First Quarter 2013 Results

Transcription

1 Contacts: Ricardo Sánchez Baker CFO Carlos Doormann SVP Financial Analysis First Quarter 2013 Results April 23, 2013 Luz Montemayor T +52 (55) Earnings conference Call Date: April 24, :00 a.m. ET (10:00 a.m. MEX) Dial in numbers: Mexico 001 (800) USA (719) International +1 (719) Call ID: Speakers: Andrés Conesa CEO Ricardo Sánchez CFO Grupo Aeroméxico, S.A.B. de C.V. Paseo de la Reforma 445, 10th Floor Colonia Cuauhtemoc Mexico, DF T +52 (55)

2 GRUPO AEROMÉXICO, S.A.B. DE C.V. KEY FINANCIAL HIGHLIGHTS FOR THE FIRST QUARTER 2013 April 23, 2013 Grupo Aeroméxico reported record revenues of $9.174 billion pesos in the first quarter 2013; a 0.4% year-on-year increase, despite the fact that the quarter was one day shorter than that of the previous year. 1 The cost of available seat kilometers (CASK) excluding fuel decreased 3.0% year-on-year in the first quarter 2013 due to the Company's successful cost containment strategies. When expressed in U.S. dollars, CASK, excluding fuel, decreased 0.4% despite first quarter Mexican peso/ U.S. dollar depreciation. First quarter EBITDAR reached $1.259 billion pesos, with a 13.7% margin. Operating income was $189 million pesos, with a 2.1% margin. Grupo Aeroméxico reported a net operating loss of $122 million pesos in the first quarter Market value adjustments for the Company s fuel hedging position resulted in a $59 million peso negative impact on net income. Grupo Aeromexico generated $215 million in operating cash before tax during the first quarter Capital expenditures reached $519 million pesos, including items such as advance payments for aircraft purchases, security deposits and repayment of debt not associated with aircraft purchases. Grupo Aeroméxico s cash balance as at March 31, 2013 was $2.243 billion pesos. During the first quarter, Grupo Aeroméxico retired two aircraft from its fleet: one Embraer ERJ- 145 and one Boeing B , both under lease agreements. The Company also added a Boeing B jet airliner to its fleet under an operating lease scheme. 1 As of Q1 2013, Aeroméxico s maintenance and loyalty program business units, previously reported on a consolidated basis, will be reported based on the equity method. In the interest of more accurate analysis, comparisons are based on 2012 pro forma financial statements unless otherwise indicated, which present the aforementioned business units under the equity method. 2

3 MANAGEMENT DISCUSSION AND ANALYSIS GRUPO AEROMÉXICO, S.A.B. DE C.V. REPORTS RESULTS FOR THE FIRST QUARTER 2013 All figures have been reported in nominal pesos unless otherwise indicated. Grupo Aeroméxico s financial statements are prepared in accordance with International Financial Reporting Standards (IFRS) Mexico City, April 23, 2013 Grupo Aeroméxico, S.A.B. DE C.V. (BMV: AEROMEX), the largest intercontinental airline in Mexico, today reported its unaudited consolidated results for the first quarter Beginning in the first quarter 2013, Grupo Aeroméxico s passenger loyalty program (PLM) and its aircraft and maintenance business units (MRO) which operate as joint ventures with AIMIA and Delta airlines, respectively, and were previously reported on a consolidated basis, will now be reported within the Group's consolidated financial statements based on the equity method. Given this change, first quarter 2012 pro forma financial statements have been included within this document in order to isolate the above effect and to facilitate the analysis of said figures. When considering the effects of the equity method on key metrics, such as EBITDAR, and on the Company s perceived capacity to generate cash flow, it is important to include the adjusted EBITDAR metric within this report. This metric, which is not defined under IFRS, is intended to provide more comprehensive information on Grupo Aeroméxico's capacity to generate cash, given the existence of mechanisms such as dividend payments or capital stock reimbursements of the subsidiaries mentioned above. These represent the Group's enhanced capacity to generate cash flow, which is not reflected when reporting these subsidiaries operations using the equity method. 2 Specifically, PLM paid Grupo Aeroméxico $495.6 million pesos during the first quarter 2013 as an equity reimbursement. Grupo Aeroméxico disseminated a relevant event news release on February 11, 2013 announcing management s decision to consider 2011 as the Company s first year preparing its financial information based on IFRS. Due to this change, some figures related to the first quarter 2012 may differ slightly as compared to those previously reported. The following information provides a summary of selected consolidated financial and operating results, comparing the Company's unaudited consolidated financial statements for the first quarter 2013 with those of the first quarter The adjusted EBITDAR metric is built based on Grupo Aeroméxico s EBITDAR, and is defined as earnings before interest, taxes, depreciation, amortization and aircraft rentals plus dividends and/or capital reimbursements received from subsidiaries reported under the equity method during the reference period. 3

