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

Thank you for standing by. Welcome to the CTM Full Year Results 2024 Presentation. The call will be managed by Jamie Pherous, Managing Director, James Spence, CFO, and Eleanor Noonan, COO. [Operator Instructions] I would now like to hand the conference over to Jamie Pherous. Please go ahead.

Yes, thanks, Rachel, and good morning, everyone. It's nice to say that welcome to our full year results presentation. This should take approximately half an hour with Q&A at the end. I'm also joined today, as Rachel said, by our CFO, James Spence, and our COO, Eleanor Noonan. You may not be familiar with them, but James has joined us in May, and Eleanor has been here for a couple of years. So both are highly experienced individuals, and it's great to have them on the call today, and we look forward to introducing them, if you don't know them, on the roadshow and post-roadshow. So let's hop straight into it. If we can go to Slide 5, please, the Group overview. So from a consolidated point of view, revenue is up 9%, and EBITDA up 21% to $201.7 million. Look, disappointingly, FY '24 has underperformed, which we take on board. However, we need to acknowledge that this underperformance is specific to 3 key items. The first 2 issues, of first half issues, we previously flagged at our first half results, being the second quarter macro impacts in North America. Pleasingly, as we flagged at that result, client activity rebounded in January and had no impact in the second half, and we'll talk to North America shortly. Secondly, the bridging accommodation contracts. That was expected to deliver $1.5 billion per annum in TTV, and significant revenue and profit was materially below forecast due to changes in government policy. This led to our downgrade. Then in the second half, the one-off war-related humanitarian work we managed tapered off much faster than we anticipated late in the second half, as families were resettled and no longer required interim accommodation services from CTM. You can see this as we have highlighted in the chart, with 2H EBITDA below 2H '23. This led to a 4% miss from the bottom of guidance. But what we have done on the next 2 slides is to split out Europe from the rest of the world to better display what the underlying business is doing, given the noise of the European one-off war-related humanitarian projects and their impact on the business. So if we can move to Slide 6, if we can. Yes, Slide 6, Europe. Okay. And if you look at this now, as you can see, whilst the full year revenue was up 18%, and EBITDA up 16% to $97.7 million, we expected quite a bit more from the humanitarian projects contributed to the second half. The projects tapered off much faster than we anticipated, and 2H EBITDA was down 48%, or down $32.4 million, on 2H '23 to $34.7 million. But I want to reiterate, this is one-off project work that is not recurring. CTM has been proud to accommodate displaced persons fleeing conflict in Ukraine and Afghanistan for a number of years. And we are pleased that over 90% of these families are now resettled in long-term accommodation, and therefore, no longer acquiring interim accommodation services from CTM. And this reduced demand is now reflected in our FY '25 forecast. So now we can move to Slide 7, if we can, Rest of World. So as you can see on this slide, we have a completely different story, and will take strong momentum into FY '25. The Rest of World business grew 21% in EBITDA to $122.5 million. As we flagged to the market at the half year results, we could see green shoots in our largest regions of North America and ANZ. And it is this second half turnaround [Technical Difficulty] both North America and ANZ regions that is most pleasing. Round -- Rest of World 2H EBITDA was $74.3 million, up $16.7 million, or 29%, on 2H '23. And our EBITDA margin expanded from 21% to 27% over the same half year period. This represents a major turnaround in both regions, which we'll talk to in coming slides. But now if we can move to Slide 8, where we show the key metrics that indicate how the underlying business really is performing. So what we lay out on this slide is the metrics that matter at CTM internally that we think defines our long-term sustainable growth. On the left-hand side chart, we show revenue per full-time equivalent employee from FY '19, being the pre-COVID year to FY '24. This metric demonstrates how efficient the business is running. And we are pleased to advise that revenue per FTE is up 35% on FY '19, meaning we are 35% more efficient per person than pre-COVID. Importantly, revenue per FTE year grew 9% in FY '24 versus FY '23. And Eleanor will talk to the revenue and cost initiatives that have driven this outcome that set us up over the long-term to execute our long-range plan. Then on the right-hand side chart is underlying earnings per share. Whilst we acknowledge that we acquired businesses through the COVID cycle, and as a result, we and the market expect profits to be significantly above FY '19's, EBITDA of $150 million. Our EPS has recovered to 88% of FY '19. So, of course, this is net profit. This is against a backdrop of the corporate market recovering to circa 80% of COVID levels. And we know this is a peer-leading metric post-COVID for all our peers globally. Then now on the second row are the metrics that we measure ourselves on year-to-year. Firstly, cash conversion. This is above our expectations and finished the year at approximately 89%. The business continues to generate cash, and this gives us optionality with our cash management strategy, which James will talk to later. The second area is the incremental revenue conversion to EBITDA, which was well above our 50% target at 61%. This demonstrates both the operating leverage in the business that we're now seeing from our larger scale and the automation execution delivered by our teams around the world, which Eleanor will also talk to a little later. And client retention at 97%. And client wins at $970 million are at expectation. So the things that we can control, we are executing against. This will be demonstrated clearly as we walk through each region in the coming slides. So let's move on to the performance by region, Slide 9, and then let's go straight to Slide 10, Australia and New Zealand. So as you can see from this slide, the region underwent a significant turnaround in the second half as we flagged at the half year results. So I want to focus on second half execution as we have highlighted on the chart. 