New Zealand Professional Investment Services Firm

Forsyth Barr

We are proud to be a New Zealand owned firm, with 21 offices throughout the country and over 300 employees. We assist personal, institutional and corporate clients providing a full range of investment services.

Forsyth Barr is a foundation New Zealand Exchange firm (NZX) and accredited market participant. We have been confirmed by the Financial Markets Authority as a Qualifying Financial Entity (QFE).

Research is the cornerstone of our advice. We have one of New Zealand's leading teams of analysts. Our global affiliations ensure comprehensive research coverage of all major investment markets.

New Zealand Professional Investment Services Firm, Forsyth Barr

Equity Bottom-Up

<h2>Air New Zealand (AIR) 1H21 Result Initial Thoughts</h2>
Air New Zealand (AIR) reported a significant underlying pre-tax loss (-NZ$185m), in line with our expectations (-NZ$184m), reflecting the COVID-19 decimation of international passenger travel. The company has done well to offset the lower demand environment with cost initiatives, which have helped limit the damage to the balance sheet. In particular net asset value (NAV) is NZ$1.13 per share at Dec 2020, compared to NZ$1.17 at June 2020 (down just 4c), supported by several favourable significant items (including non-cash foreign exchange gains) partially offsetting an underlying NPAT loss.
However, substantial cash burn has continued, averaging NZ$95m per month through 1H21. AIR has taken ~NZ$350m of the government’s NZ$900m loan facility (less than expected due to it managing cash holdings lower) and now has ~NZ$700m of short term liquidity available compared to ~NZ$1bn at the end of September last year. It remains committed to a capital raise by June 2021. Despite a lower level of anticipated cash burn through 2H21, it is likely to require ~NZ$2bn should borders remain closed for the remainder of CY21 in order to revert back to the lower end of its previous gearing target band. No interim dividend has been declared.
Outlook
The company is not providing any earnings guidance for FY21 at this stage, but does state that it expects to generate a “significant loss”. It has lowered its monthly cash burn expectations to NZ$45m-NZ$55m from NZ$69m in 2Q21 and NZ$122m in 1Q21.
Conference call
AIR will host a 10am result conference call that will be webcast:&nbsp;<a href="https://edge.media-server.com/mmc/p/8pk6stwo" target="_blank" data-saferedirecturl="https://www.google.com/url?q=https://edge.media-server.com/mmc/p/8pk6stwo&amp;source=gmail&amp;ust=1614296932322000&amp;usg=AFQjCNHrdSOpjCT2I88_nbnk_nXP13jqrw" rel="noopener">https://edge.media-server.com/mmc/p/8pk6stwo</a>
Result summary (NZ$m)
<table class="table table-striped">
<tbody>
<tr>
<td style="width: 170.8pt;"></td>
<td style="width: 51.8pt;">
1H20
</td>
<td style="width: 51.8pt;">
1H21
</td>
<td style="width: 51.8pt;">
Change
</td>
</tr>
<tr>
<td style="width: 170.8pt;">
Domestic
</td>
<td style="width: 51.8pt;">
851
</td>
<td style="width: 51.8pt;">
574
</td>
<td style="width: 51.8pt;">
-32.5%
</td>
</tr>
<tr>
<td style="width: 170.8pt;">
Tasman &amp; Pacific Islands
</td>
<td style="width: 51.8pt;">
688
</td>
<td style="width: 51.8pt;">
41
</td>
<td style="width: 51.8pt;">
-94.1%
</td>
</tr>
<tr>
<td style="width: 170.8pt;">
Short-haul
</td>
<td style="width: 51.8pt;">
1,539
</td>
<td style="width: 51.8pt;">
615
</td>
<td style="width: 51.8pt;">
-60.1%
</td>
</tr>
<tr>
<td style="width: 170.8pt;">
International
</td>
<td style="width: 51.8pt;">
1,038
</td>
