Feb 21 - Qantas due to release its first-half results today has been caught off guard
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Not only that, but he conveniently forgot to mention back pay was FWA ordered, an that only about half the period was paid. Meaning pilots, for the second time, have had a wage freeze. Add that figure saved to the interest earned on the holdup to payment of the back pay, and the AJ announced cost would be substantially less.
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not one line regarding the performance or JQ International
Strange that the QF business is dissected in the ASX media release (ie; Int, Dom, Loyalty, Freight) and Jetstar is not (Dom, Int, Jetstar Asia).
The only thing mentioned in AJ's interview is "jetstar is a phenomenal success story".
http://media.brisbanetimes.com.au/business/businessday/full-interview-qantas-ceo-alan-joyce-4710101.html
So just believe him.
http://media.brisbanetimes.com.au/business/businessday/full-interview-qantas-ceo-alan-joyce-4710101.html
So just believe him.
Vastly different take on AJ's spin here.
Qantas takes a financial flight of fancy on accounting winds
Qantas takes a financial flight of fancy on accounting winds
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Thank Virgin, for posterity
Qantas takes a financial flight of fancy on accounting winds
Date September 2, 2013
Michael West
Business columnist
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There are many ways to skin a cat, but there are many more ways to present a profit result. Take Qantas, for instance, a company that has displayed admirable flair over the years in the presentation of its financial accounts.
In declaring ''underlying profit'' of $192 million last week - to borrow crudely from Charles Kingsley - it killed this cat by choking it with cream. The market gulped down that cream, though, too. Qantas shares shot up 14 per cent on the day.
Among the myriad filings to the ASX - press releases, investor presentations and supplemental filings - a dogged pursuer will eventually unearth the Qantas Airways statutory accounts.
These are the ones mandated by legally binding accounting standards approved by the Australian Accounting Standards Board, signed off by Parliament (the standards are laid before Parliament so that Parliament can knock them back if they're wrong). These accounts are also identical to the International Financial Reporting Standards used all around the world except in the US (where they are permitted but not required).
It is here that we find that Qantas Airways' profit before tax was $17 million. This carried an $11 million tax charge; that is, an effective tax rate of 65 per cent.
In its presentation materials, Qantas preferred to focus on its own special measure for evaluating profit, its ''underlying'' profit before tax of $192 million. This $192 million was largely achieved thanks to a change in accounting policy that brought $134 million forward into the reporting period.
It got there by slicing off $86 million for asset impairments, $118 million for redundancies and restructuring, a $24 million write-down in intangibles - and by adding back a $30 million profit on the sale of an investment.
Without the sale of that investment, it would have shown a pre-tax loss of $13 million.
The Qantas balance sheet is every bit as vivacious as its profit-and-loss statement. The ''current ratio'' is negative: that is, current liabilities, at $6.37 billion, exceed current assets, at $5.25 billion. The current ratio is a good indicator there might be a cash squeeze afoot, that money may need to be raised.
Let's not panic just yet though. Qantas has $2.8 billion cash on hand. It has received revenue in advance of $3 billion - more than its cash on hand. It is a good thing that people pay before they fly. If you add the cash and current receivables (which should be collected over the next 12 months) you get $4.3 billion in readies.
Current payables (those due to be paid in the next 12 months) amount to $1.9 billion. In terms of available cash therefore, as per the balance sheet for the next 12 months, Qantas is $2.4 billion ahead. Again, this is funded 125 per cent by revenues received in advance.
The revenue in advance, however, is a current liability. If you subtract this from the available $2.4 billion, it becomes clear that Qantas needs to keep collecting all its money in advance.
On the face of it, Qantas' debt-to-equity ratio looks OK. And Qantas gets brownie points for showing the effect of capitalising its operating leases - even though this information didn't manage to scrape into the annual report.
But wait - the ratio is debt: (debt + equity). Debt is 36 per cent, equity 64 per cent. When they bring the off-balance sheet leases on, it becomes 39 per cent debt: equity 61 per cent. Actually, the debt represents 57 per cent of equity, and when you add in the off-balance sheet stuff, debt is 85.5 per cent of equity. Phew, no wonder Qantas prefers its own ratios. They are far more glamorous.
