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Flight Centre Corporate Governance

Version 9.0 - last updated 12/08/2005

1. Lay solid foundations for management and oversight

The board acknowledges that its primary role and responsibility is to create and safeguard shareholder value.

The Board's functions include:

  • Charting the group's direction, strategies and financial objectives
  • Overseeing and monitoring organisational performance
  • Identifying risks and implementing appropriate control, monitoring and reporting mechanisms
  • Appointment, performance assessment and, where appropriate, removal of the Chief Executive Officer, Chief Financial Officer and Company Secretary
  • Ensuring the board structure and composition is effective
  • Approving and monitoring the progress of major capital expenditure, acquisitions and capital management

All significant matters are dealt with by the full Board. To assist in its deliberations, the Board has established a number of committees that act primarily in a review or advisory capacity.

2. Structure the Board to add value

The Board has a complimentary mix of skills that provide the desired depth and experience. Currently there are two non-executive directors and two executive directors. A further independent non-executive director will be appointed to the board in due course.

The Chief Executive Officer is a member of the board but does not hold the position of Chairman.

The Chairman is the Managing Director and therefore not an independent director. The board believes the Chairman is able to provide unbiased leadership, independent judgement and direction in line with the role and repsonsibility of the positon.

The Board meets monthly and on an ad hoc basis to consider time critical matters.

Directors may seek legal advice, at the company's expense, on any matter relating to the group subject to prior notification to the Chairman.

Board Composition

The directors' names and biographical details are provided in the annual report.

Nominations Committee

Due to the small size of the Flight Centre Limited Board, the full Board is considered a more effective and appropriate mechanism to deliberate selection, appointment and performance matters.

Independence and Materiality

An independent Director is a Director who is independent of management and free of any business or other relationship that could materially interfere with the exercise of the Director's unfettered and independent judgment.

Materiality is assessed on a case-by-case basis from the perspective of both the Company and the Director concerned.

The Board is of the view that the current non-executive Directors qualify as independent.

3. Promote Ethical & Responsible Decision Making

Flight Centre actively promotes a set of values designed to assist all employees in their dealings with each other, competitors, customers and the community. The values endorsed include: honesty, integrity, fairness and respect. These values are incorporated into the company core philosophies and considered the equivalent of a Code of Conduct as it sets out the standards expected of all employees.

Company Philosophies

The company philosophies can be read in the annual report.

Political Contributions

Flight Centre Limited maintains a position of impartiality with respect to party politics and accordingly does not contribute any funds in this regard.

Trading Policy

The Board has established guidelines governing the purchase or sale of securities in the company by directors, employees and contractors who may be in possession of price sensitive information. The Board has resolved to confine any dealings in the company's shares to a period of 30 business days following the public release of the company's financial results. Notwithstanding, should new price sensitive information emerge during this period, directors, employees and contractors are not permitted to trade in the company's shares until the information has been publicly released.

View further details of the Trading Policy.

4. Safeguard Integrity of Financial Reporting

Audit Committee

Audit committee functions include:

  • Recommending the external auditor's appointment / removal, reviewing the auditors' performance and audit scope To help the Board oversee the risk management framework, including determining the internal audit's scope, ratifying the Chief Internal Auditor's appointment / removal and contributing to the Chief Internal Auditor's performance assessment
  • Reviewing the company's published financial results
  • Reporting to the Board on matters relevant to the committee's role and responsibilities

Committee Composition

The Audit Committee includes two independent directors, Peter Barrow (Chairman) and Howard Stack, who report to the full Board and have extensive experience and expertise in accountancy, financial management, risk management, legal compliance and corporate finance. Details of the directors' qualifications and attendance are set out in the annual report.

The Board has reviewed the committee's membership and is satisfied that, given the size of the Flight Centre Limited Board, the committee has appropriate financial representation. The Chairman of the audit committee is not the chairman of the board of directors.

View the Audit Committee Charter.

Auditor Appointment

The company and audit committee policy is to appoint an external auditor that clearly demonstrates quality and independence. The external auditor's performance is reviewed annually. PriceWaterhouseCoopers (PWC), the current auditor, is obliged to rotate audit engagement partners at least every five years. The group has moved to have PwC appointed in each jurisdiction it operates in.

An analysis of fees paid to the external auditor, including fees for non-audit services, is provided in the annual report. The external auditor's policy is to provide the audit committee with an annual declaration of independence.

