Flight Centre Travel Group Limited (FLT) Earnings Call Transcript & Summary

Good day, and welcome to the Flight Centre Travel Group Half Year Results Conference Call. [Operator Instructions] And finally, I would like to advise all participants that this call is being recorded. Thank you. I'd now like to welcome Haydn Long, Head of Investor Relations to begin the conference. Haydn, over to you.

Good morning, everyone. Thanks for dialing in for another one of our award winning half year results presentation. Today, I'm joined by our CFO, Adam Campbell; and the CEO of our Corporate leisure and supply divisions, namely Chris Galanty who's dialing in from the U.K., James Kavanagh and Greg Parker. I'm also joined by Melanie Waters-Ryan, our Chief Operating Officer of the corporate business. Mel will join us on some of the meetings over the next few days. You will, of course, also hear from Skroo. We'll kick things off with a short intro before finishing things off with some commentary about our outlook. We're not sure what it will do in the middle, but probably a bit of heckling, I suspect. I'll now hand over to Skroo.

Thank you, Haydn, and good morning, everyone. Our first half PBT this year was comfortably in excess of $100 million, as you've probably seen here. We're on track to deliver a record full year TTV above the $23.7 billion result that we achieved during the 2019 financial year. Also, earnings per share is up strongly to $0.39. We're paying a $0.10 per share interim dividend and total shareholder returns relating to the period were about 7.4%. This is based on our share price movement over the period plus the interim dividend. Profit, we're still trying to improve pre-COVID but this is a pretty good recovery considering international travel is ground for almost 2 years and Australia's international borders only reopened 2 years ago. China, of course, as you remember, was in January 2023. It's never been easy. This has been achieved against the backdrop of economic and geopolitical uncertainty. We have inflation interest rate increases, and most of you will have heard about the Middle East and the Russian-Ukraine war. But the level of recoveries strongly underlines the travel sector's resilience. Travel, we believe, is non-discretionary, and this is the case in many customers' eyes. It's been referred to the emergence of a traveling class, which is different, obviously, than business and economy class with the means and propensity to travel, and that's exactly what people want to do. Generally, people simply adjust trouble plans and destination if they are concerned about whatever is happening on in the world. So I'll hand over now to Adam for more detail on our results. Thank you very much.

Thank you, Skroo. Good morning to everyone as well. Look, as Skroo indicated, our journey, not just towards recovery, but returning our business to sustainable growth at both the top and bottom line. And once again operating at a 2% PBT margin has continued during the first half. Our key focus areas of sales growth, improved revenue margins, controlling our cost base and the proactive capital management can all be seen in this morning's announcement. TTV is of $11.3 billion with growth of around 17% in both corporate and leisure was our second best start to a year. And combined with a 130 basis point increase in revenue margin led to revenues of $1.3 billion, just under 30% up year-on-year. The revenue margin rebound has come about predominantly in our leisure businesses, but also in corporate and reflects general stabilization or improvement in total available margin across our product ranges and the successful deployment of strategic initiatives. These include new revenue streams are focused on ancillary product sales such as Flight Centre in Captain's Pack and Travel Associates Purple Ribbon service, increased attachment of higher-margin products and investments made to improve customer experience. Our cost margin is again just under 10% and reflects the permanent structural changes made during the pandemic as well as the discipline held across all divisions as we balance cost control with appropriate investment in key growth drivers. The growth of scalable leisure brands, corporate productive operation initiatives and the establishment of our Global Business Services division to create greater global operating leverage will all continue to drive downward pressure on cost margin. All of the above has come together to deliver an underlying EBITDA of $189 million and an underlying PBT of $106 million. As noted at the full year, our balance sheet is now in a very solid position. And during the first half, we have further strengthened the balance sheet and undertaken around $425 million in capital management initiatives. These included utilizing $84 million to buy back convertible notes. We're paying $250 million of bank debt and $30 million of overdraft, all able to be redrawn, if required. The payment of $40 million or $0.18 per share fully franked final dividend and the announcement today, as Skroo mentioned, over $0.10 per share interim dividend. I'd also like to reiterate; we are a 2% PBT margin business. And the company-wide focus on returning to that level has become a rallying cry or a north star for the company overall and for each of our individual business leaders. We have a clear path in place, including the continued focus on revenue margin initiatives across corporate and leisure, operating leverage opportunities to scale our cost base well below revenue growth and reduced losses in our other business segments. Firstly, we've made the difficult decision to close our loss-making U.S. wholesale business, and we also closed our underperforming engine wholesale FX business in July. Pedal will distribute profit for the group once again this year after stock-related losses in FY '23. Our GBS business will integrate 1,400 people globally to provide greater efficiencies and better outputs while supporting our frontline people. We've fast-tracked our investment in TP Connect and we'll start to see the benefit of that in FY '25. And we've already started to see a year-on-year turnaround in our travel services businesses as normal travel patterns return. Coming clear though, we're not going to artificially hit that target or to sacrifice longer-term success to do so. That means we won't abandon strategic initiatives that don't have the required profit margins while they're scaling up. And we also won't slow growth in profitable but lower-margin businesses to hit the target. We've included the slide on Page 9 in results. And whilst the decrease and vacated or to their respective divisional results, I will note that both divisions have had a strong first half. Leisure PBT of $60 million with TTV in excess of $5 billion and revenue margin increasing to 12.1%, sets them up well for the second half. And the strong pipeline of wins in corporate has leaded to just under $6 billion in sales with a corresponding 20 basis point increase in revenue margin. Combined with the investment, Chris, Mel and the team are making productive operations, I can see a very clear path to very strong results over the next 18 months. The other segment, I'll now just touch on briefly. The TPV reduction of $170 million reflects the closure of the underperforming engine FX business I mentioned earlier. And the largely flat results year-on-year is a combination of profit improvement in our touring business and DMCs, offset by the accelerated investment in TP Connect. As I mentioned earlier, we've also made the decision to close our loss-making U.S. wholesale business, GOGO. Given the decision to close that business, we've excluded its operating losses from our underlying results to assist in future period comparison. Other items that have been excluded from underlying results include a $48 million gain from the buyback and remeasurement of convertible notes, some relatively small costs incurred to date on productive operations, the normal post-COVID employer retention plans, which are going to finish up this year and the amortization of convertible notes. Now I'll just spend a minute on that amortization of convertible notes because it does have an impact on our guidance range. By excluding the optimization of convertible notes from underlying results, both now and into the future, we're removing the fluctuations that would otherwise be seen as we reassess the amortization period each reporting period and every time we buy back more notes. This is noncash and simply a technical accounting treatment that doesn't reflect the cost of holding those notes. The coupon on the notes or the interest expense is the actual cost and continues to be recorded in our underlying results. As Skroo noted shortly, our first half results and our trading through January and February is in line with our expectations, and we're therefore maintaining our trading guidance for the full year. The impact of the accounting change I've just spoken to will, however, increase the range to $300 million to $340 million as we exclude $30 million of convertible note amortization from our full year underlying results. For transparency and consistency, we've also excluded this from the prior year numbers, does it year-on-year comparatives remain appropriate. Now I'll just finish by highlighting a couple of important items in terms of the balance sheet. As noted earlier, we've proactively managed the balance sheet during the half by buying back convertible notes and paying down debt and overdrafts. We've also generated a modest amount of positive operating cash flows, which is important given we traditionally have negative operating cash flows in the first half, followed by strong inflows in the second. During the period, we've also extended our $350 million debt facility until April 2026, converting the facility back to an unsecured format and with more favorable commercials and covenants. The strength of our balance sheet remains a key asset for us and will form part of the backbone of our future growth and success. I'll now hand over to Chris.

