STATEMENT TO AUSTRALIAN SECURITIES EXCHANGE February 21, 2019 Key Pints Flight Centre Travel Grup Releases First Half Results Recrd Sales Ttal transactin value (TTV) exceeded previus 1H recrd (FY18) by mre than $1billin 10% year-n-year grwth Increased Prfit Underlying prfit befre tax (PBT) within the targeted range fr the perid but twards the lwer end Diversificatin and Glbalisatin Success Stries Crprate businesses in Australia and verseas driving grwth Accelerated verseas sales and prfits - Americas nw an earnings pwerhuse (underlying 1H PBT up almst 300%) Disappinting Australian Leisure Results Mdest 1H TTV grwth & decreased prfit New shrt-term strategies being implemented t imprve secnd half (2H) results & cmplement lnger term initiatives Increased Sharehlder Returns $211millin in fully franked dividends t be paid via $1.49 per share special dividend + 60 cents per share interim dividend FY19 Guidance Tracking twards bttm f range and clsely mnitring Australian leisure results, amid nging earnings and market vlatility Cntinued fcus n prductivity & business transfrmatin targets Result Overview THE Flight Centre Travel Grup (FLT) has delivered recrd TTV and an underlying PBT within its targeted range fr the 1H f FY19. In releasing its accunts fr the six mnths t December 31 2018 tday, the cmpany als annunced a recrd $211millin return t sharehlders via: A fully franked $0.60 per share interim dividend; and An additinal fully franked $1.49 per share special dividend Flight Centre Travel Grup Limited ABN 25 003 377 188 275 Grey Street, Suth Brisbane QLD 4101 AUSTRALIA
The increased dividend payments, which will bth be paid n April 12 2019 t sharehlders registered n March 22 2019, reflect the cmpany s slid 1H and underline its success in diversifying and glbalising its business. As expected, results fr the perid were underpinned by FLT s crprate travel business glbally as it again: Cemented its psitin as a tp-fur glbal travel management cmpany (TMC); and Underlined its ability t deliver strng and scalable rganic grwth in a sectr that has significant future ptential, given the market s size, FLT s emerging internatinal ftprint and its strng grwth trajectry FLT s glbalisatin strategy als delivered strng returns, with grwth accelerating in the key Americas, Eurpe, Middle East and Africa (EMEA) and Asia markets during the 1H. This helped the cmpany surpass its previus 1H TTV recrd (set during the FY18 1H) by mre than $1billin and led t recrd prfit cntributins frm FLT s internatinal businesses. Underlying PBT almst quadrupled in bth the Americas and Asia and grew slidly in EMEA t help ffset disappinting Australian leisure prfits in a vlatile trading climate and during the business engineering phase f the cmpany s five-year transfrmatin plan. In releasing FLT s 1H results, managing directr Graham Turner said: Our achievements t date generally reflect a slid start t the year and als highlight sme key emerging themes firstly, ur crprate mdel s strength and secndly, the glbalisatin f ur peratins. The crprate business, which is largely built arund the FCM and Crprate Traveller brands, has a prven rganic grwth mdel that is highly scalable and highly prductive. It is nw in mre than 20 cuntries and it is rapidly gaining share by attracting and retaining custmers glbally. During the 1H, crprate TTV increased 16% t $4.2billin and grew by mre than 30% in the USA and 20% in the UK and Eurpe, which are bth tp-five crprate markets glbally. There are strng future prspects, given the business s trajectry, the mdel s strength and with its cmpelling custmer ffering, which we cntinue t invest in and enhance. FLT s glbalisatin is evidenced by mre than 50% f 1H sales being generated verseas, by the sustainable grwth that ur businesses are delivering in the EMEA and the Americas and the imprvements we are seeing in Asia. Flight Centre Travel Grup Limited ABN 25 003 377 188 275 Grey Street, Suth Brisbane QLD 4101 AUSTRALIA
