It has been a positive year for Auckland Airport, as we continued to deliver strong results for our customers, local community, New Zealand and investors. We have made considerable progress on our 30-year vision to build an airport of the future, achieving several milestones in the year to 30 June 2019 as part of our multi-billion-dollar investment programme. This includes the beginning of two core anchor infrastructure projects, our most significant since the 1970s, along with the completion of our multi-stage redevelopment of the International Terminal departure area.
We are proud of the growing contribution we are making to our community, including the work we are doing to connect local people with opportunities through, Ara, our airport jobs and skills hub. In 2019 we were once again recognised by Colmar Brunton as one of New Zealand’s most trusted companies, and we are making meaningful progress on reducing our carbon footprint as a founding member of the New Zealand Climate Leaders Coalition.
The financial year 2019 was another year of passenger growth, although it was slower than in recent years. Overall, passenger numbers increased to 21.1 million (up 2.8% on the previous year), with international passenger numbers, including transits, reaching 11.5 million (up 2.2% on the previous year). Domestic passenger numbers reached 9.6 million (up 3.6% on the previous year).
Those who travel through our airport continue to give us great feedback, and in the financial year 2019 our combined customer satisfaction rating for the Domestic and International terminals climbed to its highest annual score in 12 years – 4.15 out of 5.
Separately, the International Terminal achieved a record score in the third quarter, rating 4.36 out of 5. This followed our focus on delivering meaningful customer improvements in the financial year 2019, including upgraded bathroom facilities, generous public seating areas, greater access to device charging stations and a sophisticated new food and beverage experience in the international departure area. We were delighted to see some of our work at the International Terminal recognised in a prestigious global award in 2019, with Auckland Airport winning the ‘Airport Food & Beverage Offer of the Year’ at the International Airport Food & Beverage Awards. The health and safety of our customers also remained a top priority, and we were pleased to reduce our passenger injury rate by 41.3% year on year across our operation.
The growth in our investment property business was another highlight. Auckland Airport now owns and manages one of New Zealand’s largest premium investment-grade portfolios, with an estimated value of $1.7 billion and a committed rent roll of $100 million as at June 2019.
As always, our progress and achievements are thanks to the commitment and dedication of our staff and contractors and their enduring focus on doing the very best for our customers.
In the financial year 2019, we delivered transport upgrades that have reduced travel times, such as the completion of the Nixon Road bypass and the Landing Road intersection upgrade, in partnership with NZTA. We acknowledge the importance of safe and efficient transport options for travellers to get to, from and around the airport and we are advocating on their behalf and working closely with our government partners to deliver meaningful improvements.
In June 2019, we began our largest airfield project in decades – a 250,000m2 pavement expansion to accommodate the number of aircraft expected by 2044, flying an estimated 40 million travellers each year. As one of eight key anchor projects planned for Auckland Airport, the development includes new taxiways and remote stands for the parking and servicing of aircraft – increasing the surface area of the airfield by 18%.
We reached a milestone for another key anchor project in June 2019, with a contract being awarded for the Northern Network. The project will expand the roading network to the north of the existing terminals to improve traffic flows, enable public transport and upgrade and strengthen underground utilities – all to support future terminal and runway developments.
In the financial year 2019, we also continued to carry out works to upgrade the existing Domestic Terminal to improve the experience for our customers while we prioritise our plans for a new Domestic Jet Facility to be integrated into the International Terminal.
These transformational projects are just two of more than 200 projects either planned or underway at Auckland Airport, as part of a highly complex infrastructure development programme being rolled out in one of our country’s busiest development precincts.
At Auckland Airport, we are harnessing new ways of working to create a strong foundation to underpin this next phase of growth. In 2019, we embarked upon an intensive programme of work to refine and enhance our investment plan for key aeronautical infrastructure projects. Leveraging agile methodology, we are bringing together diverse teams and evolving our way of working, with the objective of delivering planning certainty, improved cost control and a realistic and achievable build programme. Our airline customers have been at the heart of this process, to ensure we are as closely aligned as possible as we shift into a major phase of development.
