Ladies and gentlemen, thank you for standing by, and welcome to the Experience Co's FY 2019 results conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star one on your telephone. 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.
Thank you. Good morning, all, and thanks for joining Experience Co. results presentation for FY 2019. I'm joined here by our newly appointed CEO, John O'Sullivan, and our CFO, Owen Kemp. We'll share the deck somewhat, and we'll try to call out the page numbers as we go through. First, if I may, just an update from the Chair. 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 particularly up in North Queensland. Just as a brief reminder, I took on the Chair role in October of last year, and subsequent to that, 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 a managing director role into a Non-Executive Director role, which is good for the business and very good for Anthony. It's been a period of quite some significant changes. The strategic review that John will discuss very briefly 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. Indeed, at the AGM, we'll have more details to go through at that stage. Moving into FY 2020, the strategic review, as I 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 parts of 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 non-core will be exited. This will give us, obviously, a stronger balance sheet. Owen will discuss the balance sheet in broad terms, but we'll have optionality around our balance sheet moving forward. 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 opening comments at this stage and ask Owen to give an update on the financial results from page six or slide six. Thanks, Owen.
Thanks, Bob. Morning, all. I'll jump straight into the numbers on slide six. Here, I presented the statutory profit and loss. You'll see some large numbers there. The two call-outs that I have there is the revenue growth of 19.2%. You would be aware that's largely driven by the full year contribution of FY 2018 acquisitions. The other large number you'll see there that we've highlighted is around the other expenses and the impairment. Impairment and significant items, they're actually really important here. They're predominantly non-cash items. I'll just talk to the impairment. It is a large number at AUD 52 odd million. That's largely driven by the Adventure Experiences segment. What does that number tell us? In short terms, it really tells us that the acquisition case, when we entered into the acquisition, has not materialized to the level we would have liked.
The reason for that, really, we've had two things. Lower than anticipated benefits from the integration, but that's in a backdrop of some softer tourism conditions, and particularly pronounced since September, October last year in 2018. What that does is it's impacted our look forward on the projected cash flows for that cash-generating unit. 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. That's not to say that North Queensland might improve, and it is a business that has had its cycle ups and down cycles and quite pronounced on both sides. Just at the stage of where we're at at the moment, we're not seeing any definite sign that we'll be in the peak of market in the short term.
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. We have not declared a dividend for the FY 2019 year, and there's a couple of things at play there. Really, the FY 2019 earnings have come in below initial expectations. 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 let's just consider the balance sheet optionality in the short term.
Particularly entering a strategic review process, we formed the 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 seven, the underlying financial performance. For those of you might be wondering why I haven't put underlying NPAT, there's a few things going on there. I've avoided doing that because you'd probably have to pro forma some things as a result of this year. Maybe if I just focus on the underlying EBITDA. It came in line of the range that we had at the 16th of May trading update, AUD 27.2 million. You'll see there I started reporting on the EBITA, which will be an ongoing measure.
That depreciation is real in this business and we'll continue to have that. 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. Overall, the skydiving operations have continued to be the key earnings driver. You can see they're representing the lion's share of both the EBITDA and EBITA levels. The other thing we've done in the period, and you'll have to bear with me on this, is just on the cost allocations across the business segments. As you try and piece together the historical, that might be a bit frustrating at times. The other thing that we are looking in the strategic review is better aligning where those costs should sit and how we measure our businesses internally, and that'll follow up.
We are on the path of improvement there. EBITA as well, the final column there, probably that really is flagging that we are going down the route of return on invested capital as being a key metric. Moving on to slide eight. I won't dwell on this too much, we saw the volumes perform quite reasonably well, I'd say. On the back of FY 2018, we did have fatalities in the Australian and New Zealand skydive industry for the first time in 30 years. I guess entering the year, we had thought it would be a tougher trading period. What transpired is if you 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.
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. Average jump revenue, a lot goes on in there. There's a lot of mix effects that happen, but that also jumped up a tick at 1.7%. Moving into slide nine, Adventure Experiences. Now, it's no secret this has been a challenging year for our Adventure Experiences. We had the revenue growth on the back of the full year contribution of the FY 2018 acquisitions, but it really was offset, and this is the story, is by the fixed cost leverage of a challenging market. That challenging market was particularly pronounced from the second quarter of the financial year. We're talking about October, November 2018, where we saw a downward trend in Cairns Airport arrivals and reef volume visitation.