Thanks, Adam, and good morning, everybody. I'm pleased now to give an update on the performance of our global corporate business. I'll start just by reminding everybody where we play in this segment. Uniquely, we address the market with 2 brands, FCM in the large market, global space, which operates in around 100 markets, of which just under per equity and corporate traveler in the SME space, which operates in 6 markets globally. The reason we address the market with 2 brands, is it enables us to target our offerings, specifically to those 2 customer types. These problems we believe are fundamentally different, and therefore, by having a tailored solution to both enables us to win better and succeed more. Similarly, this applies to our supplier value proposition, whereby targeting the specific customer types, we can deliver better returns to our suppliers than current competitors. So just a quick summary of some KPIs in our first half scorecard. We're pleased to see transaction volume up 20% on the prior period. Revenue margin up 18 basis points. Underlying PBT margin, up 37 basis points. pleased again to see strong customer retention with contracted customers retained at 98% and strong new business wins of $1.3 billion. So just delving in a bit more detail into those numbers. First, and pleased to say we continue to significantly outperform the overall business travel sector. We've proven organic growth model delivering further TTV growth. In fact, record first half TTV of just under $6 billion. which was a 70% increase on our previous fee with respect to last year, with strong sales in all 4 regions. In fact, if you look at our TTV by geography, you can see we're very well diversified globally with around 30% of TTV coming from the America and Australia and New Zealand, around 27% from EMEA and now 13% from Asia. It's important to note that the 20% increase in transaction volumes now takes us well beyond pre-COVID 2019 levels. And this is in a market segment that has only recovered to approximately 70% to 75% of pre-COVID numbers. So again, our grocery strategy has delivered significant growth. We have, again, high customer retention in both brands and around 98% in the contracted customers. And the new sales wins of $1.3 billion, which have already been secured up until the end of January, weighted more towards medium to SME customers, which was part of our strategy this year. Pleasingly, the scale that we're seeing is cost to generate better stronger profit growth. We saw a 53% increase in underlying PBT and with both revenue margins increasing and cost margins decreasing due to economies of scale. These economic goes driven by productivity levels. And one of the key things is that we've been able to right size our workforce, which is the process we're continuing with after a significant upstaffing in the post-COVID recovery. Most of will stay a very strong uptake in our proprietary digital customer platforms, Melon in corporate traveler and the SCM platform. And we've seen record numbers in the first half followed by a best 7 months in January across both platforms and come shortly. I'm also pleased to say that we continue with our strategy of delivering new and resilient income streams. Obviously, most of our revenue still comes from travel management services, but we now generate around 8% of our revenue from nontravel management services, and that will continue to grow into the future. And something I've spoken about before is our hotel attachment ratio and I'm pleased to say that over the calendar year, we saw a 10% increase in our attachment rate, which really shows the strength and the value of our corporate global hotel program. Obviously future remains positive. We, as a management team, will stick with our consistent growth and strategy, which has been clearly coated through our management team and through the business over the last few years, and we will continue to focus on the execution of that strategy. Moving into the second half. We had solid January results, which were in line with our budget, which is really great because it was an aggressive budget. So results in the new year, new calendar year carries on strongly. And talking to our customers in line with what we've seen from independents to GBTA business travel outlet coal. Our customers are telling us, but most of our customers intend to spend more on business travel in 2024. Just to recap on our strategy on the page, the summary of why and how we're winning, starting at the top, our 2 label brands. Below that, the services and products that they deliver to our customers. Obviously, travel management being our #1 service, but increasingly a new range of products which solve further customer problems enabled us to generate more revenue. Our proprietary customer tech of Melon and Corporate Travel and SCM platform, both of those which are distinct platforms but share commonality behind the scenes. They continue to grow across the world and have been a major reason why we're winning and retaining customers. We continue to invest in our industry-leading organic growth machine, our sales and marketing machine to make sure we don't just retain customers, but we can win more customers than our competitors by having superior marketing and sales capability. Productive operations, which I'll touch on a bit more shortly, is really about us creating a single global operating system to improve productivity and create an even more compelling customer experience through consistency. Supply partnership and proprietary aggregation are really important to our customers and the reason why we win again. I won't go into that because Greg will touch upon that later as we approach this as a flat for the travel group. And then the foundation of our success, as I've always said, is down to our culture, and most importantly, our people. So moving a bit more into the Melon and platform. The growth of these products, which we've invested in throughout the COVID and post-COVID have been a major reason why we win and retain customers. Melon is by far the dominant booking platform now, all of our new customers in the U.S. and Canada and is finishing pilot at mass-market launch in the U.K. This really gives our customers as to pure experience and enables us to improve the compelling experience and therefore, the margin returns for ourselves and our supply chain. FCM platform has been live to all new customers for over the last year. And in the forthcoming months, we'll be migrating all of our remaining customers on this platform. So by the end of this year, all of our customers will be using FCM platform. And again, this proprietary technology, which is absolutely tailored to the specific customer types, but shares common confidentiality behind the scene is one of the major reasons why both our corporate brands are winning. Expanding a bit more on productive operations. This is an internal strategy to transform the operations of our business globally. It really has 3 key elements. The first one is the digitalization and standardization of operations. This means moving on to a single operating system with the same software, the same configuration, the same automation across both brands across all markets, which gives our customers a more consistent experience, particularly in STN, where this is very important to the customers, but also much better economies of scale for our business. And it should lead to significant growth in productivity. Part of productivity is driven by the second point, which is enabling self-service capabilities in our platform. This means customers wherever they can, will be close to self-serve, couldn't relying our people to carry out tasks for them. This should give customers a faster experience, which they desire, but also it should mean that the productivity of our people continues to increase. In fact, it should rapidly increase. And the third and important part is content access and distribution. This means that the right content, whether it's net fair or a hotel room, gets to our customers via the right channel at the right time. And that can be direct to our customers via our platform, auto consultants, which means our customers get better pricing, and we can get better returns. This productive operations strategy has begun already been deployed across the world in different elements, and it's going to lead to the productive transformation of that business over the next 18 months. An important part of operations is our use of AI. I'm not just going to talk about our AI center of excellence, which we established over the last year. But second to just point out specific achievement of AI that's already live in our business. So the way customers choose to deal with us in an off-line fashion is e-mail, they can't chat or call but predominantly, we receive e-mail from customers. Our new AI features, which is being built into productive operation intelligently categorized these incoming e-mails. This prioritize urgent travel needs and potential revenue opportunities. It ensures prompt targeted responses, which significantly boost our consultant efficiency and therefore, our customer satisfaction. And what this means is it doesn't just automate the process; it frees up our consultants to spend more time adding value to our customers. So one of the many ways that AI is already impacting our business, but for that central excellence, we see that increasing significantly over the forthcoming months and years. So just to finalize, I'll talk about our key drivers. Firstly, we will continue with organic sales growth, not just retaining customers, but making sure our sales and marketing machines is out there winning and onboarding more customers than ever. Those customers will really benefit from productive operations. So us really driving sales service through our platforms, but also increasing automation and digitization of all of our transactions. This leads to greater efficiency and scale benefits and fundamentally great margin improvement at both a revenue margin but also the gross margin. So as I finish, it's a good time for me to thank our people for the fantastic work that they've done for us and our customers over the last 6 months. And on that note, I'll hand over to James Kavanagh to give an update on leisure.

