Ladies and gentlemen, thank you for standing by and welcome to the Flight Centre Travel Group's half-year results conference call. At this time, all participants are in a listen-only mode. There'll 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. I must advise you that this conference is being recorded today, Thursday, the 22nd of February, 2018. I would now like to hand the conference over to our first speaker today, Mr. Haydn Long, Global Media and Investor Relations Manager for Flight Centre Travel Group. Thank you. Please go ahead.
Good morning, everyone. Thanks for joining us for our half-year results presentation. Today, I'm joined once again by the all-star cast, which includes Adam Campbell, our CFO, Mel, our Chief Operating Officer, and, of course, Skroo, our CEO. We understand that these can sometimes be a little bit boring, so today we've decided to present it as a pantomime, starting with Adam, who's going to talk to you about the financial results.
Thank you, Haydn. Look, it's good to be able to report some reasonably solid results, albeit off a fairly weak first half from last year, which many of you will remember came about through some impact on the business, both internal but also external. At a high level for this half, it's pleasing, again, to be able to report TTV growth of over AUD 800 million for the half, which brings us for the first time to TTV over AUD 10 billion, and that's a growth in constant currency of over 9%. From a margin perspective, we have, as expected, seen some lower revenue margins, generally as a result of some of the changing business mix within the business, with our foreign currency businesses, our global FCM business, and also our online competition in leisure businesses, all operating at lower revenue margins.
Offsetting that, though, was some very solid cost control throughout the period, and that resulted in net margin improvement of 20 basis points that more than offset the revenue decline in margin. So those things have all led to some really strong profit growth for the period, reporting a profit of AUD 139 million, which is up 23% on an underlying basis. And that's tracking slightly above where we targeted. Our original guidance for the half was between AUD 120 million and AUD 135 million, and as a result of tracking slightly above, we've upgraded our full-year guidance slightly. And Skroo will talk to that a little bit more. The overall drivers of our results can really be broadly grouped into four areas. The first being efficiency and productivity.
During this period, we've had a time of some level of network consolidation, and we've been able to continue to grow our TTV at solid growth rates in that period, which is a good indicator, and our TTV per person, which is our productivity measure, increased by 7% during the half. We've also started to execute on a number of transformational strategies, and Mel will talk to those, but we are progressing towards our 7 to 100 targets. One of the pleasing elements of the results, from my perspective, is the diversity within both our business mix and also geographies, with a record profit contribution coming from our overseas businesses during the half and almost 50% of TTV coming from outside of Australia. In particular, our corporate business pillar has also grown strongly through the half, and we're cementing ourselves now as one of the top five global TMCs.
We've also spent time in the half embedding new revenue streams that we've put in place over recent years, both organically and through acquisition, in terms of new products, geographies, sectors, and also business models. At a very high level, as a recap before Mel goes through some of the detail of it, we've been focused on our transformational targets that you'll remember we launched back in April of last year. Those targets are to continue to grow our TTV by a minimum of 7% per annum, and we're tracking above that target for the first half of this year. Secondly, to return to a 2% net margin over the next three to five years, and again, recalling that last year our net margin on a full-year basis was 1.64%, that indicates a 36 basis points improvement required at a minimum.
And again, we've had a good net margin improvement of 20 basis points in this half. Now, I will flag that we don't expect that the increase in net margin to continue at that same rate throughout the second half for two reasons. One is the first half last year was, frankly, a terrible half, and we've really rebounded, which we should have done in this first half. And secondly, the second half of last year was quite strong. We had a PBT growth of just under 5% when compared to the year before. We do, however, expect our income margin, obviously, to be up for the full year.
Finally, our final target was to ensure that our costs increased by less than AUD 100 million, and for the first half, we've grown by just over AUD 30 million, which indicates we're on track to be able to meet that particular target. In terms of P&L, I've mentioned the TTV growth, which has been solid for us. I've also mentioned the changes in the business mix that have led to a reduction of 43 basis points in our revenue margin. A couple of costs that I'll talk to briefly. The first is a new line that hasn't been shown separately previously, which is our cost of tour operations. That's a reclassification that we're making in this half and going forward. Previously, that line item was netted against tour revenue above the revenue line, so we're now splitting that out for some greater clarity.
The other item I'll raise as an increase is our D&A expense. It's increased by just under AUD 3 million for the half, and again, that's come off some of the higher CapEx that we've seen over recent years. Pleasingly, again, we're starting to see an abatement in that CapEx. We're still targeting CapEx to be less than AUD 100 million for the full year, and about half of that will be on systems and enhancing the technology backbone of the organization.
Other costs have been well contained and well controlled this year, including rent, our financing costs, employee benefits, and also marketing expense, which has seen a decline due to a change in marketing within the BYO and Aunt Bett businesses, which until the end of last or the first half last year, were relying on traditional marketing spend and has then shifted towards meta, which is a lot cheaper on aggregate, as well as some more cost-effective use of paid search, particularly in the northern hemisphere with our Chief Digital Officer having a solid look at where we're spending our money on paid search to ensure that we're doing that in the most effective way that we can. So all up, some solid cost control, which again has led to some solid profit increase.
I won't talk in detail to the balance sheet other than to say that it continues to be a very strong balance sheet. The only key movements of note are our increased trade and other receivables, which is predominantly driven by our increased corporate volume and offset by a decline in our database. Our goodwill on acquisitions has increased with the acquisitions that we saw come in late last year and early this year, and our current trade payables and other liabilities have also increased as a result of the corporate turnover growth and some timing with wages and other operating accrual payments. Our cash, again, is a solid position. We have just over $1 billion in cash at the end of the half, which is roughly equivalent to what we had 12 months ago, even after spending a little over $50 million in the half funding recent acquisitions.
As I mentioned, our CapEx is now declining, and we expect to see that finish under AUD 100 million for the full year. With that, I'm going to pass over to Skroo and get him to talk us through segmented results.
Thank you, Adam. That was very exciting. Most of you will see the segmented results of the first slide. We have three major pillars, I suppose, of business globally, and that's the TEN network, which is really our travel experiences, then leisure and corporate. And we have four or five major regions. One is Asia-Pac, which will probably be coming a little closer over time, EMEA, then the Americas, and global, which is part of that TEN. So there's four or five divisions in that as far as geographies go. In the next slide, we talk about our key achievements in leisure, and obviously, we've had a regional increase in profit from a pretty poor level last year. And leisure businesses probably is where Mel's team has been focusing on over the last eight or 10 months.
North America's had quite a good turnaround from, I think it's actually gone out of profit for the first six months, which is the first time for some time, as far as I know. If you look at the Australian leisure transformation on the next slide, we're looking at three major streams: the mass market, which is obviously mainly Flight Centre, the premium, which is Travel Associates, and Mel will talk further about this, and the youth, which is Student Flights. You may notice there's a couple of our major brands missing there. This is just so that we can get more focused. We can become a much stronger retailer of travel throughout our network, and we want to grow our market share, obviously. The next slide talks about corporate, key achievements in corporate.
And at this stage, 37% of our first half TTV is generated by corporate. And as Adam said, we're now a top five global TMC and obviously winning market share in a pretty competitive market. And one of our major goals, which we announced internally anyway a couple of years ago, was to become a truly global TMC, and that's progressing really well. The next slide talks about our corporate technology suite, and it's one of the things we put a lot of time, effort, and money into to make sure that we have state-of-the-art technology in our corporate offerings, particularly for the large TMCs, which are the large global businesses that we are now starting to win. And FCM Connect is a hub that we have for our technology suite.