Certification of Financial Reports

The Chief Executive Officer and Chief Financial Officer certify that the company's accounts are a true and fair representation of the company's financial results and position.

5. Make Timely and Balanced Disclosure

As per ASX Listing Rules, Flight Centre Limited will immediately disclose to the public any information that a reasonable person would expect to have a material effect on the value of our shares.

The company has written policies and procedures governing continuous disclosure and shareholder communication.

All information communicated to the Australian Stock Exchange (ASX) is to be posted on the company website.

All shareholders receive a copy of the company's annual and half yearly report. The company is investigating opportunities for shareholders to participate using electronic means.

View the Communications and Disclosure Policy.

6. Respect Rights of Shareholders

Shareholder Communications

The Board aims to inform shareholders of all major developments affecting the group's activities and its state of affairs through distribution of the annual report, Australian Stock Exchange announcements and media releases. All such communications are placed on the company website, www.flightcentre.com.

Auditor Communication

The external auditors are asked to attend the annual general meeting to answer shareholder questions concerning the conduct, preparation and content of the audit report.

View the Communications and Disclosure Policy.

7. Recognise and Manage Risk

Flight Centre Limited complies with the laws applicable in Australia and in the jurisdictions in which it has operations.

The company is developing an integrated business risk management and compliance framework. This will provide the Board and management with an ongoing program to identify, evaluate, monitor and manage significant risks, to enhance over time the value of the shareholder's investments and to safeguard assets.

The Company Secretariat includes the Risk Management, Internal Audit, Legal and Mergers & Acquisitions divisions and oversees the group's risk management and compliance matters. The Global Internal Audit division is responsible for ensuring the adoption of prudent financial and non financial risk management measures.

Audit and business reports are provided to the board.

The Chief Executive Officer (CEO) and Chief Financial Officer (CFO) have provided the Board with a formal sign off regarding the soundness of the risk management and internal controls.

View the Audit Committee Charter.

Risk Profile

Factors representing general risks include:

  • The general state of the Australian and international economies
  • Adverse currency and interest rate movements
  • The outlook of the tourism sector generally
  • Low barriers to entry and modest start-up costs

Factors, which represent specific risks to Flight Centre, include:

  • Adoption of the internet as a distribution channel
  • Adverse changes in commission arrangements or rates payable to the group
  • The occurrence of significant international armed conflict
  • A dramatic change in customer travel/leisure patterns and tastes
  • Loss of key staff and higher than forecast staff turnover
  • Adverse changes in government regulation

Flight Centre and its Board continually assess emerging trends and associated risks and their possible outcome on future profits.

The company has a proven retail formula based on standardised systems and ongoing shop growth. This business model has been, and continues to be, successfully adapted in response to world events and industry changes.

Flight Centre Limited's brand and geographical diversity assists the company to achieve continuous growth.

Flight Centre Limited continues to enjoy strong relationships with its business partners and is developing a comprehensive online operation to complement its shop growth and to better satisfy client needs. This operation includes Australia's most popular travel agency website, flightcentre.com, and an online booking system that can be used on the company's websites.

Further IT initiatives and developments will enhance the company's "clicks and mortar" sales strategy and will allow it to create a comprehensive multi-channel distribution system.

Flight Centre Limited invests heavily in its people through training and empowerment.

8. Encourage enhanced performance

The Board evaluates its collective performance, at which time various issues are considered including; the quality of the boards relationship with management, board succession and complementary skill mixes, the Boards role, contribution and effectiveness.

The Board regularly evaluates management's performance against various criteria and requires senior management to formally address the Board on execution of strategy and associated issues.

All senior executives have "one-on-one" meetings with the Chief Executive Officer or Managing Director. The Board receives a monthly information pack including:

  • Reports from respective Executive General Managers on financial and, operational issues
  • Divisional reports from National Leaders
  • Corporate governance reports
  • and Consolidated and divisional accounts

The Board requests additional information as required.

Board members are entitled to seek independent advice once notification has been made to the Chairman.

The Company Secretary facilitates corporate governance and distributes agenda items and information papers. The Company Secretary is accountable to the Board through the Chairman.

9. Remunerate Fairly and Responsibly

It is a fundamental remuneration policy in Flight Centre Limited to link performance and accountability with reward.

The remuneration details of the directors and the highest paid executives are as outlined in the annual report.