Bth the EMEA and the Americas nw sit alngside Australia as material cntributrs t grup earnings, with the Americas, in particular, becming an earnings pwerhuse and delivering a $32.6millin 1H prfit. Just tw years ag, this business psted a $6.7millin 1H lss and the utlk fr the future lks very bright. Financial Overview Glbally, 1H TTV increased by 10% t a recrd $11.16billin as the cmpany again surpassed its 7% cmpunding grwth target thrugh t the end f FY22. Underlying PBT increased mdestly t $140.4millin and was within FLT s targeted range fr the perid ($140millin-$150millin). Fr the 1H, underlying PBT was adjusted t exclude three nn-recurring items: A $23.8millin nn-cash impairment relating t the Olympus destinatin management cmpany (DMC) A $2.56millin gain n adptin f new revenue accunting standard AASB 15. This relates t the release f lump-sum and turing revenue that was deferred n transitin t AASB 15; and A $8.2millin gain which has resulted frm a change in revenue recgnitin within the glbal prduct area. Recent system enhancements mean that FLT can nw capture and recgnise sme additinal verride revenue at the time f bking, as it typically des elsewhere in the business, rather than after the custmer has travelled Including these nn-recurring items, FLT achieved a $127.4millin actual (statutry) PBT. Net prfit after tax (NPAT) was $101.1millin (underlying) r $85millin (actual). As expected, revenue margin (revenue as a percentage f TTV) decreased as a result f nging business mix changes, specifically the grwth in lwer revenue margin businesses. Lwer Australian leisure margins, linked t lwer nn-air attachment and increased discunting, als cntributed. Underlying cst margin*, underlying csts as a percentage f TTV, imprved frm 11.6% during the FY18 1H t 11.1% t ffset this revenue margin decrease as FLT made slid prgress twards its 10% FY22 target. This reflects the cmpany s cntinued fcus n cst cntainment and als its success in increasing cnsultant prductivity, which has been a key glbal bjective. Flight Centre Travel Grup Limited ABN 25 003 377 188 275 Grey Street, Suth Brisbane QLD 4101 AUSTRALIA
Underlying csts increased abut 5% r by 2.9% in cnstant currency (excluding impairment and turing cst f sales), while prductivity, r TTV per persn, increased by 7% glbally. T slw cst grwth and imprve efficiency, FLT cntinues t utsurce and ff-shre sme business supprt functins. The cmpany is als practively using rbtics and artificial intelligence (AI) tls t enhance cnsultant prductivity and the custmer experience. Net margin, underlying PBT as a percentage f TTV, decreased t 1.26% (PCP: 1.37%), largely as a result f the lwer Australian leisure prfits during the 1H. Margin grwth in the Americas, Asia and EMEA segments partially ffset this decrease within the Australia/New Zealand segment. Segment Results FLT s evlving earnings prfile, which has seen the crprate travel businesses in Australia and verseas and the internatinal businesses in general drive recent grwth, gained mmentum during the 1H. This was in line with expectatins given: The cmpany s grwth trajectry in several large markets, including the USA Its expanding glbal crprate travel ftprint, which has cnsistently delivered scalable rganic grwth; and The nging changes underway within its leisure businesses, particularly in Australia, and their adverse impact n shrt-term results In all gegraphic segments, the cmpany generated recrd TTV, with: The Australia/New Zealand business achieving 2% grwth t $6billin The Americas delivering 18% grwth t almst $2.5billin (22% f grup TTV) The EMEA achieving 12% grwth t $1.6billin (abut 15% f grup TTV); and FLT s Asia businesses delivering 39% TTV grwth t $885millin (8% f grup TTV) Grwth in Australia/New Zealand was hampered by the relatively lw increase in Australian leisure TTV. Althugh same stre sales increased, shp clsures during the FY18 2H meant that leisure TTV grwth was reasnably flat and driven by the nline travel agency businesses (BYOjet and Aunt Betty), FX business Travel Mney, the Travel Partners hme-based agency business and by varius specialist divisins within Flight Centre brand. Flight Centre Travel Grup Limited ABN 25 003 377 188 275 Grey Street, Suth Brisbane QLD 4101 AUSTRALIA
Underlying PBT als increased strngly in all gegraphic segments, apart frm Australia/New Zealand, with: The Americas and Asia businesses almst quadrupling their PCP cntributins; and The EMEA businesses achieving 13% grwth, despite the Brexit uncertainty in the UK, the investment in the FCM Germany start-up and the impact f credit-card legislatin changes that came int effect in the FY18 2H While verall PBT decreased in Australia/New Zealand, the New Zealand peratin and the Australian crprate travel business bth delivered recrd prfits. Other ntable achievements within FLT s segments included: EMEA: The UK delivered further strng grwth and became FLT s 3 rd cuntry t surpass $1billin in 1H TTV after Australia and the USA, while the Dubai-based United Arab Emirates business als perfrmed strngly Americas: Althugh the