And then over the page, one of our examples of our technology suite is SAM, which is a mobile app that is a corporate travel chatbot, and it's been quite a successful product in winning us customers. And it combines artificial intelligence and gives travelers a lot of information on their trips on their mobile, so that's been very popular. Then moving on to the Travel Experience Network, we've obviously got three major areas here: tour operators with Topdeck and Back-Roads, destination management companies, which are where people in destination get picked up and dropped off, but we have other operations and tours, and that's Buffalo Tours and Olympus, which was a purchase in the middle of last year. And we have hotel management, which is Bespoke Hotel Management, and that's based in Bangkok.
They're basically part of our vertical products so that we can use our distribution system and network to sell more of them. And you'll probably see some more modest areas of acquisitions in some of these. Now, I'll go on to the segmented results highlights. I think we had record TTV in all countries and record profits in quite a few: UK, USA, Canada, South Africa, UAE, Mexico, China, and Malaysia. And the really pleasing thing for us is a record contribution from overseas businesses, which was just under AUD 40 million this year out of that AUD 139 million. And there's been a very strong turnaround in Canada, and this is particularly in the leisure area, so we're pretty happy there. Just going through in a little bit of detail the segmented results in Australia, New Zealand for a start.
PBT is up 5% to AUD 104 million, and that was profit before tax. TTV is up 4%, which is modest, and we do want to grow that. The Australian leisure shop network, including travel, generated about 44% of the first half PBT. We've got strong growth in corporate, so we're clearly gaining market share in Australia in corporate. We have some new revenue streams, which we believe is going to be quite important in the next few years. This is an independent travel contractor model, different unique products, industry holidays, and you'll see a lot more of these sort of products over the next few months. The segmented results for the Americas, as you can see, we're in profit there, AUD 8 million, and the first half TTV topped AUD 2 billion for the first time. The US achieved the first half profit.
Most of their income, most of their profit comes in the second half, as you probably remember. That's mainly driven by strong corporate results and sales wins and reduced leisure losses. And as I mentioned before, the Canada turnaround's gaining momentum. Their corporate profit is very good, and their leisure improvements have been very pleasing. In EMEA, as you can see, we're up 37% to AUD 35 million there in PBT. And the profits are underpinned by the strong UK, UAE, and South African results. All those areas are going pretty well. We have a significant investment in setting up FCM Travel Solutions in Germany, and we've decided to do a start-up here. We already have accounts to go into that, and that started about a few weeks ago. So that's a reasonable investment for us. And obviously, Germany's one of the big world corporate travel markets.
For Asia, we've had a return to profit after a couple of years of losses. That transformation program in Mel's team had a big impact on that, mainly by leisure businesses being downsized in Singapore, Beijing, and Hong Kong, and they're now all profitable. And we're still getting strong TTV growth despite the downsizing of some of our leisure teams. There's a segmented other result that includes a whole range of different businesses, including the Travel Experiences Network and some other acquisition costs and other cost-related new systems, etc., and transformation, of course. Going over the page, this will be interesting. Some of our emerging brands, which most of you probably don't know much about, Travel Money. In the first six, we did AUD 670 million in TTV, up 18%. So it's our fourth largest brand now.
BYOjet and Aunt Betty, 87% TTV growth to AUD 180 million in the first half. This is a pure online play, and it's quite a turnaround profit to about AUD 2.5 million in PBT at the moment. The Pedal Group, which is our bikes business, which includes the retailer, 99 Bikes, and wholesale Advance Traders, AUD 54.7 million consolidated in the first half sales, up 13%, and AUD 2.8 million in consolidated PBT. Flight Centre owns 50% of the Pedal Group. We now, in 99 Bikes, have 36 shops throughout Australia. Five outlets opened in the past year, and we have shops now, 99 Bikes shops in all the states, and by far the largest bike retailer in Australia. We're looking at opportunities overseas with that. Amin Charter Business, this is an airline charter business. It's TTV up this year about 40%.
We're mainly growing in ad hoc charters, private jets, helicopters, and fly-in, fly-out. We've won some new business in the Queensland state government and the Mildura fly-in, fly-out. Those are just four examples of where we're having some pretty good success in some of our new brands, our emerging businesses. Now, as part of the transformation process, I'll hand over to Mel. She's been in charge of this with her team, and we're obviously only partway through this process, but there's certainly been some success. We've sort of attributed a certain amount of that success to Mel being quite scary, and she's scared a lot of people in our organization, and it looks like it's working. Mel?
Thank you, Skroo. I'll take that as a compliment, although most of the audience that know me know that I'm a gentlewoman, so as you know, about April, May last year, we announced the transformation program officially to create and accelerate the change that was required within the group. Our overarching financial goals of 7 to 10 were outlined, and Adam's already let you know that we've tracked well for those in the first half, and it's very pleasing for myself, the team, and the company. I just thought I'd take a few minutes to focus on what are the key priorities we've had and then go through and explain a little bit of each. Really, there's been four major priorities.
The first was about digital commerce growth, and this had a twofold approach: one about growing our online completed sales and online originated sales, and the second part of digital was really about improving our digital services across all our brands and businesses in both leisure and corporate. Our second key area of priority was about controlling cost and improving efficiency, and as Adam reported, we've again delivered some already pleasing results with our lowest cost growth, I think, since the GFC of just under 3%. Effectively, we've really focused on leaner and better support structures and getting better ROI against those support structures and also our real estate, mainly our shop networks.
Our third key area has been about globalization of our air and land and technology, which is essentially about centralizing and sharing a lot of our platforms to create a better backbone of global products and platforms to leverage the scale of Flight Centre Travel Group and really improve our operations and customer experience. The fourth key priority in transformation has been about investment in growth brands and business models, and on the other side of that has actually also been clearly about consolidation of not-so-successful or not-growing brands and business models, and we've had a key focus on that throughout the globe.
We're also going, I want to point out, very focused on new models, and the independent contractor one that Skroo mentioned already. I think I'd like to point out where we had two acquisitions in the last six months in New Zealand and Australia, and an organic start-up of Liberty Travel in the USA, which now gives us an independent contractor model in nearly most of our network. Just to give you a bit more detail on those four key priorities, digital, as I said, has really been a key focus, and I thought I'd highlight our digital program initiatives.
We already had a fairly good basis, but with Atle as our CDO and two digital centers of excellence now in Boston and Brisbane, and I didn't think most people would realize, but Brisbane is a digital center of excellence for us anyway, and we've really made strong initiatives in that digital progress, building lots of new websites, mobile apps, etc. One thing to note, we're actually just launched on Amazon Echo platform, which is actually the Alexa. I don't know if you know this, but we're the only travel agent on Amazon Alexa with a voice app serving customers a flight price and then connecting them to an agent, and we're also exploring being able to do that on Google Home in Australia. I can see sometime soon, Skroo, a Captain Doll in your lounge room that you ask about fares.
In terms of digital, a more specific strategy, we've had a clear focus on increasing our online completion sales, and we stated a goal of about 30% in online sales growth. It's currently tracking globally at 27%, and we feel comfortable we will deliver on that 30% for the entire year. Some markets are well over 30%. You already saw that BYO is up about 88%. New Zealand is over 30%, and international flights in Australia are actually growing in excess of 30%. Interestingly, our app, which we launched in Australia, I think maybe about eight months ago, is now producing 4% of our online sales, and we're noticing that customers who use the app are twice as likely to come back to the brand in the next two months. So again, very, very pleasing in terms of our online capability.
