Corporate Travel Management (ASX:CTD)

Jamie Pherous
MD
Market Cap (AUD): 2.39B
Sector: Consumer Discretionary
Last Trade (AUD): 22.03 +0 (+0%)
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1. About

Corporate Travel Management Limited is an award-winning provider of innovative and cost-effective travel management solutions to the corporate market. The Company's proven business strategy combines personalised service-excellence with client-facing technology solutions to deliver a return-on-investment to clients. Headquartered in Australia, the Company employs more than 2,200 people, and the CTM network provides local service solutions in more than 70 countries globally.

2. Business model

 

The Group operates the following divisions:[1]

 

Divisions

Revenue ($’000)

% of Revenue

% of Profit (before Int, Tax, Dep & Amort)

Profit drivers[2]

Australia and New Zealand

$108,519

29.2%

35.1%

Revenue rose by 19% to $108.5 M. The increased revenue has flowed through to the adjusted EBITDA, which rose by 21% to $44.0 M with an improved margin of 41%, which is up from 40% in the prior comparative period. The region continued to benefit from top line growth from increased market share through new client wins. In addition, productivity also improved with around 80% of all transactions originated online.

North America

$127,003

34.2%

30.2%

Revenue increased only marginally by 0.3% to $127.0 M. However, the adjusted EBITDA rose by 6% to $37.9 M and the adjusted EBITDA margin improved from 28% in 2017 to 30%, due to further productivity initiatives

Asia

$53,816

14.5%

15.6%

Revenue declined 5% to $53.8 M for the financial year, however the underlying EBITDA is up 8% on the prior comparative period. The result was impacted by reduced ticket prices which also reduced supplier payment revenue. The EBITDA margin increased from 32% to 36% as the business benefited from productivity gains through enhanced automation

Europe

$81,682

22.0%

27.3%

The operation in Europe contributed $81.7 M in revenue during the year, an increase of 66% on prior year, with inclusion of the Redfern Travel acquisition for the full financial year (FY17: 5 months). The adjusted EBITDA for the Europe business rose by 86% to $34.2 M and the adjusted EBITDA margin increased from 37% to 42%, benefiting from a large move to CTM’s online platforms, automation resulting from the Redfern acquisition and record client wins and retention. On a constant currency basis, revenue increased by 61% and adjusted EBITDA increased by 80% over the previous period

Other

        N/A

0.0%

(8.2%)

N/A

3. Strategy

 

The Group continues to focus on the following key strategies[3]

 

  • Implementing and integrating its acquisitions
  • Retaining current clients
  • Winning new clients
  • Innovating client tools and internal processes to enhance service to clients and improve internal productivity
  • Staff engagement

 

In the 2018 financial year, the Group executed well on these business drivers, with the maintenance of the historically strong client retention numbers, a record year of new client wins and improved productivity and high staff engagement outcomes in all regions.

A vast proportion of CTM’s cost base is employee costs, which highlights the importance of productivity initiatives. During the year, there has been an increase in productivity, but not through a reduction of service. In fact, service levels have risen as automation has replaced manual processes, providing CTM’s consultants with the time to operate more effectively and for the benefit of clients.

The Group intends to continue to pursue the opportunity for its growth globally through acquisition, as well as pursuing organic growth in each market, underpinned by a focus on client service, supported by the continued investment in a new client facing technology and delivery of measurable return on investment (ROI) to its clients.

4. Markets

 

The Company operates in markets including:[4]

 

Industry

Industry Revenue (2018)

Growth Rate (13-18)

Global Travel Agency Services

$267 billion

3.4%

5. Competition

 

Major competitors include:[5]

 

  • Webjet Limited (ASX:WEB)
  • Flight Centre (ASX:FLT)
  • Helloworld (ASX:HLO)

6. History

 

1994[6]   

Corporate Travel Management was founded by Jamie Pherous, with a just two staff at Brisbane,  Australia

 

1999   

CTM’s first expansion, Gold Coast office was opened

 

2001   

CTM entered Melbourne market

 

2003   

CTM entered Sydney market

 

2007   

CTM entered Perth market

Acquired Debretts

 

2010   

CTM entered New Zealand market

Acquired Cavalier Travel

 

2011   

CTM bolstered Melbourne presence

Acquired ETM Group of event management expertise

Acquired Travelcorp

CTM expanded national footprint in Sydney, Melbourne and Perth

 

2012   

CTM entered the USA market

Acquired R&A Travel

CTM increased New Zealand presence

Strategic partnership with Tandem Travel

 