Thank you, Chris, and hello to everyone. I'm delighted to update on the leisure division, and I'll cover off on 3 key areas. Firstly, a business overview, then touch on to the highlights of our results, and then we'll focus on to the future. So on the first slide here, you'll really see that leisure is really positioned to grow following the transformation that has been achieved in recent years with opportunities to grow in our core markets of Australia, New Zealand, South Africa and really our challenger position is in the U.K., the U.S., Canada and Singapore, where we hold less than 5% market share. Our strength there really lies in the diversity across our brands, our sales and service channels with a more productive retail network now of 554 stores, which are supported by digital booking apps who have continuous functionality improvements supported by efficient call centers. Together, they're generating repeat customer rates that range from 50% to 70%. And collectively, there's an impressive Net Promoter Score ranging from 47 through to 85 depending on the brand. On the next slide, you'll see a view of our portfolio of brands, which really reaches wide with Flight Centre making up over half the portfolio in the mass market space. We're really accelerating our growth in the luxury travel space with travel associates in Australia and New Zealand, who had a record first half profit complemented by Scott Don, who have settled into our portfolio and grow really well and are set to make meaningful contributions in the second half. Our complementary businesses specialized in pre-packaged travel cruise holidays and targeted OTA sales and foreign exchange. And then finally, in the B2B space, one of our fastest-growing categories is in the independent agent segments. The benefits of this positioning provide our customers with access to the widest range of travel services and also for our suppliers, it gives them a single-entry point to be able to distribute their products quite far and wide. On the next slide, you'll see the business model shift that has really happened in leisure. And the key callout here is that almost 1/3 of our sales are now being achieved by lower cost and highly scalable model of online and independent contractors. In the online space, what's key here is transacting higher-volume, lower-margin products, money domestic, which frees up our stores to actually take care of more higher-value customer products. In the independent contractor space, they typically have a lower customer acquisition cost. And of course, we share the margins with these independent contractors in this space. So in the next couple of slides, you'll see a scorecard in a bit more detail, which highlights the results of our Leisure division. And when we take a look deeper into the performance of these categories, some of the key callouts include our overall TTV growth of 18%, which has continued to grow into the January and February period, where we expect to actually reach our peak selling month. All 4 leisure categories are expected to transact over $1 billion in TTV and are growing and are profitable as well with Flight Centre producing significantly more than this. A couple of key call outs in this space is that our specialist complementary category is over 50% with online sales now hitting $830 million, and our Jetmax business, which is an OTA specialist division in the meta world is growing over 75%. Our luxury category grew 44%, which was aided partially by discount on acquisition. The next key callout here is that economies of scale continue to be achieved with revenue of 33% and our revenue margin has lifted by 141 basis points. This has resulted in a very pleasing PBT result of $60 million for the half, which was 2x greater than the first half in 2019 financial year and 30x greater than last year. All results resulting in a very strong PBT margin of 111 basis points to approximately 1.2%. And that sets us up nicely for a seasonally stronger second half where higher margins are expected. So some of the key drivers of growth include really around our business mix shift. We're actually selling a lot more profitable international products now as well as components per booking is actually greater. So in Flight Centre, in the first half of 2019, we sold approximately 2.2 components per booking. And in the half just gone was $2.6 million. As Adam touched on earlier, we're also attaching a lot more higher-margin ancillary sales, such as the captains pack, which is now attaching at around 60% of bookings in store. And we also have a lot more reoccurring revenue coming through from independent contractors with lower customer acquisition costs. We are maintaining high productivity levels, even though we have increased marketing spend and also have increased investments in people by adding over 600 more in the corresponding period. Finally, when we look to the future of leisure, our longer-term objectives are actually laid out and illustrated in the next 5 slides. In leisure, we're really focused on 5 big moves from omnichannel retailing and Flight Centre to rapid growth in luxury travel, independent agents, cruise and touring and looking for new engines of growth. To achieve success in these areas, our overarching objective is to digitize and scale our winning operating model so we can serve more customers and generate productive and profitable reoccurring revenue. So we see this thing gone through 4 key areas that I'll just give some insights to. Firstly, it's about scaling our winning models to focus on growing top line. And we do expect modest growth in our store network and also sales staff growth in our traditional businesses to actually continue to drive the top line. But other areas of growth will include accelerating in our luxury category in the U.S. And we announced previously that we opened our New York office and have hired some key management in Manhattan to really drive the performance of this business. This week, we made a very exciting announcement of a new brand called Envoyage. And Envoyage will become our principal brand to drive growth in the independent agent category across 5 global markets. You can see a slide of on Envoyage there, I think it's on Slide 31 in the pack, which represents the new image for this category that we aim to win in over the coming years. And in the crude market, we expect growth to happen across all of our brands. And I'll just touch on a few of these. Firstly, Flight Centre is performing very strongly in this category with Close To Home cruise sales and also international cruising too and in January, have gone had a record crude sales performance post pandemic. We also aim to grow the cruise category through My Cruise in the prepackaged space. And My Cruise business as part of our Ignite portfolio is voted #1 cruise agency in Australia, complemented by our newly launched Cruise brand, which is actually called Cruiseabout and you'll see the slide there, I think it's Slide #32, we will focus on tailor made cruise holidays, one of the only businesses in Australia to specialize in retail and online backed by call centers. The website went live here in February and our first store opened in April. The next area of driving growth will be about differentiating our products to continue to increase our revenue margin. This will be done really by manufacturing unique and exclusive ranges that will deliver higher margin travel products to our customers. Some of the key call-outs in this space is the growth in Flight Centre holidays. Also more packaging in the cruising and touring space with My Cruise and touring. And we've launched a range of signature luxury products that will also be unbeatable in terms of the actual value that's included, very attractive in terms of bringing in more customers, and that will be exclusive to our group with higher margins. As well as that, we aim to continue to actually further grow our ancillary sales offering, so we're not dependent solely on supplier revenue for actual growth. The last 2 points here is about increasing customer loyalty by focusing on more personalized and tailored engagements. So you'll see a slide there that just gives you a bit of an overview of some of the things that we've done as part of our omnichannel strategy and investment in digital. Some of the key areas of focus here is actually developing digital quote and itineraries that allow us to enable more sophisticated interactions with our customers. We're at a space now whereby we are actually leveraging artificial intelligence and machine learning, and that allows us a channel inquiry better that comes through from our customers to get to the right consultants and the service of the most appropriate products. We're also developing automated offers to our customers by using AI and machine learning. It allows us to know when our customers are most likely to buy certain types of products, and then we can target product offers to our customers at the appropriate time. And then finally, designing a range of different customer journeys that allow us to actually do greater marketing automation. The last piece, of course, is ensuring that we're a lot more disciplined with our cost management, as Adam touched on, and productive operations will be key to drive capital efficiencies and leisure and ensure that incremental revenues are efficiently delivered to the bottom line. Last but not least, certainly a huge thank you to all of our people who the majority are also shareholders who have contributed to this incredible turnaround in leisure. And I'll now hand over to Greg Parker for a supply update.

