Working Capital Innovative Tools & Strategies
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Working Capital Innovative Tools & Strategies Vueling Airlines, September 2012 1 A. Who is Vueling B. Identify Working Capital Agenda main issues C. Cash Flow – Hedging Policy D. Capital Allocation E. Fraud Management F. Summary 2 WHO IS VUELING? About Vueling o Vueling was founded in July 2004 Vueling cities Summer 2012 o The headquarters and main operations are Saint Petersburg Stockholm located in Barcelona (Spain) Stavanger Edinburgh Aalborg o Average 2011 employees: 1.400 Moscow Copenhagen Cardiff Groningen Hamburg o London Amsterdam Publically traded, Iberia holds a 46% stake Southampton Brussels Berlin Brest Lille Nurenberg Paris o Mid-short haul destinations Praga Strasbourg Nantes Munich Zurich Vienna A Coruña Asturias o Santiago Lyon Zagreb Main markets: Spain, France, Italy, Bilbao Bordeaux Verona Milan Santander Toulouse Vigo Venice San Lourdes Genoa Bucharest Benelux and the rest of Europe Sebastian Marseille Nice Split Pisa Florence Madrid Dubrovnik Barcelona Lisbon Valencia Rome Minorca o Seville 42% of business passengers Alicante Naples Granada Mallorca Ibiza Malaga Almeria Palermo Athens o 972 thousand connecting passengers Lanzarote Tenerife Mykonos Santorini Gran Canaria Malta through its Barcelona hub Crete Marrakech Tel Aviv 2011 113 11 57 12.3m 84% Routes Bases VLG Cities Passengers Punctuality 2012e +51 +3 +33 +(20-25)% 85% Summer 2012 Bases New Cities Passengers OTP Goal 3 WHO IS VUELING? Vueling’s history 6 2010: Connecting passengers 2011: Successful HUB 5 feeding operation for Iberia in Madrid. Reached 12.3m (+12%) July 2009: Merger 4 Vueling+Clickair (€100m synergies) 2009 & 2010: Vueling 2nd most profitable July 2004: First European low cost airline Vueling flight 3 Barcelona-Ibiza December 2006: 2 IPO in Spanish 1 stock market 4 WHO IS Vueling combines a low cost model with VUELING? a value added product LOW COST BUSINESS MODEL VUELINGRYANAIR EASYJET LEGACY A standard aircraft model (A320) √ √ X X Operation through bases √ √ √ X High aircraft utilization √ √ √ X Simple operations √ √ √ X Strong internet presence √ √ √ X PRODUCT FEATURES VUELINGRYANAIR EASYJET LEGACY Seat assignment √ √ X √ High frequencies √ X √ √ Price flexibility √ X √ √ Main airports √ X √ √ Loyalty program √ X X √ Connecting flights √ X X √ Access to business pax through agency √ X √ √ 5 MAIN Vueling benefits from a solid cash ISSUES position and a strong balance sheet Balance Sheet Balance Sheet Net cash (€m) December 31 st 2011 June 30 th 2012 +122.0 ∑ €600m ∑ €821m 368.5 Non -current Non -current 26% Equity 33% Equity 246.5 assets 40% 40% assets 25% Current Long term Current 22% Long term assets 19% liabilities assets liabilities 30% Short term 30% Short term Cash & liabilities Cash & 45% liabilities equivalents 41% 23% equivalents Forward 19% Forward 7% Booking Booking December June 2011 2012 Source: Vueling 6 MAIN The ratios show that Vueling has a ISSUES healthy financial position Adj. Net Debt/EBITDAR Covenant: 4x Cash in months of Operating Expenses Covenant: 3x 10.7 12.7 8.7 6.4 6.9 4.7 3.3 4.5 1.3 0.8 1.4 0.5 0.2 0.3 Vueling Ryanair EasyJet* Air Norwegian Aer Finnair Vueling Ryanair EasyJet* Air Norwegian Aer Finnair Berlin Lingus Berlin Lingus Working capital ratio Covenant: 1x Adj. Net Debt/Book equity Covenant: 2.5x 2.2 48.7 1.9 5.5 1.8 1.4 1.3 1.1 2.9 0.8 2.1 0.5 0.2 0.0 Vueling Ryanair EasyJet* Air Norwegian Aer Finnair Vueling Ryanair EasyJet* Air Norwegian Aer Finnair Berlin Lingus Berlin Lingus Note: 12 months rolling to June 30 th 2012 *EasyJet 12m rolling to March 31 st 2012. Net debt = gearing (debt + capitalized leases) 7 MAIN Identifying Working Capital Main ISSUES Issues Balance Sheet Cash Flow Risk factor Main issue Risk factor Main issue 1. Accounts 6. Exchange No risk Volatility Receivable rate 2. Suppliers Purchase/Assurance 7. Fuel price Volatility 3. Security 8. Interest Changes in interest Risk/Credit Deposits rate rates 