Ref. PE004/2561 10 May 2018 Subject: Management Discussion and Analysis for the First Quarter of 2018 Attention: President The Stock Exchange of Thailand According to the financial reports of Nok Airlines Public Company Limited (the company) for the first quarter of 2018 (Q1/2018) ended on 31 March 2018, the Company and its subsidiaries reported that a net loss was 1.18 million Baht, compared to 289.86 million Baht in the same quarter last year. This net loss was divided into the losses from the owners of the parent company in the amount of 26.88 million Baht and the net profit of non-controlling interests in the amount of 25.70 million Baht. The Company therefore would like to clarify the causes of changes in the overall operating results as follow: Executive Summary In Q1/2018, the company and its subsidiaries generated total revenue of 6,083.13 million Baht and reported the net loss of 1.18 million Baht. This net loss was attributable to the loss from the parent company 26.88 million Baht and net profit of non-controlling interests 25.70 million Baht. The Company s operating loss of the parent company was a result of higher operating cost than passenger revenue and service revenue. The main operating cost is that fuel cost increased from incremental Jet fuel price compared to the amount of the same period in last year. For separated financial statements, the company s revenue in Q1/2018 was 4,316.84 million Baht, which increased a 5.61 percent from the same period last year. This is the result of both incremental passenger revenue and service revenue which increased at 6.79 and 38.54 percent respectively from the same period last year mainly from increasing number of charter flights to China. A Revenue per Available Seat-Kilometers (RASK) also decreased from 2.18 to 2.12 Baht/Seat- Kilometers, or decreased 2.66 percent from the first quarter in Year 2017, attributable to Available Seat Kilometers (ASK) rose by 12.28 percent in Q1/2018. The company had operating cost in amount of 4,348.91 million Baht, which decreased 0.75 percent in the same period of last year. Although fuel cost still increased from incremental Jet fuel price, the company can reduce aircraft maintenance expenses by cost saving according to the company s turnaround plan. Consequently, Cost per Available Seat-Kilometers (CASK) decreased from 2.36 to 2.19 Baht/seat-kilometers, or decreased 7.37 percent from the first quarter in Year 2017. 1
Key Factors and Events affecting the Company s performance In Q1/2018, Thailand s economy continued to expand from the fourth quarter of last year. Merchandise exports sector grew solidly, consistent with the strong growth momentum in external demand. The continued expansion in both external and domestic demand contributed to the growth of manufacturing production. Public spending contracted mainly from the decline in capital spending, while current spending slightly expanded. The tourism sector remained strong, as a result of increased number of foreign tourists due to new direct flight routes mainly from China and Russia as well as more domestic flights. A number of foreign tourists in Q1/2018 increased at the higher rate to 15.45 percent from the same period last year, increased from 9.19 to 10.61 million people, especially Chinese tourists also significantly increased from 2.44 to 3.17 million people or 29.92 percent from the same period last year. Additionally, in the first quarter of year 2018 the company expanded international charter routes to China in order to meet the growth of tourists that reflected on an increasing number of flights to China dramatically from 1,238 to 1,280 flights, or 3.39 percent of the growth rate at the same period in last year. Regarding to external factors, it affected to overall operating cost, significantly such as a foreign exchange rate and Jet fuel price. A fluctuation of foreign exchange rates brought about total operating cost which was 65.00 percent. It is comprised of Jet fuel price, aircraft operating lease, aircraft maintenance and aircraft insurance which are all above mentioned paid by US dollar currency. In the first quarter of year 2018, an average foreign exchange rate was 31.65 from 35.29 THB per USD in the same period last year. As a consequence, the company gained benefit to operating cost from a depreciate US exchange rate. An average Jet fuel price in the first quarter of year 2018 was 79.84 USD per barrel which increased from 64.32 US dollar per barrel at the same period in last year. Furthermore, Excise Department started to collect the excise tax on Jet fuel price for domestic routes. It was an impact on company s fuel cost to 1,300.62 million Baht, increased 23.01 percent in the same period last year. However, the company enter into some fuel hedging contracts to reduce the exposure to volatile and potentially rising fuel price. 2
