Amadeus Trabajo final, Guías, Proyectos, Investigaciones de Análisis Financiero

¡Descarga Amadeus Trabajo final y más Guías, Proyectos, Investigaciones en PDF de Análisis Financiero solo en Docsity! ENEPRTO o NATI NV IEA  Disclaimer These materials are being communicated only to persons who have professional experience in matters relating to investments and to persons to whom it may be lawfu to communicate them (al such persons being referred to as “relevant persons"). These matenals are only drected at relevant persons and any investment or investment acti to which the presentation tesis oy asalabls to relevant persons or il be engaged in oy uh relevant persons. Solicitan resulting For these mateals vil oy be responded to te person concernes is a relevant person. Other persons should not rely or act upon these materials or any of their contents. Investors and prospective investors in securites of the company are required to make their own independent investigation and appraisal of the business and financial condition of the company. 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These forward-looking statements are based on numerous assumptions regarding our present and future. business strategies and the environment in which we expect to operate in the future, Forward-Ioking statements speak only as of the date of this presentation and we expressly discaim any obligation or undertalóng to release any update of or revisions to any forward looking statements in this presentation, any change in our expectations or any change in events, conditions or circumstances on which these forward-looking statements are based. “This presentation also includes certain non-GAAP (Generally Accepted Accounting Principles) financial measures which have not been subject to a financi By reading this presentation you agree to be bound by the foregoing limitations. 'auditfor any period. amaDeus 5 We believe our leadership and success lies on 4 core strengths: ₋ A deep, global footprint. We are the leading travel technology player with the most extensive local presence. This allows us to serve our customers more effectively and to anticipate market trends better. We also believe we attract the best talent in the sector, commanding vast experience, and who are committed to our vision. More than 15,200 Amadeus employees work every day to make our vision a reality. ₋ Innovation and technology. Technology is a means to improve quality, productivity and profitability. Amadeus seeks to anticipate industry needs through innovation. Amadeus has pioneered many technologies, from early on being the first to offer neutral flight availability to being the precursor of cloud-based solutions. Our investment focus has always been and remains to lead the industry in our ambition to be an “end-to-end” provider of the best travel solutions. ₋ Robust commercial relationships. We have long established lasting commercial relationships with the most relevant global players in travel, from global operators to niche players. This gives us unrivalled breadth and depth in our understanding of the world’s travel industry. ₋ Long-term focus and proven executional capability. We have demonstrated time and time again over three decades, our ability to deliver on complex needs. These have included some of the most ambitious technology developments and migrations ever carried out, while delivering on our commitments to our shareholders. We have had a successful track record of creating value year-on- year in terms of revenue growth and EPS enhancement. What has enabled this has been our sustained focus on the long-term. 5 Thanks to our core strengths, we have achieved consistent market share gains over the past decade and have increased our exposure to growth areas. We believe we are global leaders in our two main businesses: ₋ We are the largest player in the air travel agency distribution business, with an estimated competitive position of over 40%. ₋ We are also the leading provider of airline passenger service systems, serving the whole spectrum of airlines (from low-cost carriers to full service carriers). And we are expanding into new verticals, including the provision of IT solutions to hospitality businesses, airports and railway companies. We are also expanding our offering of payments and data analytics services and solutions for our customers. We operate stable and highly resilient transaction-based business models linked to global travel volumes. 6 Our business has historically shown strong resilience because our revenue is linked to travel volumes rather than price. Travel volumes tend to prove more resilient during economic downturns, when travel providers generally reduce prices to maintain passenger volumes. Accordingly, we have historically experienced more stable financial performance than the end travel market. 9 We have consistently improved our financial performance for more than a decade. Both our revenue and EBITDA have exhibited resilience through several global economic downturns and strong growth in expansionary economic periods. Over 90% of our revenue is recurring, sustained by long-term contracts and customer loyalty (as demonstrated by high customer retention rates exceeding 95% across all customer categories). We believe this is due to (i) our partnership approach through which we seek to establish and nurture long-term relationships with our customers, (ii) the value-adding nature of our products and services, through our continuous investment in R&D to enhance and enrich our portfolio of solutions and (iii) our customers’ willingness to enter into long-term contracts (our distribution agreements typically have a duration between 3 to 5 years, and our airline PSS contracts range 10 to 25 years). At the end of 2016, our Distribution segment represented 65% of our revenue and 54% of our contribution (Contribution = EBITDA minus shared “indirect” costs. See explanations about our segment reporting in section “Financial performance”). In turn, our IT Solutions segment represented 35% of our revenue and 46% of our contribution. The weight of the IT Solutions segment both in revenue and contribution (and hence EBITDA) has increased since the launch of the Altéa PSS 10 business in 2005, and we expect it to continue to do so (at least in the medium term), given that this business will likely experiment a similar or higher growth rate than the Distribution segment and its contribution margin is higher. 10 Amadeus’ core Distribution business is the Global Distribution System (GDS), a computer reservation system with global scale. A Computer Reservation System is a technological platform to which travel sellers (online and offline travel agencies, travel management companies, meta searchers, etc.) and corporations connect to access the content of also connected travel providers (airlines, hospitality businesses, railway companies, car rental companies, insurance providers, cruise and ferry businesses and other ground transportation providers) and make bookings. This platform delivers an integrated interface displaying a wide variety of real-time available choices, prices and itineraries in a neutral and transparent manner, and provides search, booking and booking-related functionality (such as ticketing). In addition, Amadeus offers numerous solutions and services to travel providers, related to the distribution of content through the GDS (including solutions for the display and management of merchandising content), to travel sellers (such as search solutions and front-, mid- and back-office solutions) and corporations (including self- booking tools and travel and expense management solutions). By offering more and more relevant travel content together with customised solutions, we create a powerful network effect that attracts more and more travel seller customers. With the very best travel sellers as customers and the right solutions 13 to support travel providers’ business needs, we become an essential partner for travel providers