2013   

CTM expanded the USA footprint

Acquired Travelcorp

CTM entered the Asia market

Acquired Westminster Travel

 

2014   

CTM expanded the USA footprint

Acquired USTravel and Aviva International Travel

CTM entered the UK/Europe market and reached the US east coast

Acquired Chambers Travel (UK/EU) and Diplomat Travel (USA)

 

2015   

Acquired Montrose Travel (CA, USA)

 

2016   

Corporate Travel Management to acquire Travizon Travel (Boston, USA)

 

2017   

Acquisitions of Redfern Travel and Andrew Jones Travel completed

 

2018[7]  

SCT acquisition now completed

Corporate Travel Management to Acquired  Lotus Travel Group Limited, Hong Kong

7. Team

 

Board of Directors[8]

 

Ewen Crouch – Chairman

Greg Moynihan – Independent Non-Executive Director

Stephen Lonie – Independent Non-Executive Director

Admiral Robert J. Natter – Independent Non-Executive Director

Jamie Pherous – Executive Director, Managing Director

Laura Ruffles – Executive Director, Global COO

 

Management Team

 

Jamie Pherous – Managing Director & Founder

Greg McCarthy – CEO Australia and New Zealand

Andre Moten – Chief Operating Officer – Australia and New Zealand

Diane Sengupta – CFO /Financial Controller – Australia and New Zealand

Andrea Joseph – Chief People Works Officer

Troy Winterbottom – Chief Technical Officer AU/NZ

Peter Wiseman – General Manager Sales

John Balloch – Head of Supplier Contracting Australia and New Zealand

Glenn Wilcox – General Manager NSW

Susan Connor – General Manager Victoria

Craig Southee – General Manager QLD

Nathan Darke – General Manager Tasmania, General Manager Leisure Travel

Tracey Edwards – General Manager Event Travel Management

Birgit Patenall – General Manager WA

David McKellar – General Manager WA

Suzanne Yeates – Company Secretary[9]


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8. Financials

 

2018 Full Year Results Presentation

 

Financial Year 2017/18 (ended 30 June):[10]

 

Divisions

Revenue ($’000)

% Change

Profit (before Int, Tax, Dep & Amort) ($’000)

% Change

Australia and New Zealand

$108,519

18.6%

$44,038

21.2%

North America

$127,003

0.3%

$37,888

5.6%

Asia

$53,816

(5.1%)

$19,541

8.2%

Europe

$81,692

65.9%

$34,232

86.4%

Other

      N/A 

(100%)

($10,249)

(2.2%)

Total

$371,030

14.4%

$125,450

27.2%

9. Risk

 

Material business risks[11]

The Group is subject to both specific risks to its business activities and risks of a general nature. These risks include:

  • Global conflicts, terrorism and pandemics: International travel remains susceptible to the impact of regional conflicts, terrorism and health pandemics.
  • Economic conditions: Economic downturns, both globally and regionally, may have an adverse impact on the Group’s operating performance.
  • Foreign exchange: The volatility of foreign exchange markets impacts on the Australian dollar results for the Group, which is mitigated by matching funding sources to operating cash flows.
  • Financial structure: The Group has acquired a number of businesses, all of which has resulted in the creation of significant intangible assets, the recoverability of which is totally dependent upon future performance, including a dependency on major contracts.
  • Information technology: The Group relies heavily on outsourced technology platforms. Whilst all systems are licensed, any disruption to supply or performance of systems may have an immediate and a longer term impact on client and supplier satisfaction.
  • Competition: The Group operates in a competitive market, and current competitors or new competitors may become more effective.
  • Key personnel: The Group is reliant on talent and experience to run its business. The Group’s ability to retain and attract key people is important to its continued success.

 

Financial risk management

The Group’s principal financial instruments comprise deposits with banks, overdraft facilities and borrowings. The main purpose of these financial instruments is to raise finance for the Group’s operations. The Group has various other financial assets and liabilities, such as trade receivables and trade payables, which arise directly from its operations. It is, and has been throughout the period under review, the Group’s policy that no trading in financial instruments shall be undertaken. The main risk arising from the Group’s financial instruments are interest rate risk, liquidity risk, credit risk and foreign exchange risk.

 

Interest rate risk

As at 30 June 2018, the Group had interest bearing borrowings of $44.0 million, therefore the Group’s income and operating cash flows would be impacted by changes in market interest rates. Interest rate risk is managed by way of proactive action by management and advisors. At balance date CTM has no interest rate cap, swap or options in place and has managed interest rate risk by fixing interest payable for short terms of 1 - 6 months on material borrowings. Under the terms of CTM’s financing arrangements, interest payable is determined using an appropriate base for the currency borrowed.