<td style="width: 51.8pt;">
93
</td>
<td style="width: 51.8pt;">
-91.0%
</td>
</tr>
<tr>
<td style="width: 170.8pt;">
Passenger revenue
</td>
<td style="width: 51.8pt;">
2,576
</td>
<td style="width: 51.8pt;">
708
</td>
<td style="width: 51.8pt;">
-72.5%
</td>
</tr>
<tr>
<td style="width: 170.8pt;">
Cargo
</td>
<td style="width: 51.8pt;">
195
</td>
<td style="width: 51.8pt;">
373
</td>
<td style="width: 51.8pt;">
91.3%
</td>
</tr>
<tr>
<td style="width: 170.8pt;">
Contract services (&amp; other)
</td>
<td style="width: 51.8pt;">
117
</td>
<td style="width: 51.8pt;">
93
</td>
<td style="width: 51.8pt;">
-20.5%
</td>
</tr>
<tr>
<td style="width: 170.8pt;">
Other revenue
</td>
<td style="width: 51.8pt;">
127
</td>
<td style="width: 51.8pt;">
60
</td>
<td style="width: 51.8pt;">
-52.8%
</td>
</tr>
<tr>
<td style="width: 170.8pt;">
Sales revenue
</td>
<td style="width: 51.8pt;">
3,015
</td>
<td style="width: 51.8pt;">
1,234
</td>
<td style="width: 51.8pt;">
-59.1%
</td>
</tr>
<tr>
<td style="width: 170.8pt;">
EBITDRA
</td>
<td style="width: 51.8pt;">
615
</td>
<td style="width: 51.8pt;">
222
</td>
<td style="width: 51.8pt;">
-63.9%
</td>
</tr>
<tr>
<td style="width: 170.8pt;">
Depreciation and amortisation
</td>
<td style="width: 51.8pt;">
(301)
</td>
<td style="width: 51.8pt;">
(373)
</td>
<td style="width: 51.8pt;">
23.9%
</td>
</tr>
<tr>
<td style="width: 170.8pt;">
Interest expense
</td>
<td style="width: 51.8pt;">
(14)
</td>
<td style="width: 51.8pt;">
(44)
</td>
<td style="width: 51.8pt;">
214.3%
</td>
</tr>
<tr>
<td style="width: 170.8pt;">
Associates
</td>
<td style="width: 51.8pt;">
23
</td>
<td style="width: 51.8pt;">
10
</td>
<td style="width: 51.8pt;">
-56.5%
</td>
</tr>
<tr>
<td style="width: 170.8pt;">
PBT
</td>
<td style="width: 51.8pt;">
323
</td>
<td style="width: 51.8pt;">
(185)
</td>
<td style="width: 51.8pt;">
-157.3%
</td>
</tr>
<tr>
<td style="width: 170.8pt;">
Taxation
</td>
<td style="width: 51.8pt;">
(49)
</td>
<td style="width: 51.8pt;">
32
</td>
<td style="width: 51.8pt;">
-164.9%
</td>
</tr>
<tr>
<td style="width: 170.8pt;">
Underlying NPAT
</td>
<td style="width: 51.8pt;">
274
</td>
<td style="width: 51.8pt;">
(153)
</td>
<td style="width: 51.8pt;">
-156.0%
</td>
</tr>
<tr>
<td style="width: 170.8pt;">
Abnormals (post tax)
</td>
<td style="width: 51.8pt;">
(48)
</td>
<td style="width: 51.8pt;">
81
</td>
<td style="width: 51.8pt;">
n/a
</td>
</tr>
<tr>
<td style="width: 170.8pt;">
Reported NPAT
</td>
<td style="width: 51.8pt;">
226
</td>
<td style="width: 51.8pt;">
(72)
</td>
<td style="width: 51.8pt;">
-131.9%
</td>
</tr>
<tr>
<td style="width: 170.8pt;">
Underlying EPS (cents)
</td>
<td style="width: 51.8pt;">
24.4
</td>
<td style="width: 51.8pt;">
(13.6)
</td>
<td style="width: 51.8pt;">
-155.9%
</td>
</tr>
<tr>
<td style="width: 170.8pt;">
Interim DPS (cents)
</td>
<td style="width: 51.8pt;">
0.0
</td>
<td style="width: 51.8pt;">
0.0
</td>
<td style="width: 51.8pt;">
n/a
</td>
</tr>
</tbody>
</table>
Source: Forsyth Barr analysis
Andy Bowley&nbsp; Head of Research
<figure class="editor-figure mceNonEditable"><img src="https://mail.google.com/mail/u/0?ui=2&amp;ik=f57c39853c&amp;attid=0.2&amp;permmsgid=msg-f:1692610280283503441&amp;th=177d5c150378fb51&amp;view=fimg&amp;sz=s0-l75-ft&amp;attbid=ANGjdJ-uGMUXknl_HUlo-qCXhwbSGUnoWkSGg83bm65h7tny9MPZlnJ_Z6O4gSRdFCNFYEQqaYm8BiGDpOPFnCyQhtiamwWkNIxyEwt13Jotbr1MQ3ceprpPcaBn630&amp;disp=emb" class="editor-image img-responsive"></figure>
 M: +64 21 338 941 |P: +64 4 495 8246 | TF: 0800 367 227&nbsp; Level 22, NTT Tower, 157 Lambton Quay, Wellington