looking to ensure successful sales. ₋ Amadeus creates value for travel providers by extending their market reach to countries and customer segments not easily accessible through other means at a cost-efficient manner. Amadeus’ broad geographical reach is an important element of our value proposition. ₋ Amadeus creates value for travel sellers by providing them with access to the world’s most diverse travel network. Through a simple interface with enhanced solutions, Amadeus allows travel sellers to offer an extensive variety of choices, prices and itineraries, customised to the needs of their customers –namely business and leisure travellers. Amadeus also offers them advanced products and services that enable them to increase revenue, manage costs and optimise efficiency, as well as build their brand and improve customer loyalty. In terms of travel providers, many airlines in the world, over 440, are distributed by Amadeus. Of these, more than 90 are low-cost carriers (LCCs). Our hospitality offer is growing fast including more than 2 million shopping options. Ground transportation is essential to ensure that our content is deeply diversified and that traveller journeys can be truly connected from door to door. We offer over 90 railways and express bus company services to our customers as well as over 40 car rental companies offering in excess of 40,000 rental locations. We also distribute travel insurance (over 15 insurance providers covering 67 markets), and other non-air content (for example, 33 ferry companies or airport transfer services. We are also starting with local tour company content). Our network offers the broadest geographical reach of travel seller and corporation customers. Our customers range from online travel agencies (OTAs), meta-search engines and Travel Management Companies (TMCs), to offline travel agencies of all sizes, as well as tour operators. Our vast network represents over 100,000 points of sale spread over more than 190 countries. We also have over 11,000 corporation customers. Travel is a global industry. The large-scale distribution capacity of our travel seller network increases our relevance to providers. In turn, it allows for revenue generation supporting a higher ability to invest in technology and innovation. We reduce unitary costs enabled by the economies of scale we generate and we enlarge the set of innovative solutions we can offer both to providers and sellers. This combination helps us maintain a virtuous circle that supports sustainable growth. 13 Travel providers connect to the platform and provide their content to Amadeus to obtain, through a single connection, instant display of their content in over 100,000 travel sellers’ screens, in more than 190 countries, 24 hours a day, 365 days a year. In turn, travel sellers connect to the Amadeus’ platform to access the travel providers’ content, visualise such content in an aggregated and comparable manner, search through such content and make a booking. This process is fully integrated into their workflow environment. A large part of our Distribution revenue is transaction-based. ₋ Amadeus charges a booking fee to the travel provider if a booking is made by a travel seller using the Amadeus’ distribution platform. The booking fee is a fixed amount, not linked to the face value of the ticket. ₋ In turn, Amadeus typically pays an incentive fee to the travel seller that made the booking. This fee is a fixed amount independent of the value of the ticket sold. ₋ In addition, Amadeus receives fees from travel sellers for the provision of IT solutions. 14 them do that. Adoption from our users is also absolutely key, and many relevant players have also signed up for our merchandising technology. We have developed significant and comprehensive functionality for leading TMCs worldwide, enabling them to offer their customers cost-effective and efficient corporate travel management. We also offer an attractive portfolio of solutions to serve corporations directly, with an end-to-end offering, combining self-booking tools with expense reconciliation workflows. 15 Amadeus has been able to outperform the GDS industry consistently for more than a decade, thanks to solid and sustained market share gains. During this period, the average pricing charged to travel providers (mostly airlines) has increased, supported by: ₋ A positive impact from the introduction of our value-based pricing model. ₋ An increase in the uptake of additional functionality by travel providers. Our value-based pricing model links the pricing of the booking fee to the economic value generated for the travel provider. The highest value is provided when Amadeus facilitates sales for the travel provider to customers that would otherwise be difficult or costly to reach (typically out of their home markets). Amadeus’ average pricing has also benefitted from our strong presence in countries with high proportion of high- value bookings (regional or global bookings). 16 Amadeus is today the most relevant player in the air travel industry, supported by a superior technological offering, a relevant content offering as well as excellent customer service and local relationships, enabling us to create long-term value for our travel providers and agency customers. 17 By leveraging on our relevance in the indirect channel, our technological capabilities and through our extensive local presence, we are uniquely placed to continue sourcing and adding new relevant content to our offer, improving its appeal to extend the reach of our distribution channel. Expand our reach In order for Amadeus to extend its reach and as a result to maximise the monetisation opportunity for our travel provider customers, we offer a distinct travel seller and corporation value-proposition, based on technology and customer proximity. We believe this approach is the best way to successfully sustain and grow our reach. We believe that our unique local presence with a network of more than 70 commercial offices around the globe, as well as multi-level support services and regional excellence centres, positions us well to provide effective customer support, understand local needs and to adapt our solutions, our implementation capabilities, and our content to such needs. With a much richer and more diversified offer, this helps travel sellers be more competitive and serve the traveller more efficiently. We offer our customers an attractive portfolio of solutions. Amadeus Selling Platform Connect is the industry’s only fully cloud-based booking and fulfilment platform. All travel agents need is an internet connection plus user credentials, with no software installation or manual upgrades required. We also provide sophisticated search solutions, such as Amadeus Extreme Search, the unique inspirational shopping solution for online travel agencies that engages travellers right from the beginning of the shopping chain even before they have decided on a destination. Or Amadeus Master Pricer with Instant Search, which delivers online search results in milliseconds with no compromise to accuracy. Travel Management Companies and their customers, the corporations, operate in a controlled environment. Their focus is on expense control and enforcement or adoption of a policy. Anything that increases costs or reduces staff productivity is not welcome for Corporates. Airline merchandising will only work if it works for the corporate hand in hand with the basic principles of expense control, enforcement of policies, negotiated fares/deals and duty of care. We accomplish this through i:FAO and other tools we are developing or acquiring, which provide Corporations with an end-to-end offering combining self-booking-tools with expense reconciliation workflows. Expand our addressable markets With the industry moving to retailing and focusing more on the traveller and personalisation, there are clear gaps in addressing the full traveller experience and maximising sales opportunities. Although we are at an early stage, we see clear 18 growth opportunities for “Pre-trip”, “on-trip” and “post-trip” sales as well as for the initial parts of trip planning (awareness and lead generation), mainly driven by advertising. Travel providers are building their presence online and demanding travel advertising space. Amadeus offers targeted advertising through our Travel Audience business. Travel Audience is a Demand Side Platform which was built from scratch aiming to meet the specific needs and challenging requirements of the travel industry. Our real- time programmatic advertising capabilities allow travel providers to target millions of online travellers across the globe each day, with real-time bookable travel offers. Travel Audience helps monetise non-converting users and maximise returns. We have an important competitive advantage through our high quality search solutions and the amount of data that our ecosystem generates. As a consequence, trials in leveraging synergies between advertising expertise and travel data are showing promising results, with a higher return on advertising spend compared to the largest players. It is an area where we see an attractive growth opportunity and where we plan to expand. 