Auckland Airport announces financial results

Auckland Airport announces financial results for year ending 30 June 2012

• Reported profit and underlying profit both up

• Strong passenger growth at all four airports

• Dividend increased to 10.5 cents per share

• Ambitious growth strategy paying off

Overview

Auckland Airport today announced a reported profit after tax of $142.284 million, up 41.2%, while underlying profit after taxation was up 15.0% to $139.025 million.

Auckland Airport’s chair, Joan Withers, said, “Auckland Airport is pleased to have built on last year’s breakout profit result and delivered an even better financial and operational performance for this financial year. This is in spite of difficult global economic conditions and weaknesses in traditional long-haul markets such as Europe that continue to challenge most businesses, including those in tourism, trade and aviation sectors.”

“The improved results were largely fuelled by growth in passenger numbers across our airport interests,” said Mrs Withers.

At Auckland Airport, total international passenger movements, including transits, were up 5.1%, and total domestic passenger movements were up 3.3%. Queenstown’s international passenger movements were up 21.2% and domestic passenger movements up 11.6%. At Cairns Airport, international passenger movements were up 3.5% while domestic passenger movements were up 3.2%. Mackay Airport also continued its good growth on the back of the resource sector, with passenger movements up 7.7%.

Mrs Withers said, “While there are clearly more people travelling to and from New Zealand than ever before, a closer look at the statistics reveals a fundamental shift in global travel demographics. Strong growth is occurring out of Australia, China, and many other South-East Asian nations, with declining travel numbers out of the United Kingdom, Europe, Japan and the United States. This reinforces the need to adapt.”

A focus on ‘making journeys better’ was again recognised in the World Skytrax Airport Awards, with Auckland Airport awarded the best airport in Australia Pacific for the 4th year in a row, and named 2nd best in the world for airports with between 10 to 20 million passengers annually.

Mrs Withers said, “The 2012 financial and operational results offer further evidence of the merits and continued momentum of the long-term growth strategy and market focus that has driven our approach over the last few years.

“While airline customers, passengers and New Zealand economic interests have benefited, shareholders have also been rewarded by these efforts, with outstanding FY10, FY11 and FY12 total shareholder returns.

“After careful consideration of the capital structure of the business, and as a signal of confidence in our long term prospects, cash generation and ability to fund our growth aspirations, the Board is changing its dividend policy from paying 90% to paying 100% of net profit after tax (excluding unrealised gains and losses arising from a revaluation of property, or treasury instruments and other one-off items).

“As a result of the lift in financial performance and the change in dividend policy, the total dividends paid to shareholders for the year increases by 20.7% to 10.5 cents per share, with a final dividend of 6.1 cents per share.”

Ambition

Auckland Airport’s acting chief executive, Simon Robertson, said, “Auckland Airport has attained good altitude in the past year, but we cannot risk placing the business in a holding pattern. If we do not remain relentlessly ambitious about growth, we are likely to lose ground against the offshore destinations and airports we regard as New Zealand’s natural competition.

“We have set ourselves some long-term ambitious targets to grow international visitor volumes and value. As one of the industry leaders, we must play our part in promoting New Zealand around the world as a travel, trade and tourism destination. We are also focused on building stronger alignment with other industry stakeholders to open more channels and grow markets.

“We will keep working with our airline customers to attract more flights, preferably direct, on new and existing routes from key source travel markets around the world, and by working with the industry to draw a more valuable mix of visitor segments.

“This is all outlined in our programme called Ambition 2020, unveiled at the TRENZ national tourism conference in May this year. Ambition 2020 sets a challenge for the industry of a decade of growth ambitions for New Zealand visitor arrivals and visitor spend. It is underpinned by a programme of strategic activity, with a particular focus on the growth markets of Asia, Americas and Australia.

“The prize is significant. We believe there is potential to grow total international visitor arrivals for the country to 3.5 million by 2020, up from 2.6 million in 2011. More importantly, the value generated by these visitors could grow ahead of official estimates, to at least $8.5 billion ($5.8 billion in 2011).

“We have applied this Ambition 2020 challenge to ourselves as well - It is our call to drive higher business outcomes, improved quality, greater efficiency, and more innovation across our entire business.”

Results in more detail

The profit result has been achieved through a 7.3% increase in total income to $426.813 million. This reflects growth across most revenue sectors, including aeronautical, retail, rental, and car parking.

Operating costs increased by 8.1% to $107.524 million, largely as a result of additional staffing costs, an increase in maintenance and airport operation costs, particularly for the Rugby World Cup 2011, and increased rates and insurance costs.

