Experience Co Limited (EXP) Earnings Call Transcript & Summary

Good afternoon. I am Bob East, Chair of EXP Board, and I welcome all shareholders and guests to Experience Co's AGM, which is being held as a virtual online meeting. All attendees will be able to watch a live webcast of the meeting. In addition, shareholders and proxy holders will have the ability to ask questions online and submit their votes. I have confirmed with the Company Secretary that a quorum is present and therefore declare the Annual General Meeting open. I welcome my fellow directors who are also online. Nonexecutive directors, Anthony Boucaut; Neil Cathie; Michelle Cox; CEO and Executive Director, John O'Sullivan. Also online, our CFO, Owen Kemp; and Company Secretary, Fiona van Wyk. Cameron Hume, Partner of RSM, the company's auditor; representatives from Boardroom Pty Limited, the company's share registry; Boardroom Media; and Lumi Technology are facilitating the online meeting today. If we experience any technical issues during the meeting, a short recess may be required [ should this ] occur, we will communicate accordingly. But before I move on to the formal part of the meeting, I'll explain how the voting and the Q&A will work today. Questions can be submitted online at any time. To ask a question, press on the speech bubble icon. This will open a new screen. At the bottom of that screen, there is a section for you to type your question. Once you have finished typing the question, click on the arrow to submit your question. You may ask questions at any time during the meeting. However, I will address the questions as I move through the respective items of business. I will also consolidate questions that may be for one or similar topics. I encourage shareholders submit their questions as soon as possible. Voting today will be conducted by way of a poll on all items of business. To provide you with enough time to vote, I declare the poll open, and you may now vote on all resolutions. I'll provide a brief overview of 2020 and then CEO, John O'Sullivan, will expand on the year and the outlook for FY '21. After the addresses, I'll move to the formal business of the meeting. FY '20 was transformational for EXP in a year that was extraordinary, particularly for the Australian tourism markets. Management has streamlined the business, reduced debt and improved efficiencies throughout the business in a period that has seen some of the most significant external shocks to Australian and New Zealand tourism in generations. At the 2019 AGM, having conducted a thorough review of the business under the leadership of newly appointed CEO, John O'Sullivan, the company announced its key strategies and objectives that would reset the business for improved performance into FY '21, involving: business simplification and clarity on core business, divesting of noncore activities, improving systems and processes to support efficiency throughout the business and implementing cost management disciplines. In early January 2020, the group completed the divestment of the GBR Helicopter business. This delivered approximately $16.5 million which was applied to our debt facility, strengthening our balance sheet and a clear demonstration of an increased focus on return on capital. Prior to the emergence of COVID-19, financial performance had been impacted by adverse weather conditions and the catastrophic Australian bushfires in skydiving geographies, while Tropical North Queensland tourism markets continued to experience weaker demand, as for shadow heading into FY '20. The emergence of COVID-19 and government responses, health advice, international and domestic border restrictions were soon to test the new strategic direction of the business, far greater than any trading or market development. EXP responded swiftly, safeguarding the health and safety of our employees, customers and the broader community in line with government health recommendations. In late March 2020, the Board and management made the difficult but necessary decision to suspend all group operations. Management streamlined operating structures and implemented cost-saving measures to minimize cash outflow during the period of uncertainty. Pleasingly, operations progressively recommenced from late May 2020, in line with the lifting of restrictions in New Zealand and Australia. Today, only our Skydive business in Victoria remains in lockdown as per state government instructions. The wage subsidy programs in Australia and New Zealand were welcomed and assisted the company in managing our business during suspension. Upon resumption of operations, they supported our team members during a challenging period and allowed the group to retain critical capabilities within the business when operations return to normal. While