Ladies and gentlemen, thank you for standing by and welcome to the Flight Centre Travel Group FY18 Full Year Results Presentation. At this time, all participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session, at which time, if you wish to ask a question, you will need to press star one on your telephone. Please be advised that this conference is being recorded today on Thursday, the 23rd of August, 2018. I would now like to hand the conference over to your first speaker today, the Corporate Affairs Manager, Mr. Haydn Long. Thank you. Please go ahead.
Good morning, everyone. Thanks for joining us today for our FY18 results presentation. Today, I'm joined by Melanie Waters-Ryan, our COO, Skroo, our CEO, and Adam Campbell, who today makes history by reporting his first year of record profit in his fourth year in the hot seat. I'll now hand over to Adam to run you through the results.
Thank you, Haydo. Great to be able to report a really good set of financial results for the company, including record TTV, record underlying profit, and record shareholder returns for the year. Our record TTV of AUD 21.8 billion finished about AUD 1.7 billion higher than the previous record last year and represents almost AUD 60 million in TTV on average per day. Our record profit, AUD 384.7 million on an underlying basis, was near the top of our upgraded guidance and AUD 55 million above last year's results, and our record shareholder returns is represented by AUD 1.67 in fully franked dividends per share and 14% earnings per share growth.
Mel is going to talk to the initial focus and successes of our business transformation journey, but we've certainly seen some solid progress after our first full year, particularly in relation to dealing with problem areas like our loss-making businesses, globalization, and cost and efficiency. Specifically, in relation to the early progress we've made towards our transformation targets, those targets, of course, were 7 to 10, 7% annual TTV growth, a return to 2% net margin, and in the 2018 year, less than AUD 100 million of cost growth. But we're very much on track for those, recording 8.5% growth in TTV for the year, an increase of 12 basis points in our net margin to finish the year at 1.76%, and coming in at around about a AUD 90 million increase in cost for the year.
And that cost control has resulted in a 50 basis point reduction in our cost margin, which finished at 11.2%, being the lowest cost margin we've had since 2007. As expected, we did see a reduction in our income margin of around 25 basis points, which is driven largely by our ongoing business mix changes.
We've spoken about those before, but they primarily relate to the growth in our lower margin businesses, being our multinational corporate through FCM, our travel money business, and our leisure OTAs. Our geographic diversity was also a strength again this year, with record TTV achieved in all geographies and almost half of the group's TTV being generated offshore. The growth of our EMEA and Americas businesses was also seen at the bottom line, with these two regions contributing around AUD 150 million to the group profit, which is more than double their contribution from just two years ago. During the year, we also continued our focus on building and investing for the future, and that included looking to develop a stronger IT backbone through the new in-store system deployment, our GDS deployment, and also a lot of work and effort going into our PCI and GDPR compliance program.
We focused on our leisure network through our Rebrand and Grow strategy and the acquisition of our home-based agency models in Australia and New Zealand and the launch of our startup in the USA. We invested in our corporate network, particularly through our technology suite and new products, as well as small acquisitions that were made through Canada and New Zealand and a startup that we've undertaken in Germany. And finally, our new business models have also been a focus for us this year, with hotel management businesses acquired, being BHMA and the Americas-based DMC Olympus also being acquired during the year. Other than those items in the P&L that I've already discussed, I'll just briefly touch on a couple of others. Firstly, a reminder that all of our transformational costs have been recorded as business as usual.
In the current year, we've incurred between AUD 5 million and AUD 10 million of these costs, which is largely comparable to that incurred in financial year 2017, and we'd expect that similar levels may be incurred over the next two to three years. So all of our underlying profits that you'll see year on year are comparable. Secondly, sales and marketing expense, as you'll see, have reduced compared to last year, and this is predominantly in the U.K. and the Americas, where we've had a focus on more targeted traditional advertising and on paid search. Within the ANZ segment, while sales and marketing reduced by around AUD 2 million in the first half, for the full year, our expense was slightly up on 2017 as we increased spend after the successful GDS migration and rebranding activities. Our underlying PBT differs from our statutory PBT for two key reasons.
The first is that we've excluded the penalties and costs associated with the ACCC case. And secondly, we've made an adjustment for AUD 8 million in relation to New Zealand annual leave. This mirrors the adjustment that many other companies, government departments, and organizations are making in relation to the country's Holidays Act. Recent examples of that include Bunnings, who had an AUD 11 million adjustment, Auckland Council, who had an AUD 18 million adjustment, and the New Zealand Police, who had a AUD 33 million adjustment in relation to this issue. We've excluded that adjustment from our underlying results as it's historical. It's been calculated based on current and previous employees going back over six years.
And while our systems and processes have all been now updated to ensure the correct calculation will be in place going forward, we do understand that the New Zealand government has created a working group just recently to review the Holidays Act legislation due to the large number of companies and government departments that have had issues with complying with it over the last few years. In relation to our balance sheet and our cash flow, our balance sheet remains very strong at 30 June. We recorded AUD 314 million in operating cash inflows for the year, and that finished us with cash and investments of around AUD 1.5 billion. Pleasingly, our CapEx for the year of AUD 87 million was under our target, and in 2019, we expect only a moderate increase between AUD 100 million and AUD 110 million, mainly focused on systems and technology projects.
In terms of leisure, our leisure businesses were generally areas of a fair amount of focus by Mel and the business transformation team over the last 12 months, and we've seen the closure and contraction of underperforming leisure businesses in Asia and the UAE. We've initiated the Rebrand and Grow plan in Australia to increase our market share through three dominant streams. We've seen a strong North American turnaround in our leisure businesses, and we've also invested in new leisure models such as the independent contractor home-based agency model. At the same time, our corporate businesses have delivered a strong contribution to the group results, with over a third of PBT coming from corporate.
Our market share in all geographies continues to grow, and we're now seen as a truly global top five TMC, being invited to pitch for and are winning multinational accounts that we simply wouldn't have been invited to just a few years ago, and finally, our travel experiences network, while still emerging, is establishing itself as an important driver of future growth prospects through the two operating businesses, our destination management companies and our hotel management operations. Very briefly, I'll just touch on each of our geographical segments. Within Australia and New Zealand, although we recognized 4% TTV growth for the year, and that was during a year of fairly significant change and disruption, as you're aware, our underlying PBT fell by around 4%. The TTV growth was primarily driven by our corporate businesses, which had a very strong year, as well as Travel Money.
Both of those generally operate at lower revenue margins, so we did see the anticipated decline in our revenue margins this year. Having said that, the GDS change across both corporate and leisure, as well as the Rebrand and Grow deployment in the second half in leisure, obviously had a significant impact on operations. That included seeing reduced sales staff, disruption to our frontline people, and additional transformational costs being incurred. Within the Americas, we saw both USA and Canada leisure businesses return to profit for the first time in a number of years, and that really helped the segment more than double its profit contribution from last year. The majority of that profit growth, however, came not from leisure but from our corporate businesses, who continued to generate very strong top and bottom line growth.