Key Statistics and Business Ratio (excluding Subsidiaries) Unit Q1/2017 Q1/2018 Change Number of Aircrafts (at the end of period) - Boeing 737-800 New Generation Aircraft 21 19 (2) (9.52) - ATR 72-500 Aircraft 2 2 0 0.00 - Q400 NextGen Aircraft 8 8 0 0.00 - Average Number of Aircraft Aircraft 31.26 29.33 (2) (6.17) Available Seat Kilometers: ASK Mil. Seat-Km 1,760 1,976 216 12.28 Revenue Passenger Kilometers: RPK Mil. Seat-Km 1,544 1,853 308 19.98 No. of Sectors Flights 17,785 18,202 417 2.34 Cabin Factor % 87.74 93.76 6.02 pts Passenger Carried Million 2.43 2.52 0.09 3.83 Passenger Yield Baht/Seat-Km. 2.30 1.99 (0.31) (13.38) Revenue per Available Seat Kilometers: RASK Baht/Seat-Km. 2.18 2.12 (0.06) (2.66) Cost per Available Seat Kilometers: CASK Baht/Seat-Km. 2.36 2.19 (0.17) (7.37) Cost per Available Seat Kilometers exclude Fuel: CASK ex-fuel Baht/Seat-Km. 1.76 1.53 (0.23) (13.19) Average Aircraft Utilization Hours Operation Hours/day 8.24 9.97 1.73 21.00 3
The Company s Performance for Q1/2018 Revenue for the first quarter of 2017 and 2018 (Separate Financial Statement) Unit : million Baht Q1/2017 Q1/2018 Change to total revenue to total revenue Passenger Revenue 3,548.42 86.81 3,789.29 87.78 240.87 6.79 Service Revenue 293.68 7.19 406.88 9.43 113.20 38.55 Other Income 245.40 6.00 120.67 2.79 (124.73) (50.83) Total Revenue 4,087.50 100.00 4,316.84 100.00 229.34 5.61 Data: Revenue In Q1/2018, the company s revenue was 4,316.84 million Baht increased 5.61 percent. It consists of 3,789.29 million Baht to passenger revenue which was 87.78 percent of total revenue, 406.88 million Baht to service revenue which was 9.43 percent of total revenue and 120.67 million Baht to other income which was 2.79 percent of total revenue. Therefore, revenue per available seat-kilometer (RASK) was at 2.12 Baht per seat-kilometers, decreased 2.66 percent from the same period last year attributable to Available Seat Kilometers (ASK) rose by 12.28 percent in Q1/2018. Passenger revenue: In the first quarter of year 2018, passenger revenue increased 6.79 percent or 240.87 million Baht from the same period of last year which resulting from increased in both the total number of passenger and number of flight which increased at 3.83 and 2.34 percent respectively due to increasing number of charter flights to China as well as an average air fares increased 0.27 percent from the same period in last year. Additionally, Average aircraft utilization hours also increased from 8.24 operation hours per day to be 9.97 operation hours per day or 21.00 percent improvement from the same period of last year. Service revenue: In the first quarter of year 2018, service revenue increased 113.20 million Baht, or 38.55 percent from the same period of last year. The main causes of incremental baggage load revenue and service revenue because the Company had launched the new concept for booking ticket Choose Your NOK on 9 November 2017 to provide add-on products and services to serve all passenger needs which also received positive feedback from the customer. Furthermore, the Company subleased aircrafts to other airlines for improving aircraft utilization. 4
Other income: In the first quarter of year 2018, other income decreased 124.73 million Baht, or 50.83 percent from the same period of last year. It resulted mainly from increase in revenue from insurance claim in amount of 108.87 million Baht from the same period of last year. Expenses for the first quarter of 2017 and 2018 (Separate Financial Statement) Unit : million Baht Cost of passenger and services Q1/2017 Q1/2018 Change to total expense to total expense to total expense 4,082.56 93.18 4,157.76 95.60 75.20 1.84 Selling expenses 20.66 0.47 42.56 0.98 21.91 106.05 Administrative expenses 263.59 6.02 148.59 3.42 (115.00) (43.63) Financial Costs 14.77 0.34 0.00 0.00 (14.77) (100.00) Total Expenses 4,381.57 100.00 4,348.91 100.00 (32.66) (0.75) Data: Cost & Expenses In Q1/2018, the company s operating expense in total was 4,348.91 million Baht decreased from 4,381.57 million Baht, or 0.75 percent from the same period of last year. Although, increased of Jet fuel price which affect to company s fuel cost increased by 23.01 percent, aircraft maintenance expenses reduced 15.91 percent by cost saving according to the company s turnaround plan. Consequently, Available Seat Kilometers (ASK) rose by 12.28 percent in Q1/2018 as well as Average Stage Length also increased from 633 kilometers to be 734 kilometers at the same period last year or increased by 15.95 percent, thus Cost per Available Seat-Kilometers (CASK) decreased from 2.36 to 2.19 Baht/seat-kilometers, or decreased by 7.37 percent. Similarly, Cost per Available Seat-Kilometers exclude Fuel (CASK ex-fuel) decreased from 1.76 to 1.53 Baht/seat-kilometers, or 13.19 percent from the same period of last year. Variable cost: In Q1/2018, variable costs were at 2,786.61 million Baht, or increased 8.39 percent from the same period of last year mainly due to increased jet fuel cost continually. Fuel cost per ASK (Fuel/ASK) rose from 0.60 to 0.66 Baht/Seat-Kilometers or 9.36 percent from the same period of last year, thus aircraft maintenance per ASK diminished 25.24 percent to be 0.37 Baht/Seat-Kilometers 5
