Serko Ltd

Good day, everyone, and welcome to the CIRCO Limited Full Year Results Announcement Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Darren Grafton, CEO. Please go ahead, sir.

Good morning, and welcome to today's results presentation for the year ending 31st of March, 2020. My name is Darren Grafton, and I'm CIRCO's CEO, and I'm here with Susan Tuss, CIRCO's CFO. FY20 has been a significant year for Serco, both from an execution standpoint and due to the COVID-19 pandemic and the effect it has had on the world, especially on the travel industry. The first three quarters of the financial year were characterized by an achievement of a number of key milestones and substantial progress towards our strategic goals. We successfully grew both our monthly revenue and our customer base up until the pandemic hit. Zeno reached significant market growth with one in four of Circo's bookings now made on the platform. The big highlight, of course, for FY20, where our successful oversubscribed capital raising completed in late 2019 and the signing of a key agreement with Booking.com to build the new globalbooking.com for business solution based on our Zeno white label platform. However, Circo's performance was impacted in the fourth quarter of the financial year as COVID-19 pandemic became widespread, significantly affecting booking volumes. This resulted in an adverse impact on the full year result. Our results were released to the stock exchanges earlier this morning which included a copy of the presentation and we will start on slide four. I'm going to cover the impacts of COVID-19 has had on our business and our response today. I'll then give you an update on our key strategic developments. Susan will then provide an overview of the financial results for the year and I'll come back to cover the outlook prior to taking any questions you may have at the end of the presentation. So now moving to slide five. On the 11th of March, 2020, the World Health Organization declared a global pandemic as a result of the outbreak and spread of COVID-19. Our China office was forced to close in January with our China-based staff moving to work remotely. Originally, the impacts of COVID-19 appeared to be localized to China. However, in mid to late February, As the pandemic spread globally, we used the inputs from our products in China to prepare plans for our other global offices to transition to remote working. During this time, Serco closely monitored the impacts of COVID-19 on travel bookings, and we announced on the 25th of February 2020 that the company had detected an adverse trend in travel bookings and would likely come in at near the low end of our guidance. It is possible that the initial reduction in travel was masked by the monthly transaction growth that Serco was experiencing and the customer onboarding occurring in February. On Saturday, the 14th of March, the New Zealand government announced it was closing its borders to non-New Zealand residents. And on Monday, the 16th of March, Serco withdrew its guidance. On the 25th of March, the New Zealand government raised its alert level to four, full lockdown, resulting in the cessation of all non-essential travel. COVID-19 related travel restrictions were enacted within Australia across the northern hemisphere where Serco expects to grow its business. New Zealand domestic travel has now been permitted from when the country moved to level two on the 11th of May. However, travel is still restricted in Australia between states. Northern Hemisphere travel is also restricted but varies between regions. Booking transaction volumes on Serco's online travel booking platforms generate the majority of Serco's revenue. Government responses to the pandemic worldwide, including lockdowns and the suspension of all non-essential travel, continues to have a material adverse effect on Serco's booking volumes. For the first 11 months of the financial year, Serco achieved monthly revenue growth over the same month in the prior year. However, in March, transactions fell sharply. December and January are typically the lowest months for travel bookings, which makes February and March really important months for our revenue. This is why the impact of COVID-19 was so material for Serco. In March 2020, daily booking volumes were down in excess of 90% compared to similar days in March 2019. They remained at these levels for April. Travel volumes have gradually started to recover and in May 2020, with the easing of domestic travel restrictions in New Zealand, during the first three weeks of June 2020, over 3,200 corporate customers have now made a travel booking as New Zealand moved down to level one restrictions. This has resulted in daily booking volumes on Circo's platforms increasing in June to around 25% of the daily booking volumes in June 2019. In response to the operational and economic impacts of COVID-19, Serco reduced cash burn and reprioritized the strategic initiatives to reposition the business for the new operating environment. We quickly faced up to the challenge and aligned our initiatives under the three broad strategic imperatives, survive, optimize, and thrive. Our immediate priority after looking after our people was to implement cost reduction programs designed to preserve our strong cash balance. and target an average cash burn rate of no more than $2 million per month through to the end of FY21. This cost