a very senior management team with their hands on the wheel now, and we look forward to significant changes being brought about over the next 12 to 18 months.

I'll leave those as opening comments at this stage and ask Owen to give an update on those financial results from Page 6 or Slide 6. Thanks, Owen.

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Owen Kemp, Experience Co Limited - CFO [3]

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Thanks, Bob, and good morning all. So I'll jump straight into the numbers on Slide 6. Here, I presented the statutory profit and loss. So you'll see some large numbers there. The 2 core assets I have there is the revenue growth of 19.2%. Now as you could be aware that's largely driven by the FY -- the full year contribution of FY '18 acquisitions. The other large number you'll see there that we've highlighted is around the other expenses and the impairment. So impairment is significant, or it's actually really important. These are predominantly noncash items.

So I'll just talk to the impairment. And this is a large number, it's $62.5 million. And that's largely driven by the Adventure Experiences segment. Now what does that number tell us? In short term, it really tells us of the acquisition case. When we mentioned into -- the acquisition does not materialize into the level we would have liked. The reason for that, really, we've had done 2 things, lower than anticipated benefits from the integration. But that is in a backdrop of some softer tourism conditions and particularly pronounced since September, October last year in 2018. And what that does is it impacted our look forward on the projected cash flows for that cash generated in the unit. Now naturally, this isn't something we've taken lightly, but it does represent our realistic view of the market in the short to medium term. And that's not to say that North Queensland might improve. And it is a business that has had a cycle, ups-and-down cycles and quite pronounced on both sides. But just as a stage of where we're at the moment, we're not seeing any definite sign that, we'll be at the peak of market in the short term. So naturally, we won't be sitting here waiting for a cyclical recovery as our only option. John will talk to the strategic review, and this business segment will be a key area of focus.

The other call out I have there is really around the dividend. So we've had not declared a dividend for the FY '19 year. And there's a couple of things that play there. Really, the FY '19 earnings have come in below initial expectation. The second thing is when you take a step back from the overall cash flow from the period, we've looked at that and then we just consider the balance sheet optionality in the short term. Particularly entering a strategic review process, we formed a view that, that is the most prudent measure that we have as we enter that process and really have that full balance sheet optionality and have every option on the table in the short term for the strategic review.

Moving into Slide 7, the underlying financial performance. For those of you, you might be wondering why I haven't put underlying NPAT. There's a few things going on there, and I've avoided doing that because you probably have to pro forma some things as a result of this year. But maybe if I just focus on the underlying EBITDA, so it's coming in line of the range that we had at the 16th of May trading update, $27.2 million. And you'll see there, I started reporting on the EBITDA, which will be an ongoing measure. So that depreciation is real in this business, and we will continue to have that.

So what we're seeing is -- it's been a story of a couple of halves there. The second half was obviously a bit weaker than the first. But overall, the Skydiving operations has continued to be the key earnings driver. You can see there representing the line of share of both EBITDA and EBITA level.

The other thing we've done in the period, and you'll have to bear with me on this, it's just on the cost allocations across the business segments. So as you try and piece together the historicals, it might be a bit frustrating at times but the other thing that we are looking in, in a strategic review is better aligning where those costs should fit and how we measure our businesses internally and that will follow. But we are in the path of improvement there.

So EBITA, as one of the final comments, probably that's really flagging that we are going down the route of return on invested capital as being a key metric.

So moving on to Slide 8. I won't dwell on this too much, but we saw the volume perform quite reasonably well, I think. On the back of FY '18, we did have fatalities in Australia, New Zealand skydiving industry for the first time in 30 years. And by just entering the new year, we had thought it would be a tougher trading period. But what we've actually -- what transpired is it -- we actually take the far North Queensland drop zones, which comprise anywhere from sort of 27% to 30% of our volume. That went down by 13% in this period. So if you take that out, Australia, and driven by our metropolitan locations, was up 5.5% and New Zealand was up 4.8%, which is a good result. And average jump revenue, a lot goes on in there. There's a lot of mix effects that's happened. But that's -- that also jumped up a peak at 1.7%.

Moving into Slide 9, Adventure Experiences. Now it is no secret this has been a challenging year for Adventure Experiences. So we had the revenue growth on the back of the full year contribution of the FY '18 acquisition. But it really was offset this -- and this is the story, by the fixed cost leverage of a challenging market. And that challenging market was particularly pronounced during the second quarter of the financial year, so we're talking about October, November 2018, where we saw a downward trend in Cairns airport arrival and Reef volume visitation. So that was particularly pronounced from that period.

After [that], pleasingly, we have been able to hold our market share on volumes ex-Cairns marina, so that is our share of Reef visitation as we've measured, then we have seen a mix to lower yielding products. And part of that is weather and optionality of just the Reef tours as the weather plays out.

And not dissimilar to other businesses, when times are tough, some of the issues are magnified in the -- when you have challenging trading conditions. We would just highlight and John will talk to you around his thoughts around integration and challenges with that, the way we've approached the operating model and go-to-market strategy. So I'll let John pick up on that in a moment.

And specifically here, we have GBR business, which is the Helicopters business. We had a very challenging year with the loss of a key contract. And look, the key takeaway at this stage is when we look at the numbers for that business, it's unlikely to meet the group's desired return profile going forward. And that will be one of the areas that we do look at quite closely in the strategic review and a lot of thinking's been done today.

