Qantas Airways Limited · ASX:QAN
Qantas Airways — FY2017 Earnings Presentation
32 slides from Qantas Airways's earnings presentation, Aug 25, 2017
Slide 1: Qantas Airways Limited FY17 Results
Qantas Airways Limited FY17 Results 25 August 2017 ASX:QAN US OTC:QABSY
Slide 2: FY17 Highlights
FY17 Highlights Delivering sustainable Group financial performance • Underlying Profit Before Tax (PBT) $1,401m, Statutory PBT $1,181m • Second highest Underlying Profit result in the Group’s history1 • Continued strong Return on Invested Capital (ROIC) of 20.1%2 • All Qantas Transformation targets
Slide 3: Results Achieved in Mixed Market Conditions
Results Achieved in Mixed Market Conditions Domestic airlines Qantas Loyalty • Market demand increased by 1.1%1, despite resources • Continuing to participate in disrupting markets via Qantas sector decline Assure and Qantas Money • Business market demand strengthened in 2H17 • Financial services se
Slide 4: FY17 Key Group Financial Metrics
FY17 Key Group Financial Metrics Underlying Earnings Underlying PBT1 ROIC Cash Flow per Share2 $2.7b $1,401m 54.6c 20.1% Operating cash flow Down $131m on Up 1.5c on FY16 > WACC FY16 $1.3b Net free cash flow3 Traffic/Capacity Unit Revenue4 Total Unit Cost5 Operating Margin6 Growth 9.9% ASKs7 +1.1% -
Slide 5: FY17 Profit Bridge
FY17 Profit Bridge Underlying Profit Before Tax ($M) 300 250 1,532 129 196 53 17 42 1,401 49 289 130 72 Net Passenger Revenue $(104)m Fuel efficiency benefits2 $35m Net revenue benefits3 $135m Non-fuel cost reduction $300m Transformation benefits $470m FY16 Group Group Revenue Other Net Fuel Cost fr
Slide 6: Segment Results
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Slide 7: Integrated Group Portfolio Weighted to Domestic Australia
Integrated Group Portfolio Weighted to Domestic Australia Growing earnings base from Group Domestic airlines and Loyalty Operating Segment EBIT2 • Qantas Transformation Program supported strong and growing $2.0b margin advantage at Qantas Domestic and Jetstar vs competitors1 • Unit Revenue improveme
Slide 8: Maximising Leading Dual Brand Domestic Position
Maximising Leading Dual Brand Domestic Position Dual brand strategy at the core of Group’s portfolio strength Record Group Domestic1 Underlying EBIT in FY17, Average Domestic Market Capacity Growth4 $865m supported by disciplined capacity management, Transformation and customer focused investments 2
Slide 9: Qantas Domestic
Qantas Domestic • Record Underlying EBIT of $645m FY17 FY16 VLY %7 • Improved operating margin Revenue $M 5,632 5,710 (1.4) – Unit Revenue up 3% Underlying EBIT $M 645 578 12 – 2.8% capacity reduction due to resource market right-sizing, with Operating Margin5 % 11.5 10.1 1.4pts targeted East Coast
Slide 10: Qantas International
Qantas International • Underlying EBIT of $327m FY17 FY16 VLY % – Unit Revenue decline of 4.0%1 in the second half as market Revenue $M 5,708 5,750 (0.7) capacity growth moderated2 Underlying EBIT $M 327 512 (36) – Strong margin in competitive market Operating Margin % 5.7 8.9 (3.2pts) – Transformat
Slide 11: Jetstar Group
Jetstar Group • Underlying EBIT of $417m FY17 FY16 VLY % – Second highest result1 in Jetstar’s 13 year history Revenue6 $M 3,600 3,636 (1.0) – Able to partially offset impact of booking and service fee changes Underlying EBIT $M 417 452 (7.7) and softer freight yields Operating Margin % 11.6 12.4 (0
Slide 12: Qantas Loyalty
Qantas Loyalty • Record Underlying EBIT of $369m FY17 FY16 VLY % – Double digit growth in 2H171 Revenue $M 1,505 1,454 3.5 – QFF2 co-branded credit card issuance growing at 3x market3, Underlying EBIT $M 369 346 6.6 investment in strong earn propositions with key partners Operating Margin % 24.5 23.
