Icelandair Group Presentation of Q4 and FY 2018 Results - Bogi Nils Bogason President and CEO

 
Icelandair Group Presentation of Q4 and FY 2018 Results - Bogi Nils Bogason President and CEO
Icelandair Group
Presentation of Q4 and FY 2018 Results
Bogi Nils Bogason  President and CEO
Icelandair Group Presentation of Q4 and FY 2018 Results - Bogi Nils Bogason President and CEO
Highlights

                                                  Number of measures
                      Low airfares, high fuel
                                                   taken to improve
EBITDA in Q4 2018    prices, low utilisation of
                                                      profitability
  -35 USD million     pilots and operational
    compared to      challenges at Air Iceland
                                                  Significant operational
-16 USD million LY    Connect causing lower
                                                      improvements
                              EBITDA
                                                     expected in 2019

                                 2
Icelandair Group Presentation of Q4 and FY 2018 Results - Bogi Nils Bogason President and CEO
Financials
Icelandair Group Presentation of Q4 and FY 2018 Results - Bogi Nils Bogason President and CEO
Pressure on airfares, higher fuel costs, low utilisation of pilots and poor results
of domestic operations causing lower EBITDA

 USD million                            Q4 2018   Q4 2017   % Chg.         EBITDA and loss | USD million
 Operating Income                         298.8     291.6       2%
                                                                                EBITDA
 Salaries and related expenses            126.9     115.0      10%
                                                                                Net loss / profit
 Aircraft fuel                             74.1      54.7      36%
 Aircraft lease                             9.2       5.7      61%                                  22.9
 Aircraft handling, landing and comm.      29.3      29.2       0%
 Aircraft maintenance expenses             20.6      20.5       1%
 Other expenses                            73.6      83.0     -11%
                                                                                                                 2.5
                                                                                                           0.3
 Operating expenses                       333.8     308.0       8%
 EBITDA                                   -35.0     -16.4     113%                  -1.5
 EBIT                                     -69.3     -45.8      51%
 EBT                                      -69.7     -47.7      46%                         -15.0                               -16.4
 Loss for the period                      -57.3     -39.7      45%
                                                                                                                       -22.9

                                                                                                                                               -35.0
 EBITDA ratio                            -11.7%     -5.6%   -6.1 ppt                                                                   -39.7
 EBITDAR                                  -24.2      -5.4          -
 EBITDAR ratio                            -8.1%     -1.8%   -6.2 ppt

                                                                                                                                                       -57.3
                                                                                     Q4 14           Q4 15       Q4 16           Q4 17           Q4 18

                                                                       4
Passenger increase in the Route Network 11% and load factor up by
        0.5 percentage points

         Q4 year-on-year change in %

                                                                                                                                                                               20           20

                                            14
                           11
                                                                                                                                                                     8
                                                                                                                  5
                                                             0.5
                                                              0                                                                                         1

                                                                                                                                                                                                            0

                                                                                                                                    -11
                                                                               -13

                                                                                                -33
                      Passengers          ASK             SLF (ppt)        Passengers       ASK Domestic     SLF (ppt)        Fleet utilisation     Sold BH          FTK     Available     Sold       Occupancy (ppt)
                     Route Network    Route Network     Route Network     Domestic and      and Regional    Domestic and      Charter flights     Charter flights   Cargo   HRN Hotels   HRN Hotels     HRN Hotels
                                                                         Regional flights      flights     Regional flights

                                                                                                                          5
ASK = Available Seat Kilometres, BH = Block Hours, HRN = Hotel Room Nights.
Ancillary revenues per passenger increased significantly between years

         Passenger revenue per passenger | USD Q418 vs Q417                                       Main changes in passenger revenues | USD Q418 vs Q417

                                                                                                                                             7%
                              -6%                                                                                                                                                    204.2

                        202

                                                                                                                                                                       11.9

                                                                                                                     8.9
                                    190              +47%
                                                                                                      191.7                    -15.4
                                                             24
                                                                                                                                                            5.3

                                                   16                                                                                         1.7

                                                                           2017
                                                                           2018

                          Fare Q4              Ancillary per pax Q4                                 Passenger     Production   Yield      Load Factor     Currency   Ancillary     Passenger
                                                                                                  revenues Q417                                                                  revenues Q418

Fare = passenger revenues / passengers, Yield = passenger revenues/revenue passenger kilometres
Average fuel price trended downwards in Q4 2018 and market price of carbon
emission allowances tripled in 2018

