Corporate Travel Management Limited (CTD) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Corporate Travel Management Limited full year results conference call. [Operator Instructions] I would now like to hand the conference over to Jamie Pherous, Managing Director. Please go ahead.

Yes. Thank you, Travis, and good morning, everyone, and welcome to the CTM FY '22 Results Presentation. My name is Jamie Pherous, I'm CEO and Managing Director of CTM. And I'm joined today by our CFO, Cale Bennett. But let's go straight to Slide 4, if we can and then on to Slide 5, the highlights. There's five key highlights I wish to cover. Firstly, as we've said all the way through COVID, it's our superior business model, which enables CTM to successfully convert the recovery in activity into revenue, and importantly, profit before tax and net profit after tax. So we finished FY '22 with underlying EBITDA of $59.8 million, better than we forecast. But most importantly, we are one of the very few that can demonstrate we can convert recovering activity into revenue and PBT with full year underlying profit before tax of $22.3 million and underlying net profit after tax of $17.5 million. But it really is about the strong fourth quarter momentum and how this sets us up in FY '23. So why is the fourth quarter stay relevant? Well, it was the first period post Delta and Omicron strains where travel restrictions were progressively lifted around the world, which we illustrate on the next slide. And we did deliver quarterly underlying EBITDA of $35.7 million, underlying PBT of $25.5 million and underlying NPAT of $20.5 million for the quarter. To put this into perspective, if we annualize this 4-quarter underlying NPAT, it's actually over 82% of CTM's FY '19 pre-COVID record. So you can see we've come back pretty quickly. And importantly, the fourth quarter is a fair representation of where CTM is currently trading today. So on an annualized basis, we think this accurately reflects our starting run rate leading into further growth into FY '23, being TTV of $7.3 billion, revenue of $563 million and an underlying EBITDA of $143 million and underlying PBT of around $102 million. But importantly, this is fourth quarter, and this momentum continued through that quarter with June being materially higher than April. Also, which we'll talk about later, it's the productivity gains we're getting out of the scale of the business. In 4Q '22, our productivity was up 14% versus pre-COVID averages. So now let's go to our financial strength. This is what has got us through COVID and out of COVID in really good shape. We have $127 million of corporate cash, no debt, positive PBT and strong operating cash flow. And in fact, the result -- as a result, our confidence from our strong fourth quarter NPAT result, the Board has determined a $0.05 dividend for FY '22 with our intention to resume dividends at 50% of NPAT in FY '23. So that's good news for shareholders. And fourthly, we just continued to win market share in this environment. Through this whole presentation, we don't talk to TTV as we think it's misleading given inflated ticket prices. Also, TTV doesn't accurately represent the future recovery. With supply remuneration changes in some markets, it is revenue and profit that matters in this environment. So as we will show in future slides, our revenue is running above IATA by 9.5 points. And this is because we continue to win market share in FY '20 -- we continue to win market share, and this has continued into FY '23. And of course, the last point to remind you is that not only are we winning business, we're retaining 97% of our clients, which is very important as well. But the last point here, we want to remind you that CTM is a much larger business. In fact, over 75% larger on full recovery, targeting revenue of $810 million and underlying EBITDA of $265 million in FY '24. So we are assuming the timing of full recovery in FY '24 is in line with current IATA recovery forecast, which we show in future slides. But importantly, because the capital we raised through COVID was for accretive acquisitions only, our shareholders benefit as we expect earnings per share to be over 30% greater upon full recovery versus our pre-COVID records. So on to Slide 6. Now this graph depicts the stop/start year and how we're able to leverage our scale as activity return in the fourth quarter of '22. So you can see on the left-hand side, the graph shows revenue by quarter and the right-hand side shows the corresponding EBITDA by quarter. Now this graph clearly depicts the Q2 delta impact, the Q3 Omicron impact and the fourth quarter progressive removal of travel restrictions. So as you can see, Q2 and Q3 profits were deflated because we employed excess staff ahead of the recovery curve in Q1 for a future recovery that didn't commence until Q4 because of the associated lockdowns with the COVID strains. And as you can see on the graph, this COVID became endemic and border restrictions gradually eased, the fourth quarter revenue and EBITDA recovered strongly with revenue recovering to 69.5% of our full recovery target, generating over $141 million in revenue, $35.6 million underlying EBITDA for the quarter. But I want to make it clear: this isn't by any means a full recovery. As we said earlier, momentum continued to build through that last quarter with June's recovery of revenue at 74% of our full recovery target. Secondly, we estimate the revenue still to come post 4Q '22 is roughly 15% to 20% of revenues relating to the well-publicized supply constraints, 15% to 20% to clients not yet recovered in our 3 biggest markets. And of course, China is closed. And although the transpacific opened mid-June, we haven't seen an impact because our clients are on vacation. So we know when you add these all up, it's above 100%, but this also just comes back and point to the market share gains made during the COVID period translating into revenue, which we show on the next slide. And this recovery is further supported by our late May global client survey, where 80% of our clients expected to do the same or more travel in FY '23 than they did in FY '19, which is pre-COVID. So that's also a strong sign for us. So on to Slide 7. So this is another external data point supporting rapid recovery. This chart, which charts IATA, is their most recent update on passenger recovery numbers. So we have taken the data for our regions that CTM operates in, being Asia Pacific, North America and Europe, and compared our revenue recovery to IATA, not TTV importantly. So there are 3 takeaways from this slide. Firstly, IATA predicts passenger numbers to exceed pre-COVID will be 103% by CY '24 and 111% in CY '25. And secondly, as you're aware, CTM has been running ahead of IATA data right throughout this recovery due to market share gains. CTM revenues recovered to 69.5% for Q4, and as we said before, 74% in June '22 versus IATA, which we estimate here on this graph at 60%. So it's important for you to know, too, we're being prudent. So despite being ahead of the market, our recovery assumptions remain prudent and aligned to IATA forecast, which we outlined in detail in the next slide. So on to Slide 8. I want to spend a