Airwrk Hldings Limited Half Year 2016 Results Presentatin February 2016
IMPORTANT NOTICE This presentatin cntains nt nly a review f peratins, but als sme frward lking statements abut Airwrk Hldings Limited (Airwrk) and the envirnment in which the cmpany perates. These frward lking statements are based n current expectatins, and invlve assumptins, risks and uncertainties. Airwrk s actual results culd be affected by a number f factrs and accrdingly culd differ materially. There can be n assurance that any result cntemplated in any frward lking statement will be realised and Airwrk gives n warranty r representatin as t future perfrmance. Media releases, management cmmentary, Airwrk s 2013 investment statement and ther infrmatin is available in respect f the cmpany and these cntain additinal infrmatin abut matters which culd cause Airwrk s perfrmance t differ frm any frward lking statements in this presentatin. Please read this presentatin in the wider cntext f material previusly published by Airwrk. The infrmatin in this presentatin is in a summary frm, and accrdingly is nt necessarily cmplete. N representatin r warranty is made as t the accuracy r cmpleteness f the infrmatin cntained. A number f nn-gaap financial measures are used in this presentatin due t the fact they are widely accepted financial indicatrs used by investrs and analysts t analyse and cmpare cmpanies. Yu shuld nt cnsider any f these in islatin frm, r as a substitute fr, the infrmatin prvided in the cnslidated financial statements. All amunts are in New Zealand dllars unless therwise stated. 2
CONTENTS Executive Summary Interim HY 2016 Result Highlights Financial Summary Interim HY 2016 Divisinal Review Helicpter Review Fixed Wing Review Operating Cash Flws Capex Net Debt Strategy and Outlk Cnclusin Appendices 3
EXECUTIVE SUMMARY Airwrk has delivered an imprved first half result fr the 2016 financial year Significant EBIT grwth f 76% in the Fixed Wing divisin driven by the successful cmmencement f B737-400 dry leasing cntracts annunced in FY15 Helicpter divisin EBIT grwth f 22% despite challenging market cnditins in sme sectrs, ntably Oil & Gas The result highlights the benefits f Airwrk s diversified businesses, glbal ftprint and revenue streams The Directrs have apprved a fully imputed Interim Dividend f 9.0 cents per share FY16 NPAT guidance in excess f $21m Outlk: cntinue expansin f glbal ftprint t identify and secure further grwth pprtunities The Directrs wuld like t acknwledge the significant effrts and dedicatin f the Airwrk team lcated arund the wrld wh have delivered this result, whilst managing a significant amunt f change 4
INTERIM HY 2016 RESULT FINANCIAL SUMMARY HY16 FY15 HY15 Change Ttal Revenue 83,365 70,260 18.7% EBITDA 33,897 22,439 51.1% EBIT 18,436 11,832 55.8% NPAT 11,607 7,885 47.2% Return n Capital Emplyed 1 14.6% 14.0% 15.2% (0.6 ppt) Return n Capital Emplyed (excl. Capital WIP) 17.7% 16.5% 15.9% 1.8 ppt Return n Sharehlders' Funds 2 22.3% 16.5% 17.0% 5.3 ppt Earnings per share - basic (cps) 23.1 15.7 47.2% Dividends (cps) 9.0 8.0 1.0 1. Return n Capital Emplyed: EBIT / Average funds emplyed (sharehlders funds plus net debt) 2. Return n Sharehlders Funds: NPAT / Average sharehlders funds 5
OPERATING REVENUE Revenue grwth reflects aircraft leasing additins acrss bth Fixed Wing and Helicpter businesses 6
EBIT: UNDERLYING PERFORMANCE Underlying EBIT shws cntinued grwth Nte: Underlying EBIT is a nn GAAP measure. It is determined based n reprted perating prfit after depreciatin, amrtisatin and impairment expenses adjusted fr: IPO csts in HY14. 7
EBIT: DIVISIONAL REVIEW Increase in Fixed Wing earnings frm expansin f B737-400 dry leases in Eurpe Prfitable Helicpter grwth due t high yielding shrt term cntracts ffsetting reduced flying in Oil & Gas sectr; fleet redeplyed t target specific pprtunities Nte: Underlying EBIT is a nn GAAP measure. It is determined based n reprted perating prfit after depreciatin, amrtisatin and impairment expenses adjusted fr: IPO csts in HY14 (Crprate) 8