18 ENEPRTO TAN 19 As with our Distribution business, most of our airline IT revenue is transaction-based (for example, in our PSS solutions we receive a fee per passenger boarded) and highly linked to the air traffic evolution. 21 We can say today that we are the largest provider to the airline industry for Passenger Service Systems. We will be serving over 1 billion passengers by 2018 through Altéa, and well over 1.6 billion including Navitaire’s New Skies (a leading IT provider for low- cost carriers which we acquired in January 2016). The reason for our success, which has allowed us to more than double our Altéa passenger volumes since 2010, is twofold: Firstly, technology. Amadeus has always set the focus on innovation and our goal is that our solutions are state of the art. We serve a very broad range of customers across all geographies, all sizes and belonging to any airline alliance. We provide solutions to airline groups that operate with a variety of business models, and we are a key enabler of much needed collaboration in the industry. We have consistently brought innovation to the market. ₋ We were the first to deliver Electronic Miscellaneous Documents (EMD) technology to enable ancillary sales, following IATA standards. ₋ We were also the first to deliver the required business solutions for airlines to explore the merchandising opportunity with ancillaries and fare families, with a 22 coherent offering across all customer touchpoints. ₋ On the technical side, we are leading innovation with Cloud Services, which allows our applications to be run anywhere in the Cloud: a real break-through that will be critical to support airlines’ future business evolution. Secondly, we understand our industry. Travel is at the heart of what we do everyday, and we help airlines understand key industry trends, traveller demands and therefore to address their main business challenges. We see a great opportunity for Amadeus as a key player in the travel and technology industry to support airlines in achieving their goals. 22 Travel providers are experiencing competitive and cost pressures, and as a result, many are increasingly looking to replace in-house legacy systems. By outsourcing certain core processes to third-party vendors that offer standardized and scalable next-generation technology platforms, such as Amadeus, customers are able to enhance the quality and functionality of their product and service offerings while reducing their risks and expenditure on systems development and ongoing maintenance. Our PSS customer base has grown rapidly since the launch of our Altéa Suite to the market in 2004. We already count with 192 contracted customers which will board over 1.6 billion passengers in 20181 (including the Navitaire’s customers). Our PSS customer base is spread across the globe: in 2016, 41% of our PB were generated by European airlines, 34% by Asia-Pacific carriers, 11% by Latin American carriers, 9% by Middle East and Africa carriers, and 5% by North American airlines. The weight of the North American and the Asia-Pacific regions will increase in the coming years with the scheduled migrations of Southwest Airlines –the domestic passengers business, as the international one was implemented in 2014- as well as, Japan Airlines and Malaysia Airlines, respectively. 24 We believe that the main reason for our success is the use of next-generation, open systems technology and a community platform model. The main benefits it provides to our customers are: ₋ Common development costs ₋ Our continuous investment ensures that the customer always enjoys state-of-the- art solutions, reducing the risks associated with large IT infrastructure fixed costs ₋ Its transaction-based pricing model allows customers to transform what would otherwise be a fixed cost to a variable cost ₋ The Amadeus Altéa Suite is offered as a Software as-a-Service (SaaS) delivery model, reducing IT infrastructure and support costs to our customers. 1Based on our internal estimates, including organic traffic growth and annualised passengers boarded. 24 Amadeus has boosted its expansion into the low-cost carrier (LCC) segment through the acquisition of Navitaire, a leading IT provider specialised in this customer segment which brings Amadeus a complementary product and customer base, as well as very valuable expertise. We believe that we now have a comprehensive suite of solutions and attractive value proposition for all airline segments. As we enhance the Navitaire platform with Amadeus functionality, including more sophisticated distribution capabilities, we will better support the hybrid carriers’ strategy and business needs, and therefore support the retention of Navitaire customers even as their business model evolves. This will bring upselling opportunities through the sale of Amadeus components to Navitaire customers. We will offer a smooth, low risk, low cost migration from Navitaire’s New Skies to Altéa, to hybrid carriers considering a change in business model. We can also better address parent/subsidiary group needs, thanks to a dual PSS offering with advanced integration. This will include full PNR servicing capabilities across a Group’s airlines, as well as improved availability and shopping capabilities across systems. In terms of Distribution, we may see additional booking volumes thanks to our 25 Upsell opportunities, both to existing Altéa customers and non-Altéa Upselling is another key area of our growth strategy. As you know, this is today already a reality, as our Altéa PSS customers have contracted our e-commerce solutions (shopping and retailing), Revenue Accounting, Revenue Integrity or Ancillary Services. The opportunity is much greater, as we diversify our portfolio of available solutions. Revenue Optimisation, Merchandising and Digital are all areas that we are actively discussing with our existing customers. Furthermore, all of our solutions are designed to work on a standalone basis, independent from our core PSS. We have already been successful in selling some standalone components to new customers and markets, such as e-commerce and revenue integrity solutions to Chinese and North American carriers who do not have their PSS contracted with Amadeus. Flight Management is another module that is successfully deployed with non-PSS customers. We are confident that we will gradually extend our relationship with non-Altéa customers with many of the opportunities discussed today. Finally, even if smaller in size, we also have an opportunity to upsell Altéa modules such as DCS for example, to Navitaire customers. We estimate the total market opportunity for upsell, both to Altéa and non-Altéa customers, at approximately €2 billion in 2018. Services In addition to IT solutions, we also provide services to support our customers. We intend to increase our focus