But digital is, of course, in all channels, not just about online completion. And we've had two capabilities being piloted in the U.S., which is about improving digital capability in our shops. And we've launched an appointment maker online for Liberty Travel, and the conversion rates with people making appointments online are something like, I think, about two or three-fold the normal email inquiry conversion rate. We've also piloted, and now it's moving beyond pilot, an internal tool called Red Connect, which is about putting the right leads into the right consultants. So really moving ahead with our blended model strategy of those who start with us online but ending up with one of our travel experts, and in this case, the right travel expert for exactly what they want to do. And again, pleasingly, the Red Connect performance in terms of improving conversion levels is showing some real progress.
So again, just making better use of the leads we already have as opposed to producing more leads. In a second key priority of efficiency and cost, there's been an awful lot going on in that space over the last six to eight months. In terms of, there's been two major areas of our platforms that we've kind of nearly deployed fully our new point of sale systems, or in fact, we're just about one month off completion globally with our new Sabre and Amadeus platforms, and also Microsoft Dynamics, our finance platform, which went live in the USA about a year ago in our corporate business and again is helping with productivity, and we're about to start very hefty deployment of that platform throughout the rest of the world.
So again, we look to see that will help our productivity but also help us reduce costs as we sunset other platforms over the next few years. We've also worked in the area of cost and efficiency, as I mentioned already, on lowering substantially our overheads in terms of our support costs. We had a redundancy program late last financial year with fairly senior and mid-management, and again, just another wave with our ticketing area just in the last month or so. We're also about to launch some outsourcing work to markets in, sorry, to businesses in the Philippines and India, and you'll see us outsource more commoditized work over the next few years as we put more energy into actually sales, marketing, and products. Just a couple of notes.
Our real estate has really produced much better ROI, and areas like Canada, where I think it's reduced the cost of real estate by an excess of 10% without any harmful impact to TTV. In fact, we're growing our turnover. A big area of focus has been the focus, as I said, on growth brands and models, but a lot of that has been in the last eight months about leisure, cleaning out some of our not-so-great growth or not-growing brands and models. As I said, transformation has been quite focused on leisure. We have made plenty of investment in corporate, but we had an initial focus on loss-making businesses in North America, UAE, and Asia. And as a result of that focus, we either have smaller networks producing, as I said, more TTV.
Canada leisure will return to profit this year, which is after many, many years of losses and something like about AUD 13 million turnaround over two years, so that's very pleasing. Asia, we downsized or, in fact, closed some of the leisure operations as well as in the UAE, and both those markets are showing record TTV and profits, so again, it has not harmed either top line and, in fact, positively impacted bottom line. Today, we're really announcing then the next plans of the leisure strategy in Australia, and essentially, that's about moving to the three super networks that Skroo described of youth, mass, and premium, and some of our smaller brands will be consolidated or merged. We've already closed Student Flights in New Zealand and RSA about six months ago. Skroo's about Escape Travel. We'll merge with the Flight Centre and Travel Associates businesses in Australia.
We also merged our two brands in India of Travel Tours and Flight Shop, and they're now operating under one brand of Travel Tours. We continue to focus as well on our flagship stores, and again, this is not actually a new strategy, but we've seen very positive returns on the investments we made in those larger footprint, better located shops, so very exciting. In corporate, we continue to invest in our network. We've added eight new countries over the financial year of 2017 and 2018 in the last three years. As Skroo mentioned, we have very heavily invested in our technology suite, and we're now, I wouldn't say the world's best, but we're certainly up there in terms of some of the world's best technical offering in corporate, enabling us to win very large enterprise accounts.
We're, in fact, being invited and winning tenders that we once weren't a few years ago. Corporate Traveller has also had a lot of investment in terms of particularly its product range, its technology, and its marketing. Travel Experiences Network, we've again made investments, and particularly, we purchased the Olympus business. I think that completed in around August last year, which adds to our global DMC network. I'm just going to take a minute to explain further because this is new to most people. It's Australian super networks. So, as I said, essentially, this is about moving from what was six leisure brands about six months ago to three super brands or networks, and we're doing this to achieve scale and to enable us to take market share. New Zealand is also having a similar project on a smaller scale.
So again, to reiterate, the key aspects are Escape Travel and Cruiseabout. We'll be joining forces with Flight Centre and Travel Associates. Shops will be either rebranded to Flight Centre or Travel Associates. There will be no consultant job losses as all staff will be redeployed to those two brands. Specialist divisions will also be developed within this network, particularly in the Flight Centre and Travel Associates brands, so that we can retain that specialization that Escape Travel and Cruiseabout had in things like tailor-made holidays, cruises, adventure. Remember, we already have very successful specialist businesses in Flight Centre with FCBT and our premium or first-in-class, first-in-business-class businesses. Student Flights will still operate in our youth network, but we'll be working much more closely with Student Universe to dominate that space in the next few years.
The key benefits of this change, and it has been very well planned and thought through, is that we will enable us to grow market share and deliver a stronger footprint with higher profile brands and a stronger presence. Just to give you some numbers, Travel Associates will double in size immediately from 50 to 110 when this takes place. Flight Centre will also increase its number of shops very significantly from 780 to about 920. We'll also be able to do much more aggressive marketing with a greater share of voice because we will maintain our overall ad spend but channel towards a smaller brand stable. Flight Centre, as one example, I think, will actually be able to increase its advertising spend by as much as 50%.
This also allows us the leaner support structures because we're not supporting as many brands and therefore lower future costs, and more importantly, as well, allows us to put better products to the marketplace across a smaller portfolio of brands. This plan will be implemented by the end of this financial year, and then we'll allow us to grow further. So, as I said, just to reiterate, on our three super brands network plan, there will be no travel consultant jobs lost. In fact, we'll start growing aggressively. There will be no negative impact on customers or suppliers, and there will be no TTV lost as a result of this plan. Our expectation is this will allow us to start growth at a stronger level in the Australian leisure market than we have over the last few years.
The transformation plans have been very focused on brands, business, and platforms, but I want to also let you know we continue to invest in our people, which are at the core of our success story in nearly all of our brands. So things that we are literally implementing, have implemented, or about to: paid mat leave. We will be topping up the government leave so every one of our people can take up to six months paid mat leave. We have been heavily working on workplace flexibility, and we now have in excess of 20% of our workplace working on flexible arrangements, and our independent contractor model will be integral to, again, increasing that flexibility. We have very strong mentoring programs throughout all levels of the organization and very thorough professional development training in all of our markets.
U.K., in fact, has introduced a U.K. apprenticeship program, which is delivering great results and substantially lowering staff turnover in that market, and we have, I'd like, as the female sitting in the room, that we have a diversity project in place with core goals, the first of which was to put another female on the board, and successfully we've just found that with the appointment of Colette Garnsey. So all in all, transformation in the first half of this year has hopefully delivered, I think, some very significant progress and, more importantly, set us up for the next few years to build upon that. So, Skroo, back to you.
Thanks, Skirry, oh, sorry, Mel, that was quite a scary year. Okay, just updating our guidance.
As you can see, we're trading slightly above our original guidance after first half, and so we're upgrading very modestly to a target of AUD 360-AUD 385 million, which previously was AUD 350-AUD 380 million. So that's somewhere between 9%-16% growth on last year. Anyway, just in terms of where we're going to get this from overseas businesses, we're pretty happy with where they're generally heading, and we expect further growth on last year in our overseas contributions. In Australia, the corporate businesses will place a future growth. We've had good TTV growth and some profit growth, but we're expecting that to continue, and we certainly are targeting strong leisure growth.