Moving on to Slide 10, cash flow. A pleasing result there in terms of cash conversion on an underlying operating level. So that's testament to a robust operating cash model, which is great to see, particularly in our Skydiving business. The CapEx on a net basis because we did some trading in and out as -- of the helicopter fleet as we repositioned that business, that came in, in line with expectations, which is good to see. But once again, picking up on the helicopters, the capital requirement and specialization of that operation, it has really proven a challenge for us to get our arms around in the period.

Moving on to Slide 11, and here I'll be talking just about some capital management. Some key things we've done here is we have revalued the fixed wing and rotary or helicopter fleet as at 30 June 2019. Probably no surprises there but the same variable tend to happen because the -- it -- aircraft transactions aren't denominated in U.S. dollar rates, so we are subject to that in each reporting period. The other thing that's actually happened in the period and this is particularly pronounced for the helicopter market is we have seen a reset in aviation insurance markets globally. So that's led to a bit of transactional activity as people will have a higher cost base now in some of the rotary fleets. So insurance cost is really within a whole dislocation in the market, really leading to cost increases in insurance.

And [also related to] see the general -- see the quite specialized assets in the main, so it really does depend on liquidity at any point in time for the specific aircraft that's -- is up [in value]. The other thing here, we've got net tangible assets. It remains at about $0.17, so it's slightly down if you get to the decimal point, so that's quite pleasing so that's quality asset base.

And maybe just picking up on the short-term strategy before I hand back to John. In the period, we did extend the maturity of the debt facility from May 2020 to October 2020. We continue to work and have a healthy dialogue with our incumbent banker, NAB, and that should -- we don't foresee any issues there on the debt side.

And then let me talk about resetting the balance sheet and return on investment. I think the key message there is one of optionality. And similar to the dividend is we just want to have all levers available as we enter a phase in the short term about a strategic review of the business.

So with that and speaking of the strategic review, I'll now hand back over to John to go through his initial impressions.

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John O’Sullivan, Experience Co Limited - CEO & Director [4]

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Okay. Thanks very much, Owen, and thanks very much also to Bob and good morning, ladies and gentlemen, and thanks for your time this morning.

As Bob alluded to before, I've been in the role now for exactly 1 calendar month. I joined on the 29th of July. And over the last 4 weeks or so, I spent a lot of time getting around to our operational hub, getting out to our -- a majority of our drop zones, even did a skydive in [one of them] with our team there, meeting a lot of our customers and key suppliers across our network and across our business. And this is a process that, obviously, only being a month in, is still ongoing. But the first impressions I give to you are pretty straightforward as set out on Slide 13. And that is from a positive point of view, this business -- one of the reasons why I left Tourism Australia to take this role, this business is really well-positioned to take advantage of the underlying trend globally about people traveling for experiences. But more importantly, people traveling to do Adventure Experiences. This is the fastest-growing sector or niche sector of tourism globally. And what's really exciting about this sector is that the Asian markets really haven't turned on to it the way that they have done with other inbound markets. In addition to that, we are incredibly capable in our core Skydiving proposition as Owen has alluded to, and that's off the back of the fact we have great market share, we have great drop zone locations. And the customer base that we're appealing to, being very free and independent, I think gives us a lot of protection from some of the external shocks that the inbound tourism market can face from time to time.

Balancing that up is really looking across our North Queensland business. And what I'd say about North Queensland is that the Great Barrier Reef will always be an iconic part of the tourist journey to Australia. What we haven't been good at is thinking through what our acquisitions should have been and needed to be and then very importantly, how do we integrate those into our model, which is quite unique and when you look at the Skydiving business versus the Adventure business type, they're quite different in their nature. And I think that's really, for me, from the last 4 weeks, what I've seen as the first part of looking at the business.

So for me, the key short-term priorities between now and our AGM in November really come down to 2 significant pieces of work. The business simplification process, which both Owen and Bob has alluded to and also the strategic review, which I'll take you through in a little bit more detail in just a few moments. But also, it's really important for us now to really put our mind to having a very clear, a very easy to execute strategic plan, which looks at returning this business to key areas around organic growth but also having a better idea of when we do go into acquisition mode, what we need to buy, where we need to buy and how we execute against that.

So turning to Slide 14 and looking at business simplification. Really, as I said before, this is a business that had almost insatiable appetite on acquisitions. It was really geographically concentrated in one particular part of Australia. And really, when you think about it, it went -- we went and acquired businesses that were volume-led as opposed to yield-led like our Skydiving business is. And as I said before, we really didn't have a clear way of integrating those businesses, whether it's about structures or whether it's even just the focus of management when these particular businesses were bought into, but also that core focus on organic growth.

Where I intend to take the business is, really, as I said before, about returning back to these principles about we're driving organic growth through our core business, particularly Skydiving, but also as being much better -- and I bring this concept to the table to work with Owen and also Ian and Bob, that recognizing the key market drivers for tourism particularly, the risks and opportunity and the elements of what makes a good tourism business. And we'll talk about that in a little bit more detail when we get to the strategic review.

The thing that I'm really excited about in the 3 steps to this business simplification is the transformation side of the process, and in particular, sales and distribution. I've spent the last 5 years looking at a lot of models from around the world. And certainly, I've seen some really great opportunities within our business to accelerate that part of our operations across not only our Skydiving business but also our Adventure Experiences as well.