HELICOPTER REVIEW HY16 FY15 HY15 HY14 Revenue - Engineering 24,486 26,536 21,010 Revenue - Leasing 19,556 15,656 10,292 Revenue - Ttal 44,042 42,192 31,302 EBITDA 16,081 13,854 9,568 EBIT 12,122 9,902 6,641 EBITDA Margin 36.5% 33.8% 32.8% 30.6% Return n invested capital 1 23.7% 22.8% 23.3% 17.5% Return n invested capital (excluding THL) n/a 24.9% 25.6% 19.5% Percentage f revenue generated frm new custmers Engineering 23% 3% 2% 20% Leasing 2% 4% 4% 3% Ttal helicpter fleet (wned and perated) 42 41 37 28 1. Return n Invested Capital: EBIT / Average Capital Emplyed 22% grwth in Helicpter divisin EBIT despite a difficult market, particularly in Oil & Gas with significant reductin in PNG flying hurs cmpared t prir perid Leasing revenue increased by 25% included significant shrt-term nn-recurring leases utilising existing assets Decline in Engineering external revenue reflects change f mix with increased internal supprt t enable Leasing grwth and slwdwn frm existing custmers (particularly helicpter sales t the Oil & Gas industry) netted ff with significant new custmer wins and wrkshp revenue grwth 9
HELICOPTER REVIEW Cntinued Leasing Fleet Grwth and redeplyment f assets Further investment in emerging Oil & Gas prjects in Suth America Tw helicpters redeplyed during the perid frm PNG fllwing slw-dwn in prjects ne further helicpter remved t date in H2 Redeplyment f 5 turism aircraft t new NZ based turism and charter peratrs 10
HELICOPTER REVIEW Cntinued expansin New custmers signed ff the back f nging certificatin expansin: FY14 Eurpe, Africa, Canada, Asia FY15 Suth America, Suth Africa FY16 USA certificatin expected in March New Zealand market share expansin acrss leasing and maintenance activities Reduced revenue frm Eurpean Supprt Cntract as expected, in line with custmer fleet reductin schedule N decisin received regarding utcme f The Helicpter Line legal actin Capacity expansin f Ardmre Engineering facility t meet demand Stage 1 new hangar; cmpleted June 2015 Stage 2 verhaul capacity increase; cmpletin delayed t April 2016 FAA apprval expected March 2016 11
HELICOPTER REVIEW Leasing revenue by industry Engineering revenue by industry HY15 HY15 HY16 HY16 11% reductin in Oil and Gas revenue share reflects sfter market cnditins in that industry Challenges faced by Oil and Gas industry affected the business, but were made up by increases in ther industry sectrs 31% reductin in Oil and Gas revenue share reflects fewer helicpter sales int industry Emergency and gvernment services (including defence) increase Excludes thrughput increase supprting Leasing fleet 12
FIXED WING REVIEW HY16 FY15 HY15 HY14 Ttal revenue 39,279 28,007 34,475 EBITDA 21,097 12,144 14,531 EBIT 9,760 5,548 6,922 EBITDA Margin 53.7% 43.4% 42.1% Return n invested capital 1 12.8% 11.3% 14.1% 15.7% Return n invested capital (excl Capital WIP) 2 17.9% 15.6% 15.5% 17.3% Fleet: number f aircraft at end f perid (wned and perated) Being 737-400/300 18 17 9 9 Other 7 10 10 11 Ttal 25 27 19 20 Percentage change f flying hurs frm prir perid 3 7% (5%) 4% 12% 1. Return n Invested Capital: EBIT / Average Capital Emplyed 2. Capital WIP mstly relates t wrk in prgress n B737 passenger t carg cnversins 3. The change in flying hurs are shwn fr wned and leased aircraft, excluding fixed rate leases where flying hurs d nt impact revenue Expansin f dry leasing fleet in Eurpe, plus impact f leases cmmenced in the prir year; all dry lease aircraft delivered Increased activity in New Zealand and Australia with delivery f tw B737-400 freighters; fur further aircraft t be delivered in H2 Increased Fixed Wing MRO activity with expansin f custmer base Dispsal f tw surplus nn-being aircraft and custmer dispsal f ne perated aircraft 13