Our acquisition in Quebec, Laurier Du Vallon, also contributed around AUD 2.6 million to our profits for the region. While it's not quite the same profit growth as the Americas, EMEA has also had a very strong result at both top and bottom line. TTV was in excess of AUD 3 billion, and profit was above AUD 80 million, or over 21% of our total group profit for the year. Our leisure businesses in the U.K. had a good contribution with their focus on long-haul tailor-made holidays, and the U.K. corporate business topped AUD 1 billion in TTV for the first time. We also had record profits in the UAE and continuing strong leisure and corporate results through South Africa.
As expected, our Asian businesses had a strong turnaround and recorded a profit of AUD 5 million after focusing on our core corporate businesses in the region, streamlining our support and leadership functions, and improving productivity. And that's a really good and positive message for us coming from that particular region. Finally, our other segment improved slightly on the previous year. While profit contributions from our global touring businesses and our destination management companies improved the reported results, this was offset by expected small losses from BHMA, increased costs from our employee share plan and retention plan, as our share prices strengthened, global incentive accruals given our strong profit results, establishment in the second half of the global technology function, and the inclusion of those transformational costs that couldn't reasonably be allocated to a specific geographical region.
So overall, a really strong year for us and one that I'm really proud to be able to present here today on the call. I'll hand over now to Mel to talk through our business transformation program.
Thanks, Adam, and hi everyone. I'll just give a brief update on the progress and where to next in our transformation work at a high level. If you remember, the program was only launched in late FY 2017, in April, in fact, so we've really just completed the first full year, and it's been very pleasing. In the first year, I'm really calling it the cleanup year because our first year priorities were to deal with a lot of our issues, and we did certainly do that.
So if you remember, again, we took a very strong filter to all our underperforming businesses and made many tough decisions throughout the year, effectively meaning that we now have a stronger collection of brands and businesses as we are now entering the second phase of our transformation work, which I'm calling the business re-engineering and investment stage to really focus on making those remaining businesses stronger for the future. If you recall, at the outset of this program, we made a fair few fairly strong statements. We firstly said we would deal with the loss-making businesses and, in fact, said there would be no loss-making businesses tolerated by the year end. They would either be gone or pivoted on their way to something better.
We said that we would improve our costs and really reduce our cost growth, as well as maintain our ongoing focus on productivity, which we define as total turnover divided by total people in the company, and also globalization, which was globalization of our results, evening out the profits globally, and looking at ongoing productivity driven by basically greater sharing of our backbone and core function. So how did we go in those very big strategic areas? And as I said, pleasingly pretty well. So first of all, we dealt with a lot of our loss-making and immaterial businesses. We closed our UAE leisure business in Singapore and Hong Kong. Those businesses were either closed, pivoted, or downsized, meaning that in both Asia, now Southeast Asia, and the UAE, we are focused on one single core brand of FCM.
Our loss-making North American leisure businesses of both Liberty in the U.S. and Flights Centre brand in Canada have been repositioned, and what was actually a massive turnaround, in fact, ended up in the black this year, and again, great efforts from those businesses and well on track to where we want to take them, and we also initiated the Rebrand and Grow project in Australia to reduce our brand network here. Essentially, at the end of that first year, we now have less brand, better shop networks, and no loss-making businesses or businesses with an immaterial future, so again, very pleasing, and there were minor brand mergers along the way. I thought I'd just remind us because I think, in fact, at the half-year point six months ago when we did the half-year, we actually had just announced the Rebrand and Grow initiative in Australia.
So, I just want to remind us of what we were doing there, which was we essentially had grown our market share in Australia quite aggressively for many years with a solid collection of brands. But upon a thorough review of costs and opportunities, we decided to consolidate some of those brands and move forward with a less stable, if you like, with a better approach to deliver both top-line and bottom-line growth. So Australia is now consolidated into three core streams, and in fact, globally, this is shared amongst all our leisure businesses. We have a mass market approach with our number one brand, Flight Centre, which aims to dominate the flight, holiday, cruise, and small business or emerging small business travel market across a range of models that you'll be familiar with in the P2P index, as we've called it for a few years.
We have a second stream of premium, and this has got a very much renewed focus. It's not necessarily a brand-based strategy but a network of growing agents, a network of premium agencies and businesses, including our former franchisee group under the Travel Associates brand and the Travel Partners home-based and affiliate model, and a third major stream is our youth stream, where we now have a smaller but better network of Student Flight shops, and we will be bringing the Student Universe brand to the Australian marketplace so that we can have an online-led youth offering to move forward with, so just to remind what Rebrand and Grow was about, which we literally kicked off on the 1st of March, and it has now been completed at consolidation. Our second key focus for the year after dealing with those loss-making and problem businesses was cost and efficiency.
And again, I think it's great to report the progress that we've made with a further 5% in productivity growth as we eliminated outsourced or centralized or got system benefits across the group. We have leaner support structures, having commenced an outsourcing program with both our web support and some finance functions now being outsourced to lower-cost Asian destinations. And we've also restructured our sales and marketing area in Australia, releasing millions of dollars, which we have actually channeled back into top-line marketing for Flight Centre to concentrate on generating volume. We've also reduced much of our leadership and support infrastructure, for example, in Southeast Asia, where two layers have now been reconfigured into one tight leadership team. But cost and efficiency very well progressed throughout the year. The third key area of focus over the last year that we wanted to concentrate our efforts on was globalization.
As Adam and I have both said, this constituted two key paths. Number one, getting greater contributions of profits from our overseas businesses, and we keep referring to, I think, the AUD 152 million profit now out of the Americas and EMEA, which has doubled two years ago, and that's very pleasing. The second area of globalization was really looking at our backend functions and looking at how we could get greater sharing, greater synergies, and ultimately cost reduction by sharing those functions. A global ticket centre was, in fact, trialed out of the Australian business, and now, a year later, we have a global ticket centre instead of local and regional businesses delivering tickets throughout our group at a much lower cost base. We've also initiated a couple of other major projects, which I won't go into.
The one I will mention is the Dynamics project, which we instigated a couple of years ago, has moved to the next level. It is about to roll out into our SME business in North America, and we will kick off deployment of that platform in Australia this financial year, which is great to see. One thing I'll also mention with greater sharing in globalization of our backbone is SOAR. So our business transformation has had an ongoing digital focus before even business transformation was coined a term in our company, and SOAR is now being used widely and across far more products. So I thought I'd just touch base on some of the things that we perhaps haven't referred to. SOAR is now managing and will manage all the Flight Centre brand websites globally. It has air booking capability.