2H revenue was up 11% after being flat in the first half, a pleasing turnaround in just 6 months. This is due to 2 factors. The success of Sleep Space, as Eleanor will talk to shortly, and client wins. Look, there is no doubt that the timing of the Helloworld Corporate integration in 2022, timed with the post-COVID opening of travel in Australia, was really a difficult for us to manage. And we did lose some accounts through this integration. But our service as measured by NPS scores is now back to the highs of pre-COVID in this region. And when combined with our superior tech stack, we are winning new accounts, but winning back accounts that left us. And the good news is this is continuing into FY '25. Secondly is a turnaround in margin expansion from 24% to 30% in 2H '24 versus 2H '23. With 2H EBITDA up 39% on the PCP, to $26.3 million. This is a real story and demonstrates the synergy benefits being realized from the acquisition, and much more significantly, the automation benefits playing out into the efficiency of the region, which Eleanor will also talk to a little later. So as you can see with the 2H result, we are taking strong momentum into FY '25, noting that Australia has only got a very small skew to the second half. Let's go on to Slide 11, North America. North America is a very similar story to ANZ. As we flagged in the first half, we could see the green shoots in this region. And like ANZ, they also experienced a significant turnaround in the second half. While full year EBITDA was up 33%, to just shy of $60 million, it is the second half, which is a standout, demonstrated momentum into FY '25. Transactions are up 17% in the second half, normal [Technical Difficulty] revenue up 9.4%, and EBITDA up 39% with an uplift in margin in the second half from 18% to 24%, all good statistics. So what made the difference? Well, we have talked previously to the benefits in completing integration, allowing our management team to focus on doing just a few things very well. We changed the organizational structure around to get faster results, and we believe we've built a high-quality management team. And that management team have focused on 3 main areas: Firstly, faster onboarding of accounts. There is no doubt we are winning clients, but we're disappointed that clients weren't transacting as fast as we had hoped. And that impacted our revenue lag. Secondly, a focus on profitable accounts. We let some accounts go that were unproductive and not profitable to the business, to better focus on the accounts that best fit the business moving forward. And lastly, automation execution. And we saw the benefits of this strategy in the second half, and these benefits accelerated into the fourth quarter. I mean, when we look at fourth quarter, $210 million of annualized clients were brought onboard in this quarter alone, boosting our transaction growth. 4Q transactions are up 21% on 4Q '23, and the result is 4Q EBITDA was $21 million and is up 46% on the PCP. So this 4Q result defies normal seasonality, where typically 3Q is seasonally stronger than 4Q in profits. So it shows the momentum the business is driving. Just a point, you'll note the second half revenue is lagging activity, consistent with our peers. But this has had minimal impact on EBITDA and is largely due to the one-off industry-wide distribution cuts, primarily the well-publicized American Airlines distribution cut experiment that had around a $12 million impact in revenue. American Airlines have publicly admitted it was the wrong strategy and have since reversed their strategy back to supporting Corporate Travel distribution in FY '25. So expect no go-forward impact. And secondly, with this growth, we account for hotel revenues on a cash basis. So the receipts in June lagged are really for many months earlier, so receipts lagged the rapid growth in activity. So just like ANZ, we take great momentum into FY '25. Now if we can move on to Slide 12, Europe. As we stated earlier, it was a rapid taper-off of the one-off project revenue late in the second half that impacted the final result. While full year revenue was up 18%, and EBITDA up 16% to $97.7 million, it is the second half that more than offset the Rest of World's strong 2H performance, as you can see on the chart. Yes, 2H revenue dropped 28%, and 2H profit dropped 48% to $34.7 million, from $67.1 million in 2H '23. But as I said earlier, this is masking the strong underlying BA growth in the region, which we demonstrate in the next slide. And this next slide is quite important just to understand what's going on in our business. So on Slide 13, this slide shows that the underlying EU business is performing well and is our leading region, always has been since COVID -- through COVID. If you focus on the chart, what we compare revenue -- where we compare revenue and EBITDA growth to FY '19, the pre-COVID years. And as we've identified, FY '23 and FY '24 was significantly impacted by one-off war-related humanitarian project work. This work is largely complete, as mentioned earlier. And FY '25 assumes no bridging vessel extension and no war-related humanitarian project work, just like FY '19. So they are a good years to compare how the business has grown in terms of BAU since FY '19. And as you can see from our FY '24 forecast, FY '25 is expected to be substantially above FY '19 in both revenue and EBITDA. In fact, we expect EBITDA to be over 150% of FY '19, despite the corporate market recovering to only 80% of pre-COVID levels in Europe. To grow this significantly beyond FY '19 demonstrates 2 things. We have had significant customer wind growth to drive revenue through this period. And secondly, the very high penetration of CTM technology is driving very strong EBITDA to revenue margins, actually above those we were achieving in FY '19. So whilst FY '25 is forecast to be well below FY '24 due to the completion of the one-off project work in FY '24, the underlying business continues to be strong. We see FY '25 as a reset year in Europe. Let's move on to Slide 14, Asia. FY '24 was essentially a COVID recovery year with revenue up 24% and EBITDA up 29% to $17.9 million. This was led by continued strong growth in the Corporate segment. The China reopening post-COVID has certainly been slower than we expected, and this has impacted our wholesale recovery that relies on China international outbound. Furthermore, the unsustainably high ticket prices we saw last year as China opened up post-COVID have sharply declined by 21% in the second half, impacting overrides in revenue, particularly as it relates to wholesale. But we see this as good for our customers in the coming years, as pricing is returning to sustainable levels. But Corporate is going very well in the region, up 11% in transactions through this second half. We made some really good decisions in the last few years to do 2 things. We deleverage from Greater China, and we also, secondly, we doubled down on corporate. This has been really successful for the business, because wholesale isn't contributing anything like we hoped. And this is because Japan is helping us win regional accounts and Singapore is delivering record results well beyond pre-COVID levels. Further, our exposure to Greater China has declined from 89% of regional revenue pre-COVID to 69% of revenue in FY '24, as we show you on the chart below there. So we think we have the building block for sustainable regional corporate growth, with wholesale recovery being an added growth lever to the region if and when it comes. Also a reminder that Asia is the only region that has a slight 1H seasonal skew, so expect 2H to be lower than the 1H in a normal post-COVID environment. We also need to put Asia into perspective. It contributes under 10% of group profit. So with that, I'm going to hand over to James Spence, our CFO.