The Board delegates responsibility for remuneration practises to the Remuneration Committee.

Remuneration Committee

The remuneration committee helps determine appropriate remuneration policies and consists of the Executive Chairman, Chief Executive Officer and HR Compliance ManagerThe Board believes that, given its size, the existing committee satisfactorily addresses this function. The Board considers a remuneration charter is not necessary at this stage.

Equity Issuance

Executive remuneration consists of a retainer, a performance-based incentive and possible equity participation through the Employee Share Plan or option schemes. Equity based remuneration is issued in accordance with shareholder approval.

Non-Executives cannot participate in the Employee Share Plans or Option schemes and receive no additional retirement benefits other than the statutory requirements.

The Chairman and Chief Executive Officer are not involved in the approval of their own remuneration packages.

The remuneration committee's attendance details are outlined in the annual report.

10. Recognise Other Legitimate Interest of Stakeholders

Flight Centre Limited's company philosophies are endorsed by the Board and apply to all directors and employees. The philosophies require all company personnel to act with integrity and are supported by numerous policies relating to legal and ethical compliance.

The company's philosophies can be viewed in the annual report.

The company recognises its corporate social responsibility and has committed to fulfilling this obligation by contributing to several charitable initiatives.

Appendix 1

Audit Committee Charter

Flight Centre Limited's Audit Committee supports and advises the Board in relation to the Flight Centre Limited Group of companies.

Committee Purpose

The audit committee's primary functions include:

  • Recommending the external auditor's appointment / removal, reviewing the auditor's performance and scope of the audit
  • Review internal and external audit management letters to monitor management's remedies to correct noted deficiencies
  • To help the Board oversee the risk management framework, including the determination of the scope of the internal audit function, ratifying the Chief Internal Auditor's appointment / removal and contributing to the Chief Internal Auditor's performance assessment
  • Review the company's published financial results
  • Report to the Board on matters relevant to the committee's role and responsibilities
  • Ensure the timely adoption of and adherence to all relevant accounting policy changes
  • To oversee corporate governance policies and issues with respect to legal and regulatory compliance bodies

Committee Composition

The Committee will consist of at least two, non-executive directors with a working understanding of finance, risk management and accounting practices. The committee members are permitted to invite senior executives or independent advisors to attend upon approval of the Chairman.

Audit Committee meetings will occur at least twice a year for the release of the audited financial statements and then as and when required. The chairman will call the meeting upon request by any committee member, Chief Financial Officer or external auditors.

Minutes of the meeting

Minutes of the Audit Committee meetings are to be taken by the Company Secretary (or delegate). The Chairman will report findings and recommendations to the full Board in conjunction with the minutes of the Audit Committee meeting being circulated to the full Board.

Appendix 2

Internal Audit Charter

Objectives

Internal audit supports management's business objectives and the Audit Committee's need for overall assurance on the quality and cost effectiveness of internal controls.

The primary objective of the internal audit function is to assist management achieve its objectives through advice on risk management and internal control practices. Internal control is a management process designed to provide reasonable assurance regarding the achievement of the following objectives:

  • The reliability and integrity of information;
  • Compliance with policy, plans, procedures, laws and regulations
  • The safeguarding of assets
  • Effective and efficient use of resources and
  • The accomplishment of established objectives and goals

Importantly, an appropriate control environment is necessary for systems of internal control to be effective. The control environment elements include integrity, ethical values, management style and structure, authority and responsibility, human resources policies and practices and competence of personnel.

Responsibilities

Internal audit is responsible for evaluating controls relevant to risks, developing priorities and recommending procedures that will ensure effective internal control. This will include:

  • Conducting an independent review of management control systems and practice as a basis for identifying ways of improving efficiency, effectiveness and minimizing financial risks
  • Reviewing the adequacy of systems and procedures established by management to safeguard assets and making appropriate recommendations for improvement
  • Ascertaining the extent of compliance with established policies, procedures and statutory requirements
  • Appraising the adequacy, integrity, security, reliability and usefulness of management information systems and computer systems
  • Helping to generate an awareness of risk management effective control techniques with a commitment to using them throughout the organization and
  • Cooperating in providing a range of professional internal consultancy services to management

Annual Internal Audit Plan

An internal audit plan will be prepared in consultation with management and the Audit Committee and approved by the Audit Committee each year.