Fixed costs: In Q1/2018, fixed cost was 1,193.69 million Baht which was decreased at 9.61 percent. It was caused by reduction in aircraft operating lease by cost saving of the company s turnaround plan. However, Fixed cost per Available Seat-Kilometers (FC/ASK) was 0.60 Baht/seatkilometers, or decreased 19.46 percent from the same period of last year due to fixed cost management efficiently as well as Available Seat Kilometers (ASK) also rose by 12.28 percent in Q1/2018. Finance cost: There is no company s financing cost because of no commitment fees for aircraft deposit for this period. Profit for the period (Separate Financial Statement) Unit : million Baht Q1/2017 Q1/2018 Change to total revenue to total revenue to total revenue Profit (Loss) before income tax (294.07) (7.19) (32.07) (0.74) 262.00 (89.09) Income tax expense (income) - - - - - - Profit (Loss) for the period (294.07) (7.19) (32.07) (0.74) 262.00 (89.09) Total comprehensive income (loss) for the period (294.07) (7.19) (32.07) (0.74) 262.00 (89.09) Basic Earning Per Share (Baht) (0.47) (0.01) 0.46 From the above mentioned, the total cost of company increased owing to Jet fuel price increase significantly. However, total revenue increased from incremental passenger revenue and service revenue at higher amount than fuel cost and the company also can reduce aircraft maintenance expenses by cost saving according to the company s turnaround plan. As a result, the net loss in the first quarter of year 2018 decreased to be 32.07 million Baht from 294.07 million Baht, or declined by 89.09 percent at the same period of last year. Key milestone for Q1, 2018 1. Open new routes In the first quarter of year 2018, the company expanded international charter routes continually. There were five additional routes to China as follows: i. Phuket Xi an started to operate on 14 January v.v. 4 weekly round trips ii. Phuket Hefei started to operate on 29 January iii. Phuket Fuzhou started to operate on 2 February iv. Phuket Yichang started to operate on 4 February 6
v. Phuket Hohhot started to operate on 5 February v.v. 2 weekly round trips Additionally, the company started to operate four additional schedule routes as follows: Domestic i. Udon Thani Ubon Ratchathani started to operate on 17 January v.v. 3 weekly round trips ii. Don Muang Mae Hong Son started to operate on 25 March v.v. 2 weekly round trips International i. Don Muang Nanning started to operate on 1 March v.v. 4 weekly round trips ii. Don Muang Zhengzhou started to operate on 1 March v.v. 4 weekly round trips 2. The number of aircrafts in Nok s fleet In Q1/2018, the company phased out 1 Jet aircraft out of fleet according to the company s turnaround plan in January 2018. 3. The launch of bus transport to nearby destinations under Fly n Ride service The Company provided bus services to passengers who want to transport to a route that the company did not operated them directly for destination from the airport by transferring to bus service instead. There were new and existing service routes to more frequency services in year Q1/2018 such as i. Don Muang Phitsanulok Phetchabun (Khao Kho) commencing in February 2018 for 2 trips ii. Don Muang Ubon Ratchathani Sisaket commencing in March 2018 for 2 trips Furthermore, Nok Transfer service provided new service for passengers called Nok Phuket-on-island-transfer service which passengers can request to be dropped off at their place of stay from Airport-to-Town/On-Island Transfer. 4. Additional payment channel The company launched two new additional payment channels in Q1/2018 as follows, KTB Net Bank (KTB Direct Debit) and Payment channel by QR Payment via Mobile Banking Application to facilitate our customer for booking ticket and payment as well as sales support to the company. 7
Operating Performance for NokScoot Airlines Co., Ltd. For Q1/2018 performance of NokScoot Airlines Co., Ltd., total revenue was 1,772.61 million Baht, increasing from 1,336.82 million Baht of the same period in last year, or increased by 32.60 percent, mainly from the total number of flight which increased at 29.09 percent from the same period in last year, in-line with the total number of passenger increased by 22.87 percent to 0.31 million passengers. This is because NokScoot Airlines Co., Ltd. has one more operating aircraft in fleet compared with the same period last year, as a result the company can continually launched new route in China and increased flight frequency in the existing routes, and thus resulting in higher