Qantas Airways Limited · ASX:QAN
Qantas Airways — H1 2017 Earnings Presentation
42 slides from Qantas Airways's earnings presentation, Feb 23, 2017
Slide 1: Qantas Airways Limited 1H17 Results
For personal use only Qantas Airways Limited 1H17 Results 23 February 2017 ASX:QAN US OTC:QABSY
Slide 2: Portfolio of Businesses Continues to Deliver Strong Earnings
Portfolio of Businesses Continues to Deliver Strong Earnings For personal use only • Delivering on our strategy to maximise long-term shareholder value – Underlying Profit Before Tax (PBT) $852m, Statutory PBT $715m – Strong Group Return on Invested Capital (ROIC) 21.7%1, maintaining capital discipl
Slide 3: Integrated Group Portfolio With Leading Market Positions
Integrated Group Portfolio With Leading Market Positions For personal use only Domestic Airlines Qantas Loyalty • Continue to remain highest and second highest margin1 • Leading loyalty program with 11.6m members airlines in the domestic market • New Woolworths program launched4 • Operating in a str
Slide 4: 1H17 Key Group Financial Metrics
1H17 Key Group Financial Metrics For personal use only ROIC2 Underlying PBT1 EPS3 Cash Flow rolling 12 months $1,173m Operating cash flow $852m 21.7% 27.3c Down $69m on 1H16 Down 4.6c on 1H16 $288m Net free cash flow4 Traffic/Capacity Unit Revenue5 Total Unit Cost6 Operating Margin7 Growth ASKs8 +1%
Slide 5: 1H17 Profit Bridge
1H17 Profit Bridge For personal use only Underlying Profit Before Tax ($M) Transformation cost reduction offsetting CPI 227 243 921 126 125 39 852 30 28 13 Fuel efficiency benefits1 $15m Net revenue benefits2 $71m Non-fuel cost reduction $126m Transformation benefits $212m 1H16 Fuel Expense Net Pass
Slide 6: Segment Results
For personal use only Segment Results
Slide 7: Integrated Group Portfolio Weighted to Domestic Australia
Integrated Group Portfolio Weighted to Domestic Australia For personal use only Stable performance from Group Domestic airlines and Loyalty Operating Segment EBIT5 • Strong and growing margin advantage at Qantas and Jetstar vs competitors1 $1.2b • Continued evolution of dual brand strategy • Loyalty
Slide 8: Qantas Domestic
Qantas Domestic For personal use only • Underlying EBIT of $371m 1H17 1H16 VLY %6 • Improving passenger revenue trend Revenue $M 2,916 3,007 (3.0) – 1Q17 Unit Revenue down 3% with demand affected by negative Underlying EBIT $M 371 387 (4) GDP, federal election and resource markets Operating Margin1
Slide 9: Qantas International
Qantas International For personal use only • Underlying EBIT of $208m 1H17 1H16 VLY % – 8.9% Unit Revenue1 decline as competitive pressures intensified Revenue $M 2,841 2,953 (3.8) offsetting fuel benefits (11% competitor capacity growth in 1H172) Underlying EBIT $M 208 270 (23) – Ex-fuel Unit Cost3
Slide 10: Jetstar Group
Jetstar Group For personal use only • Record half year Underlying EBIT of $275m 1H17 1H16 VLY % – Highest margin domestic airline1 Revenue9 $M 1,859 1,913 (2.8) – Controllable Ex-fuel Unit Cost2 flat Underlying EBIT $M 275 262 5 • Record half year earnings3 for Jetstar International4, with B787-8 Op
Slide 11: Qantas Loyalty
Qantas Loyalty For personal use only • Record first half Underlying EBIT of $181m, 3% up on 1H16 1H17 1H16 VLY % − New Woolworths program launched1; slow 1Q17 with significant Revenue $M 743 734 1.2 trend in uptake from 2Q17 Underlying EBIT $M 181 176 3 − QFF2 credit card issuance outperforming mark
Slide 12: Qantas Freight
DRAFT Qantas Freight For personal use only • Underlying EBIT of $27m 1H17 1H16 VLY % − International markets remain challenged with significant levels of Revenue $M 482 525 (8.2) wide body capacity impacting yields Underlying EBIT $M 27 38 (29) Market conditions are showing signs of stabilisation1
Slide 13: Financial Framework
For personal use only Financial Framework
Slide 14: Financial Framework Aligned with Shareholder Objectives
Financial Framework Aligned with Shareholder Objectives For personal use only 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
Slide 15: Externally Recognised Financial Framework
Externally Recognised Financial Framework For personal use only S&P Global Ratings – 24 August 2016 “Underpinning the credit rating is the airline's prudent financial policy framework that we view favorably against Australian corporate and global industry peers'. In our opinion, this framework appro