We expanded the hotel booking capability with a new hotel engine coming on board literally weeks ago, and cruise, a very fully bookable function, has literally just been released. Packages will be coming soon this financial year. So that globalization of digital efforts is now seamlessly making our blended model much more apparent and certainly much sooner than we had previously managed to realize. Lead generation is another area that we've had ongoing digital focus, and basically, we've now moved to have more automated, faster responses delivered by digital tools as opposed to our consultants. And we will now be looking to roll out Red Connect, which is a product that was developed in North America, Canada, and next to Australia. So again, we'll use digital technology to improve our lead management.
Native apps continue to be at the forefront of our digital offering as well with a very much a mobile-first approach. We now have apps which are showing good growth at the top of the funnel in terms of generating new customers, inquiry, and bookings. Exciting to announce, too, the next stage of our transformation will be called Flight Centre Brand 2.0 as we relocate Atle from Boston to Australia come 1 October, and Atle will be concentrating on a full program to take advantage of digital technology and to ensure a more consistent customer experience and a better model both off and online for both our customers and consultants, so we'll probably tell you more about that program at the half-year as we move into some of that detail. I won't go into Red Connect.
Suffice to say, we're very pleased to see the conversion increase that is being delivered by essentially managing leads to our consultants in a much more data-driven approach, so moving forward with business transformation after a very pleasing first year. As I said, the first year was really a cleanup year. Now we're moving to a re-engineering and an investment stage. Firstly, we've updated some of our targets that way. We haven't shifted the nut line. We are still working on a 7% per annual PPV growth. So I think that shows an ongoing commitment that we are a growth company. We do not intend to shrink our way to greatness. We've updated our AUD 100 million cost growth containment to actually a 10% cost margin, which is a big hairy audacious goal because I actually can't ever remember having something less than a 10% cost margin.
We feel with our recent slowing of the cost growth, and we're back to an 11.2% cost margin now that we can get to 10% by financial year 2022. We've also maintained our 2% full-year net margin, and again, we're confident we'll get back to that level by 2022. Just to summarize ongoing transformation priorities, we have our new targets in place, which is essentially related to that cost margin. We'll now be looking at that re-engineering in our core brands, of which are much less than this was a year ago. We're looking to deliver on three basic outcomes: that we have more efficient businesses, a better and more consistent customer experience, and we can achieve scalable growth. We're also doing this in a very systematic approach, just like we did when we assessed all our problem businesses.
So it's not like kind of random decisions. We have a very structured, systematic way that we will now assess markets, not necessarily looking at where we have problem businesses, but looking at the full competitive opportunity market by market for our core brand. We'll be conducting a brand DNA session, which we've already done on Flight Centre Brand and Travel Associates, and that's in the appendices at the back. So that we really understand what makes our brands unique and different from the very first day we started to now. We'll be having a look at our business model, both positive and negative trends, and looking at how we can drive costs down and drive revenue up per expense line, and looking at how we create seamless systems to deliver that.
So we'll have a full, and we already do have a very extensive project and program list in place as we now move into the second phase, perhaps the more exciting phase of business transformation. So that's the transformation update. So, outlook. Skroo, I think this is over to you.
Well, thank you, Mel. That was so exciting compared to Adam anyway. So yeah, look, just a bit on the outlook. So far, we're tracking a bit above corresponding period, so reasonable start to the new year, but too early to do the same. And it will provide guidance after Q1. But yeah, we obviously want to continue to grow. If you look at the market conditions, generally, we're expecting ongoing market growth, particularly in Asia-Pacific. With airfare prices, we think there could be possibly modest increases or maybe decreases, or even they might stay the same.
But we don't think they're going to be too different. Obviously, there's a little bit of oil price movement there as well. Airline capacity is still increasing. And one of the things we're really focused on is agreeing long-term arrangements with suppliers, particularly airlines. We now, I believe, have deals in place with Virgin and Singapore Airlines and Etihad that are significant lengths of time and up to 10 years. Yeah, we're looking at capturing a greater share of the global travel market in the various countries we operate in. Mel just gave you an earful of the transformation program, which was incredibly exciting, as you know. There's more excitement to come in the next year. And we're looking at some more globalization in various areas with the various leisure and corporate brands in the major geographies.
One of the things we are mentioning here is some of the emerging brands. Most of these are in Australia. They're too small at the moment, but you'll see that slide with half a dozen brands, which give us a AUD 30 million-plus profit. They're all profitable. They're all growing quite strongly. And we see that as part of our long-term future. Just a little bit on the outlook of leisure. You probably remember our three strategic anchors. We're still focused on them. And Mel mentioned some things about some of the things, for example, being easier to buy from. We've got a lot of work happening there. Our Flight Centre Brand 2.0, it's obviously going to be our major mass market brand in Australia. And you heard about the Flight Centre 2.0 in Australia with stronger premium and youth offerings. The premium, we're very excited about.
It's the Travel Associates brand mainly. We have the LDV acquisition in Canada. And looking at Liberty, where Liberty heads in this area as well. And obviously, the youth market, which we've got great hope for. And that's the Student Universe, Student Flights. And we have the independent contractor model, which we've had for a few years now in certain geographies, but we're certainly putting a lot more focus on that. And obviously, the digital transformation. We have been working on this for some years, but we still got a long way to go there. And obviously, getting more efficiencies, more productivity. And obviously, our network planning, which is very important. Basically, it just means making sure our bricks and mortar are in the right locations. In Australia, the next slide, you'll see the Flight Centre Exclusives.
You will see the start, actually, last week taking over from a previous flash sale product we had. You'll see a lot more of this over the next 12 months. Corporate, we've got a strong pipeline here with record wins in 2019, which will come into play in 2019. About AUD 1 billion in new business won globally for FCM alone. So we're pretty happy about that. With FCM, we're very keen to make it a truly global brand, which it now really is, and we want to further enhance that. We've got some tech suite enhancements with Sam, UCT, and Savi. Savi is a Serko product. We have a partnership with them, and it's about having unique models and content so we can save our customers time and money. You'll see a lot more of that as time goes on.
TIN, which is the Travel Experiences Network, one of the things we're building for the future is going to be really important to us in the medium term. And we obviously have established the foundations pretty well now. One of them is a global DMC. What does DMC stand for?
Business and Management Company.
Yeah, I knew that. And we'll consider further acquisitions in that to get that network global. The Global Touring, which is mainly Back-Roads Touring and Topdeck Travel or Topdeck. And the Global Hotel Network. You will have heard about that. I think our acquisition of BHMA with both hotel management. Hey, what's HM? Hazard. Hazard. Anyway, we operate 18 properties at the moment. We don't actually own any. They're all management or leasing properties. And we've got four additional ones signed and due to open in financial year 2019.
