Edited Transcript of WTC.AX earnings conference call or presentation 19-Aug-20 12:30am GMT

I am pleased to report that despite disruption to global trade resulting in reduced transaction volumes, our organic growth was strong, up 20% on the prior year, reflecting increased usage by existing customers and growth in new customers. Complementing our organic revenue growth is our strategic acquisition program, which has delivered 25% revenue growth in FY ’20. Despite the global trade disruptions caused by the pandemic, our EBITDA margins were above the top end of our guidance range of 30%, with CargoWise EBITDA margins at 48%, a testament to the strength of our core offering.

This resulted in our NPATA, a good indicator of our performance, given our significantly increased R&D investment, increasing 3% to $64.6 million, an excellent result in the current environment. Our business is built on strong financial foundations. We have a healthy balance sheet, robust cash flows and ample liquidity. As at June 30, 2020, cash was $224 million, and we had no outstanding debt with $190 million undrawn debt facility in place, plus a further $200 million accordion available to us. This provides us with the financial firepower to fund our future growth and to leverage opportunities that arise as we transition into a post-COVID world.

Our operating cash flow, the best indicator of earnings quality was up 16% on FY ’19. Our operating cash flow conversion rate at 116% demonstrates the strength of our high cash-generative operating model. In recognition of the continued strength of the WiseTech business, the Board has declared a fully franked ordinary dividend of $0.016 per share. The final dividend, coupled with the interim dividend of $0.017 per share equates to a total FY ’20 dividend of $0.033 per share.

Let’s look now at the impact of COVID-19 on the broader logistics sector and our response. As mentioned earlier, while there has been some short-term pain in the form of disruption to supply chains, the pandemic has also accelerated the long-term trend away from legacy systems, lifted with [bolt] together micro-point systems and inherent cybersecurity risks, creating significant near and long-term global opportunities for WiseTech.

Initially, the unexpected outbreak of COVID-19 and the ensuring lockdown restrictions had a distinct negative flow in effect on industrial production and related supply chains, resulting in a temporary slowing of economic activity globally. We saw a volatility in global logistics markets and a marked slowdown in the movement of goods across all modes of transport. Lower transaction volumes were recorded in late January and February due to the impact of COVID-19 in China, and in March through May, due to the impact of the rest of Asia, Europe, the Middle East, Africa and the Americas.

By June, however, a moderate recovery was evident with transactions continuing to increase. Pleasingly by the end of July, we have seen CargoWise user numbers return to close to pre-COVID levels. It is also notable that container bookings at the port of origin are now higher than pre-COVID levels, due in part to the recovery in industrial production and in part by the continued growth of a large cohort of CargoWise global customers.

Note, there is a strong correlation between these increased export volumes and transaction revenues within CargoWise, albeit delayed by about 6 to 8 weeks. Governments globally respond to the pandemic with the restrictions designed to contain the spread of infection, resulting in increased complexity and risk for logistics service providers. At the same time, demand pressure intensified to get goods through. The effect of these dual presses has provided a catalyst for many logistics providers to pivot their business models. Once the impact of COVID-19 was dealt with, it became even more critical for logistics providers to remove legacy systems, which rely on many small, poorly integrated aging third-party systems with dangerous cybersecurity risks and floors.

CargoWise is well-positioned to provide a highly integrated, fully digital system for logistics providers, designed with global visibility, increased productivity and risk reduction. Further, CargoWise easily enables remote working, a critical issue in the current environment. This is the new normal and facilitating these many improvements is CargoWiser’s greatest strength.

We saw the effect of these improvements first-hand with a number of our large logistics customers such as DHL Global Forwarding and DSV/Panalpina, both of whom have expanded their global wallets on the CargoWise platform. We have also seen increased demand amongst our larger CargoWise customers for the accelerated development of customer co-funded CargoWise product enhancements, alongside our own R&D investments, to better and more rapidly enable them to navigate the challenges posed during the pandemic.

We have been agile in our response, increasing our development team’s productivity by more than 10% since moving to remote working, launching over 1,100 product enhancements in FY ’20 and increasing the scalability and security of our platforms. Because of our digital platform, WiseTech’s global offices and teams move rapidly and successfully to work from home. And due to the productivity gains and the success of the new model, we have committed to a hybrid home office working model in FY ’21.

The power and completeness of CargoWise has also enabled many of our customers to move swiftly and successfully to a work from home environment.

Last but not least throughout this period, we were focused on preserving cash, strengthening our balance sheet and reducing costs, all whilst continuing to invest in our growth and build on our competitive position. So what does all this mean? WiseTech’s opportunity for growth is vast. Our focus has been on leveraging the prevailing conditions and the increased demand amongst logistic providers for efficient, real-time digital solutions. Market penetration of globally integrated automated logistics solutions is still in the very early stages. Our immediate goal is to leverage the pressure on global logistics providers to lift the adoption of CargoWise.

I am pleased to report that throughout FY ’20, we continue to grow our market penetration by signing up 5 new customers with global contracts in the last 6 months. The new freight forwarding and customs global rollouts are with Seafrigo Group, 12 countries; Aramax, 35 countries; a. hartrodt, 42 countries; and top 25 global forwarders Hellmann Worldwide Logistics, 42 countries; and CEVA Logistics, 59 countries.

In addition, our existing large customers’ increased usage of the CargoWise platform by adding transactions and seats, adopting additional modules and functions and increasing the demand for accelerated development and delivery of customer co-funded product enhancements. Overall, 42 of the top 50 global third-party logistics providers are now WiseTech customers, as are all of the top 25 global freight forwarders, with 23 of those using the CargoWise platform. We have continued our strong investment in product innovation, with 51% of our people and 37% of our revenue invested in our R&D program in FY ’20. This delivered over 1,100 product upgrades and enhancements to CargoWise as well as technology developments across geographic footholds and global adjacencies in areas of global customs, rates management, border compliance, transport management and land side logistics.

I will pause here to note that due to the difficulty resulting from corporate-related disruptions to the supply chains, we decided to delay certain new product launches scheduled for the second half ’20 that would have been difficult to commercialize while customer staff work from home. Andrew will talk about the short-term impact this had on our FY ’20 revenue growth, noting that we will leverage the opportunity in FY ’21 to reschedule these launches. Complementing and enhancing our organic growth of CargoWise has been our acquisition strategy.

In FY ’20, we completed 5 strategic acquisitions across North America, South Korea, Poland and Switzerland, which have delivered significant development resources to optimize our technology pipeline and expand our geographic footprint. These acquisitions have delivered additional skills in the forms of specialist technology teams and access to intellectual property that we can converge with our own technology and faster entry into markets in a relevant customer basis.

In addition to the 5 acquisitions completed in FY ’20, we are also able to prudently renegotiate and partially or fully close out earnout obligations associated with 22 of our acquisitions to allow more flexible management of the new situation. This involved restructuring these earnouts to replace nearly all of the cash payments with equity, enabling us to better align these acquisitions to our CargoWise technology pipeline to the interest of our shareholders and to improve our overall liquidity.

Importantly, through FY ’20, we have also delivered on disciplined financial management. Actions taken include preserving cash and fortifying our balance sheet, executing cost savings, strengthening our leadership team and significantly increasing our R&D investment. We grew to over 17,000 customers across the group by the end of FY ’20, and CargoWise has expanded to 160 countries, a significant footprint to build upon.

