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Auckland Airport's Littlewood says equity raising still possible as 1H profit rises 17%

Friday 16th February 2018

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Auckland International Airport, New Zealand's biggest listed company by market value, says it can't rule out an equity capital raising to help fund its biggest-ever spending programme - $1.8 billion on infrastructure over five years.

Chief executive Adrian Littlewood said the airport company is keeping watch on the take up of its reinstated dividend reinvestment programme, which he expects will see 20-to-25 percent of shareholders electing to take their dividends as shares.

He said the company will also raise funds from the agreed sale of its 24.6 percent stake in North Queensland Airports for A$370 million and remains "very active" in the debt capital markets, having launched its Australian medium-term note programme last year with two sales of longer-term bonds totalling A$260 million. Total borrowings rose to $2.2 billion as at Dec. 31 from $2.1 billion six months earlier. Interest costs rose about 5 percent to $38.6 million in the first half from a year earlier.

"It's too early to say does that change the potential need for a little bit of equity," Littlewood told BusinessDesk. "There are many different scenarios. We're very active in the debt capital markets. We're raising money very effectively compared to our peer group."

The nation's busiest gateway today posted a 17 percent gain in first-half profit to $165.9 million and said its strong performance gave it the confidence to tighten the range of its full-year guidance for underlying earnings. Full-year underlying profit would be in a range of $250 million to $257 million, a narrower range than the $248 million-to-$257 million estimate it gave at the time of its 2017 results.

First-half revenue climbed 6.9 percent to $332 million, which it said reflected a 2.7 percent increase in aeronautical revenue "driven by passenger growth and increasing runway movements" partly offset by a decrease in international and regional aeronautical prices. Retail income grew 10.2 percent to $88.9 million and investment property rentals rose 16 percent to $37.8 million.

Traditional airport services grew slower - airfield income rose 1.2 percent to $59.9 million and passenger services charge income rose 3.7 percent to $89.1 million - still the biggest source of revenue.    

Auckland Airport's share of underlying profit from associates rose 47 percent to $11.2 million, with strong growth from Queenstown Airport, its share of the Novotel hotel and contribution from North Queensland Airports.

The spending programme, gearing the airport company up to cope with increased passenger and airline flows in coming decades, provides three more contact gates for international aircraft, a new domestic jet terminal, expanded border processing and public arrivals space, an upgraded international check-in area and investment in public transport, roading, and walking projects. It also plans to take steps in the next five years toward opening a second runway it currently expects to be required by 2028, including a planned lift in landing charges.

Chairman Henry van der Heyden said the company is investing "more than $1 million every working day on our core airport infrastructure and there are now 53 aeronautical projects underway across the airport each in excess of $1 million."

The company will pay a fully imputed interim dividend of 10.75 cents a share on April 5 with a record date of at the close of business on March 20. The payment is up 7.5 percent from a year earlier. Auckland Airport shares rose 2.3 percent to $6.43 and have declined 4.2 percent in the past 12 months while the NZX 50 Index climbed 14 percent.

"It appears to be managing a very busy period of development activity relatively well," said Shane Solly, a director at Harbour Asset Management. "They continue to have to work through the aeronautical pricing review."

Domestic airline capacity rose 5 percent in the first half and load factors grew while international airline capacity was up 5 percent after it welcomed four new airlines. International aircraft movements rose 1.8 percent while domestic grew by 5.3 percent. Volumes through January "were broadly consistent with the first half" although Littlewood sees some softening in the second half, reflecting the withdrawal of Emirates from the Tasman routes. 

Littlewood wouldn't offer any public speculation about the Commerce Commission's review of the airport's FY18-22 aeronautical pricing decision announced last year. The regulator is focussing on profitability, pricing efficiency (including the runway land charge) and investment, the company said today. It expects a draft decision in April and a final decision in September.

"This regime has been through a number of cycles - we understand the areas of focus," he said.


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