Flight Centre shares sold off heavily yesterday after a weak trading update at the annual meeting yesterday.
The update, from CEO Graham Turner, was on the light side of market expectations.
The shares lost nearly 14% to a day’s low of $45.83, before rising to close at $46.10, down 9.9%.
Mr. Turner said the company expected profit growth of up to 9% for 2018-19 compared to the previous year – at best – to a range of $390 million to $420 million. The top would represent a rise of around 9%, the bottom would mean a “modest increase” (but unquantified) on the record 2017-18 result ($384.7 million).
And for the six months to December, Mr. Turner said “the company expects an underlying PBT between $140 million and $150 million for the six months to December 31, 2018. If achieved, a result within this range would represent up to 7% growth on the $139.7 million underlying FY18 first-half results.”
“It is, of course, very difficult to forecast future results in our style of business and our broad guidance range reflects the uncertainty surrounding the timing of the Australian leisure business’s recovery….Costs associated with the new EBA (Enterprise Bargaining Agreement for employees) in Australia have been factored into our guidance, as well as our longer-term Business Transformation targets.”
Comments made in his speech to the meeting revealed that the Australian leisure business remains a headache for Flight Centre and that profit growth is coming from the company’s offshore operations, not its main business in Australia.
“In Australia, the corporate businesses have generally started the year well, with solid organic trading and new client wins driving growth.
“As expected, however, the Australian leisure business has not yet benefitted from the changes that were implemented last year, although TTV has increased modestly.
“These changes, along with the EBA negotiations and the associated disruption resulting from the ABC story, mean that Australian profit is currently down compared to the same period last year,” Mr. Turner said.
In contrast, other parts of the global business are doing well, although there is a question mark over the UK with all the uncertainty of Brexit.
“(T)he overseas businesses have driven profit growth to date, with our Americas operations in particular again trading strongly off the back of their record-breaking FY18.
“We are optimistic about our future in this large travel market, given our consistently strong corporate results and our improved leisure results over the past year.
“Elsewhere in the world, our businesses in New Zealand, South Africa, the UAE, Asia, and India have also performed well to date.
“The EMEA businesses have generally started the year positively, although we have incurred additional costs through the investment in our corporate start-up in Germany and as a result of new credit-card regulations that were applied in the UK during the FY18 second half.
“These changes prevent UK retailers from recouping any costs they incur when accepting credit card payments, which represents a sizeable expense for our business.
“While we currently expect the UK business to deliver another good full year result, there is also a degree of uncertainty in relation to Brexit and its possible impact on demand for corporate travel in particular later in the year,” Mr. Turner said.
Over the full year, we will target an underlying PBT between $390 million and $420 million.
A result at the bottom of this range would be a modest increase on the record FY18 result, while a result at the top of the range would represent about 9% growth.
It is, of course, very difficult to forecast future results in our style of business and our broad guidance range reflects the uncertainty surrounding the timing of the Australian leisure business’s recovery.
Guidance is based on current exchange rates and, as is always the case, does not include impairment or significant non-recurring items that can arise during the course of any year.
Costs associated with the new EBA in Australia have been factored into our guidance, as well as our longer-term Business Transformation targets.
In terms of FY19 trading, TTV was tracking slightly above our longer-term target of 7% annual growth in constant currency at the end of the first quarter.
Underlying PBT has also increased but modestly compared to the previous corresponding period.
As expected, the overseas businesses have driven profit growth to date, with our Americas operations in particular again trading strongly off the back of their record-breaking FY18.
We are optimistic about our future in this large travel market, given our consistently strong corporate results and our improved leisure results over the past year.
Elsewhere in the world, our businesses in New Zealand, South Africa, the UAE, Asia, and India have also performed well to date.
The EMEA businesses have generally started the year positively, although we have incurred additional costs through the investment in our corporate start-up in Germany and as a result of new credit-card regulations that were applied in the UK during the FY18 second half.
These changes prevent UK retailers from recouping any costs they incur when accepting credit card payments, which represents a sizeable expense for our business.
While we currently expect the UK business to deliver another good full year result, there is also a degree of uncertainty in relation to Brexit and its possible impact on demand for corporate travel in particular later in the year.
In Australia, the corporate businesses have generally started the year well, with solid organic trading and new client wins driving growth.
As expected, however, the Australian leisure business has not yet benefitted from the changes that were implemented last year, although TTV has increased modestly.
These changes, along with the EBA negotiations and the associated disruption resulting from the ABC story, mean that Australian profit is currently down compared to the same period last year.
We believe the disruption is now abating and that this, coupled with various other initiatives and refinements that are underway, will lead to better second half results.