That was particularly pronounced from that period. That said, pleasingly, we have been able to hold our market share on volume ex-Cairns Marina. That is our share of reef visitation, as we measure it. We have seen a mix to a lower yielding product, and part of that is weather and optionality as the reef tours after weather plays out. Not dissimilar to other businesses, when times are tough, some of the issues are magnified when you have challenging trading conditions. A really good highlight, John will talk to you around his thoughts around the integration and challenges with the way we've approached the operating model and go-to-market strategy. I'll let John pick up on that in a moment. Specifically here in our GBR business, which is the helicopters business, we had a very challenging year.
It was the loss of a key contract. Look, the key take out at this stage is that when we look at the numbers for that business, it's unlikely to meet the group's desired return profiles going forward. That'll be one of the areas that we do look at quite closely in the strategic review, and a lot of thinking's been done to date. Moving on to slide 10, cash flow. A pleasing result there in terms of cash conversion on an underlying operating level. That's a 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, like the helicopter fleet, so we repositioned that business. That came in in line with expectations, which is good to see.
Once again, picking up on the helicopters, the capital requirements and specialization of that operation has really proven a challenge for us to get our arms around in the period. Moving on to slide 11, 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 at that 30 June 2019. Probably no surprises there. The same variables tend to happen. The aircraft transactions are denominated in US dollar rates, we are subject to that in each reporting period. The other thing that's actually happened in the period, this is particularly pronounced for the helicopter market, is we have seen a reset in the aviation insurance market globally.
That's led to a bit of transactional activity that people have had a higher cost base now on some of their rotary fleet. Insurance cost has really witnessed a whole dislocation in the market, and then leading to cost increases in insurance. That's overlaid then just with the general, these are quite specialized assets in the main, so it really does depend on liquidity at any point in time for the specific aircraft that you're after valuing. Another piece here, we've got net tangible assets remained at about AUD 0.17, so a slight tick down if you get to the decimal points, but that's quite pleasing for a quality asset base. 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 continued to work and have a healthy dialogue with our incumbent banker, NAB. We don't foresee any issues there on the debt side. When we talk about resetting the balance sheet and ROI, I think the key message there is one of optionality. Similar to the dividend, we just want to have all levers available as we enter a phase in the short term about a strategic review of the business. With that, and speaking of the strategic review, I'll now hand back over to John to take you through his initial impressions.
Okay. Thanks very much, Owen, and thanks very much also to Bob. 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 one calendar month. I joined on the 29th of July. Over the last four weeks or so, I've spent a lot of time getting around to our operational hubs, getting out to a majority of our drop zones. I even did a skydive in Wanaka with our team there, meeting a lot of our customers and key suppliers across our network and across our business. This is a process that's obviously only been a month in, it's still ongoing. The first impressions I'd give to you are pretty straightforward as set out on slide 13. 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 trends 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. What's really exciting about this sector is that the Asian markets really haven't turned onto 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. That's off the back of the fact we have great market share, we have great drop zone locations.
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. 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. When you look at the skydiving business versus the adventure business type, they're quite different in their nature.
I think that's really for me, from the last four weeks, what I've seen as a first pass at looking at the business. For me, the key short-term priorities between now and our AGM in November really come down to two significant pieces of work. The business simplification process, which both Owen and Bob have alluded to, and also the strategic review, which I'll take you through in a little bit more detail in just a few moments. Also, it's really important for us now to really put our minds to having a very clear, a very easy-to-execute strategic plan, which looks at returning this business to key areas around organic growth. 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.
Turning to slide 14, and looking at business simplification. Really as I said before, this is a business that had an almost insatiable appetite on acquisitions. It was really geographically concentrated in one particular part of Australia. Really when you think about it, we went and acquired businesses that were volume led as opposed to yield led, like our skydiving business is. As I said before, we really didn't have a clear way of integrating those businesses, whether it was our structures, or whether it was 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.
Also being much better, and I bring the skill set to the table to work with Owen and also Ian and Bob, about 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 three steps of this business simplification is the transformation side of the process, and in particular, sales and distribution. I've spent the last five 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. Of course, 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. 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 eight 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. 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. 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 spade in our skydiving business. We have scale, we have a great market share, 70% here in Australia, and we have the best locations around Australia and also in New Zealand. It's taking those types of criteria, applying that across our business, and then looking at what makes sense to retain and what makes sense to potentially divest. In addition to that, we're also going to turn a lot of attention to our corporate costs. As you can see from slide 15, at AUD 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 facilitate direct customer bookings into our business.
