Airwork Holdings Limited 2017 Annual Results Presentation August 2017
IMPORTANT NOTICE This presentation contains not only a review of operations, but also some forward looking statements about Airwork Holdings Limited (Airwork) and the environment in which the company operates. These forward looking statements are based on current expectations, and involve assumptions, risks and uncertainties. Airwork’s actual results could be affected by a number of factors and accordingly could differ materially. There can be no assurance that any result contemplated in any forward looking statement will be realised and Airwork gives no warranty or representation as to future performance. Media releases, annual and interim reports, Airwork’s 2013 investment statement, the 2017 target company statement, and other information is available in respect of the company and these contain additional information about matters which could cause Airwork’s performance to differ from any forward looking statements in this presentation. This presentation must be considered in the wider context of material previously published by Airwork. The information in this presentation is in a summary form, and accordingly is not necessarily complete. No representation or warranty is made as to the accuracy or completeness of the information contained. A number of non-GAAP financial measures are used in this presentation due to the fact they are widely accepted financial indicators used by investors and analysts to analyse and compare companies. You should not consider any of these in isolation from, or as a substitute for, the information provided in the consolidated financial statements. All amounts are in New Zealand dollars unless otherwise stated. 2
CONTENTS • Executive Summary • 2017 Result Financial Summary o • 2017 Divisional Review Fixed Wing Review o Helicopter Review o Cash Flow o Capex o Net Debt o • Strategy and Outlook Appendices 3
EXECUTIVE SUMMARY • Airwork’s result for the 2017 financial year in line with expectations – NPAT $24.8m • Final dividend of 9 cents per share, bringing total dividend for the year to 17 cents (FY16: 17 cents) • EBIT growth of 6.4% due to significant expansion of the Fixed Wing division • Cash flows remain strong • The result highlights the benefits of Airwork’s diversified businesses, global footprint and revenue streams • Debt facilities refinanced in July 2017 with a newly syndicated debt facility of approx. US$195m • Outlook: continue to focus on diversifying customer base, redeploying unleased helicopters and expanding global footprint • The Directors would like to acknowledge the significant efforts and dedication of the Airwork team located around the world who have delivered this result, whilst managing a significant amount of change, including the RIFA partial takeover 4
2017 RESULT – FINANCIAL SUMMARY FY17 FY16 Change $’000s $’000s Total Revenue 165,983 168,361 1.4% Total Income 165,983 183,059 10.3% EBITDA 87,910 69,019 27.4% EBIT 39,677 37,292 6.4% NPAT 24,766 24,604 0.7% Return on Capital Employed 1 14.2% 14.0% 0.2 ppt Return on Capital Employed (excl. Capital WIP) 14.7% 16.8% (2.1 ppt) Return on Shareholders' Funds 2 21.7% 23.0% (1.3 ppt) Earnings per share - basic (cps) 48.3 49.0 (1.4%) Dividends (cps) 17.0 17.0 - 1. Return on Capital Employed: EBIT / Average funds employed (shareholders’ funds plus net debt) 2. Return on Shareholders’ Funds: NPAT / Average shareholders’ funds • FY17 includes insurance proceeds of $14.7m and impairment expense of $13.0m following an aircraft landing incident in August 2016; offset by aircraft delivery delays, significant fleet induction costs, and loss of revenue resulting from the aircraft landing incident • Expected reduction in ROCE as a result of the downturn in the helicopter division 5
OPERATING REVENUE FY17 shows the consolidation of the business following a period of significant investment and growth 6
EBIT: GROUP PERFORMANCE EBIT growth in FY17 driven by increased Fixed Wing activity and highlights the benefit of diversified businesses and revenue streams Note: EBIT is a non GAAP measure. It is determined based on reported operating profit after depreciation, amortisation and impairment expenses 7
EBIT: DIVISIONAL REVIEW • Increase in Fixed Wing earnings from expansion of B737-400 fleet • Reduced Helicopter earnings due to: market slowdown; reduced aircraft yield due to the non-recurrence of certain high yielding contracts recognised in the prior year; and a change in mix of MRO activity Note: EBIT is a non GAAP measure. It is determined based on reported operating profit after depreciation, amortisation and impairment expenses 8