on this area and leverage partnerships with major IT service providers, particularly with Accenture, with whom we have signed a strategic alliance. Our expanded services offering covers: Business Consulting, Custom Software Development (to adapt to the specific needs of our airline customers), Business Process Outsourcing and IT Services (to propose fully operated solutions) and Hosting Services. For example, we will support airlines with Consulting Services to help them with the execution of an optimal merchandising strategy and to boost their ancillary revenues. We estimate our total addressable market in this area at €1 billion in 2018. It could potentially be larger as we move in the future into the digital space. Other long-term opportunities There are a number of other –longer term– opportunities which we have identified. For example, we are uniquely positioned to lead in the Digitalisation of the airline industry and we are determined to support our customers in this exciting journey. As 26 we continue to evolve in the way our customers and third parties can interact with our platform, there will be an opportunity to extend our revenue and business through ecosystem partners. Longer term, we are also looking at the opportunity linked to data monetisation through analytics or advertising-based models. 26 27 We calculate our estimated addressable market on these New Businesses at €11.7 billion in 2018. We are seeing a growing customer base in these businesses and believe that our offer is clearly differentiated from our competitors. Our technology is offered to our customers on a flexible and scalable ‘pay-as-you-use’ model. Our cloud-based systems eliminate the need for local hosting operations and make it easy to evolve and upgrade systems. Our economies of scale enable us to reinvest in our platforms ensuring they remain at the technological cutting edge. This combination of ’pay-as- you-use’, scalability, flexibility and investment creates a very attractive offer to our customers. 29 Hospitality represents the largest of all of our addressable markets. It is however, a fragmented and complex ecosystem. We are building a very strong portfolio of next-generation IT solutions, including a Guest Reservation System (GRS), a Property Management System (PMS), Sales and Catering (S&C) solutions and Service Optimisation. We serve today roughly 25,000 properties through our IT solutions, positioning us already in the top 3-4 players in this space. The hotel properties of our hospitality IT customers are located in 150 countries although our activity is currently focused mainly in the US. Most of our customers are headquartered there. Not only for us but also for them, geographical expansion (non US centric hotel-chains and other hospitality customers) leveraging on Amadeus global presence is a growth opportunity. Our high customer satisfaction is also we believe a strong base to build on for the rest of the business. Another area of growth potential is Distribution. We have done hotel distribution for many years, but our distribution of hotel content has been mainly limited to large hotel chains, selling through travel management companies to corporate customers. Leisure travel agencies demand more varied hotel content. This content is highly fragmented and has traditionally been a strong market for content aggregators or 30 online players. We believe there is an opportunity to (i) improve the GDS hotel content offering and (ii) penetrate the leisure space through leisure travel agencies and online travel agencies. We are sourcing new content through aggregators that we have integrated in a wide variety of markets. We currently have over 2 million hotel shopping options available in the Amadeus system. We think this business will generate growth, with high profitability, benefiting also hoteliers, as the GDS represents one of the most cost- effective sales channels for them. Our vision in Hospitality is similar to our other Amadeus businesses. We see time and time again how we are able to cross-fertilise ideas and technology from one travel vertical to another. Our capacity to deploy advanced modular technology enables us to benefit from synergies and increased efficiency. It makes Amadeus unique. 30 Amadeus Sales and Catering (servicing the MICE -Meetings, Incentives, Conferences, Exhibitions- business segment) is a leading core solution for hospitality customers that enables the optimisation, marketing and sale of function rooms, increasing revenue and improving guest satisfaction. Many large hotels do +30% of their business with groups or MICE. With the acquisition of Newmarket at year-end 2013, Amadeus has acquired a strong business in this area. We are now the industry leader in hotel group and event management, servicing close to 25,000 catering venues to the Group meetings business. Our main presence is in North America but we have installed our solutions in over 150 countries, with a focus on top chains, mid-size management companies and independent hotels. We also have a strong market position in casinos, a segment that requires complex functionality. Hotel SystemsPro, acquired in 2015, focused on the sales and catering space, provides a complementary product offering. We are transitioning to a fully SaaS business. Currently, most of our revenue is based on subscription fees. Service Optimisation In an age of prolific social feedback, providing great service delivery and recovery is critical. Amadeus improves service by making it more efficient. Amadeus Service Optimisation is a leading enterprise-enabled solution for automating and tracking preventive maintenance, service orders and guest requests. Our service optimisation tools help hotel groups to raise quality scores by improving the guest experience across all touch points. In addition, it optimises labour utilisation, reduces maintenance costs and increases assets lives. Hotel groups from small to large and spanning from a grading of three to seven stars rely on Amadeus Service Optimisation tools that are tailored to their needs. 31 We believe Amadeus is uniquely positioned to help hoteliers accelerate their business goals. This is why: Cloud Amadeus’ understanding of high volume transaction systems. We are building all of our solutions on the Cloud to guarantee “always on” and secure computing. Upgrades are seamless and our flexible technology allows hotels to work the way they want to work. Component-based solution Our solution is modular. It is built via components that work seamlessly together or as part of an existing solution as legacy systems are gradually replaced. We understand replacement cycles in hospitality IT. Not everything at the hotel level can change overnight. Our solution leverages the industry’s best products in four key functional areas: Central Reservation System (CRS), Property Management System (PMS), Sales and Catering, and Service Optimisation. With Amadeus, hoteliers will truly have the “Best of Breed” and the ability to standardise as one unified solution. 32 Of course, hoteliers will really unlock the total value that our platform brings by leveraging our single inventory solution. The fact that all the key inventory attributes are centralised in one system will allow for higher level of personalisation. For example, a customer will be able to make a search for a room, choosing it to be in a low floor, away from the elevator, with spa access and an early check-in. Our solution will provide the options that matches those attributes and will price them accordingly. Community Model Our new hotel community model will be based on the successful best practices of our Airline IT Altéa platform. This will deliver high economies of scale, customisation capability, functional richness and seamless integration with partners. Low Risk Migration We have the expertise and proven methodologies at both the enterprise and hotel level when it comes to migrations. Our capabilities include expert services for change management, data migrations and on-site deployments to assure limited interruptions during a replacement cycle. This is backed by our excellent, award winning customer support. Financial Value Our financial strength allows us to be a true partner with a hotel. Our pricing model scales with the success of the hotel business and means that we are working together for revenue growth. Hotels can move away from heavy CAPEX to a ‘pay-as-you-go’ model. We estimate our addressable market in hospitality IT to be €3.5 billion in 2018. 