crprate businesses again drve prfit grwth, the leisure and whlesale businesses delivered imprved results during their seasnally weaker trading perid. StudentUniverse, ne f tw leisure nline travel agencies that currently ranks amng FLT s tp 10 businesses glbally by TTV, achieved a recrd prfit; and Asia: The India business, which has becme FLT s 6 th largest cuntry in TTV terms, was a key cntributr t verall 1H results and shuld deliver mre than $1billin in TTV during FY19 FLT s Travel Experiences Netwrk (TEN) businesses are part f the Other segment in the cmpany s accunts and include: Tur peratrs Tp Deck Travel and Back-Rads Turing Htel management cmpany BHMA; and DMCs Buffal Turs and Olympus The established turing businesses delivered a strng 1H prfit, with Tp Deck n track t achieve its best prfit result in three years. As expected, BHMA cntributed a mdest lss during an expansin phase that has seen the business grw its prtfli t 23 prperties in Thailand, Vietnam and Bali. The DMCs delivered mixed trading results, with Asia-based Buffal cntributing a reasnable prfit and Mexic-based Olympus a trading lss as the business has been negatively impacted by the lss f key custmers, a decline in lcal Mexic sales and a change in lcal management. As annunced previusly, FLT has written dwn its Olympus Flight Centre Travel Grup Limited ABN 25 003 377 188 275 Grey Street, Suth Brisbane QLD 4101 AUSTRALIA
investment and has incurred a $23.8millin nn-cash impairment charge in its actual 1H results. Strategy & Business Transfrmatin FLT is nw in the secnd year f a five-year business transfrmatin prgram and is wrking twards achieving three specific targets thrugh t the end f FY22: 1. 7% cmpunding annual TTV grwth 2. A 10% underlying* cst margin (excluding turing cst f sales); and 3. A return t a 2% net margin After a clean-up phase during year-ne, which saw the cmpany remve r pivt varius lss-making businesses, FLT has nw entered a tw-year business engineering phase that will take place acrss the three cre divisins f crprate travel, leisure travel and the TEN. Key bjectives during the current phase include: Develping famus and distinctive brands that deliver a high quality and cnsistent custmer experience acrss these three divisins; and Develping prductive and efficient business mdels that deliver scalable grwth (sustainable revenue and cst structures) in future years Crprate transfrmatin initiatives fcus n glbalisatin, digital and technical investments, delivering integrated financial slutins, vertical integratin in prduct and develping a wrkplace f the future fr the cmpany s peple. New and unique custmer-facing systems and technlgy are being develped by FCM Labs, tech hubs that are nw in place in Barcelna, Stckhlm, Bstn, Brisbane and Bangkk. In the leisure sectr in Australia, the cmpany is develping three business streams targeting the mass market, premium travellers and the yuth sectr. Leisure transfrmatin initiatives that are currently underway include: FCB 2.0, a tailred prgram f enhancements fr the Flight Centre brand in Australia Grwth in new and emerging mdels, including independent cntractrs and affiliates, nline and flash sale (vuchers); and Prductivity and peple, which includes specialisatin, flexibility and retentin prgrams and efficiency Flight Centre Travel Grup Limited ABN 25 003 377 188 275 Grey Street, Suth Brisbane QLD 4101 AUSTRALIA
The develpment f the FCB 2.0 prgram has been led by FLT chief digital fficer Atle Skalleberg and the prgram fcuses n imprving Flight Centre brand s perfrmance by develping r intrducing: Lwer cst self-service channels and capabilities, such as apps and websites Sales peratins technlgies with increased autmatin levels, including lead management tls like RedCnnect, which is cntributing t the strng US leisure turnarund A new membership prgram that will reduce custmer acquisitin csts, use data t persnalise marketing and reduce frictin in the cnsumer buying prcess Integrated trip management technlgies like Umapped Imprved marketing autmatin and retargeting systems and wrkflws; and Custmer relatinship management technlgies Outlk FLT is currently tracking twards the bttm f its guidance range fr the full year (underlying PBT between $390millin and $420millin), largely as a result f the vlatility it has experienced in Australia and within the leisure business in particular during the 1H. This vlatility has cntinued early in the 2H and market cnditins remain challenging heading in t the leisure business s busiest trading