Analyst Briefing

Jun 9, 2020

Slides

Good afternoon. Welcome to today's Catholic Pacific Analyst webcast. Thank you for joining us. We will begin with a presentation after which we will hold the Q and A session. Slides from the presentation will be displayed alongside the live video for your convenience. We're also invited to submit your questions at any time during the briefing by clicking the Q and A box at the bottom of the window and filling out the submission form. Our moderators will then read these out during the Q And A session. With that in mind, allow us to introduce our speakers to the Martin Murray, Chief Financial Officer, Kind of Pacific, and Ron Lamb, Chief Customer And Commercial Officer. We'd now like to invite our Chief Financial Officer, Martin Murray, to begin the presentation Good evening. Thanks for joining the analyst briefing this evening. We'll take you through the usual format. We'll give a presentation and then followed by your questions. So the first part is the impact of COVID-nineteen on Capital Pacific. It's had a devastating impact since it started in January February. In April May, we have a capacity reduction down 97% and in May June, a little uptake in that downturn. Whilst cargo has been solid, Again, the outlook does look pessimistic, particularly, we expect domestic segments to come back first And as we are an international carrier, that will take slightly longer. So the impact on us will be tougher and also We've had the impact since the middle of last year since August 2019 of the social unrest in Hong Kong. The impact has been global. So even from IATA and IATA forecasting the passenger revenue will be down in over USD 300,000,000,000 and the biggest impact of that will be in the Asia Pacific region. As you know, most airlines sit with a lot of cash on the balance sheets, and we were no exceptions. We had over 1,000,000,000 of cash in our balance sheet at year end. Over 2.3 months of revenue. We said at the last briefing that that cash would last for the 1st 6 months, And if COVID-nineteen, the outlook for the second half remain tough, we would be relying on stakeholder support. This is no different from what we're seeing all around the world. So you'll see that capacity cuts are basically over 90% globally. And international travel is expected to be the slowest to pick up. And similarly, all around the globe you've seen government support for travel, tourism and aviation and Hong Kong has been no exception. And the both the government and the Hong Kong airport authority have been helpful in the substation to date. We have started the transformation program 2017 to 2019. We were performing well. Through the first half of twenty nineteen. And as we mentioned, Cathy Pacific had the impact in Hong Kong of the social unrest. That really hit us from August 2019. And so we actually started carrying capacity since October 2019. And then since February 2020, the significant impact of COVID-nineteen has hit us. That's our traffic report, our April traffic report. In that, we mentioned that our aviation business, has year to date losses of GBP 4,500,000,000 and our cash burn since February has been GBP 2.5 to 3,000,000,000 per month. So, hence, the need in the second half, as we said, should the outlook remain pessimistic with the capital markets drying up, we had to look for government and stakeholder support. And we are, as a company, delighted to get that today, in the form of preference shares and warrants of GBP 19,500,000,000 from the Hong Kong government, as well as a GBP 7.8 $1,000,000,000 bridging room. And then support from all our majority shareholders, swine Pacific, Air China and Qatar, who have provided an irrevocable undertaking to the rights issue. So a $39,000,000,000 package announced today. 27,300,000,000 of this comes from the government in terms of preference shares and warrants. So it's 70% off the package from government, and that allows them 2 observers to the Catholic Civic board. And again, commitment from Swire Pacific Air China and Qatar, who have made irrevocable undertakings to participate in the rates this year. So again, we're delighted to have such strong support from the government and all our stakeholders for Hong Kong's State International Aviation Hub And Global Financial Sector. The major thing is it really addresses the 2 big issues that we had financially, which is our liquidity. So the billion of liquidity is much needed. Which reduces our debt. And so our gearing goes from 1.31to0.54 So it really does strengthen the balance sheet significantly. Terms of the preference shares themselves, so the preference shares, 19,500,000,000 The coupon, it's a bit of a much like a perpetual bond. 1st the year is at 3%, steps up to 5% year 4, 7% year 5, And then 9% from year 6 and beyond, we can redeem those at any time. It does come with a detachable warrant that has been backed up by the press, that'll