32 airlines and our front-, mid- and back-office systems for travel agencies. We are the only player in the travel payment market that has such a comprehensive offering built up around all these characteristics and we can leverage on (i) Amadeus’ already connected customer base, one of the largest in the travel industry, and (ii) Amadeus’ brand and its reputation in the market. In addition, Amadeus resides at the centre of it and our knowledge and deep pool of data enable us to make a qualitative difference to our customers, both merchants and payers. We are able to identify and provide benefits and efficiencies to our customers or penetrate new spaces (for example, airports). Payments is highly synergetic with the overall travel ecosystem. Our portfolio today comprises a wide range of products to serve the participants in the payment flow in the travel market. We serve close to 750 customers and the volume of payment transactions processed by us in 2016 delivered a strong double- digit growth rate. 33 We have two differentiated businesses within our Payments unit: ₋ The Merchant Hub, through which we help travel merchants get paid, and ₋ The Payer Hub, through which we help travel agencies and corporations pay travel suppliers. To date, we have progressed as follows: ₋ We created the business unit in 2012, around a basic payments portfolio focused on airlines credit card authorisation in the GDS market. ₋ In 2013, we created and launched the Merchant Hub. ₋ In 2014, we consolidated the Merchant Hub with more payment partners and travel merchants and extended the portfolio to a full end-to-end solution. ₋ In 2015, we began to work on the Payer Hub, which we launched at the beginning of 2016. 34 Through the Amadeus Merchant Hub we help travel merchants get paid. The Merchant Hub allows travel merchants to connect to banks, card acquirers, providers of alternative methods of payment, foreign exchange providers and payment service providers worldwide with just a single link. The Hub enables our customers to: ₋ Serve customers across all channels. With a single connection, travel merchants can manage payments across call centres, ticket offices, airports, ecommerce and mobile sites, and travel agencies. ₋ Manage the end-to-end payment process, from performing security checks to ensuring money is received in their bank account. ₋ Manage travel-specific processes. For example, the ability to pay for a flight part in currency and part in air miles, and to add the information about the credit card details to the passenger name record to simplify booking payment processing and reconciliation. ₋ Remove complexity: with a single technical link, our customers and partners reduce payment, IT and maintenance costs. We offer our customers a vendor- neutral payment platform which allows them to take a best-of-breed approach to 35 agencies), by generating virtual card numbers attached to specific transactions. Through the tracking of these virtual card numbers, payment confirmations are sent automatically to the hotels, and the reconciliation of the payments to the transactions is facilitated. In the Payer Hub, the business model is also transactional and two-sided. The highest contributors to our revenue are the payment providers, who benefit from the use of their issued cards. The main revenue source for Amadeus comes from a percentage of the amount spent on a payment card and the fee depends on the type of card used. Overall, we estimate that the total addressable market for this product will be c.€1.4 billion in 2018. We believe our Payments business now has a solid foundation to grow upon: ₋ We serve customers in more than 190 countries. ₋ We have grown to a total of 50 payment partners. ₋ We reach more than 400 acquiring banks worldwide, with over 250 alternatives methods of payment. ₋ We have close to 750 customers with contracted services from our portfolios. Our success so far proves the value of our solutions. We are now focused on the continued expansion of our customer base by adding more travel players (not only airlines and travel agencies but also hotels, airports, railways companies, etc.) and payment service providers, as well as increasing revenue through upselling of our portfolio of services. We are confident that our strategy will continue to deliver strong results based on our success to date. 36 Airport IT is very important for Amadeus and a clear example of how we are leveraging on synergies. Our Airport IT technology today covers the end-to-end needs of airports, and our cloud-based solutions provide deep integration amongst the various players in the airport space and their processes. In 2011, Amadeus set about creating a modern technological platform to allow for greater integration of airports with ground handler and airline systems. Our objective is to become a market leader in airport IT products and services, offering a full suite of IT solutions and associated services specifically for airport operators, ground handlers and airlines - which need to stay informed about ground operations. By sharing common technology between airports, airlines and ground handlers, the flow of data between the different airport players is more fluid, making it easier to collaborate. The challenge for airports is to deliver a world class experience against the background of poor visibility, inefficiencies, increasing operational costs, declining revenues, strong growth in passenger numbers and limited capacity to absorb additional traffic. 37 Part of the problem lies with legacy airport IT systems. In particular, the integration of new systems and industry standards is difficult and costly. The majority of traditional solutions have a poor capacity to accurately predict operational events. Furthermore, they often rely on the manual input of data, a method open to human error. The challenge of managing information associated with legacy systems presents a major threat to airport expansion, mainly due to key information residing in siloed systems or even spreadsheets. For efficient operational planning, airport operators need a centralised data source that enables them to identify and share the problem points which are causing delays in real-time, so that they can be rapidly addressed. Without this visibility, operators cannot maximise resource capacity to ensure a stress-free passenger journey and efficient aircraft pushback, taxi and departure, all within the allocated runway time slot. Increasing pressure on the aeronautical fees that airports charge to airlines for the use of their facilities, combined with increasing operational costs caused by inefficiencies, leaves little room for any profit margin and has forced airports to rethink the traditional revenue model. The key trends in IT investment for airports (extracted from SITA’s Airport IT Trends Survey 2015) are the following: ₋ Providing a better passenger experience. A clear majority of airports rate passenger processing as a high priority for IT investment. This is growing year on year, indicating the pressure of handling the soaring growth in passenger numbers is starting to mount. ₋ Improving operational efficiency and reducing the cost of operations. Another major area of focus for IT investment relates to airport operations, such as managing aircraft resources, land and airside passenger activity and tracking assets. There is a need for better collaboration between airport actors, and a rising demand for efficient resource allocation, quicker passenger and baggage processing and flows, and faster aircraft turnaround. ₋ There is a growing determination by more airports to try and address a common pain point for passengers: baggage processing. Out of this total IT spend, we target an addressable market of c. 1.6 billion euros in 2018. Traditionally, IT providers in our industry are specialised in certain areas of the operational chain of airports. Some are good at baggage solutions, others are good at ramp solutions. However, very few are capable of covering a broad range of the IT needs that airports have. In the case of Amadeus, our strategy is to provide an integrated suite of products which serve a broad range of requirements, offering solutions for passenger processing, ground operations and flight management, across the whole travel chain. 