Air New Zealand Limited · NZX:AIR
Air New Zealand — FY2016 Earnings Presentation
38 slides from Air New Zealand's earnings presentation, Aug 26, 2016
Slide 1: Air New Zealand 2016 Annual Results
For personal use only 26 August 2016 Christopher Luxon Chief Executive Officer Rob McDonald Chief Financial Officer
Slide 2: Forward looking statements
Forward looking statements For personal use only This presentation contains forward-looking statements. Forward-looking statements often include words such as “anticipate", "expect", "intend", "plan", "believe“ , “continue” or similar words in connection with discussions of future operating or finan
Slide 3: Business Review & Strategic Update
For personal use only Business Review & Strategic Update Christopher Luxon CEO Christopher Luxon Chief Executive Officer
Slide 4: The year in review
The year in review For personal use only • Operating revenue $5.2 billion, (up 8.2%)* • Earnings before taxation $806** million, (up 70%) • Net profit after taxation $463 million, (up 42%) • Operating cash flow $1.1 billion (down 2.4%) • Return on invested capital (pre-tax) 22%** Earnings Earnings b
Slide 5: Key drivers of the result
Key drivers of the result For personal use only • Passenger revenue up 8.9%* – Capacity and demand strong – ASKs and RPKs up 12% and 11%, Revenue respectively – RASK declined 2.3%* • Cargo revenue, up 10%* • CASK (excluding divestments) improved 10% – Fuel price declined 40% Fuel price Cost down S
Slide 6: Increasing competitive headwinds in second half of 2016
The second half of 2016 saw the emergence of increasing competitive headwinds For personal use only Tailwinds Headwinds • Double-digit growth* in New Zealand tourism • Increased competition pressuring RASK Revenue – Resulting in strong domestic tourism • Tourism capacity management • Stable economic
Slide 7: Unique capabilities that enable us to compete strongly
We have unique capabilities that enable us to compete strongly For personal use only Our alliance Our brand and Kiwi Our domestic Our AirpointsTM Our simplified fleet & driven network service culture network members competitive cost structure A proven record of adapting our business to perform well
Slide 8: Private and
For personal use only Private and confidential 8
Slide 9: 2017 initiatives aligned to address competition
2017 initiatives aligned to address competition while supporting our medium-term priorities For personal use only Put customers at the heart Pursue opportunities to Grow our business by developing Be efficient and agile as Embed a high performance, of everything we do reinforce our core business our
Slide 10: Financial Review
For personal use only Financial Review Rob McDonald CFO
Slide 11: Changes in profitability
Changes in profitability For personal use only 11
Slide 12: Reduction in CASK delivers $406m of value
Reduction in CASK* delivers $406m of value For personal use only • CASK related to ongoing operations improved 10% • Average MOPS price decreased 40% from the prior period (from US$90/bbl to US$54/bbl) • Efficiencies from growth, fleet simplification and other cost saving initiatives resulted in sav
Slide 13: Domestic
Domestic For personal use only • Capacity growth of 8.5% driven by increases in both domestic jet and regional turboprop network including the arrival of 3 more A320 aircraft and 7 ATR aircraft replacing Beech 1900Ds. • Capacity increases related to new Domestic schedule and increased activity on th
Slide 14: Tasman & Pacific Islands
Tasman & Pacific Islands For personal use only • Capacity growth of 5.1% resulting from: – Increased wide-body flying to Sydney, Melbourne and Brisbane and increased frequency to Perth. – Deployment of Boeing 787-9 on Honolulu service in May 2016. • Tasman and Pacific Islands on time performance 86.
Slide 15: International
International For personal use only • Capacity growth of 16%. • Strong performance with demand tracking capacity growth – new routes to Houston, Buenos Aires and to Asia with a full years’ service to Singapore and additional capacity to Japan. • Commenced seasonal Ho Chi Minh City seasonal service i
Slide 16: Cargo
Cargo For personal use only • Revenue growth driven by foreign exchange and increased volume with nominal decline in yield. Volume • Volume growth resulted from capacity up 4.1% increases from fleet up-gauge and commencement of new routes. Yield Revenue down Cargo revenue up 10%* 0.6% 400 349 298 30
Slide 17: Virgin Australia
Virgin Australia For personal use only • Sale of 19.98% of Virgin Australia to Nanshan Group in June 2016 • Shareholding of 2.5% as at June 2016 • Exit from shareholding in order to focus on Air New Zealand’s growth opportunities 17
Slide 18: Strong operating cash flow and liquidity provide flexibility
Strong operating cash flow and liquidity provide flexibility For personal use only • Operating cash flow $1.1 billion, down 2.4% over prior period – Strong operating cash flow per share of $0.96 • Net cash on hand of $1.6 billion, up 21% from June 2015 18
Slide 19: Balance sheet remains strong
Balance sheet remains strong For personal use only • Gearing was 48.6%, improving 3.8 percentage points from June 2015 due to strong operating profit • Stable outlook Baa2 rating from Moody’s • $150 million retail bond maturing in November 2016 Target gearing: 45% to 55% 19
