Serko Ltd

Please stand by. We're about to begin. Good day and welcome to the CIRCO FY26 interim results announcement. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Darren Grafton. Please go ahead, sir.

Good morning from Auckland, New Zealand, and thanks for joining our investor briefing covering CIRCO's results for the half-year ending 30 September 2025. I'm Darren Grafton, CEO of Serco, and I'm with our CFO, Shane Sampson. This morning, I'll take you through our performance and highlights for the half-year period. I'll then hand to Shane to cover our financial results in detail. Then I'll talk through how we're positioning Serco for the future growth, our outlook, and finishing with Q&A. As always, and as otherwise stated, comparisons are made to previous half-year period 1H FY25. And let's begin on slide five. This is Serco's strongest half-year performance ever on both revenue and EBITDA fee. This was due to disciplined execution and our focus on profitable growth. Key call-outs are, first, we achieved strong total income growth of 45% to $61.8 million. And this reflects the scalability of our model with strong contributions from Booking.com for Business and the addition of GetThere driving our expansion into North America. Second, we delivered EBITDAFI of $6.1 million. This is our highest ever EBITDAFI result. Third, we generated $3 million of free cash flow. And this reflects our cash-generating existing business and the fact we're still in the early stages of our ramping our investment into building Serco for the future. At the same time as delivering these results, we're setting the business up for the future, and I'll touch more on that shortly. Turning to slide six, total income was up 45%. This was driven by a strong trajectory We're on with Booking.com for Business, which continues to grow as we focus on activation, engagement, and conversion. This is translating to substantial growth. The other driver is GetThere, which has delivered significant growth in online bookings and to Serco's income. Turning to slide seven, where we double-click on our Booking.com for Business performance, Completed room nights grew 32% to 2.1 million. This was driven by a 40% growth in active customers, improved onboarding, and new platform capabilities that are driving higher customer engagement. We added 40,000 new customers in the half year, significantly stronger than in the same period last year. Completed room nights Frequency per active customer was slightly lower, and our view is this likely reflects small and medium-sized businesses in Europe booking fewer trips due to the macroeconomic headwinds there. We monitor these trends closely, and our analysis gives us confidence that customer activity should normalize as macro conditions improve. Serco crossed into the second tearing of commissions on multiple months, and we're tracking above 4.2 million completed room nights this financial year. Shane will talk to this further. We're delivering at pace against the new initiatives we told you about at our FY25 announcement, including the latest release of incentives. We're seeing green shoots of success with Genius Level 2, And we have confidence it's driving increased customer attention. We also rolled out significantly improved checkout experience and company onboarding that improved the overall customer experience. Turning to slide A. In Australasia, online bookings grew 2%. This was offset by a minus 2% decline in average revenue per booking from reduced third-party cost. some of which were previously passed through to customers. Although this impacts slightly on the ARPB, it significantly reduces our cost, creating a net cost benefit. This mix shift improves the quality of our revenue and demonstrates our focus on sustainable margin expansion. Overall, this resulted in a stable revenue result. Our early commitment to NDC is now paying off. We are one of the few players globally delivering a fully integrated NDC offering across Sabre and Amadeus. We continue to invest and innovate as we strengthen our market leadership and as NDC starts to gain traction. Turning to slide nine, on our get there acquisition and strategic partnership with Sabre, which has fundamentally repositioned Serco in the U.S. market. What's working well? We've fully integrated GetThere, stabilized the customer base with new ARR churn on key accounts around 1% of annualized revenue. We've established our new India development hub and set up global capability center that's now scaling. Revenue exceeded our expectations in the half, reflecting some of the expected churning customers taking longer to off-board than anticipated and very low level of new churn. Where we've been less effective, we haven't achieved our targeted US sales, but we have a clear path forward. It's become apparent as we've been establishing our sales pipeline with leading Fortune 500 companies. that many of them want to wait for the new capabilities we're building rather than onboarding to our existing products and going through a second migration later. The other points to note is that our partner Sabre has shifted their focus away from direct corporate contracts to growth in relationships with travel management companies. This change has contributed to lower direct corporate sales. Sabre is referring TMC resellers to us but the lower direct corporate sales means we don't anticipate making any performance payments for the 2025 calendar year. Our go-forward plan. In North America, we're now focused on scalable growth through a dual-channel approach, firstly via our TMC reseller network and direct corporate sales. Leveraging our Sabre partnership, we're targeting key management resellers. We've already onboarded two partners, Tangerine and Elite Travel. And while smaller in volume, they provide valuable insights into mid-market customer needs. On the direct side, through customer forums with leading Fortune 500 companies, they are involved in helping us to co-design our future AI-powered capabilities. With Get There fully integrated, we're in the room with major corporates gaining visibility and confidence in our North American opportunity and our execution model. As discussed at our annual shareholder meeting, Get There and our Sabre partnership have redefined Serco's North America position. We now have strong market presence, direct customer insights and relationships, along with the data and expertise in a key market, which positions us well for our future success. In summary, the first half has been about strengthening the platform, deepening relationships and co-designing our next generation AI powered capabilities. The second half is about establishing the technology to enable our growth, executing with focus and accelerating our North American opportunity. And I'll talk more to the strategy and outlook shortly But now I'll pass to Shane to cover the financial highlights.

