interim Air New Zealand

Transcription

1 interim Air New Zealand Shareholder Review 203

2 For the first six months of the 203 financial year Air New Zealand s normalised earnings before taxation increased by more than 300 percent to $39 million, an improvement of $06 million on the previous corresponding period. Statutory net profit after taxation was $00 million. Positioned for growth Christopher Luxon CHIEF EXECUTIVE OFFICER This is a strong profit growth story against the backdrop of a sluggish economic recovery and ongoing challenges facing our industry. Operating cash flow increased 35 percent to $343 million. I wrote in the last annual report that the company had undergone substantial changes amid tough operating conditions over the past several years, and the challenge now was to commercialise this positioning into sustainable profitability and growth. This result demonstrates we are delivering that, being the highest half year earnings figure in five years. We will be leasing a further two Boeing ER aircraft, which underlines our positioning for growth. The company clearly outperformed the market during the six months to 3 December 202, with our share price on the NZX rising 50.6 percent, while the NZX 50 index gained 9.6 percent in the same period. Analysts from the major investment banks have strongly endorsed our performance and earnings outlook. At last year s Annual Shareholder Meeting the Board announced an onmarket share buyback programme, given our view that the share price did not fairly reflect the company s full underlying value. The buyback was temporarily suspended on 28 December 202, in line with the company s securities trading policy. To date, 8.8 million shares have been purchased. The buyback programme is expected to continue until September 203. As a Board we have a policy of paying a consistent dividend stream to shareholders where prudent, taking into account factors such as earnings, trading outlook and capital structure. After reviewing Air New Zealand s current financial performance and financial commitments, the Board has declared a fully imputed interim dividend of 3.0 cents per share. This dividend reflects the strength of the company s balance sheet, a strong cash position, positive earnings outlook and the Board s belief in the organisation as it moves into a new phase under the leadership of Chief Executive Officer Christopher Luxon. Refer to the Financial Commentary on page 7 for details of Normalised Earnings. Air New Zealand interim Shareholder Review 203 Christopher brings global leadership experience to the role, and following his appointment as Chief Executive Officer Designate in June last year he has assembled a management team of high calibre executives. A strong balance sheet is critical for the airline to ensure it can react to adverse events or take advantage of opportunities. For example, it has enabled us to establish our investment in Virgin Australia. While this investment is not equity accounted, its market value at balance date equated to 24 cents per Air New Zealand share. The operating environment is as competitive as ever, and our management team need to be agile and decisive to stay ahead of the game. Putting our customers first and constantly innovating and adapting to take opportunities will ensure we can improve earnings to deliver consistent returns for shareholders. Air New Zealand continues to be held in high regard by the travelling public and our employees alike. This is not taken for granted, and the Board remains keenly aware of the need for our service delivery to match the brand promise. Based on our current forecast of market demand and fuel prices at current levels, our expectation is that normalised earnings before taxation for the second half of the 203 financial year will comfortably exceed the corresponding period. John Palmer CHAIRMAN 28 February 203 Chairman s Report CEO s Report 2 Financial Commentary 7 Change in Profitability 8 Financial Summary 9 In the six month period to 3 December 202, we saw improvements across all of our key performance metrics. Air New Zealand interim Shareholder Review 203 2

3 capacity (ASKs) up 2.7% load factor increased to 83.2% yield up to 3.6 cents per RPK Operating revenue increased 3.4 percent to $2.4 billion. Group capacity, or available seat kilometers (ASKs) was up 2.7 percent, while demand, or revenue passenger kilometers (RPKs) was up 3.2 percent. Load factor increased to 83.2 percent, and yield was up to 3.6 cents per RPK. This is a balanced result, in which all parts of our network contributed positively. In an operating environment that continues to be challenging, this is no mean feat. Given that this is my first message to shareholders as Chief Executive Officer, let me begin by saying that I feel privileged to be leading this iconic company at such an exciting time. operating revenue up 3.4% interim Shareholder Review 203 down 4.7% We are performing well relative to our industry peers, many of whom are airlines of