operations were suspended, the business used the opportunity to accelerate planned improvements in systems and projects aimed at reducing costs, improving business performance and customer experience. Capital preservation was paramount to ensure the group was well placed to restart operations and capitalize on demand as conditions improved and to provide the platform for growth in the medium term. Government responses to COVID-19 at state and national level continues to dictate near-term financial performance. As domestic restrictions relaxed, demand exceeded initial expectations and modest profitability at both the EBITDA and cash flow levels has been achieved in the first quarter of FY '21. The asset divestment program has progressed with diligence and patience, with net debt reducing from $29.5 million at June 30, 2019 to circa $5 million as at October 27, 2020. Importantly, while capital is being released, it is not going to impact the ability of EXP to flex to historical earnings levels going forward, an outstanding achievement. Through all of this, we have not lost focus on growth. Management has continued to invest -- innovate new product opportunities, leveraging existing capital and skill base by incorporating unique skydive experiences such as the reactivation of the CBD Langley Park, Perth Drop Zone and exploring similar opportunities in other key markets. We have also successfully installed a new Skydive reservation system, which will provide connectivity to our agency networks and increase efficiencies and customer experience at our drop zones by enabling automated check in. In September, the Queensland Premier announced the group had been awarded a $3 million contribution from the Queensland government for the construction of a new pontoon on the Great Barrier Reef. The new pontoon, at a cost of $6.7 million is part of the Dreamtime Island vision, featuring world-class facilities and scientific research and sustainable ecotourism, while showcasing indigenous people of the region as traditional owners of the Great Barrier Reef. This project will provide sustainable training and employment pathways for the indigenous people in the region and, importantly, attract tourists to one of the 7 wonders of the world. The project is scheduled for completion early 2022. With business simplification largely complete and proven capital discipline in place, the group has the platform to grow. Management has worked tirelessly on progressing the acquisition pipeline to execute medium- to long-term opportunities in the sector. So outlook. In the near term, we expect market conditions to remain curtailed by domestic and international border restrictions. The business will remain agile to respond to emerging market conditions and position itself to capitalize on demand as these restrictions relax. Near-term catalysts include domestic border policy in both Queensland and Western Australia and the Victorian government's approach to easing restrictions. We also remain hopeful of the emergence of a Trans-Tasman travel bubble during the course of FY '21. At an international level, we are encouraged by the progress of targeted initiatives for select countries such as Singapore, South Korea and Japan. The business remains steadfast in its strategic direction, and the objective to grow the business both organically and via acquisition opportunities is well placed to explore and capitalize on opportunities as they align with our strategic objective. Our adventure experience teams are best-in-class, which ensures EXP is able to deliver world-class unique experiences to our customers. The new management team has performed remarkably well. On behalf of the Board, I thank John O'Sullivan,our CEO, and his management team for leading the group through a demanding year. The Board's appreciation extends to all employees and business partners for their significant efforts and commitment to our business during these testing and uncertain times. During the year, the Board met has often as was required to provide support and guidance to the management team, and I thank my fellow Board members for their support during the year. And finally, to all our customers, trading partners and stakeholders for their ongoing support of the EXP Group during a time when they themselves have also been impacted by these unprecedented times. COVID-19 has undoubtedly impacted the business significantly in 2020. Our business and our team have proven its resilience and has emerged well positioned to capitalize on the opportunities in the future. We look forward to growing our adventure experiences offering, executing on growth opportunities and delivering shareholder value into 2021 and beyond. I'll now hand over to John, who will take you through his presentation.