reduction program saw the removal of non-essential expenditure, scaled down our operating expenses, such as cost of sales and hosting, as well as the rationalization of our contractor resources, including the conversion of some of this resource to full-time employment. Serco is aimed to keep as many people employed during this period as possible as we recognize the personal impact to employees and the cost to the business of losing skilled people, especially as our ambition to grow in new markets remains undiminished. We've endeavored to balance cost savings with investment into core areas to maintain our capability to deliver on our key growth initiatives and to ensure we are well positioned to participate into the recovery of corporate travel. Following our successful capital raising in 2019, we had cash reserves of $42.4 million as at the 31st of March 2020. Although we did not anticipate an event as catastrophic as the COVID-19, Serco has always maintained a prudent and conservative approach to balance sheet management. By raising more capital than the company's strong cash position has provided a comfortable level of liquidity, which meant we had no requirement to raise capital in distressed circumstances. We believe these cash reserves at the current rate of burn and based on our current assumptions are sufficient to support the business. We've made good progress And despite having to work from home, we were able to adapt quickly and ensure we remain productive. With four offices across three continents, we're used to working geographically dispersed workforce. With our platforms in the cloud, we already had the remote security, collaboration, and connectivity tools and processes in place that scaled relatively easily. In fact, efficiency and productivity that our teams achieved through the period of lockdown has been truly amazing. And we've embraced new ways of working and seen the benefits of a number of process improvements. We have survived, adapted, and now we are looking at optimizing and thriving. COVID-19 has changed the model of business travel. We've worked hard to reposition our business to make sure we're well positioned to participate in the recovery of corporate travel. Now I'll turn to slide six. I'll cover each of our markets of fairing and our plans as the travel restrictions ease in each market. However, I think it's important to firstly remind you of our overall strategy, so please turn to slide seven. More than ever, Serco's three-pronged strategy remains relevant, growing our customer base increasing our average revenue per booking, or ARPB, and delivering market-leading technological innovations to underpin our platform for global expansion. We partner with global travel management companies, TMCs, who are resellers of our products. These partnerships continue to extend to enable the rollout of the Zeno travel and expense. platform into the northern hemisphere geographies. We continue to expand our relationship with TMCs in North America with three new reseller agreements signed since March 2020 as TMCs ready themselves to come out of the travel shutdown period stronger than before. These organizations serve the managed corporate travel market. We're also partnering to target small and medium-sized enterprises to use our self-onboarding functionality to grow our share of the unmanaged corporate travel market. The Booking.com expanded agreement announced in October 2019 is an example of that strategy, which I'll cover in more detail shortly. If we turn to now slide eight, we've put a lot of time and effort into the scalability of our platform, appointing Duane O'Brien as Chief Technology Officer to lead this initiative. Duane brings over 25 years experience in specializing in building global enterprise SaaS platforms. We've also invested in our ability to scale our reseller partners globally. Nick Whitehead was promoted to Chief Marketing Officer to lead these initiatives globally. first an innovative sales enablement program built around a xeno partner portal and learning framework with this program we can now rapidly onboard new travel management resellers and get them to the point of sales effectiveness much more quickly secondly we're also focused on developing a model of community engagement through our existing xeno labs program as a way for us to gain a deeper understanding of the needs of the corporate travel market while giving buyers access to our product development teams. We are leveraging this process to gain learnings on the market changes arising as a result of the COVID-19 pandemic. These types of initiatives, as well as the competitive advantages of the Zeno platform itself, are intended to put our travel management partners in a strong position to retain their customers and to gain market share. This has led to a good year for growth in both new travel management resellers and net new corporate customers. As business travel resumes, factors such as cost, risk, and management will actually be of importance for organizations. As organizations return from a near zero dollar spend on travel, each trip and each dollar proposed to be spent is likely to be reviewed with a greater level of scrutiny than before. Risk management is likely to be of increased importance to ensure traveler well-being and to meet employers' duty of care obligations. Change management is also expected to be a priority not just to support an