Ladies and gentlemen, thank you for standing by, welcome to the Experience Co half year 2020 results conference call. At this time, all participants are in listen-only mode. After the speaker's presentation, there'll be a question- and- answer session. To ask a question during the session, you will need to press star one on your telephone. Please be advised that today's conference is being recorded. Now I'd like to hand the conference over to your first speaker today, CEO, Mr. John O'Sullivan. Thank you. Please go ahead.
Thank you, Kevin. Good morning, ladies and gentlemen, and thank you very much for your time this morning. Owen Kemp and myself will be taking you through our first half of FY 2020 results. Before I hand over to Owen to jump through and walk through our financials for the first half of 2020, I'd like to give you a very quick business update. Certainly from an environmental point of view, I guess we can all say that we are existing in a pretty extraordinary environment currently, particularly over the last two months.
I think, though, to reset a couple of things, is that it's very important to note that our core strategy that we announced to the market during the course of our full-year results at the end of financial year FY 2019, and then subsequently at our strategic review in November 2019, remains unchanged and is indeed on track for where we would like it to be. We still are a business that's attractively positioned within the adventure tourism sector. We are well progressed in the changes to our management structures and also our business simplification. Certainly our portfolio of assets, as it stands today, is still of such of a high quality. We do acknowledge the external factors that we're currently operating in, and we'll spend a little bit more time on that as we give a business outlook and trading update at the end of this presentation.
Certainly the bushfires over December and January in New South Wales and Victoria, the weather events that we've endured in Australia and New Zealand, and of course, COVID-19, well now commonly known as the coronavirus, have been significant external factors that the business is now dealing with, and is in a good position to deal with moving forward. Owen will take you through our financial results for the first half of 2020. I'll hand over to him to do that in a few minutes. However, I would like to draw your attention to the fact that as we said to you at the end of our end of year presentation and our strategic review presentation this year. This year has all been about strengthening our balance sheet, and also simplifying the business through cost savings.
Three numbers that I'd like to call out that are in our first half of 2020. Our underlying EBITDA was at AUD 9.1 million. That's within our expectations of where we thought the business would be from its continuing operations for this half. We certainly are, in our annualized cost savings, ahead of where we want to be as we turn into the year for the second half of the year at over AUD 3 million. Very importantly, our pro forma net debt is now AUD 7.3 million, particularly after the divestment of Great Barrier Reef Helicopters. As at 30th of June 2019, if you will recall, that on a pro forma basis, this was at AUD 29.5 million. A big reduction in our net debt and a very good strengthening of our balance sheet.
Turning now to where we are on our divestment of the non-core parts of our business that we unveiled to the market as part of our strategic review. As I said before, we have completed the divestment of Great Barrier Reef Helicopters and also our canyoning business. The Great Barrier Reef Helicopters transaction is the most significant transaction that we identified during the course of the strategic review. To have that completed by the 2nd of January of this year was something we were very pleased about in terms of its progress. In particular, we're also very happy that we have an ongoing commercial arrangement in place, with Nautilus Aviation to continue those services on our pontoon out on the Great Barrier Reef. For the remainder of asset sales across our surplus aircraft, property, vehicle, and top assets.
We're certainly in various stages of progress on that, but it's well progressed, and certainly not something that we're rushing on. With the course of our other businesses that we have from the Raging Thunder portfolio, excluding the Millennium Spirit Marine operation, we have appointed Nash Advisory to take forward that divestment, and they are well progressed on taking these assets to market. Finally, before I hand over to Owen to take you through the financial results in a bit more detail. As we outlined during our strategic review, one of our aims was to reduce the operating cost base of the business on an annualized basis, during the first half of 2020 by about AUD 3 million, which we've now achieved.
As we look forward to the second half of the financial year 2020, we are well positioned to actually exceed our original objective of around AUD 6 million in annualized costs. I think certainly this has been driven by a couple of factors. Firstly, we have new leadership in our Skydive Australia and also our Great Barrier Reef operations. Both general managers appointed at the end of October, have been more aggressive in looking at their cost base in those parts of our business. Secondly, of course, the external factors that we are now dealing with has given us an increased appetite to look more aggressively at our cost base. That's something that we'll continue to review as we go through the second half of this financial year. That now concludes my business update.
I'll now hand over to Owen to take you through our financial results.
