News 2001

25 October
Chairman's Address, 2001 Annual General Meeting

Thursday, 25 October 2001

Good morning and let me extend a warm welcome to our shareholders and visitors who are with us here today.

You will have all received the Flight Centre Limited annual report for the fiscal year that ended on June 30, 2001.

As you will have seen in the report, the company has again delivered a year of strong growth in shop and business numbers, profit and sales.

In a relatively flat travel market, global sales soared beyond $3 billion, shop numbers increased by 29% and a record after-tax profit of $42.9 million was achieved.

The company's share price increased to $28 in the early months of 2001, shareholders received increased dividend payments, and in addition a one-off special dividend of 60 cents-a-share was paid late in the year at the same time as a 1 for 40 rights entitlement issue.

I will discuss last year's performance in greater detail later in this address, but first I would like to focus on our business's most important asset - our people.

People

Flight Centre Limited has always been and always will be a "people" company.

And recently our people have responded magnificently to a number of external challenges that could not have been foreseen.

Faced with the recent tragic events in the United States and the demise in Australia of Ansett Airlines, our customers, our shops and our people have "got on with the job" and maintained a "business as usual" attitude.

There have been disruptions and many travellers have been quite frightened and worried, but this has not distracted our people from their goal of providing the very best in customer service.

The company has always believed that to be a successful and fast growing business you need to excel in customer service.

The people of Flight Centre Limited have not changed their views or philosophies. We firmly believe that if we operate with this service formula in mind it will work through good times and bad.

Our people in the shops, in the ticket centres and at all support levels have made every effort to meet the needs of our customers in these disturbed times and, on behalf, of the board I extend to them my thanks and congratulations.

I also thank customers for their continued patience, particularly those who now must wait for resolution of problems.

Last Year

In terms of last year's performance, strong results from offshore helped Flight Centre Limited record annual sales of $3 billion and a $66 million pre-tax profit, increases of 25% and 8% respectively on the previous year's result.

The company also posted a $42.9 million after-tax profit, a 6.4% increase on 1999-2000, and a 27.5 cents-a-share fully-franked dividend to shareholders for the year, up 10% on last year.

In addition, the Board continued its policy of distributing the best possible return to shareholders and last year, on behalf of the company, made a one-off special franked dividend payment of 60 cents per share.

It is extremely pleasing to note that a very large percentage of our shareholders saw fit to reinvest that special dividend payment in the company by participating in the 1:40 rights issue.

Although, Flight Centre Limited's global sales and profit figures for 2000-2001 were both new records, it is a reflection on our outstanding previous performances that we consider our profit growth to have been somewhat disappointing.

A number of factors - both internal and external - contributed to this, including decreased margins brought about by the emergence of unrealistically priced discount airfares.

The company has taken actions to address the internal factors and has already seen some promising results in the first quarter of 2001-2002.

When we break down last year's profit figures, we see that about one third of Flight Centre Limited's profit came from the company's established offshore operations - the UK, Canada, South Africa and New Zealand - in a year that was marked by significant international expansion.

The company continued to invest in its international future and opened more than 70 new stores in New Zealand, Canada, South Africa, the United Kingdom and the United States, plus 80 in Australia.

This means that Flight Centre Limited has built a very solid base in these major overseas travel markets and the company expects the benefits to continue to flow through this year and in the future.

In another major investment in our future, Flight Centre Limited devoted almost $34 million to capital expenditure establishing new stores and developing its technology and systems.

Importantly, our balance sheet and cash reserves continue to be very strong. This means we are well placed to finance generic growth and to consider sensible acquisition opportunities as and when they arise.

Countries

In terms of the individual country results;

Australia

Although profit growth in Australia last year was slower then initially expected, there were still a large number of positives.

During 2000-2001, we increased our Australian presence by 25%, from 416 shops and businesses to 520.

Turnover also increased substantially - by 17% to $2 billion - once again confirming our position as Australia's most successful travel retailer.

As I mentioned earlier in this address, the company has taken steps to address the factors that slowed its profit growth in Australia last year and some of the benefits have already started to flow through.

New Zealand

Our New Zealand operation recorded strong growth and posted a record pre-tax profit of $NZ14.1 million in 2000-2001, despite a relatively flat New Zealand travel market.

The company also passed a significant milestone during the year when it opened its 100th business in New Zealand.

South Africa

2000-2001 was a strong year for Flight Centre Limited in South Africa and realised sales of R740 million and an impressive pre-tax profit of R20.9 million, up 43% on the previous year.

The company also continued to build a very strong base for the future in South Africa by increasing our shop and business presence by 50%, from 42 to 63.

Canada

Our businesses in both Eastern and Western Canada continue to impress and recorded major increases in sales, profits and shop numbers.