Reflecting the continued growth momentum and the sustained improvement in performance, total dividends paid for the 2012 financial year are being increased from 8.7 to 10.5 cents per share.

Associated businesses continued to deliver, with good growth in revenue and operating EBITDAFI at Cairns and Mackay Airports up 17.8% to AU$70.087million, and an increase in the dividend paid to Auckland Airport from AU$6.751 million to AU$10.311 million.

Queenstown Airport also maintained its strong passenger growth momentum and excellent financial performance, with operating EBITDA up 16.7% to $11.529 million.

With the Novotel Auckland Airport hotel completing its first full year of trading, Auckland Airport recorded a share of profit of $2.088 million from its 20% investment in the joint venture, which is operating and trading ahead of expectations.

Mr Robertson said, “Our investment in air-service and market development has also continued to bear fruit during the year, with a number of successes in developing new or expanding existing services to markets in China, Australia, Taiwan, Indonesia, Japan and the United States.”

Other business

Mr Robertson said, “A new five-year aeronautical pricing schedule for Auckland Airport was published in early June 2012 following a full and constructive consultation with airline customers. The new schedule features a reduction in average charges per international passenger in the first year, with subsequent increases broadly in line with the expected rate of inflation.

“This reduction in international charges is the first for Auckland Airport since becoming a listed company, and shows how our focus on developing new air-services is benefiting travellers through lower prices. By increasing the number of passengers passing through Auckland Airport, and by keeping a tight hold on our expenditure and driving operational efficiencies, we are now able to spread airport costs over a larger base, and reduce international charges on a per passenger basis.

“An increase in domestic charges largely reflects the need to invest in high priority modifications over the next 18 months to expand the capacity of the domestic terminal in the shorter-term, so that it can cope with the increasing size of aircraft being used on main domestic routes.

“We are continuing consultation with airlines on development of a new terminal to replace the existing domestic terminal. The new terminal will be a key part of Auckland Airport, the domestic travel experience, and New Zealand’s tourism and trade infrastructure for many years to come, so we firmly believe it’s worth spending a bit more time now getting the plans right. It remains our intention to have the first stage of a new terminal facility operational in time to accommodate the projected growth in domestic passenger demand and the introduction of new larger domestic aircraft.

“The very long-term realities of airport planning and development mean we must continue to hold land for future airport expansion for extended periods of time. However, the current regulatory framework does not consider it acceptable for airports to reflect the holding costs for such land assets in their charges to airlines, meaning that in many cases this land generates no return to airport shareholders until such time as it becomes operational.

“As New Zealand’s foremost airport, which represents a vital part of the country’s transport, tourism and trade infrastructure, we must ensure we have the capacity to cater for the needs of future generations by retaining this land. This is a national responsibility we cannot, and do not, wish to avoid, but current regulatory settings mean our shareholders are bearing the cost associated with safeguarding future New Zealand aviation capacity.”

Looking ahead

Mrs Withers said, “Replacing Simon Moutter is a key decision to be made by the Board this financial year. Simon left Auckland Airport in early August 2012 to take up the role of chief executive of Telecom. That recruitment process, at the time of writing, is well underway and should be announced within a few months. One thing that the Board is clear about is that whoever is appointed will inherit a sound strategic foundation, and a stable and high-performing leadership team.

“In his four years with the business, Simon has built a top team, refocused the business to customer experience, set a strategically sound and ambitious pathway for growth, opened up more access to a number of key tourism and trade markets, and delivered outstanding results for Auckland Airport and for New Zealand. He departs with our best wishes and our confidence that his good work will continue.”

Mr Robertson said, “2013 is an important time for Auckland Airport. We intend to confirm, alongside our airline partners, a clear pathway for finalising our master plan for airfield, terminal and property development in order to uncap long-term visitor growth potential.

“Auckland Airport's goal is to enhance our economic contribution as much as possible and to unlock any constraints. With that in mind, we are taking steps to increase productivity, by investing in smart airport infrastructure, in air-service capacity development and, in conjunction with our key stakeholders, initiating and promoting programmes to attract more tourists and trade to New Zealand. We will keep looking for ways to tap into new growth opportunities. We will keep exploring new partnerships, business extensions, information sources and technologies as a means of increasing New Zealand’s share of growth from these expanding markets.”

The board is optimistic about the full 2013 financial year and expects net profit after tax (excluding any fair value changes and other one-off items) to be between $143.0 million to $150.0 million. We note with some caution any potential long-term implications from the prevailing volatility in global economies. As always therefore, this guidance is subject to any other material adverse events, significant one-off expenses, non-cash fair value changes to property and further deterioration due to the global market conditions or other unforeseeable circumstances.

Ends

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