But from what Mel told you, this going from essentially six leisure brands to three, there will be some disruption, so we just can't anticipate any negative aspects of that disruption, although we know that will be temporary, but there could be some disruption in the next six months, although I can assure you we're very well planned for this. And obviously, the market's still growing, and the golden era of travel, which AJ made up some years ago, but it is true the affordability of airfare prices is still very low by historical standards, even though airfare prices have stabilized. And amenities, most of you realize that amenities have improved, particularly on the legacy carriers and particularly in the premium classes. And availability, every year there's more seats and more services, although capacity growth in Australia was slower during this period than last year.
One last thing I was going to mention is one of the really important things we've found in Australia is our shop network improvement. You hear a lot about particularly fashion brands either closing down or rationalizing. We're certainly rationalizing our brands but not our shop network, but we are putting a lot of effort into our shop network, being relocated into areas, working with landlords, being relocated into areas that suit them and that they're successful. We know our shops are almost universally successful when they're in the right location, whether that's the right suburb, the right strip on the right suburb, or the right shopping centers, and particularly shopping centers, we've been working very closely with landlords to make sure that we improve our shop network dramatically over the next two and three years, so we're pretty positive about this.
We think a lot of the landlords are working very well to bring us customers, and we want to make sure we can cooperate with them for continued success in our leisure shop network. So that's about it, and I suppose, Adam, we have questions now.
Yes, time for questions, I think.
Thank you. Ladies and gentlemen, we'll now begin the question and answer session. If you wish to ask a question today, please press star followed by one on your telephone keypad and wait for your name to be announced. If you wish to cancel your request, please press the pound or hash key. Our first question today comes from the line of Michael Simotas from Deutsche Bank. Please ask your question.
Good morning, guys. First question from me. Clearly, the first half has performed better than what you expected.
I was just interested in hearing a little bit more color on which parts of the business drove that better-than-expected result. I mean, I know Australia delivered some growth, and you'd previously been a little bit more cautious on that. Perhaps that's part of it, but just interested in what you've got to say there.
Thanks, Michael. With Adam, I'll start, and then perhaps Mel or Skroo can jump in. I think certainly Australia, we expected at the AGM when we were talking there that Australia would probably finish at that point reasonably flat, and it did finish a little bit more strongly than we expected throughout November and December. So it certainly came up a little bit on where we're expecting. But across the board, to be honest, we had a solid finish through November and December.
In the U.S. and Canada, both of those businesses finished strongly, and that turnaround in the Americas segment of around AUD 15 million was probably a little bit higher than we were anticipating. It was a really, really good finish to the half for them. EMEA also, the U.K., finished strongly. It was a little bit more strong across the board than we probably expected a couple of months out.
Okay. Just maybe on that, presumably you're talking about top line there, or is that a function of cost control coming through quicker than you thought as well?
Yeah, mainly top line. The cost control is a little bit easier to anticipate, so it was mainly the top line that was driving that.
Yeah. Okay. Then maybe we could talk a little bit more about Australian TTV.
Based on some of the disclosure you've given, it looks like leisure was up maybe 1% or so, and obviously had a reduction in staff numbers and the distraction around the GDS implementation. Can you just talk through what impact those two factors had, and do you think you could have sold more product if you didn't have the distraction or if you had more people in the businesses?
Skroo here, Michael. How are you today?
Yeah, I'm well, thank you. And you?
Good.
Yeah, look, basically the issue with the GDS changeover, particularly in leisure, is we just couldn't keep staff numbers up with the training just because there's so much training involved in the process of changing GDS that we had to make. We couldn't recruit and train enough people, so we were down a few hundred people by the end of the year, and that does have an impact on TTV. So that's probably the main thing, that plus the actual disruption of people not being in a selling position for a significant amount of time as well. So it probably ended up a bit better than we thought, actually. We thought it could be quite disruptive, and well, it was, but didn't affect things quite as much. Mel, what do you think?
Yeah, no, that's pretty well exactly what happened.
I mean, it sounds strange, but just the logistics of training 7,000 people for some days in a new system just meant we couldn't train new staff as much because of the tie-up of the resources. Plus, also, we openly said that that was our intent, was to try to sell the same amount of travel with a bit less people during that period. So actually quite happy that we managed to achieve that.
Yeah. Okay. Thank you. And then last question from me, I guess somewhat related. If I look at your cost growth in Australia on a per-consultant basis, it's up about 4%, and I'm just sort of trying to think about how that's likely to track going forward. Presumably, it was somewhat elevated on that basis because there was a shortage of consultants, so underlying cost growth should be a little bit less than that.
Yeah.
Yeah, that's probably right. On a macro level, to start with, with the cost base in Australia, I think the guys there have done a really good job on that containment. When you look at it on a per-person basis, absolutely. I mean, we've obviously got a number of fixed costs that will flow through regardless of the number of consultants that we've got, so that will have bumped up the per-consultant cost a little bit. And also, particularly in the corporate area, as I say, we've had some strong TTV growth, commission growth, and that's led to some slight wage increases as well flowing from that. But that's predominantly it. It's really the mix of your fixed costs being shared over less people and the TTV growth that we've seen.
So if you've got the right number of people in the business once you're through the disruption, how do you think about underlying cost growth per consultant?
Look, on a sales base for Australia, I think we'd be aiming to have a full-year cost growth of around about 2% or thereabouts. So I think if we get those consultant numbers back up, that'll certainly reduce the per-consultant cost base.
All right. Wonderful. Thank you.
Your next question today comes from the line of Saligari from Credit Suisse. Please ask your question.
Thanks. Maybe just a quick clarification first, just on your answer to Michael's question. The 2%, is that in total for ANZ, not a per-consultant figure?
Correct.
Okay. The question is on the Americas. Obviously, strong improvement there in the first half, so really big delta in the year-on-year profit.
Are you expecting a similar level of improvement coming through in the second half as a result of the leisure changes that you've made there?
Well, remember that graph, the second half of leisure in the USA, because it's a very seasonal business in North America, is always a lot stronger. So it's probably, I wouldn't say as extreme, but yes, we still expect continued improvement in the North American leisure business, both Liberty in the USA and Flight Centre in Canada. They've been performing very strongly after network consolidation and increased conversion rates in both. So yes, we would still see improvement in the leisure business, although possibly not quite as extreme because you're building upon a stronger period anyway.
Cool.
Just maybe finally for me, I must confess the other segment in terms of how it tracks year to year is a bit of a mystery to me. So could you maybe just expand on some of the drivers of the first half change in other and sort of what you're expecting in the second half, please?
Yeah. Great. Adam, so as you know, there's a number of things that go into that segment. Last year, on a full-year basis, there was a AUD 26 million loss, and now that included the exit cost of the Employment Office investment. So extrapolating, so taking that out, it was about a AUD 22 million loss. My expectations for the full year is that this business, or that segment, will finish somewhere between AUD 15 million and AUD 20 million loss, so there'll be improvement for the full year.
For the half, it is up a little bit in terms of the amount of loss, and look, that's for a few reasons. There's a number of things that are in there. We've had an improvement in our touring business, a slight improvement in there, which has been a benefit to us, but it's been offset a little bit through some of the things like some external consulting we've done on global projects to validate as part of our transformation, to validate the position we're in at the moment and the strategy we should go forward. There's been some OpEx for some global projects that have flowed through in this half. There have been a few costs from the transformation team early in the half in particular that have flowed into that segment now as well. And we also have acquisition costs going in there.
So as you've seen, we completed a number of acquisitions in the half, so that flowed through as a comparison. So look, we're up a little bit in that segment for the half, but as I say, we are expecting, for example, the touring business to finish somewhere around AUD 4 million versus a AUD 1 million loss last year, and a few other things will flow through there. So we're expecting that segment around about a AUD 15 million-AUD 20 million full-year loss.