The company also entered a new phase in its development in Western Canada by expanding into the Alberta Province, a market with high potential.

The United Kingdom

The UK operation was another major success story for the company in 2000-2001.

The operation posted across-the-board improvements and is well placed to make a key contribution to the company's future success.

The United States

Flight Centre Limited continues to expand its United States operation and expects significant improvement from its newest international business in the year ahead.

In its first full year, the US posted sales of $US17 million and expanded its shop and business presence to 14.

Summary of 2000-2001

If we bring all these figures back together, the results from 2000-2001 mean that, in the six years since the company made its initial public offering:

1. Sales turnover has increased by $2.2 billion or 287%
2. After-tax profit has grown by $35.2million. (462%)
3. Retail shop numbers have increased by 512 (256%)
4. Total assets have grown by $318 million (412%)
5. Our market value has increased to $1.9 billion.

This Year

In terms of the current fiscal year, the company has enjoyed a solid start and has posted a pre-tax profit increase of about 13% during the first quarter.

Results from July and August were very promising but there has, however, been a significant slow down in business since September 11.

At this early stage, it is impossible to predict the result for the full-year, particularly given the current uncertainty overseas.

Demand for travel is obviously influenced by surrounding events and the tragedies of September 11 and the collapse of Ansett have had an impact on world travel, causing many people to look at and reconsider their plans.

It follows, therefore, that our results in the short term are highly likely to be affected.

It is possible that, by the end of the half-year in December, figures will be down on last year. We would hope, but as I said earlier it is still to early to predict, that we will be able to make up for any shortfall during the second half of the year.

Expansion And Investment

In terms of our expansion plan, the company expects to open an additional 150 stores in 2001-2002, including 75 overseas.

We will also continue to invest in two key areas - our on-line business Flight Centre Direct - and our newest international operation in the United States.

This company has a clear vision for its future and sees these two areas as being key contributors to Flight Centre Limited's success in the years ahead.

We also have a strong belief in our company purpose - TO OPEN UP THE WORLD FOR THOSE WHO WANT TO SEE - and with this in mind will continue to provide travellers with this opportunity, through our strong commitment to customer service and price.

Corporate

Our rapidly expanding Corporate Division is another business that should make a valuable contribution in 2001-2002.

The Corporate Division businesses - Corporate Traveller, SBT, Stage and Screen, CIM and CIS have won a considerable amount of new accounts recently and should realise a major slice of the company's profit this year.

It is also worthwhile mentioning that Corporate Traveller, which is now becoming well established internationally, has become Flight Centre Limited's second largest brand with 48 offices in six countries at June 30 this year.

QANTAS

Flight Centre Limited continues to enjoy a close relationship with its preferred airline partner, Qantas, and aims to build on that relationship in 2001-2002.

We formed this five-year partnership in 2000 and it has already proven mutually beneficial.

The company takes great pride in the fact that businesses like Qantas and our wide range of wholesale partners, both big and small, directly share in our success.

The year to June was our 11th year of consecutive profits and strong year-on-year-growth, and some of the benefits of this success continue to flow back to our supporters.

It is, therefore, somewhat surprising that some airlines have recently adopted a short-sighted approach to filling their aircraft "off their own bat".

In a climate marked by decreasing passenger numbers, these airlines have effectively tried to take a large percentage of their potential customers - those who book through travel agents - out of the equation.

To the best of my knowledge this strategy has never worked and may, in fact, lead to increased bookings being direct to other airlines.

After all, customers that follow the most common route when they arrange their travel - visiting a travel agent - are unlikely to leave the store and make bookings themselves if prices on other competing airlines are competitive.

Taxes

The emergence of a raft of new taxes on international and domestic airfares is also somewhat surprising, given that governments throughout the world have recently promised to take action to stimulate the travel and tourism markets.

These taxes are, in most cases, adding considerably to the cost of air travel and cannot be seen as helpful to the promotion of tourism in the current climate.

For example, a traveller on a return flight from Sydney to London could easily face a tax bill of $186.

The situation is no better domestically, with one particular $200 airfare attracting taxes of $50.

Directors

At the beginning of the new fiscal year, we welcomed a new board member in Chris Greive, who has replaced Jim Goldburg as a director.

After a long and distinguished career with the company, Jim has decided to devote more time to his other business interests but will still be involved with Flight Centre Limited as an alternate director.

Chris has enjoyed a long and distinguished career with Flight Centre Limited and has been an outstanding success in his position as national leader of the company's New Zealand operation.

We thank Jim for his efforts. We look forward to Chris's ongoing contributions in New Zealand and in addition North America for which he has now assumed executive responsibility.

Conclusion

Let me conclude by once again drawing attention to the performance of our entire workforce, led so capably by our Chief Executive, Graham Turner.