Average and effective fuel price | USD/tonne 2017-2018                                                                                                                                                  Carbon Emissions Allowances | Q417-Q418 in EUR

800
                                                                                                                                                                                                                                +199%
                                                                                                                                                                                        Average world
750                                                                                                                                                                                     fuel price                                                       24.6

700
                                                                                                                                                                                                                                           21.2
650

600
                                                                                                                                                                                  Effective                                      15.0
550                                                                                                                                                                               fuel price
                                                                                                                                                                                                                       13.3

500

450                                                                                                                                                                                                          8.3

400

350

300
      Jan17

              Feb17

                      Mar17

                              Apr17

                                      May17

                                                      Jul17

                                                              Aug17

                                                                      Sep17

                                                                              Oct17

                                                                                      Nov17

                                                                                              Dec17

                                                                                                      Jan18

                                                                                                              Feb18

                                                                                                                      Mar18

                                                                                                                              Apr18

                                                                                                                                      May18

                                                                                                                                              Jun18

                                                                                                                                                      Jul18

                                                                                                                                                              Aug18

                                                                                                                                                                      Sep18

                                                                                                                                                                              Oct18

                                                                                                                                                                                      Nov18

                                                                                                                                                                                              Dec18
                                              Jun17

                                                                                                                                                                                                          End Q417 End Q118 End Q218 End Q318 End Q418

                                                                                                                                                                                              9
50% of estimated usage in 2019 has been hedged at weighted average
swap price of 685 USD/tonne

                            Estimated usage
 Period                                          Swap volume         % hedged         Av. swap price USD
                            (tons)                                                                                                   755
 Jan 19                                   25.277              15.450            61%                    621
 Feb 19                                   21.102              14.450            68%                    644                685
 Mar 19                                   26.666              15.500            58%                    622
 Apr 19                                   29.750              15.450            52%                    631
 May 19                                   40.885              21.500            53%                    635
 Jun 19                                   49.696              24.500            49%                    683      50%
 Jul 19                                   52.286              26.250            50%                    692   hedged at
 Aug 19                                   52.505              28.250            54%                    722    USD 685
 Sep 19                                   45.855              27.250            59%                    752    average
 Oct 19                                   33.902              16.000            12%                    753
                                                                                                             swap price
 Nov 19                                   30.530              11.000            13%                    710
 Dec 19                                   29.028               4.000            14%                    722
 12 months                               437.482             219.600            50%                    685
                                                                                                                                              6%
                                                                                                                                           hedged at
 Jan 20                                   25.759               4.000            16%                    713
                                                                                                                                            USD 755
 Feb 20                                   21.502               4.000            19%                    789
                                                                                                                                            average
 Mar 20                                   27.171               4.000            15%                    764
                                                                                                                                           swap price
 Apr 20                                   30.321                                 0%                      0
 May 20                                   41.677                                 0%                      0
 Jun 20                                   50.663                                 0%                      0
 13-18 months                            197.094              12.000             6%                    755

 * weighted average price                                                                                            12 months   13-18 months

                                                                                      10
Aviation less fuel                           Other expenses
                                       +7%                             -11%

                              29.2    29.3

                                                    20.5   20.6

                                                                                                                                                                    16.5
                                                                                                                                                                           15.5
                                                                                                                                     15.1
                                                                                                                                                                                    14.3
                                                                                                                              13.8

                                                                                                                                                                                                      10.8      10.8

                  9.2                                                                                    9.4
                                                                              8.7
                                                                       8.0
                                                                                                                                                                                            7.1
                                                                                             6.3                6.2
          5.7
                                                                                                   5.0                                                   5.2
                        +AC
                    on lease at                                                 new hotel,                                                        3.9                                        decreasing
                    Loftleidir +                                               hanger and                                                                                                    with lower
                                                                                                                                                                                                                       2017
                    Icelandair                                                 new lounge                                                                                                     rev. from
                      (MAX)                                                      in KEF                                                                                                        tourism                 2018

         Aircraft lease      Aircraft H-L-C**   Aircraft maintenance   Real estate     Communication     Advertising       Booking fees/comm. Cost of goods sold   Customer serv.   Tourism. Exp.         Other exp.