I’ll now hand over to Andrew to talk through the financial results.

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Andrew Cartledge, WiseTech Global Limited – CFO [3]

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Thank you, Richard, and good morning, everybody. Starting with an overview of our income statement. As Richard mentioned, total revenue grew by 23% in FY ’20 to $429.4 million, in line with our guidance. Our core cargo was offering continued to achieve strong year-on-year growth delivering FY ’20 revenue of $263 million, up 20% on FY ’19, despite the challenges posed by the pandemic, which I will cover in more detail in the next slide. This growth reflects solid gains in new customers and deeper existing customer penetration.

Our strategic acquisitions also contributed with revenue attributable to acquisitions, up 29% in FY ’20 at $166.4 million. Gross profit for the year was up 23% on FY ’19, driven mainly by organic revenue growth and the full period impact of FY ’19 acquisitions, a strong performance in light of the impact of COVID-19 on the global logistics and supply chain sectors in second half ’20.

Of note was our CargoWise gross profit margin, which increased 1 percentage point to 92%, despite the challenging COVID conditions. Our lower-margin acquisitions businesses held the overall gross profit margin flat on the prior corresponding period at 82%. It should be noted that our acquired businesses generally have higher product and service support costs and lower leverage due to their smaller size and commercial license model, which means they typically have a lower gross profit margin than CargoWise.

For each business we acquire, we expect the dilutive impact of the existing gross profit margin to reduce over time as they integrate with or convert onto the CargoWise platform. This transition occurs over a number of years.

EBITDA was up 17% and in line with our guidance at $126.7 million, a solid performance given the macroeconomic conditions since late January 2020. This includes a $2 million FX benefit versus guidance and a onetime EBITDA benefit of $6.4 million versus FY ’19 from the implementation of AASB 16 leases, which was offset by an increase in depreciation and finance costs.

EBITDA margin of 30% was above the top end of the guidance range, reflecting 2H ’20 cost savings to offset the pandemic headwinds. It was particularly pleasing to see our CargoWise EBITDA margin remain in line with FY ’19 at 48%, despite the disruptions to global trade into H’20, demonstrating the strength of our cargo offering.

Moving down the table, you can see that our depreciation and amortization charges increased by 66% in FY ’20 due to increased R&D investment, significant multiyear R&D project completion, including GLOW, amortization of intangibles relating to our acquisitions and our AASB 16 lease accounting transition. It’s worth pausing here to discuss the fair value gain recorded in the year that had a significant impact on net profit after tax.

As Richard mentioned, COVID provided the impetus for us to renegotiate and fully or partially close out the earn-out obligations associated with 22 of our acquisitions. The renegotiation of these earnout obligations, along with adjustments in 1H ’20, delivered a fair value gain of $111 million that is noncash and not taxed. This resulted in statutory net profit after tax increasing by 197% from $54.1 million in FY ’19 to $160.8 million in FY ’20. Excluding this fair value gain and the associated finance costs of $2.9 million net of tax, underlying NPAT was $52.6 million in FY ’20, which was flat on FY ’19, reflecting increased investment in R&D during the year and the amortization of acquisitions, resulting in a 66% increase in depreciation and amortization.

A better indicator of our performance is NPATA, which shows our operating performance, excluding amortization and interest expenses associated with our long-term investment in the acquisitions and the fair value gain. NPATA of $64.6 million was achieved in FY ’20, up 3% in FY ’19, a solid performance given the prevailing COVID environment. Earnings per share based on NPATA were $0.0202 per share, down slightly on FY ’19, reflecting the issue of new shares in 2H ’19 and FY ’20. EPS based on underlying NPAT was $0.164 per share, down 4% on FY ’19, reflecting the increased number of shares on issue.

Let’s take a closer look now at the financial impact that COVID-19 had on our business. As Richard explained, the unexpected outbreak of coronavirus at the start of 2020 and the effective global shutdown adversely impacted industrial production, supply chains and economic trade across the world. We saw delayed execution of logistics activities, resulting in reduced transaction volumes. And as a result, we decided to delay the launch of new products planned for 2H ’20. This meant that we forfeited an estimated $10 million to $15 million of revenue growth in FY ’20 that was expected to be generated from these new products.

In terms of our recurring revenue. You can see that the growth rate slowed from 10% in 1H ’20 to 5% in 2H ’20. This equates to approximately $10 million to $20 million of forfeited recurring revenue, reflecting the temporary reduction in supply chain volumes and transactions as industrial production stalled due to the COVID impact in the first half of calendar 2020. Pleasingly, we’ve seen a moderate recovery in June, with momentum improving and continuing in July. With recent seafreight container booking volumes processed at origin via CargoWise, now above our volumes from the 2019 peak shipping period of October and November.

Interestingly, COVID’s impact on nonrecurring revenue in 2H ’20 was more favorable. You can see that in 1H ’20, our nonrecurring revenue declined 13% and on 1H ’19, reflecting the decline in onetime licenses in our acquired businesses. It should be noted that our acquisitions tend to have higher levels of onetime licenses and support services revenue. We anticipate that these sources of revenue will flatten and reduce over time as we transition these acquisitions across to our CargoWise platform.

In 2H ’20, you can see 38% growth in our nonrecurring revenue, driven by growing demand from CargoWise customers for the acceleration of development and delivery of customer-funded product enhancements ordered in calendar 2019. This basically relates to larger customers paying for technology developments in our pipeline to ensure early delivery to better enable them to navigate the logistical challenges posed during the pandemic. What’s important to appreciate about these enhancements is that they are deployed across the global CargoWise platform and eventually made available to all customers, thereby driving future recurring revenue growth.

This growth in our nonrecurring revenue in 2H ’20 had the effect of decreasing the proportion of recurring revenue in 2H ’20, albeit in the context of a higher total revenue base. To address the lower revenue growth rates due to COVID, we focused on delivering cost savings in ’20, which included lower travel and facility spend, reduced new resource on-boarding and adjusting incentives for senior management.

Looking ahead, to address the increase in demand we’ve seen amongst our large customers joining the pandemic for digitized solutions, we’ve allocated additional R&D resources in FY ’21 to accelerate CargoWise product enhancements for these customers and to drive future growth in transactional revenue. Moving on now to a more detailed look at the composition of our revenue growth during the year. CargoWise generated $43.4 million of revenue growth in FY ’20. This includes $11.4 million foreign exchange benefit, which is broadly in line with the $9.2 million FX benefit reported in FY ’19. Revenue growth was achieved across all customer cohorts and represents 20% growth over FY ’19 of $219.6 million.

Of this, $31 million was revenue growth attributable to existing CargoWise customers, reflecting increased demand for accelerated development and delivery of co-funded product enhancements; increased customer usage of the CargoWise platform as customers continue to roll out and grow; and adoption of new products and features that we launched in FY ’20, including over 1,100 new product enhancements, a 32% increase versus FY ’19, reflecting our increased investment in R&D and a large lift in productivity.

$12.4 million of organic revenue growth was attributable to new customers, an increase of 61% on the $7.7 million of new customer growth delivered in FY ’19. This growth demonstrates the strong opportunity pipeline for CargoWise, in particular, with larger freight forwarders. All new CargoWise customers use the transaction-based Seat + Transaction Licensing revenue model, and I’m pleased to report that in FY ’20, we significantly progressed the conversion of CargoWise customers on the prior module user license to STL.