Thanks, Jamie, and good morning, everyone. It's great to be here at my first CTM results presentation. So turning to Slide 16. We look at group financial highlights. I'm not going to repeat the revenue and underlying EBITDA commentary already shared by Jamie, instead, points to highlight on this slide. Firstly, the increase in the underlying tax rate from 24.6% to 26.4% is driven by the increase in the U.K. company tax rate in April 2023. In relation to cash tax, in FY '25, we expect the cash tax to be primarily in Europe region as it was in FY '25. We anticipate continuing to utilize carryforward tax losses in other regions. Secondly, as with EBITDA, note the strong increase in underlying EPS of 23% versus the PCP, showing the operating leverage of the business with the revenue increase at 9%. Thirdly, on the right-hand side, you can see the non-recurring items of $22.8 million pre-tax, consisting of Atlas project costs, as previously flagged, integration costs from the U.S. and ANZ acquisitions, and one-off legacy bad debt provisions, we've taken on balances over a year old related to COVID and non-recurring large-scale projects. And finally, we've included in the bottom right of the slide, the reconciliation from underlying to statutory NPAT. So I'll now move to Slide 17, where we show cash flow for the year. Net cash flow after working capital moves, tax, CapEx, returns to shareholders, and all other items was a net outflow of $16.2 million. A key point to highlight on this slide is the strong cash conversion of 89%. Note also the $84.1 million return to shareholders through a mix of dividends and share buybacks, which I'll talk to further on the next slide. You can also see the CapEx investment of $47.6 million in FY '24, primarily in proprietary technology, such as Lightning, Sleep Space, and Scout, which underpin the growth and margin metrics, which you heard Jamie talking about earlier, and the growth forecast for FY '25. We expect CapEx at similar levels in FY '25, and we'll be reviewing further during the year to ensure we're optimizing the return we get on CapEx in future years, which may lead to savings opportunities. Looking at capital management and the balance sheet in more detail on Slide 18. This is one of the key highlights of this set of results. Points to note from this slide. Firstly, the company continues with the policy to distribute 50% of statutory NPAT in dividends, leading to a final dividend declared of $0.12 per share. The dividends are unfranked for the time being. Secondly, you can see that the balance sheet and liquidity position of the company is strong, with net cash of $134.8 million on June 30, 2024, and an unused facility of $100 million, which provide the company with funding flexibility and optionality. And thirdly, given the balance sheet strength, the forecast strong cash flows and the share price weakness relative to our strategic plan, we're signaling today our intent to reset the buyback program outside blackout periods to up to $100 million from today, i.e. above the $26 million already spent, and extend through to June 2025. The buyback will be subject to Board discretion and market conditions. With that, I'll now hand over to Eleanor to talk through the growth drivers. Thank you.

