2002

Chairman's Address, 2002 Annual General Meeting

Tuesday, 31 October 2002

Introduction

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 Flight Centre Limited's annual report for the 12 months to June 30, 2002 and will be aware that the company has achieved another year of solid growth. Despite the many challenges that arose during 2001-2002, the company achieved a $91 million operating profit before tax, a 37% increase on the previous year, a $62 million net profit after tax, up 45%, and revenue of $3.6 billion, a 20% increase. In addition, shop and business numbers grew from 778 to 975 and shareholders received increased dividends, with payments rising from 27.5 cents a share in 2000-2001, (excluding the special dividend), to 37.5 cents in 2001-2002. The results of our endeavours reflect the company's clear strategy to continue to strive for a high level of customer service, coupled with strong growth in our sales outlets and our growing diversification of brands. It is important in this context to recognise that Flight Centre Brand is still very much the flagship of the company, and the high market penetration achieved in Australia and New Zealand is still very much the cornerstone of our profitability.

People

It is also important to recognise the role our people have played and continue to play in our success. These results were achieved in a difficult economic climate for the tourism industry in general and, more than anything, are a credit to our talented and dedicated staff throughout the world. We now have more than 4500 people and, individually and collectively, they are a source of great pride. As I said last year at the Annual General Meeting, tragic world events have had a great impact on our people in their daily working lives. They have again responded magnificently to the challenges they have been confronted with and I take this opportunity to pay tribute to them for their sensitivity and their attention to their customers during such difficult periods.

Bali

Sadly, it seems that each year at the Annual General Meeting, we are confronted by recent events. Last year, it was the demise of Ansett and Canada 3000 and the tragic events at the World Trade Centre and the Pentagon in the United States. This year, it is increased concern about terrorism in the aftermath of Bali, and our hearts go out to the many families and friends who have lost loved ones in this tragedy. The full effect this will have on Bali as a holiday destination in the short term is impossible to predict at this early stage. Having said that, Bali is a popular market and I am certain it will continue to be in the longer-term future. It has suffered at times in the past, but there is little doubt that Bali will re - emerge as a major tourist destination as we are now seeing with Fiji. I am also certain that the young people of the world will continue the trend of more active and widespread travel. And if a problem arises in any particular destination it is natural that they will stay away for a time and look to other destinations. Certainly, since the tragedy in Bali, we have seen that the great majority of our bookings held for this area are being changed to bookings for other destinations, both within Australia and New Zealand and elsewhere overseas.

Our Operations

At store level, and with our continued growth, the focus of the company divides into two main areas ... Leisure and Corporate. This is not a clear-cut distinction because many Flight Centre shops handle business travel arrangements for their clients and, conversely, many Corporate Traveller offices provide leisure travel for their customers. Within both the Leisure and Corporate areas, we have a number of travel brands to cater for various market segments. During 2001-2002, the company enhanced its corporate travel operations significantly with the acquisition of ITG Limited, which trades as TQ3 Business Travel Solutions. We have also acquired Hong Kong-based American International Travel Limited, plus a number of other smaller businesses. Flight Centre Limited has two broad thrusts in targeting profits through acquisitions. The first is to look at opportunities, such as ITG, which provide a step change in growth of our total business or which fill a niche in our total business which otherwise would involve a long period of development. The second is the acquisition of, in most cases, small and focussed businesses that add product or sales outlets to our business. We expect the main growth of Flight Centre Limited's business in the future will continue to be by generic expansion of our existing brands, businesses and countries of operation. This ongoing growth of the company's business continues to put a large amount of pressure on the recruitment and training of new staff, but it also provides good opportunities for individuals to develop their careers. Training is, therefore, a very important focus and as part of this we have recently acquired in New Zealand a training college specialising in travel. Along with training, managing our growth and maintaining our emphasis on service are obviously important considerations for our future. We believe we are well placed to achieve our objectives in these areas with the recent change in our top management structure. This change gives Graham Turner greater time to devote to the company's future strategic direction, while responsibility for the "here and now" lies with Shane Flynn as chief executive officer.

Quarterly Reporting

Today I can also reveal that Flight Centre Limited's Board has decided the company will move to quarterly reporting of results. We make this move for a number of reasons. Firstly, we have developed our systems to the stage where such reporting can be undertaken without incurring significant costs. Secondly, with the heightened responsibility of companies to maintain an informed market we believe it is an appropriate time to move from half yearly to quarterly reporting of profit results. And thirdly, the culture of the company is one whereby large groups of our people are, on a regular basis, aware of the group's trading results. The company does have set rules as to the time of year when people aware of its trading results are able to deal in their shares and, of course, those policies will continue. The quarterly results will be announced to the market and will also be available on our website.