Why is that important for these types of businesses? The importance around direct business is obviously the cost of sales is far cheaper. You take away agent commissions, you take away the middleman, 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 of rebuilding our digital capability across our business. We've rolled out across our portfolio of brands, new websites, 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.
As you can see here, I'm sure you're all pleased to know that Owen Kemp has finally decided to do a skydive. 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. Now, these are important for two things. The more we upsell our customers to take video and photographic packages on skydives, the better yield we drive per customer.
You've seen that in our numbers for this year where we did have some improvements in the revenue per skydive. Also the sharing of the experience, particularly for millennial and Asian markets, which are really core to our business. 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? As a key part of that, and 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.
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. What that will focus on is those four 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.
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 said before, I believe that Experience Co is very well positioned in both the broader experience market here in Australia and New Zealand, but also importantly in the adventure tourism market globally. Whilst we are facing some geographic challenges in the North Queensland market, I do believe that the company has added for the business to be able to push through that. We'll also be focusing in the months ahead on our FY 2020 operational trading as well. With that, I'll hand back to Bob to say a few concluding words and then look forward to taking any questions.
Thank you, John and Owen. I think that captures the content we wanted to share today. I think it portrays that 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 our findings to date and where we believe we can take the business moving forward. I think on that note, we'll leave it at that and open it up if there's any questions. Thank you very much.
Thank you. Ladies and gentlemen, if you wish to ask a question today, 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. Your first question today comes from the line of John Hinde from Wilsons. Please ask your question.
Thank you very much, and good morning, Bob, John, and Owen. Perhaps if we could start with the outlook where you finished. How should we be thinking about, given that it is 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 2020? Are there initiatives in the initiatives you're rolling through now with marketing, and organic growth? Is that enough to offset any of the further weakness from the Adventure Experiences business?
Yeah, look, good question. That's the one that's front of mind, John, for us at the moment is in terms of, obviously, the momentum from half two was going against us in that area. I guess how we're looking at it is certainly achieving FY 2019 is no mean to lock away at this stage. I wouldn't be looking at a business and saying, "Yeah, absolutely that on track," because we did start FY 2019 quite well in North Queensland. In saying that as 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? How quickly can we tackle some of those challenges?
I guess if I looked at a headline view, it'd be a hard start to go in with the momentum we're seeing now heading into FY 2020. We're certainly not seeing an upswing in the market, not seeing an upswing in airport arrivals, so it's up to us to see what we can do inside on the business.
Yeah, thanks. That's quite helpful. A second question, again, around Adventure Experiences. Are you able to help us understand what the composition was like at potentially an EBITA line, please?
In terms of by the various businesses we acquired, John?
Yeah. If that's possible.
Yeah. 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. Maybe if I drew a demarcation between what I see as businesses that sort of naturally belong together, would be really the helicopter assets versus the marine and other assets. Maybe in terms of the helicopter numbers there, maybe if I just give you some numbers around EBITDA. EBITDA for the period was AUD 3.7. Naturally, as you're aware, we have lost the Quiksilver contract from 1st of April. That would have only impacted us about AUD 500,000. On an annualized basis heading into FY 2020, that's probably more around the AUD 1.6 basis. There's that at play.
Then at an EBITA line, the helicopter business is quite different as well. While that EBITDA of AUD 3.7, we're probably looking at a business that at an EBITA line is probably around the one, low ones. 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.
Yeah, that's helpful. What about corporate costs? I think you've sort of spoken about near term, trying to 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?
Sure. I think the two 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. One thing we are committed to internally is really making this business properly scalable throughout the business. In terms of that, would I be expecting to see corporate cost just come off dramatically straight away? Well, probably no, because I think we're just going to have to get better at implementing a few things internally. That might mean some cost out to put some cost in the short term. Certainly John and I share a view on one of the pieces we have going as we're into the strategic review is how can we be truly leaner and truly scalable?
Ultimately that's where we want to take this business and believe there is an opportunity there.
Okay. Last question from me. Positive to hear you talking about a focus on organic growth with skydiving. Can you share some examples of what you think that looks like? Again, obviously early days, but how long does it take for something like this to be implemented and then converted into sales with your customers?