4 January 1 - March 31 Concept Pro forma* 2013 Var vs Pro forma* 2012 IFRS** 2013 Var vs IFRS Total ASKs (millions) 7,653 7, % 7, % Total RPKs (millions) 5,610 5, % 5, % Load factor on scheduled flights pp pp Passengers (thousands) 3,435 3, % 3, % Liters of fuel (thousands) 290, , % 274, % Total Income (millions of pesos) 9,174 9, % 9, % Yield (Mexican Pesos) % % Income / ASK (pesos) % % Total cost / ASK (Mexican pesos) % % Total cost / ASK (USD) % % Total cost / ASK excluding fuel (Mexican pesos) Total cost / ASK excluding fuel (USD) Profit before capital costs (EBITDAR) (millions of pesos) *** EBITDAR margin (Revenue Percentage)*** % % % % 1,259 1, % 1, % pp pp Adjusted EBITDAR*** 1,755 1, % 1, % Adjusted EBITDAR margin (Revenue Percentage)*** Operating Income (millions of pesos)*** Operating Margin (Revenue Percentage)*** Consolidated net profit (millions of pesos) pp pp % % pp Net profit (millions of pesos) Net Margin (Revenue Percentage) pp pp Earnings per share (pesos) * Aircraft maintenance and loyalty program subsidiaries have been presented using the equity method, in retrospect, for comparison purposes. ** On February 11, 2013 Grupo Aeroméxico announced its decision to prepare its first consolidated financial statements in accordance with IFRS beginning the year ended December 31, 2011, with the transition year therefore being the year ended December 31, This implies slight variations in the figures originally reported for the January-December 2012 period. *** Metric not defined under IFRS but included for reference given its relevance. EBITDAR is defined as: earnings before interest, taxes, depreciation, amortization and aircraft rentals. Adjusted EBITDAR includes dividends and/or capital stock reimbursements from non-consolidated subsidiaries. Figures may not sum to total due to rounding. 4

5 Market Conditions During the first quarter 2013, Grupo Aeroméxico operated in an environment characterized by the following factors: i) Economic slowdown. The General Indicator of Economic Activity 3 (IGAE) increased 3.2% in January 2013 as compared to the same month in 2012, reflecting a more moderate growth as compared to the previous year, when the IGAE had increased by 4.8%. Manufacturing and non-manufacturing indicators published by the Mexican Institute of Financial Executives (IMEF) 4, a key Mexican business environment indicator, suggest that first quarter 2013 economic activity experienced only moderate economic growth. Despite this economic slowdown, the short-term economic outlook appears positive, based on Banco de Mexico s Expectations Survey 5 where the percentage of analysts who believe Mexico s business climate will improve in the next six months has increased, with fewer analysts who believe it will remain the same. ii) Decreased fuel prices. Average US dollar-denominated fuel prices 6 decreased 3% yearover-year in the first quarter 2013, which, combined with 2.6% Mexican peso/u.s. dollar appreciation recorded during the quarter, resulted in a 4.1% reduction in in fuel prices in pesos. iii) Exchange rate appreciation. The peso appreciated 2.6% against the U.S. dollar during the first quarter in 2013; from an average rate of $12.99 pesos per dollar in the first quarter 2012 to an average of $12.65 pesos per dollar in the first quarter The exchange rate at quarter s end showed a 4.2% appreciation against the dollar since the end of the fourth quarter 2012; from $12.87 pesos per dollar at the close of 2012 to $12.33 pesos per dollar at the end of the first quarter iv) Less dynamic domestic air passenger traffic demand. In line with the previously mentioned economic slowdown, according to Mexican Directorate General of Civil Aviation (DGAC) data, 7 total air passenger traffic growth decreased from 11.4% in the January- February 2012 period to 4.4% over the same two months in 2013, consisting of a 5.5% increase in domestic air passenger traffic and a 3.5% increase in passengers traveling on international flights. Revenues First quarter revenues reached $9.174 billion pesos; a record high for the period and a 0.4% increase compared to the same period last year, despite the fact that the quarter was one day shorter than that of the prior year. Aeroméxico s capacity, measured in Available Seat Kilometers (ASKs), increased 6.1% year-on-year, driven primarily by 12.2% growth in the international segment slightly offset by a 2.1% contraction in the domestic segment. Ticket revenues totaled $8.114 billion pesos in the quarter, similar to last year. Grupo Aeroméxico transported million passengers in the first quarter 2013; 124,000 fewer passengers year-on-year. Passengers on international routes increased 10.2%, while passengers on domestic routes decreased 8.4%. 51.9% of passenger revenues were generated through domestic flights and 48.1% percent through international flights. In the first quarter of 2012, domestic flight 3 IGAE as of January Source: INEGI. 4 IMEF Newsletter on the Mexican Business Environment (IIEEM). Data as of March Source Bank of Mexico. Expectations Survey - Private Sector Economics Specialists: March US Gulf Coast Jet Fuel Spot price FOB. Source: Energy Information Administration. 7 Source: DGAC Report on statistics by airline. 5