Thanks, John. I'm now on slide nine for those of you following the presentation. Really, there's probably a bit of a preamble before we get into the numbers today. As John mentioned, FY 2020 is a reset year for the business, and we have undertaken a strategic review in the first half. What that means is it has some accounting consequences. We'll use the terminology continuing operations today. That relates to the businesses that are effectively excluding GBR and the Raging Thunder brand as we go forward. The numbers that we presented here on slide nine and throughout the presentation relate to those continuing operations. The second thing is that at a trading level, as John has alluded to, it has been a challenging period, particularly compared to the prior corresponding period, due to both operational and trading conditions.
We'll touch on those as we get into the segments. Now, similar to John, and probably the most pleasing to me in my role as the CFO, is to see that net debt and the strengthening of the balance sheet. The pro forma net debt, AUD 7.3 million. That has us in a great position entering into the second half following the divestment of GBRH. Revenue and EBIT, underlying EBITDA of AUD 60.3 million and AUD 9.1 million respectively. As I said, that represents the underlying basis for continuing operations. For those, I'm sure we'll have some questions that touch on that in terms of the financial disclosures, but I'll try and keep it very simple. When we updated the market last in early November and around the time of the strategic review, we had our observations on Q1 trading.
I would say in the main, those conditions that we saw in Q1 slightly persisted into the second quarter, which also saw the emergence of the smoke haze and the bushfires in southeastern Australia, which really impacted our Byron Bay to Great Ocean Road. It may surprise a number of you, but it actually led to us having to close down our operations in Queenstown, New Zealand on a couple of days during the period as well. It was quite a large event that impacted our business. I guess the other bit, just before I jump into the numbers, while we did see good weather up in the North Queensland region and some strong numbers on the reefs, particularly from mid-December, which had us actually quite cautiously encouraged as we entered the half.
It has been curtailed by the emergence of COVID-19, which we'll talk to more as we go through the outlook. Now turning on to page 10. The skydiving business, it rains, it pours. It's windy. It's bushfires. There's a few things happening in the half year. I have to say Q1 saw the challenging weather conditions. That is typically quite a variable period in our business. It's a low seasonal quarter, the first quarter, it is at the back end of winter. Australia recovered reasonably well into the second quarter despite the impact of the late November onward smoke haze. For New Zealand, well, the period was somewhat of a stinker when it came to weather. One example of that is December is a peak month in both Australia and New Zealand.
In our first eight days in New Zealand, we only did 400 tandem jumps. To give you an idea, historical trends when we're operating, we're doing well over 200 a day in our New Zealand operation, and that's before we get into a seasonally high period. That did have a big impact on our New Zealand business. Unsurprisingly, I guess that does mean, and as we've stated, Q1, our volumes were down on PCP. That said, there are some good news stories within the numbers. It was pleasing to see the pricing improvement per jump kick up at 2.3%. That's despite the mix of business from New Zealand is lower in that period. We've actually gone against the volume trend there. What that really, at an underlying level, we are seeing some price rise sticking there, which is encouraging.
Secondly, the bookings, inevitably it's going to be impacted by external factors. They proved quite resilient in the period. Albeit with December and January and COVID-19, you do see a short-term dislocation between bookings and jump activity. Thirdly, I guess the muscle memory is there in this business. This skydiving business, and I might have mentioned this before, it has great operational leverage and great skill base that's been honed over a number of years. In amongst a tough half, we actually got record jump days in both our Australian and New Zealand operations, where we did 354 at Sydney, Wollongong on a day. I think that was on December 29. Then over in New Zealand, we did 443 at our single drop zone, NZONE.
Those are tremendous numbers that really shows that muscle memory is there, and it knows how to flex when it has to and when the volume is there. Otherwise, the capital discipline in skydiving has been really encouraging as well. We've released about AUD 1.6 million in capital without impacting the capacity of the business. That's coming along nicely. Let's just depart from skydiving into Great Barrier Reef. I would say at this point in time, with COVID-19 on the agenda, 17% of Australian jump volume in FY19 was China nationals. And in our New Zealand business, it was a tick under 40%. While these travel restrictions are in place and COVID-19 is on the agenda, we expect this to be the new norm, certainly until we look up at 30 June.
John will talk about this, that we're certainly seeing those numbers tail off as we head into the second half. Moving on to slide 11 and the reef-based business, Great Barrier Reef Experiences. Obviously, significant restructuring has taken place in the half. What's also happened is we've seen Cairns airport arrivals continue to trend downwards. They've trended down 3.3% half-on-half, but it's more pronounced when you look from September 2018, that the Cairns market has been on a downward cycle. That leaves us with revenue down AUD 4.3 million and EBITDA down AUD 3.8 million. There's a few things going on in that trend. Due to a decline in the market conditions and then the lag effect of unwinding a higher than necessary cost base that had become embedded into the business since the period of acquisition undertaken going back into 2017.