Thanks, James Kavanagh, and good morning, everyone. Underpinning the content sources for our leisure and corporate businesses is our global supply division. I'll provide a high-level overview of how we are structured and how we operate and then touch on some of the key callouts for the first half. Our vision is global supply excellence for a local market, and we're approximately 2 years into our formation. We started from a regional supply business that wasn't fully maximizing our global potential, and I'm now pleased to say we are well in June to leverage our capabilities from a group perspective. At the core of our business is the procurement of products. We partnered with over 80 airlines both within region and across our global networks, north of 900,000 hotels from the major change to boutique properties and resorts tailored to both the leisure and corporate customers' needs, 10 mainstream global car and transport operators across a range of direct and aggregation sources and partnerships with 7 insurance providers offering fully comprehensive to add-on and ancillary products, a growing range of 80 cruise operators primarily focused on the categories of Ocean and River and 40-plus turning group operators also catering to adventure. And of course, our valued global distribution to GDS partners. To service our suite of products, we have a range of technology vendors that power the backbone of our selling brands, for proprietary hotel aggregation platform in leisure and a primary third-party provider in corporate, airline picking systems, loads and reconciliation processes, cruise and touring platforms in leisure and our AirContent multisource platform servicing both traditional and NDC content in Dubai-based business [indiscernible]. As we've been doing for the last 40-plus years, we've been continuing to invest in building strong relationships and partnerships with our supply chain, showcasing the geographical diversity of our business and brands to stand almost every customer segment that our suppliers are targeting. This diversity is key as not all segments perform and grow at the same pace, which offers security and certainty to all our partners. We invest a lot of time understanding our suppliers' product evolution and their challenges and make sure we're at the table with them and form part of both the creation and the solution. The key way we do this is through a single door portfolio management structure that is deal with us once, and we open the door to our entire distribution network, some 25% margin markets and 75-plus STN partners across 100 geographies. Most of our supply chains stay in their own line. That is airlines, and the customers that buy their products, hoteliers, no hotels and the customers abstain their property and similar with cruise, tour and insurance. We have a rich data set that provides a holistic view of the travel ecosystem and customers' buying behaviors across all segments. Insights have proved invaluable in securing market-leading deals and bespoke unique products for our customers. Our approach is best summed up with this flywheel. Starting from the top, our authentic and strategic partner relationships leads to our ability to negotiate industry-leading contracts and commercial returns, which then delivered sustainable and additional margins for all our selling brands, which have [indiscernible] investment in the scalable technology platform I just mentioned and also our streamlined low-cost operation support business. This then enables us to channel products on to our partners, those that suit our customers' preference and provide us with the best return, which in turn creates value and strengthens our partnership and connectiveness and the cycle starts again. The better we become at each of these items increases our nimbleness, increases our value and power our supply marketplace. So in terms of the first half, there's a lot of detail on the next slide, which encompasses the areas of content and distribution, procurement and travel services being touring, wholesale management and destination management I won't go into all the details with a few of the key call-outs. Broadly, all our categories are performing in line with expectations. In the air space, global domestic capacity has reached 106% and international is now at 104%. Close To Home, Australian domestic is 101% and international is at 98%. New entrants like Turkish and new markets from Delta as well as other airlines who pushes close to 100% over the course of the next 6 months. These stats are as of today and were lower at the end of the first half. Whilst we haven't managed to fully offset the airline based commission reductions that took place in Australia and New Zealand at the tail end of 2022 and during FY '23. We continue to see margin improvement through growth peers, bonuses, new creative dealing models and our continued investment in building stronger partnerships. Underpinning our sales is our strong relationships with [indiscernible] Travelport and also our investment in airfare aggregated TP Connect. We have fast track development cycles and velocity in TP Connects over the first half to meet our needs and have created new revenue-driving opportunities both through the adoption of NBC, enhanced commercial and better content offerings. TP Connect is now powering our proprietary corporate online booking tool Melon and all of the air content that you can see on flightcentre.com. We have increased store users from only a few hundred to over 3,000 users over the last 6 months. This move continues to open doors and have more meaningful strategic conversations with our airline partners. In the area of hotels, margins remained stable as we continue to review our best sourcing options and focus on increasing attachment rates. Our corporate and leisure businesses have grown sales by some 12% and 11%, respectively. JK also shared our lease big moves with one of the key ones being accelerating cruise growth through our existing brands and the reintroduction of Cruiseabout. We are also launching a new B2B offering with Cruise HQ, which will increase our relevance with outstanding network of cruise suppliers and provide access to accelerated and deeper margins. We are now in the final stages of agreeing with a full suite of deals and plan to launch this mid-April. In the insurance space over the last 12 months, we have undertaken a robust global RFP across all our brands and all our models. We will be transitioning from Cover-More and Allianz to Europe assistance for our mainstream leisure businesses in the first quarter of FY '25. Our 5-year term encompasses a renewed product offering and improved commercials. Moving on to our Travel Services division. As Adam mentioned, we have made the difficult decision to close our GOGO wholesale business in the U.S. Economically, is very high cut offering was no longer viable, and it was running significant losses even with the reduced workforce, and we couldn't see a return to profitability in the near term. This will be done over the course of the next month. Our full range of leisure products will continue to be made available through our existing brands and will underpin the launch of our Envoyage business. Turning headwind has had a good start to the year with continued strong performance from Backroads and we're also seeing improvements in the Toptech business. And in terms of hotels, we have circa 1,550 keys at 18 properties in the hotel management space, focused in Asia and is expected to double in the next 12 months with our strong pipeline of properties. In our Destination Management DMC business, Asia is now starting to recover with long-haul demand returning and margins are improving. Customers are increasingly seeking immersive and authentic experiences. These businesses are expected to continue and recover and on track to deliver around $5 million by the end of the year. This pretty much sums up our key drivers of growth. Just to recap, supply margin is stable and performance is in line with expectations. Supply is returning, which is bringing down prices and assisting with the unique deals and commercial returns. And our Flight Centre will start and end with our focus of building upon, strengthening and providing optimal value to our core partners. I'll now hand over to Skroo to run through the market outlook.