6 passenger revenues represented 54.1% of ticket revenues, while international flight passenger revenue represented 45.9% of ticket revenues. Unit ASK revenues, an indicator that reflects both passenger volumes and average air fare prices, decreased 5.4% year-over-year in the first quarter Load factors this quarter reached 73.5%; 3.4 percentage points lower than those reported in Finally, the yield, an average price indicator, decreased 0.9%, primarily due to the effect of Mexican peso appreciation on international revenues. First quarter cargo revenues totaled $499 million pesos; 0.8% higher than that which was reported for the same period in 2012, due to an increase in the number of cargo frequencies as well as to the strategies in place designed to strengthen this Aeroméxico business. The air cargo market in Mexico reflected a 4% decrease in the number of tons transported within the January-February period, as compared to Revenues from charter flights totaled $155 million pesos in the first quarter 2013; a 14.8% year-onyear increase. Other operating revenues 9 in the first quarter reached $329 million pesos, representing a 1.5% yearon-year increase, primarily due to increased ancillary revenues such as, for example, seat class upgrades. Operating Expenses Operating expenses in the first quarter 2013, including leases and depreciation, totaled $8.985 billion pesos, which represents a 2.3% increase compared to that for the same period in 2012, due to the 6.1% increase in the production of Grupo Aeroméxico ASKs. Therefore, the unit cost per ASK registered a 3.5% decrease compared to the first quarter The U.S. dollar-denominated unit cost indicator decreased by 1.0%. The Company's successful strategies designed to increase productivity while rationalizing spending have resulted in a 3.0% decrease in the cost per ASK excluding fuel. Selling and administrative expenses per ASK decreased by nearly 11%. CASK without Fuel January-March (Mexican pesos) % Q Q Source: Mexican Directorate General of Civil Aviation (DGAC). 9 Other revenue includes excess baggage charges and income not directly related to passenger or cargo transportation. 6

7 Fuel expenses in the first quarter 2013 totaled $3.168 billion pesos; 1.3% higher than that which was reported for the same period in This is due to a 6.1% increase in ASK production, which was partially offset by a 4.1% drop in the quarterly fuel price. Evolution of Fuel Expenditure (in millions of pesos) 3, , fuel costs Fuel Price Decrease Increased Consumption 2013 fuel costs In order to address the risk of increasing fuel prices, Grupo Aeroméxico has a hedging policy in place with call and call spread options equal to approximately 50% of the Company s estimated fuel consumption for the subsequent 12 months. This quarter, Aeroméxico s hedging policy positively impacted its fuel cost line item by $43 million pesos. To date, 49.5% of the Company s estimated fuel consumption for the April March 2014 period has been covered by hedging instruments held as underlying Jet Fuel (JF54) with coverage levels starting at $2.97 dollars and hedged up to $4 per gallon. During the quarter, the Company reported a $59 million pesos negative impact due to the mark to market of its fuel hedging positions. It is important to note that due to the fact that Grupo Aeroméxico uses call and call spread options in its hedging program, the maximum loss that the Company can incur is capped by the value of the premiums paid for said options. Workforce costs in the first quarter 2013 increased by 6.6% year-on-year. This was primarily due to a 6.1% increase in ASK growth of, as well as to costs associated with crew training in preparation for the incorporation of the Boeing 787 jet airliner into Aeroméxico s fleet. Maintenance spending in the first quarter 2013 decreased by 1%, year-on-year. This was due to increased ASK production (+6.1%) and was largely offset by strategies in place designed to improve productivity, as well as by Mexican peso/u.s. dollar appreciation. Air traffic and layover service costs increased by 5.8% in the first quarter 2013 as compared to 2012, primarily due to a 6.1% growth in ASKs. 7

