FLLYR: WIA: WIAL Results for the Year Ended 31 March 2010

1 Jun 2010 12:13 pm

WIA 01/06/2010 FLLYR

REL: 1213 HRS Wellington International Airport Limited

FLLYR: WIA: WIAL Results for the Year Ended 31 March 2010

Wellington International Airport is pleased to present a copy of its Annual Report for the year ended 31 March 2010.

CHAIRMAN AND CHIEF EXECUTIVE REPORT

Introduction

In 2009, Wellington Airport celebrated its 50th year of operation at its current Rongotai site.

Given the economic and aviation environments, the Airport's staff and Board can look back on the year with some satisfaction. The financial result was solid, operations functioned smoothly, the Airport's development programme was progressed to plan, a number of services were initiated and passenger services and facilities were enhanced.

These outcomes were delivered notwithstanding a small decline in domestic traffic which was only slightly offset by growth on international services.

At the end of the year Wellington's traffic was stable and airline capacity and schedule plans indicated that modest growth could be anticipated for the next year.

For the year to 31 March 2010 total passenger numbers were 5,117,906 from 5,256,398, while earnings before interest, tax, depreciation, amortisation, revaluations/realisations and payments to shareholders were $68.2 million from $65.3 million the year prior.

The improvement to earnings was due to better income from passenger services (up $2.1 million) and aeronautical income (up $1.3 million). There was a lower contribution from property and other activities while operating costs (excluding iSite Limited) were flat. The management of expenses was particularly good given unavoidable increases to rates, insurance and regulatory costs.

The arrival of Jetstar services on the domestic trunk was the year's main aviation event. New Zealand now has three strong and vigorous jet carriers competing on trunk services. Consumers' positive response to the offers of Air New Zealand, Pacific Blue and Jetstar is shown by the airlines' March 2010 average 80% loadings on the trunk routes.

In January 2010 Wellington Airport published its 2030 Master Plan following extensive consultation. This document includes the Airport's growth forecasts for the next 20 years and the infrastructure work required to accommodate the increased activity. Over the last twenty years Wellington's traffic has gone from 2.6 million to 5.1 million passengers. Approximately the same growth rate is forecast into the future, meaning that by 2030 about 10 million passengers will be using Wellington Airport each year. Both the growth and the approximately $450 million investment it will require are consistent with what has occurred over the last decade.

The growth will put pressure on the Airport's land transport links with the region and this is being actively addressed with the relevant councils and government agencies.

During the year ratings agency Standard & Poor's reaffirmed Wellington Airport's BBB+/Stable/A-2 credit standing as having not changed during the global financial crisis or recession. The Airport rated well with its response to changes in the environment, its progress on the international terminal upgrade and its conservative liability profile.

Business, People and Community

After 20 years on the Airport company Board, Denny Thom retired as a director. Denny's time of involvement spanned from pre- corporatisation, through Crown ownership to the Airport's current status of ownership by Infratil and Wellington City Council. His keen intellect and strong sense of purpose were important factors behind the development of the Airport into its current status as a gateway the region is proud of and which also makes a meaningful financial contribution to Wellington City and other shareholders.

About 1,400 people work at Wellington Airport, including the Airport Company's own staff of about 80. Over 6,000 people work in directly related employment. The Airport's operational and financial achievements over the last year are due to the work of these people.

Recognising its role in the community, Wellington Airport actively assists many community bodies and groups, including: - The Wellington High Performance Aquatics, a joint project with Infratil. - The Wellington Airport Regional Community Awards which are undertaken with The Community Trust of Wellington (last year's winner was Friends of the Motueka Hospital Trust representing Nelson Tasman District). - The Spirit Awards which are made to students at local secondary schools. - Sponsorship and other assistance provided to The Life Flight Trust, the Miramar Golf Club, Zealandia, Wellington Chamber of Commerce, NZ International Arts Festival and The Wellingtonian of the Year Awards.

Aeronautical Activities

YE 31 March 2010 2009 Domestic Passengers 4,491,260 4,645,402 International Passengers 626,646 610,996 Aeronautical Income $54.5 million $53.2 million

Passenger numbers fell 2.6% relative to 2009, albeit relative to five years ago the numbers are still up 12% or almost 550,000 passengers.

International passengers grew 2.6% from last year's levels, trunk passengers fell 1.6% and regional services' passengers were down 7.1%. In each case the results reflect the level of airline competition occurring in the relevant market. Wellington's link with Sydney was a good example. On this route passenger numbers were up 11.5% on the prior year, mainly due to new Pacific Blue services, but relative to 2009 both Air New Zealand and Qantas also maintained increased loadings.

Disappointingly, capacity on regional services was reduced and this together with the resulting level of fares appears to have been behind the 7% fall in passengers. Trunk services were also down slightly on the prior year, but airline innovation and good pricing means that growth can reasonably be anticipated in 2011.

Also of disappointment, but signaling an area of future prospects, the Airport's links with Coolangatta was terminated during the year and Pacific Island links remain only seasonal.

Wellington Airport continues to promote the Wellington region for inbound travelers and to encourage airlines to provide new and expanded services. The City's tourism agency, Positively Wellington Tourism, the airlines and Government tourism bodies have been active partners in these endeavours.