From where I sit, in my seat, very pleased as John alluded to with the appointment of the new GM, the speed of execution in flexing the cost base, which is going to be particularly important as we head through the out turn for the second half. For the financial period, the prior year PCP comp starts cycling out in our business from the December month. We did have strong momentum from mid-December with a number of close-to-capacity days on our resort-based products. As I said, we entered the second half with a cautious optimism. Coinciding with Chinese New Year, however, as we all know, we saw the ABS group ban from China come into effect from the 24th of January, which had immediate impact on our booking levels, particularly in our Green Island product, which is typically a group volume product.
This was followed by the Australian government's border restrictions implemented on 1 February. This will continue to have a material impact on this market in the near term with a combination of both the group and FIT dynamics both at play in this market. Moving to cash flow on slide 12. Two most important things here really have happened post 31 December, I would say. We've received the GBRH proceeds, and then we've had the emergence of the external factors have certainly been magnified. One thing to remember as we enter the second half is typically ours is a business like a lot of Australian and New Zealand-based tourism business that feasts in the high volume summer months, and that'll carry the business through the leaner winter time, particularly in our skydiving business.
In that respect with the external factors at play, we are presented with a unique challenge for our business. It is actually uncertain times, I guess, across the industry. We're not alone there. John mentioned the savings initiatives underway. That's going to be a hands-on daily activity where we work with each of the GMs at all levels of the business. The immediate priority is pulling the immediate cost levers without damaging long-term value of the business. Moving into the balance sheet. Pleased to say the group has a strong balance sheet and a well-capitalized asset base, well-placed to enter into a period of uncertain times as we see before us today. Most importantly, seeing that net debt down at AUD 7.3 million heading into the half and pro forma for GBR was quite encouraging.
With that, I'd like to conclude the section of today's financial section of the call, and I'll hand back to John to recap on our achievements for the half and the near-term outlook for the group.
Thank you, Owen. If I draw your attention now to slide 15 of the deck. I think in closing today's presentation of our results for the half year, I think it's important we look to the outlook. We also just reflect quickly on the first half achievements. Three things I would say to you that we have done and are well progressed on. Our strategic review is now complete, and our actions are currently underway and are on track to be completed as we originally announced in November. Pleasingly, our cost savings initiatives and our divesting of non-core assets program is also on track. As we said earlier, we are certainly trying to accelerate, and be more aggressive, particularly in the cost savings part of the business. Our first half performance was largely in line with our own internal expectations.
As we turn towards the second half of 2020, I think it's fair to say that the external factors that have been buffeting the industry will obviously continue, particularly given the impacts of the COVID-19. What I would say to you from our perspective is that this is very much something that we don't anticipate to cycle out of our business prior to the 30th of June. It is very much an unknown quantity, and we certainly do believe, and I certainly believe from my previous experience, that this is something that will not only impact China in the near term, but we'll also see impacts on other Asian markets, particularly Asian markets, in the near term for the remainder of the financial year.
We also believe that while there will be opportunities, particularly as we deal with the impacts from things like bushfires and also the weather events, for us to work aggressively with state and territory governments on marketing initiatives as well as cost saving initiatives like the ones that the Queensland Government have just announced. COVID will be something that takes a bit more time for us to be able to regain lost sales and then also return that market to growth within our business. That all said, however, our core strategy will remain unchanged, and we will continue to proactively respond to those external factors, addressing our cost base, looking at flex in our operations.
Certainly and very importantly, looking to work in growing revenue out of markets that are unaffected by those external factors, in particular, local markets and in particular, Western markets that are still coming into Australia in good volumes. With that, we'll conclude. I'll hand over to Kevin now to facilitate our questions and answers.
Thank you. Ladies and gentlemen, we now begin the question- and- answer session. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press the pound or hash key. Please note there might be a slight pause as questions queue. Once again, ladies and gentlemen, it is star one and wait for your name to be announced. Thank you. We have multiple questions in our queue, but our first question is from Mr. John O'Shea from Ord Minnett. Please ask the question, John.
Good morning, gents.
Good morning, John.
Just a question. I noticed your comments about coronavirus as we look out towards the end of this financial year. How do you sort of see let's assuming that that's the case, your base case scenario there unfolds? What are you assuming, or what's your experience, John, in terms of what that then means for FY 2021 at this early stage?
Look, I think it's a really good question and quite a difficult question to answer, because I don't think any of us actually know how this is going to play out or cycle out. I think what you've got to look at, there's obviously been an immediate and severe effect in the Chinese market, and we've seen that by significantly reduced aviation capacity coming into Australia. Which, based on what we've seen this morning from Qantas's announcement, doesn't look like it's going to be returning until such time as there's more certainty around the containment of the virus.
