Airport profits soar on bubbling retail

By Yoke Har Lee

Buoyant international arrivals and bubbling retail income helped Auckland International Airport exceed its prospectus profit forecast by 21 per cent and last year's result by 3.2 per cent.

The $42.42 million net profit was achieved on a revenue increase of 3.8 per cent to $160.37 million. Operating margins improved to 70.4 per cent from 69.5 per cent.

Declaring the company was in "excellent shape", chief executive John Goulter said: "We delivered, we exceeded our forecast in our first year as a listed entity. We exceeded it quite comfortably."

He expected satisfactory improvement in the year ahead.

"We will continue to zero in on key development areas to ensure our core business remain in excellent health."

Although no details were available, the airport aims to formalise a retail strategy for the airport. Retail revenue, which rose 11 per cent from a year ago, exceeded airfield income for the first time.

Mr Goulter reckoned that the airport was currently the fourth largest retail centre in terms of turnover, after St Lukes, Manukau Shopping Centre and Christchurch's Riccarton Mall.

The company announced a final dividend of 5.1 cents per share, making it 8c for the full year, fully imputed. The dividend is to be paid on November 16.

In its prospectus, the company had anticipated a full-year dividend of 5c, signalling it would maintain a payout rate of 60 per cent of its surplus.

The actual amount declared brings the rate to 80 per cent. Earnings per share were 10.10c against 9.78c.

A revaluation of key assets resulted in the company's asset value rising by $281.32 million, bringing the total value to $802.83 million.

Company treasurer Chris Curley said it was now up to the board to consider what it should do with the improved equity ratio of 61.9 per cent (from 40.6 per cent) following the revaluation exercise.

Market analysts have speculated that the improved balance sheet would allow the company to raise the level of its gearing, either to fund acquisitions, capital expenditure, or for additional payouts to shareholders, including special dividends or share buybacks.

The bulk of the valuation surplus came from the airport's land assets. The land carried a book value of $168.78 million but that was revalued upwards by $145.21 million, to $313.99 million. Its investment properties' value almost doubled to $50.60 million from $26.45 million while its infrastructure assets were revalued to $105.62 million from $56.18 million.

The company said, however, the results did not include any depreciation on the revalued amounts. The value added to the assets would lead to an additional $2.6 million in depreciation charges, to be included from this financial year.

The company expects international arrival figures to continue their healthy trend. Mr Goulter said significant events such as the Year 2000 celebrations, the America's Cup, the Under-17 World Cup Soccer and the Apec conference would result in positive visitor growth for at least the next 12-18 months.

For the year just ended, international passenger arrivals rose 3.7 per cent to 4 million but domestic numbers saw flat growth. The company had anticipated a 2 per cent drop in international arrivals.

Dave Fraser, an aviation analyst at Warburg Dillon Read, said the results were "great". He expected the company to continue making substantial earnings improvement.

Warren Doak, analyst for Merrill Lynch, also saw the results as solid and in line with expectations.

"We are not going to be looking at huge volatility in earnings. The airport's performance will be tied to international passenger arrivals and that looks solid."