bit of time because this is an important slide in terms of tracking how CTM is recovering. This slide essentially shows our trajectory to full recovery that will make CTM 75% larger than pre-COVID. So firstly, let's look at the left-hand side graph there. As you can see, the green line represents our revenue trajectory for the 5-year period from FY '19 or pre-COVID to our full recovery assumption in FY '24 with the blue line representing underlying EBITDA over the same period. So let me explain this chart -- the points on the chart. Firstly, point one on the chart. This represents our pre-COVID revenue and EBITDA from FY '19, which is our record year being $450 million of revenue and $150 million of EBITDA. Point two is a commencement of this recovery. Now for those that follow the stock, we've got a lot of updates in that time frame. We made very -- we made 2 points very clear that we flagged. Firstly, we expected permanent cost-out; secondly, we expected to leverage the scale and automation gains from the Travel & Transport acquisition in November '20; and thirdly, once we broke through breakeven and covered our fixed costs, which occurred around 18 months ago at CTM, we expected that for every $1 of additional revenue that, that would translate into $0.50 of EBITDA. And this is represented by the pink shaded area in terms of actually what's happened today. So then we go to point three, and this is important. This is where we are actually trading today based upon the fourth quarter being annualized. So as far as we're concerned, this is our baseline run rate to grow from into FY '23. So we start the year at just shy of 70% of our full revenue recovery. So to reinforce the greater size of CTM, today's revenue is already significantly higher than pre-COVID CTM at over 126% of our FY '19 record and EBITDA is around 95% of our pre-COVID record, translating as planned. So at 4Q '22 with our run rate, EBITDA revenue margins are currently circa 25%. But of course, this will build with incremental revenue driving $0.50 to the bottom line as we get to full recovery. So point four shows 100% revenue recovery in FY '24 two years on. And this is broadly in line, as we said before, with IATA's expectations, not how we're tracking. And this assumes that the additional $1 of revenue continues to translate at the same EBITDA -- rate as EBITDA. And this will get CTM to $810 million of revenue, and that will translate in $265 million of underlying EBITDA. And at that point, our EBITDA revenue margin will be around 32.7% on a full recovery. So there are 3 takeaways to look at how we're going to, I guess, could work our way through FY '23 and FY '24. Firstly, we're currently trading at $563 million revenue and $143 million EBITDA or at point three on this graph. This is our starting run rate for FY '23 and revenue recovery is just shy of 70% of our full recovery rates. So we're most of the way there. The path of full -- secondly, the path of full recovery in FY '24, which is how we get from point three to point four won't be in a straight line or linear. And this is because there's well-publicized supply constraints that need to be resolved. As well, as we all know, China is still largely closed to travel. And point three, a third point to take is our full recovery assumption is in line with IATA in FY '24 despite CTM outpacing IATA's recovery. At that point, EBITDA will be roughly 75% larger than pre-COVID and EPS will be over 30% greater than our pre-COVID record, which is excellent news for shareholders. So if we go to Slide 9, this is also a very important slide. We know there is much chatter on inflation, resource constraints in the industry and supplier changes, and we want to share the initiatives we have implemented and also the positive results we are obtaining from these initiatives. So our approach to offset these constraints is fourfold: firstly, recruitment. The first thing we've done, we've welcomed back the vast majority of our staff through our alumni program, and we're really pleased and proud of that. But beyond that, we have invested very heavily in training programs, leveraging training academies in travel by using our own training content and fast-tracking our other training programs within CTM. In fact, this has been very successful for us with 15% of our ANZ staff numbers at June coming from these programs, providing a new generation of very highly motivated people to forge a career at CTM. And in fact, this has been so successful that we're rolling these same programs out to the rest of CTM throughout '23. Secondly, it's revenue initiatives. The first point to make is at CTM, the majority of our large clients have contracted CPI fee increases already in their contracts. So that's a natural buffer for us. But secondly, we are winning and retaining business at sustainable and profitable levels. Clients know that there's inflation in staff, clients know there's time restraints and prepared to pay for good service. And what I can say without exception that every client we've retained through this program has had the same or increased fees with the majority having increased fees through this process, and that's important to note. And thirdly, as you can appreciate, being time constrained in the information required, clients are really valuing going the extra mile services, which is highly relevant in this environment and clients are prepared to pay for that. So that's been very helpful for us. But thirdly, we have the tailwind that others really don't have and that's the synergy upsides that's going to reduce the recruitment pressure in FY '23 coming from our transformational acquisitions that we made. Firstly, in North America with T&T., by the end of summer, we've integrated onto one system. So we do expect that's going to give us improved scalability as we progress through FY '23. And secondly, in ANZ, we've made the Hello acquisition, and we've identified material improvements to the legacy Hello corporate operating model, which will improve service through best practice process and automation as we progress through FY '23 also. So these both have to come. And lastly, as we always make point of, it's our investment in our technology and innovation. As you know, we said numerous times, high penetration of CTM technology enables better customer experience and better employee productivity. And secondly, we've got an obsession at CTM through FY '23 objectives to drive automation, eliminate process that adds no client value because we want to free up expert time for the high-touch, high-value transactions that we know our clients appreciate. We've got a number of initiatives through the year that we touch on there. But we're doing a lot of our own robotic process automation within the business, chatbots. We're enhancing all our products from our CTM portals, our apps to make our client interaction easier. But more importantly, this isn't just words, we're already getting great results. So the most important measure in our business that measures productivity and essentially measures the incremental profit the business delivers is our revenue per person. And in the fourth quarter of '22, this is up 14% on pre-COVID highs of FY '19. So you can see that's clearly outweighing the inflation issues. But more importantly, to CTM, that hasn't come at the cost of client service. Our staff engagement remains at over 85% in all CTM regions, and this is our benchmark -- internal benchmark that we aspire for. And same with our client service level agreements. The vast majority of our customers are now serviced within their agreed SLAs on a global basis. As we've said before, we had over 97% client retention in all CTM regions. So I hope that makes that very clear in how we're offsetting these inflation resource constraints. But if we come to Slide 10, this really sums up the gains we're getting through the business by thinking ahead and planning ahead. So what we've graphed here is our revenue per FTE since FY '16 through FY '19s record and then we've put that against our 4Q '22 annualized number. And as you can see, that's up over 14% versus pre-COVID. And that's because of the -- of two things. We're leveraging the scale of the transformational acquisition we made in North America. And of course, we're focusing on automation of non-client-facing process all the way through COVID. And the purpose of that is to free up time so our staff can focus on delivering the high-complex, high-value itineraries. But I also want to share that there's material upside still to come through to FY '24 in the next few years. Why? Because, well, firstly, this -- the 4Q '22 annualized number includes in Asia that's mostly closed. And secondly, as we said earlier, North America and then later ANZ synergies post the acquisition integration will flow through and build through FY '23 and '24 for Australia as the recovery continues. Okay. On to Slide 11 and then on to Slide 12, technology and ESG. So what I want to do with technology is just highlight an additional organic growth lever we have been quietly building out for the last 18 months with key customers. As a result of scale across the Atlantic post the Travel & Transport acquisition in 2020, we have created a new dedicated global servicing solution that we call TAB, the Transatlantic Bridge. It's a truly compelling offer to high-value transatlantic customers. So now that North America is largely integrated, we're on one system, this solution brings all of our solutions together enabling us to deliver a very high and consistent service offering to our customers across the Atlantic, compelling seamless technology and full visibility and control over their travel programs and spend to ensure maximum return on investment. But I also want to focus on the fourth column there, CTM Advisor. Again, a proprietary tool that helps us service the customers seamlessly and allows our travel agents to understand a customer using CRM tools to make it more intimate, to make our service more reliable, faster and we think this is going to be a really big advantage to enhancing our value proposition across the Atlantic as we move forward. So on to Slide 13, ESG. Now we are very pleased to have appointed a global Head of ESG and sustainability in FY '22. As you can see, our pillars are centered around governance, planet, our people and prosperity that delivers benefits to our staff, community and stakeholders. Now while CTM is itself a carbon-light business, the best way that we can make a difference to the planet is by putting our award-winning carbon-tracking tools and lighting booking technology in the hands of our thousands of accounts so that they can make better decisions to help the planet. And of course, we've launched these tools around the globe in FY '22, and we're enhancing them materially through FY '23. So on to Slide 14, where we talk about the regional performance of the business. We'll go around the grounds. Firstly, to Slide 15, the group overview. And again, just reiterating, we highlighted the 4Q '22 financial run rate. I want to reiterate our starting run rate for FY '23 is at 4Q performance annualized, which is roughly $7.3 billion in TTV, $563 million in revenue and $143 million underlying EBITDA. I won't go through the other details, but there's four key takeaways, which we want to touch on as we talk about forward guidance activity around the grounds. Firstly, demand remains strong in all regions into June and post-June. Yes, there are supply constraints and record cancellations and delays that are delaying fully recovery, but it's clearly not stopping it. We see this as a temporary thing -- issue. Secondly, we've talked earlier, but we have estimated revenue levers to full recoveries. We said there are supply constraints, our clients haven't recovered yet, China hasn't opened and we know the transpacific impact will play out post holidays. And as we said before, we know that these impacts are quite a bit higher than 100%, but that's because CTM has had sustainable market share gains from winning business, and we've converted that into revenue because we've won profitable and sustainable business. Thirdly, our organic growth continues. In fact, our outcomes to year-to-date as of yesterday are really very strong. So we started FY '23 with strong organic growth outcomes. And lastly, as we said on those earlier slides, we have a number of levers at our fingertips, as we discussed earlier, to offset any inflation, resource and airline capacity constraints. And that's what hopefully sets us apart when we're looking forward. So this is all built into our forecast. So let's go around the grounds, and we go to Slide 16 and start with North America. In North America, our 4Q '22 recovered to 73% of pro forma FY '19 levels. And on the next slide, pro forma includes all the acquisitions of T&T and Helloworld corporate and entertainment into the baseline so it's like-for-like. Corporate travel demand remained strong in North America with the region, again, leading the group in client wins. Now despite capacity constraints, forward bookings post-summer vacation in September are strong. And the region, as we said before, continues to win significant business in FY '23. So we also want to note, as we said before, the integration of Travel & Transport into CTM North America is now largely complete, enabling increased productivity and synergies to build progressively as activity recovers in FY '23. So that upside is still coming. And on to Slide 17, Europe. Much the same as North America, but even better. 