* All figures are in USD millions                                                                                      9
** H-L-C = Handling, Landing, Communication
Challenging year behind us

  USD million                            12M 2018   12M 2017   % Chg.
                                                                               EBITDA and Net Profit | USD million
  Operating Income                        1,510.5    1,418.0       7%
  Salaries and related expenses             515.9      445.2      16%               EBITDA

  Aircraft fuel                             298.8      235.4      27%
                                                                                    Net Profit / Loss

  Aircraft lease                             36.5       21.8      68%                                   226.7
                                                                                                                    219.8
  Aircraft handling, landing and comm.      136.4      122.8      11%
  Aircraft maintenance expenses              80.9       76.1       6%
  Other expenses                            365.5      346.7       5%
                                                                                                                               170.2
                                                                                       154.3
  Operating expenses                      1,434.0    1,247.9      15%
  EBITDA                                     76.5      170.1          -
                                                                                                            111.2
  EBIT                                      -57.0       49.6          -
                                                                                                                        89.1
  EBT                                       -67.8       48.6          -                                                                   76.5
                                                                                             66.5
  Loss / profit for the period              -55.6       37.5          -
                                                                                                                                   37.7

  EBITDA ratio                              5.1%      12.0%    -6.9 ppt
  EBITDAR                                   126.9      207.8          -
  EBITDAR ratio                             8.4%      14.7%    -6.3 ppt

                                                                                                                                             -55.6
                                                                                        12M 14           12M 15      12M 16     12M 17    12M 18

                                                                          10
Modest growth in passengers in 2018

Passenger mix | number of passengers in thousands                              Available seat km (ASK) | 2014-2018 in billions

   To     From      Via
                                                            +2%                                                                          +6%

                                                                  4,135                                                          15.2          16.2
                                                    4,045
                                                                                                                       13.7
                                    3,679                                                                  11.1
                                                                                                9.7

                                                    36%           36%
                      3,073
                                     38%
         2,603                                                                                 2014        2015       2016       2017          2018
                          37%
                                                    12%           13%
         36%                         13%                                       Load factor | 2014-2018
                          15%
         16%
                                                                                                          83.2%       82.2%      82.7%
                                                    52%           51%                         80.4%                                            81.0%
                                     50%
                          49%
         48%

         2014          2015         2016            2017          2018
                                                                                               2014        2015        2016      2017          2018

                                                                          11
Strong financial position at year-end 2018 with USD 300 million in
Cash and Cash Equivalents

 USD million                                     31.12.2018 31.12.2017    Diff.    USD million                               31.12.2018 31.12.2017    Diff.
 Assets                                                                            Equity and liabilities
 Operating Assets                                    673.4       652.7    20.7     Stockholders equity                           471.4       596.5   -125.2
 Intangible assets and goodwill                      177.6       180.4    -2.9     Loans and borrowings non-current              147.5       280.3   -132.7
 Other non-current assets                              43.6      126.7   -83.1     Other non-current liabilities                   47.4       78.1    -30.7
 Total non-current assets                            894.6       959.8   -65.2     Total non-current liabilites                  194.9       358.4   -163.4

                                                                                   Loans and borrowings current                  268.3         9.3   259.0
 Other current-assets                                144.9       231.3   -86.4
                                                                                   Derivatives used for hedging                    39.7        1.4    38.3
 Assets classified as held for sale                  125.2         7.5   117.7
                                                                                   Trade and other payables                      222.8       232.2   -179.9
 Short term investments                                 0.0        4.1    -4.1
                                                                                   Liabilities classified as held for sale         52.2        0.0   222.8
 Cash and cash equivalents                           299.5       221.2    78.3
                                                                                   Deferred income                               214.9       226.1    -11.2
 Total current assets                                569.5       464.1   105.5
                                                                                   Total current liabilites                      797.8       468.9   328.9
 Total assets                                       1,464.1    1,423.8    40.3
                                                                                   Total equity and liabilities                 1,464.1    1,423.8    40.3

                Interest              Net debt                                     Equity ratio                                   32%         42%     -10%
              bearing debt             USD                                         Current ratio                                   0.71       0.99    -0.28
              USD 415.9m              116.3m                                       Net interest bearing debt                     116.3        64.3    52.1
                                                                                   Interest bearing debt                         415.8       289.5   126.3

                                                                                  12
The Way Ahead
Icelandair Group will implement a new financial reporting standard
IFRS 16 at the start of 2019

Comments                               Financial metrics USD‘000         IFRS 16 impact excl. Hotels   IFRS 16 impact incl. Hotels

