Auckland Airport (ASX:AIA)

Adrian Littlewood
CEO
Market Cap (AUD): 10.23B
Sector: Industrials
Last Trade (AUD): 8.56 +0.14 (+1.66%)
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1. About

Auckland Airport is the third busiest international airport in Australasia. More than three-quarters of all international visitors to New Zealand arrive here, with 19 million passengers have travelled through their terminals in the past 12 months. Auckland Airport plays a significant role in supporting New Zealand businesses, with around $15 B worth of freight passing through the airport every year. Around 15,000 people, across more than 100 businesses, work here. The wider airport precinct features a world-class business park, commercial office buildings, transport and logistics warehouses, hotels and leisure and recreation facilities.

2. Business model

 

The Company operates the following divisions:[1]

 

Division

Revenue ($M)

% of Revenue

% of Profit (before Int, Tax, Depn & Amort)

Profit drivers[2]

Aeronautical

$328.5

48.5%

44.7%

Aeronautical revenues rose 2.5% on the prior year, reflecting the continued growth seen in passenger and aircraft movements through the airport, partially offset by the reduced aeronautical charges that applied in the first year of this aeronautical price period

Retail

$263.0

38.8%

43.1%

Retail revenue increased 17.1% as a result of the new space added in the departure area of the International Terminal and the opening of a number of exciting new store concepts

Property

$86.1

12.7%

12.1%

The property business earns rental revenue from space leased on airport land outside the terminals including cargo buildings, hangars and stand-alone investment properties.

Property rental income achieved double-digit growth, with revenue increases of 16.2%

3. Strategy

 

Key strategies include:[3]

 

Growing Travel and Trade Markets

  • Adopt an ambitious and innovative approach to help New Zealand sustainably unlock growth opportunities in travel, trade, and tourism.

 

Strengthen its consumer business

  • Strengthen and extend their retail, transport and accommodation businesses to ensure their respond to evolving customer needs.

 

Be fast, efficient and effective

  • Improve their performance by increasing the efficiency and productivity of their assets, processes, operations and balance sheet.

 

Invest for future growth

  • Build on its strong foundations for long-term sustainable growth by continuously investing in infrastructure that supports their long-term requirements.

4. Markets

 

[4]

Industry (Australia)

Industry Revenue (2018)

Growth rate (Annual 13-18)

Airport Operations

$7 billion

6.2% (annual 14-19)

Industrial and Other Property Operations

$17 billion

13.2%

Parking Services

$2 billion

7.5%

5. Competition

 

Major competitors include:[5]

 

  • Sydney Airport (ASX:SYD)
  • Transurban Group (ASX: TCL)

6. History

 

1920[6] 

Began as Auckland Aero club

 

1960  

Construction began to build an Airport

 

1966  

Officially opened

 

1988  

New Zealand Government corporatised the management of Auckland International Airport

 

1997  

Added an international terminal

 

1998  

The Government sold down its shareholding

 

1999  

Listed on ASX

 

2005  

Improvements were made, separating the main arrivals and departures areas

 

2009  

Jetstar touched down at Auckland Airport

 

2015  

Auckland Airport welcomed the announcement that United Airlines started a San Francisco to Auckland service in July 2016, using a B787 Dreamliner aircraft.

 

2016  

AIA Auckland changes ASX listing to foreign exempt

 

2017  

New partnership with market-leading omni-channel e-commerce company

 

2018  

Auckland Airport recognised as a leader in carbon emissions reduction

Auckland Airport completes major extension of international aircraft pier

7. Team

 

Board of Directors[7]

 

Dr. Patrick Strange – Chair

Mark Binns – Director

Brett Godfrey – Director

Dean Hamilton – Director

Julia Hoare – Director

Justine Smyth – Director

Tania Simpson – Director

Christine Spring – Director

 

Management Team

 

Adrian Littlewood – Chief Executive, Auckland Airport

Phil Neutze – Chief Financial Officer

Richard Barker – General Manager, Retail & Commercial

Anna Cassels-Brown – General Manager, Operations

Jason Delamore – General Manager, Marketing & Technology

André Lovatt – General Manager, Airport Development & Delivery

Scott Tasker – General Manager, Aeronautical Commercial

Mark Thomson – General Manager, Property


read more

8. Financials

 

2018 Full Year Results Presentation

 

Financials Year 2017/2018 (ended 30 June):[8]

 

Division

Revenue ($M)

% Change

Profit (before Int, Tax, Depn & Amort) ($M)

% Change

Aeronautical

$328.5

3.1%

$241.4

1.6%

Retail

$263.0

14.6%

$232.6

13.0%

Property

$86.1

15.1%

$65.5

12.5%

Total

$677.6

8.8%

$539.5

7.5%

9. Risk

 

Major risks include:[9]

 

Credit Risk

The group’s maximum exposure to credit risk at 30 June 2018 is equal to the carrying value of cash, accounts receivable, dividends receivable and derivative financial instruments. Credit risk is managed by restricting the amount of cash and marketable securities that can be placed with any one institution, which will be either the New Zealand Government or a New Zealand registered bank with an appropriate international credit rating. The group minimises its credit risk by spreading such exposures across a range of institutions, with Standard and Poors’ credit ratings of A or above (2017: AA- or above). The group’s credit risk is also attributable to accounts receivable, which principally comprise amounts due from airlines, tenants and licensees. There are no significant accounts receivable balances relating to customers who have previously defaulted on amounts due. The group has a policy that manages exposure to credit risk by way of requiring a performance bond for some customers whose credit rating or history indicates that this would be prudent. The value of performance bonds for the group is $1.7 million (2017: $1.5 million). There are no significant concentrations of credit risk.

