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 FY21 Result Initial Thoughts</h2>
Air New Zealand (AIR) reported another challenged full year result with an underlying PBT loss of –NZ$440m (compared to guidance of a loss of no more than –NZ$450m). While cargo services were strong (revenue +71%), and the domestic network resilient (down just -10%), international passenger services (down -89%) struggled. Cash burn reversed through 2H21 with an average monthly cash receipt of NZ$9m during the half compared to cash burn of NZ$96m per month in 1H21. Balance sheet gearing is 71% and dividends have been suspended until further notice.
Key points
<ul>
<li>NAV per share has fallen to 98c from NZ$1.17 at year end FY20. Likely to fall further in FY21 given loss-making outlook.</li>
<li>Cargo revenues were up +71% in FY21 as the company continues to benefit from the Government’s (MIAC) cargo scheme. AIR received NZ$333m in grants and assistance from governments during the year (NZ$321m from NZ).</li>
<li>Fuel hedging position suggests only small uptick in services through FY22. The company anticipates using 2.00m bbl of jet fuel in 1H21 rising to 2.25m in 2H22.</li>
<li>Still only drawn down NZ$350m of the government funding facility, with total liquidity available of ~NZ$1.3bn (NZ$183m cash and NZ$1.15bn undrawn government funding facility).</li>
</ul>
Outlook
FY22 earnings guidance has been suspended in light of the current domestic COVID-19 restrictions. Previously the company has said FY22 underlying PBT would be no worse than a loss of -NZ$530m. We believe consensus downgrades are likely.
Conference call
Management will host a post result conference call at 11am. This can be accessed via webcast&nbsp;or by pre-registered dial-in. Webcast:&nbsp;//<a href="http://edge.media-server.com/mmc/p/s4pogj3a" target="_blank" data-saferedirecturl="https://www.google.com/url?q=http://edge.media-server.com/mmc/p/s4pogj3a&amp;source=gmail&amp;ust=1630024792414000&amp;usg=AFQjCNFBwYn0-qplo6hsbQE_Ns8nSQV18w" rel="noopener">edge.media-server.com/mmc/p/s4pogj3a</a>&nbsp;Dial in:&nbsp;//<a href="http://apac.directeventreg.com/registration/event" target="_blank" data-saferedirecturl="https://www.google.com/url?q=http://apac.directeventreg.com/registration/event&amp;source=gmail&amp;ust=1630024792415000&amp;usg=AFQjCNFXtQDKxmAhRO3QVDiorjm63La2JA" rel="noopener">apac.directeventreg.com/registration/event</a>&nbsp;(ID: 6060799)
Result summary (NZ$m)
<table class="table table-striped">
<tbody>
<tr>
<td style="width: 170.8pt; height: 12.75pt;"></td>
<td style="width: 59.8pt; height: 12.75pt;">
FY20
</td>
<td style="width: 59.8pt; height: 12.75pt;">
FY21
</td>
<td style="width: 59.8pt; height: 12.75pt;">
Change
</td>
</tr>
<tr>
<td style="width: 170.8pt; height: 12.75pt;">
Domestic
</td>
<td style="width: 59.8pt; height: 12.75pt;">
1,324
</td>
<td style="width: 59.8pt; height: 12.75pt;">
1,190
</td>
<td style="width: 59.8pt; height: 12.75pt;">
-10.1%
</td>
</tr>
<tr>
<td style="width: 170.8pt; height: 12.75pt;">
Tasman &amp; Pacific Islands
</td>
<td style="width: 59.8pt; height: 12.75pt;">
970
</td>
<td style="width: 59.8pt; height: 12.75pt;">
142
</td>
<td style="width: 59.8pt; height: 12.75pt;">
-85.4%
</td>
</tr>
<tr>
<td style="width: 170.8pt; height: 12.75pt;">
Short-haul
</td>
<td style="width: 59.8pt; height: 12.75pt;">
2,294
</td>
<td style="width: 59.8pt; height: 12.75pt;">
1,332
</td>
<td style="width: 59.8pt; height: 12.75pt;">
-41.9%
</td>
</tr>
<tr>
<td style="width: 170.8pt; height: 12.75pt;">
International
</td>
<td style="width: 59.8pt; height: 12.75pt;">
1,648
</td>
<td style="width: 59.8pt; height: 12.75pt;">
138
</td>
<td style="width: 59.8pt; height: 12.75pt;">
-91.6%
</td>
</tr>
<tr>
<td style="width: 170.8pt; height: 12.75pt;">
Passenger revenue
</td>
<td style="width: 59.8pt; height: 12.75pt;">
3,942
</td>