A couple in Thailand, one in Vietnam, one in Bali. They include the X2 and Away brands. We're targeting additional properties. Obviously, we know we can support these properties in these markets. Finally, or nearly finally, investing in our people. We've got a whole range of initiatives for our people. We're doing an EBA in Australia, which is hopefully will come to fruition quite soon. We have various workplace flexibility, things like paid parental leave, mentoring here. The U.K. Apprenticeship Program has been very successful. It's basically a trainee program that has dramatically increased the retention of our people. In FCM, we have a league program that people are very excited about. Some of you may have heard about the NDC. What does NDC stand for?
New Distribution Capabilities.
But it's a program the airlines are working on to, I suppose, enhance some of the distribution capabilities. We're working with the GDSs and airlines on these initiatives. And I think we're the only Australian-based DMC that included as a launch part with Sabre and the Beyond NDC. Is that right? Yes. Okay. We're also taking an active role in the Amadeus program, which is one of the other large GDS systems. And our aim is to ensure our company and its customers share any benefits and that no one gets disadvantaged from this. As you'll hear, quite a few rumors around the traps about this. And Flight Centre Travel Group strongly believes that the GDSs reflect clearly or represent the most efficient way to distribute travel. And we support a collaborative approach between players like us, the GDS, and of course, the key airlines.
I think that's about all, Haydn. We'll see you next week.
Thanks for that. We'll now go to questions. Hi, everyone. Before we go to questions, there's been a couple of negative headlines about Flight Centre over the past 24 hours or so. I think Skroo might like to say a few words just to address those.
Yeah, thanks, Haydn . Some of you will have seen the ABC story. I'm sure there'll probably be some questions later on, perhaps, about it. It is pretty disappointing. Obviously, as a company, it'll disappear very quickly. It really is concerning that a lot of our people really worry about it. We've had thousands of people coming to us and really debunking just about everything that's been said there. We don't know where these people came from that said this.
But I suppose we do feel for our frontline people who have had some. Who this may well reflect on a little bit. But we'll come to that later anyway. Okay.
Thank you. Ladies and gentlemen, we will 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. Your first question comes from the line of Tom Kierath from Morgan Stanley. Please go ahead.
Yeah, morning, guys. I might just follow up on Screw's comments there. Where abouts are we at with the EBA? And can you just explain maybe what the base rate of pay is today for staff and how that might move post-EBA?
Well, Tom, we're in the middle of a negotiation.
And so we obviously can't talk too much about it. But I suppose all I can say is we've always paid at least the minimum of the award. And obviously, 95% of people generally get paid above the award because we have an incentive system. And we are looking at simplifying the process. And we're hoping to put it to a vote in the next few weeks. But that bargaining process is still a little bit of a way to go. So I can't sort of give you too much more on that.
Okay, understand. And just the second one is on the Australian business in the second half. It came as a real surprise, the earnings down so much in the second half. Can you just talk through what the disruption impact was? I can see that costs went up, I think, around about AUD 30 million.
Is that all linked to the GDS changes, etc., and the training? Just be good to get some more clarity on what actually happened in the second half.
Look, I'll probably hand that on to Adam. But I think one of the things is we had a fairly or quite a strong second half the year before. And as well, there were some significant costs in this rebranding project. What else? Adam?
Yeah, that's right, Skroo. I mean, I think fundamentally, Tom, obviously, our TTV was disrupted, which clearly is going to have an impact, particularly in our leisure business. Our corporate TTV was quite strong for the year. But certainly, we had an impact on our TTV flying through into our leisure businesses, which finished around about flat for the full year.
And then on top of that, and then so that obviously has an impact with some of our fixed cost base that didn't get covered there. As Skroo said, there were some other costs in there, particularly in relation to some of our rebrand and growth strategy and some of the other transformational costs. So I think I said earlier, between AUD 5 million and AUD 10 million of total transformational costs. And a fairly significant portion of that this year was held in the Australia-New Zealand segment.
Right, okay. Thanks. And just the last one on Americas and pretty solid numbers there. Does the leisure business continue to improve, do you think? Or is it now like a baseline and all the growth comes from corporate?
No, Tom, actually. The leisure business has had significant improvement both in Canada and in the USA.
And while I would agree that a lot of the growth over the next few years will come, or more proportionately will come out of corporate, which it is at the moment, we intend to continue on our leisure strategies and actually make them material businesses. And we're very pleased with the early signs. Say, even something that's not in here anyway, which is our GOGO Vacations business, which has had some challenges just recently due to some changing market circumstances. A few other things have managed to start growing again quite aggressively. So no, it won't all be about corporate, but certainly, proportionately, corporate will play a stronger part of the growth in the Americas.
Great.
Thank you. Yeah, just on that, Tom, just to back out a little bit.
Certainly, in the U.S., there was some restructuring and changes that went through there this year, which helped with the leisure result. If you look at Canada, though, our TTV in Canada retail grew by about 13%. So it is a growing business there as well.
Yep. Great. Thank you.
Your next question comes from the line of Ben Gilbert from UBS. Please go ahead.
Hi, morning, guys. So just following up from Tom's question, just on the second half PBT, because my understanding was the GDS all went in through first half and a bit carried over in corporate leisure into second half. And productivity, because obviously, staff numbers are down, will look very strong. And it looks like sort of leisure, even adjusting people who put big chunks of those 5-10 transitions, that implies leisure would have been down at least 10% in the second half.
So I suppose the question is, was there anything else, or was it just the disruption? And I suppose, just interested in your comment, you expect an improvement into fiscal 2019 and sort of what gives you confidence there? And should we expect a pretty sizable bounce, particularly through second half, just given the comp? And then was there anything around missed overrides or anything like that in there as well?
I've found there's a lot of questions in that.
Yeah, sorry about that. I realized I was getting through those a few.
Sorry. Sorry.
Yep.
So a couple of things. Yes, it was a big year. If there was any more changes, we could have thrown at the leisure business. I had to think what they could have been last year in Australia. A couple of things on timing.
The GDS change was finished in leisure by, when you say finished, it was actually deployed fully by Christmas. Corporate is still finalizing its deployment. But that's just your rollout. You've then got to get used to the system. And remember what then happened. We were unable to train and recruit, which we knowingly decided to do in the first six months. So we entered the second six months with something like about, Skroo, about 300 less people, something like that. So again, even though the actual deployment of the system was complete in leisure by Christmas, the ongoing disruption took some months to flow through. Having said that, we did grow product. I mean, the fact that they managed to achieve the top line that was the same as previous year with 300 less people was very pleasing from a productivity perspective.
