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Qantas Announces $1.6bn Turnaround and Proposes 23c Distribution

Qantas Announces $1.6bn Turnaround and Proposes 23c Distribution
Aug 20, 2015 By Simon Herrmann

Australia’s largest airline Qantas Airways Limited (ASX:QAN) announced an underlying profit before tax of $975m, a $1.6bn improvement to last year’s $646m loss. Statutory profit after tax was $560m, also a significant improvement compared to the $2.8bn loss in FY14.

Qantas also experienced modest 3% revenue growth resulting in total revenue of $15.8bn, compared to $15.3bn in the previous corresponding period (pcp). In an announcement to the ASX the company said that the strong turnaround is a result of the Qantas transformation program and a ‘more favourable operating environment’. The Qantas transformation program however was the major driver accounting for benefits of $894m according to the company. Higher profit margins per customer, lower fuel prices and positive impacts from last year’s write-downs were also supporting factors.

The company proposes a 23 cents per share capital return to shareholders, paying a total of $505m back to its equity shareholders. The distribution will come in line with a share consolidation, that would result in a reduction of available shares on issue of around 6.1%.The proposition is subject to a final ATO ruling as well as approval at the Qantas AGM in October.

Qantas Domestic achieved Underlying EBIT of $480m, compared to only $30 last financial year and Qantas International improved by $764m to $267m. Jetstar contributed significantly to Qantas’ positive turnaround as the low-cost carrier returned to profit after a $116m loss last year. During FY15 Jetstar’s Underlying EBIT was $230m.

Qantas CEO Alan Joyce thanked shareholders for being ‘both patient and supportive as we have worked through our biggest and fastest business transformation in history’.

Investors who were hoping for a FY16 outlook will be disappointed as Qantas states that ‘no Group profit guidance is provided at this time due to the high degree of volatility and uncertainty in global economic conditions, fuel prices and FX rates. However Qantas expects Group capacity to increase by 3-4 per cent and underlying fuel costs of a maximum of $3.94bn. Furthermore the company expects additional transformation benefits of around $450m in FY16.

Qantas’ share price increased by more than 180% in the past 12 months and is up ~56% year-to-date. In December 2013 QAN was trading at $1  and closed at $3.76 on Wednesday afternoon.

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Simon Herrmann Author: Simon Herrmann Aug 20, 2015

Simon is a financial analyst at independent research firm Wise-owl specialised in small-mid cap growth opportunities and ethical investment opportunities. Simon's aim is to disrupt the cliché approach to investment decision making as he believes that socially and environmentally responsible behaviour is a necessity to long-term wealth creation. Simon has a deep fundamental understanding of the global financial landscape and has compiled 300+ research reports, valuations and corporate appraisals. Simon is commonly featured in major media outlets and his research is published weekly in The Australian.

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