organization's travelers as they navigate a much more unpredictable landscape of disruptions, but also to ensure that credits are effectively tracked and utilized. The managed travel channel offers a solution to these requirements. Flights or hotels booked directly with suppliers across multiple airlines or hotel websites make it difficult for organizations to effectively address costs risk, or change management. Adoption of all of these factors means a corporate booking tool and the associated corporate travel policy and compliance are likely to become even more important than before. This is the future of business travel that Xena was built for, and it is for these reasons we expect that Serco is well positioned for the global growth when business travel resumes. Now turning to slide nine. As we announced in October, Booking Holdings participated in Serco's capital raise with a $17.5 million investment into Serco. And at the same time, we entered into an agreement that allowed Booking.com to offer Zeno to their corporate customers. This agreement enables Booking.com to leverage the Zeno platform as a white label solution under the Booking.com for Business brand. with a commercial partnership based on a revenue share model between Booking.com and Serco. Serco appointed Jonathan Starkings to lead the Booking.com initiative. Jonathan was the managing director of Groupon Travel and commercial director for Expedia Group. Despite the challenges of COVID-19 and the need to collaborate across the globe, our teams came together and were able to achieve significant progress. We've rapidly brought to the market an initial product, and it's currently being tested in a few key markets. Turning to slide 10. The majority of our travel revenues come from domestic bookings in Australia and New Zealand. And during the financial year, we achieved year-on-year booking growth in each month up until March 2020. As outlined at the 2019 annual meeting, We had a medium term target of reaching $100 million of revenue. As part of achieving this goal, we had a target of achieving 5 million transactions in Australasia at a $7 ARPB. And this was in the medium term. Well, we made good progress during the year with a peak in February of 24,000 bookings per day, up from a peak of 21,000 in the same month in the prior year. and an ARPB increasing to $6.46 on recurring revenue, the impacts of COVID-19 has had on the industry. It's likely to take a little bit longer to achieve this goal than originally planned. Monthly growth occurred despite softer economic conditions in Australia in the first half, followed by the Australian bushfires negatively impacting corporate travel. Over 6,800 corporates now use our booking platforms. We continue to grow customer numbers with the number of corporates transacting through our travel platforms increasing by over 700 when compared February 2020 to February 2019. We still have a pipeline of new customers to onboard through partners like Orbit who haven't yet finalized their migration. We also saw a significant transition to the premium Xeno product from Serco Online during the period. At the end of March, 25% of transactions were occurring on the Xeno platform. In June, this is now 42% of all transacting corporate customers using Xeno. Serco also saw an opportunity with the way expenses needed to be managed during the period of remote working caused by COVID-19 lockdowns. Serco created a light expense product using a direct marketing campaign and activation of a reseller incentive program across our travel management company partners in Australasia, along with the introduction of a rapid implementation program that materially reduces our setup time to onboard new accounts. This resulted in an increased pipeline of expense opportunities. Returning to slide 11, During the period, we had invested heavily into the Xeno platform for expansion into the North American markets as part of that $100 million medium-term goal, with the other part being the UK and European markets. Even though travel activity is extremely subdued, we feel positive because since March, Ovation, Balboa, and Ascendus And last night, Radius Travel Group joined our group of travel management resellers. We also added expense resellers with Omnia Partners and Oracle NetSuite. We added key North American content and integrations that helped us win our first customers in the new market. An example is ZS Associates. And built a pipeline of new channel partners who are now working through pilot programs. However, travel management reseller onboarding slowed materially in the last quarter due to the impact of COVID-19 and we expect further corporate onboarding to be slow until travel resumes in this market. Development work will continue to expand the local air, rail and hotel content as well as completing reseller integrations to support the migration of the additional corporates onto our platform for the North America as well as for Europe to support Booking.com for Business platform rollout. In addition, the development work required to bring Interplex expense platform in line with the Zeno user experience continues and we expect to launch the new Zeno expense offering in Q3 FY21. bringing greater scalability and a richer set of features to our combined travel and expense offering. Now I'll pass you over to Susan to cover the financial summary for the year, and she will start on slide 13.