Thank you, Greg. As we know, Fight Centre Travel Group is a diversified global travel business, and we have a resilient customer base, and we believe we're well placed to achieve our financial year 2024 expectations and targets. After a solid first half with our seasonally adjusted strongest trading months to come, about 70% of underlying '23 EBITDA was generated during the second half. We've also enjoyed a positive start to the second half with January results in line with budget and February also looking reasonably promising. So we're on track to deliver a record TTV surpassing our $23.7 billion 2019 results, as we mentioned at the start. And there are some positive lead indicators. Airline capacity, as we have heard, is increasing, Australian outbound capacity is at 94% of pre-COVID. At December 31, expected to reach basically 100% by June 30. Airfare is also now falling 13% decrease in Australia during the second quarter. There's an appendix for not showing the movements and about a 7% decrease globally. This is expected to stimulate demand in the near term. There is upside potential as market continues to recover. The corporate sector globally, although it's only at about 70% of pre-COVID transaction levels, Australian outbound travel is still well behind its normalized level. This chart where we would have been, that's the Appendix 7, if travel continued to grow at its long-term compound annual growth rate. IATA project the 2024 calendar year will be a record year for travel in calendar year '24. 4.7 billion passengers expected to take off versus $4.5 billion in 2019. Profit and revenue margins are improving with seasonal step-up anticipated during second half. Cost margins are stable and set for further reductions driven predominantly by productivity. And generally, we're successfully executing our key strategies. Our diverse brand stable is generally resonating strongly with customers. The corporate business is growing to win and now becoming more productive. The leisure business is achieving economies of scale, delivering stronger profits. And we're also solidifying the balance sheet while retaining flexibility to reduce debt or the convertible note balance and to capitalize on any opportunities to come up. So we're now targeting underlying PBT of about $300 million to $340 million. previously, $270 million to $310 million, giving about -- I think Adam spoke about, there's $30 million of convertible bond amortization, which we excluded from the underlying PBT. The midpoint in new range, which is about $320 million is about 130% up on the comparative 2023 result, which was $138.8 million, employs a 33% to 67% earnings split between the first and second half. This is in line with our 2023 underlying EBITDA split. PBT split last year was more like 1,288 because conditions improved fairly dramatically as the year progressed. Our heavy second half profit weighting expected to be driven by 2 main things: one traditional seasonality, there is typically a heavier second half TTV in both leisure and corporate. We typically see a revenue margin uplift driven by product mix changes during the second half ahead of the peak Northern Hemisphere travel season. Secondly, operational enhancements. These include improved corporate profits as productive operations gains traction, thanks to Mel here sitting in the room. The impact of Scott Dunn on Circa is 85% of its 2024 PBT is expected to be generated during 6 months to 30th of June. Our renewed cost focus to deliver stronger operating leverage and the Global Business Services is in place that Adam mentioned, to help deliver cost and productivity efficiencies in the services we offer our frontline businesses, also removal of loss-making businesses, which was mentioned with GOGO and the FX from India. We also have significant turnaround opportunities. As was mentioned, the bikes JVs now back in profit after significant stock raise losses during the financial 2023 second half. There's also a turnaround opportunity in the Travel Services businesses, which is the touring and the hotels and DMC that Greg spoke about. So the major longer-term priorities. We've got 60 here as you'll see firstly, having the right people on the bus and obviously, the [ long ones ]. Having best product and biggest product range, which is a range of great quality, curated personalized product as well as mass product and in our service in travel fields. In enhancing our famous differentiated brands and businesses satisfied customers and great relationship with supported suppliers, which I believe we are very good at. Working on our costs. So productivity in and cost out, developing state-of-the-art global where possible tech products that make us more productive give our customers suppliers exactly what they need. And also our growth. We talk about from the growth horizon 1, 2 and 3 businesses and growing businesses from Horizon 3, which is basically start-up businesses into Horizon 2, which we've got quite a few now to Horizon 1, which we talked about in both leisure and corporate businesses like Flight Centre, corporate traveler and FCM. In terms of growth, the ones that we have called out is our Asian corporate in the first half. It's now at about $740 million TTV, and it will obviously more than double that over the full year. Our new brand which is now called Envoyage, again, about $700 million, and it will be well over $1 billion for the year. Travel Money, again, a significant not only contributed to PDV but also to profit. Travel Associates, very profitable business as JK talked about. Ignite, which is My Holidays and My Cruise, which has a high profit margin business such as similar to Travel Associates and Scott Dunn and obviously, Scott Dunn, which is a business that's heavily weighted in the second half, so about 85% in the second half. And so as JK mentioned, I think, all those different pillars will deliver more than $1 million. Obviously, Flight Centre a lot more than that. But areas like the Asian corporate is quite exciting in the way we're heading now. So thank you very much, and I'll hand back to Haydn. Thank you.

Thanks, everyone. Now it's time to go to some questions.

[Operator Instructions] Our first question comes from the line of Michael Simotas from Jefferies.

Can we start with the revenue margin. You've made some pretty good progress on that. And it looks like it was largely mix driven as well as attachments, et cetera, based on what you've said. How much more do you think you can improve from here to lift higher than this, do you need to start to get a little bit more out of the deals you've got with airlines or a combination of what you're doing and maybe a bit of annualization of what you've got should live them higher.

Firstly, on the leisure side, the areas that we've been using to try and drive off margin are working right now, but there's still room to grow. So if you look at things like attachment of a captain's pack, which is a high-margin product for us, that's about 60% attachment right now globally. But in some markets like Australia, it's moving up to the 70% mark, we're getting more and more growth in January, it's lifted again. And around the rest of the world, there's still space to grow there. So we think there is room to grow across all the various divisions in this space. When we look at the second half, we'll typically see a higher margin uplift in any case, and that's just because of our peak selling season and the bigger mix of international products that are in there and also a lot more revenue that comes through from selling non-air products, which are our higher-margin products, which we expect to actually see in this coming half.

Michael, to answer your question, I think from a corporate perspective, a lot of it is about mix shift. So corporate traveler, our SME brand growing faster than SCM will make a big difference and also faster growth in Northern Hemisphere where we operate at a higher revenue margin, particularly in markets like the U.K., U.S., Canada, et cetera. In addition to that, we are looking at new revenue streams, which are growing, and grown 100% on last year to 8% of revenue, and they typically operate at much higher revenue margins. So they're the initiatives at play. So we do see a bit of opportunity to continue that improvement.

Okay. And then second question, and there's a couple of parts, I guess, just relating to the way that you've changed your accounting and presentation of the results. You gave us the first quarter PBT number of $54 million, I think it was. Was that on the new basis? Or was it on the old basis? So did it include the amortization on the notes and the GOGO loss? Or had you pulled it out of that number as well?

No, that quarter 1 included the first quarter losses for GOGO and also included the amortization for the convertibles.

Okay. And so that implies a fairly small contribution from the second quarter, a little bit more than half of the first quarter. Is that consistent with normal seasonality because we don't really have a history of your quarterly profits.

I think we highlighted at the AGM. We definitely expected that the second quarter would be softer than first quarter. First quarter was a strong one. But more importantly, in the second quarter, we saw that first quarter trajectory continued through October, November, but December is always going to be a traditionally very soft period. And certainly, in the last year or 2, we've certainly seen things. Usually, we would historically have seen things really start to soften at the end of the first week, second week of December. That seems to have been put forward. So December, pretty much the most of December is now a pretty soft month for us. So we were expecting that. The numbers we've put through today are pretty much in line with where we expected to finish for the half. So we're reasonably pleased with that second quarter from a trading perspective as well.

Okay. And just the last one relating to those accounting changes. I might be missing something, but it looks to me like your convertible notes are contributed contributing positively to your PBT result based on this new methodology? Because if I look at the blended coupon across your convertibles, which is what now comes through your P&L, it's probably about a bit under 2% or maybe around 2%. You're probably actually getting a higher interest rate on the cash at bank on the other side of that. It just seems like a little bit of a perplexing way to report the numbers given that dynamic?

Yes. I'm glad I had a quick look at your note. I was going to have a chat about it actually because I think from our perspective, the cost of those notes being a coupon is, as you say here, is absolutely included in our underlying results. So the cost of those notes is in our numbers. I think you'll note indicated when I read it that that wasn't the case, but we can absolutely say that the cost of those notes are included in our underlying results. And as you say, at the moment, with the coupon that we pay on those notes, we are effectively in a better position given that we can get a better cash rate for that. That's 100% correct. Clearly, it's not the reason we did it. If you go back to when we actually did these notes. But that's the impact of it at the moment. I just want to say that taking those convertible note amortization out is something that I think is really important to actually show the trading position of the company. As I say, they are a technical accounting noncash entry. And I won't bore it on with the accounting for it. But when you pull those convertibles on the balance sheet, you allocate some to equity and some to debt. And then all this amortization is grossing up that debt value up until the point when you think that they're going to be redeemed or bought back. So it's a purely accounting entry. It's got nothing to do with the trading. So nothing to do with the cost of the notes. If we had our time again, we would have taken that under the line from day 1. So I think that's the lesson we would have learned from undertaking those notes.

Yes. I guess just to clarify the point in what I wrote this morning is that your convertibles have an equity cost and a debt cost you're now effectively pulling the equity costs below the line, but we're going to have the debate later.

Your next question comes from the line of Lisa Deng from Goldman Sachs.

I've got 2 questions. The first is actually on corporate. One of our peers actually commented earlier that the corporate recovery at around the 70% to 75% pre-COVID is largely done. And from here, they're not expecting any further recovery and the normal industry growth is likely to be in the line of around 3%. I mean, how do you guys think about that? And do you see it differently?