Sure.
Secondly, you've also then got the, I guess, the flow-on impact into other international markets as well, and particularly Asian markets, which when you have external shocks such as this, you generally see that outbound travel growth certainly slows, or if not, stops for a period of time until such time as the threat has passed. I think for us, the view that we're taking, John, is that we want to see how the April school holidays domestically cycle out and cycle through our business. Currently, we're in the midst of what is normally the Chinese New Year months in January and February, and I think every tourism business looks at Chinese New Year across those two months. We're now coming out of that. In April, we'll head into the Australian school holidays.
There has been far more concerted effort than ever before on marketing Australia as a destination to Australians by government, but also by the trade. I think from our perspective, we want to see how March and certainly April cycles through before we understand with abundant clarity on the impacts as we move forward into FY 2021. The word's been used by a lot, but it is certainly just very unprecedented times for the sector.
Thank you. Yeah, I understand that. Thanks a lot.
Thanks, John.
Once again, ladies and gentlemen, it is star one to ask a question. Our next question in queue is from Allan Franklin from Canaccord. Please ask the question, Allan.
Yeah. Hi, guys. Thanks for your time today. A few questions.
Sure
I might just step through them. Just in terms of, I think you obviously referenced state government and other government initiatives. Just wondering to what extent you can take control into your own hands and to speak to hotels, agents, and other people in the market to help push volumes?
Certainly, we do that as our normal course of our business anyway. We're not reliant on state government response. We have major partnerships with the likes of Luxury Escapes, Ignite, usual players in market, and we certainly have been, even before the impacts of COVID-19, we certainly have been pushing those aggressively and certainly to the point with Catherine O'Brien, that's gone up a level in the restructure of our sales team. I think what the government opportunity provides us is on two levels. Firstly, the additional spend in creating demand for Australians for holiday in Australia is something that I think will mop up a segment of the market that may have been looking at holidays offshore, in the forward months that now are thinking because of COVID-19, well, I'm not going to do that.
That gives an opportunity of demand into destinations into which we operate. The other thing is on our cost base, and certainly the Queensland Government's announcement recently of the relief of operating charges for marine operators out of the Reef Fleet Terminal has also been, not a silver bullet or a panacea, but certainly has been a significant saving for our operations up there and all marine operators, I dare say. From the government point of view, it gets a tick on two levels. I think to your fundamental question, we have been working with those agents anyway, so it's just now we're continuing to do that and upscaling our efforts in local sales and in our partnerships with the trade.
Sure. Just a quick follow on. Have you had to change scheduling or staff yet? What might have triggered to do that?
Yeah, our business is one of two halves. The beauty of our skydiving model is that it's a very variable cost base. If we don't operate, we don't have a fixed cost in terms of the tandem master's a piece pay, our packer is a piece pay, et cetera. The model can flex very easily based on demand. To go up to the Great Barrier Reef, we have altered our schedule. I guess one of the pleasing things in having Adam Jones as our General Manager up there, he came from a business which was very seasonal. He's got a very acute understanding of when to alter schedules, when to maybe suspend a service for a particular day. For example, with our Big Cat service, generally at the moment, one day a week, we're suspending that operation.
We'll continue, and we review that pretty much on a daily basis. We have implemented that up in North Queensland. Pleasingly from our perspective is that we have now a General Manager who is well-versed in that. We are acutely monitoring that and implementing that as we need to.
Sure. No, thank you. Just a quick last one. Owen, in terms of just considering organic growth options over the next couple of years, are you any more progressed on thinking about potential organic drop zones or other initiatives in the business? Or has that sort of been put on hold, I guess, with the near-term impact of COVID?
We are looking at organic growth opportunities, and we also are looking at other opportunities as well. I think one of the things that will come out of this is probably opportunities from an acquisition front. As we said earlier in our earlier presentations, we'll be applying a focus on capital which ensures that the return on any investments we make, whether they're organic or whether they're acquisitive, will be in the best interest of our shareholders. Out of something like COVID-19, I think there will be some opportunities. Sadly, I guess, for some parts of the industry, we'll continue to monitor that as they come along. Always with the discipline on return on invested capital and what's best for the business and shareholders.
Sure. Thank you.
Once again, ladies and gentlemen, this is Star One, but our next question is from James Tracey of Veritas Securities. Please ask your question.