Slide 20: Dividends
Dividends For personal use only • Fully imputed final dividend of 10.0 cents per share. • Total ordinary dividends for the year of 20.0 cents per share, an increase of 25% on the prior year. • Fully imputed special dividend of 25.0 cents per share. – Following the sale of Virgin Australia shareholdi
Slide 21: Aircraft update
Aircraft update For personal use only • Expected investment of ~$2.1 billion in aircraft and associated assets over the next 5 years • Assumes NZD/USD = 0.715 • Includes progress payments on aircraft Aircraft delivery schedule (as at 30 June 2016) Delivery Dates (financial year) Number in Number on
Slide 22: Fleet ownership profile
Fleet ownership profile For personal use only Fleet ownership – seat weighted • Shift towards increased proportion of owned fleet 38% 31% 47% – Economic benefit over the lifetime of the 57% aircraft – Increased flexibility with capacity planning 62% 69% 53% • Balance sheet remains strong during 43%
Slide 23: Hedging
Hedging For personal use only Fuel hedging* Fuel hedges* • Average decline of jet fuel price per barrel of 40% during the period – 2016 MOPS price of US$54 compared to US$90 in 2015 – Participated in 87% of available fuel decline in 2016 • 2017 is 68% hedged – 1H 2017 is 80% hedged – 2H 2017 is 55%
Slide 24: Our financial framework provides the foundation for sustainable success
Our financial framework provides the foundation for sustainable success For personal use only 2 1 1 Excluding fuel price movement, FX and divestments. 2 Excluding other significant items. Refer to supplementary slides for definition. 24
Slide 25: Outlook
For personal use only Outlook Christopher Luxon CEO
Slide 26: Group capacity expected to grow 4% to 6%
Group capacity expected to grow 4% to 6% For personal use only Sector Competition Air New Zealand 2017 capacity • Continued up-gauge for regional Expect similar competitive routes and increased frequency Domestic environment to 2016 +7% to 9% on select trunk routes • Queenstown night flights Tasman
Slide 27: 2017 outlook
2017 outlook For personal use only • Given the uncertain impact of competition and based upon current market conditions, 2017 earnings before taxation are expected to be in the range of $400 million to $600 million – Assumes jet fuel at US$55 per barrel for the remainder of the year 27
Slide 28: Thank you
For personal use only Thank you <p
Slide 29: Supplementary slides
For personal use only slides Supplementary
Slide 30: Earnings before other significant items and taxation
Earnings before other significant items and taxation For personal use only June 2016 June 2015 Movement $M $M % Earnings before taxation (per NZ IFRS) 663 474 40% Add back other significant items: Virgin Australia partial divestment 86 - - Settlement of legal claim 57 - - Earnings before other signi
Slide 31: Virgin Australia
Virgin Australia For personal use only Key dates of divestment and impact to profit June 2016* $M 30 March 2016 Cessation of equity accounting of associate - transition to fair value (2) 21 June 2016 Realised loss on sale of 19.98% to Nanshan Group (63) Unrealised loss on Air New Zealand’s retained
Slide 32: Financial overview
Financial overview For personal use only June 2016 June 2015 Movement Movement $M $M $M % Operating revenue 5,231 4,925 306 6.2% Earnings before other significant items and taxation 806 474 332 70% Net profit after taxation 463 327 136 42% Operating cash flow 1,074 1,100 (26) (2.4%) Net cash positio
Slide 33: Group performance metrics
Group performance metrics For personal use only June 2016 June 2015 Movement* Passengers carried (‘000s) 15,161 14,297 6.0% Available seat kilometres (ASKs, millions) 39,684 35,601 12% Revenue passenger kilometres (RPKs, millions) 33,223 29,934 11% Load factor 83.7% 84.1% (0.4 pts) Passenger Revenue
Slide 34: Projected aircraft in service
Projected aircraft in service For personal use only • Boeing 767-300ERs exiting by 2H 2017 • Final Beech 1900D aircraft will exit by August 2016 2016 2017 2018 2019 2020 2021 Boeing 777-300ER 7 7 7 7 7 7 Boeing 777-200ER 8 8 8 8 8 8 Boeing 787-9 6 9 11 12 12 12 Boeing 767-300ER 4 - - - - - Airbus A3
Slide 35: Fuel hedging
Fuel hedging* For personal use only Volume Ceiling Floor (bbls) (USD) (USD) 1H 2017 Brent collars 3,555,000 43.19 27.64 2H 2017 Brent collars 2,347,500 51.48 35.41 FY2017 Brent collars 5,902,500 46.48 30.73 * Fuel hedging as at 17 August 2016. 35
Slide 36: Pre-tax ROIC calculation
Pre-tax ROIC calculation For personal use only June 2016 June 2015 Reference in 2016 Annual $M $M Financial Results Statement of Financial Performance (page 2) Earnings before other significant items and taxation 806 474 Add back: Net finance costs 47 52 Statement of Financial Performance (page 2) N
Slide 37: Glossary of terms
Glossary of terms For personal use only Available seat kilometres (ASKs) Number of seats operated multiplied by the distance flown (capacity) Cost/ASK (CASK) Operating expenses divided by the total ASK for the period Gearing Net Debt / (Net Debt + Equity); Net Debt includes capitalised operating lea
Slide 38: For personal use only
For personal use only La AIR NEW ZEALAND \o_ A STAR ALLIANCE MEMBER EF