mnths. FLT will cntinue t mnitr this vlatility, alng with grwth verseas, t assess hw grup results are tracking relative t earnings guidance. In additin t an apparent slwdwn in the general trading cycle during the secnd quarter, factrs that adversely impacted leisure results in Australia during the 1H included: Lwer margins The significant change and disruptin that has taken place within the business ver the past tw years Investments in systems, security and peple, which has included a new wage mdel (1H cst f circa $5millin) and rapid upstaffing, which saw the cmpany recruit a recrd number f new sales cnsultants; and Netwrk changes, including the 90 shp clsures during the FY18 2H and brand mergers undertaken as part f the Rebrand & Grw strategy The cmpany will implement additinal strategies during the 2H with a view t addressing these issues and cmplementing the lnger term initiatives. Flight Centre Travel Grup Limited ABN 25 003 377 188 275 Grey Street, Suth Brisbane QLD 4101 AUSTRALIA
These shrter term strategies include: Expansin in mdels and sectrs that are currently perfrming well, including specialist Flight Centre businesses, nline and hme-based agents Building a strnger netwrk by clsing r relcating prly perfrming r prly lcated shps and by pening new shps in prime lcatins Lwering csts by slwing recruitment in a lw revenue grwth trading climate and after the recrd 1H f peple grwth and by reducing head ffice verheads; and Imprving margins thrugh better attachment, centralised pricing, sales f cmpanywned prducts and thrugh a mre disciplined sales apprach Glbally, 1H trends are currently expected t cntinue, with FY19 results likely t be driven by the crprate travel businesses glbally and by FLT s internatinal businesses in general. Crprate grwth will, in part, be fuelled by new accunts wn during the 1H. These wins amunt t abut $600millin in prjected annual spend glbally fr the FCM business alne. FLT s internatinal businesses have started the 2H with strng mmentum; fllwing their recrd breaking 1H cntributins, with the UK peratin recrding its largest ever mnthly prfit in January 2019 despite the nging Brexit uncertainty. The cmpany expects t make further prgress twards its FY22 business transfrmatin gals, relating t TTV grwth, cst margin and net margin, as the year prgresses. TTV has, t date, exceeded the 7% annual grwth target and underlying cst margins have again imprved during the 1H. The grup s net margin is typically strnger during the 2H and is expected t increase in the future as the transfrmatin prgram gains mmentum and helps drive further grwth. While FLT has tday annunced plans t return surplus cash n its balance sheet t sharehlders, it will cntinue t invest in grwth initiatives. FY19 capital expenditure is likely t be in the rder f $100millin and will again be weighted twards system enhancements. The cmpany will als cnsider further merger and acquisitin pprtunities t cmplement rganic grwth, t fast-track grwth in new sectrs r t deliver new tls that enhance prductivity r the custmer experience. Our business is nw truly glbal and cntinues t evlve acrss its three cre divisins and acrss its key gegraphical divisins, Mr Turner said. Flight Centre Travel Grup Limited ABN 25 003 377 188 275 Grey Street, Suth Brisbane QLD 4101 AUSTRALIA
Our success in the wrld s largest travel markets, cupled with ur balance sheet strength, means we are well placed fr the future and gives the Bard cnfidence t return additinal funds t sharehlders via the $1.49 per share special dividend. We will cntinue t invest in key areas within the business t create additinal sharehlder value, as evidenced by the nging investments we re making in ur cutting edge crprate technlgy suite and thrugh ur effrts t imprve leisure sectr results. While ur reliance n the Australian leisure business t drive verall grwth is decreasing as ther businesses rapidly gain scale, it remains a significant cntributr t grup results. Further enhancements are nw being made nw t strengthen areas that are perfrming well and t address the issues that are impacting results. ENDS Media & investr enquiries t haydn_lng@flightcentre.cm, + 61 418 750454 *Underlying csts d nt include turing cst f sales and impairment Additinal Details fr Analysts & Investrs: FLT will hld a cnference call fr analysts and investrs at 9.30am QLD time (10.30am NSW) tday. Cnference ID 4949686, Phne + 61 2 80385221 Flight Centre Travel Grup Limited ABN 25 003 377 188 275 Grey Street, Suth Brisbane QLD 4101 AUSTRALIA