Earnings Call: H1 2020

Feb 19, 2020

And gentlemen, thank you for standing by, and welcome to the ExperienceCo Half Year twenty twenty Results Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. Please be advised that today's conference is being recorded. And 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 Kent and myself will be taking you through our first half of FY 'twenty results. Before I hand over to Owen to jump through and walk through our financials for the first half of twenty twenty, I'd like to give you a very quick business update. And certainly, 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 few months. But 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 'nineteen and then subsequently at our strategic review in November 2020 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 venture tourism sector. We are well progressed in the changes to our management structures and also our business simplification. And certainly, our portfolio of assets, as it stands today, is still 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. And certainly, the bushfires over December January in New South Wales and Victoria, the weather events that we've endured in Australia, New Zealand and, of course, COVID-nineteen, well, 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. Alan will take you through our financial results for the first half of twenty twenty, and 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. 9 Our underlying EBITDA was at $9,100,000 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 wanted to be as we turned into the year for the second half of the year at over $3,000,000 And very importantly, our pro form a net debt is now $7,300,000 particularly after the divestment of Great Barrier Reef Helicopters. And as of June 30, 2019, if you will recall that on a pro form a basis, this was at 29.5%, so 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 through the market as part of our strategic review. As I've said before, we have completed the divestment of Great Barrier Reef Helicopters and also our Canyon business. The Great Barrier Reef Helicopters transaction is the most significant transaction that we identified during the course of the strategic review. And to have that completed by the 2nd January of this year was something we were very pleased about in terms of its progress. And in particular, we're also very happy that we have an ongoing commercial arrangement in place with Nordel Association 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 prop 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. And 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 twenty twenty by about $3,000,000 which we've now achieved. And 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 $6,000,000 in annualized costs. And I think certainly, this has been driven by a couple of factors. Firstly, we have new leadership in our skydive in 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. And 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, and that's something that we'll continue to review as we go through the second half of this financial year. So that now concludes my business update. I'll now hand over to Arun to take you through our financial results. Thanks, John. So I'm now on Slide 9 for those of you following the presentation. And really, there's probably a bit of a preamble before we get into the numbers today. So as John mentioned, FY 2020 is a reset year for the business, and we have undertaken a strategic review in the first half. So 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. So the numbers that we presented here on Slide 9 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. And we'll touch on those as we get into the segment. Now similar to John and probably the most pleasing for me, sitting my office as CFO, is to see that net debt and the strengthening of the balance sheet. So the pro form a net debt, dollars 7,300,000 that has us in a great position entering into the second half following the divestment of GBRH. The revenue on EBITDA of $60,300,000 $9,100,000 respectively. As I said, that represents the underlying basis for continuing operations. And 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 November 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 largely persisted into the 2nd quarter, which also saw the emergence of the smoke haze and the bushfire in the Southeast in Australia, which really impacts our Byron Bay at Great Ocean Road. And 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. So it was quite a large event that impacted our business. And I guess the other bit, just before I jump in the numbers, we did some good weather up in the North Queensland region and strong numbers on the reef, particularly from mid December, which was had us actually quite cautiously encouraged as we entered the path because it has been curtailed by emergence of COVID-nineteen, which we'll talk to more as we go through the outlook. So now turning on to Page 10, so the skydiving business. And it rains a pause. It's windy as bushfires. There's a few things happening in the half here. So as I said, Q1 is still the challenging weather conditions. Having typically quite a variable period in our business. It's a low seasonal quarter, the Q1, that is at the back end of the winter. Australia recovered reasonably well into the Q2 despite the impact of the late November on with smoke hay, but for New Zealand, well, the period was somewhat of extincare when it came to weather. And one example of that is December is a peak month in both Australia and New Zealand. And in our 1st day of 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. So that did have a big impact in our New Zealand business. So unsurprisingly, I guess that does mean, and as we flagged at Q1, how long is working on PPP. That said, there are some good news stories that are within the numbers. It was pleasing to see the pricing improvement per jump kick up at 2.3%. So and that's despite the mix of business from New Zealand is lower in that period. So we've actually gone against the volume trend there. And so was that really another one that we are seeing some price rise sticking there, which is encouraging. Secondly, the bookings inevitably is going to be impacted by external factors, but they're accrue quite resilient in the period. Albeit with December January and COVID-nineteen, you do see a short term dislocation between booking jump activity. And thirdly, I guess the muscle memory there in this business, this skydiving business, and I may have mentioned this before, it has great operational leverage and great skill base, in homes over a number of years. So 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 Boroondong on a day. I think that was on September 29. And then over in New Zealand, we did 443 at our single drop zone end zone. So those are tremendous numbers that really shows that muscle memory is there and it knows how to flex when after and when the volume is there. Otherwise, the capital discipline has got us and has been really encouraging as well. So we've released about $1,600,000 in capital without impacting the capacity of the business. So that's coming along nicely. Access to depart from skydiving into the growth area, we'll say, at this point in time, with COVID on the agenda, 17% of Australian junk volume in FY 'nineteen was China National. In