“If we don’t do anything we’re going to lose $3 million in the next six months, and so guys what are we going to do?” So we put a whole lot of ideas on the table.
Probably about a dozen staff have taken extended leave for 12 months without pay. So they’ll literally just go travelling on our trips for a few months and then they’ll come back to a job. And other staff have done a voluntary salary sacrifice.
In fact 70% of our Melbourne office have done voluntary salary sacrifice. Which is incredible, because there’s absolutely no compulsion at all.
How does that work?
Everyone was just given a form and we said you could tick a box and say no I can’t do any sacrifice or I can do 10% or I can do 15% – and it’s up to them.
And when you say salary sacrifice, is it just a reduction in their salary?
Absolutely, and in fact it was open ended and because things are better, we’ve actually drawn a close to it as of 30 June.
So it was for a certain period of time?
It is now, but in fact when they tick the box, it was until we don’t have to anymore.
Your staff like you Darrell.
I haven’t yet told them if and when or how we’re going to repay it. And in due course we’ll do that as well and put a bonus on top.
We did it before during SARS where we had a similar issue, and we paid it back with a bonus and I guess we’ve got that trust that we’ll do what we can.
Now what have you done with your suppliers?
We own companies in Kenya and Thailand and they in turn do all the contracting on our behalf. Our business volumes are holding up reasonably well, and because the travel industry generally isn’t, there’s a lot of downward pressure on hotel prices.
So we can go to hotels and say, look our volume is OK but really we need a better price so that we can put some price promotion packages into the market and hopefully grow the business.
And they’ve come to the party, and we did a significant repricing in late January, early February, and we got an 8% reduction in our cost of goods sold, which is extraordinary because that’s by far the biggest item on our P&L. So that’s pretty major.
What else have you done, anything else in the restructure?
Yes, we’ve done a corporate restructure. We used to have our Australian business as a standalone business and a global business, both of those are in Melbourne, but they are physically separated and both legally and people-wise separated. We’ve actually merged those two business units into one and I think they’ll probably stay merged for the next two to three years as we ride through it.
So you’ve been able to combine back office function?
Exactly, and you just get some people function. You get some efficiencies in HR and efficiencies in finance people. It’s largely efficiencies in people factor.
Then why would you go back?
Because ultimately I think Australia has to be like any other business units. Just like our American business units or our UK one or whatever, in that it’s got to be standalone and it’s really got to have its own strategy, its own goals, its own purpose. Growth will be, I think, hindered a little bit by having it as part of global.
Now you were of course around in late 80s; how does this compare?
This is pretty savage. I think one of the things that we’re finding interesting now is that because the company is a bit more mature than we were then; not very but a little bit more… as are you Darrell… thank you very much!… I mean it in a good way… I won’t necessarily take it in a good way, but anyway…
In the old days because you were small, tiny and flexible, you used to shake the chain a bit harder and keep growing. Now when the company’s at this size and you’ve got established distribution chains, it’s no longer just so possible to get out there and shake the chain and keep growing. They’re actually saying to us our business is going to be down 20%, don’t expect that we’re going to be up 20%. And we’ve got to listen to that I guess.
Don’t you remember the early 90s? You couldn’t get money from a bank it, it was dreadful. You’ve forgotten.
I get bored with all that.
So is it better this time around or last time?
I think from a business point of view, it’s harder this time.
What? The worst recession you’ve had?
Yes I think so, I really do.
And where’s it going?
I think there is light at the end of the tunnel, but it’s a bloody long tunnel. And I think realistically it will be two to three years before we really get out of this thing in any really meaningful sense, from what I can gather both in Australia and overseas.
So will you have to do any more restructuring?
No. We’re looking at a recapitalisation project at the moment and that’s purely because… I mean we don’t need the cash, but because the world is a fairly grim place out there, we think there will be some great acquisition opportunities in the next six or 12 months.
Is anyone going to lend you any money?
Not bank finance, and in fact I think banks don’t lend money, do they anymore?
Get some equity partners in?
Well, we’re looking at selling 20% of the equity in the business.
And would you take some out?
No we won’t. It’s purely just to fund some mergers and acquisitions. So we’ve put what we believe is a medium term valuation on the business now.
What’s it worth?
Couldn’t tell you. Look it’s a good profitable business and we’ve just put a valuation on it, and if people think that’s reasonable, then we’ll get it away, and if they don’t, well we won’t do it. It’s as simple as that.
What are you looking for in an equity partner?
Two things. Obviously cash that is on our terms, it’s not cash that we need so we’re just putting the terms there and if they take it, they take it.
The second thing is that we are exploring what other value-adds they can put on to the table. Whether it’s some advice in terms of strategic or structural advice or whatever which would particularly come from an investment house… or whatever; or it could be a travel partner, a travel industry player, where there’s commercial opportunities that are linked into it.
So there are a number of ways that could be fringe benefits that could be beyond the cash itself.
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