significantly greater size and scale. As with others in our industry, we are subject to a range of uncontrollable factors that can impact on our performance. That s a given. What s important to me though, is how agile we are in our response to changing circumstances and how effective we are in optimising controllable outcomes. One of the benefits of being a smaller airline in global terms is that we have an ability to move quickly and decisively when required. We are not afraid to take calculated commercial risks, and will make significant investments to ensure we are ahead of the game as much as possible. The New Zealand economy is experiencing slower than expected economic growth, but we are seeing increased demand on our Domestic network from customers who value our quality product offering, ontime performance and competitive pricing. 84% of the country s domestic passengers travel with Air New Zealand. Air New Zealand unit cost Capacity in our domestic fleet is being boosted by the introduction of seven new generation ATR72600 turboprops, the first of which arrived from the factory in Toulouse, France in November. We have also commenced interior upgrades on our existing ATR72500 aircraft. The ATR is an ideal aircraft for our regional routes, combining superior operating efficiencies with high reliability and passenger comfort. Our programme to modernise the domestic jet fleet has been accelerated. We have brought forward the deliveries of two new Airbus A320s, which are replacing the Boeing s on the main trunk routes. These aircraft are both larger and more fuel efficient than the Boeing s, and will enable us to further reduce our cost base on these routes. The Tasman and Pacific Islands remain a critical part of the network. Our Seats to Suit fare structure on Tasman and Pacific Island routes continues to be a success, allowing us to cater to a wide range of fares and service levels within each aircraft we operate on these routes. Our alliance with Virgin Australia is proving very successful, giving us a combined market leading position on the TransTasman routes. Our ownership interest of 9.99 percent in Virgin Australia reinforces this relationship. Virgin Australia recently upgraded to the new generation SabreSonic reservations platform, enabling improved customer experience on our networks due to simplified booking systems. This is a fact we take great pride in. Air New Zealand interim Shareholder Review 203 4

4 The international part of the network is where we have seen the biggest improvements. Our long haul routes are now seeing significant growth in both demand and yields. For the first time since the global financial crisis began five years ago, I am pleased to report that International is making a positive profit contribution. A key driver in achieving this turnaround has been getting our network right. We recently announced the suspension of the Hong KongLondon route, which had been underperforming for some time. Our solution was to enter into an alliance agreement with Cathay Pacific, whereby our customers retain the option of travelling to London via Hong Kong as well as gain access to new destinations. The existing capacity will be quickly redeployed to growth markets, where we are experiencing strong demand. We are in growth mode. We have two additional leased Boeing ER aircraft due to enter the fleet in 204, which will significantly boost our capacity on long haul routes. These aircraft have proven very effective for us since entering the fleet in 20, offering exceptional efficiency and payload capabilities. Our cargo business saw a boost in revenue of 9 percent to $64 million during the first half of the year. This is an outstanding performance given the difficulties many of our cargo competitors have experienced globally, and was largely driven by the additional cargo capacity available on the Boeing ER, combined with yield growth. We are beginning to feel the benefits of a more modern, fuel efficient fleet. With the exception of our two soon to be retired Boeing s, our entire fleet is now comprised of twin engine aircraft, allowing us to achieve significant savings in both fuel and maintenance costs. We are ahead of schedule on our programme to realise $250 million in profit improvements by 205. A continued focus on cost reduction has allowed us to achieve a 4.7 percent decrease in unit cost across the Group a significant step. As an organisation, we play a fundamental role in making New Zealand tick. Whether providing the means for a businessperson to travel throughout New Zealand, or carrying live seafood on export to Asia, we are inextricably linked to the success of our economy as a whole. Last year we directly contributed well over $ billion to the New Zealand economy, employing some,000 Air New Zealanders, most of whom are based here on our shores. We facilitate tourism spending amounting to $2.6 billion annually. On my arrival at Air New Zealand in May 20, it was clear to me that this is an organisation that does