Okay. That's very helpful. Thanks.
Your next question today comes from the line of Brian Han from Morningstar. Please ask your question.
Good morning. You said you're investing in the technology area in your corporate travel business. I'm just wondering how you think you compare in that whole technology area compared to your global peers in that corporate travel space.
Thanks, Brian.
Actually, we think we compare very well, and in fact, on some counts, compare actually much better than the market. And the Sam chatbot that Skroo referred to is actually quite industry-leading and is winning awards and certainly helping us win corporate accounts. I mean, in the SME, Big End of Town, you do have to just have a standard suite of corporate technology offerings, which we do, and they certainly compete very well with market. So we have chosen to invest in probably more the seamlessness of how they all work together and the access to them, and then making sure that we're sharing that across both our equity countries and, of course, our licensees in the corporate space.
We're also investing a bit more in the technology and Corporate Traveller, which is, remember, aimed a bit more at the SME space, where again, there's an increasing demand for technology products. So no, I think suffice to say a few years ago, we're probably a little bit behind market. We are well on track and in some instances ahead of market in our technology and corporate, so we do not ever win or lose big on technology. If anything, we're winning bids as a result of some of our technology.
All right. That's very helpful. And perhaps question for Adam, the cost of the transformation program, can you please remind us how much that will be going forward, and do you usually absorb all this as part of cost of doing business?
Yeah. Brian, we do.
So the approach we take is that we absorb it as part of our BAU cost unless it's significant, in which case we'll call it out if we think it's significant enough for the market to understand what's going through. In the first half of this year, there has been some cost associated with it, but not significant enough for us to call out individually. We're not going to call out the benefits we get from this every year going forward, so we feel that we need to absorb the majority of those costs now as we go forward as BAU.
Great. Thanks, Ross.
Your next question today comes from the line of Ben Gilbert from UBS. Please ask your question.
Morning, guys.
Just the first one for me, just interested in how you've seen the start of this year, just in terms of the expos and sort of forward bookings. And I know you said the pricing's probably been pretty static in international. Those sort of quantities come out there reasonably positively. All roads lead to one of the best Januarys I think they've ever seen, just how you're seeing the start of the second half of the year?
Yeah. Well, it obviously varies a bit with the different countries, Ben, but if you take Australia, it's reasonably positive from our point of view. Our expos have gone pretty well, and it's only been five months so far, but it doesn't look too bad. And most of the news coming out of our offshore places, the major offshore places, is reasonably good too. But it is early days.
Coming into February, we'll probably have a bit better idea, but overall, mid-month didn't look too bad globally, if you like.
And just on Liberty in the U.S. now, when do you envisage that making a profit this year? And I understand, Mel, it sounds like you've been extremely busy with the transformation, but is there opportunity to potentially sort of rebadge that Flight Centre sort of in the similar vein to what you're doing in Australia longer term to drive the benefits there?
So I'm not sure of the exact question. If I deal with Liberty, yes, we do expect that to get back into profitability next year. They've made significant changes, as I said, in their network and in some of their marketing, which have definitely helped at the cost line. I wouldn't say the top line's growing exponentially, but they've certainly cleaned up the business.
But what I think we've done is identify much better what works specifically. Liberty's also been on a bit of a journey, which is similar to the traveler space, this last year, to go a bit more premium. And again, we're seeing positive results in terms of the type of customer and type of product that they're selling. So as we move a little bit more upmarket, and remember, we are quite small in the leisure marketplace in the USA. And again, with a couple of these tools that we've piloted over there, such as Red Connect, we're very positive that we can get that business back into a profit next year, and it will remain in profit, and then from there, start growing positively. I wasn't quite sure what you're talking about with this strat. Do you want to clarify that question?
Just in terms of the branding, I can understand the Flight Centre brand isn't really a brand over there, but does it make sense to have a Liberty by Flight Centre brand or something to try and bring more under the global umbrella? Or that doesn't really make any sense?
No, I certainly. We've many times considered the branding. Look, Liberty is a 60-year-old brand, and particularly in that northeast corner of the States, it's relatively reasonable brand awareness, but I certainly wouldn't throw it out, and Flight Centre brand has no brand awareness in America, but actually pretty good in Canada. So we've done a lot of work at branding awareness and reputation, so we're not looking to change the brand in North Ame rica, no.
When we pre-Liberty, we had Flight Centre in the States, and we had issues with the spelling of the name.
I think they thought we were a little bit crazy and couldn't spell Centre correctly.
We have been operating a small Flight Centre business actually within Liberty. It's been okay, but anything that comes out of USA for Flight Centre can be operated from Canada, to be honest, as an online offering. So no, it's not of value. We've been working more on the model there and the magic recipe, if you like, the drivers for success, and we don't see the need to change a brand.
Just a final one for me. I know we ask this every time, but also the cash position's obviously very strong, and the earnings outlook's looking pretty robust as the benefits coming through from the new strategy.
Just how are you thinking about the capital management piece in terms of sort of potentially lifting the target payout ratio or capital returns, anything like that?
Yeah. Ben, in the short term, I think it's fair to say that we feel the best value we can give back to shareholders is to deliver on the transformation targets. You are right. As we progress through that, we should start to not just solidify but grow our cash balance a little bit further. So we'd certainly be looking at options at that point in time, but in the short term, certainly from the discussions with the board, our view is that we're better off focusing in on delivering on these transformation targets.
Fantastic. Thanks, guys.
Your next question today comes from the line of Peter Drew from Carter Green. Please ask your question.
Morning, guys. Just a couple of questions.
Firstly, could you just break out the Australian TTV growth in a bit more detail across the bricks and mortar, leisure, digital, and corporate, please?
Yeah. The majority of the growth for the half came in the corporate space. We had just under 10% growth coming through the corporate business. I think, as Michael indicated earlier, the leisure business grew at a fairly moderate level, which is around about that 1 or 2% mark, which, as we say, was kind of expected given the disruption that's gone through there. On an online basis, we're seeing some reasonable growth on the flightcentre.com.au website, but it's probably, well, do you know what the rate is at the moment?
Well, it's very different from domestic to international. International is very solid. Domestic, I think, is a bit lower. I think overall, it's about 7%. Yeah. Yeah.
That's the sort of flavor where we're at with the TTV, Peter.
Okay. Thanks. And just in terms of the brand consolidation, what sort of expenses are related or associated with that, and are we going to see them come through in the second half result?
Yeah. Peter, Skroo, I think the initial cost of rebranding, and we're not doing full fit-outs until the lease actually comes up, generally, it'll be a re-signage and some more of just a look and feel. And I think we're looking at about under AUD 1 million for that. So it's not that substantial. Over the next five years, as these leases come up or we relocate into a different part of shopping centers and that, that'll tend to come in as business as usual, CapEx and upgrades.
Okay.
And then just in terms of the improvement in the US earnings, which is about AUD 9 million, could you just maybe break it out a bit more in terms of the improvement in leisure and GOGO versus and corporate, just what components were?
Yeah. Peter, certainly we've seen, as I think Mel mentioned, we've seen some good improvement in the leisure space, but the majority of, it's still a majority of that improvement has come through the corporate space in the US. So the TTV, in particular, over their growth has for the last couple of years now been tracking at or around 20% overall, and we've seen that continue in this half, and profit has also continued to grow. So we're really pleased with what's happening in the corporate space.
And I think what we're most pleased about with the leisure business, if you look at it from a macro level, is that the benefits we're really seeing is that that corporate business is continuing to grow, but it's having less of a drag from the leisure company. So it's both elements of the business, but still, the majority of it would be from corporate.