Yeah, look, early days. It's still early days, John. For example we have some of the
Most premium drop zones as 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 for having the number one skydiving or number one experience in the world for sought after by Virtuoso travel advisors. The idea there is I think there's an opportunity around the high-yielding visitor, which I know Tourism Australia are chasing, which I know are, I guess, the more robust visitors to the country from our key inbound markets, particularly Asia. Along the lines of that type of product, I think there's possibly some Now with our technology implementation of Shred across our drop zones, I think there's the opportunity to further drive upselling from products to customers whilst they're at our drop zone.
It's the example of products like that will again feed into the strategic review and articulate timings in a bit more detail in November.
Okay. That's fine. Just one, sorry, one final one from 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, please?
Yeah. I wouldn't overplay it probably, John, but what it really means is, up to this year, we have had the seasonal weather play out as well. For example, that makes the going to Fitzroy Island, which is protected from the weather and a shorter trip, a much easier 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. If you just talk to sort of basic ticket price, you're talking the AUD 200 odd per person versus in the high double digits for a Fitzroy Island product.
Great. That's really helpful. Thanks, guys.
Thanks, John. Thank you.
Your next question today comes on the line of James Tracey from Veritas Securities. Please ask your question.
Yeah, good morning, John, Bob, and Owen. Thanks for taking the call. First question is around the strategic review. It now looks as though you've 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?
Yeah. That, I think that's obviously something in front of mind, and we don't want to be premature in going with our findings in that regard because we certainly don't. You know, the phrase that we often use internally is you don't want to sell at the bottom of the market, buy at the top. It sounds simple, but equally, there's some things we can do to change the business while we've got it, and we'll be doing those. Certainly this isn't as simple as a, Oh, let's just wait for the cycle to return and then sell it or while we've asked that the cycle has gone against us. I don't think. We're certainly not in a position where we'd 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 have liked. I don't know, Bob, you've got a lot more experience there longer term.
Maybe just some overarching things. Clearly, Cairns has come off to a degree. The latest stats show arrivals into the international airport is marginally up and domestic is slightly soft. It's reasonably benign. Whilst we're not pleased with where the business is relative to a couple of years ago, I think we just need to put some context in around that our strategic review. Clearly there will be a look at a divestment of subpar assets. We've tabled that. 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? Then looking at what future acquisitions might look like. That's a long way of saying that they're actually trading not too bad relative to the last sort of 12 months.
Clearly off over the last couple of years. Clearly some weather events affecting it. Clearly we're not buying in that market. We are not seeing it drop off a cliff. 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 the benign conditions would prevail, and they have. I don't think we're at danger of just going backwards and quickly get it out the door. We actually have a service value add in those assets we do decide to move on are trading quite reasonable. Again, relative to two years ago or three years ago, clearly it's cleaning that one before.
Okay.
It's at the end of the rollout there.
That makes sense. You made the comment in the release that you saw throughout the year that the total number of passengers out of Cairns to the Reef was down 8% year-over-year. I remember speaking with Owen, and I think the exit rate was closer to sort of down 20. The first half is better than the second half. What is that looking like today? Just on the EBITDA, the first half EBITDA was AUD 17 million, second half is AUD 10. Do we expect FY 2020 to look like the second half or the first half or combination of the two? Thanks.
Yeah. Look, I think in terms of overall, that number call out was out of the harbor. Again, that's an aggregate number, and it does depend on what our competitors are doing and how often they had to park their boats due to ill weather.
It's certainly not trending down as it was before, and it feels like it's flat and there's a few bumps in there. The season wasn't too bad up there. On the upside, there's a new hotel open there and another one about to open in time.
Yeah.
There is some stuff happening there. I don't want to call this out as a crisis area or anything anywhere near that. There's still positivity in Cairns. In terms of, we're not going to call it half year by half year. Clearly, we'll come back with more detail in November. It'll be around where the divestment strategy is up to, and clearly we might have some more announcements around that. That will obviously impact things as well. We really don't want to go to half year call outs at this stage because there's a fair bit that is in play there. Likewise, how we structure ourselves, that will also impact bottom line performance and we've clearly got plans underway there.
All right. Thank you very much, John.
Your next question today comes on the line of John O'Shea from Ord Minnett. Please ask your question.
