Air NZ annual profit beats expectations

Thursday 30th August 2012

Air New Zealand, the national carrier slated for a government selldown, beat estimates as annual profit fell 12 percent, and forecast pretax earnings to more than double in 2013.

Net profit fell to $71 million, or 6.3 cents per share, in the 12 months ended June 30, from $81 million, or 7.6 cents, a year earlier, the Auckland-based company said in a statement. That beat the consensus analyst forecast of $44.5 million. Stripping out the impact of unrealised movements in derivatives for its hedge exposures, earnings fell 16 percent to $69 million. Pretax profit gained 21 percent to $91 million.

"Despite the uncertain global economy, assuming our current forecast of market demand and fuel prices at current elevated levels, we expect to deliver a more-than 100 percent improvement in normalised earnings before taxation in the 2012 financial year," chairman John Palmer said.

"We view the future with optimism and are pursuing a clear strategy to strengthen our Australasian operations, while being ahead of target in our restructuring our international long haul network to improve financial performance," he said.

Air New Zealand is among five of the state-owned assets that the National-led government has earmarked for a sell down over the next five years.

Air NZ's board declared a final dividend of 3.5 cents per share, or $38 million, payable on Sept. 26. That takes the annual payout to 5.5 cents, unchanged from 2011.

The shares were unchanged at 89.5 cents in trading yesterday, and have shed 0.6 percent this year. The stock is rated an average 'outperform' based on seven analyst recommendations, with a median target price of $1.25.

Airlines around the world have been struggling with high fuel prices and dwindling demand for long-haul travel in the global economic slowdown, and trans-Tasman rival Qantas Airways last week reported its first loss since it was privatised in 1995.

Revenue gained 3 percent to $4.48 billion, just ahead of analyst expectations, with a 3.1 percent gain in passenger sales and a 7.2 percent lift in cargo revenue. The airline increased short-haul passenger numbers 0.6 percent to 11.5 million, while long-haul numbers fell 3.2 percent to 1.6 million.

Total revenue passenger kilometres (RPK) edged up 0.1 percent to 27 million as available seat kilometres rose 0.8 percent to 32.6 million. The airline's yield rose 3 percent to 13.5 cents per RPK.

Outgoing chief executive Rob Fyfe said the airline's average domestic fares fell in the year, even as fuel prices and airport charges surged. The airline has been at loggerheads with airports over the regulated fees they charge, singling out Wellington International Airport as the worst culprit.

"If airport charges had not risen we could have lowered fares even further for our customers," he said.

Air NZ said it's ahead of schedule on plans for a $195 million uplift in annual performance by 2015 and is now targeting a $250 million annual improvement.

"These initiatives, combined with a significant reduction in anticipated hedge losses underpin the substantial performance improvement currently forecast for the 2013 financial year," Fyfe said.

Net debt including off-balance sheet items rose 9 percent to $1.44 billion, and net gearing improved 0.6 percentage points to 46.1 percent.

The airline flagged a $65 million contingent tax liability that may lead to a deferred tax asset if its treatment of tax associated with foreign exchange movements in its contracts to buy aircraft isn't adopted by the Inland Revenue Department.

The company didn't quantify potential liabilities if the Commerce Commission's case against it in relation to an alleged air cargo cartel is proved.

BusinessDesk.co.nz

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