Revenue from acquisitions grew by $37.8 million, reflecting the $27.6 million full period impact of the 14 acquisitions completed in FY ’19. The 5 acquisitions completed in FY ’20 delivered $10.3 million of revenue growth and the acquisitions completed in FY ’18 and prior, delivered a modest net reduction in revenue.

Turning now to our operating expenses. You can see on the slide, 3 graphs, sharing our operating expenses year-on-year since FY ’16 across 3 areas: product design and development, sales and marketing and general and administration. Overall, our operating expenses were up, reflecting the inclusion of expenses relating to the consolidation of our FY ’19 and FY ’20 acquisitions and increased R&D investment. Our sales and marketing expenses were up from $44 million in FY ’19 to $57 million in FY ’20, equating to 13% of revenue in each respective year.

The FY ’20 sales and marketing expenses included $6.5 million, reflecting the full period impact of FY ’19 and FY ’20 acquisitions and the rebrand of WiseTech and CargoWise for around $0.5 million. The remainder of the spend relates to investments to support CargoWise’s geographic expansion, multilingual capabilities and growth into new technologies.

Our general and administration costs increased from $68.3 to $84.1 million in FY ’20, representing 20% of revenue, which was in line with FY ’19. The FY ’20 G&A costs reflected the full period impact of FY ’19 acquisitions and costs from newly acquired businesses, which had their own G&A costs, cost of key management teams for strategic acquisitions, headcount additions in finance, people administration and IT to support our global expansion, and increased compliance and regulatory costs such as higher D&O insurance premiums. Excluding M&A costs, our G&A expenses was 18% of revenue in FY ’20.

In terms of product design and development expenses, you can see our continued commitment year-on-year to increasing our investment in R&D to drive development of product features and enhancements. Our product design and development expenses increased by 28% in FY ’20 to $84.9 million, reflecting our significant ongoing and accelerated investment in the development and maintenance of CargoWise. Greater investment in expanding and retaining our skilled development workforce and an increase related to acquired businesses, which typically have higher levels of maintenance and support costs.

Let’s take a closer look at our R&D investment. You can see from this graph, the year-on-year increase in our investment in R&D, on product development and enhancements. In FY ’20, we increased our R&D investment by 41% from $130 million in FY ’19 to $159.1 million in FY ’20. This represents 37% of our revenue for the year. Our FY ’20 R&D investment delivered over 1,100 product upgrades, up 32% from FY ’19, for our CargoWise platform and utilize our 40 development centers worldwide to build out our technology assets and ensure an expanded core platform with enhanced scalability, functionality, productivity and performance.

You will note that our capitalized development investment rose significantly in FY ’20, up 58% to $74.2 million from $46.9 million in FY ’19, reflecting the increased commercialization of our technology assets, such as product developments focused on extending CargoWise functionality, acquisition product integrations, international logistics, international e-commerce, and building out our global customs capability, including native customs builds in Asia, Europe and Latin America.

Turning now to our balance sheet strength. You can see on this slide, our strong liquidity position with $223.7 million in cash and $190 million undrawn debt facility in place as well as an additional $200 million accordion, providing ample financial flexibility and headroom. Our receivables were slightly up on FY ’19, in line with revenue growth. To date, we’ve not seen significant COVID-related delinquencies. However, in the interest of caution, we’ve taken a minor increase in our bad debt provision to protect against potential future losses.

I would like to now take a moment to talk about goodwill and the renegotiation of our acquisition earnings. As I mentioned earlier, COVID provided the impetus for us to renegotiate and fully or partially close out the earnout obligations associated with 22 of our acquisitions, and we were able to restructure these to replace nearly all cash payments with equity, thereby, improving our overall liquidity. This had the effect of reducing our contingent consideration liability and along with adjustments in 1H ’20, delivering a fair value gain of $111 million and $2.9 million in associated finance costs, net of tax. It did not, however, affect goodwill. As required under AASB 136, goodwill is tested for impairment annually or when an impairment indicator arises. There has been no significant change to the forecast cumulative cash flow generation of these assets, and therefore, no impairment has occurred.

In the appendices to this presentation, you’ll find a page that sets out the different time points and metrics adopted under AASB 9 and AASB 136 that explains in further detail, the rationale for why the renegotiation of earn-outs resulted in a reduction in contingent consideration liability, but had no impact on goodwill.

Before I wrap up today, I’d like to talk briefly about our strong operating cash flows. Over the past 5 years, the business has delivered $454 million of operating cash flow as well as $398 million of EBITDA. Our FY ’20 operating cash flows were up 16% on FY ’19 at $146.3 million, a testament to the quality of our earnings and the strength of our underlying operating model. A significant portion of this, over $140 million was reinvested in long-term growth initiatives, such as $70.4 million invested in R&D and the development and expansion of our commercializable technology; $20.1 million invested in our global footprint, including data centers and IT infrastructure to enhance scalability and reliability of the CargoWise platform, increasing capacity for future growth; and $57 million invested in new acquisitions and contingent payments for prior-year acquisitions.

FY ’20 net cash flows from operating activities were $129.9 million, up from $112.5 million in FY ’19. Our free cash flow was down 27% on FY ’19 due to the increased investment in capitalized product development costs that I spoke about earlier. This brings us to our closing cash balance at 30th of June of $223.7 million, which, along with our undrawn $190 million debt facility and $200 million accordion, provides us with significant liquidity and the ability to fund our strategic growth opportunities.

On this note, I’ll hand it back to Richard, who will provide you with an update on our strategic focus and the outlook for the business.

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Richard John White, WiseTech Global Limited – Founder, CEO & Executive Director [4]

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Thank you, Andrew. As mentioned, the COVID-19 challenges faced by global logistics providers are accelerating the longer-term trend away from legacy systems listed with [bolt], together micro-point systems and inherent cybersecurity risks towards industry consolidation. Within this environment, we are seeing increased demand amongst large global logistics providers for technology solutions that drive cost efficiencies, improve staff productivity and mitigate risk.

CargoWise has these attributes deeply embedded in its DNA and also facilitates management’s ability to plan, visualize and control global operations. As a result, we’re ideally placed to address this growing demand, with our logistics execution platform and 40 development centers continuously focused on integrated global capabilities that improve productivity, functional depth and rich data-driven automation, CargoWise enables manageability, regulatory compliance and risk mitigation.

You can see on this slide that the foundation was established with the launch of CargoWise One in 2014. This was followed by our ASX listing raising $125 billion to fund our expansion strategy. During the IPO period, we continue to add new enhancements to the platform. We expanded our global workforce, signed the world’s largest logistic providers in DHL Global Forwarding and doubled our revenue. Since 2018, we have almost tripled our global workforce to 2,100 staff and established 40 development centers as well as completing 34 strategic acquisitions. We have invested over $348 million in R&D, expanded further into new markets and established the main leadership in global logistics execution technology, all of which has helped drive further global contract wins for the rollouts of CargoWise.

Looking ahead, over the next 3 years, we will remain focused on winning further global CargoWise rollouts, targeting the top 25 freight orders in the top 200 logistics service providers. This year, we will commence a multiyear effort to extract efficiencies from our 40-plus acquired operations, remove duplication across functions and platforms and bring all our acquired platforms into our data centers. More than 30 customs builds are scheduled to be completed as CargoWise native, along with new engines and modules and thousands more features to the platform to further drive the evolution of the CargoWise platform. During this next phase, we will continue to launch custom clearance processes natively within CargoWise into a substantial set of geographic footholds and commence staggered conversions of acquired customers.