Morning, guys. John, very proud of you jumping out of the plane, mate. That was a big effort, mate.
Yeah, it was good. It was a fantastic experience, and the offer is there to all of you on the call if you'd like to do one.
I'll give it a miss. Thank you very much, mate. Look, a couple of questions from me. Firstly, on the skydiving business, and I just wanted to get a sense, obviously the Australian jump numbers are slightly down, New Zealand up. How has that sort of performed now in FY 2020 so far? Are we seeing a continuation of those trends? Just wanted to get some sort of confidence level on how the jump numbers are performing in FY 2020 thus far.
Look, what we're seeing in FY 2020 is that with the cycle of this business is, 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.
Yep.
There's obviously been some well-documented weather events on the east coast of Australia in recent weeks. What our team members are very good at is reallocating people. What you often find is, whilst we might have an adverse number of weather days in, say, July, they're able to rebook those passengers into other parts of the month or in other locations, depending on if they're a visitor that's traveling around. We'll have a better sense on that, I think, John, in October. Again, it just comes into some of the weather patterns and other things that are in and around the business. No major trends, major changes.
No major trends. July and August, John, are the low point in terms of volume of the year. You don't get a great read through until that time.
Sure. There's nothing adverse there that we should be concerned about, or is there?
No, there's no-
You're not missing anything.
No, there's nothing there, John.
Okay. Thank you. The second question was just on CapEx. Obviously, this business has thrown around a fair bit of CapEx in the past. Can you give us some sense on how we should think about that moving forward and what next year should look like as an initial guide?
Yeah, just before Owen jumps in there, obviously more detail around our divestment strategies, and that will certainly move the dial reasonably significantly. I suppose in the absence of that, Owen can give the voiceover around some of the CapEx, particularly-
That's right. I think probably the most helpful guide I can give with that, with introduction, is really around, I think, like at that half year, I called out, I think, maintenance CapEx to be in the order of six to 12 in any given year. Generally it'll be around nine, I think is my gut feel, and still how I look at it. Probably the other call-out I've just introduced there is just around what the helicopters business does, John.
Yes.
I think if you could imagine a world where you sort of broke up the portfolio and you had helicopters or you didn't, then that number would be naturally a little bit lower as we go through that.
Sure.
As Bob said, 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.
Sure. The AUD 9 million number includes, I assume that you would retain the helicopter business.
Yeah.
Obviously.
Correct.
Yeah.
Correct.
Yep. Thank you. Thanks a lot, guys, and well done for cleaning the slate.
Thanks, John.
Thank you, John.
Your next question today comes to the line of Rodney Prior from Nordlea Investments. Please go ahead.
Hi, guys. Thanks for taking my question. 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 to your presentation. If you cost it all out, the cost per jump for Australia has gone from AUD 268 to up 4.5%, and New Zealand, AUD 355 from AUD 337, so up about 5.3%. Just wondering if you can give us a bit of an idea as to what were the drivers of that?
Yeah. I probably wouldn't read too much. That's probably some of my allocation going off there. I'm getting some of the aircraft costs. That really depends on where the ownership sits of the actual airframe itself.
Some of those costs were typically not captured and may have been reported in different elements of the business.
Okay. That was at the EBITDA line that I was looking at it, so before depreciation. Alan? Yeah.
Yeah. I'm talking operating costs there, Rodney.
Oh, okay.
operating costs there. Think of things like registration, insurance, things like that.
There's been no structural change.
Yeah, no structural change.
manpower on site, albeit there's always a view to looking at what we can do to bolster the customer experience. If we can get additional revenue, we would look at additional services. Early days on that. We're certainly status quo there. The other thing we will have there, Rodney, is just with the other line that you see come through there, a lot of that is very low margin, like maintenance work. If you have that bouncing around, it does play with that cost per jump, which isn't really driven off the jump, but nonetheless, it will impact that metric.
Okay. No, thanks for the color on that. 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.
Yeah.
Yeah.
Yeah. Can I talk about it? It is 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.
There's a lot of variables there. I look at it the other way and sort of say, "Well, how are my bookings going?" I know we have done processing rates 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 terms of the KPIs of the business, because it can just show a lot of things that vary in a short period of time. That was quite a deliberate thing. Not looking to hide it, that's for sure. 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.