8 First quarter 2013 sales and administrative expenses decreased by 5.2% year-on-year, primarily due to reduced commissions and reservations spending as a percentage of ticket revenues and a 3.5% reduction in passengers transported. The ratio of sales and administrative expenses relative to revenues decreased by 0.6 percentage points; from 8.5% in 2012 to 7.9% in Other operating expenses, including insurance and passenger services, increased 1.4% overall in the quarter, primarily due to an increase in operations, which was offset by important cost containment measures and a strengthening Mexican peso versus the U.S. dollar. Aircraft lease expenses in the first quarter 2013 totaled $909 million pesos; a 4.5% decrease as compared to the same period in 2011, primarily due to the implementation of a strategy focused on increasing the number of Aeroméxico-owned aircraft within the Group's fleet and to Mexican peso/u.s. dollar appreciation during the quarter. EBITDAR EBITDAR for the quarter totaled $1.259 billion pesos. The EBITDAR margin reached 13.7%. 8 The Group's adjusted EBITDAR, a metric previously defined as EBITDAR plus dividends and capital stock reimbursements from non-consolidated subsidiaries, reached $1.755 billion pesos with a 19.1% margin, primarily due to a $496 million peso capital stock reimbursement paid by PLM to Grupo Aeroméxico. EBITDAR and adjusted EBITDAR (in millions of pesos) 1,416 1,259 1,416 1,755 1Q Q Q Q 2013 Operating income before other non-operating income and expenses Operating income before other income and other non-operating expenses for the quarter was $189 million pesos; $173 million lower than the first quarter IFRS regulations do not define the Operating Income metric. However, given its relevance in analyzing the Company's operating performance, and for the purpose of the comparison of reporting periods, this indicator is presented within. 8 EBITDAR: earnings before interest, taxes, depreciation, amortization, and restructuring or rent costs. 8

9 Non-operating income and expenses Grupo Aeroméxico reported other Non-operating Expenses of $7 million pesos in the first quarter Financial income and expenses Grupo Aeroméxico had $261 million pesos in financial expenses for the quarter; $16 million greater than the first quarter The increase in financial expenses is related primarily to interest expense from aircraft acquisition-related debt. Exchange variations The Company recognized a net positive impact of $2 million pesos under the exchange differences item, due to Mexican peso/u.s. dollar exchange rate appreciation during the first quarter 2013 as compared to the prior quarter. The above effect includes a negative impact associated with the revaluation of $72 million pesos in US dollar-denominated non-monetary assets and a positive foreign exchange effect of $74 million pesos, resulting from a short position on foreign currency-denominated monetary items. 9 Valuation of derivative instruments Grupo Aeroméxico reported a $59 million pesos negative impact in the first quarter 2013 due to the reduced market value of the Company s fuel hedging position (JF54 and HO). As mentioned above, it is important to note that the maximum loss the Company can incur due to the use of call and call spread options for the hedging program is limited to the value of the premiums paid for said options. Net income Grupo Aeroméxico reported a $122 million pesos net loss in the first quarter 2013, with a -1.3% net margin, which partly reflected the effect of various non-recurring items, including a net negative impact of $57 million pesos associated with losses due to currency fluctuations and adjustments to the fair value of the Company s fuel hedging position. Comments to the Statement of Financial Position Grupo Aeromexico generated $215 million in operating cash before tax during the first quarter Approximately $519 million pesos were spent on aircraft purchase prepayments, guarantee deposits and other fixed assets as well as net amortization of $26 million pesos related to debt not associated with aircraft. Debt associated with aircraft purchases as at March 31, 2013 represented 92% of total debt; the same proportion as on December 31, Majority stockholder's equity was $6.751 million pesos as at March 31, 2013; a $517 million peso decrease from the amount reported on December 31, 2012, including a negative impact of $380 million associated with the effect of functional currency translation, primarily resulting from the reduced peso value of U.S. dollar-denominated capital and equipment (particularly aircraft). 9 The average exchange rate for each quarter was $12.95 in Q and $12.65 in Q