9. Capital Return on 4. Fraud Fraud Management allocation Investments 5. Cash Cash Management 8 MAIN ISSUES Balance Sheet Main Issues Risk factor Operation al Framework Management •Credit monitoring of large accounts 1. Accounts •Low risk (most sales in advance) •Deposits required when risk is identified •Clients typically large accounts Receivable •Dynamic control of outstanding balances •Large monetary and transaction volume •Structured authorization workflow 2. Suppliers •Multi -currency •Suppliers ownership assigned •Seasonal fluctuations •Automatic tools for invoice verification • 3. Security •Fleet related suppliers may need: Credit needs continuously evaluated •Security deposits •Business plans and treasury needs Deposits •Letters of credit updated on a weekly basis •Fraud is the main risk related to cash •Fraud managed on a country and sales collections from sales 4. Fraud channel basis •Sales in multiple countries/channels 9 MAIN ISSUES Cash Flow Main Issues Risk factor Operation al Framework Management •40% of the expenses in USD 6. Exchange •Hedging policy •USD denominated expenses fluctuate on •Weekly risk committee rate market variations (fuel) •30% of the expenses are related to fuel •Hedging policy •Fuel expenses may fluctuate +/ - 50% 7. Fuel price •Weekly risk committee within the year 8. Interest •Fleet contracts are affected by changes in interest rates •Ad-hoc analysis on a transaction basis rate •Fleet contracts span periods of 8 years •Large investment decisions: 9. Capital •Return on investment is calculated for •Fleet leasing and purchase every project allocation •Other operating contracts 10 MAIN Identifying Working Capital Main ISSUES Issues Risk factor Operation al Framework Management •Periodic cash forecasting •Significant seasonal changes •Weekly preview of payment proposals •Short-term investment of cash •Short cash cycle 4. Cash •Determination of investment term •Bank pool studies and optimization •Cash balances/Return on cash balances •Counterpart credit worthiness required evaluation 11 POLICY Hedging policy: designed to mitigate risk and allow for flexibility Fuel hedging policy (%) 70% The policy establishes 55% a set of hedged levels 50% 45% per quarter, allowing 35% for some flexibility in 20% 10% 10% order to take advantage of market downturns Qn+1 Qn+2 Qn+3 Qn+4 n+12m Qn+5 Qn+6 n+18m The policy also allows Dollar hedging CO2 hedging to plan for a longer 60% 50% time horizon This year we have 20% 20% 20% 15% 15% started hedging CO2 to mitigate the risk of price fluctuations Year Year Year Qn+1 Qn+2 Qn+3 Qn+4 n+1 n+2 n+3 Note: Dollar hedging excludes fleet dollar needs as they are already 100% hedged 12 ALLOCATION Capital Allocation Vueling allocates capital based on ROI BP update Subsequent and approval Project control vs. + Financial Business Case Business Case Structure Vueling allocates capital to projects based on their return on investment In order to reach the business goals, the financial impact of capital requirements are analyzed in a business case and the best alternative is selected 13 FRAUD Fraud Management Fraud Payment Client Gateway Fraud Control Authentication Authorization The risk Sentinel allows for the parameterization of automatic Risk Sentinel Payment rules for payment authorization Payment Accepted Manual management of fraudulent Manual procedures on flight bookings reservations 48 hours before Payment departure Denied 14 SUMMARY Conclusions oVueling has a positive Working Capital on advance sales and deferred payments oWorking Capital management is focused on: oRisk management (exchange rates, fuel and fraud) oMonitoring and optimization of cash balances (short term investments and credit worthiness) oOperational efficiency (automation and structured workflow) 15 Vueling Airlines SA Investor Relations Parque de Negocios Mas Blau II e-mail: [email protected] Pl. del Pla de l’Estany, 5 Phone: +34 93 378 77 16 08820 El Prat de Llobregat Internet: investors.vueling.com Barcelona16 · Spain.