things well. We have a deeply customer centric culture, and our staff display a genuine passion for their work. It is for this reason that we have won a range of awards in recent years, including ATW Airline of the Year and the country s most attractive employer. The challenge for me is how to improve on this. How to maintain and nurture the best elements of our business, while stepping up to the next level of performance. I would like to acknowledge the contributions of my predecessor Rob Fyfe, who has left a very strong foundation for me to build on. Rob generously allowed me to begin the transition process last year while he was still Chief Executive, enabling me to hit the ground running on January 203. We have instituted a new functional organisation structure, with a centralised sales function. This will enable us to improve our sales execution and market development something I am genuinely passionate about. My senior management team has been restructured, incorporating what I believe is the best mix of deep institutional knowledge and world class management expertise. Our new Go Beyond strategic initiative is the culmination of several months of thinking. Go Beyond highlights what we need to do to take our organisation to the next level and literally go beyond, in terms of our customer experience, our marketplace execution, our operational intensity, and our people. Importantly, it defines what commercial success will look like in order for us to deliver much improved returns to our shareholders. I am looking forward to the journey. Christopher Luxon CHIEF EXECUTIVE OFFICER We facilitate inbound tourism spending amounting to an extraordinary $2.6 billion annually. Air New Zealand interim Shareholder Review 203 Air New Zealand interim Shareholder Review 203 6

5 Financial Commentary Change in Profitability Air New Zealand s normalised earnings before taxation for the first half of the 203 financial year were $39 million, a more than 300 percent increase on the same period last year. Statutory net profit after taxation was $00 million, compared with $38 million in the prior year. The result indicates strong earnings momentum underpinned by strong revenue growth and improving cost efficiencies. DIVIDEND PAYMENT 3.0 CENTS PER SHARE DIVIDEND RECORD DATE 5 MARCH 203 DIVIDEND PAYMENT DATE 22 MARCH 203 REVENUE Operating revenue for the six months increased $78 million to $2.4 billion, up 3.4 percent on the same period last year. Removing the impact of foreign exchange movements, operating revenue was up 3.5 percent. Passenger revenue increased by $65 million, or 3.5 percent, compared with the same period last year. The increase can be attributed to increased capacity of 2.7 percent on last year, together with yield improvements. Load factors increased 0.4 of a percentage point to 83.2 percent. Foreign exchange had a $7 million negative impact on passenger revenue, with the New Zealand dollar being slightly stronger against the majority of Air New Zealand s major trading currencies. Passenger yield on the International long haul network increased 3.8 percent, on a 0.9 percent increase in capacity as a result of network optimisation. The poorly performing Hong KongLondon route saw a reduction in services, with the resulting capacity transferred to markets experiencing strong demand. Passenger load factor on the International long haul network increased.6 percentage points to 83.8 percent. Capacity on the Tasman and Pacific Island routes increased 6.4 percent, driven by the deployment of Boeing ER aircraft on the AucklandPerth and AucklandHonolulu routes, increased services on WellingtonSydney, and seasonal services to Bali and the Sunshine Coast. Yield was up.3 percent on increased traffic of 4.4 percent. Load factors decreased by.6 percentage points reflecting the strong Rugby World Cup traffic in the prior period. The Domestic network saw a capacity increase of.6 percent, with the introduction of a new Airbus A320 partially offset by the temporary grounding of the Beech 900D fleet due to unscheduled maintenance requirements. Yield decreased 4.3 percent as a result of price reductions to stimulate demand such as the Night Rider promotion. Load factors remained stable at 8. percent. Cargo saw positive growth during the period, with revenue increasing by $3 million, or 9 percent to $64 million. Volume increased by 6 percent on a 7 percent increase in capacity as a result of the improved cargo capabilities of the Boeing ER. Yield increased by 2 percent. Contract Services and Other Revenue was $275 million, unchanged from the previous period. An increased focus on ancillary revenue was offset by slight reductions in revenue from third party engineering services. EXPENSES Operating expenditure decreased $23 million, or.2 percent. Excluding the impact of hedges related to other periods, operating expenditure was down 2. percent on the previous period, on a 2.7 percent capacity increase. Unit costs reduced by 4.7 percent as a result of labour cost