We will also add significant capabilities to our neo platform that is planned for early release later this year. We have a strong track record of delivering on our strategic commitments and are focused on continuing this.

I’d like to spend some time now on the opportunity that is available to us. With the penetration of fully digital and highly automated global logistics solutions still in the early stages, the opportunity for growth is vast. You can see on the left-hand side graph, the progress we have made over the past 10 years-plus in signing up global wallets for freight forwarders and the significant ramp-up that has occurred. It took us more than a decade to sign up the first 7 globals, but momentum has been gaining pace.

We have now secured 5 new customers committed to CargoWise Global rollouts in the past 6 months alone. The graph on the right-hand side demonstrates the customer journey. You can see that new large customers take multiple use to roll out CargoWise across the global business. As the rollout progresses, usage and transaction revenues continue to grow with customers progressively adding new countries, adopting new modules and implementing our productivity tools. This is evident with our large logistics customers, DHL Global Forwarding and DSV/Panalpina, both expanding their global wallets on CargoWise in FY ’20.

As of today, we have more than 20 large global freight forwarders, 11 of which, are in the top 25, who have either completed their rollouts or are currently in the process of a global rollout on the CargoWise platform. There is a significant runway available in both the top 25 freight forwarders, the top 200 logistics providers and other international and domestic logistics segments. So we are still in early penetration stage and the opportunity for growth remains significant. We have a strong pipeline for further global wallets across the top 25 global freight forwarders and the top 200 logistics providers, which we are actively pursuing. Having established a significant channel partner footprint across 46 countries focused on referring, promoting or implementing our platform and supporting our global wallets and expansion activities.

In the past, when we talked about global rollouts, it was largely driven by our powerful freight forwarding product capability. Now, however, CargoWise also includes global native customs and transit warehouse and contract warehouse modules. Our highly refined and productive R&D and product development capability is fundamental to our business. It is the key to our competitiveness and customer attraction and retention. This is why we are so focused on R&D and product development. We are continuing to expand the truly global solution that is capable of operating across borders, regulatory boundaries and freight modes.

We have product-focused development teams around the world concentrating on deepening our already market-leading international freight forwarding capability; building additional key countries and localizations for customs and border compliance, extending CargoWise functionality into new adjacent modules, functions and enterprise capabilities; building out the ecosystem of whole of cargo chain better-enriched automation, straight through process integration and whole of system visibility; and developing the next-generation global engines for schedules, rates, bookings, tracking, invoicing and reconciliation.

I am pleased to report that we are progressing well with our international e-commerce offering. Currently achieving shipment volumes of approximately 2 million consignments per month, and we expect this to continue to grow strongly. In FY ’20, we commenced expansion of the e-commerce offering outside Australia, launching in New Zealand with customers live and in production, and in the U.S., which is showing a strong sales pipeline. We are also focused on landside logistics optimization and transport management systems with CargoWise land transport product development. In our longer-term pipeline, we are building out our global integrated platform called consumers of logistics services, CargoWise neo. The development of neo is significant and will progress over a number of years. At this stage, early release to select beneficial cargo owners via our existing customers planned for the end of this year.

We will continue to focus actively and invest in machine learning, natural language processing, process automation and guided decision-making. Our vast volumes of transactional and global data and trade data sets provide us with industry insights that can be leveraged to enable enhanced compliance, due diligence, risk assessment and risk mitigation. As I mentioned earlier, since 2018, we have completed 34 acquisitions, making a total of 38 since the IPO. Because of this, we now have significant development product and market capabilities that allow us to build out and optimize our technology pipeline and leverage our expanded geographic footprint.

Accordingly, our key development focus is on the integration of these acquisitions onto our CargoWise offering, with the pace of future acquisitions slowing substantially and becoming more opportunistic. Integration is a multistage, multiyear process with the operational integration of many of our acquisition assets well-progressed or completed and most of earnouts closed out, we are now focused on leveraging the acquired technology and skill sets to expand the CargoWise platform with native components built tightly on the CargoWise platform. We are also focused on delivering further operational and cost efficiencies, including elimination of duplications and inefficiencies across all functions, growing revenues and enhancing margins within all business units.

Our acquisition strategy is delivering tangible benefits. 24 of our acquisitions have enabled us to build customs and border compliance capabilities in many countries, covering up to 90% of manufactured trade flows. We have successfully acquired deep product capabilities in key adjacencies that will enable us to further build out CargoWise, covering global shipping, land transport, carrier rates and contracts, contract warehouse, land side logistics, container management, compliance and machine learning.

Given our market position, product strength and industry pressures of COVID-19, in FY ’21, we will focus on the 3 Ps: product, penetration and profitability. In order to drive product, we will lift development focus and move additional resources to the CargoWise product suite, CargoWise One, neo and other family products. We’ll accelerate key native customs projects further and focus delivery on the largest markets and major customer pain points first, draw all adjacencies into native module builds inside the CargoWise architecture, accelerate data agreements and build deeper integrations over time with major sea, air, rail and road carriers, including data sets and connectivity for schedules, transit times, rates of contracts, bookings, events, invoices and reconciliation. We will create, develop or require further valuable logistics data sources and data sets.

We will integrate data sets and drive automations and visibility within the CargoWise stack and we will launch neo and other CargoWise family products, including products and functionalities held back by the COVID-19 event. In order to drive penetration, we will focus and refine our major sales teams, tools and techniques and target the top 25 freight forwarders and top 200 global logistics providers. We will enhance the Delta team. Delta team has shown great results since lifting the focus in February, and we are expanding this team with further talent; de-prioritized local deals that did not have a direct and quick path to global deals; further refine the Delta team processes and high-performance staff developed and supportive across management and product teams; all major marketing activity be aligned with the Delta team and major sales most marketing efforts will be moved to the CargoWise family and will be in Sydney.

We will expand digital sales tools and techniques for smaller customers and smaller markets. In order to drive profitability, we will remove duplication across the business and subsidiaries, centralizing or regionalizing where possible, automate our manual customer-facing and internal functions that are high-volume and automatable by our self-service portal; many manual processes accumulated by the acquisitions or were built quickly for low volume and are now at scale that can be automated, giving better, faster customer service results; establish a regional center in Hamburg post-Brexit EU headquarters and bring all administration, product marketing and other general functions into Hamburg, Chicago or Sydney, with a preference for Sydney HQ where possible; to build a NOC and development center in Bangalore, which is already underway and increased focus on development centers; and we’ll align product teams with key developed resources that scale in Sydney.

I have mentioned the COVID-19 challenges faced by the global logistics and supply chain sectors, coupled with already intense pressures such as increasing regulation, capital constraints, margin pressures, high labor costs geopolitical tensions and demand for faster throughput. All of these pressures will continue to accelerate the longer-term trend away from legacy systems and bolt together micro-point systems towards business consolidation and technology-driven business improvements.

Despite this challenging environment, we are seeing a surge in transactions and increased demand amongst large global logistics providers for technology like CargoWise that drives efficiencies, enhances capabilities and reduces risk. WiseTech is ideally placed to leverage this structural change and capitalize on this growing demand, both in the short-term and long-term, while continuing to deliver ongoing growth for shareholders.