  Overview of the estimated impact                   EBITDA                       +66,723                        +81,427
  of the IFRS 16 standard on
  Icelandair Group’s consolidated                  Depreciation                   -61,720                        -72,303
  financial statements in 2019, in
  the absence of any other                       Net finance cost                  -10,679                        -18,014
  changes, and on the Balance
  Sheet as of 1 January 2019.
                                                    Net Profit                     -5,676                         -8,890
  The impact is shown both
  excluding and including Icelandair               Total assets                  1,432,863                      1,745,786
  Hotels, which are being divested.
                                                   Equity ratio                     33%                            27%

                                                                    14
Icelandair will take delivery of six B737 MAX in the coming weeks

                                                                             Aircraft deliveries 2019-2021
    An agreement concluded on the financing of pre-delivery
     payments on 11 Boeing MAX aircraft.                                              6
                                                                                                              5
    Six aircraft scheduled for delivery in 2019 and five aircraft in
                                                                                      3
     2020.
                                                                                                              3
    In all, the financing amounts to USD 200 million over the                                                            2
     period.                                                                          3                                   1          B737 MAX 9
                                                                                                              2                      B737 MAX 8
                                                                                                                          1
    The Company’s cash position increased by USD 160 million
                                                                                     2019                    2020        2021
     at the end of 2018 as a result of the agreement, as
     Icelandair Group had already made pre-delivery-payments
     out if its own funds.                                                                                      11                 7
    Sale and leaseback arrangements have been concluded for                                                 aircraft           aircraft
     seven Boeing 737 MAX aircraft. Six aircraft scheduled for
                                                                                                                PDP                Sale
     delivery in 2019, one aircraft scheduled for delivery in 2020.
                                                                                                              finance           leaseback
                                                                                                             completed          completed

                                                                        15
Capacity increasing by 10% in 2019 – available seats in Europe growing more
than in N-America to correct imbalance from LY

Change in ASK | 2018 vs 2019 forecast                                  Passenger mix | number of passengers in thousands

                                                           9.7%                                                              +13%
                                               0.7%
                                                                                                                                    4,663
                               6.5%
                                                                                                         4,053       4,135
                2.5%
                                                                                            3,679
Byrjun       Increased       Increased       New           Total
             frequency       frequency    destinations                                                   36%          36%
                                                                                3,073
             N-America         Europe       Europe
                                                                                             38%

                                                                                37%
                                                                                                         12%          13%
                                                                                             13%
                                                                                15%
                            12%
                                         10%                  9.7%                                                                          To
                 8%                                   8%                                                 52%          51%
                                                                                             50%                                            From
                                                                                49%
                                                                                                                                            Via
                                                                                                                                            Total

                 Q1          Q2          Q3           Q4      2019F             2015        2016         2017         2018          2019F

                                                                      16
Actions taken to improve profitability in 2019

 The performance of               Imbalance in                                       Focus on
                                                      Implementation of a
 Icelandair in 2018 was             the Route                                     strengthening
                                                         new revenue
                                Network corrected                              sales and marketing
 unacceptable.                                        management system
                                                                                     activities

 A number of actions have
 been taken to improve                                                            Strengthening of
                                    Increased         New connection bank,
                                                                                processes to reduce
 operations in 2019                 emphasis           which will improve
                                                                              disruptions in the Route
                               on ancillary revenue    resource utilisation
                                                                                      Network

                                   Improved                                           Domestic
                                   utilisation            Outsourcing          flight operation under
                                                                                       review
                                  of manpower

                                              17
Aim to reduce IRROPS cost by 40% in 2019

              On time performance  January 2018-January2019
                                                                                                                       The cost of unpunctuality and disruptions
                                                                                                                       in flight schedules amounted to
                                                     81%                                                         84%   approximately USD 45 million in 2018.
                                          80%                                            79%          79%
                                                                                 78%            78%
                                                                                                                       The aim of the Company is to reduce this
                              69%                                                                                      cost at least by about 40% in 2019
                                                           69%
                     67%                                                                                               through:
                                                                         64%
                                                                                                                          improved punctuality
                                                                   55%
                                                                                                                          changes in the Route Network
                                                                                                                          infrastructure reinforcements

                                                                 39%
                   Jan 18 Feb 18 Mar 18 Apr 18 May 18 Jun 18       Jul 18 Aug 18 Sep 18 Oct 18 Nov 18 Dec 18 Jan 19