efficiencies and a continued cost focus, combined with the benefit of reduced hedge losses as previous year hedges have unwound. Air New Zealand interim Shareholder Review 203 Labour and personnel related costs decreased by $3 million, or 0.6 percent to $53 million for the period. This was driven mostly by productivity improvements, offset by rate increases. Headcount reduced by 2.6 percent. Fuel costs for the six months to December 202 increased by $2 million, excluding the impact of hedges related to other periods. The Group undertakes a fuel hedging programme, a large portion of which is crude oil. Due to ongoing volatility in the refining margin, the hedging programme was not as effective as expected, resulting in half year losses of $2 million, a $6 million improvement on the previous period. Expenses related to aircraft maintenance and overhaul decreased by $2 million or 7.5 percent, due to the completion of end of lease activity and timing of maintenance cycles. Aircraft operations costs during the period increased $9 million, or 9.6 percent. The large majority of this increase can be attributed to higher landing charges, primarily at New Zealand domestic airports, combined with capacity related increases. The fleet replacement programmes, including the entry of the Boeing ER and exit of Boeing aircraft, led to increased depreciation and reduced lease costs as owned aircraft replaced leased aircraft in the fleet. Net finance costs were down $2 million on the previous period, due to higher average cash holdings in the period. FOREIGN EXCHANGE IMPACT The impact of a stronger US dollar on revenues and costs combined with a stronger New Zealand dollar against Air New Zealand s other major trading currencies resulted in a $6 million negative foreign exchange movement, which is offset by benefits from the hedging programme. Due to the effective hedge rate being higher than the market rate, realised gains were $3 million compared with losses in the prior period, resulting in a yearonyear improvement, excluding the impact of hedges related to other periods, of $42 million. CASH AND FINANCIAL POSITION Closing net cash for the period was $. billion, an increase of $48 million on June 202. The key drivers were strong operating cash flows offset by the acquisition of fixed assets and debt repayments. Net cash generated from operating activities was $343 million, an increase of $97 million. Net gearing, including capitalised operating leases improved 4.3 percentage points to 4.8 percent. Normalised Earnings Normalised earnings represents earnings stated in compliance with NZ IFRS after excluding net gains and losses on derivatives that hedge exposures in other financial periods. Normalised earnings is a nonifrs financial performance measure that matches derivative gains or losses with the underlying hedged transaction, and represents the underlying performance of the business for the relevant period. Normalised earnings is reported within the Group s interim financial statements and is subject to review by the Group s external auditors. The key changes in profitability are broken down in the table below *. December 20 normalised earnings before taxation $33m Passenger yield $5m Passenger traffic $57m Cargo, contract services and other revenue $m Labour $3m Fuel $6m Maintenance $3m Aircraft operations Depreciation, lease and funding costs $9m $m Net impact of foreign exchange movements $26m Growth in higher yielding international markets offset by lower yields in short haul to stimulate demand Long haul yields improved by 3.8 percent (4.3 percent FX Adjusted) Short haul yields deteriorated 2.2 percent Other $5m Continued cost focus December 202 normalised earnings before taxation $39m $2m December 202 earnings before taxation $4m Passenger demand was up 3.2 percent, driven by strong demand in International (up 3.0 percent) and Tasman Pacific (up 4.4 percent) Capacity increased by 2.7 percent, with growth across the network The resulting passenger load factor for the Group improved 0.4 percentage points to 83.2 percent Increase in cargo volumes and yield and focus on ancillary revenue Reduced headcount and productivity improvements more than offset rate increases The average US$ into plane cost decreased 2.8 percent compared with last year offset by higher consumption due to an increase in capacity of 2.7 percent Timing on maintenance cycles and completion of end of lease activity Landing charge price increases across New Zealand airports and activity driven cost increases Depreciation costs increase reflecting the full period impact of investment in B777300ER aircraft in the prior year offset by lease savings The impact of currency movements on revenue and costs, including reduced foreign exchange hedging losses Net impact of derivatives that hedge exposures in other financial periods * The numbers in this table separate the impact of foreign exchange and derivatives that hedge exposures in other financial periods. The numbers referred to in the Financial