FIXED WING REVIEW Fleet cmpsitin NZ Aus Eurpe Being Fleet Capital WIP Off lease Ttal 30 June 2015 1 4 5 6 1 17 Purchase - - - 1-1 Dispsals - - - - - - Net transfer 1 1 2 (3) (1) - 31 December 2015 2 5 7 4-18 Other NZ Ttal 10 27-1 (3) (3) - - 7 25 24 February 2016 2 6 7 3-18 4 21 Fur Being 737-400 freighter dry leases nw perating in Eurpe Cmbinatin f ACMI and Dry lease cntracts signed fr all three aircraft remaining in Capital WIP as at 24 February 2015 T be delivered t New Zealand and Australia thrughut FY16 Bank funding in place t deliver capital prgramme 14
FIXED WING REVIEW Cntinued exceptinal peratinal perfrmance: 97% On Time Perfrmance Cntinued margin imprvement thrugh Dry Leasing and expansin f MRO activity in New Zealand Perfrmance aided by: ne B737-400 passenger aircraft psitined with Eurpean custmer fr shrt-term green time lease, pending freighter cnversin; additin f 5th aircraft n shrt-term charter wrk in Australia First B737-400 delivered fr the Freightways Jint Venture and in service with Freightways and NZ Pst frm December 2015; tw mre deliveries scheduled in H2 Tw Being 737-300 freighters t be redeplyed nce ACMI fleet makeup is cnfirmed Ceased perating NZ Pst Metrliner fleet in January 2016 (3 aircraft) as part f transitin t new NZ airfreight netwrk 15
OPERATING CASH FLOW ANALYSIS Strng underlying Cash Flws HY16 HY15 HY14 Reprted perating cash flws 19,077 14,604 14,641 Adjust fr: IPO csts - - 1,254 Maintenance capex (4,884) (5,555) (6,198) Underlying perating cash flws 14,193 9,049 9,697 Scheduled debt amrtisatin (4,195) (2,188) (2,678) Free cash flw 9,998 6,861 7,019 Cash flws remain strng but are affected by wrking capital increase f $8.7 millin frm 30 June 2015, including: Trade debtr increase f $3.7 millin, reflecting revenue grwth, advance billings, and custmer credit extensin Inventry and WIP increase f $5.6 millin, due t increased Helicpter Leasing and Engineering activity and phasing f purchases fr upcming sales Net increase in payables and ther liabilities f $0.7 millin, relating t custmer depsits and prepayments fr new B737-400 dry leases and supplier deferred payment arrangements 16
CAPEX Ttal capex during HY16 ($57.0m), funded thrugh perating cash flws and debt Maintenance capex HY16: Fixed Wing ($2.4m) and Helicpters ($2.4m) Grwth capex: Helicpter ($3.4m): fleet grwth; Ardmre facility expansin; certificatin develpment Fixed Wing ($48.5m): B737-400 freighter cnversin prgramme; MRO system implementatin Grup ($0.2m): Finance and IT systems upgrades HY16 HY15 HY14 Prperty, plant & equipment capex 56,687 30,383 19,247 Intangible asset capex 286 307 600 Grup capital expenditure 56,973 30,690 19,847 Cmprising: Maintenance capex 4,884 5,555 6,198 Grwth capex 1 52,089 25,135 13,649 Grup capital expenditure 56,973 30,690 19,847 1. The Grup defines grwth capex as investments in new assets r prduct develpment t increase the Grup s earning capacity, all ther capex is defined as maintenance capex. 17
NET DEBT Net debt as at 31 December 2015 was $159.7m, an increase f $41.6m since 30 June 2015 ($118.1m): Includes $0.5m reductin due t FX with crrespnding reductin in B737 aircraft values Balance due t cntinued high Grwth Capex, especially with respect t the expansin f the Fixed Wing dry leasing fleet Future earnings frm fleet expansin will reduce initial increase in gearing required t fund aircraft investment 31 Dec 15 30 Jun 15 31 Dec 14 Equity rati 1 33.7% 37.1% 43.6% Debt rati 2 66.3% 62.9% 56.4% 1. Equity rati is: Net Assets / (Ttal Assets less Cash) 2. Debt rati is: (Ttal liabilities less Cash) / (Ttal Assets less Cash) Frecast Net Debt at 30 June 2016, fllwing cmpletin f B737-400 freighter cnversin prgramme and ther capex initiatives, including Ardmre facility expansin: apprx. $175m 18