37 centre; airlines and ground handler staff just access applications through an internet access on very light, end user devices like thin clients and laptops. We use application virtualisation and run everything from servers in our cloud (central location). Upgrades of airline systems are no longer a hassle to deliver because the changes happen in the central system and are instantly available to all users. Airport Operations We provide a large variety of solutions. Amadeus Sequence Manager, for example, improves flight departure sequencing and runway capacity to reduce environmental impact, bringing benefits to the whole airport ecosystem. It becomes especially relevant when there are bad weather conditions and aircrafts are subject to de-icing processes. Munich Airport, who was our launch partner, has already seen the benefits of using our solution: after the first winter season operating with Amadeus Sequence Manager, runway waiting times reduced by 50% and inbound flight delays reduced by 24%, while flight slot adherence improved by 22%. Another example is our Fixed Resource Management System. Airports are looking into ways to optimise the use of their fixed resources such as aircraft parking stands, gates and baggage carousels. The Amadeus Fixed Resource Management System, a new solution developed in co-operation with Copenhagen Airport, was fully commissioned in 2015. This solution is designed to determine the best possible allocation of aircraft parking stands and gates according to the flight schedule and the business drivers of individual airports. Optimised allocation of stands and gates means shorter transfer times resulting in an enhanced travel experience. It could also mean that aircraft are strategically parked based on ability to generate passenger traffic close to retailing areas of the airport, or on an easier, quicker loading of transit passengers’ luggage. Ground handling Ground handling companies face increasing challenges in order to operate more efficiently within an airport environment. They must engage with a number of different airline departure control systems every day – sometimes a ground handler's staff will have to use 20 different systems. This complexity of pairing ground handler systems with those of their airline customers leads to high IT operational costs, productivity issues, the need to hire more ground handling staff, high training costs and low flexibility. Amadeus already has close to 130 airlines on its Altéa DCS system and we have adapted it to assist ground handlers in order to solve the issues mentioned above. This allows ground handlers to serve multiple airline customers using one single DCS. Our airport entry strategy was to focus on ground handling companies (because we knew we had a product that we could quickly bring to market) with Altéa, and then later utilise these customer relationships to promote further solutions within the airport. Some airports manage their own ground handling, as is the case with Innsbruck. Some companies are purely ground handlers, but given that they are 38 based at the airport, they do have an influence over the broader decisions that the airport makes. This means they can introduce Amadeus to airlines and airport operators at that airport as well. Since the solution was launched in 2011, the top ground handling companies worldwide have managed to overcome many of their operational challenges with Amadeus Altéa DCS for Ground Handlers. This has given Amadeus a leading portfolio of more than 100 ground handler companies using our DCS solution all over the world. 38 Our value proposition is designed to meet the key needs of airports now and in the future, providing a next-generation, data-rich suite of solutions which will increase visibility for airports and their stakeholders, ensuring a closer collaboration and greater efficiency. This will create reciprocal benefits for all players in the ecosystem and their passengers. Amadeus brings an entirely new value proposition to the market, based on 5 key differentiators: 1. Data. Amadeus processes information from both its global distribution platform and Altéa platform. Amadeus’ Airport IT suite relies on some of this data. This removes the need to replicate data, resulting in no redundant sources and one single interface for airports. We have over 95% of the world's airline schedules in our data centre. Our flight information provides real-time information up to one year in advance. The booking information allows us to predict the passenger volume that an airport can expect on a given date and time. Furthermore, our solutions (across all our businesses, including our Altéa DCS) are used in c. 1000 airports globally, delivering high visibility, accurate passenger numbers and flight and aircraft information. Amadeus uses data to enrich its airport IT products and in the near future our suite of solutions will be also fed with similar data coming 39 need that railways and bus companies share: to operate their business efficiently and create a modern distribution capability. It represents a challenge as there are no industry standards. In Germany you do not need a reservation to board the train, while in Spain, for instance, you do. We believe our cloud-based, ‘pay-as-you-use’ model will be attractive to railway companies. Large national railway companies may currently have limited appetite for outsourcing, but we think that there are several factors that will eventually accelerate this process, such as: liberalisation, EU regulations, investing in customer experience, rolling stock and physical infrastructure as well as efficiency pressures. In addition, increased competition will drive investments in IT systems. Our Rail IT launch partner is SNCB-NS (BeNe). We are building some IT modules (channel management, inventory, tariffs) that will enhance their distribution capabilities whilst simplifying heavy certification processes from the railway companies to the distributing agencies. Payment and settlement are particularly challenging in the Rail market. Standard travel industry mechanisms such as IATA’s Billing and Settlement Plan are not adopted. It is another area where we believe there will be a growth opportunity for our Payments business as railways seek to improve payment models across wider markets. It is also worth noting that Navitaire provides technology to railway players which also opens up new growth opportunities. Our Rail selling platform is already a reality and we have relevant content with 90 railway companies including all the main European rail operators: DB, Renfe, SNCF, Trenitalia, currently distributed in 170 countries. With all of this integrated content we see ourselves growing through several channels, such as online travel agencies, offline travel agencies, and corporations. In order to achieve this, we currently have more than 190 rail experts dedicated to expanding our business. 