 

Liquidity Risk

The group’s objective is to maintain a balance between continuity of funding and flexibility through the use of borrowings on the money market, bank loans, commercial paper,USPP, AMTN notes and bonds. To manage the liquidity risk, the group’s policy is to maintain sufficient available funding by way of committed, but undrawn, debt facilities. As at 30 June 2018, this undrawn facility headroom was $378.5 million (2017: $280.0 million). The group’s policy also requires the spreading of debt maturities.

 

Interest Rate Risk

The group’s exposure to market risk from changes in interest rates relates primarily to the group’s borrowings. Borrowings issued at variable interest rates expose the group to changes in interest rates. Borrowings issued at fixed rates expose the group to changes in the fair value of the borrowings. The group’s policy is to manage its interest rate exposure using a mix of fixed and variable rate debt and interest rate derivatives that are accounted for as cash flow hedges or fair value hedges. The group’s policy is to keep its exposure to borrowings at fixed rates of interest between parameters set out in the group’s treasury policy. At year end, 54.7% (2017: 51.4%) of the borrowings (including the effects of the derivative financial instruments and cash and funds on deposit) were subject to fixed interest rates, which are defined as borrowings with an interest reset date greater than one year. The hedged forecast future interest payments are expected to occur at various dates between one month and 10 years from 30 June 2018 (2017: one month and 10 years).

 

Foreign Currency Risk

The group is exposed to foreign currency risk with respect to Australian and US dollars. Exposure to the Australian dollar previously arose from the translation risk related to the investment in North Queensland Airports. This exposure was hedged by a bank facility that was drawn down in Australian dollars to a total of AUD90.0 million. On 7 March 2018 the group sold its investment in North Queensland Airports and repaid the bank facility. Further information is included in note 8 Associates and joint ventures. Exposure to the Australian dollar also arises from Australian note borrowings. This exposure has been fully hedged by way of cross currency interest rate swaps hedging both principal and interest. Exposure to the US dollar arises from USPP borrowings denominated in that currency. This exposure has been fully hedged by way of cross-currency interest rate swaps combined with the basis swaps, hedging US dollar exposure on both principal and interest. The cross-currency interest rate swaps correspond in amount and maturity to the relevant Australian and US dollar borrowings with no residual foreign currency risk exposure. The cross-currency interest rate swaps consist of a fair value hedge component and a cash flow hedge component. The effective movements on the fair value hedge component are taken to the income statement along with all movements of the hedged risk on the AMTN notes and USPP notes. The effective movements of the cash flow hedge components are all taken to the cash flow hedge reserve. The net exposure at balance date is representative of what the group was and is expecting to be exposed to in the next 12 months from balance date.

 

Capital risk management

The group’s objective is to maintain a capital structure mix of shareholders’ equity and debt that achieves a balance between ensuring the group can continue as a going concern and providing a capital structure that maximises returns for shareholders and reduces the cost of capital to the group. The appropriate capital structure of the group is determined from consideration of our target credit rating, comparison to peers, sources of finance, borrowing costs, general shareholder expectations, the ability to distribute surplus funds efficiently, future business strategies and the ability to withstand business shocks. The group can maintain or adjust the capital structure by adjusting the level of dividends, changing the level of capital expenditure, issuing new shares, returning capital to shareholders or selling assets to reduce debt. The group monitors the capital structure on the basis of the gearing ratio and by considering the credit rating of the company. The gearing ratio is calculated as borrowings divided by borrowings plus the market value of shareholders’ equity. The gearing ratio as at 30 June 2018 is 20.3% (2017: 19.5%). The current long-term credit rating of Auckland Airport by Standard & Poor’s at 30 June 2018 is A- Stable Outlook (2017: A- Stable Outlook).

References

  1. ^ Financial Report 2018, P 30-31
    https://www.listcorp.com/asx/aia/auckland-airport/news/aia-fy18-financial-statements-1957367.html
  2. ^ Financial Report 2018, P. 01, 08
    https://www.listcorp.com/asx/aia/auckland-airport/news/aia-fy18-financial-statements-1957367.html
  3. ^ Annual Report 2018, P 3
    https://www.listcorp.com/asx/aia/auckland-airport/news/aia-fy18-financial-statements-1957367.html
  4. ^ http://www.ibisworld.com.au/industry/default.aspx?indid=488
    http://www.ibisworld.com.au/industry/default.aspx?indid=1895
    http://www.ibisworld.com.au/industry/default.aspx?indid=480
  5. ^ https://www.fool.com.au/2017/04/27/which-is-the-best-asx-listed-airport-to-own/
    https://www.fool.com.au/2017/05/02/is-the-sydney-airport-holdings-ltd-set-for-a-crash-landing/
    https://www.sydneyairport.com.au/investor
  6. ^ http://auckland-akl.airports-guides.com/akl_history.html
    http://www.asx.com.au/asxpdf/20090427/pdf/31h7sc25w79h6x.pdf
    http://aucklandairport.createsend.com/t/ViewEmail/r/A8B8BFFC35D9E5802540EF23F30FEDED
    http://www.asx.com.au/asxpdf/20160421/pdf/436ntcylmmr2b4.pdf
    https://www.listcorp.com/asx/aia/auckland-airport/news/new-partnership-with-market-leading-omni-channel-company-1657633.html
    https://corporate.aucklandairport.co.nz/news
  7. ^ https://corporate.aucklandairport.co.nz/about/board-of-directors
    https://corporate.aucklandairport.co.nz/about/senior-management
  8. ^ Financial Report 2018, P 30-31
    https://www.listcorp.com/asx/aia/auckland-airport/news/aia-fy18-financial-statements-1957367.html
  9. ^ Financial Report 2018, P 57-61 https://www.listcorp.com/asx/aia/auckland-airport/news/aia-fy18-financial-statements-1957367.html