Thanks, Darren. I'm going to cover off our performance dashboard that we report every six months. I will then go into more detail on some items in the following slides. With our expansion plans and the corresponding increase in operating costs, Circle declined to an overall net loss after tax of $9.4 million. EBITDAF was a loss of $6.1 million down from a profit of $2.6 million in the prior year. Our operating revenue was up 11% at $25.9 million for the year with 93% representing reoccurring product revenue sources. Reoccurring core product revenues were up 16% to $24.1 million. Total income, including grants, was $26.8 million, up 9% over the prior period. Annualized Transactional Monthly Revenue, or ATMR, historically a forward-looking indicator of reoccurring revenues, reached a peak during February at $27.5 million, up 6% against the prior year, compared at $26 million. However, declined to $15 million in March 2020 and subsequently further declined to a low in April and steadily increasing now with the increase in travel transactions since May. Total transactions across our travel platforms grew 2% over last year. R&D spend was $13.6 million for the period and was up 48% from the prior period. which shows the increased development that was being invested in the product for new territory expansion. Operating costs increased 59% over the prior year to $37.1 million. Moving to slide 14. This slide shows the summary profit statement and the reconciliation of net loss after tax to EBITDA. The reconciliation includes foreign exchange revaluations of $0.7 million, including the net finance income, Depreciation and amortization of $3.2 million, with $1 million being related to the IFRS 16 leases adoption from 1 April 2019. Fair value adjustments of $1.1 million related to the contingent consideration for Interplex acquisition with the final tranche of these shares issued in February 2020 when Circles' share price was reaching its all-time highs. Slide 15 now shows a revenue breakdown by type of revenue and by geography. As mentioned earlier, reoccurring revenue was excluded services revenue at $24.1 million, up 6% on the year. Travel platform revenue grew 2% in line with the 2% increase in transaction volumes of $4.2 million for the year and where COVID-19 impacted, as Darren previously covered. Online transactions, i.e. paid transactions or bookings, at 3.72 million, however, were down 1%. More offline bookings took place during the COVID-impacted period. Offline bookings are system-generated bookings which are generally at a reduced cost or bundled into the online booking fee. This is due to complex booking arrangements performed by the travel agent directly rather than the traveler-led system bookings during the heavily impacted period when travelers were trying to return home or cancel arrangements. Volume impacts for the last few months of the year were only part of the reason for the lack of significant revenue growth. There were other adjustments required due to COVID-19 impacts. Under IFRS 15, Revenue from Contracts, CIRCLE records revenue from its portfolio of contracts with reference to actual transactions, minimum contracted commitments, and forecasted future volumes. Due to COVID-19 impacting the entire travel industry, Circle has agreed to a number of changes to contracts, including changes to schedules of contracted minimum revenue. This, along with declining forecasts for the remainder of the term of contracts, has led to the effect of reducing the revenue that Circle expected to record in the current year beyond the impact of the booking shortfalls. Travel platform revenue was mainly derived from Australian and New Zealand sources, with revenue in a new northern hemisphere expansion not significant in the year. Circular expense platform revenue at $5.8 million was up 115% and includes the revenue from the Interplex acquisition of $3.7 million for the full year, compared to $0.9 million included in the prior year for three months. The growth related to circle expense was 16% for the year. Supplier commission revenue declined slightly against the prior year to $1.4 million from $1.5 million, and other revenue remained in line with the prior year at $0.5 million. ARPB, or average revenue per booking, on reoccurring revenue was $6.46 for the year, calculated as the total reoccurring revenue divided by total online travel bookings of $3.7 million. This was up 17% from the prior year competitors of $5.52, primarily attributable to the Interplex income. Total services revenue at $1.8 million was down 33% due to the development resources focused on the North American activation and the Booking.com for Business platform. At $1.8 million, this is at a similar level to the FY18 revenue. FY19 revenue included increased activity in relation to customizing Xeno for Australian resellers, including significant work completed for Flight Center's SAVI platform. In relation to movements in earnings in various geographies, you can see that the growth is primarily related to North America and New Zealand, with Australian sources declining due to COVID-19 impacts, as well as the softer economic conditions and bushfires mentioned before. The North American revenue is primarily related to U.S. source commission incomes and the expense revenue from Interplex. New Zealand growth represents the transition of orbit customers and the minimum of that contracted contract recognized over the term of the contract in accordance with IFRS 15 revenue recognition criteria. I'm now turning to slide 16, operating expenses. This slide outlines the categories of expenditure. Operating costs increased to $37.1 million for the year, up 59%. This was mainly as a result of the increased headcount and costs associated with the expansion to northern hemisphere markets and also includes Interplex operating costs for a full year. The most significant cost is remuneration and benefits at 52% of total operating expenses and increased 48% to $19.4 million. The number of full-time equivalents at the 31st of March 2020 was 233, representing a net increase of 60 FTEs since the 31st of March 2019. Last year we increased by 67. And similar to prior year, the increase was in product development being 46 heads and FY19 it was 46, and customer support of 12 and FY19 it was 13. We had 120 staff based in New Zealand, 23 in Australia, 48 in China, and 48 in the U.S. as of the 31st of March, 2020. Subsequent to year-end, the staff numbers were increased to 240 with the onboarding of hires that were in train when COVID-19 hit and the conversion of key contract staff to permanent employees as part of the cost-saving initiatives introduced. Selling and marketing costs increased 77%, and this was primarily related to an increase in third-party connection costs for technology connection fees, but for content by U.S. global distribution company, Saver, charges which are new to New Zealand and Australia, but common in the U.S. Hosting expenses increased 74% due to volume increases, infrastructure improvements, and to increase the speed and saveability, as well as the expansion of databases into new territories for expansion. Administration costs increased 64%, includes depreciation, amortization, Amortization increases of $2.1 million. Computer licenses increased $0.7 million with increased headcount and increased collaboration tools and system monitoring tools. An increase in professional fees of $0.5 million included $0.4 million related to one-off costs for partnership due diligence activity prior to the share capital raise. An expected credit loss provision of $237,000 was made due to the uncertainty and recoverability of an increased number of debts as a result of the current operating environment, whereas a bad debt provision in prior years has been nominal. The fair value adjustment I have already spoken to. Now turning to slide 17, research and development. This slide outlines the development spend, both capitalized development and expensed research during the period. During the year, total R&D was $13.6 million, up 40% over the prior year and represents 53% of operating revenue. The portion capitalized at $11 million is up significantly over the prior period and represents 81% of total spend. These capitalized costs are reflective of the investment we are making in development of our product to cater for new territories. While significant compared to the prior years, The assessed future benefits substantiate the capitalization of these costs, even in a COVID-19 impacted year with very conservative models. The research costs, which were not capitalized during the period, amounted to $2.6 million. Net of government grants for research and after the amortization of previously capitalized development, the product development cost expense for the period was $3.6 million and represents 14% of operating revenue. As Darren mentioned, Earlier, the development is expected to continue for FY21 for Northern Hemisphere expansion. I'm now going to pass back to Darren to cover off the outlook statement on slide 19.