4Q '22 revenue recovered to 86% of pro forma FY '19 levels. And it's important to note that 4Q TTV is well above pre-COVID levels with 4Q EBITDA also being a record result and the first region to surpass pre-COVID records. So that's a good sign when it's not even fully recovered yet. It's important to also note that in Europe, it's a combination of new client wins and a broad recovery in travel that's enabled the strong financial results. It's also in fourth quarter offset those one-off pandemic outcomes that we completed on October '21. So you can see that one-off impact has been more than reversed when you look at the fourth quarter in isolation, which is really positive for us. Secondly, as we said before, like North America, this region is also winning significant new clients into FY '23. And the reasons they're working together, as we talked about, Transatlantic Bridge to win clients together. So on to Slide 18, ANZ. So 4Q '22, here, as you can see, TTV has already surpassed pre-COVID on a pro forma level, but revenue is at 64% of pro forma levels. And again, as you can be aware, most of you in Australia, as COVID-19 materially impacted the first 3 quarters, travel activity in ANZ recovered most rapidly in the fourth quarter. As you can see that jump between the third and fourth quarter on the slide, it is the most material jump we've experienced in any market in any quarter in the history of the business. So as you can see, 4Q TTV is above pro forma FY '19. But this is also because international supply remained subdued during the year, which has affected the revenue conversion. So ANZ revenue is -- that's why I said ANZ revenues are only 64% versus TTV recovery. However, that is climbing. And as that international travel becomes a larger share of our TTV, that revenue recovery has already recovered to 74% by June '22. So the acquisition of Helloworld Travel Limited's corporate and entertainment business in ANZ was completed on 31 March '22, and integration as we talk about shortly, is well underway. So in ANZ, management has an unprecedented focus on service and productivity gains through CTM's technology. Like the other regions, travel demand remained strong with TTV post year-end pro forma FY '19 levels. In fact, even last week, it just keeps getting stronger looking at last week's numbers. So also it's important to note, which we touch on shortly post year-end, we acquired the 1000 Mile Travel Group, which is an independent work-from-home consultant model focusing upon SME clients and the smaller end of SME clients. So on to Slide 19, Asia. 4Q '22 was Asia's first quarterly profit since COVID, driven primarily by Singapore. Singapore has experienced rapid growth in activity following the lifting of travel restrictions in the second half of '22. But the other good sign for us is that Asia continues to incline at record rates. Additionally, competitors, particularly Southeast China, continued to exit the industry, which helps us as well. But as you're all aware, we have a very large exposure to Greater China, particularly Hong Kong, and Greater China's approach to COVID-19 containment has continued to severely impact travel in the region. Although the 12 August reduction in quarantine restrictions, which is last Friday, in Hong Kong to 3 days, has created a significant step-up in demand, which we'll talk about later. We said the group expanded its Singapore operations with the acquisition of Safe2Travel contributing from 1 May. And that was designed to service a growing client base in Singapore. In post year-end, CTM established our own office in Japan on 1 July '22 to also address the growing demand from regional and global clients. It's important to note we haven't been sitting still through this lockdown. Our proprietary booking tool, Lightning, is now well entrenched in Asia. Lightning is in Chinese, of course, it's in English and it will be in Japanese by the end of quarter 1 '22. So now on to the acquisition activity during the year, and we'll go straight if we came to Slide 21. Firstly, Helloworld corporate and entertainment. This is our material acquisition in the half. Now CTM took ownership of the business 31 March '22. And because Australia was in a lockdown, the business was under-resourced, like the rest of our peers in the industry. But unfortunately, for us, this coincided with, as we just said, the most rapid activity recovery in the quarter and through ANZ. So just to recap the acquisition assumptions. On a full recovery, we said the Helloworld Group would contribute $30 million to underlying EBITDA, and that was made up of $22 million plus $8 million in synergies. But we also, because of the timing and the rapid recovery, that included an assumption of a 10% client loss provision, important to note. So what actions have we already taken in this business? Firstly, we've significant -- we've added significant resources to raise the service standards to CTM levels. We have more than doubled staff numbers from 125 staff at the time of acquisition to 285 by 30 June, and that is still building post year-end. We're nearly to the levels we aspire to be at. Secondly, we've fast-tracked office mergers in the first month of ownership to ensure we could leverage CTM executive support and capacity. And lastly, there's been a real rapid transition to CTM processes and systems for clients wherever possible. So some clients have just picked up and are using CTM instead of Helloworld processes. And we're doing that wherever a customer wants that to happen. But importantly, the results have been really great for our business. There's been a substantial service recovery since acquisition. Secondly, the vast majority of key Helloworld clients up for tender -- that were up for tender have now re-signed past FY '23, which means our client loss assumptions are on track. And lastly, CTM automation and processes will drive further service and productivity gains as we progress through FY '23 and FY '24. So on to Slide 22. We've had a few other acquisitions, smaller ones, and expansionary activity to support our strategy. Firstly, as we touched on earlier, Asia. We acquired Safe2Travel, which contributed from May '22. It was part of our strategy to build a greater presence in Singapore, but also to service our growing client wins in that area as we're winning regional and global travel. And the integration is well underway, and we've already merged into one office. So that's a really good sign for us. Secondly, as we said, we opened up in Tokyo in Japan. The first one we've opened up an office organically for some years, which shows you again just how well we're starting to win business in the region. It's going to support our growing stable of blue chip and regional -- and global clients that want to be serviced by CTM in Japan. And it's also a key plank in our geographic strategy to support the strong organic growth expected not just in Asia, but that we're winning through North American global business. And lastly, a 1000 Mile Travel, which we acquired in July '22. I like this business because it's a really successful independent consultant model, a work-from-home model, that demonstrates high growth coming out of the pandemic. They're doing really well. And we believe that CTM can -- it's a stand-alone, but we're going to help them accelerate growth through not only our CTM buying power and technology, but also our global network. Just to understand this model, it's a really high-touch, high-service model allowing CTM to build market share in the SME, but particularly the SSME, or the smaller end of SME, which is a very high-value segment for CTM. Now it's important to note this model is currently in ANZ, also in the U.K., but we have ambitious plans to expand this into North America in the second quarter of '23. So we'll talk about that as the year unfolds. So now we'll move on to our group financial summary. And we'll move straight to Slide 24 and I want to hand over now to our CFO, Cale Bennett, who will run through this high-level group summary. Thanks. Cale.