IRROPS cost = cost related to Irregular operations                                             18
2019 Guidance

 International flight operations
 Significant improvements in profitability expected in 2019 because of a number
 of strategic and operational actions. However because of the greater                Worse financial performance
 uncertainty in revenue forecasts than before and uncertainty in the labour
 market in Iceland, an EBITDA guidance for the year is not issued at this stage.
                                                                                     expected in Q1 2019 than in Q1
                                                                                     2018. Average air fares have not
                                                                                     increased between years, and the
 Other core operations                                                               timing of Easter will have an
 A slight performance improvement is anticipated from other core operations in
 2019, which returned USD 37 million in EBITDA in 2018.
                                                                                     impact on demand.

                                                                                     Icelandair Group's long-term
                                                                                     business objective remains
 Companies in sales process                                                          unchanged, with an average 7%
 The sales process of Icelandair Hotels is expected to be finalized in 2019 and it   EBIT ratio.
 has been announced that the sales process of Iceland Travel is currently being
 prepared. The EBITDA of these assets was USD 16 million in 2018.

                                                                     19
Old
                                                                    Board of Directors
Organisational
Structure                         Internal Audit

Icelandair Group                                                    President and CEO

                                          Corporate Communication                         Corporate Affairs

                              Sales and              Customer                Operations               Aviation       Tourism
                              Marketing              Experience                COO                  Investments    Investments
         Finance                CCO                     CXO
         CFO

                                                                                                     Air Iceland   Icelandair
                                                                                                      Connect        Hotels

         People and Culture                                                                          Loftleiðir     Iceland
         CHRO                                                                                        Icelandic       Travel

                                                                                                        Vita
Board of Directors

New                                  Internal Audit

Organisational                                                       President and CEO
                                                                       Bogi Nils Bogason

Structure
Icelandair Group                               General Counsel                             Communications and CSR

         Finance
         Eva Sóley Guðbjörnsdóttir                    Sales and                                        Air Freight     Aircraft
                                                      Customer                Operations                   and       Leasing and
                                                      Experience                                       Logistics     Consulting

         People and Culture                                                       Jens                Gunnar Már         Árni
                                                      Birna Ósk
         Elísabet Helgadóttir                                                   Þórðarson            Sigurfinnsson   Hermannsson
                                                      Einarsdóttir

         Digital Development & IT
         Tómas Ingason

         Fleet and Network
         Ívar S. Kristinsson
Our mission is clear:
To improve the Company’s profitability
and strengthen the operations for the future

                                     22
Disclaimer
|   This material has been prepared by Icelandair Group hf. It may include confidential information about Icelandair Group hf. unless stated otherwise all
    information is sourced by Icelandair Group hf.

|   The circulation of the information contained within this document may be restricted in some jurisdictions. It is the responsibility of the individual to comply with
    any such jurisdictional restrictions.

|   Forecasts, by their very nature, are subject to uncertainty and contingencies, many of which are outside the control of Icelandair Group. Past performance
    should not be viewed as a guide to future performance. Where amounts involve a foreign currency, they may be subject to fluctuations in value due to
    movements in exchange rates.

|   Icelandair Group cannot guarantee that the information contained herein is without fault or entirely accurate. The information in this material is based on
    sources that Icelandair Group believes to be reliable. Neither Icelandair Group nor any of its directors or employees can however warrant that all information
    is correct. Furthermore, information and opinions may change without notice. Icelandair Group is under no obligation to make amendments or changes to this
    presentation if errors are found or opinions or information change. Icelandair Group accepts no responsibility for the accuracy of its sources or information
    provided herein and therefore can neither Icelandair Group nor any of its directors or employees be held responsible in any way for the contents of this
    document.

|   This document must not be construed as investment advice or an offer to invest.

|   Icelandair Group is the owner of all works of authorship including, but not limited to, all design, test, sound recordings, images and trademarks in this material
    unless otherwise explicitly stated. The use of Icelandair Group´s material, works or trademarks is forbidden without written consent except where otherwise
    expressly stated.

|   Furthermore, it is prohibited to publish, copy, reproduce or distribute further the material made or gathered by Icelandair Group without the company‘s explicit
    written consent.

                                                                                   23
Icelandair Group
Reykjavík Airport
101 Reykjavík Iceland
Tel: +354 50 50 300
info@icelandairgroup.is
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