our New Zealand business, it was a tick under 40%. So while big travel restrictions are in place and COVID-nineteen is on the agenda, we expect this to be the new norm certainly until we look at the 3rd June. And John will talk about this this, we're certainly seeing those numbers tail off as we head into the second half. Moving on to Slide 11 and the reef base business, Gulf Barrier Reef experiences. Obviously, a significant restructuring in place in the past. And what's also happened is we've seen Camden Airport arrivals continue to trend downwards, which has been so that's trended down 3.3%, half on half. But it's more pronounced when you look from September 2018 that the cans market has been on a down cycle. So that led us with revenue down $4,300,000 and EBITDA down $3,800,000 There's a few things going on in that, that trend. So it's due to a decline in the market conditions and then the lag effect of unblinding a higher than necessary cost base that have become embedded into the business since the period of acquisition undertaken in the going back into 2017. From where I sit in my seat, very pleased with John Lewis here with the appointment of the new GM and the speed of execution inflection the cost base, which is going to be particularly important as we head through the outturns of the second half. For the financial period, the prior year tougher comps start cycling out in our business from the December month, and we did have strong momentum from mid December with a number of close to capacity days on our rate base products. And as I said, we entered the second half with a cautious optimism. Then with coinciding with Chinese New Year, however, as we all know, we saw the ABS group ban from China coming into effect from the 24th January, which had a immediate impact on our booking levels, particularly in our Green Island product, which is typically a group volume product. And then this was followed by the Australian government border restrictions implemented on 1 February. This will continue to have a material impact on this market in the near term with the combination of both the group and FIT going and exposed at play in this market. Moving to cash flow on Slide 12. Two most important things here really has happened post 31 December, I would say. So we've received the GBRH proceeds. And then we've had the emergence of the external factors that certainly have 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's facing the high volume in summer months, and that will carry the business through the leaner wintertime, particularly in our skydiving business. So in that respect, with the external factors at play, we are presented with a year of challenge for our business. But it is actually uncertain times, I guess, across the industry. So we're not alone there. John mentioned the savings initiatives underway. That's going to be a hands on daily activity that we work with each of the GMs and all of the business, but their immediate priority is pulling the immediate cost levers without damaging long term value of the business. Moving into the balance sheet. I'm sorry 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. And most importantly, seeing that net debt down at $7,300,000 heading into the half and pro form the GVR was quite encouraging. So 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, Alan. And 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 when we look to the outlook, we also just reflect quickly on the first half achievements. And 3 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 on track to be completed as we originally announced in November. Pleasingly, our cost savings initiatives and our divesting non core assets program is also on track. And as we said earlier, we are certainly trying to accelerate and be more aggressive, particularly in the cost savings part of the business. And our first half performance was largely in line with our own internal expectations. As we turn towards the second half of twenty twenty, think it's fair to say that the external factors that have been bucketing the industry will obviously continue, particularly given the impact of COVID-nineteen. And what I would say to you is that 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 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 whilst there will be 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 and certainly and very importantly, looking to work in growing revenue out of markets that are unaffected by that by those external factors, in particularly local markets and in particularly Western markets that are still coming into Australia in good volumes. So with that, we'll conclude. I'll hand over to Kevin now to facilitate questions and answers. Thank you. Ladies and gentlemen, we'll now begin the question and answer session. We have multiple questions in our queue. But our first question is from Mr. John O'Shea from ORD Miner. Minute. 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 that? I mean, let's assuming that that's the case, your base case scenario there unfolds. What do you think that that what is your what are you assuming or what's your experience, John, in terms of what that Mande means for FY 'twenty one 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. Because 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' announcement, doesn't look like it's going to be returning until at such time as there's more certainty around the containment of the virus. And 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 trucks such as this, you generally see that outbound travel comes and slows, certainly growth certainly slows or if not, stops for a period of time until such time is effective pass. So 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 because we will currently, we're in the midst of what is normally the Chinese New Year month in January 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 holiday. 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. And 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 in the FY 'twenty one. It's just it is very and worse than used by a lot, but it's certainly just very unprecedented at times for the sector. Thank you. Yes, I understand that. Thanks a lot. Thanks, you. Our next question in queue is from Alan Franklin from Canaccord. Please ask your question, Alan. Yes. Hi, guys. Thanks for your time today. A few questions. 