Turning to Slide 15, which talks about the strategic review. As both Bob and Owen alluded to, this strategic review is now underway. And what we will be doing when we look at the businesses across our portfolio, recognizing that Skydiving is at the core of our company and also the historical origins of our company. What we're going to be looking at is really any key criteria, which I believe goes into that point before around what goes into making a really successful tourism business and also a portfolio of assets. And not surprisingly, we want to have businesses that are market leaders in their sector. We want to have businesses that are scalable, businesses that can be grown organically as opposed to just bolt-on acquisitions. And also from a competitive context, we also want to have businesses in our portfolio that are hard for our competitors to enter into. We have that in spades in our Skydiving business. We had scale. We have a great market share, 70% here in Australia. And we have the best locations around Australia and also in New Zealand.

So taking those types of criteria, applying that across our business and then looking at what makes sense to retain and what made sense to potentially divest. In addition to that, we're also going to turn a lot of attention to our corporate cost. As you can see from Slide 15, at $11.4 million, we are in strong belief that there is a lot more opportunities to be a leaner business than we currently are.

Turning to Slide 16, looking at marketing, sales and distribution. I'm really pleased to see that we've already now started to make it easier for the customer, in particular, to get, facilitate, direct customer bookings into our business. Now why is that important for these types of businesses? This importance around direct business is obviously that the cost of sales is far cheaper. You can -- you take away agent commissions, you take away the middleman and you have a direct relationship with your customer that allows you to build that one-on-one relationship.

We are in the process at the moment on rebuilding our digital capability across our business. We've rolled out across our portfolio of brands new websites, and that's been supported particularly in our Skydiving business with a focus on positioning Skydiving to a different market, in particular females, which are now predominantly at about 55%, our largest demographic for our business to then drive people to our websites and our digital capability in marketing and sales in particular.

In addition to that, we've also been focusing on the customer experience. And as you can see here, you'll be -- I'm sure you're all pleased to know that Owen Kemp has finally decided to do a skydive. And what -- we've made it easier for our customers now is from the process and the journey from when they book and when they pay -- and we have a fantastic new partnership with Afterpay. That's really important for us because this is ostensibly a millennial product through the experience and then being able to -- through the rollout of technology, our [Shred technology], to take your experience directly to your mobile and then giving you the ability to share that. And these are important for 2 things. The more we upsell our customers to take video and photographic packages on Skydive, the better yield we drive per customer and you've seen that in our numbers for this year, where we do now have some improvements in the revenue per skydive. But also the sharing of the experience, particularly for millennial and Asian markets, which are really core to our business, this is the way that they -- this is the way now that they look to book experiences and prioritize experiences when they're in market.

Turning to Slide 18, really around our corporate focus. As I said earlier -- before, part of the strategic review is that we're very much looking at how we make our organization far leaner, how do we make our organization far simpler. And as a key part of that, as I said before, we'll be looking at that overall structure, cleansing our business systems and also ensuring that our business managers and our -- managers of our businesses have clear lines of accountability. But what I'd say to the market particularly is that at the core of this, we will always ensure that customer safety, the safety of our team members and building a high-performance culture is really, really important.

Slide 19, the way forward. The strategic review, as I said before, will be in a position to be presented at the AGM in November of this year. And what that will look -- focus on is those 4 core areas that we've outlined there on Slide 19, which goes to the outcome of the review of the business, looking at areas around capital discipline and also debt but also importantly, the growth story in and around Experience Co for the years ahead.

So in closing, on Slide 20, as I said before, we'll provide a trading update and also the strategic review update and the results of the business simplification program at the November AGM. As I've said before, I believe that Experience Co is very well-positioned in both the broader experience markets here in Australia and New Zealand but also, importantly, in the adventure tourism market globally. And whilst we are facing some geographic challenges in the North Queensland market, I do believe that the company has at its core the business to be able to push through that. And we'll also be focusing in the months ahead on our FY '20 operational trading as well.

So with that, I'll hand back to Bob to say a few concluding words and then look forward to taking your questions.

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Kerry Robert East, Experience Co Limited - Non-Executive Chairman [5]

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Thank you, John and Owen. I think that captures the content we wanted to share today. I think it portrays that the business has -- and I'm very excited about the management team in place and the future direction of the business. There's clearly some more work to do in component parts of the business, but we are quite [buoyed] by the -- by our findings to date and where we believe we could take the business moving forward.

So I think on that note, we'll leave it at that and open it up if there's any questions. Thank you very much.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question today comes from the line of John Hynd from Wilsons.

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John Hynd, Wilsons Advisory and Stockbroking Limited, Research Division - Senior Equities Analyst [2]

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Bob, John and Owen, perhaps if we could start with the outlook where you finished. How should we be thinking about -- good at its early days, but how could we be thinking about the Adventure Experiences business? Are you expecting it to track on a similar, I guess, trajectory in FY '20? And is -- are there initiatives, any initiatives you're rolling through now with marketing and organic growth? Is that enough to offset any of those, any of the further weakness from the Adventure Experiences business?

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Owen Kemp, Experience Co Limited - CFO [3]

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Yes. Good question. And that's the one that's front of mind, John, for us at the moment is in terms of -- obviously, the momentum from half 2 was going against us in that area. So I guess how we're looking at it is certainly achieving FY '19 is no means a walk away at this stage. Like I wouldn't be looking at the business and saying, "Yes, absolutely that's on track," because we did start FY '19 quite well in North Queensland. But in saying that it's well -- and this is a key element of what John and I are looking at in the strategic review is around, well, what can we do to address that in the short term? So how quickly can we tackle some of the challenges? But I guess if I looked at the headline view, it would be a hard start to go in with the momentum we're seeing now heading into FY '20. We're certainly not seeing an upswing in the market. I'm not seeing an upswing in airport arrival. So it's up to us to see what we can do inside on the business.