Okay. Thanks. And just the last one, back into the other segment, I'm just trying to sort of understand the moving parts in there. In the slide deck, you say it includes costs related to new systems. Is that the GDS into Australia?
Not all of it. Some elements of the overall change with GDS are global, but the majority of the costs sit within Australia and are part of that Australian result.
But there are obviously some global costs because we're changing the GDS across different geographies. So there are some costs attached to that. There are also costs relating to Dynamics, which is the mid-office platform that we're deploying globally at the moment.
Okay. And if we look into next year, what would that—you've said your expectation is AUD 15-20 million for the other segment loss this year. If you project into next year, what might that look like?
Yeah. It's hard to say. If I'm completely transparent, it's hard to say because there are a number of moving parts, and the sort of ones that may move, just to give you a feel for it, are things like your acquisition costs, how quickly we move on some of these systems like Dynamics to roll out, etc., etc. As a general comment, though, I would expect it to improve.
The reason for that is that we will have the touring businesses flowing through there, and we are expecting the touring business to continue to improve over the next couple of years. So certainly, if we finish in that AUD 15-20 million range for this full year, I'd be disappointed if we weren't underneath 15 going into next year.
That's great. That's helpful. Thanks a lot, guys.
Your next question today comes from the line of Tom Kierath from Morgan Stanley. Please ask your question.
Morning, guys. Just a question on the acquisitions that went through. I think if they were there for the full first half, it would have been an AUD 3.8 million uplift. Should we just kind of double that to see the full year impact?
And is there any synergy kind of benefit there, or are they fairly standalone businesses that I think it was six or seven that you acquired?
Yeah. Look, certainly for the first 12 to 18 months, most of the businesses are standalone. We kind of leave them alone and then start to come in after a period of time to look for those synergies. In the first half, you're right, there's probably around about an AUD 2-3 million impact from those acquisitions in the results. For the full year, though, our expectation is that we should get between AUD 7 million and AUD 8 million full year contribution because of some of the timing of when they came on board, but also seasonality. Some of them are weighted towards the second half.
Yeah. Okay. Okay. Cool.
And then I think just on Australia, you're saying that the airfare deflation's kind of eased. Could you give us a bit of a snapshot of how that's changed and then kind of what the impact on volumes have been as a result of, I guess, a more stable pricing environment?
Yeah. The pricing hasn't moved too much. Obviously, given that we've said it's stable, it's pretty obvious it hasn't moved too much. It's a little bit route-specific, as it always is. I think from memory, there's been a little bit of movement downwards for Europe. I think America was up slightly. Looking at Skroo as I say that. I think some of the South Pacific stuff had increased a little bit as well, and some of the Asia stuff was down. Overall, it came back to being reasonably flat in terms of the overall pricing.
I think domestic may have crept up a little bit, but there's government data on that anyway that you're probably more across than I am. Sorry, Tom, what was the other part of your question?
It's just on volumes. Has volume growth slowed a bit as a result of kind of prices stabilizing?
Yeah. I don't know whether it's because of the prices stabilizing, but obviously, our sales forces have gone backwards a little bit, so that has a bit of an impact on the ticket volume that we do. We've probably grown about the same as the market in terms of the ticket volume.
Okay. Great. Thanks very much.
It was about 4%.
Your next question today comes from the line of Brian Raymond from Citi. Please ask your question.
Good afternoon, guys. My first question's on the consolidation of the brand.
So I'm just trying to reconcile comments you guys separately made. Mel, you said no TTV loss expected. We're expecting some disruption. When you say disruption, is that not a TTV disruption? That's more a back office or an underlying disruption in the business? Can you maybe just reconcile those two so we understand where that disruption's coming?
There's probably two aspects to that. We're not closing any stores. We're not losing any sales force. So our expectation is that we don't lose any TTV because we effectively have the same assets in the marketplace or the same distribution. I think what Screw is referring to is, as we make some of the changes, yes, there'll be a little bit of disruption to the people who were in the affected brands. So we're not quite sure what that may or may not be.
We certainly have done a lot of research on this, and we have marketing plans in place and all sorts of things ready to go to help stimulate the business, particularly the business that's remaining stable, which, remember, is still the lion's share of the leisure network, so they're the kind of two aspects to that. Skroo, did you want to comment?
As you can imagine, Brian, I think we've got a shop network in leisure, about 1,100 teams, and I think there's about 250 teams or shops actually affected here, so it's a pretty significant movement into rebranding those 250 shops, so it's just inevitable that there could be some, there could be some negatives. I mean, there also could be some positives too. We might be overestimating what the disruption would be. We're pretty well planned. We're going to do this quickly.
We'll be finished at the latest the end of April. So it's a fairly quick and decisive, but it's just inevitable that people do get a bit, that it does disrupt people a little bit. But as Mel said too, we are putting more time, effort, and money into our marketing in general, and it'll be much more specific, going from basically these four established brands to two brands. So we can obviously put a lot more focus onto those two remaining brands, and we're pretty confident that that will help us in a positive way. So it's a bit of an unknown quantity, but we are pretty well planned. So we're certainly hoping it's not going to be too disruptive.
Okay. Great. And can I just confirm that from reading the presentation and looking at the various brands you guys have?
I thought it was three that were going: Cruiseabout, Escape, and My Adventure Travel. Is that right? Are those the three being consolidated?
Yeah. Sorry. My Adventure Travel is a very small brand. We did that a couple of months ago. So I'd forgotten about that.
Okay. So then just my question is, is there, I mean, it's interesting you say no TTV loss. I assume there'd be some customers that are Cruiseabout customers, for example, which go there for a good reason, that they don't like the mass market brand of Flight Centre as much as they do Cruiseabout.
Your ability to transfer that customer, do you think it's more about the individual relationships installed with the consultants that are obviously coming with the new brand, or do you think that there's some sort of headline loss or disruption that could occur where that customer might end up wanting to go to a competitor who's got a specialist cruise brand in this case, as opposed to going to a mass brand like Flight Centre? How do you make that risk?
It's a good question, and one of the things I think we very much considered because when we looked at the makeup of it, particularly in Cruiseabout, the customers and consultants almost fell two ways, and they're going two ways. Some were going to Travel Associates, which is a very much customer relationship led brand, and some will go into Flight Centre.
We did that based on the profile of their customers and the products they sold. Again, they're not all going into the mass brand Travel Associates as a very premium brand. On that, we're also doing specialization. We're very much using those former Cruiseabout stores, for example, that are Flight Centre. They will be merchandised with cruise product. We will promote the cruise expertise, and we'll channel the cruise inquiry to those stores. We've tried to retain a lot of what they were doing, and we're just choosing to do it under a more well-known brand. Again, we had a very good filter and criteria as to what was going where. Yes, our intention is to try and make sure those customers and consultants are catered for.
Okay.
Then, I mean, I assume this is this included in the sort of the turnaround target for getting the 2% PBT margin, or is this an incremental? Any efficiencies you get out of this will be upside to that 2%? How do you think about that?
No, this is all part of the plan. I mean, remember, the leisure business in Australia is already over that number. That number is a global aggregate. So each country, each division has their own version of that number. And it's certainly part of the plan to improve the net margin of the leisure business in Australia.
Okay. Thank you. And then just my second area of focus is on headcount. And when you launched your transformation plan, it was more a head office focus in terms of headcount reduction.
You've already talked to those redundancies, redundancy programs you put in place. But I'm just interested in looking at the presentation. You've got sales staff listed in extra segments, and you've got 3% decline in each in Australia, US, and 5% in America. Can you talk about how much of that is GDS-related? How much of it is you consolidate a few brands offshore or close a few businesses, and how much is actually offshoring, taking staff out from a customer-facing perspective?
