Flight Centre Earnings Forecast Hits Turbulence

FLIGHT Centre has come clean on its earnings potential.

A day after revelations that key management figures last December provided their buy-out partners with a rosy outlook for the travel agency group through to 2012, the numbers finally have been revealed to shareholders.

It said it expected earnings growth of 10-15 per cent in 2008.

This is in line with confidential projections compiled by chief financial officer Shannon OBrien and managing director Graham Turner, and handed to partners Pacific Equity Partners late last year as they were planning to take the group private.

The projections released yesterday are in stark contrast to the tale pushed by managements spin doctors and investment bankers last year that Flight Centre was in decline after being hit by internet bookings and oil prices.

The first takeover collapsed in February amid accusations from major investors that the takeover bid undervalued Flight Centre. The second crashed last week when an independent expert said that bid was neither fair nor reasonable.

The revelations raise questions about the inherent conflicts of management involvement with financiers in launching takeover bids for listed companies.

Mr Turner and Mr OBrien were to be officers of the buy-out venture but responsible for preparing the financial forecasts.

Flight Centre independent director Howard Stack said: "Skroo (Mr Turner) and the CFO were providing the numbers to PEP under a confidentiality regime."

The document was dated December 2007, but Flight Centre had not provided the market with any guidance for 2008 until yesterday. On Thursday, it was revealed management had been involved in preparing earnings forecasts for PEP showing projected revenue growth in 2007 of 18.1 per cent and 2008 of 11.7 per cent. They had also provided bullish forecasts out as far as 2012. Mr Stack said: "It was not company policy to forecast more than 12 months."

Flight Centre is due to unveil healthy earnings for the year in a fortnight after upgrading its profit forecasts twice over the past few months.

There were claims in the market yesterday that an internal email sent by Mr OBrien shortly before the independent experts report was released cast doubts over the sustainability of Flight Centres earnings. Its shares fell $1.60 to $17.70 yesterday.

But according to the confidential document, while the rate of earnings growth was projected to slow, profitability was expected to soar in the buy-out due to an aggressive cost-saving program slashing $12 million in the first year before further cuts of $25 million each year for the following four years.

Tag Cloud

External Information

Additional Information

Where Am I?