We've tried not to comment on that because GBTA says that they think based on their research, corporate travel will recover back to 100% over the coming years. Our view is we don't want to guess that. Instead, we want to focus on market share growth. So the market is around 70% to 75% based on the numbers you can choose to look at. We're actually at 120% of 2019. So we've very much taken a view. Maybe it will get back to 80%, maybe we'll get back to 100, who knows. So our focus is on growing market share. And even though we're one of the largest travel management companies in the world, we still have tiny market share because the market is so fragmented. So it's not something we worry about too much. We very much focused on winning new customers and growing to organic growth rather than waiting for a 100% recovery.

Got it. And just a follow-up on that. If we look at the $1.3 billion pipeline, I think that's already been secured. And I look at last year's first half, that was 1.25. Like how do I think about that as well because they're quite similar, but yet the markets recovered a lot. How do I think about that?

I think their new signed business amounts. And there's an element of estimation in this, particularly on the SME front, but January estimations are pretty accurate. So the only real recovery change that we've seen is the opening up of Asia, which opened up January, February earlier this year. So the markets had already opened up so I think for us, the big focus for us this year is to improve productivity, make sure more of that revenue flows through to profitability, improve customer experience. But nevertheless, we've carried on keeping winning new business. So we're actually really pleased about sales wins this year. And you say, they do follow the trend that we've seen over the last couple of years.

Got it. And then the second question is actually on leisure. We talk about trying to improve the, I guess, like the conversion of revenue to profitability. Just in terms of the way we think about the portfolio of brands there, especially with the Cruiseabout and also the Envoyage launch. Do we think that these brands potentially will have the synergies or drive more costly acquisition and therefore, the improvement to drop-through that we should be looking for may come at a later stage? How do we think about the fragmentation of brands?

Look, I think the way we look at it is because the portfolio is quite diverse. It allows us to make sure that we can have reasonably good growth dropping through to the bottom line. And if you look at the different categories because we've got luxury in there, which is growing quite significantly, that's a higher-margin division as well as if you look at the complementary segment, one of the incredibly fast-growing divisions is Ignite in our complementary specialist areas. And the margins in that business line are very strong, too, as well. So the fact that we're diverse means that growth across all the categories were reasonably well spread enough to make sure that we can continue to get good bottom line growth.

Your next question comes from the line of Ben Gilbert from Jarden.

Just on the guidance on just understanding some of the movements in car feels like the gold post have moved a little bit given the GOGO business and the Indian business are going to be closed, which obviously provides some tailwinds. Can you just give us an idea around how some of those puts and takes, particularly on the other line look into the second half? Because obviously you're going to have another month of a bit [indiscernible], it's not the number from the benefit from GOGO will be and also India. And then any other movements within that other line that you can help us with just for the second half?

Yes, Ben, look, I think there's a few components in there. I think the second half weighting, I think we've taken the midpoint of guidance, it would indicate that we will be about a third first half, 2/3 second half weighting. I think we're pretty comfortable with that. There are a few moving pieces. So if you think about that other segment, the Pedal Group is now in a profitable position. Second half of last year, we recorded shares of losses from that business, but we'll record a relatively modest and minor but contribution from the Pedal Group in the second half, which will be a bit of a turnaround there. Our touring and in destination businesses will also be a positive turn for us year-on-year as well. Scott Dunn, as you say, we took that on board end of February, I think, January of last year. So again, as you say, we'll have a slight uptick for that 1.5 months or so. So there are a few things there that will be a positive for us. We are expecting TP Connects to continue its current run rate in terms of investments. So that will be slightly higher than we did last year. And so that will offset a little bit of that. But if I look at the other segment, I'd certainly be looking for maybe up to $10 million improvement half-on-half that we see in that segment.

So what did GOGO and the Indian FX business lose in the second half last year to lose money in the month last year?

Yes. GOGO lost around $3 million or $4 million in the second half.

And then just on this 2% aspiration say this, but just how are you thinking about that now? I think you said end of fiscal '25 now. You're obviously going to have a 5 or about a 10 basis point benefit from now more change in how you're disclosing that. How are you thinking about the path to 2%? Is it something you're targeting for the full year of 25%? Or is it more an exit rate and you're hoping to achieve that for fiscal '26?

Yes. No, we're certainly aiming for that for the full year of FY '25. So again, good to get the question so we provide no clarity, we are still targeting that for the full year. We would expect the first half, as you know, will be below that and probably well below that better than the 0.9% we've got this year. But we would certainly expect that the second half will be at a higher run rate. So we are aiming for 2% for the full year. With those caveats that I said earlier and I think there are important ones. But if you look at the business, even now in corporate and leisure, we've got sporadic months where we're up at or even slightly above 2% for those businesses. We need to get that month after month, and we need to get it up for those businesses to the mid-2% rather than 2 or thereabouts. So there's still a bit of a way to go, but we're certainly seeing some good movement there. And the other element, as we've just spoken about is that other segment, which is a drag then on the front-end division. So getting that down to a more manageable level. And again, some of the decisions we've made in terms of GOGO, the FX business in India and also the turnaround in some of those businesses that I mentioned earlier is certainly going to help us with that. I don't means is a walk in the park. We've got a long way to go to get there, but we are still focused on a full year FY '25.

Your next question comes from the line of Tim Plumbe from UBS.

Just 2 questions from me, if possible. I appreciate you guys mentioned that it dropped off in December. But if we think about the corporate business, can you talk at all about any Middle East impact that you saw across that business? And in the December quarter, in particular, did you see any tightening of corporate budgets there across your customer base?

Well, the Middle East, I mean, it's obviously not great to have a highly public conflict like what's happening in either Ukraine or the Middle East. But actually, I don't think it's had that much of an impact. Someone like Israel is not a huge business travel destination and peak is still traveling to destinations such as Dubai, which were a lot busy or even Saudi now. So we've not seen a big impact. There's always a slight tightening of company's budgets at the end of their travel spend year. And for many customers, that is the calendar year. So it's not unusual. And this is just my view, I'm not saying this is 100% correct, but my view is also that work patterns have slightly changed as well post-COVID that people tend to finish up international travel slightly earlier in December than they maybe did prior to 2020. And that's my views formed by talking to customers. So we saw a similar pattern last December where the corporate travel dropped off slightly earlier, but then bounced back vigorously in January. So I don't think the words having much of an impact and there's an element of budget and there's an element of just working patterns having slightly shifted in December.

Got it. That helps. And the second question, just around the corporate business. I appreciate you mentioned rightsizing from a headcount perspective. If I do a quick back of the envelope and I look at half-on-half revenue uplift versus EBITDA kind of looks like about 20% of revenue dropping down. If I look at it on a year-on-year basis, it looks like about 40% of incremental revenue dropping down. How should we think about the operating leverage here, particularly for the second half of '24, please?

Yes, matter pretty accurate. I think that what we're seeing from is that drop off the profit drop down to profit continuing to grow. I think with productive operations, it's not all going to happen overnight. But what we're really saying is we upstaff massively to deal with customer demand and the complex nature of travel after COVID. So we really put a lot of new people on. What we're finding is a lot of our people are more experienced now. So there are a lot more cases of handling more activity plus with automation, digitalization, we see the cost base improving from a people cost perspective, and we think that will carry on throughout the second half and into the following financial year as well. We could just call it productivity growth. We're actually very optimistic about it, and we see that carrying on every quarter from now and then.

Just on that conversion. I think you might have been looking at it from half to last year to half on this year, which would be right. But half 1 versus half 1 of prior year is about 40% conversion for corporate. So it does have a bit of that seasonality given the strength of the second half in the quarter would play into that as well.

Got it. So I mean should we be thinking like 50% drop through into the second half? Is that the right quantum?