<td style="width: 59.8pt; height: 12.75pt;">
1,470
</td>
<td style="width: 59.8pt; height: 12.75pt;">
-62.7%
</td>
</tr>
<tr>
<td style="width: 170.8pt; height: 12.75pt;">
Cargo
</td>
<td style="width: 59.8pt; height: 12.75pt;">
449
</td>
<td style="width: 59.8pt; height: 12.75pt;">
769
</td>
<td style="width: 59.8pt; height: 12.75pt;">
71.3%
</td>
</tr>
<tr>
<td style="width: 170.8pt; height: 12.75pt;">
Contract services (&amp; other)
</td>
<td style="width: 59.8pt; height: 12.75pt;">
216
</td>
<td style="width: 59.8pt; height: 12.75pt;">
161
</td>
<td style="width: 59.8pt; height: 12.75pt;">
-25.5%
</td>
</tr>
<tr>
<td style="width: 170.8pt; height: 12.75pt;">
Other revenue
</td>
<td style="width: 59.8pt; height: 12.75pt;">
229
</td>
<td style="width: 59.8pt; height: 12.75pt;">
117
</td>
<td style="width: 59.8pt; height: 12.75pt;">
-48.9%
</td>
</tr>
<tr>
<td style="width: 170.8pt; height: 12.75pt;">
Sales revenue
</td>
<td style="width: 59.8pt; height: 12.75pt;">
4,836
</td>
<td style="width: 59.8pt; height: 12.75pt;">
2,517
</td>
<td style="width: 59.8pt; height: 12.75pt;">
-47.9%
</td>
</tr>
<tr>
<td style="width: 170.8pt; height: 12.75pt;">
EBITDRA
</td>
<td style="width: 59.8pt; height: 12.75pt;">
786
</td>
<td style="width: 59.8pt; height: 12.75pt;">
339
</td>
<td style="width: 59.8pt; height: 12.75pt;">
-56.9%
</td>
</tr>
<tr>
<td style="width: 170.8pt; height: 12.75pt;">
Depreciation and amortisation
</td>
<td style="width: 59.8pt; height: 12.75pt;">
(841)
</td>
<td style="width: 59.8pt; height: 12.75pt;">
(716)
</td>
<td style="width: 59.8pt; height: 12.75pt;">
-14.9%
</td>
</tr>
<tr>
<td style="width: 170.8pt; height: 12.75pt;">
Interest expense
</td>
<td style="width: 59.8pt; height: 12.75pt;">
(71)
</td>
<td style="width: 59.8pt; height: 12.75pt;">
(82)
</td>
<td style="width: 59.8pt; height: 12.75pt;">
15.5%
</td>
</tr>
<tr>
<td style="width: 170.8pt; height: 12.75pt;">
Associates
</td>
<td style="width: 59.8pt; height: 12.75pt;">
39
</td>
<td style="width: 59.8pt; height: 12.75pt;">
19
</td>
<td style="width: 59.8pt; height: 12.75pt;">
-51.3%
</td>
</tr>
<tr>
<td style="width: 170.8pt; height: 12.75pt;">
Underlying PBT
</td>
<td style="width: 59.8pt; height: 12.75pt;">
(87)
</td>
<td style="width: 59.8pt; height: 12.75pt;">
(440)
</td>
<td style="width: 59.8pt; height: 12.75pt;">
405.7%
</td>
</tr>
<tr>
<td style="width: 170.8pt; height: 12.75pt;">
Taxation
</td>
<td style="width: 59.8pt; height: 12.75pt;">
23
</td>
<td style="width: 59.8pt; height: 12.75pt;">
130
</td>
<td style="width: 59.8pt; height: 12.75pt;">
477.8%
</td>
</tr>
<tr>
<td style="width: 170.8pt; height: 12.75pt;">
Underlying NPAT
</td>
<td style="width: 59.8pt; height: 12.75pt;">
(64)
</td>
<td style="width: 59.8pt; height: 12.75pt;">
(310)
</td>
<td style="width: 59.8pt; height: 12.75pt;">
380.6%
</td>
</tr>
<tr>
<td style="width: 170.8pt; height: 12.75pt;">
Abnormals (post tax)
</td>
<td style="width: 59.8pt; height: 12.75pt;">
(390)
</td>
<td style="width: 59.8pt; height: 12.75pt;">
21
</td>
<td style="width: 59.8pt; height: 12.75pt;">
n/a
</td>
</tr>
<tr>
<td style="width: 170.8pt; height: 12.75pt;">
Reported NPAT
</td>
<td style="width: 59.8pt; height: 12.75pt;">
(454)
</td>
<td style="width: 59.8pt; height: 12.75pt;">
(289)
</td>
<td style="width: 59.8pt; height: 12.75pt;">
-36.3%
</td>
</tr>
<tr>
<td style="width: 170.8pt; height: 12.75pt;">
Underlying EPS (cents)
</td>
<td style="width: 59.8pt; height: 12.75pt;">
(5.7)
</td>
<td style="width: 59.8pt; height: 12.75pt;">
(27.6)
</td>
<td style="width: 59.8pt; height: 12.75pt;">
380.6%
</td>
</tr>
<tr>
<td style="width: 170.8pt; height: 12.75pt;">
Final DPS (cents)
</td>
<td style="width: 59.8pt; height: 12.75pt;">
0.0
</td>
<td style="width: 59.8pt; height: 12.75pt;">
0.0
</td>
<td style="width: 59.8pt; height: 12.75pt;">
n/a
</td>
</tr>
</tbody>
</table>
Source: AIR, Forsyth Barr analysis