Thanks, Jamie. CTM has maintained monthly positive underlying EBITDA since we crossed that threshold in early 2021. Whilst the first 3 quarters of FY '22 were impacted by COVID-19 variants, travel restrictions were relaxed in all regions except Asia by the end of the third quarter. This was the catalyst for a significant increase in...

Please stand by while we reconnect the speaker line. [Technical Difficulty]

Our statutory net profit after tax of $0.8 million was an improvement from the loss of $57.8 million in FY '21. We've outlined D&A expectations for FY '23. The impact of the Hello corporate acquisition and a lower Australian dollar are expected to see D&A up slightly in FY '23 at $49 million. Excluding acquisition-related client relationship amortization, our D&A runs at about $3 million a month. Expectations for our effective tax rate in future periods should center around 27%. We'll now move on to Slide 25, our nonrecurring items. Nonrecurring costs of $12.2 million in FY '22 relate exclusively to the Helloworld acquisition, subsequent integration work and the now complete integration of T&T. The Helloworld corporate integration project is well underway, and we remain confident that this work will be complete within the envelope of $5 million of cost disclosed at the time of the transaction. We also recovered a small bad debt of $0.6 million in Asia that had been written off during the COVID -- the height of the COVID impacts. In total, a net $11.6 million in costs have been excluded from the underlying EBITDA as nonrecurring items. If we can go on to Slide 26, the balance sheet. CTM continues to maintain a very strong balance sheet. We have not utilized our committed funding facility since June 2020, and the company maintained significant cash holdings of $142.1 million, including $15.6 million of client cash at 30 June. We refinanced our debt facility during the half, reducing it to $100 million and redomiciling it to Australia. In the process, we have managed to remove the security requirements under the facility, which increases flexibility for the business and will result in lower costs. The group's receivables and payables have increased in line with client activity, which accelerated in the fourth quarter. Airline sweep payment timing was favorable for us at 30 June '22, which helped the working cap position. This changes from period to period. If we can move on to Slide 27, cash flow. Consistent with historic experience, our operating cash flow conversion remained strong. We remain focused on maintaining discipline around cash preservation, noting working capital requirements will increase as the recovery continues. Our corporate cash balance is sufficient to manage that eventuality with the added benefit of the business now generating net cash through profitability. Our investment in proprietary software will continue in FY '23 at similar levels to FY '22. If we can move on to Slide 28, I'll now hand back to Jamie to talk to the outlook.

