Serko Ltd

Good day, ladies and gentlemen. Welcome to the CIRCO half-year results announcement. Today's program is being recorded. At this time, I would like to hand things over to Mr. Darren Grafton. Please go ahead, sir.

Good morning, and welcome to today's interim results presentation for the six-month period ending 30 September 2018. My name is Darren Grafton, and I'm CIRCO's CEO, and I'm here with Susan Putts, CIRCO's CFO. On the back of delivering our maiden full year profit I'm pleased to report that we remain profitable. During the half year we increased our investment into our travel and expense platforms as we pursue further growth opportunities both within our home markets and in new territories. We achieved a 25% increase in operating revenue as we continue to grow market share in our home markets of Australia and New Zealand. We've made good progress in our Northern Hemisphere expansion. We'll cover off more detail around the Northern Hemisphere expansion and provide an update on our upcoming activities over the next 20 minutes. You should have the presentation that we released for the stock exchanges earlier this morning in front of you, and we'll start on slide four. Susan is going to kick off shortly with an overview of the financial results for the six-month period. I'll then give you an update on the key strategic developments and then cover the outlook for the second half. We will then have time for questions at the end. For now, I will pass you over to Susan to cover the financial highlights, and she will start on slide six.

Thanks, Darren. I'm going to cover off our key measures of financial performance that we report every six months. I will then go into more detail in some items on the following slides. As Darren mentioned, we continue to be profitable. Net profit before tax of $1 million was slightly below the prior year of $1.2 million. This is primarily related to the net effect of exchange rate movements against our heads position as the increase in income matched the increase in operating expenses. EBITDA of $1.5 million was up 12% over the prior period of $1.3 million. This is consistent with our guidance that EBITDA would largely be in line with the prior year. Our operating revenue was up 25% at $11.4 million for the half, with 85% of revenue representing reoccurring product revenue sources. While the proportion of reoccurring revenue is lower than prior periods, it should be noted that customer demand for customization has resulted in new contractual arrangements, which include an element of committed annual development spend. Core product revenue. excluding service revenue was $9.6 million. Total income, including grants, was $11.8 million, up 23% over the prior period. Annualized transactional monthly revenue, or ATMR, which provides an indicator of future growth potential of CIRCL's annual reoccurring revenue, reached a peak during the six-month period at $11.4 million in August, up 15% against prior year comparative. August is a peak month reached a peak during the six-month period at $19.4 million in August, up 15% against the prior year comparative. August is a peak month because September can be seasonally affected by the holidays in Australia. Transactions across our travel platforms grew 21% over the same period last year and contributed to the 25% increase in operating revenue. R&D spend was $3.8 million for the period was up 50% over the prior period. Operating costs increased 25% over the prior period. Moving to slide seven. This slide shows the summary profit statement and the reconciliation of net profit to EBITDA. The graph on the left shows EBITDA over time for our financial years. In the half year to 30 September, we generated EBITDA of 1.5 million, which was an EBITDA margin of 13% on operating revenue of 11.4 million. During the first half, to carefully manage our cash position, we aimed to balance increases in cost with increases in revenue. Operating revenue and operating expenses were both up 25%. I'm now moving to slide eight. Slide 8 shows revenue breakdown by type of revenue and by geography. Total operating revenue is made up of various sources. Travel platform revenue, expense platform revenue, content revenue from commissions, and other revenue, which largely represents miscellaneous license revenue, and then services revenue. Travel platform revenue grew 18%, slightly less than the 21% increase in transactional volumes. This reflects discounting for additional volumes. This first half does not have material Zeno volumes contributing to the results. However, as announced in August, Flight Center's contract extension will result in increased revenue across both platforms and will contribute to growth in the second half. Expense platform revenue continued to grow strongly at 31% for the half. Content revenue from commissions earned beyond the basic booking fee grew strongly at 24%. Content commissions are part of the circle strategy to provide customers with complete suite of end-to-end journey offerings and is accordingly expected to lift average revenue per booking over time. Total services revenue was up 68% due to demand to customize our platforms as well as introducing paid content. As I mentioned, an element of this development revenue is now subject to multi-year commitments. Services revenue tends to foreshadow growth in future reoccurring revenue. In relation to the movement in earnings in various geographies, you can see that the growth is primarily related to Australia and New Zealand. The growth in the USA is primarily related to US source commission incomes as Zeno transaction revenue from the US had not commenced in the half. I now turn to slide nine, product investment. This slide outlines the development spend, both the portion capitalized and the expense during the period. During the period, both research and development spend was $3.8 million, up 58% over the prior half year, and represents 34% of operating revenue. The portion of capitalized spend at $1.9 million is slightly over the prior period and represents 50% of total spend. These capitalized costs are reflective of the investment we are making in developing our product to cater to new territories. The benefit of this investment will come in future periods. The R&D costs which were not capitalized during the period amounted to $1.9 million, slightly less than the $2.2 million expense in the prior corresponding period. Net of government grants and after amortization of previously capitalized development, the product development cost expense in the profit for the period was $1.7 million and represented 15% of operating revenue. Moving to slide 10 and a summary of other financial highlights. Circle completed a foreign exempt listing on the ASX in June 2018. One-off listing and associated professional fees were $0.3 million. In August 2018, Circle completed a capital raise of $5.5 million shares for $15 million. The net funds raised after associated costs were $14.3 million. Closing cash balances at the 30th of September 2018 were $19 million. The net cash movement in the six-month period, excluding the funds raised, was a $0.5 million decrease. Including the listing costs, this was a decrease of $0.2 million. Headcount has increased from 106 at 31st of March to 160, including contract staff of 20, at the end of October. It is primarily reflective of the extra development and project resources added to integrate content, develop new features, and enhance core system resilience. It has been a pleasing half year to be able to achieve revenue growth and remain profitable as we balance expenditure to growth. We have the funding and the flexibility to now invest to accelerate future growth in the 2020 financial year. We end the period in a positive position. I am now going to pass you back to Darren to cover our strategic update starting on slide 11.