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John Hynd, Wilsons Advisory and Stockbroking Limited, Research Division - Senior Equities Analyst [4]

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That's quite helpful. And a second question, again around Adventure Experiences. Are you able to help us understand what the composition was like at -- potentially in EBITDA line, please?

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Owen Kemp, Experience Co Limited - CFO [5]

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In terms of why the various businesses we acquired, John?

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John Hynd, Wilsons Advisory and Stockbroking Limited, Research Division - Senior Equities Analyst [6]

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Yes, if that's possible.

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Owen Kemp, Experience Co Limited - CFO [7]

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Probably the way I've been thinking about this, John, is I don't want to continue to talk about the businesses we bought now that we do operate them as a whole but maybe by -- through a demarcation between what I see as businesses that sort of naturally belong together would be, really, the helicopter assets, so as the marine and other assets. So maybe in terms of the helicopter and numbers there, you'd be looking -- maybe if I just give us some numbers around EBITDA. EBITDA for the period was [3.7]. Now naturally, as you're all aware, we have lost the Quicksilver contract in -- from 1st of April. So that would've only impacted us about $500,000. But on the annualized basis getting into FY '20, that's probably more around the $1.6 million basis. So that's at play.

And then in the EBITA line, the helicopter business is quite different as well. So it's -- while that EBITDA of 3.7 , we're probably looking at a business at the EBITA line probably around the 1s, low 1s. So -- and you can sort of connect the dots with the financial report but that's probably the best way of looking at it, I think, John, in the short term.

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John Hynd, Wilsons Advisory and Stockbroking Limited, Research Division - Senior Equities Analyst [8]

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Yes, that's helpful. And what about corporate costs? I think we've -- well, you've sort of spoken about near term kind of make the business leaner. I think it did come back a little bit already this year on a year-on-year basis. Can you give us some indication on what you're doing there and what we could be thinking about?

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Owen Kemp, Experience Co Limited - CFO [9]

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Sure. Sure. And I think the 2 things to think of there is that -- first of all, it's early days with John in the chair. And we're balancing up the desire to continue to grow with actually having the right platform. So one thing we are committed to internally is really making this business properly scalable throughout the business. So in terms of that, would I be expecting to see corporate costs just come off dramatically straightaway? Well, probably, no, because I think we're just going to have to get better at implementing a few things internally. And that might mean some cost out to put some cost in, in the short term. But certainly, John and I share a view among the thesis we have going that we're into the strategic review is how can we be truly leaner and truly scalable because ultimately that's where we want to take this business, and we believe there's an opportunity there.

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John Hynd, Wilsons Advisory and Stockbroking Limited, Research Division - Senior Equities Analyst [10]

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Okay. And last question from me. Positive that you're talking about the focus on organic growth with Skydiving. Can you share some examples of what you think that looks like? And again, obviously, early days, but -- I mean how long does it take to -- for something like this to be implemented and then converted by -- converted into sales with your customers?

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Owen Kemp, Experience Co Limited - CFO [11]

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Yes, it's early days. It's still early days, John. But for example, we have some of the most premium drop zones in any Skydiving operator in Australia and New Zealand in places like Glenorchy, Great Ocean Road for example. We have a reputation in the premium tourism market internationally. I think the #1 in skydiving. Well, #1 experience in the world for -- sought after by virtuoso travel advisers. So the idea there is I think there's an opportunity around the high-yielding visitor, which I know Tourism Australia are chasing, which are now, I guess, the more robust visitors to the country from our key [Indo] markets, particularly Asia. So along the lines of that type of product, I think there's possibly of some -- now with our technology implementation of [Shred] across our drop zones, I think there's an opportunity to further drive upselling from products or customers whilst they're in our drop zones. So the example of products like that, that we'll, again, feed into the strategic review and articulate timing in a bit more detail in November.

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John Hynd, Wilsons Advisory and Stockbroking Limited, Research Division - Senior Equities Analyst [12]

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Okay, that's fine. Just one -- sorry, one final one for me. With, again, back on Adventure Experiences, you talked about a trend to the lower yielding product. Could you just give us a little bit more color on what that meant?

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Owen Kemp, Experience Co Limited - CFO [13]

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Yes. Yes. So I wouldn't overplay it, probably John. But what it really means is up there, this year, we have had the season weather play out as well. So for example, that makes the -- going to Fitzroy Island, which is protected from the weather in a shorter trip in much of your journey. Now for us, that's a lower yielding product compared to a Reef Magic out on the Pontoon out in the Moore Reef, which is more likely to be affected by adverse weather. So you're talking -- if you're just talking sort of basic ticket price, you're talking over $200-odd per person versus in the high double digits for a Fitzroy Island product.

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Operator [14]

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Your next question today comes from the line of James Tracey from Veritas Securities.

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James Tracey, Veritas Securities Limited, Research Division - Director of Industrial Research [15]

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First question is around the strategic review. So now it looks as though you bought a lot of the Adventure assets at the top of the cycle. How do you mitigate the risk that you don't sell them at the bottom?

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Owen Kemp, Experience Co Limited - CFO [16]

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Yes, I think that's obviously something in front of mind, and we don't want to be premature in going with our findings there because we're certainly not -- the phrase that we often use internally. You don't want to sell at the bottom of the market, buy at the top. And that sounds simple. But equally, there's some things we do -- can do to change the business model as guided, and we'll be doing those. So certainly, this isn't as simple as -- or let's just wait for the cycle to return and then sell it or woe is us that the cycle has gone against us. So I don't think -- we're certainly not in a position where we will be looking at fire selling these assets, James. They're good assets fundamentally. It's just the conditions in the short term have gone not as well as what we would've liked.