Yes. Thanks, Carl. We're on to Slide 29, if we can. It's our outlook. So first, as we said before, the FY '24 we're targeting a full recovery, and there's four key assumptions there. Number one, it's 100% recovery will be broadly in line with the IATA recovery assumptions, although we're tracking ahead of those assumptions. Secondly, Greater China needs to open up its borders with no travel impediments by June '23. And we also assume that the current supply constraints that are occurring around the world will resolve themselves in the next 12 months. And of course, COVID remains endemic, which appears to be the medical consensus. So what does this mean for FY '23? Well, we know our starting run rate is an underlying EBITDA of $143 million. And we expect every additional dollar of revenue to translate into $0.50 of EBITDA from now until full recovery as we again point out in that right-hand side chart. Again, this is what we've been able to achieve since breaking even 18 months ago. So it comes down to revenue recovery. We don't expect a 2-year revenue recovery pathway from just -- from where we are today being just below 70% to 100% revenue recovery as points from -- going from point three to point four on the graph on the right-hand side to be in a straight line. Why? I hope it's pretty obvious. We need Greater China, particularly Hong Kong, to remove all COVID constraints because that region delivers -- will contribute around $25 million of EBITDA on a full recovery. And second, we need the well-publicized supply constraints across the travel industry to be resolved. But our expectations for FY '24 seems fair, and we expect that both those issues will be resolved progressively during FY '23. And just a reminder that this business has a seasonable profit skew to the second half due to Northern Hemisphere seasonality. So if we can on to Slide 30 and just current trading conditions. And there's a couple of points here I want to point out -- three in particular. The first, as we said before, demand remains strong. So as we said before, as we started fourth quarter '22, it kept building through June. So June revenues were recovering at 74% of our average full revenue target versus the fourth quarter at 69.5% of revenue recovery. Additionally, we have stated the new financial year we have strong client wins. So -- and then thirdly, as we said, let's talk about what we are seeing, that strong demand. Firstly, in North America and Europe, it's currently in vacation period and that's a time when corporates don't really travel. It's more of a holiday time. But what we can say that we're seeing forward bookings in September post vacation is strong. This is very consistent with U.S. airline commentary as it sees a switch from leisure travel to corporate as leisure -- as vacation times come to an end. Secondly, in ANZ that is open, that is a good guide. We just see no evidence of supply constraint on domestic activity. In fact, TTV remains at pre-COVID levels with last week building on the week before. And I remind you, we're already over 100% and there's so much to come in domestic and international travel yet, which again supports the organic growth of the business over the years. And thirdly, Asia. Hong Kong announced last Friday that quarantine is reduced from 7 to 3 days for locals from 12 August '22, and we've seen an immediate stepped-up activity increase. In fact, we're already 20% up on last week as of Tuesday. So 2 days, and we're already up that much. So we'd expect to see a step change because we've seen it before. So we just hope that, that's a good precursor for progressively reducing that quarantine to nothing. And the last point I want to do is point out our CTM client survey results in May -- that we conducted late May '22. We had 773 clients respond from all over CTM from all over the world. And it's really important to share the feedback of that. So 80% of our clients expect to spend the same or more but not what they're spending, but versus pre-COVID in FY '23. And secondly, 59% of those clients expected more face-to-face meetings in the coming 12 months than their experience in the month of May. So again, just another point that the recovery is still building. So with that, I just want to quickly sum up. As we said before, we had very strong results, converting the activity in a strong revenue but very strong PBT and NPAT, which I think is important. We talked about our financial position, our strong wins, our strong retention. And with that, I think we'll pass back to Travis, our moderator, for further questions.

