Airwork Holdings Limited 2017 Annual Results Presentation August - - PowerPoint PPT Presentation

Airwork Holdings Limited

August 2017

2017 Annual Results Presentation

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

• f 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.

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CONTENTS

• Executive Summary
• 2017 Result
• Financial Summary
• 2017 Divisional Review
• Fixed Wing Review
• Helicopter Review
• Cash Flow
• Capex
• Net Debt
• Strategy and Outlook

Appendices

EXECUTIVE SUMMARY

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• 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

2017 RESULT – FINANCIAL SUMMARY

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1. Return on Capital Employed: EBIT / Average funds employed (shareholders’ funds plus net debt) 2. Return on Shareholders’ Funds: NPAT / Average shareholders’ funds

FY17 $’000s FY16 $’000s Change Total Revenue 168,361 165,983 1.4% Total Income 183,059 165,983 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

• 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

OPERATING REVENUE

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FY17 shows the consolidation of the business following a period of significant investment and growth

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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

EBIT: DIVISIONAL REVIEW

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• 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

FIXED WING REVIEW

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• 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 delivery delays, and significant fleet induction costs also unfavourably impact EBIT

FY17 $’000s FY16 $’000s FY15 $’000s Total revenue 93,172 80,364 59,463 EBITDA (excluding insurance income) 56,799 44,063 25,631 EBIT 31,324 20,548 10,625 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 19.0% 17.7% 15.6% Fleet: number of aircraft at end of period (owned and operated)

• Boeing 737 - 400/300

19 18 17

• Other
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• 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 REVIEW

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NZ Aus Europe freight Europe passenger Africa Capital WIP Off lease Total 30 June 2017 3 6 4 4 2

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30 June 2016 3 5 4 3 1 2

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• 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

Fleet composition

Boeing Fleet

HELICOPTER REVIEW

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FY17 $’000s FY16 $’000s FY15 $’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 year2 9 5 9

• 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

internal support

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

HELICOPTER REVIEW

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FY16 FY17 Revenue: $85.6m Revenue: $75.1m EBITDA: $23.0m EBITDA margin: 30.6% EBITDA: $31.7m EBITDA margin: 37.0%

• 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

CASH FLOW

FY17 $’000s FY16 $’000s FY15 $’000s Reported operating cash flows 62,474 45,928 40,025 Adjust for:

• Insurance proceeds

(14,698)

• Maintenance capex

(10,878) (12,274) (9,736) Underlying operating cash flows 36,898 33,654 30,289

• Scheduled debt repayment

(12,155) (9,841) (4,967) Free cash flow 24,743 23,813 25,321

Strong underlying Cash Flows

• Underlying cash flows remain strong
• Increased debtor aging profile reflects helicopter industry slow down, also reflected in a conservative

approach to debtor provisions

• Reduction in creditors reflects timing of creditor payments (including maintenance capex), payment
• f parts purchased on deferred terms in the prior year, and certain fixed wing operating costs now

paid directly by the customer (i.e. fuel, landing charges, airways charges)

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CAPEX

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• Total capex during FY17 ($57.6m), funded through operating cash flows and debt
• Growth capex:
• Helicopter ($6.7m): fleet purchases; Ardmore facility expansion; certification development
• Fixed Wing ($39.9m): aircraft purchases and freighter conversions; MRO system

implementation

FY17 $’000s FY16 $’000s FY15 $’000s Aircraft, property & other assets 57,347 89,037 83,084 Certification and software 262 768 808 Group capital expenditure 57,609 89,805 83,892 Comprising: Maintenance capex 10,878 12,274 9,736 Growth capex 1 46,731 77,531 74,156 Group capital expenditure 57,609 89,805 83,892

• 1. The Group defines growth capex as investments in new assets or product development to increase the

Group’s earning capacity. All other capex is defined as maintenance capex. Maintenance capex is recorded net

• f transfers to/from inventory.

• Debt facility refinanced in July 2017 with a newly established syndicated debt facility of approx.

US$195m

• Balance sheet at 30 June 2017 records $54.2m of Loans as current liabilities based on the old

facility maturity dates; amounts due for repayment within 12 months of balance date under the new facility is $14.7m

• Net debt as at 30 June 2017 was $156.8m, a decrease of $2.8m since 30 June 2016 ($159.6m):
• Includes $3.9m decrease due to FX with corresponding decrease in B737 aircraft values
• Insurance proceeds ($14.7m) applied to debt repayment, and redrawn as growth capex
• Balance due to growth capex net of operating cash flows

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NET DEBT

30 Jun 17 30 Jun 16 30 Jun 15 Equity ratio 1 40.1% 35.4% 37.5% Debt ratio 2 59.9% 64.6% 62.5% 1. Equity ratio is: Net Assets / (Total Assets less Cash) 2. Debt ratio is: (Total liabilities less Cash) / (Total Assets less Cash)

STRATEGY AND OUTLOOK

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Fixed Wing:

• Assess further fleet expansion opportunities
• Continue to deliver World Class on-time performance and focus on core customer requirements
• Target continued growth opportunities in MRO business
• Expect FY18 earnings to be similar to current year (net of insurance proceeds less impairment) ,

in view of scheduled passenger aircraft retirement and cost pressures in ACMI business Helicopters:

• Source contracts to redeploy / sell uncontracted aircraft
• Continue to focus on markets outside of resources sector (e.g. firefighting, utility, Government

services)

• Further extend certifications to develop IP in areas of core competency
• Continue to partner with OEMs
• Progressive fleet expansion in NZ (mainly tourism operations) and offshore, including new and

emerging markets

• Uncertain earnings outlook as challenges faced by resources sector continue to affect the

helicopter industry Pursue new opportunities that complement existing businesses Continue to evaluate future growth strategy including opportunities in China, and capital requirements

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Integrated Business with Highly Regulated Environment Established Business – Long Term Contracts Helicopter Engineering – Niche Market with High Barriers to Entry Growth Track Record and Significant Opportunities Experienced Board and Management Highly Diversified – Operations, Industries and Geographies Strong Cash Flow Business

Appendix 1: KEY ATTRIBUTES OF THE BUSINESS

Appendix 2: GLOBAL PRESENCE AND CAPABILITY

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