Also, remember, we then, from the 1st of March, commenced the Rebrand and Grow. So again, as soon as that change kind of had finished, we then brought the next one in, which, remember, was taking six brands down to three effectively. So again, there was a lot of change management and disruption throughout that process. So I can't remember some of the other questions. Overrides? Overrides were not adversely affected. And we continue to have great contracts and relationships. And we spoke to our supply chain about this disruption. And they, as usual, worked proactively with us because we told them that this would slow our people growth down for a little while. So again, we didn't have any major concerns there with our overrides.
Remember, at the same time, we also had a business like BYO growing very nicely on the sidelines, which, by the way, I'd like to report now is now the fourth largest OTA in the Australian marketplace, I think, Skroo. We just got that stuff the other day. So we certainly tried to maintain growth through other businesses while that disruption was going on, particularly in our bricks and mortar leisure brands.
And so because the BYO with the OTAs, because I think you sort of talked to, obviously, 20% growth, but that's profitable now as well, isn't it? So is it what, around 1% PBT or something like that in terms of margin?
Yeah, slightly higher, I think. Yeah, fair.
And just from the comment that you're saying, you're confident that Australia will improve into fiscal 2019. Are you seeing some improving trends towards the back end of half and into July's? You're staying to smooth through till we'll get further through this sort of integration or the disruption?
Well, certainly, we now have the disruption of the change with the EBA process, but we're hoping that will be completed within the next month or two. To be honest, comparing the second half of the year, that's too far ahead to comment clearly. But yeah, we've got definite plans in place post the Rebrand and Grow, which we're confident will boost the Australian business. So we knew the disruption. We are not unpleased with the results. It's pretty well what we thought would happen.
We're now geared up to reverse that in terms of picking up both top and bottom line growth in Australia.
Great. And just final one for me. Just on the revenue margin for the targets there, given the cost, it implies about a 90 basis point decline in revenue margins out to fiscal 2022. Could you just talk around just expectations with respect to mix what you're assuming broadly? Obviously, there's a lot of unknowns broadly around that.
Yeah. Yeah, I will. And there's a few things there. You're right. It implies we get about 2%, around about that 90 basis points or thereabout decline over the next four years. And that really is coming off similar drivers to this year where we've seen that mix with particularly our corporate business, our FCM business, which generally operates at around about a 7-7.5% revenue margin.
We've seen and will continue to see our travel money, our foreign currency business growing, and that operates at a similar sort of revenue margin and the OTA, so we're assuming that that level of growth continues, and we would be expecting, realistically, that that means that, on average, 20-25 basis points a year would be realistic. I will say that similar to our TTV targets, our cost targets, revenue, there'll be lumps throughout the next four years, so we shouldn't expect it all happening on a linear basis, but that's fundamentally the rationale behind it.
Yep. That's great. Thanks, guys.
Thanks. Your next question comes from the line of Bryan Raymond from Citi. Please go ahead.
Good morning. My question's also on the underlying performance in Australia and New Zealand, so I'd just like to be really clear on the implementation cost.
You've sort of talked about AUD 5-AUD 10 million figure. But I just want to confirm, is that a full year 2018 implementation cost? And is that a global implementation cost? I just want to narrow down to Australia, New Zealand in the second half, what that contribution would be to the overall 5-10?
Yeah. So the full year transformational or similar cost is between 5 and 10 million. It was, for a global basis, around just under AUD 10 million. And the majority of that flowed through the Australia-New Zealand segment. So if you look at some of the other transformational activities that we undertook this year, Bryan, a lot of the cost associated with the Asian restructuring and simplification processes up there we incurred in last financial year's results.
In terms of our North American leisure businesses, there weren't a lot of significant transformational costs that were incurred through that process. So the majority has flowed through into the Australia-New Zealand segment.
Okay. And would we assume that's sort of evenly split first half, second half? Or was there a bias for that?
Look, th ere's probably a little bit more in the second half. But yeah, yeah. A little bit more towards the second half.
Okay. Great. That's helpful. I'm interested in the GDS change. You talked about the disruption. But I'm really interested in also the incentive payments coming from Sabre. That's been a big issue for their investors in the U.S., that ramp-up in incentives. And you guys are the one big contract they've really signed up. So I'd just be interested in how you're accounting for it, where it sits in the P&L.
Is it all booked in the first half? Or is it going to be smooth across the year? Or is it amortized over multiple years? Could you just give us a flavor for how those incentive payments from Sabre to FCM and the rest being accounted for?
Right. I'll just say one thing. What you'll see coming out of the Sabre P&L potentially for incentive payments, remember, we have to cover the cost of the change. So a big chunk of the incentive payment actually goes against the cost of the project, which you can imagine for doing that size runs into the tens of millions. So effectively, it means we don't have any CapEx that we need to then pay off in the future. So you can't look at what they paid us essentially and see that it comes in.
And it's generally based on a year's segment volume basis too. I think we did get the previous year again?
Yeah. I think there's a couple of things on that, Bryan. The first is, and I'm not sure exactly what is in Sabre's numbers, but obviously, they're paying us a per sector rebate now that they wouldn't have been paying us previously. Although we would have been receiving that from our previous GDS provider. So that's one difference that you'll see there is that flowing through. As Mel said, we did get commercials to support the costs we were incurring as part of the handover.
It's actually called a conversion bonus, but it's essentially paid for the conversion. It's not really an incentive.
Yeah.
There are the elements of the commercial, most of which are actually transferred and carried forward either through the sector rebate or amortized over the term of the agreement.
So then, just in terms of the rebates and also those costs, first of all, the rebates, are they at a higher level with Sabre than what they were under Travelport?
We're not allowed to disclose the commercials anymore.
That's understandable. Just in terms of, sorry, sorry, I had nothing else in my head here.
I was just going to say, obviously, you don't make a switch just based on commercials. It has to deliver your strategic objectives. One of the reasons why we switched was obviously we were dealing in concert with some of our other strategies as well. It's not just a commercial reason why you would change.
A lot of it is simplification and globalization of our back end, which has other benefits, which take a little bit of time to realize. But we're certainly in a better position to do that.
Sure. Okay. So then, just in terms of quantifying the disruption overall, when you think about your staffing, the disruption, sorry, the implementation costs you've had with the system and also the incentive payments from, sorry, the conversion payments from Sabre, where's the net net falling out for you guys around the whole GDS piece then, do you think?
I'm not sure which year. I'll have to have a thought. I think the benefit that we see will be in the future in terms of, hopefully, productivity. We have seen some positive signs on productivity elsewhere in the world when we've made changes. So the financials are not massively different.