be exercised over a 5 year period. The excise price, the same as the rights issue at 4.68 Again, and the warrant size is 10% of the preference this year. So CHF 1,950,000,000. The bridging loan is 7,800,000,000. This can be drawn anytime in the next 12 months and one's drawn it can last for up to 18 months. The rate is hybrid plus 1.5%. Terms of the rights issue, the rights issue, 1,000,000,000. As I said, all three major stakeholders have already irrevocably signed up to that. 7 rights for every 11 shares issued. The subscription price is $4.68, which is standard 35% discount to As I mentioned, the impact on COVID-nineteen has been huge. So, as I said, we're currently 97% of capacity, and we've got unaudited losses of 1,000,000,000 year to date and a very difficult outlook and a very uncertain outlook, ahead. We have taken significant steps to cut the cash flow. So we have, again, the biggest step of the year is cutting the capacity 97% down April and May, 95% down through to the end of June. We have taken various subsidies from the Hong Kong government and the airport authority. We've deferred a lot of our supplier spend, as we've already mentioned in previous analyst briefing, we've had great support from our staff, both in terms of salary cuts, and special leave scheme, we have deferred CapEx and project spend in that sense. We have tried to tap the market, so we had a bond issue in January, private placement in February, some sale leaseback in March, But as I said, most of the capital markets have dried up to the whole aviation sector globally. And so you'll see these recapitalizations across the world, but we're very thankful of our $39,000,000,000 today. The situation is very dynamic and the outlook changes on a daily basis. So we very much still have to secure the long term future of CACIBIC. We welcome the support of the government and our stakeholders in what we believe still remains a very good long term future of Hong Kong and the Greater Bay Area. So we have committed to, look at that dynamic situation in the fourth quarter and we'll come back to the board at that point in time. And look at the demand at that point in time and optimize the business at that stage. So the rationale for the recapitalization plan, three steps, it provides immediate liquidity where the stores act access to the funds funding market and it secures strong support from both the government and our stakeholders. In terms of immediate liquidity, as I said, it adds 1,000,000,000 of liquidity and reduces our gearing from 1.31to0.54. That in turn, restores access to both the equity and debt market, and allows us to tap that market later in the year or next year for both equity and debt, which again is on the basis on the new strength of our balance sheet. And similarly, it shows fantastic support both from the government and our 3 major shareholders in Hong Kong, Greater Bay Area, etcetera. As I mentioned, we want to position Catie Pacific as a global aviation leader, core to Hong Kong and the GBA as part of being a leading cargo business, strongly aligned with its shareholders and customer focus. The we've talked about this over the period in terms of the transformation, we've got a 70 year history of which we're very proud, we have started a brand led transformation program back in 2017, which we believe was performing well up until the middle of 2019. We are proud of our focus on customer and we will continue to invest in our customer over that period. We have 70 years of network we pride ourselves in the network that we've built over that 70 years and Hong Kong as that aviation hub. We have one of the youngest long haul fleets in the world, and we have a dedicated Frida service for a strong cargo business. We have over 55% of the international Hong Kong International Airport's passenger traffic in terms of ASK. And in terms of foreign tourism, 10.2 percent of Hong Kong's GDP and aviation support of over 300,000 jobs. We've talked about this in terms of why we are so excited about the long term future of Kathy Pacific in this region. The work that's been done on the infrastructure, the work that's been done in taking Hong Kong from from 7 million people to 70,000,000 in terms of the Greater Bay Area. The network that we've built over 70 years, the 3rd runway coming along does give us a lot of excitement in the medium term despite the impact of COVID nineteen in the short term. Again, cargo has been great. That's and kept us the cash flow has helped with the cash flow over recent months. With the 3rd largest cargo carrier in the world, and Hong Kong remains a global aviation cargo hub. And strong support from our 3 main shareholders and still very proud to be part of the One World Alliance being a strong rock for the future. In terms of the transaction timeline, we will holder EGM in the middle of July. And we expect the rights issue to be fully paid by the middle of August.