Turning now to the outlook for the year ahead. We have provided FY ’21 guidance today on the basis that market conditions did not materially change. In the presentation, you will see a set of underlying assumptions upon which we have based our FY ’20 guidance. Assuming there are no material changes to these assumptions and that there are no unforeseen events that arise over the next 12 months, we expect our FY ’21 revenue to grow between 9% to 19%, representing revenue of $470 million to $510 million, and our EBITDA to grow by 22% to 42%, representing $155 million to $180 million.

To wrap up today, I’d like to reiterate that we are one of the first companies to understand and respond to the impacts of COVID-19, both for ourselves and for our customers and to adjust FY ’20 guidance accordingly. We were also the first to recognize the rebound on logistics and leverage the new world normal. Our ability to deliver revenue and EBITDA growth in line with our guidance in FY ’20, despite the havoc unleashed by the pandemic on supply chains and the logistics sector globally is a testament to the strength of our product offering, business model and valuable data sets and unique customer value proposition.

We are ideally positioned for continued growth and market penetration. We have a well-considered and comprehensive plan to deliver on our strategic objectives and our healthy balance sheet, robust cash flows and ample liquidity, and then we have significant financial firepower to fund our future growth.

Importantly, we have a product pipeline and R&D program that will ensure we have a competitive edge and plenty of upside opportunities to continue to improve margins and profitability through the centralization of key functions and continued focus on resources into the CargoWise One product suite, as we embark on the next phase of our acquisition integration process. We have an exciting future ahead of us, and I look forward to sharing with you some of the fantastic work we’re doing in terms of product innovation and R&D at our Digital Investor Day later this year.

Now let’s open for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions)

The first question today comes from Lucy Huang from Bank of America.

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Lucy Huang, BofA Merrill Lynch, Research Division – Analyst [2]

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Richard and Andrew and Gail, I just have a couple. So firstly, from my understanding, the DHL contract, the temporary provisioning pricing arrangements should be coming up for renewal around the end of this year. Just wondering if you have a sense on when does that contract does roll off, whether we could see an uplift in pricing over time?

Secondly, you guys mentioned that this year benefited from paid product enhancements from customers who wanted to accelerate the global rollout. I was just wondering if you can provide us an indication as to how much this contributed to revenue in this year? And how do you think about this type of, I guess, product moving forward?

Do we expect to see contribution from these enhancements to continue over time?

And then just in terms of CargoWise neo, which you’ve mentioned, you’ll provide an early release of the version this year to customers. Can you explain to us what the monetization model of that could look like?

And then just one last one for me. In terms of Nate — non freight forwarding revenues in CargoWise. You mentioned there’s some native customs also transit and warehouse modules. Was that a material contributor to revenues this year? And I guess, how do you expect the take-up of these extra functionalities to evolve over time?

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Richard John White, WiseTech Global Limited – Founder, CEO & Executive Director [3]

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So look, I might throw to — thank you for that, Lucy, but I might throw to Andrew on the more detailed financial questions, and I’ll give you the strategic piece of that at the end, Andrew?

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Andrew Cartledge, WiseTech Global Limited – CFO [4]

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Yes. So Lucy, maybe we’ll start off with DHL. You’re correct that the contract comes off its temporary transitional pricing at the end of calendar 2020. We’ve included a minor step-up in revenue from that contract in our guidance at this stage. So we’ll update you further if there’s anything more significant.

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Richard John White, WiseTech Global Limited – Founder, CEO & Executive Director [5]

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I might — the next one was about what we call co-funded development. So we’ve always done what we call paid feature requests. And these are community-driven requirements that customers want to bring forward in the development pipeline. So we co-fund them, the customer contribute something to them, and we contribute the long-term development management, documentation, training and other components to it. But they always — that our IP, they sit on our platform that avail to all customers.

There was a step-up in that because the company is larger and because the impact of a number of these effects that were happening from COVID-19 and other things made it more imperative for people to have improved efficiencies earlier. And they — a number of our customers stepped up and leaned in and gave us a bit more in that area, and we equally decided that we would push more in that area. And that will be a continuing evolution of the business model. I might just let Andrew comment on the quantum of that. Andrew?

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Andrew Cartledge, WiseTech Global Limited – CFO [6]

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Yes. And so in the CargoWise nonrecurring revenue, in the second half, we see, we saw a step-up there with the paid product enhancements that Richard indicated, so about $8 million in the second half.

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Richard John White, WiseTech Global Limited – Founder, CEO & Executive Director [7]

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I think the third question was neo.

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Andrew Cartledge, WiseTech Global Limited – CFO [8]

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Yes, neo.

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Richard John White, WiseTech Global Limited – Founder, CEO & Executive Director [9]

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So you’ve got to think of neo as — I can’t tell you about the monetization of neo. I think we’re a bit early to discuss that with market. But neo is effectively an extension to CargoWise One that sits in front of the beneficial CargoWise importers exporters, shippers and the like, to enable them to connect to the CargoWise platform on the other side and fully digitally connect. So that means that they can have a through process data-to-data other than [paid data-to-paper], to paper-to-data.

And we know that there is an enormous push to do this. And we already do quite a lot of the heavy lifting inside CargoWise One. But CargoWise neo is to sit on the other side of that transaction and sit coupled to the customer of our customers’ systems and drive value. Our initial — the rollout will be quite focused on getting the digital transaction going and not monetizing transactions.

Yes. And you also mentioned about the freight forwarding customers with warehousing. So the native customs components are well-entrenched. We’ve got a number of them — can we just go to that slide that has the customs on it? I think that will come — can we call that slide out? Just so that Lucy and others can see what we’re seeing. 32. Yes. In fact, you can see here on Slide 32 in the appendix, we have Australia, New Zealand, U.S., Canada, U.K., South Africa, Singapore, China and Taiwan Live, these are able to produce entries electronically to government.

We are working and well-advanced on France, Germany, Spain, Italy and Ireland. And a lot of those are the big countries in Europe. Ireland is not that large, but it’s going through a customs change, and so that has to be delivered for that change to occur. And then we’ve got plan for 2022. And you can see that we’ve got a number of the other European countries, some of — one in South America. And again, we’re driving into the European part of the business heavily there. And then later on, we’re sort of covering off the Latin Americas.

And I don’t think these — the products that are planned for the future, of course, don’t contribute revenue and WMS and transit, I think there — you want to make a (inaudible)? The transit warehouse is quite new and, therefore, doesn’t contribute much to revenue yet. And same thing with e-commerce, it’s quite new and doesn’t contribute that much to e-commerce yet but to our revenues yet. But these are clearly driving into the larger logistics piece and going to be part of that larger expanded TAM as we push forward. This is driven by CargoWise Forwarder and the CargoWise customs clearance, but it grows into these landside components that drive the greater addressable market.

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Lucy Huang, BofA Merrill Lynch, Research Division – Analyst [10]

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I just have a follow-up question on that. So I can see Australia, U.S., Canada, et cetera, now live on the customs piece and also with the transit warehouse, it’s quite new as well. Just wondering what the take-up has been like so far from some of your customers and what the feedback you’re hearing on it as well?