10 Cash and cash equivalents, unrestricted At March 31, 2013 At December 31, Var 2,243 3,265-1,022 Financial debt 6,073 6, Net financial debt 3,830 3, Total equity 6,751 7, Consolidated Equity 6,758 7, Grupo Aeroméxico had 717,352,698 shares outstanding as at March 31, 2013; 241,473,021 treasury shares and 11,622,923 shares which were repurchased as part of the Company s repurchase program. 10 Pro forma Statement of Financial Position recognizing the aircraft maintenance and the loyalty program business units under the equity method. 10

11 Relevant Events CHANGES IN THE ADOPTION OF INTERNATIONAL FINANCIAL INFORMATION STANDARDS OVER THE COURSE OF THE YEAR On February 11, 2013 Grupo Aeroméxico announced its decision to prepare its first consolidated financial statements for the year ended December 31, 2011 in accordance using the International Financial Reporting Standards (IFRS), as issued by the International Accounting Standards Boards (IASB). Grupo Aeroméxico s transition year is therefore the full year ended December 31, Grupo Aeroméxico s consolidated financial statements as of December 31, 2011 will be the first prepared by the Company using IFRS. As is required by IFRS 1 "First-time Adoption of International Financial Reporting Standards", as a first-time adopter, Grupo Aeroméxico s full year 2011 financial statements will present the Company s financials to allow comparison of financial changes related to IFRS adoption. EDUARDO TRICIO HARO AND A GROUP OF INVESTORS PURCHASE A SIGNIFICANT STAKE IN AEROMÉXICO On February 12, 2013, Grupo Aeroméxico announced that a group of Mexican investors, led by Eduardo Haro Tricio and Valentin Diez Morodo, acquired a 20.19% stake in the carrier's shares, at $16.50 pesos per share. This group of investors is comprised of Aeroméxico shareholders who had participated in the 2007 initial purchase of the airline and who have since remained invested in the Company. Through this transaction, Mr. Tricio will be the only Board member to own more than 10% of Aeroméxico s outstanding shares. Banamex will maintain a 17.91% stake in the Company. Eduardo Tricio was named Chairman of Aeroméxico s Board of Directors, while Valentín Diez-Morodo was named Vice-Chairman. Andrés Conesa remains as the Company s CEO. Mr. Tricio now holds a significant position (under Mexican law) in Grupo Aeroméxico. Shareholder agreements therefore establish that, under specific circumstances, he may direct the vote of 20% more of the outstanding shares issued by Grupo Aeroméxico. Some shareholders, also board members, have signed preferential rights, management and other agreements on the terms and subject to the provisions set forth in the Securities Market Law. ANNUAL REVIEW OF CONTRACT AGREEMENTS WITH THE COMPANY S FLIGHT ATTENDANT UNION, ASOCIACIÓN SINDICAL DE SOBRECARGOS DE AVIACIÓN DE MÉXICO (ASSA). On April 12, 2013, Grupo Aeroméxico announced that it has commenced its annual review of contract agreements with ASSA, the Company s flight attendant union. As part of this routine process, ASSA has submitted a strike notice for May 31, 2013, the contract review period end date. Also as part of the process, Grupo Aeroméxico filed a Collective Dispute of Economic Nature proceeding with the corresponding authorities. The objective of this process is to continue strengthening the Company structurally, in order to benefit employees, clients, and shareholders. 11