None of it's about offshoring from a customer-facing perspective. That's very much in the background of support. But remember, that total number is also across corporate as well, where we've got high levels of automation. So we've managed to reduce our sales network in nearly all of our corporate businesses, I think, globally. And also, the, sorry, the brand consolidation will help as well.
But yeah, that's at a total level. And we've also had some organic, sorry, decrease in numbers just through natural attrition. So it hasn't been a big getting rid of a whole lot of people. We've just not replaced people in many instances.
So as we stand today versus 12 months ago, you have fewer leisure sales staff that are customer-facing than you did? Or is it all coming out of corporate and other areas?
No, we do have fewer. As we said, there was an intent to do that in Australia, or we had to with the GDS rollout. However, moving forward, we want to grow the sales staff. We're just making sure they're in the right brands and in the right locations with the right sort of stores. But very much, it will be about growing our sales network.
Yeah.
I think even after February, we'll be pretty close back to our original numbers of leisure salespeople, Brian. And I think there's certainly, for example, some of the roles that are not customer-facing roles have gone to Indonesia. We have other support in some of our websites in Manila. And there's some roles that go there. For example, I think a ticket centre has 400 or 500 people in Jakarta now. And there'll be a little bit of movement around there as well. But we also want to get some efficiencies through automating some of the backend processes as well as putting them offshore.
Okay. Okay. And then just finally, the GDS impacts on this brand business. Is that completed now? Is that sort of in the rearview mirror, or still a bit of disruption ahead?
It's 90% completed.
There's still a little bit of corporate to finish off in the next couple of weeks, I think. But certainly, all leisure was finished before Christmas, and that's generally gone very well. So I'm afraid we can't make an excuse in that area for the next six months, basically. Brian, it's all pretty much over.
Okay. Fantastic. Thanks, guys.
Your next question today comes from a line of Richard Barwick from CLSA. Please ask your question.
Hello. You've obviously many of the cost lines, as you've talked about, have been well contained. But I just want to talk about the other expenses. And one, what's actually included within there? And two, why did it grow by 5% in the context of such strong control on the other line items?
Richard, it's Adam here. So we have a few things in that other line. We've got consulting fees.
Some of our technology communication IT costs go through there. Any sort of some minor foreign FX losses and things go in there. And then we've got things like your normal consumables, your TC and E and Travel and Conference and Entertainment, your bank fees, licenses. All of those sort of things flow into that other expense line. There's probably a couple of things that have driven the increase. One is certainly a continued enhanced investment in our technology. And not just the customer-facing technology, but technology to really strengthen the backbone of the organization. So we're very focused on enhancing our systems around data security, PCI compliance. All of those things have been a big investment for us over a period of time. And so there's a lot of those costs flowing through. We also have a slight change in there.
We've purchased a home-based agency model in New Zealand business in New Zealand. And the cost or the commission that we pay to the consultants who work in that business actually gets allocated now into consulting fees that flows into the other expense line. And there's about AUD 3-3.5 million of that that was there this year that you wouldn't see last year. So there are a couple of the bigger things that have driven that increase.
All right. And so from what you say, it doesn't sound like that's sort of a bucket of expenses that we should expect to diminish, or is that another one where you do think you can keep the growth lower than TTV
growth? Yeah. We like to think so. As I say, there's a couple of specific things in there, those ones that I mentioned.
We hope that the payments to our home-based consultants in New Zealand will increase and continue to increase because that just shows the TTV that they're bringing in to the organization. So from that perspective, an increase in that line would be good if that's what's driving it. And similarly, particularly in the short term, the next 12 months, we'd continue to expect similar levels of investment in technology. So there are certainly other areas that we've got a strong focus on. That sort of miscellaneous area, like around some of those consumables and fees and things, is certainly something that we're working through from a cost perspective at the moment.
Okay. Thank you. And I mean, you've sort of talked or it's been discussed from sort of different angles today in terms of progress being made on loss-making businesses.
I think there's been indications that that sort of was about an AUD 25 million opportunity in total, and I think you've given a three-year time frame. Collectively, can you give us how would you summarize the performance on those loss-making businesses and again, in the context of the 25 mil in three ye ars?
Can't really give you a context on the 25 mil, but I can definitely say we've made very solid progress. In fact, probably to my mind, faster and more rapidly than we felt would happen in terms of either exiting them, reducing the cost base, or pivoting them into another model. So we're very comfortable. I mean, again, there's a little bit more work to do, and some of those plans, for example, I mentioned North America, were to get us to a place where at least they're making money, not losses.
Then we need to get them to a materiality that is significant enough for us. I mean, I can comment on the Asia one because that was the first one we started. We're very solidly working through that. But there's still a journey to go in terms of what we want that leisure business in Asia to look like. But as far as giving you a percentage progress to that number, that's.
No, I mean, we are, as Mel said, Richard, we're very comfortable with the progress we've made and that we're on track within that time frame to ensure they're all either pivoted out or into a profitable position. Richard, just something that I'd add on that one. The big bucket within that 25 is North American leisure, Asia leisure, and UAE leisure. UAE leisure has been closed.
The Asian leisure businesses have gone into profit this time, and North America's improved, as we said. So it's made decent progress. On top of that, there's a few other brands around the world that might be loss-makers, and some of those have been closed, but there's still some others that are working progress.
Yeah. Okay. That's useful. Thank you. And just the last one. I mean, obviously, you've given some great color on sales staff numbers, and you've sort of hinted at lower overhead and support costs. Can you give us a sense what's actually changed in terms of the number of head office staff?
Richard, we went through a program that we spoke about early in late last financial year and early this financial year where predominantly throughout our global businesses, our global support businesses, and also in Australian and Asian businesses, there were a number of redundancies that went through. And there was probably somewhere between 50 and 100 individuals that were impacted through that program. I think we haven't, and we've also more recently had a number of roles in our ticketing function moved to Jakarta as well. So we've had some reductions there. The biggest focus to date outside of that has been on streamlining process and holding growth on an acceptable level. And so that's sort of had an impact on those numbers as well.
Okay. All right. That's also helpful. Thanks, guys.
Your next question today comes from a line of John O'Shea from Ord Minnett. Please ask your question.
Morning, team. Well done on the result. Just a couple of things from me. One is the lower effective tax rate. I noticed in the half, and perhaps you can give us some idea where we should expect that for the full year. And just to clarify your comment in relation to the guidance, you're talking about the growth trajectory unlikely to continue during the second half. Can you just give us a bit more color around that?
On the trajectory, I'll let Skroo take that one up, John. But basically, the second half of last year was a lot stronger than the first half. So as Adam said at the start of the call today, it was a pretty soft period, first half last year.
So we would have expected that we'd grow more rapidly in the first half than in the second just because of the differences between the two. So what you're really saying is we shouldn't extrapolate and say, "Okay, pre-tax profit went up circa 25%," whatever it was, and we shouldn't assume that the second half. Yeah. So that's what we're trying to say. So the midpoint in that guidance is about 13% up, and we think that's probably more - that sort of range is more appropriate.
Okay.
John, in terms of the tax rate, yeah, we've had a reduced effective tax rate. That's largely due to the changes in the U.S. flowing through. So that's in terms of the results there.
But more importantly, in the first half, is to do with some of our carry forward or deferred tax assets that we've been able to reduce the rate for, and we've had that flow through into the effective rate. For a full-year basis, we certainly, I think traditionally or usually, we're at a group level at or around about the 30% mark, maybe just a touch under. But we do expect that we would be a couple of percentage points underneath that because of the changes predominantly in the U.S. tax rate.