Thanks, Darren, and good morning, everyone. Darren has already called out some highlights for the half year, and I'll go into more detail. I'm going to focus on the key outtakes from the result. We've also put some additional financial detail in the appendix for your reference. Turning to slide 11, total income increased by $19 million, or 45%, to $61.8 million, reflecting growth and booking for business volumes to get their acquisition. Operating expenses increased by 29% to $65.1 million, up $14.7 million, primarily reflecting costs associated with GetBear and investment in the U.S. market of approximately $16 million at the initial stages of our platform acceleration initiatives with investment of $1.6 million and a half. This was partly offset by lower third-party hosting costs so large third-party costs and hosting efficiencies achieved in our pre-acquisition business. Our preferred measure of total spend, which excludes the impact of accounting decisions around capitalization and amortization, increased by $15.2 million, or 34% to $59.3 million, broadly consistent with the increase in operating expenses. Higher growth in income relative to spend resulted in EBITDAFE improvement of $4.9 million to $6.1 million. Net loss after tax increased to $9.5 million, an increase of $4.4 million. I will talk to the drivers on the next slide. Free cash flow improved by $1.7 million to $3 million, reflecting the stronger EBITDA partially offset by realized FX losses, increased capital expenditure, and capitalization of internally generated software and higher taxes paid. Turning to slide 12, net loss grew despite EBITDAFI growing, and total income growth outpacing total spend growth. The bottom part of slide 12 shows the primary drivers of the increased loss, which are lower interest income, foreign exchange flipping from a gain in the prior period to a loss in this period, and the disposal of interplex. Net finance income was $1.3 million lower, reflecting lower interest rates and less cash on hand as a result to get their acquisition. We incurred a $2 million non-cash accounting loss on the sale of Interplex. I will talk to this in more detail later. Serco puts foreign exchange contracts, or FECs, in place as an economic hedge against revenue received in Australian dollars and euro. Historically, we have not designated these FECs as hedges for accounting purposes, and therefore any gains or losses on the FECs were recognised in the profit and loss. while the revenue was accounted for at the actual rate supplying at the time the revenue was earned. The significant depreciation of the Euro against the New Zealand dollar in the last six months has resulted in 3.7 million in recognition of losses on FECs not designated as hedges for accounting purposes and other sundry FX losses. In the prior period, FX rates moved the other way, resulting in a gain of 1.4 million, but the change from the prior period was an adverse movement of 5.1 million. Note that in substance, the FECs are acting as economic hedges. For FY27, we have designated some Euro FX contracts as hedges for accounting purposes. I will talk to this more on a subsequent slide. Turning to slide 13. While Serco has started to make investments in the platform acceleration program and acquired GetThere to support long-term growth in the US, the faster growth in total income still resulted in total income exceeding total spend in the period. This reflects strong unit economics in Booking.com for Business and improved margins in Australasia. For our Booking.com for Business and Australasian results, we've demonstrated our ability to invest and grow revenue and then to optimize the business to generate operating leverage, giving us confidence as we prepare to make increased growth investments again. Turning to slide 14, our balance sheet remains strong with cash and short-term deposits of $65 million and no debt. Relative to 30 September 2024, cash has reduced and other assets and liabilities have increased, reflecting the get-there acquisition in January. Relative to 31 March 2025, cash was up $3.6 million, reflecting the positive free cash flow and a cash inflow relating to a working capital adjustment on the get-there acquisition. Non-current assets and non-current liabilities increased, primarily reflecting a new India office lease Intangibles declined, reflecting the disposal of intangibles and goodwill associated with the Interplex business, and amortization exceeding capitalization of software, reflecting our conservative approach to software capitalization. Turning to slide 15, our partnership renewal with Booking.com in April 2024 revised our revenue share arrangement with the revenue share continuing at the 50% rate for volumes up to the equivalent of approximately 4.2 million completed room nights or CRNs per year. and a new TED system for higher incremental volumes. The arrangement is designed to mutually incentivize and benefit both parties. The chart on the left is from our May annual results and shows that in FY25 we achieved 3.3 million completed room nights and in FY26 we expect to exceed 4.2 million, the approximate level at which incremental transactions in lower commission. This reflects the strong growth in CRN since the renewal was signed. The chart on the right shows average revenue per completed room night, or ARPCRN, as shown earlier in the presentation, with ARPCRN declining 3%. The chart in the middle shows the average commission per completed room night, or ACOMPCRN. We introduced this new metric in May as a way to show underlying changes in our share of commissions as the ARPCRN we earn is impacted by the tearing of commissions. You can see the AECOM PCRN declined by 2%, slightly less than the ARPCRN as we had two months in the first half where our monthly volumes slightly exceeded the first tier, resulting in the blended commission percentage reducing to 49% from 50% in prior periods. As you have seen from the strong operating leverage we've achieved over the past few years, Our incremental margins are high, and therefore even on the lowest tier, our gross margin percentage is expected to be healthy. Turning to slide 16, as I noted earlier, Serco has historically had FECs in place to act as an economic hedge, but has not designated them as hedges for accounting purposes. During the half, we chose to put FECs in place for FY27 and designate them as hedges for accounting purposes. This will reduce volatility in reported revenue FX gains and losses and therefore reported net profit or loss in each period. Instead, mark-to-market gains or losses at each reporting date will go through the cash flow hedge reserve and be reflected in the total comprehensive profit or loss for the period. We have included details of the accounting hedges here to assist analysts and investors to calculate the impact on projected FY27 revenues. I note a portion of expected FY27 euro revenues are not covered by the accounting hedges, and that we've not designated any FECs as accounting hedges in relation to FY26 revenues. Turning to slide 17. As previously announced, we sold our US-focused expense business, Interplex, on 30 September. Serco has recognized a non-cash accounting loss of $2 million on the sale, primarily reflecting intangibles and, in particular, goodwill. The Interplex business made a modest contribution to revenue of $0.8 million in the first half, and the disposal is expected to have a small net benefit to our profitability going forward. In addition to the financial benefit, we expect strategic benefits from the sale, including increased operating focus and improved ability to partner with leading US payments and expense providers. Thanks, and I'll now head back to Darren.