Air New Zealand Limited · NZX:AIR
Air New Zealand — H1 2005 Earnings Presentation
35 slides from Air New Zealand's earnings presentation, Feb 24, 2005
Slide 1: Air New Zealand Interim Results Announcement 2005
Slide 2: John Palmer, Chairman
Slide 3: Ralph Norris, Chief Executive Officer & Managing Director
Six months to: Dec 04 Dec 03 PBUT $146m $149m NPAT $102m $105m Cash held* $1,072m $1,020m Operating cash flow $165m $254m Gearing* 44% 53% * Comparative as at 30 June 2004 (2.0% (2.9% 5.1% (35.0%)
Slide 4: Six months to December: key results
Profit Before Unusuals | & Taxation $138m$149m$146m ($29m*) ($90m*) Bec Dec Dec Bec Dec 00 01 02 03 04 * Continuing operations
Slide 5: Profit Before Unusuals & Taxation
> Interim dividend of 2.5 cents per share — Full imputation credits attached — Dividend ex-entitlement date 15 April (NZSX) > Dividend Reinvestment Plan launched — Open to eligible shareholders with registered addresses in New Zealand & Australia — Shares issued at 2.5% discount — Offer document mai
Slide 6: Interim dividend of 2.5 cents per share
> > 5:1 Share consolidation 500 Share Plan Rights issue Dividend Reinvestment Plan
Slide 7: Share consolidation, rights issue, dividend reinvestment plan
> Focus on customers rather than planes will underpin the future success of our strategies > New short haul business model — First to introduce “everyday low fares” — Traffic stimulation - Domestic up 8% on previous period (40% on a cumulative basis since launch of the new model) - Pacific Islands u
Slide 8: Focus on customers; new short haul business model
Slide 9: Air New Zealand logo
Six months to: Dec 04 Passengers Carried (000s) 5,759 Revenue Passenger 12,459 Kilometres (m) Available Seat Kilometres (m) 16,381 Load Factor 76.1 0.5 pts
Slide 10: Passengers carried, RPK, ASK, load factor
Airline Passenger Revenue $1,382m $1,347m Dec 2003 Dec 2004
Slide 11: Airline Passenger Revenue
Short Haul Yield Long Haul Yield Cents per RPK Cents per RPK mummy 15.7c. 2004 FX Other 2005
Slide 12: Short Haul Yield and Long Haul Yield
Cargo Revenue $145m $146m Dec 2003 Dec 2004
Slide 13: Cargo Revenue
oOo ue Vy Fa DUNG ine vy Of Lat €¥ ak op yj Erankfurt 80% of capacity between Shanghai . and Frankfurt has — been pre-sold Auckland
Slide 14: Shanghai–Frankfurt capacity pre-sold
Dec 03 Fav / (Unfav) Labour $240m $233m Peebye Fuel & Oil $283m $226m [PaPeA) Maintenance & Overhaul $161m $174m 7.5% Aircraft Operations $193m $182m (6.0%) Passenger Services $148m $148m 0.0% Sales & Marketing $166m $183m 9.3% Other $99m __-$120m_ Rae Operating Expenses $1,290m _$1,266m_ FGA) Six m
Slide 15: Airline operating expenses
Six months to: Dec 04 Dec 03 ANZES Revenue $252m $264m (4.5%) EBIT $11m $26m (57.7%) > FX and increased competition impacted margins | Other Revenue $77m $77m 0.0% EBIT $7m $17m (58.8%) > Increased labour costs and Holidays Act impacted margins
Slide 16: ANZES and Other results
Total Cash Held > Operating Cash flow of Neon" $165m was down $89m $1,072m due mainly to: 1,000 $1,020m,——"* — One-off cash flow $764m 800 $766m benefit from launch of 600 new Tasman services $594m 400 | | | — Launch of new loyalty scheme Jun Jun Jun Jun Dec 01 02 O38 04 04
Slide 17: Total Cash Held and operating cash flow
Jun01 Jun02 Jun03 Jun04 Dec 04
Slide 18: Business transformation
al al al Airline Business Transformation Long haul in-flight cabin renewal Development of a more competitive network Alliance strategy ANZES Business Transformation
Slide 19: Airline Business Transformation
> $245 million in annualised cost savings by FY07 > Cutting complexity by simplifying: — Loyalty programme; — Network structures; — Fare structures; — Selling structure; — Connectivity; and — Improving the customer journey > Aligning overhead to the simplified model
Slide 20: $245 million annualised cost savings by FY07