Slide 13: Qantas Freight
Qantas Freight • Underlying EBIT of $47m FY17 FY16 VLY % − Transformation benefits partially offset adverse FX and impact Revenue $M 938 982 (4.5) of softer demand on revenue Underlying EBIT $M 47 64 (27) − Domestic performance1 remains stable, new 737-400 will enable further growth opportunities Op
Slide 14: Financial Framework
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Slide 15: Financial Framework Aligned with Shareholder Objectives
Financial Framework Aligned with Shareholder Objectives 1. Maintaining an Optimal 2. ROIC > WACC2 3. Disciplined Allocation Capital Structure Through the Cycle of Capital Minimise cost of capital by Deliver ROIC > 10%3 Grow invested capital with targeting a net debt range of through the cycle
Slide 16: Maintaining an Optimal Capital Structure
Maintaining an Optimal Capital Structure Leverage and liquidity Optimal capital structure Net Debt Profile FY12 to FY17 ($B)4 8 • Net debt at $5.2b 7 • Extended maturity profile with $425m bonds 6 issuance 5 Target Net Debt Range • Significant unencumbered asset base 4 3 – Valued at ~US$3.8b1 FY12 F
Slide 17: Delivering ROIC >10% Through the Cycle
Delivering ROIC >10% Through the Cycle • FY17 Group ROIC of 20.1% • All operating segments continue to deliver ROIC > WACC • Efficient allocation of capital – Leveraging existing assets – Increased fleet utilisation1 – Revenue and cost benefits through Qantas Transformation Program Return on Investe
Slide 18: Delivering ROIC >10% Through the Cycle: Hedging
Delivering ROIC >10% Through the Cycle Protecting ROIC through the disciplined hedging program • High level of protection in place for FY18 Hedging & Fuel Cost Outlook2 ($B) Inclusive of Option Premium – Fuel risk 86% hedged – Protection in place against adverse spike in A$3.9b A$3.23b Fuel and FX A
Slide 19: Disciplined Capital Allocation
Disciplined Capital Allocation Disciplined capital expenditure • FY17 net capital expenditure1 of $1.5b, $0.5b in 2H17 • Forecast FY18 and FY19 aggregate net capital expenditure1 of $3.0b, consistent with prior guidance – Similar to FY17, FY18 capex is expected to be skewed to the first half • Susta
Slide 20: Disciplined Capital Allocation: Fleet Strategy
Disciplined Capital Allocation Fleet strategy Optimise Refurbish Renewal • Increased cross-utilisation of A330 • A380 upgrade program begins 2019, • 8 x 787-9s at Qantas International1: and 737-800 between Qantas improving route economics. Upgrade delivers cost efficiencies and new International and
Slide 21: Disciplined Capital Allocation: Shareholder Distributions
Disciplined Capital Allocation Shareholder distributions • Final dividend of 7 cents per share declared Track Record of Delivering Shareholder Returns ($M) – Unfranked, record date 11 September 2017, payment date 13 October 2017 – Conduit foreign income credits available for foreign shareholders • O
Slide 22: Building Long-Term Shareholder Value
Building Long-Term Shareholder Value
Slide 23: Recognising and Responding to Emerging Global Forces
Recognising and Responding to Emerging Global Forces The long-term context New Centres of Shifting Customer Customer Demand Rapid Digitisation and Resource Constraints and Workforce and Geopolitical Disruption from Big Data and Climate Change Preferences Influence Clear Strategic Priorities Maximisi
Slide 24: The Qantas Group Portfolio has Unique Competitive Advantages
The Qantas Group Portfolio has Unique Competitive Advantages $ Dual Brand Strategy to Structurally Advantaged Innovative Loyalty Positioned in Asia with Reputation for Operational Segment and Grow Domestic Position Business with Valuable Premier Airline and Safety Excellence, Markets Data Insights P
Slide 25: Successful Business Turnaround
Successful Business Turnaround Significant improvement in financial performance Return on Invested Capital >20% Group Operating Margin (%) All operating segments delivering ROIC > 10% Commencement 11% of accelerated 10% All accelerated Transformation Program targets achieved Transformation 8% Progra
Slide 26: Successful Business Turnaround
Successful Business Turnaround While delivering for our customers, employees and shareholders • Record customer advocacy1 • Record employee engagement2 • Top Quartile Total Shareholder Return FY15-FY17 of 372% – FY17 Total Shareholder Return of 111% Qantas Relative TSR Performance 100 Commencement 7
Slide 27: Transformation is Ongoing
Transformation is Ongoing FY18 transformation targets What we are targeting Examples of how we are delivering • On track for first 787-9 delivery; 1 x 747 retired in July • Gross benefits of at least $400m in FY18 2017 from: • Jetstar A320/321 reconfiguration, 3% additional – Technology capacity wit
Slide 28: Outlook
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Slide 29: 1H18 Outlook – Domestic and International Operating Environment
1H18 Outlook – Domestic and International Operating Environment • 1H18 planned Group capacity to increase by ~3%1 • Group Domestic capacity expected to decrease by ~1%1 ‒ Unit Revenue is expected to increase in 1H18 on stronger demand 1 • Group International capacity expected to increase by ~5%1 dri
Slide 30: FY18 Group Outlook
FY18 Group Outlook • Current Group operating expectations: – FY18 fuel cost expected to be no more than $3.16b1, $3.11b2 at current forward AUD prices; 1H18 expected to be no more than $1.56b – FY18 net depreciation and non-cancellable aircraft operating lease rentals expected to be ~$70m higher tha
Slide 31: Questions?
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Slide 32: Disclaimer & ASIC Guidance
Disclaimer & ASIC Guidance This Presentation has been prepared by Qantas Airways Limited (ABN 16 009 661 901) (Qantas). Summary information This Presentation contains summary information about Qantas and its subsidiaries (Qantas Group) and their activities current as at 25 August 2017, unless otherw