Thank you, Bob, and good morning, ladies and gentlemen. Can I start my presentation today by acknowledging the traditional owners of the land, which we gather here in Sydney this morning, the Gadigal people of the Eora Nation, and pay my respects to elders, past, present and also emerging. Turning first to Slide #5, talking about COVID-19 recovery. As the Chairman alluded to during the course of his presentation, there is no doubt that financial year 2020 was one of the most challenging years for our sector, and Experience Co was no exception. In fact, in the 20 years of our business' history, it is unlikely that we've ever experienced a more challenging year. Importantly, however, management has now turned our attention to FY '21 and how we accelerate out of the recovery out of this tumultuous year. And by doing so, we've taken a distinctive approach to each individual quarter of FY '21. The quarter which we just completed has all been about recovery and restart. And as the Chairman alluded to, we have now got all parts of our business with the exception of Victoria operational. FY '21, quarter 2, has all been about positioning our business to take advantage of what we expect will be the traditional seasonal uplift in our business, coupled by the relaxation of internal borders within Australia. Whereas quarter 3 and quarter 4 will all be about ensuring that we execute against our traditional peak season to ensure that once the relaxation of the JobKeeper subsidies come to an effect, that the business remains agile to deal with the new circumstance. In saying this, I would also like to add my thank you to both the Australian and New Zealand federal governments for their quick response and that through the JobKeeper and wage subsidy program that allowed so many businesses in the sector such as ours to remain vigilant throughout the pandemic. Turning to Slide #6, a trading update. Whilst the first quarter of each financial year is traditionally the quietest for Experience Co, I'm pleased to detail to you this morning 2 very important things. Firstly, that the month of September was our strongest trading month since COVID-19 impacted the business. And as part of that, as the Chairman has already alluded to, we traded positively with a $1.5 million EBITDA positive result and a positive operating cash flow. As you can see from the slide, both business units, Skydive and Great Barrier Reef Experiences, have traded at around 30% of prior comparative period volumes. In particular, September was a very pleasing month, with a strong domestic response on our Great Barrier Reef Experiences, which trade at close to 40% during that month. And pleasingly, what we have seen during October is a similar trend coming through our business. As we look ahead, of course, the key near-term drivers for our business units, particularly the Australian business, which will become the predominant part of the business, will be the internal reopenings of Australian borders. And as we hope, a Trans-Tasman bubble emerging during the course of the financial year. Turning now to Slide 7, net debt reduction. As we announced to you during the AGM last year, when we unveiled our strategic plan, the key focus of the Board and management during the course of FY '20 and also as we go into FY '21,has been around balance sheet repair, and in particular, the reduction of net debt. In driving this, management and the Board have been particularly conscious, as the Chairman alluded to, to make sure that we have not disposed of assets that would preclude further growth as demand returns into the tourism sector. These efforts, combined with faster than envisaged return to operations, pricing discipline and discipline on managing our costs, has seen our net debt reduced from $29.5 million at the conclusion of FY '19 to just under $5 million as at the 27th of October 2020. Turning now to Slide 8. With balance sheet repair now well progressed, with the business now operating at near full capacity, management's attention is now turning to growth opportunities that will present itself to the business. We are particularly excited about the opportunity presented to us through the support of the Queensland government to redevelop our Reef Magic ponton off Moore Reef and the Great -- off Cairns in the Great Barrier Reef. This will be the newest pontoon in the northern part of the Great Barrier Reef in the next -- in the last 10 years. And very importantly, will be the only tourism product on water that embraces the themes of sustainability, sea country and science. We believe that, that will better place Experience Co to take advantage of the emerging thematics of cultural tourism and tourism related -- cause-related travel that we are seeing becoming popular in the world over. In addition to that, as the Chairman alluded to, management has also been actively looking at opportunities within acquisitions across the market. And I hope to have more to say about that as we progress through FY '21, acknowledging the themes that we have applied to that noted on the slide in front of you. Turning now to Slide 9 and the outlook. Our focus as we head in the near-term is ensuring that the business is well positioned to take advantage of returning demand as domestic restrictions and potentially Trans-Tasman restrictions are relaxed during the course of the remainder of the financial year. Key to our assumptions on this recovery, of course, is that there is no further Victorian style lockdown in Australia during the remainder of the financial year. The Board and management of Experience Co firmly believe that looking through recent trends of FY '20, that this industry in both Australia and New Zealand remains one of the strongest industries that both markets have and in the medium term, we expect that growth will return as border restrictions are relaxed for both countries. Within Experience Co, our focus will be on ensuring that the business is well positioned to return to growth and stronger profitability by focusing on value-accretive acquisitions, organic growth within our existing portfolio of products and ensuring we remain ever vigilant on costs. In closing my presentation today, I would like to thank and acknowledge several key stakeholders. Firstly, to our people. It's not been lost on the Board and management just what massive impact COVID-19 and the Australian bushfires has had on our people. We've lost almost 50% of our workforce since February this year, and many remain either stood down or working on reduced hours. Their dedication and resilience has been amazing. I'd also like to thank our customers. Those people who continue to entrust our teams either in the skies above Australia and New Zealand or on the waters of the Great Barrier Reef to give them those life-changing experiences that only Experience Co can provide. To our suppliers and trade partners, we thank them for their flexibility and support during this period when many of them were experiencing their own pressures on their own business -- on their own businesses. And to you, our shareholders, we say thank you for your continued support and guidance as we continue to manage Experience Co through these interesting times. So thank you again for the opportunity to say a few words this morning. I'll now hand back to the Chairman to take you through the remainder of the meeting. Thank you.