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 sort of speak to hotels, agents and other people in the market to help push volumes? Yes. Well, certainly, we do that as our normal course of our business anyway. So we're not relying on state government response. So 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-nineteen, we certainly have been pushing those aggressively. And certainly, in the deployment of Castroneaux brine, that's gone up a level in the restructure of our sales team. I think what the government opportunity provides us is on 2 levels. Firstly, the additional spending, crowding demand for Australians for holiday in Australia is something that I think will mop up a combined segment of the market that may have been looking at holidays offshore in the forward months, but now I'm thinking because of COVID-nineteen, we're not going to do that. So that gives an opportunity of demand in the destinations into 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 Redstock 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 guess. So from a government point of view, it gets a tick on 2 levels. But 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. And then just a quick follow on. Have you had to change scheduling or staff yet? And or what might have sort of triggered the to do that? Yes. Our business is 1 or 2 halves. The beauty of our skydiving model is that it's a very variable cost base. So if we don't operate, we don't have a fixed cost in terms of the Tandemaster is a piece paid, our packers are piece paid, etcetera. So the model can flex very easily based on demand. Regarding the Great Barrier Reef, we have altered our schedule. And 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. So he's got a very keen understanding of when to alter schedules, when to maybe suspend a service for a particular day. So for example, with our big cat service, generally, at the moment, one day a week, we're suspending that operation. And we'll continue and we review that pretty much on a daily basis. So we have implemented that up in North Queensland. And quite frankly, from our perspective, is that we have now a general manager who is well versed in that. So we are currently monitoring that and implementing that as we need to. Sure. And then just a quick last one. 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 is that sort of being put on hold, I guess, with the near term impact of COVID? No. Look, we are looking at organic growth opportunities, and we also are looking at other opportunities as well. I mean, I think one of the things that will come out of this is probably opportunities from an acquisition front. But 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 accretive, will be in the best interest of our shareholders. And so out of something like COVID, I think there will be some opportunities, sadly, I guess, for some parts of the industry, and we'll continue to monitor that as they come along. That always with the, I guess, the discipline on return on invested capital and what's best for the business and shareholders. Sure. Thank you. And our next question is from James Tracy, Veritas Securities. Yes. Hi, John and Owen. A couple of questions from me. The first one is on COVID. 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? And the second question really is on New Zealand. So seeing the 14% volume decline there, yes, a bit of a surprise really given that COVID hasn't had an impact in the period and historically it's sort of higher single digits. So yes, could you give us a bit more color on what the growth in the bookings were? So maybe it was the weather that caused the drop in the actual jumps and the bookings were higher. And then 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 $13,100,000 in Sklar D'arve EBITDA. And you said that the prior year was $11,100,000 So it looks like you've redefined what the prior year profit was. Thanks, Jan. So I'm going to pick up that. I might actually start with the last one. I should have actually included that. So in terms of the segment, what we will note is we have that's a flag at year end. We were looking at how we allocate the costs Previously, we had a bigger bucket in corporate. So what we've gone through is done an exercise of trying to marry that up and get it in the right buckets, James. So they've now been presented on a like for like basis in the accounts for this period. So and it is a true representation of what the direct costs are in relation to those operations. So you did write that. Secondly, and probably doing this in reverse order, the New Zealand business, it is quite an interesting one. So definitely in terms of ours, December was the big driver of the 14.3%. So it may come as a surprise at face level to you guys, but it really is a weather story. So to give you an idea, like if we I think we calculated it. We actually did another 4 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. So certainly, when I look at the first half, very much a weather story in Queenstown. So remembering we are in Queenstown, we have late season snow and like 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, and the booking level is always it's a tough step because when you have weather, you start to lose that visibility with the short booking cycle. So there's certainly nothing there that would alarm us in terms of for bookings and the volume there. In the month of January, it shot the lights out of Queenstown. So our operation as our expectations. So in terms of the internal numbers, I think we were roughly about 20 odd percent ahead of where we caught we were going to be for the January month. So nothing to say there if you want. Just on that, do you continue to see New Zealand skydiving as a sort of mid single digit growth? I mean, that's what it has been in the past. Yes. 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, the combination the weather has been absolutely shocking. And I've encouraged you to help me with the therapy of our GM. In New Zealand, we've had a really tough period in terms of weather impact from operations. But what we're going to see, it's going to be a bit confusing in this period because obviously, with the high representation of the China business in New Zealand. It's been a key driver of growth. So we're not dissimilar to any tourism business in Australia and New Zealand, probably over the last 5 to 7 years. It's more pronounced in New Zealand. So we've gone from if we think of Chinese New Year, we had fortunately, we were able to execute the Chinese New Year period for our New Zealand Skydive business. It has very limited impact. So the travel restrictions didn't really kick in because we already had the China Nationals in market. So they're already in the country prior to that restriction and China's 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 on a if I take the last couple of days, it's been less than 10 China jumpers. Out of numbers, it has been anywhere between 170 to 200 jumps per day across the Queenstown Basin. So it is quite a discernible decrease there. So it is marked. You can see it certainly. And that's where we would we do certainly look at it and say, look, we don't expect any recovery is not going to be a stick to lights on. And by 3rd June, we're there and China's back and New Zealand's growing, as you say, in a normal market, high single digits. It's not mid to high singles. We're not going to be seeing that by 30 June. And the challenge in our business at the moment is utilizing that flexible cost base and managing with the volume we've got. So that's more than Just following up on that. So you're basically saying that volumes are down sort of 20 odd percent versus what they were. What sort of EBITDA margins would that start out in the business be running given that it's a highly variable cost model? In New Zealand, it's generally anywhere in the high very high 20s to the early 30s. And this is all on a new basis of me presenting the segment information, John. And then Australia is probably more around the mid-20s. Okay. That's great. Thanks a lot, Tom. No worries, John. Thank you. There's no no further questions in the queue. I'd like to hand the call back to the speakers for any closing remarks. Please go ahead. Thank you very much for your time this morning, ladies and gentlemen, and 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.