Thanks, Susan. We consider the business as well positioned for growth when trading conditions improve and travel industry starts to recover based on the following factors. We occupy a strong market position in Australia. with the majority of our transactions being domestic and trans-Tasman in Australia and New Zealand markets. There remains a pipeline of new customers to be onboarded from our existing travel management partners. We're focusing predominantly on domestic travel within the North American market, where we continue to add resellers to our platform and continue development work to localize content in that region. Despite the impacts of COVID-19, the addressable market remains significant. Booking.com for Business, White Label, is now live in the United Kingdom and Ireland. And our agreement with Booking.com presents an opportunity for the Xeno booking tool. We have strong balance sheets and ongoing commitment to investment, which will benefit existing and prospective customers. We've retained resource and capacity on key growth initiatives. Timing of the travel recovery, however, remains uncertain. And as a result, we're unable to forecast our likely operating revenue for the 2021 financial year with any certainty. Although the outlook is highly uncertain, we anticipate our core Australasia markets will be operating between 40% and 70%, of their pre-COVID activity levels by March 2021. Beyond that, we are taking a conservative approach to growth, as most industry reports indicate a slow and largely unpredictable return to full COVID activity levels. And as noted earlier, 3,200 customers booked during the first three weeks of June, and we are currently transacting 25% of our previous year's daily products. booking volumes. This has increased from 9% in April and we hope to see this trend continue. As at the 31st of May, Serco had a net cash and cash equivalence of $39.9 million. We believe these cash resources at the current rate of cash burn will be sufficient to see the company through to cash flow break even again should our anticipated recovery scenario be achieved. We will continue our rigorous focus on cash flow throughout the remainder of FY21, targeting an average monthly cash burn of no more than $2 million per month to conserve cash reserves. We'll keep the market updated with any material changes. And now turning to slide 20. And that completes our presentation. And before I turn to Q&A, I do want to draw your attention to the appendix slides Ask for slide 20 for further information on Serco, its eight-year performance trends, and the definitions of our key measures. I'll now hand back to the moderator to facilitate the Q&A.

