citigroup - 15th annual latin america conference
TRANSCRIPT
Citigroup Citigroup 15th
Annual Latin America Conference
New York, March, 2007
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Low OperatingCosts
Low OperatingCosts
UndisputableBetter ServiceUndisputableBetter Service
CompetitivePrices
CompetitivePrices
Sustainable Strategyto Maintain Market
Leadershipand Profitability
TAM is a low cost company with better service at competitive prices
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Previousperiod
Currentperiod
J F M AM J J A S OND J F MA M J J A S O N D J F MA M J J A S ON D J F80859095
100105110115120125130
Domestic Market - Variation
2004
Source: ANAC
Accum. market growth 2006 ~12%
Since 2004 the domestic market growth has been double digit
Accum. market growth 2005 ~19%
Accum. market growth 2004 ~12%
Accum. market growth 2007 ~14%
2005 2006 2007
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19,2% 21,8%
30,7%34,9% 33,0%
35,8%
43,5%47,8%
27,2%
1998 1999 2000 2001 2002 2003 2004 2005 2006
BRA 3,6%
Varig 5,0%
Other 5,0%
TAM 50,3%
GOL 36,1%
TAM 47,3%
GOL37,1%
Other 4,8%
Varig 4,7%
BRA 3,9%
We have been domestic market leaders since 2003
Domestic Market Share (RPK’s) – 4Q06Domestic Market Share (RPK’s) – 4Q06 Domestic Market Share (RPK’s) - Feb/06Domestic Market Share (RPK’s) - Feb/06
Domestic Market Share (RPK’s)Domestic Market Share (RPK’s)
Source: ANAC
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Previousperiod
Market
TAM
J F MAM J J A S O ND J F MA M J J A S ON D J F MA M J J A S O ND J F40
60
80
100
120
140
160
180
International Market - Variation(vs previous year)
Source: ANAC
The international market (among the Brazilian carriers) has been diminishing…
Accum. market growth 2004 ~8%
Accum. market growth 2005 ~7%
Accum. market
decrease 2006 ~30%
2004 2005 2006 2007
Accum. market decrease 2007 ~40%
Acum TAM 2006~41%
Acum TAM 2007~65%
Acum TAM 2005~40%
Acum. TAM 2004~30%
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0,1%3,8%
13,9% 12,5% 12,0%14,3%
18,8%
37,3%
7,9%
1998 1999 2000 2001 2002 2003 2004 2005 2006
TAM 60,0%
Varig16,9%
GOL 13,2%
Other9,9%
Varig11,8%
TAM61,0%
GOL18,9%
Other8,2%
International Market Share– 4Q06International Market Share– 4Q06 International Market Share– Feb/06International Market Share– Feb/06
International Market ShareInternational Market Share
Since July 2006, we are international market leaders among the Brazilian companies
Source: ANAC
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12Non-stop city links3
44264342Daily Roundtrips3
109129124848+262Destinations3
7805.3767.299ASKs
4Q061
TAM VarigGOL
TAM has the most extensive domestic network...
1 In million ASKs
2 26 destinations served through operational agreements with OceanAir, Pantanal, Passaredo, Total, Trip
3 Based on December, 2006 reported routes (HOTRANs)
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...and is the leading Brazilian international carrier
Long haul marketParis 3x per dayLondon 1x per dayNY 2x per dayMiami 3x per day
Latin American marketBuenos Aires 7x per daySantiago 2x per day Asuncion 8x per day Lima 1x per day Montevideo 1x per day Ciudad del Este 3x per day Sta Cruz dl Sierra 1x per day Cochabamba 1x per day
Note: Based on Jan 2007 network
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68
121
292
1,175
137147
467
1,285
4Q05 4Q06
1,658
2,037
0
600
1,200
1,800
2,400
Gross Revenues (R$ M)
Dom.Pax
Int.Pax
CargoOther
23%
Domestic passenger revenue growth 9.4%
RPK growth 27%ASK growth 26%
International passenger revenue growth 60%
RPK growth 45%ASK growth 47%
Cargo revenue growth 21%Other revenue growth 101%
Increase of sales of Loyalty Program points and expired tickets compensated by the sub-leasing
Strong revenue growth quarter over quarter
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4T054T05
20.6
20.6
68.0
31.8
15.3
74.7
20.4
8.7
3T063T06
22.2
22.4
75.1
31.4
18.5
79.6
23.3
10.7
4T064T06
19.3
17.5
69.7
26.4
16.6
73.7
22.6
10.6
4T05 vs
4T06
4T05 vs
4T06
-6.3%
-15.0%
1.7 p.p.
-16.9%
8.8%
-1.1 p.p.
10.5%
21.0%
3T06 vs
4T06
3T06 vs
4T06
-13.0%
-21.7%
-5.4 p.p.