> mh HA Example: New loyalty scheme > Easier to redeem points > Can still earn and redeem points on partner airlines > Yields on 3° party points sales increased > Annual benefit by FY07 of around $10-20 million
Slide 21: Example: New loyalty scheme
id Example: Tasman remodelling > Over-capacity has driven yields down > Air New Zealand’s new Tasman model has significantly lowered its cost base on this sector > But rock bottom fares mean that the cost base needs to be lower > Review of Tasman model is underway
Slide 22: Example: Tasman remodelling
BUSINESS® PREMIER > PACIFIC® > PH RAI LIB) ECO CRAY PACIFIC® > ECONOMY Lie-flat beds Guaranteed direct aisle access Greater seat recline 39-40 inch seat pitch In-seat screens New Recaro™ seats with 34 inch seat pitch (B747 only) Audio and video on demand for every passenger
Slide 23: Long haul in-flight cabin renewal
A320 B777 Aircraft (146 (300* departures _ seats) seats) 1 Half 2005 _| 2 | 20" Half 2005 1 (2) 4 6 (14) 2 (9) (3) > Average fleet age as at 31 Dec 04 was 7.9 years > From FY07, average age drops to 5.8 years
Slide 24: Fleet deliveries and average fleet age
Alliances critical to industry rationalisation Star Alliance relationships Other significant partnerships Will work with current partners and identify new partners who have a network structure with which we can align
Slide 25: Alliances critical to industry rationalisation
Restructure into individual business lines for increased efficiencies and a highly targeted customer focus ANZES subsidiary businesses continue to perform well New ANZES general management appointments
Slide 26: ANZES restructure into individual business lines
Slide 27: Outlook
“If the operating environment remains at the present level, we expect to exceed earlier earnings estimates and come closer to the previous year’s profit of around $240 million before Unusuals and Tax.”
Slide 28: Earnings outlook statement
> > > Airline business EBIT up 16% to $119 million Offset by significant reductions in earnings from non- airline businesses Group PBUT of $146 million Profit after Tax was $102 million Net Cash held was $1.1 billion Gearing improved nine percentage points to 44 percent
Slide 29: Summary of results
Slide 30: Supplementary Information
Six months to: Dec 04 Dec 03 Passenger Revenue Cargo & Mail Contract Services Other $1,382m $1,347m $146m $145m $142m $151m $94m $95m Operating Revenue $1,764m $1,738m
Slide 31: Operating revenue
Six months to: Dec 04 Dec 03 Labour $394m Fuel & Oil $283m Maintenance & Overhaul $117m Aircraft Operations $188m Passenger Services $119m Sales & Marketing $167m Other $123m $374m PGR $226m [vayeA| $132m [ee $178m [eRe $113m [GEeA! $185m [nas $139m [Rees Operating Expenses $1,391m $1,347m Ee eRy 7)
Slide 32: Operating expenses
Six months to: EBITDRA $373m Depreciation $124m Rental & Lease $112m Net Interest ($9m) Unusual Items $2m Taxation $42m NET PROFIT AFTER TAX $102m (4.6%) 6.8% 0.0% 200% N/A 14.3% (2.9%)
Slide 33: Net profit after tax
Six months to: Dec 04 Dec 03 (Unfav) Operating cash flow $165m $254m [tetthn) Investing cash flow ($329m) ($95m) Beyerta) Financing cash flow $216m ($31m) BexyZ yan) Closing cash balance* $1,072m_ $1,020m BRR Sytum * Comparative as at 30 June 2004
Slide 34: Cash flow
As at: Dec 04 Jun 04 Total assets $4,053m $3,818m Net cash (cash less debt’) $262m $136m Fase Net debt (including capitalised operating leases’) ($1,222m) ($1,460m) faeystin Shareholders’ funds $1,489m $1,215m Net tangible assets per share* 1.43 1.35 * $98 million Redeemable Convertible Notes (RCNs)
Slide 35: Balance sheet
Aircraft Owned Daily iat S00 B767-300ER B767-200ER _B/37-300 | Saab 340A Beech 1900D | TOTALS” Aver. om Leased Age (yes) thous). 4 4 10.7 15:29 5 4 8.7 15:30 - 1* 19.4 13:34 5 12 74 9:34 1 8 0.9 12:01 4 8 4.0 7:37 10 7 16.9 7:38 16 - 2.7 7.32 45 44 7.9 11:07 *exits fleet Mar 05