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Richard John White, WiseTech Global Limited – Founder, CEO & Executive Director [11]

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Well, you mentioned customs in those countries. That take-up is very strong. It does take time for people to change systems because there are retraining issues, and they have to move out of old contracts and train staff and so forth. But in terms of those native custom systems that are in, all of our big customers are very excited because it changes completely their cost base and their risk profile in those entries. This is the seal data environment where the data flows from forwarding to customs into the accounting system into the master data systems, into the things like security filings and other things. So it’s a much safer, much less fragmented than these older structures. And so they’re very, very strong take-ups in those areas, particularly with our big customers who have to manage these huge risk portfolios. And then with the other products, the take-up is very strong, but it’s very early days for those products.

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Operator [12]

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The next question comes from Quinn Pierson from Crédit Suisse.

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Quinn McComas Pierson, Crédit Suisse AG, Research Division – Co-head of the Small Cap Research [13]

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I guess just firstly, would you be able to talk us through a little bit more on how to be thinking about your FY ’21 growth guidance at the sales and earnings levels, kind of split into the 1H and 2H? So presumably, 1H is still a bit more impacted by macro COVID-related sluggishness. 2H, presumably get some benefit from cycling some of the week 2H ’20 impact. Could you just, I guess, talk us through how to be thinking about the growth split between the 1H and 2H, please?

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Richard John White, WiseTech Global Limited – Founder, CEO & Executive Director [14]

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Yes. Quinn, that’s a good question. So really, the dynamics between first half and second half that I think we want to be aware of is we’ve got a bigger increase in industrial production, rebounding in the first half of ’21. As we said in the material here, industrial production was down 5.2% half-on-half. In the second half of last year, and we’re starting to see that recover in the first half. That we expect to return to more normal levels in the second half of the year, which typically, our industrial production will grow somewhere just around about 1% to 1.5% annually. And the second thing that we should keep in mind when we do the first half-second half comparison is that the year-over-year impact of the FY ’20 acquisitions will come into the first half. And obviously we’ve acquired most of those in the second half this year. So the prior period comparisons already in that for the second half ’20.

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Quinn McComas Pierson, Crédit Suisse AG, Research Division – Co-head of the Small Cap Research [15]

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That’s helpful. Maybe that…

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Richard John White, WiseTech Global Limited – Founder, CEO & Executive Director [16]

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I don’t want people to place too much importance on any one factor, like industrial production is a very important guideline as is container volumes and many other things. But we are actually gaining market share here as well as these recoveries are occurring. So the growth is not just from recovery, the growth is from market share. And you’ve seen that on the Slide 17, where there’s a significant increase on that slide, which shows 4 new customers in 6 months. That’s a significant growth over the last couple of years. And you can see that’s kind of a trend line that’s establishing very strongly.

The other thing to think about here is that all these drivers combined together and there are various pricing models and things with periods of time where the revenue is flat. So there’s no direct correlations that connect one factor to another — to a revenue stream. It’s a complex mix.

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Quinn McComas Pierson, Crédit Suisse AG, Research Division – Co-head of the Small Cap Research [17]

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That’s helpful color. I mean, with the growth rates and your assumptions between 1H and the 2H, will they be within a couple of percentage points? Like is it that kind of close enough growth? Or would the growth differences be larger than a couple of percentage points?

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Andrew Cartledge, WiseTech Global Limited – CFO [18]

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Yes. Quinn, we’ve provided the guidance here on an annual basis. We’ve said that, that market share growth is going to be in that 15% to 30% range. We haven’t really broken that down between first half and second half at this stage. But you’ve got to take into account some of the things that Richard just described there, that they will happen in different halves of the year. New customers will be coming on board either in the first half or the second half of the year and the such like. So the guidance is the annual guidance right now.

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Quinn McComas Pierson, Crédit Suisse AG, Research Division – Co-head of the Small Cap Research [19]

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Okay. Understood. And I think I heard you mentioned that the — I guess, you’re seeing higher demand for third-party software solutions in the industry, kind of brought on by COVID. I guess how are you seeing that demand coming through the market? Are you seeing kind of formal tenders in the market increasing, which you’re participating to? Or is it more just kind of more inbound inquiry at the moment? Just kind of a little bit of color on that would be helpful, please.

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Richard John White, WiseTech Global Limited – Founder, CEO & Executive Director [20]

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Right after the half report, I stepped into the sales process and started working with the Delta team, which is the team of very high in salespeople. We refocused our efforts. We’ve retooled and redoubled our efforts into the very large, the top 25 forwarders and top 200 logistic providers, and we deemphasized the smaller cells. We think that the customers are doing very well in COVID, and smaller business units have much more difficulty in these tough times. So we’ve really doubled down on that, and you can see that impact on that Slide 17.

And I think that there is a good understanding here that we’re going to get most of our growth through organic means and through pushing into opportunities. We have seen definitely a very big step-up in conversations with customers, potential customers talking about what they want to do and the opportunity. And CargoWise stands alone in this international forwarding and logistics space. It’s such a strong brand that have so many customers in the top 25 and more than 20 in total with what we call globals.

And I think that we are all about now leveraging that. We talked about the 3 Ps, product, penetration and profit. And this penetration one is very, very much a focus that I’m going to put a lot of effort into. Jen Gander, who’s my Global Head of Sales, and I are very aligned with what we’re going to do. And I think we’re going to continue to generate very strong positive sales results. And so some of the growth will come from that. Andrew?

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Andrew Cartledge, WiseTech Global Limited – CFO [21]

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Yes. And Quinn, I think we saw that in the new customer growth in CargoWise in FY ’20. It was $12.4 million, which was up about 61% versus the new customer growth in FY ’19.

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Quinn McComas Pierson, Crédit Suisse AG, Research Division – Co-head of the Small Cap Research [22]

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Helpful. And just lastly for me. So your split of capitalized R&D was towards the higher end of the range you provide. Does that higher end of the range continue into FY ’21? Or does it revert a bit more towards the FY, I guess, ’19 levels, (inaudible)?

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Richard John White, WiseTech Global Limited – Founder, CEO & Executive Director [23]

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Thanks, Quinn. Look, I can speak to that in some detail. So ultimately, when you’re expensing, you’re fixing things, you’re repairing old and restructuring old architectures, and it doesn’t create any value for the company. It’s effectively waste. And so — Brett Shearer, my CTO, and I have worked together for decades, have put particular focus on defect rates and on quality of software development. And we’ve been very successful.

Gradually since 2012, we’ve been building an increasingly powerful, high-quality software development structure that has lower and lower defect rates. And so what’s actually happening is we’re spending much less time fixing bugs and much more time building new software that is very powerful. We need that because we’ve got this huge road map in front of us of — all these countries for customs and these new modules. So we need everybody manning the pumps as if we’re building in new software, which is — which has got long-term revenue attached to it. And we don’t want people fixing stuff that shouldn’t have been broken in the first place.

Now as you do that consistently over 5 or 6, 7, 8 years, you wash out all of the technical debt. You start — the actual platform itself gets faster and better and less defects and the cost base for that goes to manage that goes down substantially. So this is a very good story about high-quality process turning into capitalized R&D because we’re building new things rather than fixing old things.

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Quinn McComas Pierson, Crédit Suisse AG, Research Division – Co-head of the Small Cap Research [24]

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That’s very helpful background. And so I guess the outcome then is we probably should expect it towards the higher end of guidance (inaudible)?