Look, I think that's probably not too far from it, as I say, half-on-half, it was about 40%. I'd like to think we're in that corporate space heading up to that direction of around 50%.

Your next question comes from line of Ben Wilson from Wilsons Advisory.

Just first question on the leisure side and solid progress on margins in the half. I'm just interested in the, I guess, the health of your leisure customer, I guess, in particular your Australian travelers. I think at the June result, you circumcised your travel bookings against CBA well-viewed chart around change in savings and spending across age cohorts. I noticed in the half year results, people in the 35 to 54-year-old age bracket savings balances have now gone backwards in the half. That's probably not your largest cohort, but still an important one. So I'm just interested in, I guess, how you're seeing the help of your luxury customer base.

Yes. Thanks, Ben. I think not too much has changed actually from a demographic standpoint. However, what we are seeing is certainly a lot of rapid growth in a younger demographic through some of our digital channels. But broadly speaking, the demographics haven't shifted too much. What we have seen though is the one area that was affected the most was families. And that's starting to normalize a little bit more now because airfares are dropping a little bit, and the cost of travel is starting to be a bit more attainable to different segments of the market. So broadly speaking, not too much change. And we think that looking into the future because of the way airfares and that are going, we expect to see more families traveling a bit more. Just the inquiry numbers, by the way, just to share with you, has continued to grow. We're not seeing a slowdown by any stretch in terms of the inquiry numbers and there's lots of different numbers being thrown around people actually making choices on travel over other things. But for us, in terms of what we're seeing across the board, we're still continuing to see growth going into this financial year.

Great. And then my next question on corporate. Just interested if you can quantify roughly what the PBT margin uplift is from a customer using your platform, I guess, whether it's Melon versus a third-party platform?

Yes, we don't quote a specific number on it. But the way to think about it is if we're using our own proprietary technology, we're not paying vendor technology costs. So that's the first benefit we get on every transaction that flows through. But secondly, we also incorporate traveler charge an annual software fee for Melon. So that's incremental revenue. And the real opportunity, I think, we'll see come through as more and more people use the platform because we're spending a lot of time trying to configure availability and preferencing results, which they save customers money, but also enable us to preference preferred partners, where customers save money, but we also have better commercial returns on. So although we don't actually put a specific number on it or a percentage on it, there are various factors which would do drive commercial benefits, but also to make clear customer benefits as well.

Thanks, Chris. Just last one, if I may, just back on leisure. I think slide mentioned you added about 600 people in the half. Can you just provide a bit more color as to what parts of the business that were added? And I think corporate you said was rightsized at the full year result. How do you see the workforce in the leisure business now?

Yes. So across leisure, it's reasonably spread across the various brands. You'll see the brands that we have kicked off being Cruiseabout would have had an uplift in staff in that space. Flight Centre has continued to grow in our retail network. We've also had growth with Scott Dunn coming into the business as well. So overall, they're probably the major drivers across the business, and we've opened quite a few stores in Travel Money as well, which would actually contribute to the staff growth in that space.

Your next question comes from the line of Mark Wade from CLSA.

Just as competition and capacity returns to the industry, we have that sweet spot yet for travel agents, do you think? That's one where, I guess, ticket prices are probably attractive enough to get sufficient bookings, but then suppliers are really forthcoming to you guys to provide great incentives to travel agents? Or something else standing in the way yet like high operating costs for airlines or ideas turning off the leisure customer. So yes, are we at that sweet spot yet for the agent?

Look, we're reasonably confident. Obviously, some of the some of the airlines are not paying a lot of money in certain areas. But generally, we feel we still got a fair way to go, Mark. I think whether we're in a sweet spot now. I think Chris did say before, when you look at the Northern Hemisphere, in particular, we have such low market share. There's so many opportunities. In our independent space, we've got a lot of opportunities to grow as well. Even if the travel agency industry doesn't stand, this is intermediated a bit. So I think you could argue there's a reasonable sweet spot at the moment for travel agents, but we don't think that will change over the next year or 2 at the earliest.

Mark, it's Greg here. Just to add color to that. I think we mentioned last time that we had 3 groups of airlines, and we put them in 3 buckets. The first one was those that use, I suppose, their business position and market share to drive probably unfavorable returns to the industry. We had another bucket, which of those who are looking at mutual ways to add value to one another and be created with dealing models. And then we had the serve bucket, which are the ones that we love, which didn't have any reflection on COVID. They're putting additional capacity into the market and they're looking at ways to reward sales for that additional capacity, and they're paying above pre-COVID levels. Our job, obviously, was to move as many from that bucket 1 into bucket and had a little bit of success in that. But also at the same time, we've had very limited movement between those in bucket 2 and 3 going back to Bucket 1. So we're maintaining where we're sitting in terms of margin at the moment, and it's tracking along pretty well.

Lastly, conceptually, how do you go about JK on attracting that younger leisure travel they want those edgy places that are pretty well informed at might be a bit out of the habit of traveling overseas post-COVID, how do you get them back on the radar for Flight Centre?

Look, I think it's just making sure that your value proposition stands up to what they're looking for. Flight Centre is very much a mass market offering. And we think quite deeply around how we attract different segments of the market. So you'll probably see some of the activity. We've really boosted our social presence, how we show up in terms of speaking to that audience is very different to how we would speak to an older demographic. And a lot of that then is designing the right travel products and working really closely with our supply partners to make sure that we're relevant. And you can see the channel is going to be important too as well. So we've invested quite a lot around making different product types available. Obviously, a lot to our stores, but through our digital networks as well that's suitable for the different demographics as to where they're shopping.

Your next question comes from the line of Sam Seow from Citi.

Just maybe an easy one on the convertible to start. I imagine your buyback will close that out with normal debt. So the amortization will convert to real interest eventually. So I guess the question with gaining James, is your cost of debt more or less than the combined coupon and amortization.

Well, we've got a few options in terms of how we close out the bonds part of it may well be done by debt, but part of it may actually be utilizing existing cash reserves as well. So there's a few options that we've got. As we say, we've got a pretty healthy balance sheet now, which is really underpinning things for us, which is fantastic. In terms of the cost of debt, the cost of the bonds is a combined number of just under 2%, 1.65%, I think, for the first one and 2.25% for memory for the second. So it's a relatively cheap source of debt. The amortization doesn't actually come into the cost of the debt. It's only the coupon that we pay. So it is a relatively cheap cost of debt. When we're looking to manage that, we're balancing the cost of that debt with future dilution. And we want to be able to manage that future dilution impact more than anything else. So on the one hand, we've got a pretty cheap source of funding there. But we need to proactively manage it because we don't want to see that drop through into equity in the future. And so that's the thought process at the moment.

I guess that when you add the amortization that was going through the finance cost the cost of the debt was over 6%. So what I'm trying to say, can you close that out is your actual cost of debt or real interest less than that 6% or 7%?

Yes, it is.

And then just quickly on corporate. It looks like pleasingly, I've won a lot of that business without using price with good revenue margin. But the reported PBT looks like costs may have been a drag in FCM. So just wondering what are those costs? Are they transitory or related to the onboarding of the new wins? And maybe what that FCM margin looks like second half '24 or early '25.

Sure. Well, I'll start by answering that. And I might hand over to Mel, COO, who I think is in the room with the other guys in Sydney. We certainly do see the FCM margin continuing to improve. It's already improving. We see it continuing to improve. There are costs of growth. So FCM's been through a quite explosive growth period over the last couple of years and has been the major driver of our 2 brands in being so far ahead of 2019. And as I've said before, that first year of winning onboarding customers does come with costs as well as lower margins for year 1, but we typically win customers on 3- or 5-year contracts. We normally expect to have 2 tons of that contract. So really when we win a new customer in STN, we expect the customer to be with this for 6 or 10 years rather than 3 or 5. So the investment is there for a very good reason. But we are now doing a lot of work on productivity, particularly in FCM don't know Mel, if you want to quickly touch on a couple of things to work on how we see that impact in the next few months in FCM.

