What’s Next for This ASX 200 Share Price? - Flight Centre’s FY2020 Results

Summary

• ASX 200 listed Flight Centre Travel Group experienced a substantial underlying net loss before tax of A$510 million, primarily due to government’s lockdown measures and travel ban to prevent COVID-19 spread.
• Before the COVID-19 era, the travel agency achieved a A$150 million underlying profit in the first eight months of FY2020.
• The Company secured over A$1.1billion in additional cash and liquidity to protect itself against a sharp and prolonged downturn due to the pandemic. Also, several steps were taken to reduce cash outflow.
• In the short-term, Flight Centre focuses on increasing its revenue and would concentrate on cost, especially in its leisure businesses.

ASX 200 listed Company, Flight Centre Travel Group (ASX:FLT) experienced one of the most difficult years in its history with an underlying loss before tax of A$510 million during FY2020 and a ~38% loss in revenue.

On 27 August 2020, Flight Centre Travel Group released its FY2020 results and reported significant losses from March 2020 till June 2020. During this time, the government announced lockdown in the country and the borders were closed to prevent the spread of COVID-19, thus, stalling or severely restricting leisure and corporate travel worldwide. However, in the pre-COVID-19 era, FLT had achieved a A$150 million underlying profit for eight months to 29 February 2020.

As per Graham Turner, FLT managing director, government responses to COVID-19 have created the most challenging trading environment which the Company has experienced in almost 40 years in business. He also stated that the Company, until the last four or five months, had not imagined a scenario in which virtually all flights and travel plans worldwide would effectively be stuck for a prolonged period.

This challenging period has had a devastating impact on businesses as well as on people, especially in the travel and tourism sector. There were tens of thousands of jobs lost in Australia alone, and many companies were struggling to survive.

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In such challenging times, the Company was compelled to take tough decisions as this crisis unfolded. FLT moved fast to develop a longer cash and liquidity runway and to reduce costs in expectation of a zero or very low revenue environment for an extended period.

On this backdrop, let us take a look at the financial results of the Company and its outlook.

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FY2020 Result Highlights:

• Total transaction value declined by 35.5% to ~A$15,303 million.
• Revenue dropped 37.9% and stood at ~A$1,898 million.
• Statutory loss before tax declined significantly by 347.3% to A$849.284 million.
• Statutory loss after tax dropped drastically by 350.6% to A$662.109 million.

Amid this disruption, the global corporate business again highlighted its strength, diversity, and resilience by delivering an underlying profit of A$74 million for the year. The division generated A$7 billion in TTV, which is 45% of the total transaction value (TTV). It secured a record pipeline of new accounts. Thus, establishing a robust platform for more organic market-share growth.

Minimal leisure revenue was generated during these four months, given that few forward bookings were made. Also, A$200 million in revenue was recognised on prior bookings were refunded in response to the government restrictions that were applied to discretionary travel.

A Peek into FLT’s Short-Term Objectives:

At the time, when the Company had entered the crisis phase, it had healthy cash reserves and minimal debt. It then moved rapidly when trading conditions worsened to protect itself against a sharp and prolonged downturn.

• FLT secured over A$1.1billion in additional cash and liquidity. It comprised of A$700 million capital raising and A$200 million debt facility increase in April 2020. Another A$62.15 million was generated with the sale of Melbourne property in July and GBP65 million government-backed loan in the United Kingdom, which can be increased.
• Cash outflow reduced by substantially reducing its monthly cost base from its A$225 million to A$230 million pre-COVID-19 levels during what was expected to be a zero or very low revenue environment.

The Company was able to exceed its short-term target of a A$65 million net operating cash outflow after eliminating an annualised A$1.9 billion in costs. Thus, FLT reduced its cost base to ~ 30% of the pre-COVID level and attained higher than initially projected revenue.

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Corporate Travel Progress:

As highlighted above, the Company’s global corporate business generated a A$74 million underlying profit before tax from A$7 billion in TTV. The growth has been driven by continued success in providing a record pipeline of new accounts plus achieving high retention rates via robust customer offerings.

The FCM businesses in the key Americas and EMEA markets won accounts with projected annual spends of over US$500 million during the full year.

Recent Wins of Corporate Travel Business:

• Enterprise-level multi-national accounts led by the first account of FCM with an estimated US$1 billion contract value.
• Large technology & financial services sector businesses.
• A significant government deal in the UK.

Ongoing Transformation in Leisure Travel:

Before the COVID-19 outbreak, the global leisure business noted a A$20 million profit to 29 February 2020. It incurred significant losses in four months to June 2020.

The Initial Priorities of The Company During These Four Months Include:

• Cost control, via network reductions, rent renegotiations, brand consolidation, along with reduced discretionary expenditure.
• Structural improvements and communications.
• Improving the refund process.

Other than this, the Company also focused on transformation priorities. The program was initially intended to focus on the flagship Flight Centre brand over the next few years but has accelerated to involve new opportunities and growth models.

Outlook:

While Flight Centre has witnessed a constant uplift in demand since April, widespread and ongoing travel restrictions are impacting more meaningful industry-wide recovery. Seeing the prevailing uncertainty concerning the timeframes for the lifting of these government-imposed travel restrictions, the Company is cannot provide any market guidance at this time.

However, FLT would work towards extending its liquidity runway in the near-term by:

• Increasing revenue once the restriction is lifted.
• An ongoing, targeted cost focus, especially in its leisure businesses.

This longer path will enable FLT to capitalise on industry capitalisation and the unavoidable bounce that will come once restrictions get lifted, and customer confidence regains.

Stock Information:

On 27 August 2020, FLT share price stood at A$12.580 at the end of the trading session, down 0.238% from its previous close.