I don't know. Bob, you've got a lot more experience here longer term.

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Kerry Robert East, Experience Co Limited - Non-Executive Chairman [17]

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Maybe just some overarching themes. Clearly [Cairns] has come off to a degree. The latest stats show international arrivals into the international airport is marginally up and domestic is slightly stopped. It's reasonably benign. So whilst we're not pleased with where the business is relative to a couple of years ago, I think we just need some context in around that our strategic review, it's not -- and clearly, there will be a look at a divestment of subpar assets, so that -- so we've tabled that. But it's really about what is scalable, what is the best use of our capital moving forward, what's the highest and best use of aggregating what is good and then looking what the future acquisitions might look like. So that's a long way of saying that they're actually trading not too bad relative to the last sort of 12 months. Clearly, up over the last couple of years. Clearly, some weather events affecting it. Clearly, we're not falling in that market. But we are not seeing it drop off a cliff, and I don't really -- I don't want it to be portrayed as Cairns is a one-way street. We actually still have reasonable prospects for that in the medium to long term. We won't try to call out when there would be an uptick. We are cautious on the market as we stated in the half year. We said we thought that the benign conditions would prevail, and they have. So I don't think we're in danger of just going backwards and quickly get it out the door, we actually have a fair bit of value-add. And those assets we do decide to move on are trading quite reasonable. Again, relative to 2 years ago or 3 years ago, clearly, wonderful. Something (inaudible).

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James Tracey, Veritas Securities Limited, Research Division - Director of Industrial Research [18]

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That makes sense. You made a comment in the release that you saw throughout the year that the total number of passengers out of Cairns, The Reef was down 8% year-over-year. And I remember speaking with Owen and I think the exit rate was closer to sort of down 20%, so first half better than the second half. What is that looking like today? And then just on the EBITDA, the first half EBITDA was $17 million. Second half is $10 million. Do we expect FY '20 to look like second half or first half or a combination of the 2?

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Kerry Robert East, Experience Co Limited - Non-Executive Chairman [19]

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Yes, look, I think in terms of overall passenger -- so that number call out was out of the harbor. So again, that's an aggregate number. And it does depend on what our competitors are doing and how often they had to pack their boats due to ill weather. So it's -- yes, it's probably not -- it's certainly not trending down as it was before, and it feels like it's flattening as there's a few bumps in there. But the season wasn't too bad up there. On the upside, there's a couple -- there's a new hotel opened there and another one about to -- well, to open in time. So there is some stuff happening there. So I'd -- I don't want to call this out as a crisis area or anything, anywhere near that. I mean there's still positivity in Cairns. In terms of -- we're not going to call out half year by half year, clearly, we'll come back with more detail in November. It will be around where the divestment strategy is up to and clearly, we might have some more announcements around that. So it's -- and that will obviously impact things as well. So we're not really -- we don't really want to call out -- get a half year call out to this stage because there's a fair bit that is in play there. And likewise, how we structure ourselves, that will also impact bottom line performance, and we clearly got plans underway there. So...

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Operator [20]

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Your next question today comes from the line of John O'Shea from Ord Minnett.

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John O'Shea, Ord Minnett Limited, Research Division - Senior Research Analyst [21]

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John, very proud of you jumping out of the plane, mate. That was a big effort, mate.

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John O’Sullivan, Experience Co Limited - CEO & Director [22]

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Yes. It was good. It's a fantastic experience. And the offer is there to all of you on the call if you'd like to join.

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John O'Shea, Ord Minnett Limited, Research Division - Senior Research Analyst [23]

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I'll give it a [pass]. Well, a couple of questions from me. Firstly on the Skydiving business and I just wanted to get a sense -- obviously, the Australia jump number, that's slightly down; New Zealand, up. How has that sort of performed as we get -- now in FY '20 so far? Are we seeing a continuation of those trends? Are we -- just wanted to get it to sort of -- some sort of confidence level on how the jump numbers are kind of performing in FY '20 thus far?

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John O’Sullivan, Experience Co Limited - CEO & Director [24]

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What we're seeing in FY '20 is that -- with the cycle of its businesses, the big period for us is -- where we'll get a much better sense is in and around Golden Week because our business has, particularly in New Zealand but significantly also in Australia, a very large Chinese component. There's obviously been some well-documented weather events on the East Coast of Australia in recent weeks. But what our team members are very good at is reallocating people. So what you often find is whilst we might have an adverse number of weather days in, say, July, they are able to rebook those passengers into other parts of the month or in other locations depending on -- if there are visitors that's traveling around. But we will have a better sense on that, I think, John, in October. But again, it comes into some of the weather patterns and other things that -- in and around the business.

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Kerry Robert East, Experience Co Limited - Non-Executive Chairman [25]

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So no major trends. No major trends. And July and August, John, are the low point, in terms of volume of the year. So you don't get a great read through until (inaudible).

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John O'Shea, Ord Minnett Limited, Research Division - Senior Research Analyst [26]

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So there's nothing adverse there that we should be concerned about? Or is there? Or...

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Kerry Robert East, Experience Co Limited - Non-Executive Chairman [27]

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No. There's no...

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John O'Shea, Ord Minnett Limited, Research Division - Senior Research Analyst [28]

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Okay. You're not missing anything...