But wait again. What is debt? Let's see, it includes only the interest-bearing debt shown on the balance sheet. That covers only $853 million of current liabilities. The $1.9 billion current payable and the $3 billion of revenue in advance are not counted as debt.
If just those two amounts are added in, the preferred ratio would become 59:41 - and 63:37 with the off-balance sheet added in. If you were playing about with a plain old debt-to-equity ratio, you could get to 140 per cent, or roughly 170 per cent when adding in the off-balance-sheet stuff.
So, there is much that lies under the ''underlying profit'' and often a good deal more underlying the statutory disclosures too.
Date September 2, 2013
Michael West
Business columnist
View more articles from Michael West
Email Michael
There are many ways to skin a cat, but there are many more ways to present a profit result. Take Qantas, for instance, a company that has displayed admirable flair over the years in the presentation of its financial accounts.
In declaring ''underlying profit'' of $192 million last week - to borrow crudely from Charles Kingsley - it killed this cat by choking it with cream. The market gulped down that cream, though, too. Qantas shares shot up 14 per cent on the day.
Among the myriad filings to the ASX - press releases, investor presentations and supplemental filings - a dogged pursuer will eventually unearth the Qantas Airways statutory accounts.
These are the ones mandated by legally binding accounting standards approved by the Australian Accounting Standards Board, signed off by Parliament (the standards are laid before Parliament so that Parliament can knock them back if they're wrong). These accounts are also identical to the International Financial Reporting Standards used all around the world except in the US (where they are permitted but not required).
It is here that we find that Qantas Airways' profit before tax was $17 million. This carried an $11 million tax charge; that is, an effective tax rate of 65 per cent.
In its presentation materials, Qantas preferred to focus on its own special measure for evaluating profit, its ''underlying'' profit before tax of $192 million. This $192 million was largely achieved thanks to a change in accounting policy that brought $134 million forward into the reporting period.
It got there by slicing off $86 million for asset impairments, $118 million for redundancies and restructuring, a $24 million write-down in intangibles - and by adding back a $30 million profit on the sale of an investment.
Without the sale of that investment, it would have shown a pre-tax loss of $13 million.
The Qantas balance sheet is every bit as vivacious as its profit-and-loss statement. The ''current ratio'' is negative: that is, current liabilities, at $6.37 billion, exceed current assets, at $5.25 billion. The current ratio is a good indicator there might be a cash squeeze afoot, that money may need to be raised.
Let's not panic just yet though. Qantas has $2.8 billion cash on hand. It has received revenue in advance of $3 billion - more than its cash on hand. It is a good thing that people pay before they fly. If you add the cash and current receivables (which should be collected over the next 12 months) you get $4.3 billion in readies.
Current payables (those due to be paid in the next 12 months) amount to $1.9 billion. In terms of available cash therefore, as per the balance sheet for the next 12 months, Qantas is $2.4 billion ahead. Again, this is funded 125 per cent by revenues received in advance.
The revenue in advance, however, is a current liability. If you subtract this from the available $2.4 billion, it becomes clear that Qantas needs to keep collecting all its money in advance.
On the face of it, Qantas' debt-to-equity ratio looks OK. And Qantas gets brownie points for showing the effect of capitalising its operating leases - even though this information didn't manage to scrape into the annual report.
But wait - the ratio is debt: (debt + equity). Debt is 36 per cent, equity 64 per cent. When they bring the off-balance sheet leases on, it becomes 39 per cent debt: equity 61 per cent. Actually, the debt represents 57 per cent of equity, and when you add in the off-balance sheet stuff, debt is 85.5 per cent of equity. Phew, no wonder Qantas prefers its own ratios. They are far more glamorous.
But wait again. What is debt? Let's see, it includes only the interest-bearing debt shown on the balance sheet. That covers only $853 million of current liabilities. The $1.9 billion current payable and the $3 billion of revenue in advance are not counted as debt.
If just those two amounts are added in, the preferred ratio would become 59:41 - and 63:37 with the off-balance sheet added in. If you were playing about with a plain old debt-to-equity ratio, you could get to 140 per cent, or roughly 170 per cent when adding in the off-balance-sheet stuff.