12 Fleet Grupo Aeroméxico retired one ERJ-145 aircraft under a pure lease agreement from its fleet in the first quarter The Company also retired a Boeing B jet airliner and incorporated a Boeing B , both under pure lease agreements. At March 31, 2013 the average age of the Grupo Aeroméxico fleet was 9.1 years. Operating Fleet Fleet Q Q B B B Aeroméxico ERJ E E Aeroméxico Connect GRUPO AEROMÉXICO

13 Analyst Coverage Company Analyst address: Actinver Ramón Ortiz Reyes BBVA Bancomer Pablo Abraham Peregrina Deutsche Bank Michael Linenberg GBM Bianca Faiwichow Itaú BBA Renato Salomone Morgan Stanley Eduardo Couto Vector Marco Montañez 13

14 Income Statement Q GRUPO AEROMEXICO AND SUBSIDIARIES Consolidated Statement of Operations ( Million Pesos ) 1Q Q Q 2012 PLM &MRO EQUITY METHOD - PROFORMA Item 2013 % Proforma 2012 % VAR % 2012 % VAR % Revenues 9, , , (54) (0.6) Domestic Passengers 4, , (177) (4.0) 4, (145) (3.3) International Passengers 3, , , Excess baggage Air Cargo Charter flights Other (186) (36.1) Operating Expenses 7, , , Salaries and related costs 2, , , Aircraft fuel 3, , , Maintenance (4) (0.6) (4) (0.6) Aircraft, communication and traffic services 1, , , Insursance (4) (10.8) (4) (10.8) Passenger services Selling and administrative expenses (40) (5.2) (70) (8.7) Travel agent commissions (29) (9.8) (29) (9.8) Reservations (17) (10.1) Ticket Offices (8) (15.4) (9) (17.0) Advertising (7) (10.3) (15) (19.7) Administrative IT Expenses (1) (0.8) (1) (0.8) TOTAL OPERATING EXPENSES 7, , , E B I T D A R 1, , (157) (11.1) 1, (207) (14.1) Aircrat Leasing (42) (4.5) (42) (4.5) E B I T D A (115) (23.6) (165) (30.7) Depreciation TOTAL EXPENSES 8, , , Operating profit (loss) before other income (expenses) (173) (47.8) (223) (54.1) Other income (expenses) (7) (0.1) (39) (0.4) 32 (82.1) (38) (0.4) 31 (81.6) Profit (loss) Before Financial Expenses and Taxes (141) (43.7) (192) (51.3) Interest Expense Foreign exchange profit (loss), net (2) (0.0) (21) (110.5) (24) (109.1) Derivate Fair Market Value (72) (0.8) 131 (181.9) (72) (0.8) 131 (181.9) Comprehensive Financial Results Effects from associated companies (22) (61.1) (8) (0.1) 22 (275.0) Income before taxes (122) (1.3) (289) (173.1) (303) (167.4) Taxes (32) (100.0) (46) (100.0) Net income (122) (1.3) (257) (190.4) (257) (190.4) Minority Interest Net Controlling interest gain (loss) (122) (1.3) (257) (190.4) (257) (190.4) 14

15 Statement of Financial Position GRUPO AEROMEXICO AND SUBSIDIARIES Consolidated Statement of Financial Position ( Million Pesos) DECEMBER 31, 2012 A s s e t s As of March 31, 2013 IFRS PLM & MRO EQUITY METHOD PROFORMA VARIATION $ % Cash and cash equivalents 1,338 2,360 (1,022) (43) Financial assets Derivative Financial Instruments (29) (13) Accounts receivable, net 2,852 2, Prepaid Expenses (35) (4) Inventories, net (8) (1) Total current assets 6,915 7,551 (636) (8) Net Fixed Assets 11,538 11,912 (374) (3) Others 8,626 8, Total Assets 27,079 27,732 (653) (2) L i a b i l i t i e s Current Liabilities Financial 1,059 1, Operating 9,563 9,624 (61) (1) Total liabilities 10,622 10,681 (59) (1) Long-term Financial 5,014 5,283 (269) (5) Operating 4,685 4, Total Long-term 9,699 9,775 (76) (1) Total liabilities 20,321 20,456 (135) (1) Non-controlling interest 7 8 (1) (13) Controlling interest 6,751 7,268 (517) (7) Total stockholders' equity 6,758 7,276 (518) (7) Total Liabilities and Shareholders' equity 27,079 27,732 (653) (2) 15