Qantas 2013 Annual Report Download - page 60

58
Review of Operations continued
FOR THE YEAR ENDED 30 JUNE 2013
Qantas is subject to a number of specic business risks which may impact the achievement of the Group’s strategy
andnancialprospects:
»Competitive intensity – Excess market capacity impacts industry protability
— Australia’s liberal aviation policy settings coupled with the strength of the Australian economy relative to global economic
weakness and the strong Australian dollar has attracted more offshore competitors to the Australian international aviation
market including state sponsored airlines. Qantas is responding by building key strategic partnerships and maintaining a
strong focus on improving the cost base through the transformation agenda. Qantas continues to leverage its considerable
eet exibility to appropriately manage the international network.
— The Australian domestic aviation market has attracted increased competition in recent years. The resulting intensity
ofcompetition and risk of continued capacity growth in excess of demand is being mitigated by Qantas maintaining the
65%prot maximising domestic market share and executing Qantas Group’s dual brand strategy. This strategy leverages
Qantas Domestic (including QantasLink) to serve business and premium leisure customers and Jetstar to serve price sensitive
customers. Qantas Domestic is improving its cost base through its transformation initiatives and eet renewal whileJetstar
isworking to maintain its low-cost leadership position.
»Jetstar-branded airlines in Asia – The Jetstar-branded airlines being established across Asia (Jetstar Japan and Jetstar
Hong Kong) are in the start-up phase. The inherent risk associated with start-up operations, including obtaining necessary
regulatory approvals, is being mitigated through selection of strong local partners, leveraging their strength in each market
and sharing risk through appropriate equity structures.
Qantas mitigates the potential impact of risk on the Group’s nancial prospects by maintaining a strong capital base to maintain
creditor condence, sustain future development of the business and maximise shareholder value. Qantas targets a capital structure
consistent with an investment grade credit rating while maintaining adequate liquidity. The Group maintains access to a broad
range of capital sources and the capacity to manage capital expenditure through a exible eet order book and processes
to strategically prioritise investments and divest non-core assets.
In addition, due to the size and complexity of the operations Qantas is also exposed to a number of other risks that may impact
theGroup:
»Industrial relations – The risk of industrial action relating to Qantas’ collective agreements with its employees is being mitigated
through continuous stakeholder and employee engagement initiatives. The success of these programs is reected through
improving employee engagement scores.
»Continuity of critical systems – Qantas operations depend on the continuous functioning of a number of information technology
and communication services. Qantas has an extensive control and management framework to reduce the likelihood of outages,
ensure early detection and to mitigate the impact.
SECURING THE FUTURE WITH FINANCIAL DISCIPLINE
»Positive net free cash ow24 of $372 million
»Signicant debt reduction
»Prudent capital management
»Strong liquidity position
Cash Flow Summary June
2013
June
2012 Change
%
Change
Operating cash ows $M 1,417 1,810 (393) (22)
Investing cash ows $M (1,045) (2,282) 1,237 54
Net free cash ow24 $M 372 (472) 844 >100
Financing cash ows $M (953) 370 (1,323) >100
Effect of foreign exchange on cash $M 12 4 8 >100
Cash at period end $M 2,829 3,398 (569) (17)
Qantas has strengthened its nancial position during the period. Positive net free cash ows and an ongoing strong liquidity
position supported an eight per cent reduction in net on balance sheet debt and continuing on-market share buy-back. Over
$1.8billion of debt and related hedging was repaid or renanced during the year.
Positive net free cash ow of $372 million was achieved for the period. This is the third consecutive half year of positive net free
cash ow and reects the Group’s continued focus on maintaining an investment grade credit rating25 by strengthening the balance
sheet through disciplined capital management.
24 Net free cash ow – Operating cash ows less investing cash ows. Net free cash ow is a measure of the amount of operating cash ows that are available (i.e. after investing activities)
tofund reductions in net debt or payments to shareholders.
25 Qantas is investment grade rated by both Moody’s (Baa2) and Standard & Poor’s (BBB-).