40 Travel Intelligence is a transformational area for Amadeus offering us many growth opportunities. Unlike other players in the big data space, our Travel Intelligence platform has been born in the age of big data. It is built upon next-generation, cloud-based and scalable platforms, meaning total flexibility and speed for our customers. Our platform enables us to process any data type much quicker and in a more cost effective manner than with legacy business intelligence technologies. And unlike other players, we are vertically integrated with the broadest customer and global geographical reach across the industry. In Travel Intelligence we have 3 service categories: ₋ Market Insight: since the inception of the GDS, we have been providing airlines with booking data. Our vision is to now convert that data into something more sophisticated. We are turning that data into true market insight, a comprehensive and detailed view on trends in the market. This will be valuable for airlines but we believe that these tools will also benefit travel players right across the industry. ₋ Performance Insight: with higher level of sophistication, we are able to create 41 tailor-made solutions for the customer, solutions that can automate complex decision-making processes. For example, when flight disruption occurs, Qantas will be using our Schedule Recovery solution. By efficiently compiling airline data, operational scheduling options can be recalculated, and operations re-ordered in the most optimal way within a range of given parameters. Previously, this was carried out using information from multiple sources in only a semi-automated manner. In the case of Schedule Recovery airlines can react quickly and efficiently to disruptions caused by events such as bad weather or air traffic control congestion. This helps in making rapid decisions such as to delay or cancel flights or swap aircraft. There are many instances like this where algorithms and data can improve and automate critical operational processes, thus ensuring the best customer service level possible. ₋ Traveller Insight: as a third block, we have an aspirational, customer-centric vision. With precise, accumulated data, we can predict consumer behaviour. This helps our customers develop much more precise, targeted offers. We have a large base of more than 140 customers that we serve today and a highly skilled team in place. Close to 180 professionals are dedicated to this exciting area of innovation. Travel Intelligence will transform the IT landscape. We will enable our customers to automate and enhance their own customer interactions with highly personalised data-driven marketing and servicing. 41 All of the areas within the scope of our New Businesses are important. We are succeeding in all of them individually and simultaneously creating cross-business synergies and efficiencies. Our investments are focused on the twin concepts of modularity and a synergetic platform. This creates a unique Amadeus opportunity: to build a strong future-focused business serving the whole travel industry whilst at the same time enriching what we are doing in our two main businesses, Distribution and Airline IT. Our goal is simple, to develop the most integrated travel experience possible. We are uniquely placed to connect travellers with the sales channel of their choice with the most varied and richest travel content to choose from, wherever they are, whatever the channel. The whole travel ecosystem can be connected through technology. That technology will play a major facilitating role in making it easier to buy and sell travel related products and services. The market is moving quickly to a more retail focus. We believe we are ahead in seeing the big picture and preparing our customers for this new ‘customer centric’ travel industry. 43 ENEPRTO Our technology Our customers expect not only cutting-edge functionality and features, but also robust, versatile and fast systems, as their businesses rely more and more on our platforms. Factors such as 100% availability, sub-second response times and flexibility of deployment are becoming mission-critical business features. Both on mobile and on internet, response time is seen as a critical factor for adoption. Our customers need advanced security to develop trust with their users and partners, knowing that their personal and financial data is safe. With the predominance of mobile, omni-channel capabilities require that information and transactions are processed in both a contextual and personalised way, in particular when the user transacts from multiple devices. For example, an airline or hotel may want to make a special offer to a traveller who has experienced a delay during their last trip or suggest destinations that are in line with the traveller’s preferences. This means capturing and analysing beforehand a lot of information about the traveller and the context in which they interacted with the system - before, during and after the trips. This mass of information, often referred to as Big Data, must be stored, mined and transformed into meaningful parameters that can later be injected into real-time transactions. This requires investment in a powerful and scalable technical framework to handle Big Data. This framework is the essential 45 Cloud-based architectures allow for higher automation, easy replication in several data centres and the adjustment and scale to desired physical resources. By gaining full flexibility of how and where to deploy the applications, we get important benefits. For instance, you improve response times by deploying in a data centre closer to the customer region. Running in several data centres seamlessly allows us to ensure that there is always one system running. This is the base of continuous availability. Managing infrastructure resources and dealing with peak traffic is also a lot easier. These benefits are all associated with the Cloud. Here we are talking about securing those key benefits for the whole Amadeus system. We see that being cloud-compliant is a strong competitive advantage on the business side. We use automation to monitor millions of data points automatically, to identify and counteract potential problems before they affect our customers. We are implementing techniques such as machine learning and artificial intelligence to move to the next level of effectiveness. Our engineers will move from building systems one- by-one to developing and improving automation that will enable us to manage hundreds or thousands of systems continuously. 46 Everybody talks these days about the Cloud. It may, at first, appear just as simple as moving all the applications written in the past from mainframes to the Cloud. That is not the case. It is very complex and will take years and huge investments to do so for many companies. For Amadeus, this technical adaptation does not require either the full re-write of the application nor a drastic change of functional code. This is because over recent years, we have already re-engineered all of our systems to open, service-oriented architecture. We are performing some adaptations, starting with the most mission- critical applications in order to get immediate benefits in terms of continuous availability and scalability. New applications are being written with cloud-based capabilities. In addition, even if the Cloud provides the hardware and software base, we also need to make the Cloud deliver. Amadeus is in a unique position to do this, as we own the end-to-end delivery chain (both the software and our data centre) and do not need to align third parties. Our advanced data processing facility is in Erding (Germany). Our Erding complex processes over 3.8 billion transactions per day, with an average Power Usage 47 Effectiveness of 1.32 (which has steadily declined year over year). We believe that ownership of our data processing facility gives us the necessary control and flexibility to align our development initiatives with the operational constraints of guaranteeing high service levels to our customers, while benefiting from cost efficiencies and being able to adapt rapidly to changes in technology. As a result of our ownership of the facility, we are not required to negotiate with a third- party owner to effect upgrades, or to make other changes