Notwithstanding the small decline in passenger numbers, aeronautical income increased relative to the prior year. This was due to changes to the passenger mix and a small increase in aeronautical charges which had been determined in 2007 and came into effect in 2009.

Passenger Services YE 31 March 2010 2009 Passenger Service Income $25.7 million $23.6 million Per Passenger $5.02 $4.49

On-going improvement to terminal and transport facilities and services continues to lift both the quality of the experience of those visiting the Airport and the Airport's income.

In 2010 a number of changes to the terminal retail and food & beverage offering were implemented and have proven to be popular. The Airport also assisted Valley Flyer to enhance the public transport links with the City and Hutt Valley. Patronage on these services has more than doubled since they were recently upgraded and over 14,000 people a month can use the bus to visit or exit the Airport.

Commercial Property And Other Activities

YE 31 March 2010 2009 Property and Other Income $7.6 million $8.3 million

Income from commercial property rent and Wellington Airport's out-of-home advertising subsidiary, iSite Limited , was down 8% on the prior year. This was mainly due to a $0.3 million fall in property rent and a $0.3 million drop in iSite Limited's EBITDAF contribution. In both areas slightly better results are anticipated for next year.

The Airport's valuers have advised that the Airport's investment property values have declined slightly over the year due to a rise in market capitalisation rates. They have assessed the market value of the investment properties to be $48.7 million based on their observation of market prices for comparable properties. The valuers increased the capitalisation rate used in their valuation to 8.79% from 8.66% and this caused a decline in assessed value by $0.7 million.

Wellington Airport also redesignated $10.1 million of property from "Investment" to "Aeronautical". This followed from adoption of the 2030 Master Plan which indicated that these areas had to be retained for aviation purposes and should not be considered for commercial or investment development.

Economic Regulation

The Commerce Commission continued its review of the information disclosures of New Zealand's major airports as required by the amended Commerce Act. This multi-year process is intended to standardise and expressly define the information the airports will have to provide about their aeronautical assets and activities.

Because this could be a precursor to some form of more heavy handed regulation, Wellington Airport has engaged in the process in a comprehensive way. In 2010 the cost of this engagement amounted to over $1.0 million for external experts, and a substantial commitment of executive time.

Financial Results

YE 31 March (million) 2010 2009 Aeronautical Income $54.5 $53.2 Passenger Service Income $25.7 $23.6 Property and Other Income 1 $7.6 $8.3 Operating Costs 1 $19.6 $19.8 EBITDAF $68.2 $65.3 Net Interest $16.9 $20.1 Depreciation & Amortisation $15.8 $14.1 Value Adjustments 2 ($5.2) ($0.4) Capital Expenditure $22.1 $21.3

1. Property and Other Income includes the EBITDAF contribution from its subsidiary iSite Limited and consequently iSite Limited's operating costs are excluded from the Operating Cost reported above.

2. Amortisation of ineffective interest rate hedges amounted to $6.1 million in 2010 against $0.5 million in the prior year. While this cost is taken to the Profit & Loss Account an offsetting balance is credited to reserve under Comprehensive Income.

The $2.9 million (4.3%) improvement to earnings to $68.2 million was a good financial outcome in the context of the operating environment experienced. Rental on commercial property was down slightly as was the earnings contribution from iSite Limited, but income from aeronautical and passenger services held up and costs were well managed.

Interest costs fell as interest rates remained low. Wellington Airport's interest costs have now been fixed to the maturity of the relevant bonds. All of the Airport's funding is by way of medium term bonds with maturities in 2013 and 2017. Reflecting the still uncertain times the Company maintained substantial cash on deposit over the year.

Operating cash flow after interest and tax but before investment and financing activities and payments to shareholders (dividends and subvention payments) increased to $48.8 million, from $48.2 million the prior year. Profit after tax before payments to shareholders (dividends and subvention payments) increased to $31.0 million, from $30.3 million.

The Airport's capital works programme continued to plan with work completed on the runway upgrade and continuing on the international terminal, "The Rock". This construction is projected to finish in the third quarter of 2010 and while the Master Plan indicates a substantial capital works need over the next decade, immediate investment plans are modest.

Outlook

Wellington Airport managed to deliver a good financial and operating result despite trying market conditions. In 2011 it is expected that the market will improve slightly.

The Airport's focus will remain on cost control, providing good services to airlines and passengers and ensuring development plans progress so that future growth is not constrained by inadequate facilities.

Over the medium term it is anticipated that growth in traffic will resume, but as has tended to be the case in the past, in all probability it will come in "lumps".

The New Zealand and Australian air markets are becoming increasingly integrated and are developing on many fronts. Jetstar are pioneering new modes of connectivity with Asia. Air New Zealand continues to excel in the provision of conventional air services. The Virgin group is improving its international long-haul to complement its Australasian short-haul services. New Asian airlines and Middle East based global carriers vie for market share with established Asian based carriers.

The Airport will continue to enhance its role as the gateway to central New Zealand while working with economic and tourist agencies and airlines to improve and develop services.

On behalf of the Board and management.

David Newman Chairman 14 May 2010

Steven Fitzgerald Chief Executive 14 May 2010 End CA:00195620 For:WIA Type:FLLYR Time:2010-06-01:12:13:40

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