Thank you. If you'd like to ask a question at this time, please signal us by pressing star 1 on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach us. A voice prompt on the phone line will indicate when your line is open. Please state your name before posing your question. Once again, that's star one to ask a question. And we'll pause for just a brief moment. I'll take our first question in the queue. Please go ahead, caller.

Hi, Darren. Susan John O'Shea from AUDS here. Hi, John. How are you going, guys? You well?

All well.

That's good, Darren. Just two questions for me. I guess they're all interrelated. How do you see, in a sort of post-COVID environment, how do you see the role of booking tools and whether it's changed at all or not in terms of the post-COVID corporate travel environment? And secondly, to what extent has this changed the timing, I guess, or how has it changed the details of the booking deal? the Booking.com deal?

So, covering the first point, and I think we covered part of that in the speech around where managed travel and the focus that it now places, and then, of course, when a business, doesn't matter what size it is now, with employees trying to manage cost controls and risk, you really need to do that under a managed travel program, and Our technology is designed exactly to do that and we're working with our suppliers like Booking.com to show the cleanliness of hotels, all of the information that will be needed from whether it's a hotel or an airline to get that information and that rich information so that the right decisions, the right approvals and the right workflows And so what we see is our travel patterns change, and we've seen 3,200 companies already start to travel. Most of these companies are implementing approval processes. They want visibility of that spend. They want to know that their travelers are staying in safe places and that they have this overarching process of due care that has to be put in place. And of course, you can't do that without a platform. And that's what Xeno was designed for, of course, was to bring a connected journey together, but to manage risk compliance, change, credit reuses. Some of our resellers are managing over 60 million of unused credits from cancellations due to COVID. And you need technology like ours that auto-reuses that. So it manages not only the process, but it manages the risk of these large corporations which have millions in credits that need to be reused that could just be normally lost. And so technologies like what we do pay for themselves through this sort of process of managing that risk and compliance. And so talking about the booking.com, as we mentioned, we've started the initial pilot phases in a couple of the markets in Europe. And again, that's focused around people wanting to connect into a platform to manage that visibility is across small or large businesses. And I think that's the fantastic part about the Zeno platform. And the two teams have worked incredibly well together. The partnership and white boarding and doing everything remotely and still delivering the platform that we're doing in this case is a real testament to the two teams and working incredibly well together. for the common goal.

Thanks, Darren. Thank you, Susan. You're welcome.

We'll move and take the next question in the queue. Please go ahead, caller.

Good morning, Darren, Susan. Just a question on your TNC channel and what sort of indications you're getting back from that channel? What trends are you seeing at this early stage in terms of any likely business closures or consolidation and just how you're thinking about the health of that channel at the moment?

Yeah, that's a very good question. And we're seeing, like you've seen a lot of new resellers sign up to our platform, but from our existing resellers, one of the things I wanted to highlight is that companies like Flight Centre are investing into their customers and so they're looking at new features such as solving those multi-stop or really complex international travels and investing in with us to build some of those features out. And the other parts, we are seeing some of the mid-market travel management companies consolidate together under the buying groups that existed in Australia as well so we are seeing the natural consolidation that occurs through any of these types of crises as well but then the big brands that are looking to really take advantage of the crisis and help businesses and actually build technology out of this are also investing at the same time

Great. And just a second question for me with regards to the target or expectation around ANZ bookings being back to 40% to 70% of BCP levels by March. Just interested in what you're basing that on. Is it sort of the early trend that you've seen so far? And I would sort of love to see any trends within that that you're also noticing where that sort of booking recovery is coming from.

from any particular segments more so than others yes the government i think what we've seen is that governments are setting a lot of the policies around early travel as well and and re-engaging to make sure that economies recover we're also seeing that once competitors of like companies start traveling face to face then people switch from zoom to to actually traveling because they need to match. And that pattern's occurred previously through other models that have occurred in our history as well. And so 93% of our revenue is really related to domestic travel, so domestic within New Zealand and domestic within Australia. Another 3% to 4% is trans-Tasman. And so when you look at that volume, once the Australian states start to travel, even between, say, New South Wales and Queensland, then you start to get that natural uplift. And once it hits into Victoria, so the inter-country travel for us is actually our biggest part of our volume. So based on New Zealand's controls and Australia trying to get to that same level, that's how we run our models. And so because we're starting from a pretty low base in Europe and the US and we're an emerging technology platform gaining market share in there, really we start again looking at the domestic volume and then the inter-regional volume and start to model that sort of side of it forward as well. And then the other side of our business is expense, which isn't impacted because people still need to manage the expenditure, if not more, and to put those controls in place. So we have always got to remember we've got two parts to our business. We're a travel and an expense platform company as well.

All right, thank you.

You're welcome.

Once again, as a reminder, it is star one. If you have a question or comment at this time, that's star one. We'll move to our next question in the queue. Please go ahead.

Good morning, Darren and Susan. Can you hear me? Yes. Great. It's Chris Burnier from . I was just wondering if you could just give us a couple more markers, if possible, in terms of a couple of your more interesting growth options in terms of ATPIs, probably one of the more mature ones in terms of offshore. You've sort of been rolling out with them now for well over a year. you know, you've had your pilot schemes there in the UK and you've been doing a bit of work for them. Can you just sort of, you know, it's hard when they're not sort of showing up in the geographic spots yet, et cetera. Can you sort of highlight how those are going and give us a couple of markers of feel for sort of how customer numbers are going post-pilot scheme and whether there's any momentum there?

