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Auckland International Airport Limited Financial Analysis

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Table of Contents
  • Overview
  • Financial Position of the Company
  • Company’s Capital Structure and Dividend Policy
  • Recommendations
  • References

Overview

Auckland International Airport Limited (AIAL), incorporated on 20 January 1988. The company was made under the Companies Act 1955 and went public in November 1988 by an order in council of the NZ government.

The company provides numerous customers; the noteworthy client accounted for 26 percent of the external revenue, including services from all the three major herein mentioned, segments, facilitate airports, and endow infrastructure support in Auckland, New Zealand. Auckland International Airport has three fundamental functional segments, including Retail, Property, and Aeronautical. Auckland International (AIAL) Limited’s retail business brings forth services and facilitates the retailers that operate within the Airport terminals, enabling them by providing car parking for the airport staff and employees, visitors to the Airport, and the passengers. The property segment of Auckland International Airport generates cash/revenues via area leased, on the Airport land, outside the Airport Terminals; the facilitation includes hangars, buildings, and standalone investment properties. Moreover, the Aeronautical segment, which is the largest of all three, provides facilities that support the departure and arrival of aircraft, the arrival and departure of passengers, the Management of cargo services, and facilitates in utility services in order to support the overall management and operation of the Airport. The aeronautical segment of Auckland International Airport (AIA) Limited makes revenue via renting out the airport space; leased out areas of the Airport terminals (Screener, 2020)

Auckland International Airport Limited Financial Analysis

The Auckland International Airport Limited (AIAL)comprises of the following:

  • A single runway.
  • Two domestic terminals and one international terminal.

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In terms of the facilities provided by the Auckland International Airport (AIAL) Limited, numerous commercial services, and facilities, including:

  • A car rental service facility.
  • A commercial banking sector inside the premises.
  • Building(s) for office(s).
  • Airfreight operations.
  • The Auckland International Airport, New Zealand, is operated by Auckland International Airport Limited (AIAL); the company is listed on the New Zealand Stock Exchange; the current share price of the company’s stock is 7.10 NZD. 
  • The company’s CEO is Adrian Littlewood, who joined the company in 2012. He is also the Co-chairman of Australia New Zealand Leadership Forum and a board of director of the Tourism Industry Association New Zealand. The company’s Chief Financial Officer (CFA) is Phil Neutze, who joined the company in 2015. [1]
  • The operations of the company are facilitated in such a line of work that all the current and ongoing operations and projects are facilitated via the funds earned from earning and the increased borrowing. The Management of the firm has reported that the cost for the expansion is almost 375 m. NZD. The company, just like many others, has been subject to ups and downs in its business.

In September 2007, the Dubai Aerospace Enterprise (a company that is worth 2.6 bn. NZD) bid to take over the Airport, but the bid failed. Another bid was made by the Canadian Pension Plan Board (CPPIB), in 2007, to acquire 49 percent of the Airport. Even though more than half of the board members agreed to the acquisition but, the bid was called off by the New Zealand government because of the New Zealand policy of limited foreign stakes in strategic assets (Technology, 2020)

The company has made several significant improvements in the last decade. Including the followings:

  • In 2013, a new terminal was initiated that had the capacity of accommodating up to 40 million passengers and provides services to both the southern and the northern runways [1]
  • New check-in platforms were initiated at the eastern side of the international terminal segment, making the total number of check-in counters to 96 [2]
  • New screening technology has been installed, which facilitates the baggage handling and screening of all the international passenger luggage.