[Operator Instructions] The first question today comes from Tim Plumbe from UBS.

Yes. I'll give two questions. Just the first question, if we can, Jamie, around your FY '24 guidance, you've noted throughout the presentation continued strong new client wins over the last couple of years. You've also noted 80% of clients expecting to get back to pre-COVID levels. In regards to the $265 million of EBITDA, can you help us understand what you're factoring in there in terms of structural change? How is that being offset by new client wins? Should we assume that the two are netting each other off as of today, and therefore, any new incremental wins in FY '23 and FY '24 add on top of that?

Yes. I think you're on the right track. So we're being prudent, right? So we're going ahead of that, we're tracking ahead and that's from wins over the last few years. But more importantly, that's revenue, right? So it means when we're winning, we're winning sustainable contribution from that business. I think what's really important is the slide we talked about, the productivity gains. So that -- and all the inflation, all the -- they're already built in. So our assumption is that we're being prudent, but we don't know what's going to happen either. So I think you're on the right track. For now, we've assumed that one offsets the other, and we'll see where we're going.

Got it. And the second question, maybe one for Cale, just in terms of cash flow. How should we be thinking about cash flow in the first half of '23, thinking in particular around the working capital impact of that BSP payment cycle?

Yes. Look, I think you need to look through for half to half. I mean, our cash conversion will stay similar to what it has been historically, which is strong conversion. There's going to be some noise around each half. So I don't -- there's nothing that you need to know specifically in first half that is going to cause any particular issues. I think that, that working cap rewind will come, but it's largely baked in now and we've got plenty of cash to manage it.

The next question comes from Mitchell Sonogan from Macquarie. The next question is from John O'Shea from Ord Minnett.

Can you hear me okay?

Yes.

Mine sort of relates more to the labor shortages, which in the earnings release you made a point of outlining that and the impact it's having on your business. Certainly, here in Australia, one, it's obvious that, that is impacting. Just wanted to see if you could comment on that in the context of if you think about it logically in this environment where your revenue is improving at a rapid rate, that you've still got your old cost base, if you know what I mean, and that would drive higher margins than what it would ordinarily has, is that the case? Is this a situation where eventually you will need to restart the business to appropriate levels and those margins will come back, and hence, the earnings leverage we're seeing is a little bit higher than we would normally see? Or is that not the way to look at it? What -- how would you describe the impact of the labor shortages and how that will flow through to the business in the coming year or so?

Yes. I think there's two ways to look at it, John. I mean, firstly, it's more about the revenue. So if revenue jumps by $10 million, give or take, $5 million that's going to go to EBITDA and that's already baked in because whilst there's those issues -- we made it very clear that productivity gain. And Australia is a small part of the business, right? It's significant, but it's not a big part of the business. So what I'm trying to say is that as the business continues, that's just -- we just employ, but we've got -- we've done out-of-the-box recruitment strategies. We're finding people from outside the industry with great service, great at handling, what's the word, really difficult industries from last-minute crisis. That sort of -- those sort of people are what we've gone and scout from outside the industry. We're putting them through our academy at both -- at all of the Australian businesses, and that's been very, very successful. In fact, all the staff at the seniors here talk about the youth exuberance, just how they're helping, particularly starting with the mundane, more domestic type of issues and changes and those sort of things. So I think we're covering it off really well. And the proof of that is SLAs. The vast, vast majority of our clients are being served in SLAs, and we really don't have this problem in North America and Europe as they've recovered more meaningfully. But [ it's up to get ]Australia as you go back -- I mean, what happened in that one quarter is that growth when I annualize, it was 15 years of growth. So you can appreciate the whole industry-wide struggle. But Again, you've got to think of it that way now that we've got the scale that it's all about revenue and how we convert that into EBITDA, and that's how we've modeled it. So it's all built in.