to our core IT infrastructure. We believe that this, among other benefits, has facilitated our migration to modern, open systems architecture. Our global operations principally comprise (i) our main site in Erding (Germany), (ii) two strategic operations centers in Miami (United States) and Sydney (Australia), and (iii) four local competency centers in Bad Homburg (Germany), Bangkok (Thailand), Buenos Aires (Argentina) and London (United Kingdom). Our strategic operations centers in Miami and Sydney are part of our ‘Follow-the-Sun’ operations concept that allows continuous supervision and management of our central data processing facility during normal working hours from three time zones. As a business day ends in one time zone and commences in another time zone, system monitoring and management is seamlessly transferred by Erding to Miami, by Miami to Sydney and by Sydney back to Erding at approximately eight-hour intervals. Through our ‘Follow- the-Sun’ concept, we seek to optimize our use of resources and minimize response times when dealing with operational issues and customer support queries. Fundamental to our success as a global IT technology provider is the reliability and security of our data processing facility, which has been designed with built-in redundancy (following an “n+1” systems concept) with no single point of failure. Our core systems are housed in three independent parts of the facility, so that transactions can be switched from one section to another in the event of a systems failure affecting one part of the building. Through this so-called “fire-cell” concept, we effectively have three data centers in one. We also operate a disaster recovery center located approximately 30 kilometers from our main data processing facility. This disaster recovery center can also be operated remotely from the Miami and Sydney “Follow-the-Sun” sites and is designed to ensure the continuity of the relevant services and the recovery of data in the event of a complete systems failure at our Erding facility for those of our customers that have opted to use this back-up facility. In terms of security, our policies follow the best practices of the IT industry, securing our data, securing our products, securing our people, responding to security incidents and Achieving Full Security Compliance (for example, ISO27001 certification for Global Operations, PCI-DSS certification or SSAE16 compliance). Building a big wall and alert infrastructure around our systems is indeed a good practice, that we, at Amadeus, have done from the beginning. It is a given. What we are talking about here is understanding the dynamic of frauds and misuse, building sophisticated alert mechanisms in order to minimise the impact of potential security 47 between all intermediaries. Amadeus understands all of these challenges very well. Our past technology investments have always been driven by anticipating major evolutions in the travel market. We can go fast, with tangible efficiencies in terms of costs and quality of delivery. Technical frameworks are one dimension of the challenges ahead. We believe that our continuous and sustained investment in technology over the years has put Amadeus in a unique position to leverage it to the highest scale. Our strength and differentiation lies also in the full control of both Development and Operations. Evolving to Cloud-based architectures requires a continuum to introduce automation over the full product cycle, from software engineering to deployment and operations. Companies which will succeed in this environment are those who are ready to leverage technology to power new business opportunities created by this complexity and race for scale. Amadeus will definitely be one of these companies, with the clear ambition to be a leading platform of reference in the Travel ecosystem. 48 49 Our travel IT expertise, investments in leading technology and customer-centric approach have granted a strong value proposition which sustained our growth in both Distribution and IT Solutions. 50 We operate a strong cash generative business. Thanks to this, and even taking into account our consistent commitment to R&D investment (capex, which mostly relates to R&D, has ranged between 9 and 14% over sales since 2009), our leverage has declined significantly to 1.1 times net debt to EBITDA at the end of the first quarter of 2017. Amadeus’ capital structure target is based on leverage ranging between 1.0 to 1.5 times net debt to EBITDA. Shareholder remuneration is an important piece of our capital allocation process. Ordinary dividends (distributed in accordance with the approved pay-out ratio of 50% of profit) have grown consistently every year since our IPO in 2010, at an average annual rate of 20%. We have complemented this with share repurchases. We aim to continue to support this growth in the coming years based on our healthy cash generation profile and our sound balance sheet. 53 So how do we see the near future? We remain confident and optimistic. We are in a unique position to benefit from growing levels of air traffic, growing ‘look- to-book’ ratios and by continuing to expand our customer base across our traditional businesses coupled with the upselling of enhanced functionalities. We believe that we already have and we continue to reinforce a position of market strength that will enable us to grow in new markets. We estimate an addressable market opportunity for Amadeus ranging c. €30 billion in 2018. Of course, we will not be alone and there will be competition. However we expect to capture our share of this market opportunity. 54 Moving on to how we see things evolving over 2015-2018: ₋ In Distribution, we expect to grow at a mid-single digit (3%-6%) average annual revenue growth rate, based on continued volume or yield expansion, depending on market dynamics, and slight margin dilution driven by customer mix and competition. ₋ For IT Solutions, we expect double digit (10%-20%) average annual revenue growth, driven by organic growth, new customer wins and upselling, as well as continued expansion of our New Businesses. We expect margin dilution in 2016 driven by the Navitaire consolidation, the execution of our Hospitality IT strategy and higher overall contribution from the New Businesses Unit. Our IT Solutions margin should slightly expand from then onwards as volumes grow and we see margin gains driven by operating leverage. ₋ At Group level we expect revenue and EBITDA to grow high single digit. In particular, we expect revenue from the New Businesses to expand from c.€300 million in 2015 to €400-€600 million in 2018, with a contribution of €160-€240 million (from c.€100 million in 2015). We also expect to deliver c.€1bn revenue from these businesses in 2022, with a 40-60% contribution margin by then. 55 Key terms “Application Programming Interface” CAGA: “Compounced Average Growth Rate CAS: “CompurerResersaions System MO; Electronic Miscellaneous Documer Eos Cash.Elows elotes as EBTDA les capitalexpenciture plus changesin operating worng capital les fees paid FSC: “Full Service Carrier” 1ATA: “International Air Transport Association” ICAO: “International Civil Aviation Organization”. IFRIC: "International Financial Repor'ing Interpretations Committee” or IFRS interpretations Committee 1FRS: “International Financial fogones” IMF: "International Monetary Fund! PO; “Initial Public Offering” MT: “Information Technology” DP: “Gross Domestic Procuct” 6DS: “Global Distribution Sysiern” LCC: “Low-CostCarrier” L60: “Leveraged Buy-Out” NBU: “New Businesses Unit” NDC: “New Distribution Capability” OTA: “Online Travel Agency PAX: refersto passengers PB: “Passenger Boarded” PSS: “Passenger Services System”. PUE: “Power Usage Effectiveness” RED: “Research anc Development RPK: “Revenue Passenger Kilometro” Seas; "Software As Service” SQL: “Structured Query Language" TA: “Travel Agency TMC: “Travel Management Company” WTTC: “World Travel and Tourism Council” s taxes paid less interests and financial amaDEus 57 IN 58