Auckland Airport Interim Results

Auckland Airport reported today a sound half-year result, with growth in operating results and significant progress on key projects to underpin its status as New Zealand’s premier aviation and tourism gateway.

“Auckland Airport has, to date, demonstrated resilience to the current economic downturn, relative to global airport trends. We have a healthy balance sheet, we have invested appropriately in infrastructure and capacity to meet the country’s needs, and we are now lifting our focus on managing costs and developing new business opportunities,” Chairman, Tony Frankham said.

For the six months to 31 December 2008, revenue rose 6.8 per cent to $184.0 million. The increase was driven mainly by growth in non-aeronautical retail, property and utilities income, as well as flow-through charges on completed capital developments. Operating earnings before interest, tax and depreciation (Operating EBITDA) increased 2.5 per cent to $138.7 million, including $3.3 million of restructuring costs.

A non-cash investment property devaluation of $41.8 million was recorded for the period, reflecting the impact of the current property market downturn on the company’s investment property portfolio.

Profit after tax, excluding the investment property devaluation, was up 8.3 per cent to $51.6 million compared with $47.6 million for the same period last year. With the non-cash investment property devaluation included, the surplus after tax was $9.8 million.

Earnings per share before investment property devaluation were 4.21 cents (3.90 cents). Including the investment property devaluation, earnings per share were 0.80 cents.

The company also made significant progress on several key projects and operational improvements. These included earthworks for construction of the northern runway; the successful opening of the new $50.0 million international pier; completion of the international terminal forecourt upgrade; the announcement of new trans-Tasman airline services; a fully subscribed $130.0 million bond issue; and ongoing traveller experience improvements, including new car-parking services and a range of new retail offerings.

Chief executive Simon Moutter said the company had made a smooth transition to a new leadership team to support new growth strategies and the targeting of opportunities as they evolve. “As a result, we are in a position to deliver enhanced services to travellers and our airline customers, we have the confidence, ambition and capacity to deliver on our medium to long-term business goals, and we remain well placed for the inevitable economic upturn.”

Total passenger volumes rose 2.0 per cent to 6,630,816, driven by continuing growth in domestic travel. Total aircraft movements, also were up 2.2 per cent, reflecting new services, increased frequency, and smaller planes being utilised on the shorter sectors.

International passenger numbers (excluding transit and transfer passengers) were down 1.2 per cent. The current global economic environment, as reflected in the decline in international passenger volumes for the period, particularly from the long haul flights from the Northern Hemisphere, has had an impact on Auckland Airport. The short-haul market, particularly trans-Tasman, has remained strong through the introduction of new capacity and airlines and the consequent competition on trans-Tasman airfares, which is helping to maintain passenger demand.

Despite the challenging economic climate Auckland Airport remains an attractive destination, which is reflected in the comparatively limited reduction in services to date and some significant new route and service announcements for the future including the Emirates A380 service (which commenced in February) and the Jet Star service from the Gold Coast and Sydney (scheduled for April).

Domestic passenger numbers rose 4.1 per cent to 2,872,775 driven in particular by strong competition in the domestic market and a full six months of service from Pacific Blue compared with two months of service in the previous comparative period.

Non-aeronautical revenue increased 8.0 per cent to $100.7 million, a strong result driven by improved rentals from completed developments and rental reviews, combined with further revenue in utility services and general income. Use of money interest from income tax refunds and funds in money market also contributed to the increased revenue.

Aeronautical revenue increased 5.4 per cent to $83.3 million, representing 45.3 per cent (as against 45.9 per cent for the previous year’s period) of the company’s total revenue. Greater aircraft movements together with terminal service charge pricing adjustments associated with completed terminal developments have contributed to the increased aeronautical revenue.

Operating expenses for the half year increased 22.7 per cent to $45.3 million ($36.9 million). Staff costs are higher than the prior half year by $6.0 million. The previous comparative period had a reduction in staff costs of $1.9 million in the provision for long-term incentive plans, given the reduction in the share price since 30 June 2007. In addition, costs increased by $3.3 million for restructuring, and the overlap of salaries during the CEO transition.

Repairs and maintenance costs grew because of higher wastewater charges during the period, which were previously included with rates costs, increased electricity and cleaning costs as a result of commissioning completed developments, and raised charges from the power companies.

Simon Moutter added: “Recent months have seen dramatic volatility in global financial markets resulting in a global economic downturn. Given the economic downturn is expected to continue for some time, the maintenance of a strong balance sheet is viewed by Auckland Airport as very important.”

The directors have announced a fully imputed dividend of 3.75 cents per share, compared with last year’s interim dividend of 5.75 cents per share. The prior year’s interim dividend, which paid part of the full year’s dividend in advance, was set at a level to utilise surplus imputation credits before a potential takeover bid. The 3.75 cents per share dividends reflect the normal historical level for the interim dividend and 90% of the net profit after tax, excluding the non-cash investment property devaluations.

In terms of outlook, the impact of the global macro-economic environment combined with a slowing in the domestic economy will likely reduce the expected level of passenger volumes for the remainder of this year. The current global credit tightening may also be expected to further increase funding costs over time. Despite this, Auckland Airport remains on track to deliver revenue growth for the full year and Operating EBITDA growth (excluding investment property revaluations).

Tony Frankham concluded: “The long-term outlook for the company remains positive, international passenger number projections are expected to increase over the longer term, reflecting New Zealand’s enduring popularity as one of the world’s leading tourism destinations. Locally, competitive airfares may encourage New Zealanders to travel domestically and internationally, particularly trans-Tasman. We can expect a commensurate increase in retail, and overseas visitors, as a result of the declining value of the NZ dollar. The board and management are committed to the sustainable development of Auckland Airport and the creation of value for all of its stakeholders.”