We're looking at all KPIs of the business, so the fact that we don't have people jumping due to the 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 relevant. Even internally, it's relative to a select few.
We're just mindful now of what we think are the meaningful KPIs in our business, and those that we apply now to our business when we come out to share with you. They'll be very much emulated as the way we talk to investor community. They'll be very similar. 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 different pieces of different KPIs coming out.
Yeah. Okay.
Just to wrap that up, Rodney, there hasn't been a fundamental shift in processing rates as well, so that's not a reason for.
Yeah
that not being there.
Okay. Then one final one just for clarification, if Owen could. I think in your actual balance sheet, there's a current tax asset of just over AUD 4 million as at year, and obviously paid out AUD six and a bit. Is that just a function of sort of the tax installments that you've done effectively being off the higher base rate for last year? Yeah.
What it is it's very much a timing driven piece, that because it's to do with our tax return profile. When we bought a lot of these businesses in our installment profile, until you submit your first tax returns and enter the group as a whole, you are stuck on the installment base. That was on a higher base of earnings. We'll expect to see a large component of that unwind. That is a genuine refund position.
That sort of will mostly come back in by the end of the first half. Is that right?
Yeah
structure works. Yep.
Would like to get that done by the end of the first half, yeah. True.
Yeah. Okay. All right. Thanks a lot, guys. Appreciate the color.
No worries.
Thank you.
Thank you.
Your next question today comes on the line of Hamish Burns who is a private investor. Hamish, please go ahead.
Yeah. Hi, good morning, gents. My first question just relates to the ARPU expectations for skydiving moving forward. I know you reported 1.7% for FY 2019, 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. What would your expectations be moving forward for ARPU in Aus and New Zealand?
In New Zealand, it's Yeah, because I think there's a few things at play there as well. We have a lot of mix effect that comes in. Where the price point of each drop zone is quite hard to think even within New Zealand, that our Queenstown product is higher priced than, say, Wanaka. I think overall, I don't think you'd be missing anything from sort of your 2%-3% sort of underlying range. If you park aside all the mix and that sort of thing, you're looking at a sort of CPI style business in terms of pricing.
Sure. Okay. Don't interpret, say the 1.7 as the across the board increase. It's a function of mix as much as.
Yeah. Correct. How we look at price is very much CZ specific. And as you can imagine, you're doing increments of 10s and 20s in some, and zeros in other, and maybe AUD 30 in another one. It really is market specific. As we look at our product mix moving forward, clearly those more popular venues, you would imagine that you have better pricing ability or price leadership ability. Clearly we'll have a rationalization, and we've flagged that everything's under strategic review.
Clearly, they'll be more focused on those that have that better price point, and the more challenged sites, we'll establish what to do with those. There should, in time, If everything else remains, we're not trying to flag a call-out on a 20. 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. Those bigger sites, we have plans on a greater focus on those more profitable sites. We're sitting here first quarter, and the strategic view is still sort of playing out. We see more color in November. For a full-year run rate, I wouldn't expect anything miraculous. Clearly, it's setting it up for future growth.
Okay
price services, hopefully.
Okay, thanks. With regards to adverse weather events, my understanding is that the customers obviously get fully refunded, and I think you spoke about rebooking them. On the flip side of that, I am assuming that there is no flexibility around your staffing and costs, for drop zones and pilots, et cetera. Does that present evidently a fairly?
There's a few variable costs. Depending on the boats, because there's a few variable costs. It's a mixture. Yeah, no, clearly, when we have the weather event, there is a fixed salary component and a fixed cost component in this business. That's the nature of the business. There are, on the fringe, some casuals and some labor adjustments we could do and some sundry reallocation. Yeah, there's a reasonably fixed salary component.
Yeah.
Other than skydiving.
You talked to the contract is 100% variable. Now we talk to that.
Yeah. In terms of things like pilot and the actual tandem master is highly variable cost base. That does flex up and down. The way I think of it, Sky and I have highly variable cost base. You'll have a lot of DZ costs that still continue because you've still got to be open, still got to have call centers, all sorts of things. You do have a lot of volume variable activity that can get switched on and off at the drop of a hat. Whereas as Bob was alluding to there, he was probably speaking more to the Adventure Experiences segment where you get a highly fixed cost business.