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Kerry Robert East, Experience Co Limited - Non-Executive Chairman [29]

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No, there's not -- no, there's nothing there, John.

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John O'Shea, Ord Minnett Limited, Research Division - Senior Research Analyst [30]

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Okay. The second question which is on CapEx. Obviously, this business has thrown around a fair bit of CapEx in the past. Can you give us sort of some sense on how we should think about that moving forward and what sort of next year should look like as an initial guide?

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Kerry Robert East, Experience Co Limited - Non-Executive Chairman [31]

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Just before Owen jumps in there, obviously, more detail around our investment strategy and that will certainly move the dial reasonably significantly. So I suppose in the absence of that, I don't think [we can give voice out around] some of the CapEx, and particularly (inaudible).

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Owen Kemp, Experience Co Limited - CFO [32]

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(inaudible). And I think probably the most helpful guide I can give with that as an introduction is really around -- I don't -- I think -- like I said half-year I called out, I think, maintenance CapEx to be in the order $6 million to $12 million in any given year, I think. And generally, it will be around $9 million. I think it might go uphill and still a little bit. We'll probably be able to call out -- I've just introduced there is sort of around what the helicopter business does, John. So I think if you can imagine a world where you sort of broke up the portfolio and you had helicopters (inaudible), so that number would be naturally a little bit lower it as we go through that.

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John O’Sullivan, Experience Co Limited - CEO & Director [33]

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Yes, Bob says, that's one of the areas that we're looking at. And with return on invested capital being a key criteria for us, we'll be able to give you a bit more color on that in November.

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John O'Shea, Ord Minnett Limited, Research Division - Senior Research Analyst [34]

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Okay. So the $9 million number includes -- I assume that you would retain the helicopter business?

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Kerry Robert East, Experience Co Limited - Non-Executive Chairman [35]

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Yes.

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Owen Kemp, Experience Co Limited - CFO [36]

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Correct. Correct. Correct.

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John O'Shea, Ord Minnett Limited, Research Division - Senior Research Analyst [37]

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Well done for cleaning the slate.

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John O’Sullivan, Experience Co Limited - CEO & Director [38]

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Thanks, John.

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Kerry Robert East, Experience Co Limited - Non-Executive Chairman [39]

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Thank you, John.

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Operator [40]

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Your next question today comes from the line of [Rodney Pry] for [Nordlend Investments].

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Unidentified Analyst, [41]

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Possibly one directed towards Owen. Just wondering if you'd comment a little bit when I look at the skydive split between Australia and New Zealand in the appendix of your presentation. If you sort of cost it all out, the cost per jump, Australia has gone from $280 from $268, so up 4.5%. And New Zealand, $355 from $337, so up about 5.3%. So just wondering if you can give us a bit of an idea as to what were the drivers of that.

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Owen Kemp, Experience Co Limited - CFO [42]

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Yes. I probably wouldn't read too much. That's probably some of my allocation going off. But I'm getting some of the aircraft cost. So that really depends on where the ownership is of the actual airframe itself. So some of those costs were typically not captured and may have been reporting different elements of the business.

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Unidentified Analyst, [43]

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Okay. That was at the EBITDA line, and I was looking at it so before depreciation. So yes.

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Owen Kemp, Experience Co Limited - CFO [44]

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Yes, but I'm talking operating costs there, [Rodney]. So past operating cost [of it]. So think things like registration, insurance, things like that.

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Kerry Robert East, Experience Co Limited - Non-Executive Chairman [45]

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There's been no strategy (inaudible) at one site or albeit, there is always a view that looking at what we can do to bolster the customer experience, if we can get additional revenue, we'd look at additional services. But early days on that, we're certainly status quo.

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Owen Kemp, Experience Co Limited - CFO [46]

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Yes. And we -- the other thing we will have there is just with the other line that you see come through there, a lot of that is very low margin like maintenance work. So if you have that bouncing around, it starts to play with that cost per jump, which isn't really driven off the jump. But nonetheless, it will impact that metric.

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Unidentified Analyst, [47]

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Okay. And just the other one you have possibly done in the past is sort of Skydive processing rates. I guess just to understand a little bit.

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Owen Kemp, Experience Co Limited - CFO [48]

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(inaudible) I'll talk about it because it's quite a deliberate thing for me to venture away from that one because, I think, for us, certainly the way I look at it is that's a very internal metric that really depends on the day. So -- and there's a lot of variables there. So I look at it the other way, how are my bookings going? And I know we have done processing rate historically. But I probably think it's not too helpful to share with you guys because it doesn't really tell you a lot in that -- in terms of the KPIs of the business because it can just show a lot of things that vary in a short period of time. So that was quite a deliberate thing. So not looking to hide it, that's for sure. So I'm not seeing anything change in that regard. But I'm just trying to give you a steer that it's probably not that helpful a metric for you guys to look at.

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Kerry Robert East, Experience Co Limited - Non-Executive Chairman [49]

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And we're looking (inaudible) at all kinds of (inaudible). So just the fact that we don't have people jumping due to adverse weather is -- this is all captured in how we view our business and how we track and reward people, and it's really not relative. Even internally, it's relative to a select few. So that's -- we've just got to -- we're just mindful now of what we think are these meaningful KPIs in our business and know that when we plan out our business, we (inaudible), so it would be very much emulated at the way we talk to the investor community so it will be very similar. So we're changing up how we analyze our business, how we track and reward people in our business. And then you'll see a bit of a change up with a big -- different pieces of different KPIs coming out.

