Qantas profit increases

38 per cent

QANTAS has reported a profit before tax of AUD5662.5 million for the year ended 30 June 1999, an increase percent over the prior financial year.

Net profit after tax of AUDS42O.9 million increased by 38 percent and included an abnormal after tax gain ofAUDS3B.9 million relating to sale ot part of the investment in the international data network company

Equant Nv.

Excluding the abnormal gain, operat ing profit before tax rose by 25.9 percent to AUDS6OI.7 million and operating profit alter tax but before abnormal items increased by 25.2 percent to AUDS3B2 million.

The Directors declared a fully franked final dividend of 24.5 cents per share, 17.5 cents higher than the fully franked final div idend for last year. The dividend included two compo nents. an ordi

nary final dividend j&t of ! 1 -Ip cents per share and a special divi dend of 13.5 cents per share.

This brought total fully franked divi dends for the year to 32.5 cents per share, 19 cents per share higher than last year.

The Board declared the fully franked special dividend to maximise returns to shareholders by releasing accumulated franking credits and to distribute the profit generated by the EQUANT NV sale.

Qantas chair, Gary Pemberton, said the result reflected solid revenue perfor mance in the second half of the year, contin uing the trend evident in the latter part of 1998.

“I said in February that the half year result was, in financial terms, our best result to that date. The second half has added to that outcome and enabled us to continue our unbroken record of profit improvement since listing the company,” he said.

“The result for the current year deliv ers significant value to shareholders through

the record earnings, the higher final dividend and, notably, the special dividend. It was achieved in a market which continued to be strongly competitive and under a difficult aviation policy environment.

“During the year we continued with the company’s extensive program of invest ment in product and services. Spanning three years and totalling over AUDS7OO million, the investment includes aircraft refurbish ment, lounge and terminal improvements and customer service programs. This has enabled us to achieve our highest ever ratings in reg ular internal surveys of customer service and brand recognition.

“The product investment program and further expansion of the fleet will generate increased depreciation and funding charges against profits in the 1999/2000 year and beyond.

These will need to be offset by

higher

fre v enues or continu

ing efficiency

gains.

“On the other hand, we enter the new year pleased with the continuing trend on revenue,” he added.

“Going forward, we will not change the strategies that have served us well. We will continue to carefully manage our asset base and maintain our emphasis on produc

tivity and efficiency.”

Chief executive, James Strong, said the record result came as Qantas celebrated an aviation milestone of 40 years of com mercial jet services in Australia, commenc ing with Boeing 707-138 services in 1959.

“Total revenue for the year was AUDSB.4S billion reflecting growth of more than AUDS3OO million or 3.9 percent on the prior year,” he added.

“Net passenger revenue also increased by four percent and overall passenger yield

improved by 1.8 percent. Excluding the

Continued next page

Continued from previous page

favourable impact of movements in foreign exchange rates, yield declined by 0.9 per cent.

“Including the adverse impact of exchange movements, operating cost increases were restricted to 2.6 percent.

Excluding exchange impacts, costs were sta ble compared to last year.

“The continued success of our efficiency and productivity programs along with lower fuel prices - although offset to some degree by higher information technology and capacity related costs - also enabled us to improve the margins in our business.

“The operating margin at the Earnings

Before Interest and Tax (EBIT) level improved by 20.6 percent.'’ Strong said pressure on revenues continued to be a major issue for the airline.

“The investments we have made in new yield management systems and tech niques, in other new technologies and in product and services, coupled with better operational efficiency and the strength of the Qantas brand have all added to the improve ment in performance and cushioned the impact of yield deterioration,” he added.

Strong said that during the year, Qan tas purchased two new Boeing 767-300 s from the manufacturer and two Boeing 747- 400 s from Malaysian Airlines. In addition, Qantas had firm orders for one Boeing 767- 300 and three Boeing 747-400 s, scheduled for delivery in 1999 and 2000. This addition al capacity would be deployed as part of announced schedule changes including addi tional services to London, South Africa and Auckland, new services to New York from Sydney and the first non-stop services between Melbourne and Los Angeles.