-15.9%
-10.4%
-5.9 p.p.
-3.0%
-1.4%
Our total RASK reduced 6.3%, but international RASK increased 8.8%...
RASK Total1
RASK Scheduled Domestic2
LF Scheduled Domestic
Yield Scheduled Domestic3
RASK Scheduled International2
LF Scheduled International
Yield Scheduled International3 (em R$)Yield Scheduled International3 (em USD)
1 Includes charter, cargo and Other revenues, net of taxes2 Net of taxes3 Gross of taxes
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CASK
CASKex-fuel
4Q05 1Q06 2Q06 3Q06 4Q06
18.7717.43
18.69 18.4316.98
0
5
10
15
20
Total CASK (BR GAAP - R$ cents)
4Q06 vs 4Q05
-6.1%
-9.6%
...and our CASK decreased 9.6%, reaching the lowest CASK in the past 3 years…
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RASK
CASK
2002 2003 2004 2005 200615
20
25
RASK/CASK (R$ Cents)BR GAAP
EBITMargin
Spread
-7.1%
-0.3
-0.9%
-0.2
6.5%
1.4
7.5%
1.5
13.6%
2.8
…increasing our spread (RASK – CASK)…
13
4Q05 4Q06
323
437
0
100
200
300
400
500
EBITDAR(BR GAAP - R$ M)
4Q05 4Q06
139
236
0
50
100
150
200
250
300
EBIT(BR GAAP - R$ M)
20.4%
8.8%
12.1%
Margin over Net Revenue
22.5%
4Q05 4Q06
65
135
0
50
100
150
Net Income(BR GAAP - R$ M)
6.9%
36%
4.1%
70%107%
...improving our margins in BR GAAP...
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4Q05 4Q06
290
372
0
100
200
300
400
EBITDAR (US GAAP - R$ M)
4Q05 4Q06
158
229
0
50
100
150
200
250
300
EBIT(US GAAP - R$ M)
18,5%10,1%
11,7%
Margin over Net Revenue
19,1%
4Q05 4Q06
-48
166
-50
0
50
100
150
200
Net Income(US GAAP - R$ M)
8,5%
29%
-3,1%
45%
...and US GAAP...
446%
15
BR GAAP Leasing IncomeTaxes
Others US GAAP
135
30
-15
16 166
0
50
100
150
200
Net Profit Reconciliationto US GAAP
39 aircrafts are reclassified as capital leases as per SFAS nº
13
39 aircrafts are reclassified as capital leases as per SFAS nº
13
The main difference between BR and US GAAP is the accounting treatment of aircraft leasing
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4Q05 4Q06
0.45
0.90
Earnings per shareBR GAAP (R$)
4Q05 4Q06
-0.33
1.10
Earnings per shareUS GAAP (R$)
100%
433%
…resulting in a significant improvement in the EPS
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Net revenues
EBIT
Net income
RASK total
CASK
EPS
No. shares (k)
20032003 20042004 20052005 20062006
3,891M
(194)M
174M
19.95
20.13
R$2.83
61,365
4,520M
295M
341M
21.53
20.12
R$5.56
61,365
5,649M
425M
187M
20.16
18.63
R$1.30
144,059
7,345M
996M
556M
20.65
17.84
R$3.69
150,563
2006 results were the best reported since the beginning of our turnaround…
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…increasing our foreign revenues, reducing the mismatch in currencies…
21%
79%
28%
72%
4Q05 4Q06
100% 100%
0
20
40
60
80
100%
Revenues(Passenger + Cargo)
DomesticInternational
Approximately 50% of our costs
(including fuel) are exposed to foreign
currencies
Approximately 50% of our costs
(including fuel) are exposed to foreign
currencies
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(Net Adjusted Debt = Financial Debt + Operational Leases – Cash)
2003 2004 2005 2006
6,133
5,160 5,030
6,290
Net Adjusted Debt (R$ M)
Adj Debt /Adj Cap
106% 100% 90% 85%
7,7x4,7x 3,5x
2,1x
Net adjusted Debt / EBITDAR
2003 2004 2005 2006
172297
995
2,453
Cash (R$ M)
...reflecting in an even more solid balance sheet
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TAMM4
IBOVESPA
DOW JONES
ADR TAM
3/10/2006 3/21/20070.6
0.8
1.0
1.2
1.4
1.6
1.8
Accumulated variation since March,10 2006
Since our second public share offer, our share has outperformed both the Ibovespa
and Dow Jones
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12.3%
Guidance 2006Guidance 2006 20062006
•
Since May•
Started in October
TAMTAM
MarketMarket
47.8%
73.1%
12.7
4.3%(ex-fuel 6.0%)
We have delivered a strong 2006
Average market share
Average load factor
Aircraft utilization per day (block hour)
CASK reduction yoy
New international flights
Market demand growth (in RPK terms)
12% a 15%
45%
69.5%
above 12
5%
•
Daily to NY•
Flight to London
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Average domestic market share above 50%Average domestic load factor at approximately 70%Aircraft utilization per day (block hour) higher than 13 hoursReduction of 7% in total CASK ex-fuel in BR GAAP yoyOpportunity in the international market
Third frequency to ParisInauguration of two new international long haul frequencies
Market demand growth from 10% to 15% (in RPK terms)
Guidance 2007Guidance 2007
TAMTAM
MarketMarket
Our expectations for 2007, disclosed in December 2006, are still the same
14.0%
Acum. 2007Acum. 2007
•
Since January•
Milan as of March, 30
47.3%
71.2%NA
NA
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Domestic Market 2007Domestic Market 2007 International Market 2007International Market 2007
~30% increase in ASKsAt least an additional 3 destinationsStrengthening of international gateways for domestic market
GuarulhosGaleão
Increasing of frequency on main domestic markets
BrasíliaCongonhasConfins
Implementing over hub flights: new city-pairs
~60-70% increase in ASKs
Additional daily frequency to Paris beginning in January
New flight to Milan in 1S07
Additional long haul frequency or destination to be disclosed
Strengthening of Latin American presence, both frequencies and destinations
In 2007, we will be expanding both frequencies and destinations...