Thank you, James. Good morning, everyone. My name is Eleanor Noonan, Global COO. Could we please move to Slide 20? I'm pleased to be presenting the results we have had in project delivery throughout FY '24 and how this has contributed to our revenue growth and improved EBITDA outcomes. These successes stem from our focus and discipline in planning and leading project delivery, transformation and change. We have also intentionally invested in the development of our leaders. In February this year, we launched our 5-year strategy, outlining our long-term vision and setting a target to double our FY '24 profit within 5 years. We know there is a realistic opportunity given our global market share sits at around 1%. Throughout FY '24, we have been focused on project execution that delivers long-term value and enhances ROI for our clients. Additionally, we have aligned our entire senior leadership team to be disciplined, structured and accountable for key initiatives that deliver these outcomes. In FY '25, we will further enhance the alignment of our performance targets with our incentive programs. And this is in line with our remuneration framework and benchmarks that were introduced in FY '24. Our successful outcomes realized in FY '24 gives us confidence for our FY '25 revenue and EBITDA targets. We have proven evidence of strong client uptake of our newly released technology solutions and in our ability to consistently manage our costs as shown in our improvements in EBITDA margins. In FY '25, our operating plans continue to break down our strategic ambitions into actionable horizons. These plans were developed through a collaborative effort involving in-depth workshops both in our global and regional executive teams across all regions. And this process has been crucial in defining our targets, key initiatives and the metrics needed to achieve each region's goal for the coming year. Let's now move to Slide 21, Revenue Drivers. I'd like to take you through some of the detail that drives our confidence in the FY '25 targets and outcomes. One of the significant revenue drivers that was launched in our ANZ market in February 2024 is Sleep Space, our proprietary hotel content engine. It is one of many projects that are included in our FY '24 CapEx investment of $47.6 million and is placed as CTM's newest strategic investment in client-facing technology. The launch of Sleep Space exceeded our initial expectations for the ANZ market where it was a positive contributor to the region's second-half turnaround. We are well underway to scale this product globally and each region has a tailored development and go-to-market product plan with modest revenue expectations for FY '25. Our research indicates that this will have a positive impact in our other markets, particularly within North America. As mentioned, this project is well underway for launch in all other markets throughout FY '25. If we can now move to Slide 22, Cost Management Drivers. In line with our strengths in project execution demonstrated in FY '24, we have also been focused on projects that positively impact our EBITDA margins. A project that has been running for many years is Scout, which is our proprietary AI and automation tool initially developed within our ANZ market. The development of Scout showcased our track record in innovating and in FY '24, started to material client outcomes that improved our speed and quality of service delivery. At a macro level, our headline story is an improvement in global revenue in FY '24 of 9% or $59.8 million, while our global FTE resources held steady with a 0.4% overall decrease in our workforce. Breaking this down further, in our ANZ region, where Scout was rolled out first, Scout has demonstrated excellent outcomes. We have increased revenue by 11% while reducing our workforce in this region by 3.3%. And importantly, increasing client satisfaction measured using a Net Promoter Score or NPS, where this score increased by 150% or 45 points over the same period. Scout is being further developed simultaneously around the world with a primary focus of improving client servicing and processing that enhances our service delivery. Another key project that demonstrates our strong commitment to disciplined project execution through FY '24 is Project Atlas. This project is focused on enhancing back-end processes across all markets and includes significant standardization and automation improvements. This project is set to improve our FY '25 bottom line by $10 million and increasing to $20 million in FY '29. And again, pleasingly, our project delivery has aligned with our initial business case estimations. Notably, the majority of non-recurring underlying costs of $10.5 million in FY '24 is related to Project Atlas, which is on track for successful project completion in September 2024. I'd like to now hand back to James.