FIXED WING REVIEW FY17 FY16 FY15 $’000s $’000s $’000s Total revenue 80,364 59,463 93,172 EBITDA (excluding insurance income) 56,799 44,063 25,631 EBIT 20,548 10,625 31,324 EBITDA Margin 61.0% 54.8% 43.1% Return on invested capital 1 17.9% 12.8% 11.3% Return on invested capital (excl Capital WIP) 2 17.7% 15.6% 19.0% Fleet: number of aircraft at end of period (owned and operated) • Boeing 737 - 400/300 19 18 17 • Other - 5 10 • Total 19 23 27 Percentage change of flying hours from prior period 3 4% 34% (5%) 1. Return on Invested Capital: EBIT / Average Capital Employed 2. Capital WIP mostly relates to work in progress on B737 passenger to cargo conversions 3. The change in flying hours are shown for owned and leased aircraft, excluding fixed rate leases where flying hours do not impact revenue • Fixed wing earnings include the full year impact of capex programmes initiated in prior years • EBITDA margin improvement reflects increased dry leasing v ACMI activity • ACMI operational performance reflects induction of new aircraft into the fleet: 95% On Time Performance • FY17 EBIT includes insurance proceeds ($14.7m) less impairment expense ($13.0m) following an aircraft landing incident in August 2016. Pilot negotiations concluded with cost increases in FY’17 and beyond not fully recoverable from customers. Loss of revenue resulting from the aircraft landing incident, aircraft 9 delivery delays, and significant fleet induction costs also unfavourably impact EBIT
FIXED WING REVIEW Fleet composition Boeing Fleet Europe Europe Capital NZ Aus Africa Off lease Total freight passenger WIP 30 June 2017 3 6 4 4 2 - - 19 30 June 2016 3 5 4 3 1 2 - 18 • One B737-400F aircraft purchased and delivered to ACMI customer in New Zealand • Two B737-400F aircraft conversions completed and delivered to ACMI customer in Australia, and dry lease customer in Europe • Two B737-400 passenger aircraft purchased in Q2 and leased to dry lease customer in Europe for 24 months; provides feeder stock for future freighter conversions • Redeployment of three B737-300F to new customers: one ACMI lease, two dry lease • Disposal of one end of life B737-300 passenger airframe • One dry lease Boeing 737-400F aircraft damaged beyond economic repair in August 2016 • Further growth achieved through increased B737 engine leasing • One B737-400 passenger aircraft lease expires in December 2017; expect aircraft to undergo freighter conversion therefore earnings resume in Q2 FY’19 10
HELICOPTER REVIEW FY17 FY16 FY15 $’000s $’000s $’000s Revenue - Engineering 45,844 47,640 54,448 Revenue - Leasing 29,276 37,924 30,957 Revenue - Total 75,120 85,564 85,405 EBITDA 22,994 31,678 28,876 EBIT 15,348 23,800 20,510 EBITDA Margin 30.6% 37.0% 33.8% Return on invested capital 1 13.9% 23.2% 22.8% Percentage of revenue generated from new customers • Engineering 11% 19% 23% • Leasing 6% 2% 4% Helicopter fleet (owned) 39 39 36 Helicopter fleet (owned, operated and leased) 45 45 41 Uncontracted helicopters at end of year 2 9 5 9 1. Return on Invested Capital: EBIT / Average Capital Employed 2. Includes two helicopters that came off contract on 30 June 2017. At 28 August 2017, 6 helicopters are uncontracted • Reduction in Helicopter EBIT reflects a difficult market, particularly in the resources sector. Expected recovery of European and South American lease earnings did not materialise • Leasing revenue reduced with significant reduction in PNG flying hours, the non-recurrence of certain high yielding short term contracts in the prior year, termination of a significant African contract in Q1 FY17, and prior year including $1.8m revenue recognised following commercial dispute resolution • Decline in Engineering external revenue reflects general market slowdown and change of mix with increased 11 internal support
HELICOPTER REVIEW • Mining revenue reduction following conclusion of African contract; focus on redeployment of uncontracted helicopters • Increased oil & gas revenues in South America negated by higher operating costs than expected • Redeployment of aircraft towards tourism and EMS activities • Continued challenges in the resources sector • Extract value of component parts on end of life helicopters to avoid capex and inventory purchases FY16 FY17 Revenue: $85.6m Revenue: $75.1m EBITDA: $31.7m EBITDA: $23.0m EBITDA margin: 37.0% EBITDA margin: 30.6% 12
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