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John O’Sullivan, Experience Co Limited - CEO & Director [50]

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Yes. To wrap that up, Rodney. There hasn't been a fundamental shift in processing rates as well, so that's not a reason to not being there.

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Unidentified Analyst, [51]

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Okay. And then one final one, just a clarification, if Owen could. I think in your actual balance sheet, there's a current (inaudible) asset of just over $4 million as of June. You obviously paid out $6 million and a bit. Is that just a function of the sort of the tax installments that you've done effectively being off the higher base that was last year? And...

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Owen Kemp, Experience Co Limited - CFO [52]

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What it is, is a -- it's very much a timing-driven piece there because it's to do with our tax return profile. So when we bought a lot of these businesses in our installment profile, until you submit your first tax returns and entered the group as a whole, you are stuck on the installment base and that was on a higher base of earnings. So we'll expect to see a large component of that unwind. So that is a genuine refund position.

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Unidentified Analyst, [53]

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And that sort of -- it will mostly come back in by the end of the first half? Is that right? Or any installment...

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Owen Kemp, Experience Co Limited - CFO [54]

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Yes. We'd likely get that by the end of the first half. Correct.

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Operator [55]

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Your next question today comes from the line of [Hamish Burns]. He's a private investor.

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Unidentified Participant, [56]

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My first question just relates to the ARPU expectations to Skydiving moving forward. So I know you reported 1.7% for FY '19. But I would assume that Australia and New Zealand are both relatively high cost countries, probably at the top end of the cost curve for most things, and Skydiving's part of that relative to international comparisons. So what would your expectations be moving forward for ARPU in [Aussie], New Zealand?

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Owen Kemp, Experience Co Limited - CFO [57]

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In New Zealand [in field]? Yes, because I think there's a few things that play there as well. So we have a lot of mix effect that comes into where the price point of each drop zone is quite -- even within New Zealand. And our Queensland product is higher priced than (inaudible). So I think overall, it does -- yes, it sort of -- I don't think you can [have] anything from sort of [2%, 3%] sort of underlying range at those. If you pass that all, the mix and that sort of thing, you're looking at a (inaudible) business in terms of pricing.

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Unidentified Participant, [58]

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Sure. Okay. So don't interpret, say, the 1.7% as the across-the-board increase, it's a function of mix (inaudible)?

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Owen Kemp, Experience Co Limited - CFO [59]

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Yes. Correct. So how we look at price is very much season specific, so -- and as you can imagine, you're doing increments of 10s and 20s in some and 0s in other. It may be $30 in another one. So it's really is market specific.

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Kerry Robert East, Experience Co Limited - Non-Executive Chairman [60]

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So we -- as we look at market -- as we look at our product mix moving forward, clearly, those more popular venues, you would imagine that you have better pricing ability and -- or price leadership ability. So clearly, we'll have a rationalization and we flag that. Everything's under strategic review. Clearly, there will be more focus on those that have the better price point. And the more challenged sites, we'll establish what to do with those. So there should, in time, be -- if everything else remains -- and I'm not trying to fly out or called out on ['20], but if everything else stays the same, you would expect us to be able to get price increases as John implements service standards and a few things that we think will add value to the experience. And those bigger sites, we have plans on -- of greater focus on those more profitable sites.

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Owen Kemp, Experience Co Limited - CFO [61]

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[We're telling you now], we're sitting here, first quarter and the strategic view is still sort of [going out] to see more color in November. So for a full year run rate, I wouldn't expect anything miraculous. But clearly, it's setting up for future (inaudible).

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Unidentified Participant, [62]

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Okay. With regard to adverse weather events, my understanding is that the customers get fully refunded and I think you spoke about rebooking them. But is -- on the flip side of that, I'm assuming that there's no flexibility around your staffing and cost to drop zones and pilots, et cetera. So does that present, evidently, a fairly...

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Owen Kemp, Experience Co Limited - CFO [63]

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There's a few variable costs. [There is a payment advice.] There's a few variable costs. It's a mixture. But clearly, when we have the weather event, there is a fixed salary component and fixed cost component in this business, and that's the nature of the business. So there are on the [fringe] some casuals and some labor adjustments we can do and some [adjusting of] the reallocation. But yes, it's reasonably fixed salary component (inaudible).

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Kerry Robert East, Experience Co Limited - Non-Executive Chairman [64]

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You're talking to the -- (inaudible) 100% variable. And (inaudible).

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Owen Kemp, Experience Co Limited - CFO [65]

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Yes. So in terms of things like pilot and the actual tandem are highly variable cost base, so that does flex up and down. So you've got -- the way I simplify it, skydive is a highly variable cost base and you'll have a lot of (inaudible) cost that had -- still continue to -- still going to be over, still going to have (inaudible), those sorts of things, but you do have a lot of volume-variable activity that can get switched on and off at the drop of a hat, where as Bob was alluding to today, he was probably speaking more to the Adventure Experiences segment, where you get just a highly fixed cost business.

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Unidentified Participant, [66]

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Okay. All right. Understood. And sorry, just a very final one. But with regards to the Adventure segments on Slide 9, the EBITA margins were obviously compressed heavily to the year despite revenue growth, just sort of down 11% (sic) [11 percentage points], I think, is what the slide alluded to. So -- I mean a question already came up about the yields miss, that's a bit of a mix. And -- but it sounds like there may literally be no variable costs within this business. So I -- could I, I guess in simple terms, get a bit of an explanation on the 11% decline in there?