aircraft utilization. Company s operating expenses was in total 1,738.45 million Baht increased from 1,319.61 million Baht, or 31.74 percent from the same period last year. Operating expenses increased at lower rate than the growth of revenue substantially. Additionally, the main increased in operating expenses resulted from variable cost according to increasing in a volume of Available Seat-Kilometers (ASK) and jet fuel price. The net profit of operating performance in Q1/2018 was 37.04 million Baht significantly better than from the net profit of the same period of last year by 9.99 million Baht or 270.77 percent improvement. Currently, NokScoot Airlines Co., Ltd operates schedule routes to China and Taiwan with Don Muang international airport being the center of six destinations to China and one destination to Taiwan; such as Nanjing (7 weekly flights), Tianjin (5 weekly flights), Quingdao (5 weekly flights), Shenyang (4 weekly flights), Dalian (3 weekly flights) and Xi an (3 weekly flights) including Taipei, Taiwan (7 weekly flight). At the end of Q1/2018, NokScoot s fleet remained unchanged with operating lease of 4 Boeing 777-200. The company plans to increase frequency flights in the same routes and expand new routes later this year. 8
Financial Position (Consolidated) Consolidated Financial Statement Unit : Million Baht As of 31 Dec 2017 As of 31 Mar 2018 Change Total Assets 7,330.14 7,244.86 (85.28) (1.16) Total Liabilities 6,639.14 6,555.03 (84.11) (1.27) Total Owners of the Parent 1,315.02 1,288.14 (26.88) (2.04) Non-Controlling Interests (624.02) (598.31) 25.71 4.12 Total Shareholders' Equity 691.00 689.83 (1.17) (0.17) Assets As of 31 March 2018, the Company and its subsidiaries had total assets of 7,244.86 million Baht, increased by 1.16% from year-end 2017. Total assets can be divided into current assets of 4,616.80 million Baht and non-current assets of 2,628.06 million Baht, accounting for 63.73% and 36.27%, respectively. Total Current Assets: As of 31 March 2018, the company and its subsidiaries had total noncurrent assets of 4,616.80 million Baht or increased by 3.45% from as of 31 December 2017. It was attributable to the decreasing in Cash and Cash equivalents by 5.51% caused by the increased of cash outflow for payment to Trade and Other current payables including Aircraft maintenance expenses. In addition, Temporary investments also increased from year-end 2017. Total Non-Current Assets: As of 31 March 2018, the company and its subsidiaries had total non-current assets of 2,628.06 million Baht or increased by 3.12% from as of 31 December 2017. It was attributable to the increasing in deposits at bank pledged as collateral by 6.22%, which some cash was pledged for bank s credit facilities to financial institutions. Liabilities and Shareholder s Equities Total liabilities: As of 31 March 2018, the company and its subsidiaries had total liabilities of 6,555.03 million Baht or decreased by 1.27% from as of 31 December 2017, which aligned with the decrease of Trade and Other payables from decreased accrued aircraft maintenance as well as unearned revenue passenger compared to that of 31 December 2017. 9
Shareholder s equities: as of 31 March 2017, the company and its subsidiaries had shareholder s equities of 689.83 million Baht or decreased 0.17% from the deficit as of 31 December 2017. It was composed of 1,288.14 million Baht to the parent company and negative 598.31 million Baht to noncontrolling interests. Cash Flow Statement (Consolidated) Unit : Million Baht For three months period, As of 31 Mar 2017 Consolidate Financial Statement For three months period, As of 31 Mar 2018 Change Change Net cash provided by (used in) operating activities (224.10) (130.31) 93.79 (41.85) Net cash provided by (used in) investing activities (14.48) (53.94) (39.46) 272.58 Net cash provided by (used in) financing activities (7.23) (7.04) 0.19 (2.61) Effect from foreign exchange rate in cash and cash equivalents (28.66) 16.58 45.25 (157.85) Net increase (decrease) in cash and cash equivalents (274.47) (174.71) 99.76 (36.35) Cash and cash equivalents as of 1 January 3,231.22 3,169.85 (61.37) (1.90) Cash and cash equivalents as of 31 March 2,956.75 2,995.14 38.38 1.30 For the first quarter 2018, the company and its subsidiaries had net cash flow from operating activities totaled negative 130.31 million Baht decreased from 224.10 million Baht, or 41.85 percent. The significant items which highly affected to the cash flow were payment to Trade and Other current payables including Aircraft maintenance expenses. Net cash flows (used) from financing activities was 53.94 million Baht, mainly due to Temporary investments increased from year-end 2017. Nevertheless, net cash and cash equivalents decreased by 174.71 million Baht as of 31 March 2018. -Signed-.. Mr. Piya Yodmani Director / Chief Executive Officer 10