Yeah, I mean, it's a good point. And Europe has been probably in a harder lockdown process than probably a lot of the other regions probably very similar to New Zealand but it's taken longer to come out of those lockdown restrictions so we haven't seen a very, we're still seeing a very soft trend in Europe at this point and we hope to get better markers on that as we start to go through that sort of trend coming out of that. With the ATPI group which includes the direct travel, they're in the onboarding phases of using this time to get ahead in Canada and the US to get their first lot of customers up and live in both of those regions as well. So they are using that capacity and time to look at how they implement new customers. Some of the TMCs in Europe have had pretty heavy furloughs and redundancies and we are We've adapted our selling approach to also be able to assist in selling to those corporates directly and also to be able to help with the implementation and onboarding phases. And we're definitely doing that in the North American markets with those new resellers that we've signed as well in there. So it's pretty simple. we've got a better idea where we're close and where we're starting to see volume. When you're looking at Europe and the US, it's still pretty hard in those markets until we start to get a few of those markets or markers of recovery starting to tick through. And we're seeing similar trends in the early lockdowns where it's essential services and actually the mining and resource companies still travel. But we are seeing trends in different types of accommodation booked and that's through those types of insights as well, just due to the types of businesses that are travelling in that sector.

Have you given any consideration to potentially, I know they're pretty low volumes to start with, but have you thought about potentially splitting out sort of transactions by geography in terms of just giving some visibility on how those geographies are going? I guess revenue will sort of show a similar trend, but have you thought about splitting out to give a little bit more visibility in terms of how those, because it's obviously going through a difficult period for the travel industry, in terms of visibility on how those growth options are going over the next 18 months?

Yeah, and look, that's definitely some of the stuff that we're looking for, what markers we can help with the stakeholders inside our business to understand how they would like to look at it. Of course, any time they become significant on material, we nearly always break that out as well. But definitely, we want to help people be able to follow us and understand how we are actually executing and where that's actually triggering through into there. So as we start to get wider across those markets and start to get those trend lines, we can definitely start to break some of those metrics out.

I think the airline schedules are the best indicator, more than us, from a forward-looking point of view.

As the airlines load the – so what Susan's talking about, as the airlines start to load those schedules and we start to see the recovery patterns occurring as well, and it takes 30 to 40 days for every airline or airport slot to recover – as they internationalize. So there's normally a lead-in time and the airlines are trying to get faster and faster at doing that. And that's how we start to follow. So we look at what's being loaded to start to see how those trends are appearing as well.

Okay. And just on those increased selling marketing expenses due to third-party connection charges, I mean, are you getting anything from Sabre or whatever? Are you getting anything in return for those? I just... Why were they introduced? Is it a worry to you that those charges have been introduced by the likes of Sabre?

We do pass those charges on any time we're getting third-party charges, and it does depend on how our resellers are using those global distribution systems. So depending on the content that they're plugging into those systems, they may get third-party charges that are applicable for using that service. And so, yeah, they change from time to time depending on the movement around that and that side of it.

Okay. And just finally on your customers, I know you added 700 over the period or anything. Have you lost any customers or major customers through this COVID rejig or is it all pretty simple?

Yeah, I mean, from our resellers, we haven't heard of any through that sort of site, but it's pretty hard to tell until some of these guys start actually transacting. And those are things that we'll be monitoring through into there. But we've changed our quarterly business reviews to monthly with our key customers, and we're in constant contact to see what risks and everything everybody's managing. But at this point, there's been no significant ones that we've been made aware of.

Cool. Okay. Thanks, Darren. Thanks, Susan. No worries.

We'll take the next question in the queue. Please go ahead, caller.

Hi, guys. This is Raveen from ICE Investors. I just had a question on the amendment of contractual obligations you've done to support your customers. Could you give us more color on that and whether that creates a bank of goodwill that would put us in a good position in a recovery.