Thank you, John. I'll now proceed with the formal business of the meeting. I confirm that a representative of Boardroom has been appointed to act as returning Officer for the purpose of conducting and determining the results of the poll. I have written advice on the proxies received today prepared by our share registry. Proxy votes received represent circa 78% of the issued share capital of the company. And as Chairman of the meeting, I intend to vote in favor on all open proxies and all resolutions to be put to the meeting. The notice of meeting was made available to shareholders on the 25th of September, 2020. And unless there are any objections, I will take the notice, including explanatory notes, as read. I will now move to the first item of business. To receive and consider the financial report, directors' report and auditors' report of the company and its controlled entities for the financial year ended 30 June 2020. A copy of the FY '20 annual report was made available to shareholders at 27 August 2020. A copy of the annual report is also available on the EXP investor website. There is no formal resolution to put to the meeting in relation to the adoption of FY '20 annual report. However, I'll respond to questions from shareholders in relation to the annual report. Cameron Hum of RSM is also available online to respond to any questions relating to the audit and the financial statements. Fiona, are there any questions?

No questions, Bob.

Okay. Thank you. There being no questions, I'll move to the next item of business, which is resolution 1. In accordance with the Corps Act, a resolution for the adoption of the remuneration report included in the FY '20 annual report is required to be put to shareholders of the company. The vote on this resolution is advisory only and nonbinding on the company. However, the directors recognize that the outcome of the resolution as an indication of shareholder sentiment in relation to the FY '20 remuneration report. I will now respond to any questions received online. And have there been any questions?

There are no questions so far. Please, go ahead.

Thank you, Fiona. There being no questions, I will put resolution 1 for the adoption of the remuneration of the Board for the financial year ended 30 June 2020. Valid proxies are now displayed on the screen. Unless you've already done so, please cast your vote for resolution 1. [Voting]

Resolution 2 and 3 relate to the reelection of directors. The notice of meeting included the attributes of each of the directors standing for reelection today, and I'll take those as read. Resolution 2 relates to the reelection of Michelle Cox, who retires in accordance with Clause 11.4 of the company's constitution and being eligible, has offered herself for reelection. I will now respond to any questions received. Fiona, are there any questions in relation to that?

No. No questions.

Thank you, Fiona. As there are no questions -- or no further questions, I will put resolution 2 for the reelection of Michelle Cox as a director of the company. Valid proxies are now displayed on screen. Unless you've already done so, please cast your vote for resolution 2. [Voting]

Resolution 3. Now Neil Cathie, Chair of the Audit and Risk Committee has been nominated to Chair this section of the meeting. Thank you, Neil.

Thanks, Bob. This resolution relates to the reelection of Kerry Robert, or Bob East, as a Director of the company, who retires in accordance with Clause 11.5 of the company's constitution and being eligible, has offered himself for reelection. I will now respond to any questions received online. Fiona, are there any questions?

No questions, Neil.

Thanks, Fiona. As there are no questions, I will put resolution 3 for the reelection of Bob East as a director of the company. Valid proxies are displayed on screen. Unless you have already done so, please cast your vote for Resolution Chair -- resolution 3 rather. [Voting]

Bob, I'll hand back to you. Thank you very much.

Thank you, Neil. So resolution 4 relates to the grant of service rights to the Chief Executive Officer of the company. The Board approved the award of service rights to the management team, including, subject to shareholder approval today, 270,219 service rights to the CEO, John O’Sullivan. I will now respond to any questions received. Fiona, are there any questions?

Also no questions.

Thank you, Fiona. As there are no questions, I'll put resolution 4 for the issue of 270,219 service rights to John O’Sullivan under the EEIP and on the terms summarized in the notice of meeting. Valid proxies are displayed on the screen. Unless you have already done so, please cast your vote for resolution 4. [Voting]

Resolution 5 relates to the grant of performance rights to the Chief Executive Officer of the company. The Board approved the grant of performance rights under the long-term incentive plan to key executives, including 1,951,600 performance rights to John O’Sullivan, CEO of the company, in accordance with Listing Rule 10.14 and subject to shareholder approval today. Fiona, are there any questions.

No questions either.

Thank you, Fiona. There being no questions, I'll put resolution 5 for the issue of 1,951,600 performance rights to John O’Sullivan under the EEIP and on the terms summarized in the notice of meeting. Valid proxies are displayed on the screen. And unless you have already done so, please cast your vote for resolution 5. [Voting]

That concludes the formal resolutions. If you have not already done so, please cast your votes now as the poll will be closing very shortly. The results of the poll will be released on the ASX Company Announcements platform as soon as they are available this afternoon. So thank you to the management, and thank you to the Board, and thank you for joining us, for attending our AGM. I declare the poll and the Annual General Meeting closed. Thank you.