The plan will be based on a risk assessment and will be the key driver of audit activity throughout the year and clearly sets out the internal audit projects, tasks, resources, responsibilities and deadlines, including the communication and co-ordination framework. The plan forms the basis of project management and performance measurement for the internal audit function.

Prior to the commencement of each audit project, a briefing meeting with management will be conducted to agree the detailed scope of each audit project. A project plan is prepared for each audit area in consultation with management.

Reporting

Audit reporting and recommendations will reflect a good understanding of the business and provide an intelligent analysis of the issues. The following reports will be provided:

  • Audit Report - on completion of the audit fieldwork a closing meeting will be held, where a draft audit report is discussed. This report must be formally responded to in writing within 1 week of the close meeting (unless otherwise agreed).
  • Risk Rating - during the audit closing meeting, a risk rating will be provided to management. This risk rating provides a quantitative benchmark of the perceived risk and compliance issues identified within each business.
  • Audit Committee Report - this report is prepared prior to all Audit Committee meetings, and provides a summary of the audit activity conducted in the previous period, the risk ratings for the previous period, significant audit findings, areas of internal audit focus in the coming period and any other matters that the Internal Audit Manager considers appropriate for inclusion.
  • Executive General Managers' Reports - these reports are prepared monthly and includes similar information to the Audit Committee Report.
  • Nation SWOT Report - this report is prepared on a 6-monthly basis, and provides a summary of the audit activities conducted within the Nation over the preceding period, and a summary of planned audit activity for the following period.

Quality and Skills

The Internal Audit function should ensure that the team's skills are developed and maintained through:

  • Re-skilling and training (eg in complex technical areas, in the use of technology, implementing best practice and in developing inter-personal skills such as communication)
  • Techniques such as benchmarking to identify and adopt appropriate best practices
  • The engagement of external specialists as and when necessary and cost-effectively to meet changing business needs and
  • Developing and monitoring appropriate internal audit performance measures, including mechanisms for continuous improvement

The internal audit team shall respect the confidentiality of information acquired in the course of their work and must demonstrate objectivity and professionalism, including applying the Code of Ethics, Standards and Guidelines of the Institute of Internal Auditors, Institute of Chartered Accountants in Australia and the Australian Society of Certified Practicing Accountants.

Independence

For the internal audit function to fulfill its responsibilities, it is essential that it is independent of the activities it audits and reviews. Internal audit is independent when it carries out its work freely and objectively, and derives its independence from the Audit Committee to which it has unrestricted access.

Internal audit also has unrestricted access to all the records, personnel, property and operations of FCL with due responsibility for safekeeping and confidentiality.

Communications and Disclosure Policy

Overview :

Flight Centre Limited is committed to efficient and timely disclosure of material information to its stakeholders and to raise investor confidence in the quality, timeliness and integrity of our disclosure.

This policy ensures that Flight Centre Limited adopts the best practices in respect to its continuous disclosure requirements as stated by Chapter 3 of the ASX listing Rules.

Scope :

This policy is to be applied globally to all directors, employees and contractors of Flight Centre Limited.

Policy :

Communications Officer

The Communications Officer is responsible for preparing and developing the market communications in conjunction with the Board, Managing Director, Chief Financial Officer and Company Secretary.

Policy Adherence

All directors, employees and contractors working for Flight Centre Limited are obligated to notify the Chairman or Company Secretary of any breach or suspected breach of this policy.

Procedures

i) Issuing Announcements
Market communications are to be provided by the Communications Officer as and when required. The announcement is to be discussed prior to authorisation of its release by at least two members of the Market Communications Group and supplied to the Company Secretariat for release to the ASX.

Market communication is to be released to the ASX through its electronic lodgement facility, ASX Online. Market communication is not to be made until confirmation of receipt has been received from the ASX.

All Market communication is to be posted on the Flight Centre Limited investor website as soon as practicable after the confirmation of receipt has been received from the ASX.

ii) Spokespersons
The only authorised spokespersons for Flight Centre Limited are the Chairman, Managing Director and Chief Executive Officer. Any other statements made by Flight Centre Limited staff are to approved by the Chairman, Managing Director and Chief Executive Officer before being released to a third party.

iii) Internal Communication
All internal communications are to be treated as such and not distributed to any parties other than those the communications are directed to or have been given permission by the author to be distributed to.