Air New Zealand FY21 Result Initial Thoughts
Air New Zealand (AIR) reported another challenged full year result with an underlying PBT loss of –NZ$440m (compared to guidance of a loss of no more than –NZ$450m). While cargo services were strong (revenue +71%), and the domestic network resilient (down just -10%), international passenger services (down -89%) struggled. Cash burn reversed through 2H21 with an average monthly cash receipt of NZ$9m during the half compared to cash burn of NZ$96m per month in 1H21. Balance sheet gearing is 71% and dividends have been suspended until further notice.
Key points

NAV per share has fallen to 98c from NZ$1.17 at year end FY20. Likely to fall further in FY21 given loss-making outlook.
Cargo revenues were up +71% in FY21 as the company continues to benefit from the Government’s (MIAC) cargo scheme. AIR received NZ$333m in grants and assistance from governments during the year (NZ$321m from NZ).
Fuel hedging position suggests only small uptick in services through FY22. The company anticipates using 2.00m bbl of jet fuel in 1H21 rising to 2.25m in 2H22.
Still only drawn down NZ$350m of the government funding facility, with total liquidity available of ~NZ$1.3bn (NZ$183m cash and NZ$1.15bn undrawn government funding facility).

Outlook
FY22 earnings guidance has been suspended in light of the current domestic COVID-19 restrictions. Previously the company has said FY22 underlying PBT would be no worse than a loss of -NZ$530m. We believe consensus downgrades are likely.
Conference call
Management will host a post result conference call at 11am. This can be accessed via webcast&nbsp;or by pre-registered dial-in. Webcast:&nbsp;//edge.media-server.com/mmc/p/s4pogj3a&nbsp;Dial in:&nbsp;//apac.directeventreg.com/registration/event&nbsp;(ID: 6060799)
Result summary (NZ$m)





FY20


FY21


Change




Domestic


1,324


1,190


-10.1%




Tasman &amp; Pacific Islands


970


142


-85.4%




Short-haul


2,294


1,332


-41.9%




International


1,648


138


-91.6%




Passenger revenue


3,942


1,470


-62.7%




Cargo


449


769


71.3%




Contract services (&amp; other)


216


161


-25.5%




Other revenue


229


117


-48.9%




Sales revenue


4,836


2,517


-47.9%




EBITDRA


786


339


-56.9%




Depreciation and amortisation


(841)


(716)


-14.9%




Interest expense


(71)


(82)


15.5%




Associates


39


19


-51.3%




Underlying PBT


(87)


(440)


405.7%




Taxation


23


130


477.8%




Underlying NPAT


(64)


(310)


380.6%




Abnormals (post tax)


(390)


21


n/a




Reported NPAT


(454)


(289)


-36.3%




Underlying EPS (cents)


(5.7)


(27.6)


380.6%




Final DPS (cents)


0.0


0.0


n/a




Source: AIR, Forsyth Barr analysis

Air New Zealand: FY21 Result Initial Thoughts