Thanks, Eleanor. So on to Slide 24, where I'll go through the FY '25 target metrics. We've decided to present this differently this year with the focus on the key value drivers of the business, i.e. revenue growth and margin, rather than an EBITDA range. The reason for this is that we see the strategic value in the group over the medium term being driven by the performance of these 2 key metrics. EBITDA, which can easily be derived from the target metrics, is an output based on the revenue growth and margin inputs. We expect that this will provide more useful information for investors to understand and value the business than an EBITDA range. And as you've heard from Eleanor, this is much more closely aligned with how we look at the strategic value in the business. So turning to the numbers. We've carved out the metrics on Europe separately because of the non-recurring revenues included in Europe's FY '24 numbers. For rest of world, we're targeting revenue growth of around 10% in FY '25 in line with our 2H performance in North America and ANZ on a normalized basis. We're targeting EBITDA margin of around 27.5%, an uplift of 450 basis points versus FY '24. We've set out, and Eleanor has highlighted, key drivers, including automation, sleep space rollout and new business wins. In Europe, given we're coming off FY '24 comps with material one-off project work, we expect revenue to decline by around 18% versus FY '24. EBITDA margins are expected to return to around 49%, which are above pre-COVID levels, benefiting particularly from the usage of proprietary technology. Group costs are expected to be around $23 million, which includes some additional group personnel and higher variable compensation costs, with bonus payments in FY '24 being low. Now, looking at the skew of forecast results, which will be weighted to 2H due to a mix of factors, including normal seasonality and, as Eleanor mentioned, the progressive rollout in ANZ and North America through the year of the revenue and cost savings initiatives. Additionally, note that Europe 1H '25 is expected to be significantly lower than the PCP due to the roll-off from the project work in 1H '24. And as a result, we expect a lower 1H '25 than the PCP at group level. So with that, I'll now hand back to Jamie to wrap up. Thank you.