Commentary on the previous page have not had these impacts separated. Share Registrar Interim Financial Statements Investor Relations Office Link Market Services Limited Level 6, Brookfields House, 9 Victoria Street West, Auckland, New Zealand, 00 PO Box 9976, Auckland, 42, New Zealand enquiries@linkmarketservices.co.nz Website: New Zealand Phone: (64 9) Fax: (64 9) Australia Phone: (6 2) The Interim Financial Statements are available by visiting our website OR you may elect to have a copy sent to you by contacting Investor Relations. Electronic Shareholder Communication If you would like to receive all investor communications electronically, including interim and annual shareholder reviews, please visit the Link Market Services website or contact them directly (details to the left). Private Bag 92007, Auckland, 42, New Zealand Phone: (New Zealand) (64 9) (Overseas) Fax: (64 9) investor@airnz.co.nz Website: Air New Zealand interim Shareholder Review 203 8

6 Financial Summary Financial Summary continued Financial Performance (unaudited) Operating Revenue Passenger revenue Cargo Contract services and other revenue Operating Expenditure Labour Fuel Maintenance Aircraft operations Passenger services Sales and marketing Foreign exchange gains/(losses) Other expenses Earnings Before Finance Costs, Depreciation, Amortisation, Rental Expenses and Taxation Depreciation and amortisation Rental and lease expenses Earnings Before Finance Costs and Taxation Net finance costs Profit Before Taxation Taxation expense 3 DEC 202, ,369 (53) (633) (47) (27) (7) (43) 3 (20) 3 DEC 20, ,29 (534) (606) (59) (98) (22) (38) (46) (25) 2 MONTHS TO 30 JUN 202 3, ,483 (,050) (,29) (303) (390) (233) (270) (68) (235) (,905) (,928) (3,768) 464 (203) (9) 70 (29) 4 (4) 363 (7) (07) 85 (3) 54 (6) Net Profit Attributable to Shareholders of Parent Company Interim and final dividend declared per share (cents) Net tangible assets per share (cents) Supplementary Information Earnings before Taxation (per NZ IFRS above) Reverse net (gains)/losses on derivatives that hedge exposures in other financial periods: Fuel derivatives Foreign exchange derivatives (2) (27) 6 75 (348) (209) 58 (64) 94 (23) Normalised Earnings before Taxation Normalised Earnings after Taxation Normalised Earnings represents Earnings stated in compliance with NZ IFRS after excluding net gains and losses on derivatives that hedge exposures in other financial periods. Normalised Earnings is a nonifrs financial performance measure that matches derivative gains or losses with the underlying hedged transaction, and represents the underlying performance of the business for the relevant period. Cash Flows (unaudited) Cash inflows from operating activities Cash outflows from operating activities Rollover of foreign exchange contracts relating to operating activities Net cash flow from operating activities Net cash flow from investing activities Net cash flow from financing activities Increase in cash and cash equivalents Cash and cash equivalents at the beginning of the period 3 DEC 202 2,374 (2,037) (94) (0) 48,027 3 DEC 20 2,99 (2,053) (330) () 8 2 MONTHS TO 30 JUN 202 4,544 (4,089) Cash and Cash Equivalents at the End of the Period,075 92, (654) Financial Position (unaudited) AS AT 3 DEC 202 Bank and short term deposits Trade and other receivables Inventories Derivative financial assets Income taxation Other assets, DEC JUN 202 Total Current Assets,659,64,700 Trade and other receivables Property, plant and equipment Intangible assets Investment in quoted equity instruments Investments in other entities Derivative financial assets Other assets 48 3, , Total NonCurrent Assets 3,772 3,559 3,759 Total Assets 5,43 5,73 5,459 Bank overdraft and short term borrowings Trade and other payables Revenue in advance Interestbearing liabilities Derivative financial liabilities Provisions Income taxation Other liabilities Total Current Liabilities,648,630,683 Revenue in advance Interestbearing liabilities Provisions Other liabilities Deferred taxation Total NonCurrent Liabilities 2,03,953 2,088 Total Liabilities 3,679 3,583 3,77 Net Assets,752,590,688 Issued capital Reserves Noncontrolling interests Total Equity,752,590,688 The summary financial information has been derived from and should be read in conjunction with, the Air New Zealand Group interim financial statements (the Interim Financial Statements ). The Interim Financial Statements, dated 28 February 203, are available at: The summary financial information cannot be expected to provide as complete an understanding as provided by the Interim Financial Statements. The accounting policies used in these financial statements are consistent with those used as at 30 June 202 with the exception of the adoption of amendments to NZ IAS Presentation of Financial Statements which was adopted on July , ,275 (524) , ,277 (689) 2, , , ,282 (596) 2 Air New Zealand interim Shareholder Review 203 Air New Zealand interim Shareholder Review 203 0

7 Going the smile extra airnewzealand.co.nz