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Owen Kemp, Experience Co Limited - CFO [67]

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Yes. Sure. Sure. And probably the way to think about it is in the short-term, and it probably goes to some of John's comments on the strategy and the operating model. And as we took on that segment of our businesses that we probably put a few additional cost layers in there that in the short term weren't variable, and then some of the bits we're looking at. So it will have a contraction but it has been magnified, I'll say, in the period with our operating model -- our choice of operating model as we've entered the market where we had -- think of things like management layers, corporatization of multi-brands and things like that, those costs, those [stipend] -- sales representation that [speaks] in the period in the short term. But they're the sorts of thing that John and I have (inaudible) the strategic review is what is the appropriate cost base because that EBITDA margin let's all say it's not something that we consider acceptable.

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Unidentified Participant, [68]

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Oh, sure. And I don't think many investors would. All good. Yes, understood. That's -- there's really some space for improvement there. And I take it that there's no dynamic sort of pricing and potentially that's not appropriate for Adventure cruises. But to deal with declining volume, you're not offering sort of 30% sort of discounts to try and flex volume in down months, et cetera?

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Owen Kemp, Experience Co Limited - CFO [69]

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The position on taking -- on our product, the one thing we have -- with the majority of our products, we are at the premium end of the market. And when you start getting into discounting or accepted commissions, you just start a race to the bottom. And I think particularly in North Queensland, the last thing that the industry out there needs is businesses just heavily discounting and heavily with over the top commission rates because it just -- when the market does rebound and everyone's got a pretty steel rod for their own back. So -- and our product is -- and I tested it myself with our call center on Skydiving. I put out a price of one of our competitors for a 9,000-foot jump and the reply back from our call center was exactly as I had hoped it would be which is, "Sorry, that's our price. We offer a premium product."

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Operator [70]

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And your next question today comes from the line of Allan Franklin from Patersons Securities.

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Allan Franklin, Patersons Securities Limited, Research Division - Industrial Analyst [71]

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And just given timing, just a couple of very quick ones, if I may. In terms of the Skydiving business, do you have any capacity limitations, I guess, in different parts of the network, given you note -- you know that there is obviously some strong growth in certain drop zones? Second one just in terms of Cairns and perhaps given your history in all your histories in sort of tourism. At points in time, the Queensland government and/or Tourism Australia sort of step in into specific marketing campaigns for markets like Cairns if and when there are downturns such as in FY '09, FY '10. Just a last one, housekeeping on D&A, if I may, Owen. I presume depreciation sticks roughly the same in FY '20 and then amortization comes back quite a lot given the write-downs.

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Owen Kemp, Experience Co Limited - CFO [72]

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Allan, I might come (inaudible) here. So in terms of capacity, there's no issue there of note across the Skydive network, so that's a relatively easy one. And you're spot on in terms of your comments on D&A. I'd expect that the D will continue, provided there's no material change in our fleet and inside the business. But the amortization as a result of the impairment will come down considerably. So you're looking at a $3.5 million charge this year will come down to probably something I'm expecting more in the order of $600,000 to $700,000.

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John O’Sullivan, Experience Co Limited - CEO & Director [73]

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And on the Cairns here, I guess I could speak with some regard with regards to Tourism Australia and tourism [in] North Queensland and various governments have done. Despite some recent commentary about some operators in the market, the Great Barrier Reef and particularly Tropical North Queensland does overindex on in-market activity for businesses or organizations like TA and also TNQ. The reason being is that by and large, the first time itineraries in Australia are -- usually will include the Great Barrier Reef, yes, and notwithstanding there's a little bit more competitive tension, I guess, on the rates at the moment with those. But certainly from a marketing standpoint, it does get the lion's share of focus from both of those organizations. You just may not see it in a TV ad, which those businesses release. And I can tell you the TV ads are a very small percentage but a high degree of profile for those businesses. The Queensland government and the Australian government have also been quite aggressive in funding new tourism experiences, tourism infrastructure to, I guess, make the conditions more conducive out there. So for example, the Green Island here will be redeveloped as a partnership between the Queensland government and the federal government. And with a view of that type of infrastructure in and around experiences in that region, making it a -- given those marketing bodies and as the trade and operators like ourselves some new news to talk about. I don't think there's one single particular issue that's causing the challenging conditions in Cairns at the moment, I think it's a combination of things. But again, from our perspective, I guess the one thing we are relatively pleased about with the Adventure Experiences is that our passenger -- we've grown share out of our fleet going out of Cairns marina, which has been -- looked at the data that we get from [core northland] passenger movements. And by and large, the majority of our products up there are actually the more premium. And so things like Calypso diving, snorkeling, our Dreamtime dive and snorkel which is a new product that's being launched has done very well because it's new experiences in the region. And we think that, that's a possible opportunity for us as well. But for the region, I think there's a lot of attention from the government perspective for marketing but also hard infrastructure going into that, including aviation development, which is obviously critical.

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Operator [74]

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(Operator Instructions) There are no further questions today. I will now turn the call back to you, Bob.

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Kerry Robert East, Experience Co Limited - Non-Executive Chairman [75]

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Thank you very much.

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John O’Sullivan, Experience Co Limited - CEO & Director [76]

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Thank you.

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Owen Kemp, Experience Co Limited - CFO [77]

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Thank you. Bye-bye.

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Operator [78]

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Ladies and gentlemen, that does conclude our call for today. We thank you all for your participation, you may now disconnect.