STRATEGY AND OUTLOOK H1 result ahead f expectatin, which sets platfrm fr slid full year result Frecast FY16 NPAT in excess f $21m Fixed Wing: cmpletin f B737-400 freighter cnversin prgramme Deliver remaining B737-400 aircraft t wet lease custmers Assess further fleet expansin pprtunities Redeplyment f B737-300 freighter aircraft Cntinue t deliver Wrld Class n-time perfrmance and fcus n cre custmer requirements Target cntinued grwth pprtunities in MRO business Helicpters: cntinued fcus n rganic grwth f helicpter business in a challenging market Engineering / maintenance capacity expansin thrugh facility develpment Further extend certificatins (FAA certificatin expected in year) Cntinue t partner with OEMs Cntinue t fcus n markets utside f Oil and Gas (e.g. firefighting, utility, Gvernment services) Prgressive fleet expansin in NZ and ffshre, including new and emerging markets Challenges faced by Oil and Gas industry may lead t a decline in grwth rate in helicpter divisin, hwever there remains ptential fr greater leasing pprtunities thrugh prviding cst effective slutins Pursue new pprtunities that cmplement existing businesses 19
Appendix 1: PERFORMANCE BY DIVISION HY16 HY15 HY16 Grwth HY14 HY15 Grwth Revenue: Helicpters 44,042 42,192 4% 31,302 35% Fixed Wing 39,279 28,007 40% 34,459 (19%) Crprate 44 61-5 - Ttal Revenue 83,365 70,260 19% 65,766 7% EBITDA: Helicpters 16,081 13,854 16% 9,568 45% Fixed Wing 21,097 12,144 74% 14,531 (16%) Crprate & Other 1 (3,281) (3,559) (8%) (3,680) (3%) Ttal EBITDA 33,897 22,439 51% 20,419 10% EBIT: Helicpters 12,122 9,902 22% 6,641 49% Fixed Wing 9,760 5,548 76% 6,922 (20%) Crprate & Other 1 (3,446) (3,618) (5%) (3,707) (2%) Ttal EBIT 18,436 11,832 56% 9,856 20% 1. Crprate and Other includes head ffice csts, grup shared csts and the eliminatin f the results f inter-segment trading. 20
Appendix 2: HELICOPTER FLEET HY16 HY15 HY14 Leasing fleet Number f helicpters at end f perid: Owned 37 32 24 Leased 2 3 2 Ttal leasing fleet 39 35 26 Operated (nt wned r leased) 3 2 2 Ttal helicpter fleet 42 37 28 Average number f helicpters during the perid 42.2 35.7 30.2 Average revenue per helicpter equivalent ($'000s) 464 439 341 Fleet flying hurs - Percentage increase / (decrease) ver prir year Fleet Ttal 16% 25% (26%) Excluding Allway and THL 16% 40% (5%) 21
Appendix 3: FOREIGN EXCHANGE Revenue gains n FX largely neutralised thrugh: Increase COGS fr parts surced in USD Phasing f inventry purchases versus usage Increase depreciatin expense fr assets held in USD Increased USD interest cst expressed in NZD Revaluatin f freign currency debtrs, creditrs and debt Increased tax expense Increased USD capex expressed in NZD $67k net FX gains recgnised in the Incme Statement Average FX rates USD AUD EUR HY16 0.6451 0.8992 0.5852 HY15 0.7852 0.8964 0.6181 $682k net FX lsses n translatin f freign peratins have been recgnised as an equity decrease via Freign Currency Translatin Reserve Strategy f natural hedging prvides effective FX risk management A strng USD remains a net psitive fr Grup Earnings 22
Appendix 4: KEY ATTRIBUTES OF THE BUSINESS Integrated Business with Highly Regulated Envirnment Highly Diversified Operatins, Industries and Gegraphies Established Business Lng Term Cntracts Helicpter Engineering Niche Market with High Barriers t Entry Grwth Track Recrd and Significant Opprtunities Experienced Bard and Management Strng Cash Flw Business 23
Appendix 5: HELICOPTER MAINTENANCE CERTIFICATION Certificatin and IP expansin delivers new custmers 2010 2011 2012 2013 2014 2015 Future Canadian Overhaul Apprval BK117 Engine Upgrade Prgram Apprval in NZ BK117 Engine Upgrade Prgram Eurpean apprval Eurpean maintenance apprval Capability nw cvers: Eurpe, Canada, Suth America, rest f Asia and middle-east BK117 Engine Upgrade Prgram USA apprval Canadian (Tp 3) Majr BK117 Mdificatins Acquisitin f helicpter peratin in Africa extends engineering and perating capability BK117 Engine Upgrade Prgram Indnesian apprval Suth African Maintenance Apprval Papua New Guinea Maintenance and Design Apprval Cayman Islands Maintenance Apprval (Super Yacht aircraft in NZ) I-Plus Structural Repair Certificatin (Airbus Helicpters) American maintenance Apprval (FAA Part 145) est. March 2016 Eurpean Aircraft Design Apprval (Mdificatins) est. March 2016 FAA and EASA (Tp 3) Majr BK117 Mdificatins BK117 Glass Cckpit and Evlutin Certificatin (CAANZ) NZCAA Apprval Limited apprvals cvering NZ, Australia and parts f AsiaPac 55 61 61 170 170 190 305 Available BK117 market size 25