Serko Ltd

Good day, everyone, and welcome to the Serco full year 2021 results call. Today's call is being recorded. At this time, I would like to turn the conference over to Darren Grafton. Please go ahead.

Good morning and welcome to today's results presentation for the year ending 31 March 2021. My name is Darren Grafton. I'm Serco's CEO, and I'm here with Susan Putts, Serco's CFO. FY21 has been a significant year for Serco, from near zero travel revenue in April 2020, when the full impact of COVID-19 affected travel bookings, to today where we are living in a state of uncertainty with travel restrictions still affecting a large part of the world. Serco quickly adjusted to the crisis, introducing cost savings in the first half of the year to manage cash burns to a target of less than $2 million per month. Mid-year, the decision was made to continue to invest for the opportunities that would still be significant once the travel industry recovered and we increased our monthly average cash burn target to between $2 and $4 million. Serco achieved an oversubscribed capital raise of $67.5 million in October 2020 to support this. And combined with the raise in the prior year, Serco ended the year with $80 million of cash reserves on hand. The company is well positioned to participate in the recovery of the corporate travel markets around the world. Our medium-term goal of $100 million of revenue is still valid, but has been delayed during the COVID-19 impacted year. We decided in conjunction with Booking Holdings to accelerate the development of Booking.com platform, and in March 2021 announced that we are now undertaking the migration of customers to the upgraded Xeno experience. for Booking.com's small and medium enterprise solution, Booking.com for Business. We continue to be supported by our investors, and in June 2020, Serco was included in the NZX 50 Index. I'd also like to thank our employees for their continuing dedication to Serco, and in the spirit, saw Serco named as the PWC High Tech Company of the Year in June 2020. Unfortunately, that celebration was virtual due to the lockdowns in place at the time, but it still was a highlight for the year and was a personal long-term goal. Our results were released to the stock exchanges earlier this morning, which included a copy of the presentation, and we'll start on slide four. Susan will start with an overview of the financial results for the year, starting on slide six, and I'll come back to cover the strategic developments and the outlook. prior to taking any questions you may have at the end of the presentation.