Sure. I guess I'm thinking more in the context that you might have to scale that up more in terms of the clients that actually service -- the staff to service that growing revenue base?

I mean, I think we are, but we're going to have to -- like our costs go up. So if we get $1 of revenue, $0.50 is profit, the vast majority of the cost is nearly all front-line staff, nearly all of it. So we model that as we go through. But I think you're probably overlooking the huge scale benefits, right? I mean, T&T, we've got it all in one system. So we've got some scale there costs out, but we haven't got what does that look like when you're servicing one system instead of three or four. These are material at large scale. It's over half our business. Same for ANZ. So we're nearly at the resources we need now, we're very, very close. So the guys have worked really hard on that. We've explained what we're doing outside the box to find supply of people outside of travel, which we think is critical. So we're not in that race to barter and bargain for staff. Again, moving Helloworld onto our system, which is infinitely more automated and seamless creates a lot better servicing. We've got all those things up our sleeve. So one will offset the other. That's our assumption.

The next question comes from Sam Seow from Citi.

Maybe just following on from that cost questioning. I mean, in Q4, it looks like you had 70% of your revenue recovered, but it looks like you overstaffed a bit there with about 80% of your cost base. Is that right? And thoughts around the profile of that cost base into FY '23?

With that staff? I mean, obviously, I think I'll just keep saying the same thing. I mean, look, we're not giving guidance, right? It's still pretty tricky. But I think the best way to look at our business now is that for every new dollar of revenue, $0.50 is going to go to EBITDA. And the $0.50 cost is nearly all staff, nearly all. And it's mostly front-line staff. So that's the best we can explain it.

Yes. I think just one thing to note, and we've experienced this a little bit over the last 15-or-so months. When things scale up and scale down quickly, there is a little bit of an accordion in terms of we tend to hire slightly ahead of it. We might have been a little bit behind in some regions in fourth quarter, but it's not a free kick. We still have to service clients, and that requires a lot of over time if we're understaffed. So it's not like we can just perpetually understaff and continue to service the clients at a much lower cost. That is not the goal here. The goal is to try and match, bringing people back with the activity. So that will be in front and behind at times. But generally, we're focused on that 50% incremental EBITDA margin.

And of course, servicing clients is the #1 goal.

Cool. That's really good color, actually. And maybe just some thoughts on revenue margins. In particular, I guess, Q4 in the U.S., just your thoughts around extrapolating those into FY '23? Or anything you'd call out in the region that happened in that Q4?

I think it's just -- I think it's two things. In the beginning, as we said, you just can't look at TTV yields. TTV is pretty meaningless because if you go back in time, people would book, cancel, book, cancel that will be 0 TTV, but you get full bits of revenue out of it. So your revenue margin was overstated. We said over and over, and nothing's changed. We expect revenue margins to settle down to long-term trends. And whilst there are certain examples like in Australia where Qantas reducing revenues, we still see that as an exception. And if you look at North America, as international comes back, we'd expect that revenue to come back. We also expect to get better outcomes from our scale. And as we've said over and over, our discussions with suppliers are very positive for CTM because they see we're growing, they know we're a much higher share of wallet than most and they want to be part of that recovery. So again, I think the best thing I can say is we've put out FY '24. We've put out what that terminal EBITDA margin will be, and that's how we're building, that's how we're recovering and planning and running our business.

The next question comes from [ Daniel Sweeney ] from QValue Equity Research.

You made some comments earlier in the call on fee increases being achieved across some of the clients. Could you give some sense about the quantum of those fee increases being realized and how much of the client book that's been implemented across so far?

No, no. That's all confidential, but we've done -- I think the proof is always going to be in our revenue recovery and the ability to turn that into PBT and NPAT. I think by the end of this reporting period, that will define the difference between us and others. We always sell on value, right, return on investment. And we said this before, if you look at -- if you're spending $10 million on travel, our fee is a very, very small part of that. So customers want to know how we serve -- how we make that $10 million, take -- go down to $8 million and being serviced well. That's our goal, and clients are prepared to pay for that. We'll let our numbers do the talking.