Yes, absolutely. Thank you. So yes, as Chris mentioned, we're working on our cost base and our productivity in FCM in particular, and that's largely around our productive operations transformation, which is really going to see our productivity and efficiency really improve over the next 18 months as we really look to standardize and digitize our operating platform. So in terms of cost out, we're obviously looking at a single operating global system, which will obviously bring a great deal of benefits in terms of uplift of productivity of our agents. Also looking at directing a bit more self-serve traffic for our customers, which they're actually asking us for, but it's also a benefit in the sense that customers can self-serve and our agents can be more productive and focused on more complex transactions. And as part of that and looking at that standardization, we're obviously looking at a cost out of our systems across the board as well. So consolidation of systems will lead to some benefits in relation to duplicate costs that we're possibly carrying today.

Got it. But would it be fair to say with the onboarding of all those new clients that one is just generally unprofitable? And then you'd expect a relatively sharp step change as you roll into 2.

Yes, that is correct. But to be clear, that observation applies to FCM. We actually get a much faster movement to profitability in corporate traveler because there's a much lower cost of onboarding customers.

Got it. And then just quickly, while on the margin on corporate. Do you have an estimate of how elevated, I guess, ticket prices were across your book? And what the like-for-like, I guess, corporate PBT margin might be on pre-pandemic ticket prices, noting that, I guess, all the airline paths are coming back?

Yes. I mean we don't have an exact number on that, but the observation, I believe, is correct. I think the airfares, particularly international airfares are still very high. I think that they will eventually come down as more capacity comes in. So that does depress the margin. And let's state it. I think that somebody asked a question about sweet spot earlier. I think a sweet spot for us is when airfare continues to come down particularly for business travel, people are more likely to travel and it does stimulate competition, to not to improve our margins, but it gets more people traveling. And we do think in the future that air fares will continue to come down.

And just to confirm, in the corporate side of the business, you don't make any less revenue is ticket prices come down?

We do in some cases, but a few cases. So if we have assets which are commissionable, then we would earn less margin on those commission airfares, but they make up a much, much smaller percentage of tickets than they did in the past. So when customers are paying this transaction fees, which is the majority of our revenue, it doesn't make any difference whether the ticket $5,000 or $10,000. So it really doesn't matter.

And your next question comes from the line of Wei-Weng Chen from RBC Capital Markets.

Just a quick question from me on what the Indian losses were just and how one you didn't take them for other line as well?

It was a breakeven business. It was underperforming, not loss-making. So the real reason is that the amount of effort we're putting into it, we're generating quite a lot of TTV, but at very, very low margin. So it was very much a breakeven business.

Okay. And then I guess the follow-up question was how many other businesses do you got to have outside of the market view like GOGO, do you guys have on watch at the moment for closure? And you can't really answer that maybe selectively, what's the quantum of losses that you think you could save by closing some of these businesses?

Fair to say we're looking at all of our businesses. Those that are profitable and those that aren't because what we're looking for is what the true potential is that we can get out of those businesses. So even businesses that are making $5 million, $10 million, $15 million, the focus for us is how do we make that a $10 million, $15 million, $20 million or $30 million or $40 million business. So fair to say at this point in time, we're running the ruler over all of our businesses as we have been really as we're coming through and then out of COVID to make sure that we're operating them in the best way possible. I think the best answer to that is, if you look at some of our businesses, and most of them probably do sit in that other segment to be fair, where you look at things like TP Connect which is a really important business that Greg oversees. And we're investing in that now. We'll start to see a return on that over the next 12 months, certainly over the next 18 months, we'll see that with external revenues coming through, and that will start to improve for us. But outside of that, things like our investment in the Pedal Group, our touring businesses, our DMCs, our hotel management, there's a lot of those businesses that are a lot smaller that we're really working through, how do we get them up to their full potential and how do we support them to that level. So rather than sort of making it to feel like there's a list of businesses that are loss making, it's more around those that are, in our view, underperforming, how do we lift them up over the next 18 months because they've all been a really important part collectively to play in us hitting that 2% margin for FY '25.

And then next question is just on guidance. I just wanted to ask on your confidence on, I guess, the second half. Obviously, you have a forward booking profile. So I guess based on that, I guess, what percentage is the way you think you're already there? And then, I guess, where are the swing factors you either to the top end or bottom end of guidance? And I guess, how much better or worse the things need to get to hit some of those limits?

Well, let me answer that probably by saying, clearly, we've got confidence in the range or we wouldn't have reiterated it today. So we certainly believe that the range remains valid for us. As we said this morning, trading through January and February has been very much in line with our expectations. As you know, the second half is really important for us, and particularly that last quarter is very important for us from a seasonality perspective. So I think as we're sitting here right now, we're certainly trading well, very much in line with our expectations, but with a really critical 4 or 5 months ahead of us. So that's probably the best way to answer it, to be fair. But everything we're putting in place now, all of our focus areas that we've got are coming through the way we expect them to. We've had some good momentum in that first half with revenue margin with cost containment. So I think we're in a reasonably good position for this year. But as I say, some pretty hefty months in the back part of the year.

Your next question comes from the line of John from Ord Minnett.

So a couple of questions have been answered, obviously, you've clarified around the FY '25 2% target, which is obviously still out there. What are you assuming in relation to revenue margins in relation to that? So obviously, second half of the year, obviously, strong seasonality and in normal terms, a much improved revenue margin at the group level. What are you assuming that does to get to your FY '25 2% target in broad terms?

In broad terms, the expectation is we'll continue to see some improvement in revenue margin, but also a cost margin. If I look at it, if I break it by business, I think revenue margin, certainly across both corporate and leisure, we, as I think both Chris and JK spoke to a little bit earlier, we see that there's opportunity for that to continue to improve and to increase. I do think that in corporate cost margin will play out and equal, if not bigger part in NetWest to get to that mid- to high 2% PBT across the board for corporate where I think with leisure, it's probably revenue margin driving and productivity through the business as well that will get to their mid-2%. So I think there's still plenty of room for us to move there.

Yes, that's great. Good clarity there. Second one for me. I'm not sure I've ever been a positive operating cash flow in the first half. So can you talk me through what happened there. Normally, we see a negative number there and sometimes a pretty big one. So can you give me some color around that?

Yes. Look, I think what you're seeing there, John, is a couple of things. We have had positive before. But as you say, most times, it's negative or very much flat. So it is only a small positive, but it is an important positive operating cash flow. I think what you're seeing there is a little bit of that return of the leisure business jumping up a little bit in terms of growth. Remembering that leisure, we generally get the money upfront. We get cash upfront, so we're a bit positive. Whereas in corporate, we generally have a lot of our accounts our customers on account. So I think what you're seeing there is really just that good result that we're seeing in leisure in particular. In the corporate business, there's been certainly a focus on collecting particularly as you head into a more quiet period like the December period, you really want to be collecting and following up on those. So just normal things like that, John. I think it's just a factor of the results that we're seeing come through. But it is quite positive.

As there are no further questions at this time. I'd like to hand back to our presenters.

Thanks, everyone, for joining us today. We'll catch up with a lot of you over the next few days. Look forward to seeing you all. Thanks again.

That does conclude our conference for today. Thank you for participating. You may now all disconnect.