The Communications Officer is to advise the Board and senior executives of the information that has been released and confirmation received from the ASX. The senior executives are responsible for providing this information to all their staff through the internal email notice boards.

iv) Analyst and Investor Briefings
Analyst and investor briefings are to made by either of the Chairman, Managing Director, Chief Executive Officer or the Chief Financial Officer with all presentation material to be circulated to all of the aforementioned officers.

Definitions :

ASX means the Australian Stock Exchange Ltd.

Contractor includes all individuals working on a contract basis with access to market sensitive information.

Director includes all individuals registered with the ASIC as a director of Flight Centre Limited and any of its subsidiaries.

Employee includes all staff as registered with the Flight Centre Limited payroll department.

Market Communication includes press releases, publications, presentations, brochures, editorial or other information to be released to the market.

Market Communications Group consists of the Flight Centre Limited Board of directors, Chief Executive Officer, Chief Financial Officer and Company Secretary.

Market Sensitive Information means any information which may have a material effect on the price or value of Flight Centre Limited.

Share Trading Policy

Overview:

This policy deals with regard to the trading of Flight Centre Limited.

These regulations are in line with ASX Listing Rules, Corporations Act 2001 and the Principles of Good Corporate Governance and Best Practice Recommendations (March 2003).

Scope:

This policy is to be applied globally to all directors, employees and contractors of Flight Centre Limited.

Policy:

Prohibited Trading

Flight Centre Limited prohibits the dealing of Flight Centre Limited stock by all directors, employees and contractors outside of the allowed trading windows (refer section 3(e) ).

Insider Trading

Market sensitive information that is made aware to an employee is not to be acted upon to deal in Flight Centre Limited stock by the employee, related party or associate. This may be deemed insider trading.

Not only must employees not trade who possess knowledge of the company that is not generally available to the public, they must not pass on that knowledge to any other persons, including friends and family.

Policy Adherence

All directors, employees and contractors working for Flight Centre Limited are obligated to notify the Chairman or Company Secretary of any breach or suspected breach of this policy.

Exceptions

i) Employee Share Plans
The acquisition of shares, through the employee share plans is exempt from the terms of this policy.

The policy terms will apply to any subsequent dealing of those shares acquired through the employee share plan.

ii) Option Conversions
Options may be converted to shares at any time and be exempt from the terms of this policy for the sake of share issues.

The policy terms will apply to any subsequent dealing of those shares acquired through the option plan.

iii) Board Approval
The Board may under exceptional circumstances consider applications to exempt the application of this policy and will exercise unfettered discretion in its deliberation of the merits of each case.

Board consent will generally be provided only in cases of clear hardship.

Application for exemption is to be in written form to the board and addressed to the Company Secretary.

Consent to trade outside of the approved trading windows will limit the dealing of the stock to two Business Days from the day of consent.

Trading Windows

Trading windows will exist for 30 Business Days from the announcement of market sensitive releases made to the ASX. These windows will be notified to staff on the internal email bulletin boards.

Market sensitive releases include:

  • Annual General Meeting
  • Full Year, Half Year and Quarterly profit announcements
  • Material acquisitions

Should an individual gain access to new price sensitive, non-public information during a trading window period, such an individual would be prohibited from trading.

Breaches

Breaches of this policy and insider trading laws may subject the individual to:

  • Criminal prosecution resulting in fines and / or imprisonment
  • Civil proceedings
  • Summary dismissal

Breaches of this policy and / or the law is deemed by Flight Centre Limited as serious misconduct and disciplinary action and / or dismissal may result.

Further information

If you have any queries with regard to this policy, these should be made to the Company Secretary.

Definitions :

ASX means the Australian Stock Exchange Ltd.

Business Days means Monday to Friday inclusive, except New Year's day, Good Friday, Easter Monday, Christmas Day, Boxing Day and any other day the ASX declares is not a business day.

Contractor includes all individuals working on a contract basis with access to market sensitive information.

Deal means trade, sell, transfer or purchase.

Director includes all individuals registered with the ASIC as a director of Flight Centre Limited and any of its subsidiaries.

Employee includes all staff as registered with the Flight Centre Limited payroll department.

Flight Centre Limited Group includes Flight Centre Limited (ACN 003 377 188) and any partly or wholey owned subsidiary company.

Market Sensitive Information means any information which may have a material effect on the price or value of Flight Centre Limited.

Related Parties includes companies, superannuation funds, spouses or de facto spouses, children, parents or siblings.

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