Air New Zealand (AIR) 1H21 Result Initial Thoughts
Air New Zealand (AIR) reported a significant underlying pre-tax loss (-NZ$185m), in line with our expectations (-NZ$184m), reflecting the COVID-19 decimation of international passenger travel. The company has done well to offset the lower demand environment with cost initiatives, which have helped limit the damage to the balance sheet. In particular net asset value (NAV) is NZ$1.13 per share at Dec 2020, compared to NZ$1.17 at June 2020 (down just 4c), supported by several favourable significant items (including non-cash foreign exchange gains) partially offsetting an underlying NPAT loss.
However, substantial cash burn has continued, averaging NZ$95m per month through 1H21. AIR has taken ~NZ$350m of the government’s NZ$900m loan facility (less than expected due to it managing cash holdings lower) and now has ~NZ$700m of short term liquidity available compared to ~NZ$1bn at the end of September last year. It remains committed to a capital raise by June 2021. Despite a lower level of anticipated cash burn through 2H21, it is likely to require ~NZ$2bn should borders remain closed for the remainder of CY21 in order to revert back to the lower end of its previous gearing target band. No interim dividend has been declared.
Outlook
The company is not providing any earnings guidance for FY21 at this stage, but does state that it expects to generate a “significant loss”. It has lowered its monthly cash burn expectations to NZ$45m-NZ$55m from NZ$69m in 2Q21 and NZ$122m in 1Q21.
Conference call
AIR will host a 10am result conference call that will be webcast:&nbsp;https://edge.media-server.com/mmc/p/8pk6stwo
Result summary (NZ$m)





1H20


1H21


Change




Domestic


851


574


-32.5%




Tasman &amp; Pacific Islands


688


41


-94.1%




Short-haul


1,539


615


-60.1%




International


1,038


93


-91.0%




Passenger revenue


2,576


708


-72.5%




Cargo


195


373


91.3%




Contract services (&amp; other)


117


93


-20.5%




Other revenue


127


60


-52.8%




Sales revenue


3,015


1,234


-59.1%




EBITDRA


615


222


-63.9%




Depreciation and amortisation


(301)


(373)


23.9%




Interest expense


(14)


(44)


214.3%




Associates


23


10


-56.5%




PBT


323


(185)


-157.3%




Taxation


(49)


32


-164.9%




Underlying NPAT


274


(153)


-156.0%




Abnormals (post tax)


(48)


81


n/a




Reported NPAT


226


(72)


-131.9%




Underlying EPS (cents)


24.4


(13.6)


-155.9%




Interim DPS (cents)


0.0


0.0


n/a




Source: Forsyth Barr analysis
Andy Bowley&nbsp; Head of Research

 M: +64 21 338 941 |P: +64 4 495 8246 | TF: 0800 367 227&nbsp; Level 22, NTT Tower, 157 Lambton Quay, Wellington

Air New Zealand (AIR): 1H21 Result Initial Thoughts