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...increasing our fleet and maintaining one of the youngest fleets in the world
TAM will be monofleet
in the domestic market by 1S08
10
64
21
3
12
88
6
4
14
103
4
16
106
4
16
112
2006 2007 2008 2009 2010
95
109
121126
132
0
50
100
150
Total Fleet
F100A319/320A330MD11B777
Average Age 7.8 6.0 5.0 6.0 7.0
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Fleet and networkFleet and network Distribution costsDistribution costs OverheadOverhead
Increase of block hours to over 13 hours per day per aircraft in 2007
6 extra seats in the A319/320 fleet
Increase in direct sales through:
Site improvementFare bundlesCall center outsourcingNew means of payment
Insourcing of representativesAdjusting indirect sales commissions to higher % on off-peak flights
Outsourcing of non-core activities
Redefinition of service standards
Review of spans&layers in the hierarquy
Implementation of new automated processes
Improved sourcing capabilities
Our cost targets are aggressive, but the roadmap is already laid out
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We are innovating in the way we offer our product, servicing the client better at a lower cost
TAM has specific products designed for every part of the client spectrum (from
leisure to business)
TAM has specific products designed for every part of the client spectrum (from
leisure to business)
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TAM is one of the most lucrative airlines in the world
Virgin Blue with 2006 annualized based Nine months to June 2006; WestJet with 2006 annualized based on Nine Months Ended September 2006Period ended December 2006 for the other airlines; USGAAP
TAM
GOL
Ryanair
SouthwestVirgin
West Jet
Jet BlueMédia
(ex.TAM)
779
489
778
1.607
321
455
381
672
501
322
580
934
177
206
127
391
372
262
488
499
133
117
(1)
246
23,1
28,0
33,8
17,7
23,0
34,6
16,1
25,5
14,9
18,4
25,2
10,3
12,7
15,7
5,4
14,6
11,0
15,0
21,2
5,5
8,1
8,9
0,0
9,8
EBITDAR(US$ MM)EBITDAR(US$ MM)
EBIT(US$ MM)
EBIT(US$ MM)
Net Income(US$ MM)
Net Income(US$ MM)
EBITDARMargin (%)
EBITDARMargin (%)
EBITMargin (%)
EBITMargin (%)
NetIncome
Margin (%)
NetIncome
Margin (%)
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Information and ProjectionThis notice may contain estimates for future events. These estimates merely reflect the expectations of the
Company’s management, and involve risks and uncertainties. The Company is not responsible for investment operations or decisions taken based on information contained in this communication. These estimates are subject to changes without prior notice.
This material has been prepared by TAM S.A. (“TAM“ or the “Company”) includes certain forward-looking statements that are based principally on TAM’s current expectations and on projections of future events and financial trends that currently affect or might affect TAM’s business, and are not guarantees of future performance. They are based on management’s expectations that involve a number of business risks and uncertainties, any of each could cause actual financial condition and results of operations to differ materially from those set out in TAM’s forward-looking statements. TAM undertakes no obligation to publicly update or revise any forwardlooking statements.
This material is published solely for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. Likewise it does not give and should not be treated as giving investment advice. It has no regard to the specific investment objectives, financial situation or particular needs of any recipient. No representation or warranty, either express or implied, is provided in relation to the accuracy, completeness or reliability of the information contained herein. It should not be regarded by recipients as a substitute for the exercise of their own judgment.
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