Hi, John and Owen. A couple questions from me. The first one is on COVID-19. Are you able to give us a bit more color on the impact it's had in terms of weekly sales and profits, just so that we can model it out if it continues for a longer time or a shorter time? The second question really is on New Zealand. Seeing the 14% volume decline there, it's a bit of a surprise really, given that COVID-19 hasn't had an impact in the period and historically sort of higher single digits. Could use a bit more color on what the growth in the bookings were. Maybe it was just the weather that caused the drop in the actual jumps and the bookings were higher. The final question is around the segmental profit.
I was just wondering whether or not you've changed the definitions because last year you reported AUD 13.1 million in skydiving, but this year you've said that the prior year was AUD 11.1 million. It looks like you've redefined what the prior year profit was. Thank you.
Thanks, James. Owen here, I'll pick up that. I might actually start with the last one. I should have actually included that. In terms of the segment, what we'll note is we have, as we flagged at year-end, we were looking at how we allocate the costs. Previously we had a bigger bucket in corporate. What we've gone through is done an exercise of trying to marry that up and get it in the right buckets, James. They've now been presented on a like for like basis in the accounts for this period. It is a true representation of what the direct costs are in relation to those operations. You're dead right there. Secondly, probably doing this in reverse order, the New Zealand business. It is quite an interesting one.
Definitely in terms of ours, December was the big driver of the 14.3. It may come as a surprise at face level to you guys. It really is a weather story. To give you an idea, I think we calculated if we actually did another four days, we would have delivered December, and then you get to about a sort of 10% decrease, which is probably more in line with what you would have been seeing from the outside. Certainly when I look at the first half, very much a weather story in Queenstown. Remembering we are in Queenstown, we have late season snow. Even to the point of, I think it was January 2nd, we had snowfall, just on The Remarkables, which is right near our drop zone there.
Encouragingly, the booking levels it's a tough stat because when you have weather, you start to lose that visibility with the short booking cycle. There's certainly nothing there that would alarm us in terms of forward bookings and the volume there. In the month of January, it shot the lights out in Queenstown. Our operation well exceeded our expectations. In terms of the internal numbers, I think we were roughly about 20% odd ahead of where we thought we were gonna be for the January month. Nothing to be worried about.
Yeah. Just on that, do you continue to see New Zealand skydiving as a mid-single-digit growth? That is what it has been in the past.
Yeah. That's probably a way to think about it. I think what we're going to see is a combination. If I look at New Zealand, James, it's a combination. The weather has been absolutely shocking, and I'd encourage you to help me with the therapy of our GM in New Zealand, who's had a really tough period in terms of weather impact on operations. What we're going to see, it's going to be a bit confusing this period because obviously with the high representation of our China business in New Zealand, it's been a key driver of growth. We're not dissimilar to any tourism business in Australia and New Zealand, probably over the last five to seven years. It's more pronounced in New Zealand.
We've gone from, if we think of Chinese New Year, fortunately, we were able to execute the Chinese New Year period for our New Zealand skydiving business. It had very limited impact. The travel restrictions didn't really kick in, because we already had the China nationals in-market. They're already in the country prior to that restriction and Chinese New Year. What we have seen, certainly in the last week, is we've gone from having, as I said, the high 30% representation of China nationals to now, as I say, the last couple of days, it's been less than 10 China jumpers out of numbers that have been anywhere between 170 to 200 jumps per day across the Queenstown Basin. It is quite a discernible decrease there. You can see it, certainly.
That's where we do certainly look at it, we don't expect any recovery is not going to be flick the lights on and by 30 June we're there and China's back and New Zealand's growing at, as you say, in a normal market, high single digits. It's mid to high singles. We're not going to be seeing that by 30 June. The challenge in our business at the moment is utilizing that flexible cost base and managing with the volume we've got.
Yeah. Just following up on that, you're basically saying that volumes are down to the 20% odd versus what they were. What sort of EBITDA margins would that skydiving business be running given that it's a highly variable cost model?
In New Zealand, it's generally anywhere in the very high 20s to the early 30s. This is all on the new basis of me presenting the segment information down. Australia is probably more around the mid-20s.
Yeah. That's great. Thanks a lot, Owen.
No worries, James. Thank you.
Once again, ladies and gentlemen, it's Valentia asking questions. There are no more further questions in the queue. I'd like to hand the call back to the speakers for any closing remarks. Please go ahead.
No, look, thank you very much for your time this morning, ladies and gentlemen. Thank you for your questions to those speakers. With that, we'll draw a close to our presentation and thank you again. Thank you.
Ladies and gentlemen, that does conclude the call for today. Thank you for participating. You may all disconnect. Goodbye.