Okay. All right. Thanks. Understood. Sorry, just a very final one, but with regards to the Adventure segments on slide nine, the EBITA margins were obviously compressed heavily for the year despite revenue growth to sort of down 11%, I think is what the slide alludes to.
Yeah.
A question already came up about the yields and this, and that's a bit of a mix. It sounds like there may literally be no variable costs within this business. Could I guess, in simple terms, get a bit of an explanation on the 11% decline there?
Yeah. Sure. Probably the way to think of it is in the short term, and it probably goes to some of John's comments on the strategy and the operating model that we took on that segment of our business, is that we probably put a few additional cost layers in there that in the short term weren't variable. They're some of the bits we're looking at. You will have a contraction, but it has been magnified, I'd say, in the period with our operating model, our choice of operating model as we've entered the market. Think of things like management layers, corporatization of multi-brands and things like that. Those costs, they stick in sales representation. That sticks in the period, in the short term.
They're the sort of thing that John and I have high in the agenda in the strategic review is what is the appropriate cost base. Because at that EBITA margin, let's all say it's not something that we'd consider acceptable.
Oh, sure. No, I don't think many investors would. Yeah, understood that. There is some scope for improvement there. I take it that there's no dynamic sort of pricing and potentially that's not appropriate for Adventure Experiences. To deal with decline in buying, you're not offering 30% sort of discounts to try and flex volume in down months, et cetera.
The position that I'm taking on our product, the one thing we have is our majority of our products, we are at the premium end of the market. When you start getting into discounting or excessive commissions, you just start a race to the bottom.
Sure.
I think, particularly in North Queensland, the last thing that the industry up there needs is businesses just heavily discounting and heavily with over-the-top commission rates. Because when the market does rebound, then everyone's got a pretty steep road to their own back, so.
Yes. Okay.
Our product is, and I've 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 was, "Sorry, that's our price. We offer a premium product.
Perfect. Okay. Thanks, gents. That's it for me.
Thank you.
Your next question today comes to the line of Alan Franklin from Patersons Securities. Please ask your question.
Yeah. Hi all. Thanks for the call today. 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 know that there was obviously some strong growth in certain drop zones? Second one, just in terms of Cairns and perhaps given all your histories in tourism. At points and times the Queensland Government and/or Tourism Australia sort of step in and do specific marketing campaigns for markets like Cairns if and when there are downturns such as in FY 2019, FY 2010. Just a last one, housekeeping on D&A if I may, Owen. Presume depreciation sticks roughly the same in FY 2020 and then amortization comes back quite a lot given the write-downs. Thanks.
Alan, I might cover the two easy ones, Owen, here. I'd say in terms of capacity, there's no issues there that are of note across the skydiving network. That's a relatively easy one. 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 size of business. The amortization as a result of the impairment will come down considerably. You're looking at an AUD 3.5 million charge this year will come down to probably something I'm expecting more in the order of AUD 600,000-AUD 700,000. On the Cairns view, I guess I could speak with some regard with regards to Tourism Australia and Tourism and Events Queensland and various governments have done.
Despite some recent commentary by some operators in the market, the Great Barrier Reef and particularly Tropical North Queensland does over-index on in-market activity for businesses or organizations like TA and also TEQ. The reason being is that by and large, a first-time itinerary to Australia usually will include the Great Barrier Reef. Now notwithstanding there's a little bit more competitive tension, I guess, on the Reef at the moment with Whitsundays, 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. 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 up there. For example, the Green Island pier will be redeveloped. That's a partnership between the Queensland Government and the Federal Government. With a view of that type of infrastructure in and around experiences in that region, giving those marketing bodies and 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.
Again from our perspective, I guess the one thing we are relatively pleased about with the Adventure Experiences is that we've grown share out of our fleet going out of Cairns Marina, which has been looked at the data that we get from Ports North on passenger movements. By and large, the majority of our products up there are actually the more premium end. Things like Calypso Dive & Snorkel, our Dreamtime Dive & 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. For the region, I think there's a lot of attention from a government perspective from marketing, but also hard infrastructure going into that, including aviation development, which is obviously critical.
Perfect. Thanks.
Thanks.
Once again, if you wish to ask a question, hit star one on your telephone. There are no further questions today. I'll now hand the call back to you both.
Thank you very much.
For remarks.
Thank you.
Thank you. Bye-bye.
Ladies and gentlemen, that does conclude our call for today. We thank you all for your participation. You may now disconnect.