Thanks, James. And on to Slide 25, summary. Just a quick summary overall. So firstly, as you can see, we missed guidance in FY '24 and we're really disappointed about that. But as we said, this is largely the one-off project underperformance, particularly in Europe. And in the second quarter of the first half, the softer macro in North America, these things led to the miss. But as we -- hopefully we made really clearly through this presentation, the underlying business is performing well. As we demonstrated earlier, both North America and ANZ experienced 2H turnarounds that bodes well for FY '25. Both regions had a second half '24 uplift of 39% in EBITDA and a 600 basis point margin expansion versus 2H '23. And we expect Europe to be over 150% of FY '19 when stripping out project work. Further, Eleanor described the focus on revenue and cost automation. We are achieving or exceeding the metrics that support long-term compound growth. WINS [30:18] retention with special note of revenue preference is up 35% to FY '19 and conversion of incremental revenue to EBITDA at 61%. The last 2 metrics exceed our internal expectations. Thirdly, James talked to our strong balance sheet and as a result, extending our buyback program by an additional $100 million by June 2025. We are generating strong cash flow. We have no debt. And as a result, have cash management optionality for dividends, share buybacks and potential M&A. But FY '25 is a reset year as we cycle off the project work of the past few years in Europe. And as James laid out, rest of world expectations represent significant revenue growth and EBITDA margin expansion in FY '25. However, we will be cycling off very strong 1H '24 Europe numbers, masking the underlying performance of the group. So with that, I'm going to hand back now to Rachel. For questions. But one last thing before I do too, just to let you know too, that from now, the process we're going to get into now, we'll give an activity update at our CTM AGM, 31 October. It's going to be the new pattern we get into. But if we can now hand back to the moderator, Rachel, for questions.

[Operator Instructions] Your first question comes from Tim Plumbe with UBS.

Hi, Jamie. Just 2 questions from me, if possible, please. Just -- sorry, I might have missed it a little bit, but could you talk a little bit about the new business win pipeline? On my numbers, it looks like about $340 million in the second half, for $670 million in the first half. Are we seeing any slowing there in terms of opportunities? And maybe just can you talk to the competitive dynamics for new business wins heading into FY '25? Obviously, some big movements towards the top end. So that's question one. The second question, just how should we think about the impact of upcoming elections? What do you typically see in terms of general Corporate Travel market activity and then also company-specific contracts when you're heading into an election, please?

Yes. The first, the new business wins. Look, it is how it is. I think as long as we hit our targets, but I don't want to go into it too much, but July set off really strongly for us. So I think that's the key takeaway. And when you look at our 5-year plan, we will be -- you'll hear more during the year of how we're boosting that team to, so it's a key driver of the next 5 years. In terms of -- it's always competitive, of course. You've got the GBT-CWT merger, which seems to be delayed and may be delayed further. It is what it is, but obviously from our point of view, we want to make sure that we can partake in what might happen with some of those customers that might be disillusioned with that acquisition. That's what we're setting up for. Secondly, elections, they can have an impact, a short-term impact, but we've built that into our guidance in terms of our projections instead of our targets.

The next question comes from Wei-Weng Chen with RBC Capital Markets.

Just a couple for me. So first question is, I guess to me, it feels like this is a bit more than just an unwind of Europe work. I guess by my calculations, rest of the world EBITDA guide is about $165 million this year -- or next year, sorry. But in February, you said you were confident North America would be over $100 million, and ANZ would be around $70 million. Clearly, they won't be that. So I was just wondering what's happened in these non-European regions?

Look, I think, Wei-Wen, I think you've got to focus on the growth, right? The market is pretty steady. And as you see, the rest of the world was $122.5 million. And if you're saying roughly, it's $165 million, that's pretty strong growth, right? In a market that's steady. And like I said, it's a reset. We're moving forward in the next 5 years. And I think in anyone's world, that's pretty big growth.

And then I guess you made a comment earlier in the call that you let some accounts go. I guess my concern when I hear that is often that's like a euphemism for clients leaving. Can you maybe talk about how that conversation goes with the guys that you're letting go? How much time did they have left on their contracts? And or did you try negotiate with them or renegotiate with them before dropping them?

It's more when it comes up to retender. It's how you position things. I think the takeaway, you have to look in North America is that second half turnaround. Where revenue is at, where profits are, I think it's a really good result. And it sets up momentum. I mean, we talked about the fourth quarter as well. We think that's a really good outcome. And that's going to give us momentum for next year.

The next question comes from Sophia Mulligan with Macquarie.

Just a quick one on North America. I know you spoke about the American Airlines issues impacting you. I guess if we look across the last quarter or the quarters that are coming out of the U.S., Corporate seems to be doing quite well and a lot of airlines are talking to double-digit growth rates. Could you just talk to the exit rate and what you're seeing in the pipeline in North America specifically?