Yeah, definitely. And I think, you know, Serco's success today has been on the back of our resellers and our suppliers. And so when they ask for help in a crisis, we're going to lean into that and take a view, and it's balanced, you know, where we will give on one side, but rebalance that normally on the end of contracts or make it up some other way. And so it does create good world because our brand around how we've worked with our resellers, we've never lost what we class as our customer and our history. And so we've only ever progressively gone forward. And we treat those partnerships with our TMCs or travel management companies as very important because they're dealing with the benefit of their customers who are also hurting through the COVID period. And that flows onto our supply source as well. So we have taken an approach to create some benefit to those people impacted during the COVID period and then to pick that back up when they recover and to recover potentially some or all of that loss by either contract extensions at the other end. So we make back that value at another point. So I would expect it has goodwill. The commentary that we've had from the resellers has been incredibly appreciative of Serco being able to do that. And yeah, like Susan mentioned, it does have a slight impact on our final revenue numbers, but in the scheme of where we're trying to get to from a global business, that short-term impact is nothing compared to the long-term relationships that we've worked on over the last decade.

Right, okay. So it's more about potentially contract extensions rather than a higher revenue per booking.

In some cases, we've adjusted it. In some cases, we've adjusted pricing up or extended it. So where there's been a give, there's also a take. We do try to create a balance so it's not just completely one-sided because they also know that we're affected under the same model. But we've definitely taken a balanced approach to that. So in some cases, we've charged a higher transaction fee because the minimums aren't there or we've changed how... or other things to be put into the mix and going through the education process about how they can actually become more productive and more profitable out of this as well. So we're doing a multi-pronged approach depending on the level that each of those resellers are at.

Right, okay. And it looks like we are quite collaborative and supportive with our customers. Just with regards to our booking process, agreement, just given the crisis, how have we been tracking to those KPIs or obligations and have they been able to change that because of the environment?

We can't really comment too much on that but just to say that we did achieve the milestone that was agreed between both parties of launching in May into two of the markets in Europe And we're progressively working together. We have a fantastic working relationship with the booking team. And both teams are working incredibly well together. And we've got a clear objective that we're running through with that platform and what we're doing through there. We're making a significant investment outside to make that a success as well. But we're also operating in COVID, which Europe has been pretty badly hit at the moment. And so we're working together to choose the right things that will be the next steps of how that recovers and how that next looks as well. So it's something that we'll give more colour on as we become more clear around each of those next steps. So we've met our first milestone.

Right, okay, great. Thanks, guys. Thank you.

We'll move and take the next question in the queue. Please go ahead, Kohler.

Hi there. Just a quick question. Sort of with technologies like Zoom and WebEx playing more and more of a mainstream role and corporates realizing that quite a bit of work can be done remotely, How is that sort of expected to impact Circus future revenue streams, especially in a world where business travel might be one of the prime candidates during a cost-cutting exercise? Thank you.

Yeah, that's a very good point. And as we all know, we've had to use tools that we've never used before to collaborate and to do that. At the same time, a lot, It's a done offer. There's a lot of behavioral stuff around travel. You saw in New Zealand that as soon as the lockdowns released, the flood in New Zealand had to put on more schedules just because everybody wanted to go to Queenstown and travel and to get out of the place of being locked down. So technology serves a certain purpose and it may change some of the way that that business makeup is done. And it may change some of the travel patterns to be closer interregional to start with before people expand out into the wider globalized markets. They'll definitely start to choose between interregional areas that their risk profile, you know, every person has a way that they manage their risk. And that means they may be more comfortable to travel between countries before they travel to, say, the US, which they might consider has a higher risk. And so as competitors transact and as deals are closed, this natural tendency to want to have this face-to-face contact becomes even more important when you have to make that decision to fly there. So that level of engagement becomes just as important. And you could say I was quite surprised that 3,200 companies have already taken up that opportunity in the first three weeks of June. You know, that's almost half the normal customers transacting in a given month have actually chosen to do that in June. So we're seeing that trend unfollow that although they have the tools, they're still choosing to engage face-to-face, and that importance of tuning up into those meetings and picking up the body language. So I think there will always be a balance into this thing. It'd be stupid to say that there wouldn't be a rebalancing of that. But that doesn't mean that where that travel didn't occur, that it still won't occur. And it may occur to different levels, and that's yet to be determined.

Thanks, David. Appreciate it.

You're welcome.

That does conclude our question and answer session. At this time, I'll turn the call back over to our speakers for any final or additional comments.

Thank you. I just want to take the opportunity to thank our people for their continuing dedication and hard work during the 2020 financial year. And also, most importantly, since the COVID-19 pandemic dramatically changed our industry and our way of working. Thank you, everybody, for joining us on the call today. We look forward to talking with you over the next few days for those who have scheduled an investor meeting. In the meantime, if you have any questions, then please do not hesitate to come back to either Susan or myself. So thank you once again.

This does conclude our conference call for today, everyone. Thank you all for your participation. You may now disconnect your line.