Financial Position of the Company

The Auckland International Airport Limited (AIAL) watches and analyzes numerous financial and non-financial indicators that affect the company’s performance both in the short term and a long time. In the last five years, the company has been initiating a new business line of work and incorporating strategy that brought a faster, higher, and more robust business position for the stakeholders. Since 2013, the company has expanded its operations and management capacity, but because of the lockdown and restriction imposed during the COVID-19, the company has been subject to travel restriction; in 2018’s the company’s aircraft total searing capacity was 13,658,147; in 2019, the total seating capacity was expanded to 14,062,761. But, in 2020, a 25 percent declined was seen in the seating capacity making it 10,550,424. The volume of international cargo movement also declined by 13.6 percent (AIAL, 2020)

Considering the financial performance of the company, the Earnings Before Tax, Depreciation, and Amortization (EBITDA) per passenger was $ 24.67, in 2019, it was increased to $ 26.28. However, in 2020, the EBITDA per passenger declined almost 27 percent to $ 16.78. 

From 2015 to 2019, the company’s revenue increase by 10 percent to $ 683 million; comprising of the three fundamental segments discussed above, the retail business constitutes 17.1 percent; the car parking facility includes of 8.3 percent; while the Aeronautical segment of the company, which is the largest segments, constitutes of 10.4 percent; the remaining revenue comprises of the rental property segment which was 16.2 percent. The Aeronautical segment was increased by 2.6 percent; because of a decline in the aircraft movement and passenger declines due to a new 2018-2022 pricing plan initiated by the company during the first quarter of the year. In 2017, the total sales/revenue of the company $629 million, while, in 2018, the total revenue was $ 684 million. In the year 2019, the company’s total revenue rose to $ 743 million, a 9 percent increase from the last year’s. The aeronautical segment’s revenue increase by 3.9 percent; however, the retail revenue increased by 18.5 percent due to the enormous expansion and new initiatives in the departure areas of the terminals. In 2019, the profit after taxation was $ 523.5 million, excluding the returns from the investment in the North Queensland Airport. The underlying profit after tax was increased by 4.4 percent to $ 272.7 million in 2019 (AIAL, Annual Financial Reports, 2019)

The Auckland International Airport Limited (AIAL) has, for years, been reporting the underlying profits, as the Management has understood the importance of the underlying profits and the compliance with the standard accounting practices. Reporting the underlying profits can help the investors better understand the business of the company (AIAL, Annual Financial Reports, 2017)

In 2015, the company initiated new indicators to measure management performance and the market value, including:

  • Fast, efficient and effective productivity of assets, operations and balance sheet.
  • Long-term sustainable investment in infrastructure to fulfill the long-term requirements.

Furthermore, the company’s financial position has been offset by the COVID-19; the company experienced a one-off operating cost and termination of capital work worth $ 117. Million.

The company has experienced variability in the share price; In 2015, the share price of the company was $ 5.02, with the expected variation in the share price of 18 percent; in 2016, it was $ 6.6, with the expected variation in the share price of 22.7 percent; while in 2017, the company’s stock was trading at $ 7.13, but it declined to $ 6.78 in the FY 2018. However, the average annual shareholders returned in 2018 was 20.7 percent (AIAL, Annual Financial Reports , 2015) (AIAL, Annual Financial Reports , 2016) (AIAL, Annual Financial Reports, 2018).

Company’s Capital Structure and Dividend Policy

The company aims to keep balanced and a decent mix of debt and equity, capital structure to sustain a well-positioned system to ensure that the company can carry on with its “ongoing” concerns as well as facilitating a capital structure which ensures “maximized” returns for shareholders and also decreases the Management’s cost. The recommended capital mix (capital structure) is based on credit rating, an analogy of the peers’ capital structure, sources, and the borrowing cost of the finance. The company can alter the capital structure by regulating the dividend policy, rearranging the CAPEX, and the issuance of new shares. The company’s Management examines the capital structure via the gearing ratio and via the credit rating of the company.

The company’s analysts calculate the gearing ratio by dividing the borrowings on the shareholder’s equity market value plus the borrowings. In 2017, the gearing ratio of the company was 19.5 percent; and the S&P’s credit rating rated the Auckland International Airport as A-stable outlook. In 2018, the gearing ratio was 20.3 percent and A-stable outlook by the S&P’s credit ratings. However, in 2019 the gearing ratio declined to 15.5 percent, while, in 2020, it rose back to 19.4 percent, with the same A rating in the S&P rating list.