Yes. As we said in the fourth quarter, we had our transactions up 21%. I won't talk to July revenue other than to say that catch-up has been pretty significant in July. So we think we're in a good position there. And when you put that to our target metrics and we talked about 10% growth across the rest of the world, and that margin expansion, America will be leading that outcome. I'll leave it at that.

And just a quick one on TTV. It doesn't look like you've provided it. Is there a reason that's been taken away at a growth level?

Look, it's just not relevant to us. I mean, it's all about revenue. It always has been about revenue, how we convert into profit. And that's just how we've always operated. That's how we're going to continue operate. I mean, TTV doesn't buy you profit or revenue.

The next question comes from James Bales with Morgan Stanley.

I just wanted to understand the $7 million of set-up costs for Project Atlas in FY '25. Is that expensed in and incorporated into the guidance?

Hi, James. It's James Spence here. So what we've signaled there is our expectation of non-recurring costs for next year. Those aren't included in the margin and group cost numbers that we've provided in the target metrics.

And then maybe just on cash flow. It seemed like the message at the half year was that the rail payments would unwind in the second half and you were expecting that would get close to 100% cash flow conversion. That didn't quite pan out that way. Do you still expect 100% conversion of EBITDA going forward?

Hi, James. I'll take that one as well. Look, I think we previously said we expect cash conversion in the region of 80% to 90% going forward. Obviously, in a growing business, that seems a pretty good target to set. We are exposed to the volatility in the settlement cycle in the travel sector and certainly we've seen that in this period and coming into the business, it's quite visible that we are exposed to that volatility. But I think 80% to 90% is a good base to model the business and coming in at 89% as we have for this year overall, we think it's a good result.

The next question comes from Benjamin Gilbert with Jarden.

It looks like it's coming sort of 30-odd percent ahead of what you were guiding at the half. Just interested what the driver of that was. Have you changed any practices around what you're capitalizing versus expensing through the half over?

Yes. I think it's really the money we've spent on Sleep Space and Scout AI automation. I mean, there are things that we've really doubled down on, but we're also getting results. As Eleanor made pretty clear, we're getting really good returns on that. So, as we've always said before, if we're going to do something, we'll get good returns. But also, as James said, we expect that now to be relatively flat next year, and we're even looking at opportunities to reduce that cost in future years as we review ROI and all our projects. But the real step up is -- are those projects, but they're certainly getting a return. I think we made that pretty clear.

And then -- thanks, Jamie. And I want to add to that, Benjamin. There certainly has been no change in our CapEx and our capitalization policy. I've come into business, I'm very focused on that number. Obviously, it goes to cash, which is a key metric for us. We will be looking at it hard and ROI, as Jamie said, is a really key metric for us. So, this is something that's getting a lot of focus at the moment.

Excellent. And just a quick one for me. And, Jamie, I fully appreciate your comments around the growth. And the growth number is obviously pretty significant as you look at the run rates. But obviously, it's also a bit of an expectations going outside of the fence as well. I just wondered to what extent do you think the management team, or the group has been distracted? Obviously, there's been some challenges around the U.K. contract and some of the humanitarian ones that might have created some, I suppose, and you obviously mentioned the Helloworld contract, around ability to sort of maintain momentum will continue to drive some of these. And I suppose what I'm trying to get at there is, as we look into next year and you've given some clean numbers, ex some of these sort of more volatile, maybe less predictable contracts, do you think that more singular focus as we look forward is going to be some of those run rates from a contract wins in absolute terms on a net basis start to accelerate again? I'm just -- there has obviously been quite a lot of volatility and movement versus expectations over the last 12 months?

Look, I think, to be fair, firstly, that comment, I mean, we've got a team that does that specifically in Europe. It doesn't take more effort from anyone else in the world. But as Eleanor said, we've got this real -- the biggest thing is now everything is integrated. And that's the biggest change that we've seen in the half. So as Eleanor said before, the accountability and the laser focus on winning business, getting more revenue per transaction, particularly through Sleep Space and other matters, and then cost out through AI and automation, that's all the business is talking about. That is the difference. I can't say that is the difference. It's that everything is integrated and now it's go, go, go. So the idea is we're going to do 3 or 4 things very well, and we're laser focused on that as we set up for a 5-year growth plan.