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Andrew Cartledge, WiseTech Global Limited – CFO [25]

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Yes. Quinn, I think that’s right. So 47% was the captive rate in FY ’20. Clearly, that helped to deliver over 1,100 new product upgrades, which is up 32% versus FY ’19. And we’d expect to see that roughly in line with the captive rate in FY ’21.

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Richard John White, WiseTech Global Limited – Founder, CEO & Executive Director [26]

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And just to be clear, we’ve moved to this new work-from-home hybrid office arrangement. And we have been astounded by the productivity gains that we’ve had, particularly in the development teams. So very powerfully in the last quarter, we really pushed and got a lot of product out the door, much more quickly than I thought was possible. And we continued to benefit from the increased productivity that work from home has created.

We do want to make sure that we’ve got team development and collegiate behavior working. And so we do want to return to the office around the world on an irregular basis, perhaps 1 or 2 days in 5 for the teams. But we are firmly of the view that we can reduce our office costs across the world. And we can increase our productivity even further by developing better toolkits in our productivity solution, which is called pay productive, acceleration and visualization. This is a very powerful idea that we can actually do better working from home, part of the time and working with the productivity tools. And it’s been a wonderful experience to be here.

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Operator [27]

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(Operator Instructions)

The next question comes from Siraj Ahmed from Citi.

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Siraj Ahmed, Citigroup Inc. Exchange Research – Research Analyst [28]

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And I must say, much better disclosure, by the way, it’s really helpful on the individual drivers. Just if I could start off with the guidance for FY ’21. Could you just help break out? I mean you’ve given some color on the organic and transaction. Can you just give us some color on that? Because you do have this $10 million to $15 million that’s from the new product that’s coming into FY ’21? And Richard, you spoke about new customer wins accelerating. So just trying to understand why it’s not more towards the top end? Is it just weak macro or something like that? Can you just get further color on the 2 breakdowns, please?

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Richard John White, WiseTech Global Limited – Founder, CEO & Executive Director [29]

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I’ll turn to Andrew, for the more detailed financial question, but the customer wins don’t suddenly produce new revenue. They typically have a gestation period where they’re developing their implementation plan. And then there is usually a couple of pilot sites. And these are somewhat tentative because people are starting to develop an understanding of the system. Within about a year, they’re starting to move quite quickly.

And as we’ve seen with some of our very large customers during COVID, they’ve actually accelerated at the end of their cycle because they come — become highly confident, they start seeing the productivity gains and the risk reduction that fall from the platform, and they really doubled down on that pushing forward at the sort of end part of the implementation phase. Let’s just turn to Andrew for the financial part of that.

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Andrew Cartledge, WiseTech Global Limited – CFO [30]

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Yes. Siraj, so as Richard said, we’ve included in our guidance what we see in terms of the pipeline for new customer wins and new customer rollouts. We’re obviously aware of the current customers that we have and how they’re rolling out and what their plan is, and we got that into the guidance. Of course, we typically do win new customer contracts during the year, and we’ve got a normal level of new customer wins also built into that growth range.

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Siraj Ahmed, Citigroup Inc. Exchange Research – Research Analyst [31]

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Sure. And just — Andrew, just on the acquisition. So you’re seeing flat growth. Is that — is the way to read that you’ll get $12 million of annualization, but the underlying acquired growth declines because you are transitioning into CargoWise, is that the way to think about it?

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Andrew Cartledge, WiseTech Global Limited – CFO [32]

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So the way to think about the acquisition strategy — so it’s a good clarification. So we’ll see the year-over-year impact of the increase — the full consolidation for FY ’20 acquisitions, that will be a step-up of about $12 million. And then the underlying growth in the whole set of acquisitions, we expect to be about flat, which indicates that potentially, we’ll have some conversions potentially to CargoWise One, but also changes in the license types for some of those CargoWise — some of those acquisition customers. As we know, in the revenue models there, we’ve got quite a lot of nonrecurring revenue, which is installation, product support. And we’ve indicated that revenue would flatten or decline over time as we integrate those businesses.

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Siraj Ahmed, Citigroup Inc. Exchange Research – Research Analyst [33]

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Got it. So just — so the acquired book, the underlying book is not going backwards, is this flat and the (inaudible) benefit comes through? Okay.

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Andrew Cartledge, WiseTech Global Limited – CFO [34]

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Right.

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Siraj Ahmed, Citigroup Inc. Exchange Research – Research Analyst [35]

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And Richard, just on the cost reduction. I mean you are a growth business. And as you just said, you’re seeing demand accelerate. Can you just touch on why doing the cost out now? And I completely understand there’s been efficiency measures that you can do. But if you just talk about why do the cost out now?

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Richard John White, WiseTech Global Limited – Founder, CEO & Executive Director [36]

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Yes. So the integrations of the acquisitions are a multistep process. And really, we’ve got to go back to why we acquired these acquisitions. It’s to get access to the valuable technology and experts that we have within those businesses. We’ve been focused on the integration of that technology onto the CargoWise platform. And we just get into a point right now, particularly with the renegotiation of the earnouts last year, where we’re starting to see those cost reduction opportunities. And Siraj, we’ve built $10 million of net cost reduction into the plan for FY ’21, and we expect to be at a run rate by FY ’22 between $20 million and $30 million.

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Siraj Ahmed, Citigroup Inc. Exchange Research – Research Analyst [37]

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Yes. Okay. And just last one for me. That — the customer paid co-development that you mentioned, where do you put that in the bucket? Is that on demand or do you actually recognize that?

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Richard John White, WiseTech Global Limited – Founder, CEO & Executive Director [38]

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Yes. So the customer paid goes in the nonrecurring bucket.

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Siraj Ahmed, Citigroup Inc. Exchange Research – Research Analyst [39]

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Okay. All right. Sounds good.

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Richard John White, WiseTech Global Limited – Founder, CEO & Executive Director [40]

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It’s not on demand. So the volume of that is dependent upon our large customers driving demand for those services, which we’ve seen a big increase for in the second half ’20.

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Siraj Ahmed, Citigroup Inc. Exchange Research – Research Analyst [41]

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But the expectation is that, that gets built into CargoWise One and could be on demand revenue for other customers? Like typically…

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Richard John White, WiseTech Global Limited – Founder, CEO & Executive Director [42]

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Yes. The way that those products work is that they become part of the core platform. And then all our other CargoWise customers can use those, and then that generates a growth in the recurring revenue stream as those other customers use those on a transactional basis.

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Operator [43]

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The next question comes from Jules Cooper from Ord Minnett.

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Jules Cooper, Ord Minnett Limited, Research Division – Senior Research Analyst [44]

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If I could just clarify 2 points. One, you called out a minor benefit from DHL included in your guidance. I just wondered if you could just give us some sense for what a threshold for minor is, maybe in terms of percentage of revenue, just so we sort of understand that? And then just on the total R&D spend. We saw that it grew about 41% in FY ’20. Can you maybe just help us out to understand what the R&D spend looks like in FY ’21 from a growth perspective or a dollar value or some way we can just have to think about what that total spend on product might be into next year?

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Andrew Cartledge, WiseTech Global Limited – CFO [45]

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Yes. So let’s focus on the DHL question first, Jules. Thanks for that. So yes, a minor benefit included in the guidance. We’re not disclosing individual customer revenues, but the top 10 and the top 20 customers as a percentage of revenue, we don’t expect to change too much as we go forward. On the total R&D spend, you’re right. It was, as we indicated at the beginning of the year, we were going to increase our investment and our focus on R&D, which we did, and we saw that come through in the total spend. We’d expect to see that as a percentage of revenue continue at roughly that same level in FY ’21. So as a percentage of revenue, total R&D spend was about 37%, which was up 5 points from 32% in FY ’19. And so we’d expect to see it continue at the FY ’20 level.

