Performance against our Financial Framework
Reporting on the financial performance of the Qantas Group.
The Qantas Group aims to achieve top quartile Total Shareholder Returns (TSR) relative to the ASX100 and global airline peers. In line with this objective and the Group’s Financial Framework, we report on a number of metrics over time. Where appropriate, the Group reports on both the statutory and underlying metrics. Underlying Profit Before Tax is a non-statutory measure and is the primary reporting measure used by the chief operating decision making bodies for the purposes of assessing the financial performance of the Qantas Group. The COVID-19 pandemic has had an extensive impact on the Qantas Group which is reflected in our financial performance.
1. During the recovery phase we will conservatively hold the target Net Debt range consistent with the position as at 30 June 2020. 2. Return on Invested Capital (ROIC). 3. Weighted Average Cost of Capital (WACC), calculated on a pre-tax basis. 4. Target of 10% ROIC allows ROIC to be greater than pre-tax WACC. 5. Earnings Per Share. 6. Target Total Shareholder Returns within the top quartile of the ASX100 and global listed airline peer group as stated in the 2021 Annual Report, with reference to the 2021-2023 LTIP.
FY21 net debt increased compared to June 2020. Cash generation improved with increased flying activity in the fourth quarter of the financial year and net debt levels had started to decline.
Net debt includes on balance sheet debt and aircraft operating lease liabilities under the Group’s Financial Framework.
Group Return on Invested Capital
Return on Invested Capital (ROIC) is the primary financial return measure for the Group. Our target is to achieve ROIC greater than our Weighted Average Cost of Capital (WACC) through the cycle. Our threshold of 10 per cent ROIC allows ROIC to be greater than pre-tax WACC through the cycle. Since our turnaround in 2015 and prior to the COVID-19 pandemic the Group had been consistently delivering ROIC well in excess of this threshold. ROIC did not meet the threshold of 10% in FY20 and FY21.
Calculated as ROIC EBIT for the 12 months to 30 June, divided by 12 months average Invested Capital.
Net free cash flow
Targeting an optimal capital structure and measuring ROIC performance provides a platform for making disciplined decisions regarding shareholder distributions, reinvestment in our business and net debt reduction. We will invest prudently in capital expenditure from operating cash flow to increase future returns, with surplus capital returned to shareholders. Like other financial metrics, Net free cash flow has been impacted by the COVID-19 pandemic.
Net Free Cash Flow is net cash from operating activities less net cash used in investing activities (excluding aircraft operating lease refinancing).
Since FY15 and prior to the COVID-19 pandemic the Group had strong history of generating surplus capital and returning this to shareholders. To preserve balance sheet strength, under its Financial Framework, there were no shareholder distributions in FY21.
Earnings per share
The Group tracks Earnings Per Share (EPS) on a statutory basis. Earnings per share for FY21 was less than zero due to the impact of the COVID-19 pandemic including substantial non-cash impairments of fleet and restructuring costs associated with the Group’s recovery program.
Underlying Earnings Per Share calculated as Underlying Profit Before Tax less tax benefit/expense (based on the Group's effective tax rate for the period) divided by weighted average number of shares during the year.
See further details on the Group’s history of capital managementOpens external site in a new window.
Refer to the Review of Operations section in the Qantas Annual Report 2021Opens external site in a new window for definitions and explanations of non–statutory measures. Unless otherwise stated, amounts are reported on an underlying basis.