The company’s Dividend Policy is designed in the procedure that it pays 100 percent of underlying net profit after tax; however, the unrealized gain and loss from the revaluation of property are excluded from it. The company’s directors can pay ordinary dividends above or below this level depending on the circumstances, subject to the company’s financial position, cash flow, and the credit metrics forecast.

In 2015, the company introduced an equity-settled “LTI” plan, which entitled the executives to the dividends on the shares in time of the vesting period and at the same rate as of the other shareholders’.

In 2017, the company introduced a new dividend policy, a “dividend investment plan,” which allows the shareholders to receive their respective dividends in the form of new shares. However, the shares issued in the dividend are partitioned from the ones sold directly to new or existing shareholders.

Due to the covenant waivers with the company’s lenders, the company has halted the dividend payments for a while. The dividends are expected “not to be paid” until 31 December 2021. Nonetheless, no dividends shall be paid as long as those waivers are in effect. 

As per the annual financial reports, the Auckland Airport managed to get a dividend of more than $ w million from the investors in Queenstown Airport. The total returns of the shareholders, comprising of the share price and the dividends paid in the year 2020, was negative 33 percent.

Recommendations

  • As per the above notes, regarding the company’s operations, Management, capital structure, and market value volatility, there is a few sustainable and prospective initiative that the Management of the Auckland International Airport can adopt to bring forth an increase in the market value and smooth up the operations; after a hectic situation faced due to the CODI-19. Some of the key factors that are recommended for improvements are:
  • The company can enhance its existing capital expenditure policy by completing the already “going-on” infrastructure projects. Modify the delivery of core airfield renewals, including the runway slab replacement and apron works.
  • Improve the overall internal infrastructure system design, including the up-gradation of the baggage system to fulfill the required criteria for completing the pre-leased property developments.
  • There is a huge potential for growth if the company upgrades its IT system; an IT review and tune-up can be a key to operational growth and market value growth. AIAL should, at least, once a year, do an IT system checkup to align the company’s needs and operations.
  • Increase the marketing and promotion; as per the annual reports 2020, its marketing and promotion budget declined almost 35 percent. After the COVID-19 lockdown, the company now has the potential to initiate new marketing campaigns.
  • Leveraged Buyouts (LBO) can increase the shareholders’ value. The stock is trading at $ 7.35, which is thought of is less than the book value. LBO can significantly increase the market demand of the stock price and can lift the share price.
  • Introducing new services, currently, AIAL only has three fundamental segments, but it can significantly improve its value if it introduces new lines of services/facilities. Such as cab services, hotels/room services, initiating a restaurant inside the terminals.
  • Increase in the price level, assuming the company’s operations will be back to normal after the COVID lockdown, an incremental increase in the price level will significantly improve the shareholder’s value; bringing an increase in ROI and market share.
References
  • AIAL. (2015). Annual Financial Reports .
  • AIAL. (2016). Annual Financial Reports . Auckland: AIAL.
  • AIAL. (2017). Annual Financial Reports. Auckland: AIAL.
  • AIAL. (2018). Annual Financial Reports. Auckland: AIAL.
  • AIAL. (2019). Annual Financial Reports . Auckland: AIAL.
  • AIAL. (2020). Annual Report 2020. Auckland: AIAL.
  • Screener, M. (2020, June). AUCKLAND INTERNATIONAL AIRPORT LIMITED (AIA).
  • Technology, A. (2020, June). Auckland International Airport (AKL / NZAA).
  • [1] https://www.airport-technology.com/projects/auckland-international-airport/#cNavBarChannelContentCentralNervousSystemmobile
  • [2] https://www.airport-technology.com/projects/auckland-international-airport/#cNavBarChannelContentCentralNervousSystemmobile

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