Hopefully, it'll help us with that overall objective that we have to increase productivity. The new system's in place. It obviously takes a little bit of time. It's probably one for a little bit further down the track rather than in that second half result. We haven't got any real benefit from it just yet. It's too soon.
Okay. Great. I'll just then move on from the GDS side. Just thinking about the staff numbers in Australia, they were down 5% year on year. You did talk about disruption in the first half causing less staff numbers than I understood. They haven't quite bounced back in absolute terms. You talked about closing 90 stores, which, in my numbers, looks like 11% of your net work. Just interested in how you're thinking about stores and staffing going forward.
Is there more store closures that seem likely from here? Is staffing going to continue to moderate in Australia? I just came to hear your general thoughts on where that sits.
Bryan, this is Skroo on. A lot of our effort is going to go into what we call network planning, which will be making sure we've got the right numbers of stores with the right brands in the right places. And that's a fair bit of effort. There may be still a few that we close because of the location between two Flight Centres and something like that. But we'll also have the opening new stores as well. So that'll be pretty much a. Yeah, the net will be at least stable, we believe, at this stage. We do want to grow significantly from, I think, down 300 to perhaps up a few hundred.
I think we're on track for that. That'll take us a whole year, the whole financial year, to really get to that. Yeah, probably by the end of June. I mean, we accept, I think, that in our leisure business in Australia, that some of the benefits that we've put in play over the last 12 months will take a little while to flow through to growth in profits or a significant growth in profits. Yeah, all the while, of course, expenses do tend to come up. We're getting good rental outcomes. But we certainly are trying to make sure that our shops are all in prime locations, so for example, in shopping centers or CBDs, so that although the rentals generally, year by year, attending to—we're getting good outcomes, we are tending to look at more expensive locations for new shops or relocations.
So there will be probably some increased costs there as well. And obviously, in Australia, as you probably know, and with our EBA, there will be some increases in our people costs, almost for sure. We haven't worked that out exactly at the moment.
Your next question comes from the line of Michael Simotas from Deutsche Bank. Please go ahead.
Good morning, everyone. Sorry to harp on about it. But I was just hoping we could touch on the second half in Australia. I was coming from a slightly different angle. Maybe just ignoring TTV for a moment to sort of remove the impact of leverage and just look at costs on an absolute basis. I think they were up about. I think it's AUD 25 million in the second half. And you had about 400 less staff, which I would have thought would probably save you about AUD 20 million.
So just trying to understand what the difference is that drove the growth in costs. I know you've sort of called out the implementation costs. But it still seems like there's another piece that sort of came in there.
Yeah, Michael. I think what's missing with that is probably the timing around some of those, the closures and things like that of some of those particular shops. We have, in Australia, in the second half, as Chris said, we've had some reasonable outcomes in terms of our shop rental. But certainly, there's been some costs attached to moving or closing some of those shops. We have had, as I said, some of the specific costs attached to Rebrand and Grow. And we've also picked up our marketing activities in the second half. In the first half, we were down, I think, AUD 2 million or AUD 3 million or thereabouts.
And so we've picked that up reasonably significantly in the second half as well. But they're the main things that have driven that.
Yeah. Okay. And then, as we roll into 2019 for the Australian business, obviously, there was a lot of disruption and a lot of change that happened in 2018. It should be a fairly clean year in terms of both where the business is at and where you've got incremental costs coming through in the second half. That should just roll through.
But we hope so. I mean, as Screw mentioned, we've done a lot of work this year. We've disrupted the business a lot in that Australian leisure business. So certainly, our intent would be that we would hope that there's a fairly clean year from that perspective. But yeah, I mean, there's a couple of things that obviously might impact on that.
As Screw said, we're working through the enterprise agreement. There will be some additional costs associated with that, and that will sort of play out as we complete that process with our teams. I think we're assuming that the hard yards have been done in terms of our network planning this year as well, as Screw said.
Yeah, I think it's probably a fair comment to me. We'd expect to be a bit cleaner. There is one thing, Michael, that does come with the Rebrand and Grow and with some time on both CapEx and OpEx in terms of fit-out. I know we have 450 shop projects where we have work to do on shops, either because of our old Escape Travel or Cruiseabout, which we no longer have, and we need to do some relatively modest changes to significant ones.
So yeah, we've still got 450 to go. But that's part of our investment in the future. But a certain amount of that will be OpEx. So it is still going. This is in leisure. This is still going to be a year with a bit of disruption. We've got more money up in the Flight Centre brand to spend in marketing. So you will see us being more proactive in marketing, particularly in the Flight Centre brand. But certainly, the second half of this year, I would say a lot of it should be pretty well settled down. And I'll be disappointed if we didn't get some pretty good growth in the second half, I mean, up to Christmas. Yeah.
Yeah. All right. And then maybe on the EBA, I mean, I'm not expecting you to be specific on anything given you're still negotiating.
But I guess there are two parts to that. There's the total amount you pay to staff. And you said you expect some increase. And that's fine. But I guess the other piece is it sort of sounds like you're planning to shift a little bit out of incentives into fixed pay. And I remember a few years ago, you put through a fairly small base increase. And it sort of messed with your productivity for a little while. Can you just sort of talk through how you're thinking about that?
Yeah. Well, we certainly haven't reached a final bargaining position to put to our people. But basically, it's likely that there'll be a higher retainer, lower incentive for the initial period. But for people who are experienced and are good producers, they'll probably be a little bit better off as well.
Or some of them significantly better off. So it will be a mix like that. And we believe, for a range of reasons, that it'll be pretty well received by our people. But we don't know the final offer that will be put into them in the next few weeks.
Actually, Michael, I've got something to add too. I remember what you said. It hasn't necessarily. There's a fine balance between getting the mix of certainty and the mix of incentive right in the sales culture without losing that productivity drive. Remember too, in my part of the announcement, I mentioned that we've commenced this Flight Centre Brand 2.0. We're calling it sort of re-engineering phase. And a lot of that is about automation, efficiency, etc., where we actually want to take work away from the consultant and have their role much more narrowed.
They do a lot of administrative crap, basically. And we think we can remove something like 30% or 40% of that. A lot of the assets are there now. We just need to pull it together. And that's been a lot of the digital work that's been sort of building. It's now combining it. So yes, maybe, I don't think that will affect productivity. But there's actually a whole other program in place to drive productivity by elimination automation and sort of basically getting the consultant to do what they do best. So those sort of things happen in tandem will hopefully make any negative impacts balanced, if not make it better.
Okay. That makes sense. And if I could just squeeze in one quick one on the financials, Adam. I don't know if you'd think about the business this way.
But if I look at operating cash conversion for the full year, it was only about 90%. And historically, this business has generated cash well ahead of earnings. Was there anything sort of strange in the timing or the disruption you had this year or perhaps a mixed shift that drove that?