So, there is much that lies under the ''underlying profit'' and often a good deal more underlying the statutory disclosures too.
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A very enlightening report. The real debt and the real state of the Airline is laid out for all to see.
Can one of the more financially literate readers explain what off balance sheet debt is? Is it like my wife's credit card being in her name yet I have to pay for it and yet I don't have the debt allocated to me.
Can one of the more financially literate readers explain what off balance sheet debt is? Is it like my wife's credit card being in her name yet I have to pay for it and yet I don't have the debt allocated to me.
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Originally Posted by schlong hauler
Can one of the more financially literate readers explain what off balance sheet debt is? Is it like my wife's credit card being in her name yet I have to pay for it and yet I don't have the debt allocated to me.
Operating leases for aircraft, GSE, would fall into this category. They are an operating expense, the actual asset is owned by another.
So, in the spirit of the thing, if your wife purchases items such a lingerie that you benefit from and you pay a price (not necessarily $$$) for then perhaps yes, the credit card debt is off your balance sheet!
I'm sure the Enron boys would be able to manage it for you somehow!!
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Watchdog queries Qantas comments - hmm and then what?
Well well, who would of thought... shaping up to be another interesting AGM
Competition tsar Rod Sims is ''concerned'' by comments made by Qantas that could be interpreted as a signal to end a fierce price war with its competitor, Virgin Australia, that has been a boon for travellers.
Sims said it was ''fair to say'' the Australian Competition and Consumer Commission is ''concerned at the comments and we are assessing them''.
On Thursday Qantas boss Alan Joyce told shareholders he was moderating capacity growth this year to between 1.5 per cent and 2.5 per cent in the domestic market, from 8 per cent growth in the past year. He then said at a media conference if Virgin reduced its capacity to zero: ''I'd be quite happy to make sure that Qantas adds zero per cent levels into the market because we are focused on maximising our 65 per cent capacity position.''
Joyce has previously said: ''We will match capacity in the marketplace to determine that optimising profit position. Quite happy if capacity is zero, quite happy to - less happy - to add 10 per cent to maintain the position that we have. But we maintain complete flexibility in what we can do in capacity.''
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But the comments have come on the ACCC's radar, so too comments made in March by the boss of Qantas' domestic business, Lyell Strambi, says Sims.
Strambi warned he would add two planes for each one added by Virgin. ''We've made it very clear we'll be sensible in terms of capacity. But if a competitor puts one [plane] in, we'll put two in as a group. We're very clear, we're not making any apologies for it. That's the game and people need to understand the game.''
The banks are subject to price-signalling legislation, but the aviation industry is not. This makes it difficult for the ACCC to make much progress in some of its investigations. For this reason it would not be a surprise if the ACCC had a quiet word in the ear of a new government to consider the merits of widening the legislation to include other industries when it conducts its root-and-branch inquiry into competition in Australia.
But, for now, the ACCC will no doubt look at Qantas' 65 per cent line-in-the-sand comments in relation to market share to ensure there is no funny business going on when it comes to competition. It won't be the first time. It is understood the ACCC looked at the 65 per cent market share about 12 months ago and found no issue.
Qantas says it takes its obligations under the Competition and Consumer Act very seriously. ''We've been very clear about our intent to maintain our profit-maximising 65 per cent share of the domestic market, which puts us in the position to offer the best service to customers. Our recent financial results confirm the merits of that strategy,'' a spokesman said.
He said Qantas would add as much or as little capacity as it needed to maintain that share. ''How the rest of the market reacts to that is up to them,'' he said.
Airlines have a history of price wars. The fiercest was in 2004 when extra capacity poured into the market when Qantas launched low-cost carrier Jetstar.
The latest price war has been particularly vicious, culminating in Virgin posting a loss of $98 million in the year to June 30, partly due to the savage price competition in the domestic market. Its domestic operations lost $44 million, compared with a profit of $93 million previously.
Qantas managed to report an overall underlying profit before tax for the year of $192 million but its domestic earnings before interest and tax fell 21 per cent to $365 million, down $100 million from last year, while Jetstar's profit fell 32 per cent to $138 million.
