Auckland Airport raises capex forecast by as much as 27% to meet passenger growth

Thursday 22nd October 2015

Auckland International Airport expects capital expenditure to be as much as 27 percent more than earlier guidance, in what will be its biggest annual spend in over a decade, as it experiences strong growth, especially in tourism and property.

The airport told shareholders at its annual meeting in Auckland today that it expects capital spending of between $230 million and $260 million in the 2016 financial year, ahead of an earlier forecast of between $190 million to $205 million, and about $148 million spent in 2015. Underlying net profit after tax is still expected to be between $183 million and $191 million. The shares fell 0.5 percent to $5.205.

Chief executive Adrian Littlewood said it’s the biggest capital expenditure in any year for around the last 10 to 15 years with the airport operator expecting its busiest summer ever this year as New Zealand experiences a record number of international visitors. Total passenger movements were up 5 percent to 15.8 million in the 2015 year, with international passengers up 5.7 percent.

The updated guidance includes some $135 million of aeronautical capital expenditure, focused on upgrading and expanding its terminal and airfield capacity for passengers and airlines. It will mean Auckland Airport can meet peak demand this summer with a new international bus lounge facility and additional layover stands for the larger aircraft such as Airbus 350 and Boeing’s Dreamliner, said chief financial officer Phil Neutze. The upgrade to the international terminal is due for completion at the end of 2017.

“We’re digging in parts of the terminal that have not seen the light of day since the 1970s,” Littlewood said. “We’re dealing with some legacy issues such as being spread over multiple levels.”

Littlewood said some of the expenditure will also go towards its investment property division, which accounts for just over 10 percent of revenue and is growing fast. Its rent roll alone was up 20 percent in the 2015 financial year.

That includes funding pre-design work for a third hotel the airport operator is developing with Tainui Group Holdings. The rise in tourism numbers and constraints on hotel infrastructure at peak times means it is now thinking of building a fourth, Littlewood said.

“Our existing two hotels are going very well which gives us confidence this is the right thing to do,” he said.

The airport wants to become a significant commercial property player and has opened up a further 9.5 hectares of land to develop, build, and lease which Littlewood said “is already going fast”. Some of this year’s capex will go on civil works to ready another parcel of land for commercial development.

There’s an 18-month time lag to ready the land for development and Littlewood said they want to ensure they don’t have to drop out of the market at any stage when demand is running hot.

“We don’t want to miss this cycle as we have missed previous ones,” he said.

Auckland Airport has typically appealed to investors looking for dividend yields and one shareholder expressed concern the increased capex could impact dividends. The airport has delivered a five-year average shareholder return of 24 percent.

Chairman Henry van der Heydn said extra expenditure was needed now to reap long-term benefits.

“We have to put the infrastructure in place in the short-term to get passenger numbers to increase,” he said. “This is a positive story, not a negative one.”

There was no guarantee on how that might impact dividends this year but one of the board’s KPIs (key performance indicators) was to keep increasing shareholder returns, van der Heyden said.

Shareholders approved a $42,699 increase in the directors’ fee pool to $1.45 million although there was some discussion on directors’ remuneration, as has happened at a number of company annual meetings this year.

Board members defended the 3 percent increase saying their liabilities and responsibilities had increased in recent years. The director’s base fee is currently $110,600 while the chair received $236,200 last year.

One shareholder suggested the increase could have been spread among the airport’s lowest paid workers where it would make more of a material difference than it will when shared among the eight directors. Littlewood said staff received a $1200 bonus last year in recognition of their hard work in recent years and the airport company’s strong performance.

Former Transpower chief executive Patrick Strange was appointed to the board, replacing John Brabazon who retired after eight years.

BusinessDesk.co.nz

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