“By the end of 1999 all our major long haul international routes will be ser viced by Boeing 747-400 aircraft in the new three class configuration. Reconfiguration of our Boeing 767-300 fleet is targeted for com pletion by the middle of next year,” he added.

“Qantas extended its new restaurant style inflight cuisine from First Class into Business Class cabins in its international air

craft during the year.”

Strong said Qantas was on track with a comprehensive program to achieve readi ness for the Year 2000 including detailed

business continuity and contingency plan

ning. Qantas had also embarked on a Net work Redesign Program which would give it one of the world’s most advanced telephone, computer, Internet and Intranet networks,

connecting all operational sites around the world and pro viding for a

major presence

on the World Wide Web.

Domes tic operations

contributed AUDS2S6.B million in Earnings Before Interest and Tax (EBIT), an increase of 20.3 percent over the previous year reflecting the robustness of the domestic economy. Load factors and yields were maintained with capacity growth of 3.8 per cent.

International operations contributed AUDS3OB.3 million in EBIT, up 13.4 per cent. Excluding the effects of movements in foreign exchange rates, international passen ger revenues declined 1.4 percent and yield was down by 2.8 percent over the prior year.

Revenue Passenger Kilometres (RPKs) increased by 1.5 percent on stable capacity resulting in an improvement in load factors of 1.5 percentage points.

Subsidiary operations contributed

AUDSI36.7 million to the Group’s EBIT, an increase of 41.8 percent above the contribu tion from the prior year. Subsidiary and other operations were a substantial part of the Group’s profit performance with all busi nesses including Catering, Qantas Holidays, Freight and Regional Airlines - particularly Airlink, Southern Australia and Eastern providing substantial returns.

Strong also announced the Directors had approved a further grant of AUDS 1,000 worth of bonus shares to each eligible employee under the Qantas Profitshare Scheme. The total value of this grant would approximate AUDS2B million and was in recognition of the important contribution Qantas employees had made to achieve the record result.

In June 1999 Qantas issued US$35O million of unsecured Notes with a 10 year maturity. This borrowing will be used to fund committed aircraft acquisitions and retire ment of debt. Qantas deputy chief executive officer, Gary Toomey, said capital expendi ture of AUDSI.2 billion during the year, was funded from internal sources with cash flow from operations again over AUDSI.2 billion.

“As the proceeds from the bond issue were not used at 30 June 1999, the debt to

debt plus equity ratio, (including non-can

cellable operating leases and on a hedged basis) improved by one percentage point to 39:61 at 30 June 1999,” he added.

“Qantas has managed its capital with a primary focus on reducing financial lever age. The success of this strategy has enabled us to deliver significant value to sharehold ers and to achieve a leverage in line with our target range.

“Having achieved our target leverage, the Directors have decided to suspend the Dividend Reinvestment Plan, effective immediately.

“As part of this active capital man agement program, Qantas has declared a fully franked special dividend of 13.5 cents per share. A number of methods of distribut ing franking credits were evaluated, includ ing a share buy-back, with the special divi dend being the most effective method of dis tribution. “This is a continuing process of reviewing our capital needs and the methods of best distributing franking credits to share holders,” Toomey said.

Capital expenditure during the year predominantly related to aircraft acquisitions (including progress payments), aircraft reconfiguration costs, engine modifications and significant terminal improvements in Sydney, Melbourne, Brisbane and Perth.

The favourable foreign exchange effect on revenues was largely offset by an adverse effect on foreign currency denomi nated expenditures. The net benefit from exchange for the full year was AUDSI2 mil lion.

Excluding the unfavourable impact of movements in exchange rates, cost per Avail able Seat Kilometre (ASK) improved by 0 i percent in comparison to the prior yeai “Lower fuel prices and the achievement o' AUDS4BO million in benefits through a com bination of new efficiency, productivity am non-passenger revenue enhancement initia tives were an important part of profit perfor mance,” Toomey said.

Total income tax expense increase! by AUDS6B.6 million, or 39.7 percent on tin prior year due to the higher profits. Thi Group’s effective tax rate was 36.5 percent.

The fully franked final and special dividem of 24.5 cents per share is payable Decembe 1, with a record date (books close) o November 3. ■