Changes in US LIBOR (London Interbank Offered Rate) for example could therefore affect CTM in the medium or long term and accordingly, various strategies to mitigate interest payable may be adopted should material volatility or rates increases be forecast. The Group has considered its exposure to interest rate movements and note that significant changes in interest rates would not result in a material impact to Finance costs.

The Group has interest bearing assets (cash and cash equivalents) with a short turnover period. The interest earned from these assets is not considered material to the Group.

 

Credit risk

The Group trades only with creditworthy third parties and the Group’s policy is that all clients which wish to trade on credit terms are subject to credit verification procedures, and subsequent risk limits, which are set for each individual client in accordance with the Group’s policies. For some client receivables, the Group may also obtain security in the form of deposits. In addition, receivable balances are monitored on an ongoing basis, with the result that the Group’s exposure to bad debts is considered reasonable. With respect to credit risk arising from the other financial assets of the Group, comprising of cash and cash equivalents, the Group’s exposure to credit risk arises from default of the counter party, with a maximum exposure equal to the carrying amount of these instruments.

 

Liquidity risk

The Group’s objective is to maintain a balance between continuity of funding and flexibility through the use of bank overdrafts, bank loans and hire purchase contracts. The Group manages liquidity risk by monitoring cash flows and estimating future operational draws on cash reserves. The following table reflects all contractually fixed repayments and interest resulting from recognised financial liabilities as at 30 June 2018. The Group’s financial liabilities comprise of trade and other payables, borrowings, and no derivative financial instruments are held. The respective undiscounted cash flows for the respective upcoming fiscal years are included in the following table. Cash flows for financial liabilities without fixed amount or timing are based on the conditions existing at 30 June 2018.

 

Foreign exchange risk

The Group operates internationally and is subject to foreign exchange risk arising from exposure to foreign currencies. The Group adopts various procedures and policies to manage foreign currency risk where practicable. These procedures include the use of natural hedges arising from trading operations and subsidiaries’ results, forecasting of future cash flows by currency, and can include the use of forward exchange contracts where abnormal transactions outside of operating activities could give rise to a material exposure – e.g. initial and contingent consideration payments made in relation to acquisitions. Additionally, the Group has a multi-currency debt facility which allows for borrowings in the relevant entity’s functional currency. At 30 June 2018, there is one forward exchange contracts in place to hedge the final deferred consideration payment for Chris Thelen as part of the Chambers acquisition.

References

  1. ^ Annual Report 2018, P 50-51
    https://www.listcorp.com/asx/ctd/corporate-travel-management/news/annual-report-to-shareholders-1983627.html
  2. ^ Annual Report 2018, P. 24-25
    https://www.listcorp.com/asx/ctd/corporate-travel-management/news/annual-report-to-shareholders-1983627.html
  3. ^ Annual Report 2018, P. 25
    https://www.listcorp.com/asx/ctd/corporate-travel-management/news/annual-report-to-shareholders-1983627.html
  4. ^ http://www.ibisworld.com/industry/global/global-travel-agency-services.html
  5. ^ https://www.ibisworld.com.au/industry-trends/specialised-market-research-reports/advisory-financial-services/corporate-travel-services.html
  6. ^ http://www.travelctm.com/who-we-are/services-heading/
    http://www.asx.com.au/asxpdf/20151218/pdf/433xgg4nzv3g7g.pdf
    https://www.listcorp.com/asx/ctd/corporate-travel-management/news/ctm-to-acquire-travizon-travel-boston-usa-1249307.html
    https://www.listcorp.com/asx/ctd/corporate-travel-management/news/acquisitions-complete-1517330.html
  7. ^ https://www.listcorp.com/asx/ctd/corporate-travel-management/news/ctd-to-acquire-lotus-travel-group-limited-hong-kong-1925828.html
  8. ^ http://www.travelctm.com/about/ctm-board/
    https://www.travelctm.com/about/leadership-team/
  9. ^ https://www.listcorp.com/asx/ctd/corporate-travel-management/news/company-secretary-appointment-1575592.html
  10. ^ Annual Report 2018, P 50-51
    https://www.listcorp.com/asx/ctd/corporate-travel-management/news/annual-report-to-shareholders-1983627.html
  11. ^ Annual Report 2018, P, 25, 74-75
    https://www.listcorp.com/asx/ctd/corporate-travel-management/news/annual-report-to-shareholders-1983627.html