Thanks, Darren. Before I start, I want to congratulate Darren on winning the Infants Leadership Award last night, and we're very proud of our CEO. Slide 6 shows our performance dashboard that we report every six months. I will provide an overview and then go into more detail on some items in the following slides. With our expansion plans, and the corresponding increase in operating costs as well as reduced revenue, Circle declined to an overall net loss after tax of $29.4 million from a loss of $9.4 million in the prior year. EBITDAF was a loss of $22.3 million from a loss of $6.1 million in the prior year. Our operating revenue was down 52% at $12.4 million for the year, with 91% representing reoccurring product revenue sources. reoccurring core product revenues were down 53% to $11.3 million. Total income, including grants, was $16.9 million, down 37% over the prior period. Annualized transactional monthly revenue, or ATMR, historically a forward-looking indicator of reoccurring revenues, was $17.2 million as of the 31st of March, 2021. This was down 37% of the pre-COVID peak in February 2020 at $27.5 million. Total transactions across our travel platforms were down 63% over the last year. These increased from a low of 11% in April 2020 to a high of 73% in March 2021, achieving the high end of guidance that volumes would return to between 40% and 70% by March 2021. R&D spend was $10.6 million for the period and was down 22% from the prior year. Operating costs, including foreign exchange, increased 21% over the prior year to $44.9 million. As noted by Darren earlier, we ended the year with cash balances of $80 million. Excluding the capital raise net funds of $65 million, this was an average cash burn of $2.3 million for the year, well within the targeted cash burn of $2 to $4 million per month. The first half burn was an average of $1.8 million, and the second half burn, which includes the seasonal months of December and January, where corporate bookings are historically low due to the holiday season, was $2.8 million. Now moving to slide seven. This slide shows the summary profit statement and the reconciliation of net loss after tax to EBITDAF. The reconciliation includes depreciation and amortization of $5.6 million. Foreign exchange losses were $1.3 million versus the gain of $0.7 million in the prior year, and there were no fair value adjustments related to contingent consideration for the Interplex acquisition related to the current year. Now, slide 8 shows the revenue breakdown by type of revenue and geography. Recurring product revenue, which excludes services revenue at $11.3 million, was down 53% on the prior year. Travel platform revenue fell 61% in line with the 63% decrease in total transaction volumes of $4.2 million in the prior year to $1.6 million in the current year. Online transactions fell from $3.72 million to $1.3 million. The difference between total and online bookings being offline and custom bookings were higher than previous years. This was due to complex bookings performed by travel agents directly rather than a traveler-led system booking during this COVID-impacted year. Travel platform revenue was mainly derived from the Australian and New Zealand sources, with revenue from new Northern Hemisphere expansion not significant in the year. New Zealand source income was only down 13%, as this benefited from continuing onboarding of new corporate customers. Circo expense revenue at $4 million was down 31%. and this benefited from the fixed components to pricing. Supplier commission revenue declined against the prior year to $0.5 million from $1.4 million, and other revenue remained in line with the prior year at $0.4 million. ARPB, or average price per booking, on reoccurring revenue was $8.76 for the year, and this is calculated as total reoccurring revenue divided by total online travel bookings of $1.3 million. This was up 36% from the prior year, comparative of $6.46, primarily attributable to the level of fixed charges from Circo expense. ARPB on travel-related revenue was up 12% to $5.36. Global services revenue at $1.1 million was down 37% from the one due to development resources focused on North American activation and booking.com for business platform. I now turn to slide nine, operating expenses. This slide outlines the categories of expenditure. Operating costs increased to $44.9 million for the year, up 21%. This was mainly as a result of increased headcount. The most significant cost is remuneration and benefits at 66% of total operating expenses and increased 52% to $29.5 million. This included $3.2 million of share-based payments which was an increase of $2.2 million over the prior year. Rotation of shares, while other cash-based remuneration was down due to staff salary reductions for a period of three months and no short-term incentives for the FY20 year as part of cost savings initiatives implemented in the first quarter of the year. Costs also increased with the number of employees. The number of Full-time equivalence at the 31st of March 2021 was 287, representing a net increase of 54 FTEs since 31st of March 2020. Last year, we increased by 60, and the previous year, 67. And similar to prior year, the increase was in product development staff at 47 of the 54, and last year it was 46. We have 172 staff based in New Zealand, 20 in Australia, 54 in China, and 43 in the U.S. as of the 31st of March, 2021. Subsequent to year-end, the staff numbers were increased to 292, and Circle is planning on continuing to expand, but the rate of hiring will be relative to the rate of travel revenue increases. Selling and marketing costs decreased 31% and hosting costs 19%, with the drop in volume and cost savings initiatives put in place at the beginning of the year. Administration costs decreased 31%. While computer licenses increased $0.2 million with increased headcount, other administration costs decreased due to cost savings initiatives through reduction in discretionary spending. Depreciation and amortization increased $2.5 million to $5.6 million. And the fair value adjustment I have already spoken to. Slide 10, Research and Development, outlines the development spend, both capitalized development and expensed research during the period. During the year, total R&D spend was $10.6 million, down 22% over the prior year, and represents 86% of operating revenue. Proportion capitalized spend at $7.2 million is down over the prior year and represents 68% of total spend. These capitalized costs are reflective of the investment we are making in developing our product to cater to new territories in North America, as well as the Booking.com platform. The research costs, which were not capitalized during the period, amounted to $3.4 million. Development resources were reprioritized with the onset of COVID-19 and the acceleration of the global release of Booking.com platform powered by Xeno. Development resources were also focused on the management of the platform costs due to the reduced bookings and the subsequent scale-up with the return of bookings in the Australasian region and in preparation for the Booking.com migration. Net of government grants for research and after amortization of previously capitalized development, the product development cost expense for the period was $6.4 million and represents 51% of operating revenues. I'm turning to slide 11 now. I'm going to pass you back to Darren who will start on slide 12.