Diversification delivers for Airwork's profit

Airwork Holdings [NZX: AWK] has boosted first-half profit and earnings per share by 47% with growth across both its fixed wing and helicopter businesses on the back of fleet expansion and finding customers in new sectors.

Net profit for the six months ended December was $11.6 million compared to $7.8 million a year ago.

Airwork owns, operates, leases, and maintains helicopters and fixed wing aircraft and has a total of 25 fixed wing aircraft and 42 helicopters.

Revenue increased 19% to $83.4 million on the prior corresponding period due to increased aircraft leasing in both the fixed wing and helicopter businesses while earnings before interest and tax was 56% ahead.

Airwork derives 70% of revenue offshore with Australian-based Toll, a big customer on the fixed-wing side and the helicopter business, having expanded to Australia, Asia, Africa, Europe and South America.

Chairman Mike Daniel says ebit growth of 76% in Airwork's fixed wing division included earnings from expanding the company's freighter fleet, as signalled last year.

Airwork spent $57 million on capital expenditure in the first-half, funded through operating cashflows and debt and is expected to spend a further $20-30 million in the second half which will push net debt for the full year to $175 million.

Net debt has risen by $41.6 million to $159.7 million since June 2015 due to the expansion of its Boeing 737 fleet which has cost more than expected due to a strong US dollar and adding one more aircraft than originally planned.

Chief executive Chris Hart says the extra capital expenditure has been partly offset by the revenue contracts and debt for the aircraft also being based in US dollars.

It acquired eight 737s in the 2015 financial year and one this year which are being converted from passenger use to freight, which involves a significant amount of refurbishment and upgrade.

Delivery of another three 737s are due in the second half, which are leased to customers in New Zealand and offshore. Three of the new aircraft are being used in a joint venture with Freightways subsidiary Fieldair.

Despite challenging market conditions, particularly in the oil and gas sector, Airwork said its helicopter business provided a solid 22% growth in earnings after finding customers in other sectors and securing a significant number of short-term leases.

The oil and gas sector has shrunk to just 6% of engineering revenue in the first half compared to 37% a year ago with a big rise in demand from emergency and government services, including defence, filling the gap.

While other company bosses have expressed caution this earnings season on the outlook for the next six months, Hart is optimistic, apart from in the oil and gas sector.

"The fact we have diversified revenue streams and businesses means we see some good opportunities for growth," he said.

The company's guidance is for net profit for the full 2016 financial year to exceed $21 million compared to $15.5 million last year.

It's paying a 9c per share interim dividend, up 1c on last year.

The company is still awaiting a decision from the High Court in Christchurch on its $9 million damages claim against Queenstown-based helicopter operator The Helicopter Line over unpaid leasing fees. The board has made no provision in the financial results in relation to the disputed revenue which relates to THL cancelling its lease contract for eight helicopters used for tourism activities.

Airwork's shares are trading at $4.20 and have risen 6.1% since the start of the year.

(BusinessDesk)