Sure. That's what I expected it would be. So moving forward, we could assume that as being a new base.
Yeah. Yeah. I think that's right.
I think the numbers that we've at a high level we've worked out would be for this year. We expect with the change in some of those tax assets and deferred tax liabilities to be around about an AUD 5 million impact to profit after tax and then going forward about an AUD 7 million next year.
Right. Thanks very much, guys. And Mel?
Than k you. Your next question today comes from a line of Quinn Pierson from Macquarie. Please ask your question.
Hi. Good afternoon. I guess firstly on your Australia store network, I mean, you made some big changes to your leisure store networks overseas, particularly Canada. You've had some great success there. You also highlighted that you have about 80 stores driving a disproportionate level of TTV and profit.
How do we think about the opportunity to potentially reduce some of the tail of less productive stores to drive margin, or is there no real desire to kind of reduce the aggregate footprint in Australia?
Yes. Quinn, I think we're certainly looking at a short sharp store network. We actually visited. I went on a bit of a roadshow about two or three months ago, talking to all the landlords. And what has become obvious, particularly over the last year or so, is that we've opened in various areas and not just in shopping centers, but in some locations that just aren't able to do justice to our business. And so the focus really is on our shop network, making sure that every shop that we have that's a retail shop, a retail leisure travel shop, is in the right position, whether it's in a shopping center or a strip.
We'll certainly close them if they're not. We're still opening new shops in the right position. We have a very clear recipe that works for us, whether it's on a strip in a certain suburb or in certain shopping centers. Particularly in the Flight Centre brand, if we get in the right location, it almost is impossible not to make profit on it in that sort of location. There's certainly no need here for wholesale closures. The Flight Centre brand, particularly, is a location brand. It's a mass brand. It's in a lot of locations, and we'll be opening a reasonable number of new locations in the next 12 months, as well as getting out of probably some of a similar number of locations that we're just not happy with.
We're talking to a lot of landlords about relocations, and this rebranding will be the first step. The second step will be, and we're already talking to them about if they're not in the right position, getting them into the right position. So that's our main focus here. It's quite a different scene to Canada, where the Flight Centre brand in some of the more isolated areas there just wasn't well known. And they certainly had some poor locations, but it's quite a different situation in Australia and New Zealand.
Thanks. That's helpful. And then secondly, as part of your rebrand and growth plan, Travel Associates is going to double creating some specialist flights in their divisions. Is that solely to capture the displaced premium sales from some of those brand closures? Is this an active push to capture a bit more of that premium end?
I guess in general, how are you viewing demand levels at the middle market versus premium?
Quinn, it's definitely an active push to move more into the premium market, so it kind of ticked both boxes to help put those Cruiseabout and Escape Travel stores that really operated a bit more like a Travel Associates business anyway. But it is very much also an active push to get into the premium market. We will be the biggest premium brand by doing this. I think we probably are already. And this will allow us to get a much higher level of brand awareness in that space, which is obviously a very good space in terms of defensive position against new entrants, including digital entrants, because it's all about the quality of your product and the quality of your people.
So yes, it's definitely a decided strategy, which, as I said, we're also pursuing in America with Liberty. What was the other part of the question? How are we doing it?
Market demand. Are you seeing material differences in terms of market demand growth at the premium level versus the middle market?
That's hard to say, but we certainly think there's a much bigger premium market than we're possibly getting at the moment. So we feel there's huge opportunity. So whatever that demand is or isn't growing, it doesn't overly matter. We think there's plenty of market. Don't forget Flight Centre still captures a fair bit of premium market as well, but certainly Travel Associates will allow us to differentiate even further.
Thank you. That's quite clear. And then just lastly, on your full-year guidance, it was a really strong first-half result.
You printed a number kind of bigger than expected and above your original guidance, and the momentum also looks quite strong. I was somewhat surprised that the full-year guidance didn't move higher. You do comment that the second half of 2017, I guess, is cycling a bit more. Sorry, the second half of 2018 is cycling a bit more strength. But that was already known when the original guidance range was made. So are there any kind of incremental headwinds to call out in the second half of 2018 such that that guidance range wasn't shifted higher, or is that potentially a somewhat conservative range? Just how do we think about that in the context of that strong first half?
Yeah. Good question. I think with the rebranding and growing the rebrand, particularly, Quinn, that's a bit of unknown in there.
We certainly didn't know what we were doing, that we were going to do this when our original guidance went out. So there certainly is a factor of that put in. I think there's been a little drop in corporate margin as well that we expect to continue. And combine that with a reasonably strong second half in the last financial year, we think it's pretty fair. Perhaps, and it's too early to call yet, but some of the benefits of what we're doing, the transformation, hopefully will come through in 2019. Really, except for the benefits that have come through already, we don't expect a lot more to come through because a lot of the transformation depends on the rebranding, and that's going to be a little bit disruptive, we believe.
That's pretty clear.
Just what's your, I guess, underlying assumption on airfare pricing that's kind of baked into that guidance range?
Look, we've seen it reasonably stable in, and I think Haydn mentioned. I believe the States, for example, is down a bit, but the Pacific is up, and Europe is down a bit, but Asia's up a bit. So they sort of cancel each other out. And so externally or overseas, it's been pretty stable. We expect that stability. There's not a huge amount of extra capacity coming in as far as we know, certainly not outbound capacity anyway. And yeah, so I think what was the other question?
That's quite clear. I appreciate that.
Yeah. I was going to mention domestic. I think domestic yield is up a little bit, 4%-5%, I think, isn't it?
So that probably will, VA and Qantas will probably try to continue that, so that might go up again a little bit in the next six months.
That's helpful. Thanks.
Your next question today comes from a line of Annabel Diamond from Credit Suisse. Please ask your question.
Hi, guys. Just a quick question from me. Looking outside of the Australia and New Zealand segment, do you expect you'll expand your store networks in sort of those outside regions, or sort of rather as you focus more on your online and tech offering, do you expect further consolidation of the networks and store numbers going forward?
Annabel, the thing is that most of those overseas countries, with the exception of Canada and the States, UK, and South Africa, most of our offerings there are in corporate travel, business travel.
So actual shop networks are not really an issue in most of those destinations. But yeah, there might be. I believe in Canada, we're probably not going to rationalize the network any more than it has. There might be a little bit of rationalization in the States. Certainly won't be in South Africa, and the UK is growing. We're growing our shop network again in Flight Centre, so that will continue to grow. But I think overall, if you're looking at the overseas shop network in leisure, it'll probably be pretty stable over the next year. Whereas corporate, we're certainly looking at growing in most of those markets around that 20% to 20% plus, particularly in the SME corporate.
Actually, just to give some further color to that, Annabel, even in a market like Canada, it's a little bit, you need to look at the people numbers and the team numbers because whilst they've contracted physical retail sites, they're opening bigger locations in more central sort of areas. And in Canada, they had quite a bit of provincial spread, and they're really now concentrating on three core provinces. So again, it was getting rid of that long tail, per se, and then concentrating on the provinces where we've got critical mass and, again, bigger stores with more people in them so they could get a much prime location. So they are actively looking for more of those prime locations.
Okay. Thank you.
Everyone, I think we might have to run now. I see there's no more questions in the queue anyway. But thanks very much for joining us today.
Hope to see a lot of you over the next couple of days.
Thank you.
Thank you.
Thank you. Than k you.
Ladies and gentlemen, that does conclude our call for today. We thank you all for your participation. You may now disconnect.