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Richard John White, WiseTech Global Limited – Founder, CEO & Executive Director [46]

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I’d just like to make a strategic comment about that R&D spend. So as Andrew said, we indicated at the beginning of the financial year that we were going to increase — step into that increased spend in R&D. And what this has allowed us to do is to go faster to market and pull away from any remnants of competitors in this global space. I’m very convinced that the customers are coming to us because we have the technology platform, the depth and the strength and that they can see the road map.

I’ve had specific conversations with customers asking us to bring forward this country or that country into the customs piece because they’ve got pain in those places and they’re receiving fines or they’re having difficulty processing. So we know that we’re solving a very deep pain point.

And we know that they want us to solve that for them, and they want us to move that forward. And I mentioned in the talk that we are listening to those customers, and we’re bringing forward certain countries due to those pain points and due to the opportunity for that customer to take a position and to get an advantage from that. And that’s actually helping us in the sales model as well.

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Operator [47]

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The next question comes from Paul Mason from Evans.

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Paul Mason, Evans & Partners Pty. Ltd., Research Division – Executive Director of Technology [48]

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Just a couple from me. And apologies, just some of the answers have already been given. I’ve been managing 2 calls simultaneously. So just first on the cost out. I just wondered if you could talk through. So that measure, I presume there’s some sort of growth in the total cost base still given R&D as a percentage of revenue is going to be relatively stable. And I’m just looking at the bottom end of your guidance range, the gap between the revenue and EBITDA, the bottom is $315 million, and this year was about $305 million.

So is that cost out off of — that’s not actually calling out a reduction in absolute cost, but is more just an initiative to clear costs out that are no longer required, but growth is going in other parts of the cost base? Or should we think about it actually as like an absolute reduction in your total OpEx and Capex?

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Andrew Cartledge, WiseTech Global Limited – CFO [49]

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Yes. So Paul, included in the guidance is a normal cost increase run rate that we would normally experience when we’ve got growth of revenue in the business in the indicated range of between 9% land and 19%. And obviously a significant portion of that coming from the CargoWise One business in that sort of 15% to 30% range. What we’ve indicated is in addition to that normal cost run rate increase, we’ll have some cost reduction initiatives which show target to take $10 million of cost out of FY ’21 on a run rate basis, moving into FY ’22, that looks like 20% to 30%. What that’s helping us to do is increase that EBITDA margin. So the margin is actually increasing on the FY ’21 guidance. And the range there is between 33% and 35%. So it’s a 3 to 5-point increase over FY ’20.

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Richard John White, WiseTech Global Limited – Founder, CEO & Executive Director [50]

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I just want to think more strategic part of that. When you’re buying acquisitions and running very quickly, which we have been in recent years, you pick up quite a lot of manual processes that these smaller entities singularly can’t or don’t automate or can afford to automate. And also, when you’re growing as a company, you start with manual processes to define a process. And then later on, you realize that at scale, these things are highly automatable.

And so at least, some of the cost reductions are to take things that are done in a mechanical way by low level administration people and turning them into customer-guided portals and self-service arrangements. There’s more to it than that because there’s also a duplication of function across many of the companies that we’ve bought. But this is a really well thought out and deep process that is going to take a number of years to get to the bottom of the full cost out. We’re only talking about the first phase in 2021.

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Paul Mason, Evans & Partners Pty. Ltd., Research Division – Executive Director of Technology [51]

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Okay. Great. And just a follow on, which maybe this has been answered before because I think key topic, is just about the other global rollouts that you’ve got going on, like the major ones, (inaudible) logistics and then the DSV/Panalpina merger-related rollout. Yes, have you seen any disruptions to the timing of those?

Or are they broadly on track? I think both customers have been flagging sort of expectations of — to the end of fiscal 2021 that the first phase of employees would be fully done. I don’t know if you can make any comments from that?

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Richard John White, WiseTech Global Limited – Founder, CEO & Executive Director [52]

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Well, not only where they’re not disruptions, there were accelerations. So both companies have done extremely well in COVID-19 times. I think DHL, you’d have to look at DHL announcements to get to details, but I believe that had an extremely good quarter. And they were substantially above their guidance. They’ve been able to benefit from scale. They’ve been able to benefit from efficiency. They’ve been a little benefit by pushing forward with the rollout. DHL is an excellent, excellent customer as is DSV. We’re very proud to have DSV, and we’ve had them for a very long time, and we have a great relationship with management. They’re very, very, very smart people.

And DSV particularly pushed further and faster into Panalpina’s conversion rather than slowing down and worrying about the COVID-19 problem, they actually think fast. And both companies have commented that because of our digital education platform and the digital integration of our system, we’ve got a very strong content-led implementation process, which is online, electronic, they can train their staff online. They can do their examinations online to verify their staff are fully qualified and they can implement online and in remote circumstances.

And they’re actually making the point – she was making the point to me that they were actually delighted by the speed at which their start went to change right now that they’re working from home was actually easier than when it was in the office.

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Operator [53]

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The next question is a follow-up from Siraj Ahmed from Citi.

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Siraj Ahmed, Citigroup Inc. Exchange Research – Research Analyst [54]

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Richard, just a question on global rollouts, right? I guess, one key thing of CargoWise One and which DSV has said publicly is that using cargo is one, makes acquisitions easier for them? And you have benefited from the larger players in acquiring others. Now there’s discussions about DSV potentially buying toll. Now both our global customers [of years] So could this actually be a bit of a negative at the margin because DSV could get better pricing?

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Richard John White, WiseTech Global Limited – Founder, CEO & Executive Director [55]

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Well, first of all, I don’t know anything about DSV’s strategy. And obviously that’s something that’s for them. I have seen market commentary, but I think it’s — I’ve seen market commentary for them buying several other companies, not just toll. I think there was a comment about expeditors, and there’s a few others. And these are just press making stories about things that I don’t think there’s any underlying basis for that.

I suspect, and I don’t know this, but I suspect that anybody that consumes a business as large as Panalpina is going to take us through a pause after they finish the initial consumption and tighten up their business. And I would expect that of most companies.

However, there are 2 questions I do when I answer that are implied or said in what you said. The first is the company is that convert to CargoWise One and have a pure platform stack like CargoWise One, have the ability to acquire companies and rapidly roll them on, and they get a substantial lift in capability, in profitability and in it’s a hell of a good way to grow. And I think the market knows that, that is, in fact, a fundamentally powerful way to grow their businesses when organic growth is very hard.

And then we’ve had probably in the last 15 years, we’ve had sort of 15 or so companies that have bought other companies that are on CargoWise One. And it may not give us a huge lift in revenue, it might be slight but we certainly don’t lose revenue by merging 2 CargoWise businesses together. It just creates a more competitive business. I think we probably have to have (inaudible).

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Gail Williamson, WiseTech Global Limited – Chief Growth Officer [56]

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I think that’s it for us. We need to move on to our other appointment. We’d like to thank you all for attending today. We really appreciate your time and particularly an extended session, and look forward to seeing many of you in the coming days. Thank you.