We are confident with the insights and progress we have made and continue to develop our detailed roadmap ahead for the delivery of the next decade of key projects. We look forward to providing a more detailed update at our investor day in November 2019.
The additional time we have invested in these valuable formative stages has led to lower capital expenditure than planned for the 2019 period – reaching $284.1 million against the previous guidance of $280 million to $330 million. However, we expect to finish the five-year pricing period (2017 - 2022) strongly and broadly in line with the forecast released to the market in mid-2017, delivering approximately the same value of commissioned or in-use aeronautical assets.
We look forward to the changes ahead and the future benefits that will undoubtedly flow through to our customers.
Regulatory and pricing update
Following a review of our aeronautical prices that were set in 2017, the Commerce Commission concluded our target return was not fully justified.
Auckland Airport carefully considered the Commission’s feedback and in February this year we announced a reduction in our aeronautical target return from 6.99% to 6.62%, to be implemented by way of discounts on landing and passenger charges effective 1 July 2019. In our view, the earlier prices we set for airlines were fair, competitive and in line with international standards, however, we acknowledged the Commission reached a different view on target return.
In March 2019, the Commerce Commission recognised Auckland Airport’s willingness to engage and respond positively to its feedback, welcoming Auckland Airport’s decision to reduce its charges to airlines by $33 million over the current five-year pricing period (2018 - 2022 financial years), the equivalent of $0.50 per passenger per flight. It noted that Auckland Airport’s decision to revise its pricing was a good result for consumers and showed the benefits of the current information disclosure regulations that are applied to New Zealand’s major airports.
Auckland Airport had a solid year from a financial perspective, with revenue up 8.7% to $743.4 million, while earnings before interest expense, taxation, depreciation, fair value adjustments and investments in associates (EBITDAFI) increased 9.6% to $554.8 million.
Total profit after tax was down 19.5% to $523.5 million, due to the previous year including the $297.4 million gain on the sale of our investment in North Queensland Airports. Underlying net profit was up 4.4% to $274.7 million and our underlying earnings per share was up 3.6% to 22.8 cents for the 2019 financial year. Our final dividend is 11.25 cents per share. The dividend reinvestment plan will again be available for the final 2019 dividend at a 2.5% discount to the market share price.
As we look to the 2020 financial year, we expect underlying profit after tax (excluding any fair value changes and other one-off items) to again be between $265 million and $275 million. This guidance is in line with the guidance for the previous year, reflecting several factors, including moderating passenger growth, the impact of the discounts announced in February this year to our previously published aeronautical prices, modest operating expense growth, along with an increased depreciation expense associated with the step up in our infrastructure build. As always, this guidance is subject to any material adverse events, significant one-off expenses, non-cash fair value changes to property and deterioration, as a result of global market conditions or other unforeseeable circumstances.
Auckland Airport is committed to growing New Zealand’s success in travel, trade and tourism and we would like to take this opportunity to thank our community and customers for their continued support and patience as we work hard to build an airport of the future.
Underlying Net Profit
The directors and management of Auckland Airport understand the importance of reported profits meeting accounting standards. However, owing to the complexity of accounting standards, it may be difficult for investors to compare one financial year’s results with another. Therefore, we also provide an underlying profit measure to help investors compare profits between years and to make comparisons between different companies with confidence. We believe that an underlying profit measure can assist investors to understand what is happening in a business such as Auckland Airport, where revaluation changes can distort short-term financial results or where one-off transactions, both positive and negative, can occur.
For several years, Auckland Airport has referred to underlying profit alongside reported results. We do so not only when we report our results but also when we give our market guidance (where we exclude fair value changes and other one-off items) or when we consider dividends and our policy to pay 100% of underlying net profit after tax, excluding unrealised gain and losses arising from revaluation of property or treasury instruments and other one-off items. However, in referring to underlying profits, we acknowledge our obligation to show investors how such results have been derived. The reconciliation for the current period can be found in the Financial Summary section.