There were a couple of things there, Michael. One is growth in our corporate debtors. And they've grown. And that's impacted on that a little bit. But the other one is our payment of our BSP cycle. We had paid just prior to year-end this year and just after last year. So it was a little bit of a distortion with it. So they're really the two in there. I think if you had that, yeah, it gets a lot more reasonable.
All right. Thanks.
Your next question comes from the line of Grant Saligari from Credit Suisse.
Please go ahead.
Good morning.
Thank you. Could you maybe just talk on the outlook to where the 7% TTV growth is likely to come from in fiscal 2019?
Yeah. I can give you a bit of a go at that, Grant. And then obviously, Skroo and Mel can jump in. But I think if I look around the different regions, certainly looking overseas, our corporate businesses through the Americas have continued to grow top line quite strongly over the last few years. And we'd expect that to continue. As I said a little bit earlier, in Canada, we've got some good TTV growth in our retail business as well. So we'd expect to see continued growth in that market. In EMEA, again, we're continuing to see good growth there. So we expect the non-Australian businesses, if you like, to continue to contribute probably a little bit above that 7%.
Look, in Australia, as we said last year, it was about a 4% growth for the full year. I think as Skroo's indicated, we'd be looking particularly for leisure to pick up a little bit next year in terms of top line growth and support the great year that we had in corporate at a TTV level. There's actually a few areas right around the regions that we'd expect to see some solid growth coming through. Obviously, that isn't going to go to plan. We've also got a bit of buffer in there. But if one of our regions or businesses doesn't fire, I think we're still reasonably comfortable with that target.
Would organic growth in corporate - so you did make some acquisitions. So maybe let's put them to one side - would organic growth in corporate have achieved that 7% this year?
In its own right, it would have come close to a growth. Just under. It would have been just under. Okay. I mean, it's a tough hurdle. I mean, I think 7% is a huge hurdle you've set yourself in, given the size of the Australian business particularly. I guess just sort of thinking about the outlook as well for the Australian business, clearly, it's been commented on, and I don't want to rake over the coals again, on the weakness in the second half, but just interested in the momentum as you go into the first half 2019.
How quickly should we sort of start to expect this momentum to turn around in Australian leisure? Is this going to be largely a second half 2019 phenomenon, or will it turn around quite quickly in the first half?
Grant, I can't really answer that.
As I said before, my feeling is that the first six months, there's still stuff that we are doing. Still upskilling, still getting our—and the upskilling obviously takes time to really work through the intake of people with experience. And so I think I'd be pretty unhappy about if we weren't seeing some good progress in the second half of 2019. So that's probably the most likely thing that I would think. But it could well in the next few months. And certainly, by the AGM, I think we'll have a bit better idea on that sort of question.
Okay. And just finally, you're sitting on a lot of cash still. The dividend is actually a little below what we'd forecast. Well, actually, quite a bit below what we forecast this year. What's your thinking on capital commitments for the business going forward?
I mean, are you trying to signal that you have got a prolonged period of slightly higher CapEx and capital requirements for the business, and that's why you're keeping that cash which continues to accumulate? Or is there something else there that we should think about?
No. I don't think there's anything specific there other than back at the half year, we did talk a little bit about this, and I think one of the things we said at the time was that we really wanted to get this 12-month period, this calendar year, under our belt in terms of completing the cleanup exercise for the business transformation and really initiating the next phase of it, which was around investing and growing the businesses.
So I think probably what we're still holding to that, we think that we still feel that we need to hold that cash there, look at what we need to be investing in over the next six months. And then we'll be in a clearer position come the half year of FY19, I think, to be able to have a more informed discussion around it.
Okay. All right. Thank you.
Your next question comes from the line of John O'Shea from Ord Minnett. Please go ahead.
Hi, team. Look, just a question from me on how you're sort of seeing the consumer environment. Obviously, we spoke a lot about the changes in terms of the Australian business. Just generally, in terms of the Australian consumer business, how do you think consumers are sort of feeling at the moment?
What are you sort of seeing in terms of trends in outbound trends in particular? And has there been any change in the start of this financial year compared to what you saw last year?
Yeah. John, I think just from what we see, corporate tends to be reasonably strong. Corporates tend to be uptrading, if anything. And the growth in the outbound out of Australia seems to be generally holding up okay. In leisure, there's certainly no indications that people are not going to keep traveling. Have you got anything, Adam, to add to that?
So we're reasonably happy that there's nothing obvious that's going to stop people traveling. Generally, the corporates are strong. And I'm not even talking about Australia now.
I think generally, in most of our markets, I don't know how many markets we're in now, but 24 or 25, I think, the corporate travel, same companies are growing their travel as well as we're winning some good new business. In leisure, there doesn't seem to be anything on the horizon to make it look like things are going to be tough.
Thanks, Graham.
Thank you.
Your next question comes from the line of Mark Wade from CLSA. Please go ahead.
Hi, team. Big picture question from me. Mel's spoken a bit about plans to undertake this market research to understand what makes the brand unique and, I guess, the business model changes as necessary. I guess without preempting those results too far in advance, I mean, why is it that customers shop with you?
Because where I'm trying to go with this is, I mean, if you look out 10 years long term, is the leisure customer clear? That customer proposition that you offer to the customers, is that clear enough such that that business remains vibrant?
That's a very dramatic question, Mark. I'll reiterate. We're not doing market research to establish why our brand special. We're doing market research to establish the competitive position in that market of all travel players. What we're doing with the DNA sessions is reinforcing, if you like, what makes our brand special. And when we did the Flight Centre one, I can safely say the exciting future for that brand is huge. The internet has not seen the death of the bricks-and-mortar travel industry that everyone predicted 10 years ago. And we don't think it will be in the future.
What we did is kind of put the context of what made the brand special in the current world and in the next five and 10 years what's going to do that. No, we don't have any dire concerns about that brand being vibrant. That was one of the reasons we got rid of some brands. Because if a brand couldn't be famous and distinctive in the long term with a vibrant future, we deemed it immaterial and got rid of it. What we've done is concentrate on a core of brands which we believe are strong. That doesn't mean that they won't change a little bit how they operate. But particularly, Flight Centre will still be very much a person-to-person, a brand about access and convenience, and a brand about bringing deals to the marketplace.
No, we don't have any concerns about its viability long term. Skroo, do you have any comment?
Yeah. Well, just one of the things I was looking at, we've been doing some research in-house on this. And we believe, and these are the latest figures, and I think they're pretty accurate, 60% of domestic and international travel in Australia is booked through travel agents. And I presume that's corporate and leisure travel agents. Whereas direct with airlines and OTAs, it's now about 40%. The travel agents are growing probably at about 4% at the moment year on year. And OTAs themselves are growing at about double that at the moment. So they may win a little bit more market share. But we're pretty confident that there is a strong travel agent market in Australia. And I think it'll continue that way.