Slide 16: Maintaining an Optimal Capital Structure
Maintaining an Optimal Capital Structure For personal use only • Financial framework targets optimal capital structure OPTIMAL CAPITAL STRUCTURE • Target net debt1 range between $4.8b and $6.0b Surplus Capital No Surplus Capital – Based on current invested capital of ~$9b • 1H17 net debt $5.97b Incr
Slide 17: Maintaining an Optimal Capital Structure
Maintaining an Optimal Capital Structure For personal use only • Extended maturity profile with $425m bonds issuance Net Debt Profile FY12 to 1H17 ($B)4 8 – Access to 10 year tenor 7 – No financial covenants 6 • Strong short term liquidity Target Net Debt Range 5 – Cash of $1.7b1 4 – Undrawn facilit
Slide 18: Maintaining an Optimal Capital Structure
Maintaining an Optimal Capital Structure For personal use only Strengthening Debt reduction 2H15 • >$1b debt repaid Notwithstanding Achieving investment grade metrics 1H16 recent long term • Regained Investment Grade credit rating tenor issuance, • Further $750m reduction in net debt in FY16 ongoing
Slide 19: Delivering ROIC >10% Through the Cycle
Delivering ROIC >10% Through the Cycle For personal use only • Rolling 12 months ROIC of 21.7% 12 mths 12 mths $M to Dec 16 to Dec 15 • All segments continue to deliver ROIC > WACC Underlying EBIT 1,669 1,764 • Leveraging existing assets Add back: Non-cancellable aircraft 399 508 operating lease ren
Slide 20: Delivering ROIC >10% Through the Cycle: Business Transformation
Delivering ROIC >10% Through the Cycle Continued delivery of business transformation For personal use only Qantas Transformation Program on target to achieve $2.1b Qantas Transformation Pipeline ($M) by end FY17, $1.9b achieved to date • Qantas Transformation has significantly altered the cost base
Slide 21: Protecting ROIC through disciplined hedging program
Delivering ROIC >10% Through the Cycle Protecting ROIC through disciplined hedging program For personal use only • High level of protection in place for FY17 Hedging & Fuel Cost Outlook1 ($B) Inclusive of Option Premium – Fuel risk 90% hedged A$3.9b – Protection in place against adverse spike in Fue
Slide 22: Disciplined Capital Expenditure
Disciplined Capital Expenditure For personal use only • FY17 net capital expenditure1 skewed to first half ($1.0b 1H17, Net Capital Expenditure Profile ($B) $0.5b 2H17) • Maintaining full year net capex guidance at $1.5b • Exercising fleet flexibility and our disciplined approach to capital 2H17 0.5
Slide 23: Shareholder Distributions
Shareholder Distributions For personal use only • Interim dividend of 7 cents per share declared Shareholder Distributions and Issued Shares1 – 50% franked, record date 8 March 2017, payment date 10 April 2017 Completed – Conduit foreign income credits available for foreign shareholders $505m (6.1%)
Slide 24: Building Long-Term Shareholder Value
For personal use only Building Long-Term Shareholder Value
Slide 25: Recognising and Responding to Emerging Global Forces
Recognising and Responding to Emerging Global Forces The long-term context For personal use only New Centres Rapid Shifting Resource of Customer Digitisation & Customer & Constraints & Demand & the Rise of Workforce Climate Geopolitical Big Data Preferences Change Influence Clear Strategic Prioritie
Slide 26: Maximising Leading Dual Brand Domestic Position
Maximising Leading Dual Brand Domestic Position Dual brand strategy at the core of group portfolio strength For personal use only $522 Group Domestic1 Underlying EBIT in 1H17, stable Average Domestic Market Capacity Growth6 million margins despite Unit Revenue decline 2.2% -1.4% 0.7% 0.3% 86% Underl
Slide 27: Resource Demand
Resource Demand Moderating decline in passenger demand and revenue For personal use only Qantas Resource Markets Passenger Revenue Decline ($M) Qantas Resource Market Performance • Revenue decline of $50m in 1H171, with $30m decline (20 -30 to 30) expected in 2H171 (80) • Unit Revenue growth forecas
Slide 28: Improved Competitive Position of Qantas International