Result

With this move to quarterly reporting, it gives me great pleasure to release our results (unaudited) for the quarter to September 30, 2002 and their comparison to the same period last year. In the September Quarter this year, sales turnover increased 33% to $1.05 billion, compared to $790 million in the corresponding quarter of 2001-2002. Pre tax profit for the quarter increased 59% from $14.1 million to $22.4 million. Profit after tax was $15.5 million, compared to $9.8 million in the previous September Quarter, a 58% increase. Clearly, these are good results but they must be viewed in context. The individual month of September last year suffered badly from the cancellations that arose after September 11, and that of course contributed to the growth this year. Clearly, it is still far too early in the year, particularly given recent events, to draw any conclusion as to what the results for the half-year to December 31, 2002 and full year to June 30, 2003 may look like. Of course, history also tells us that seasonal and economic differences can lead to significant movements between individual quarters. All of that said, it is a very good result for the First Quarter.

International Progress

Internationally, I am pleased to be able to report that the Board has recently undertaken a visit to our fast growing operations in the United Kingdom, East and West Canada and the United States. Board members have also had the opportunity to visit our operations in South Africa and New Zealand, as well as different areas of Australia, during the past year. I am able to report that all areas of the company are showing good progress. In North America, the operations in Canada and California all suffered from the tragic events of September 11, 2001. And, while there are some residual effects from those events, coupled with changes airlines are making in how do they business, I can report a strong profit trend in West Canada and an improvement in profit in East Canada. In California, we have consciously increased our presence in terms of shop numbers. This has led to a 50% increase in turnover over the first quarter of last year, but has meant that the trend of reduction in losses reported for the year to June 30, 2002 did not carry on into the first quarter. The action is, however, being taken for the future as evidenced by the strong turnover increase. Clearly, our past efforts are now starting to show significant rewards in the UK and South Africa, with sales increasing by 40% and 36% respectively during the first quarter of 2002-2003. Our ongoing investment in technology is also producing benefits. The Information Technology area continues to attract a big spend and, along with the fit-out of new shops, accounted for the major area of capital expenditure last year. Flight Centre Limited is actively improving its website and is seeing a large increase in business being done by telephone and email. Our investment in our shops is similarly valuable. At store level, great attention is paid to presentation, appearance and functionality of our shops in all areas of the company. Our shops are the frontline in providing a service to the customer and are arguably the most important function in the operation of the company. That is not to say that Support areas do not play a very important role. Flight Centre Limited is moving to "corporatise" its support and service businesses where practical and move them to a user-pays system of operation.

Options

I spoke earlier about the key role our people have played and continue to play in our daily operations. Having the right people in the right roles, rewarding them for their achievements and encouraging them to take ownership are obviously important considerations. You will see from the Annual Report that Flight Centre Limited continues to widely use share options as part of the incentive package for employees. While there has been considerable public comment about the use of large-scale option packages for senior executives, the company fundamentally does not take that approach. Our approach is of a very broad-based scheme, which is being presented to shareholders again today for its renewal. While there can be all sorts of views held as to share options and we have received some negative feedback in this regard, the Board remains of the view that it is an important function of the company's culture to continue to utilise a broadly-based options scheme. The Board has also has a strong belief in making shares available to facilitate employee participation in the company. The employee share ownership plans are also before this meeting today for renewal of shareholder approval. You will also be aware from the company's reporting that there is a Business Ownership Scheme whereby team leaders can, by investing their own money, acquire a participation in the profitability of the business they lead. This scheme continues to operate successfully and provides leaders with an additional incentive to achieve the best possible results.

Taxes and Commissions

Before concluding, I would like to share my views on two subjects that I am often asked about... Taxes and airlines with no-commission business models. Throughout the world, Governments of all persuasion continue to target air travel and tourism generally as a source of additional tax revenue. Undertakings given at the time of introduction of Goods and Services and Value Added Taxes have been forgotten as Governments now levy airport improvement charges, passenger service charges [which once were part of aircraft landing costs], security taxes, environmental taxes and various other fees. One does have to question how all of this fits with continued political statements in all countries of wanting to encourage growth in tourism. In terms of commission payments, I believe that moves by some airlines, particularly in North America and Europe, to change the way in which they do business with travel agents, are shortsighted. Clearly, travel agents are an important part of the process of ensuring airlines are carrying high capacity loads and their actions, which in many cases discourage travel agents selling airline tickets, really do not make any sense. We, like others in the industry, take appropriate action in such circumstances to protect our revenue base.

Conclusion

Finally, I would like to take this opportunity to again thank Graham Turner for his continuing leadership of the company and to congratulate Shane Flynn on his achievements since becoming chief executive officer. We are also very fortunate to have outstanding leaders and teams at all levels within this company and that is undoubtedly one of the keys to our success. As you have heard, Flight Centre Limited can take great pride in its achievements in 2001-2002, but as always, our focus is very much on the future. It is still too early in the year to make any predictions as to what our company will achieve in 2002-2003, but there is no doubt we have started the fiscal year with a very strong foundation. We maintain a strong balance sheet with significant cash resources. That makes sense in an industry where there are surprises, but it also places us in a strong position to look at opportunities. We will continue to enhance our technological capabilities and to expand our presence in all markets by opening up to 170 new shops. This means that by the start of 2003-2004, we will have almost 1000 retail outlets in our countries of operation.