Okay. And that's a helpful perspective.
And this last one for me, I mean, given that market positioning and where you want to maintain that brand relevance, I guess, is a profit margin well in excess of 2% possible if you look out five, 10 years?
Mark, I'll answer that too because it depends on the brand and the mix. But that's a case of whether you can get your cost base to where you need it to be, which we believe we can. Hence, we've set that goal. But I'll go to a brand that we haven't discussed widely, which is our Travel Associates brand and our Travel Partners network.
We believe, and we already do in Travel Associates, get a net margin beyond that because it's much more a premium business, not necessarily selling first class, but dealing with frequent and affluent travelers who aren't going to waste their own precious 10 hours hunting around to book a holiday in Bali. Funnily enough, when we've done our research globally, that is a growing and burgeoning market. You'll probably see us shift a bit of balance in terms of those three pillars. Premium absolutely should deliver a profit margin beyond that. We also bought—I don't know if anyone remembers—Laurier Du Vallon in Canada, which is also a premium corporate and leisure business. We will grow those ones probably more aggressively because we've got all the assets to do it.
Okay. Thanks, team.
Your next question comes from the line of Matt Ryland from Greencape.
Please go ahead. Good day, guys. Yeah, just a bit of a detailed question. So I apologize in advance for it. Just on the marketing expense drop, it dropped again this half. I remember in the first half, you called out the-I think it was like Aunt Betty-going from traditional to metasearch, for example. What drove the drop in the second half? And what comments can you make around where that sort of goes going forward?
No, sorry. That was a year before, I think, that changed. So the changes that Adam, I think, has just about outlined slightly in terms of the situation you're describing. I have a feeling it was a year before that you were talking about that with BYO.
Well, that's where we spent all the money. And then we didn't spend it. The year just finished. Yeah. So it will show.
Wage increase because it's not there. Yeah. And that's correct.
Yeah. Matt, really, if I step back from that, that certainly had a bit of an impact there. The other areas, if you look at it, as I said earlier, ANZ up a little bit year on year. The biggest really areas that we had a decline were in the Americas and through EMEA. And that was really some fairly targeted approaches that our marketing teams there have done to get a lot more specific in relation to the marketing activity they're doing. So in some areas, we might have previously had generic brand marketing or advertising in traditional formats like newspapers, etc., with a move away from that to be more specific and also more product-based.
And also with some of our paid search, for example, in the U.K., we've stopped investing in paid search for things like cheap flights because in that market, the brand that we're looking to thrive is less about selling cheap flights and it's more about tailor-made and longer-haul business. So it's more targeted. And it was certainly in that Americas and EMEA segment.
All right. Thanks, guys.
Your next question comes from the line of Tim Piper from Bell Potter. Please go ahead.
Yeah. Good morning. I'll just say a quick question on the Americas division, probably two parts. Just looking at the profit growth, obviously, very strong. I just wanted to break that down. So it looks like what corporate TTV growth is sort of 25% or 30% year on year. I think you mentioned before the bulk of the profit growth came from corporate.
So first of all, that suggests that there's been some decent EBITDA margin or profit margin expansion in the corporate business there. And then secondly, around the leisure business, sort of store and sales staff numbers are down a bit. So it looks like there's a bit of sort of like-for-like growth in leisure. How much of the earnings improvement is sort of cost out and how much of it is sort of organic growth?
Yeah. So if we look at the Americas segment overall, I'll just break that down a little bit, Tim, and tell me if I don't quite touch on all of those. So I guess there's a few things to pull out of that. Of the movement in profit year on year, we had about AUD 2.6 million, which was due to our new acquisition being Laurier Du Vallon.
That in its own right is an acquisitive increase. Outside of that, our two leisure businesses, so between Canada and the U.S., last year lost between them a little bit over AUD 10 million. So they're both back into a very small profit situation. And the opportunity there, and that was very pleasant for us. And we're really, really glad about that. The real story there, though, is the opportunity for those businesses to go further than just a break-even or small profit, how we can drive that forward. But we're very happy that those businesses were able to get to where they are. As I say, over the last few years, Canada leisure has probably done a lot more network planning and making sure that their shop, their physical locations were in the right place, that sort of premium A-grade location that we want to be in.
And in the current year, the U.S. has followed suit with a little bit of that. So in the U.S., leisure market is a combination, but there's probably more cost out that we've seen go through the U.S. versus Canada. But yes, you're right. I mean, the real growth there, most of that growth in that segment has come from corporate. And that is off the back of very strong TTV and continuing to be able to deliver that into profit as well. And again, there's a little bit of efficiency coming through that and a large portion of it is productivity that we've been able to get through our corporate businesses.
So there is some higher margins coming through in corporate?
On a net margin.
On a net margin, not on a revenue line.
Not on a revenue line. Yeah.
Yeah. Sure. That's what I meant. Okay. Great. Thanks.
And then just sort of when you touched on the ongoing digital focus around the sort of transformation strategy, just looking at sort of the IT expenditure and what you're spending capital-wise and capitalising there, it seems like the capitalising sort of as a proportion is creeping up. How do we think about the sort of IT expenditure over the next couple of years compared to what we'll be going through as CapEx?
There's no doubt we're living in a digital age, and you have to spend more on technology and digital assets, and particularly in travel. So you will see us increase that, which will be at both the CapEx and then obviously today's CapEx is tomorrow's OpEx. So it's going to come through. But we're balancing that with where we can save elsewhere.
But more importantly, we're looking at where we can get again. I've said this numerous times with technology: the more users you can get on a platform, the cheaper it becomes. And because we now have much more global sharing of common platforms, that should help contain some of the cost growth. So I'm not sure. Yeah.
Yeah. So I think that's right. And I think the other thing, Tim, just on those, just a bit of perspective on them as well. This year, we had around AUD 90 million of CapEx, of which about half was to do with technology and systems. Next year, we expect a small increase, around about AUD 100 million, maybe AUD 110 million of CapEx. And again, just over 50% of that will be on systems and tech. So we will continue to do that.
Our approach, just as a general comment, has always been that we don't try and just overload our balance sheet. So we're probably slightly conservative in our approach, which means that we'll see our OpEx sort of coming up a little bit as well as we progress through some of those key projects.
Great. That's helpful. Thanks a lot for that.
There are no further questions at this time. I would now like to hand the conference back to your speakers. Please continue.
Well, thank you very much for your time, everyone. We're in our meeting place today. But if you have any further questions, maybe shoot me an email, and we'll try and get back to you as quick as we can. Thank you.
Thank you.
Thank you. Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may all disconnect.