Improved Competitive Position of Qantas International Restructured cost base, network and customer offering For personal use only >$800m in Transformation benefits on track to be Cost delivered by FY17 Qantas International margin performance is strong against key competitors in Asia4 Capacity growth
Slide 29: Growing Qantas International Through Alliances
Growing Qantas International Through Alliances Expanding Qantas code share reach internationally For personal use only 53 61 110 code share code share code share destinations destinations destinations in the in EMEA1 in Asia2 Americas Continued growth of Emirates Growing joint AU-China Working to re
Slide 30: Growing Qantas International Through Alliances
Growing Qantas International Through Alliances Expanding the QF global code share network For personal use only • Improved one-stop proposition from Australia to India, a major growth market • Expanded code share links to India (additional 56 frequencies per week) facilitating increased selling via
Slide 31: Aligning Qantas & Jetstar with Asia's Growth
Aligning Qantas & Jetstar with Asia’s Growth Positioning the Group for success in the fastest growing passenger market1 For personal use only • Qantas International meeting rising premium demand to/from Asia Increased capacity7 into Asia – >90% of total capacity growth in 1H17 deployed to Asia2 13%
Slide 32: Investing in Customer and Brand
Investing in Customer and Brand Targeted investment in customer experience For personal use only Fleet and Reconfigurations • All A330 reconfigurations complete1 • Delivery of 2 x A321 aircraft in December 2016 to Jetstar Domestic and 3 x Fokker 100 to Qantas Domestic • Qantas B787-9 cabin configura
Slide 33: Investing in Data and Digital Innovation
Investing in Data and Digital Innovation Investment continues to enhance customer experience and grow revenue For personal use only Qantas Wi-Fi to be introduced inflight in March 2017 • Step change for customer entertainment experience • Key addition to digital ecosystem for personalised content an
Slide 34: Diversification and Growth at Qantas Loyalty
Diversification and Growth at Qantas Loyalty One of the world’s most diverse airline loyalty programs For personal use only • 19% growth in spend1 • ~17% market share2, +2pts3 • >640k cards activated Life insurance • Revenue growth of 25%4 • Members transacting more frequently; increased basket size
Slide 35: People, Culture & Leadership
People, Culture & Leadership Engaging and developing our people for long-term success For personal use only Continued focus on connecting with, engaging and developing our people • Front-line “Safety Partnership Program” designed to drive Health improvement in Workplace Health Safety & Safety Qantas
Slide 36: Energy and Emissions
Energy and Emissions Making real, measurable change wherever our footprint extends For personal use only Climate change and resource constraints are one of four global forces most relevant to the creation and protection of long term value. As a major consumer of fossil fuels, reducing energy use and
Slide 37: A Materiality Approach to Sustainability
A Materiality Approach to Sustainability Acting now to ensure we can succeed and grow for the decades ahead For personal use only • Responding to material risks and opportunities to create and protect long-term shareholder value ‒ Embedding global forces into Group risk assessment at Board and manag
Slide 38: Outlook
For personal use only Outlook
Slide 39: 2H17 Outlook – Domestic & International Operating Environment
2H17 Outlook – Domestic & International Operating Environment For personal use only • 2H17 planned Group capacity to increase by 1 - 2%1 • Group Domestic capacity expected to decrease by ~2%1 ‒ Unit Revenue expected to increase1 in 2H17 despite continued softness in resources ‒ Resource sector reven
Slide 40: FY17 Group Outlook
FY17 Group Outlook For personal use only • Current Group operating expectations: – FY17 Underlying fuel cost expected to be no more than $3.2b1, $3.13b2 at current forward AUD prices – FY17 depreciation and amortisation expense expected to be ~$170m higher than FY16 – FY17 non-cancellable aircraft o
Slide 41: Questions?
For personal use only Questions?
Slide 42: Disclaimer & ASIC Guidance
Disclaimer & ASIC Guidance For personal use only 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 23 Febr