Virgin boss John Borghetti said he found the comments by Joyce ''a little curious''. He said his decision to increase capacity was based on the group's overall strategy to reposition the airline and move into different markets rather than chase market share.
Qantas is hell-bent on keeping its 65 per cent market share. It is based on a belief that the airline industry works on the ''S-Curve'' phenomenon, which measures capacity share against revenue share. The theory is there is a certain profit optimisation point where if you add more capacity you get little in the way of increased revenue, but if you lose capacity, revenue falls off a cliff.
Virgin isn't perturbed or listening to Qantas. After hearing the comments, Borghetti told his investors to expect a capacity rise of 3 to 4 per cent this year, preferring to continue with the group's strategy.
Read more: Watchdog queries Qantas comments
Sims said it was ''fair to say'' the Australian Competition and Consumer Commission is ''concerned at the comments and we are assessing them''.
On Thursday Qantas boss Alan Joyce told shareholders he was moderating capacity growth this year to between 1.5 per cent and 2.5 per cent in the domestic market, from 8 per cent growth in the past year. He then said at a media conference if Virgin reduced its capacity to zero: ''I'd be quite happy to make sure that Qantas adds zero per cent levels into the market because we are focused on maximising our 65 per cent capacity position.''
Joyce has previously said: ''We will match capacity in the marketplace to determine that optimising profit position. Quite happy if capacity is zero, quite happy to - less happy - to add 10 per cent to maintain the position that we have. But we maintain complete flexibility in what we can do in capacity.''
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But the comments have come on the ACCC's radar, so too comments made in March by the boss of Qantas' domestic business, Lyell Strambi, says Sims.
Strambi warned he would add two planes for each one added by Virgin. ''We've made it very clear we'll be sensible in terms of capacity. But if a competitor puts one [plane] in, we'll put two in as a group. We're very clear, we're not making any apologies for it. That's the game and people need to understand the game.''
The banks are subject to price-signalling legislation, but the aviation industry is not. This makes it difficult for the ACCC to make much progress in some of its investigations. For this reason it would not be a surprise if the ACCC had a quiet word in the ear of a new government to consider the merits of widening the legislation to include other industries when it conducts its root-and-branch inquiry into competition in Australia.
But, for now, the ACCC will no doubt look at Qantas' 65 per cent line-in-the-sand comments in relation to market share to ensure there is no funny business going on when it comes to competition. It won't be the first time. It is understood the ACCC looked at the 65 per cent market share about 12 months ago and found no issue.
Qantas says it takes its obligations under the Competition and Consumer Act very seriously. ''We've been very clear about our intent to maintain our profit-maximising 65 per cent share of the domestic market, which puts us in the position to offer the best service to customers. Our recent financial results confirm the merits of that strategy,'' a spokesman said.
He said Qantas would add as much or as little capacity as it needed to maintain that share. ''How the rest of the market reacts to that is up to them,'' he said.
Airlines have a history of price wars. The fiercest was in 2004 when extra capacity poured into the market when Qantas launched low-cost carrier Jetstar.
The latest price war has been particularly vicious, culminating in Virgin posting a loss of $98 million in the year to June 30, partly due to the savage price competition in the domestic market. Its domestic operations lost $44 million, compared with a profit of $93 million previously.
Qantas managed to report an overall underlying profit before tax for the year of $192 million but its domestic earnings before interest and tax fell 21 per cent to $365 million, down $100 million from last year, while Jetstar's profit fell 32 per cent to $138 million.
Virgin boss John Borghetti said he found the comments by Joyce ''a little curious''. He said his decision to increase capacity was based on the group's overall strategy to reposition the airline and move into different markets rather than chase market share.
Qantas is hell-bent on keeping its 65 per cent market share. It is based on a belief that the airline industry works on the ''S-Curve'' phenomenon, which measures capacity share against revenue share. The theory is there is a certain profit optimisation point where if you add more capacity you get little in the way of increased revenue, but if you lose capacity, revenue falls off a cliff.
Virgin isn't perturbed or listening to Qantas. After hearing the comments, Borghetti told his investors to expect a capacity rise of 3 to 4 per cent this year, preferring to continue with the group's strategy.
Read more: Watchdog queries Qantas comments
