Sir Henry van der Heyden (chair) and Adrian Littlewood (chief executive).

In the past year we built further momentum in delivering on our infrastructure plans and in reshaping our business to match the needs of our new development era and changing travel and trade markets. The sale of our stake in North Queensland Airports, the investment in new transport projects and the rollout of new operations and service initiatives have reinforced our focus on business in New Zealand and on taking care of customers during our $2 billion aeronautical infrastructure development programme – one of the most significant in the country.

We were pleased also that our objective of sharing the benefits of our investment programme with our local community continued to gather momentum with hundreds of new jobs created. Our jobs and skills hub, ‘Ara’, has provided valuable training and employment opportunities for local people, placing over 215 people into new jobs. During 2018 we also received recognition for our efforts over the past decade to minimise our impact on the environment and we became the first company in Oceania and the first airport in the world to set a publicly disclosed carbon reduction target based on the UN-supported Science Based Targets initiative. We were also recognised by Enviro-Mark as one of New Zealand's top carbon reducers in the past year.

During 2018, Auckland Airport reached some important milestones in our core aeronautical and infrastructure development programme. We completed the first stage of our new international Pier B extension ahead of the 2017/2018 summer peak travel period and fully completed the project in March 2018. We also reached 90% completion of our multi-stage redevelopment of the international terminal departure zone – which will be largely completed by the end of the calendar year – and completed a wide range of new transport projects to improve the flow of traffic around the airport precinct and to support the growth in public transport connectivity to the airport. In light of these investment priorities, in January 2018 Auckland Airport decided to sell our 24.55% stake in North Queensland Airports (“NQA”). The sale exceeded market expectations and the A$370 million sale proceeds were used to reinvest in critical aeronautical infrastructure at Auckland Airport as well as retire debt.

We are already starting to see the benefit of these development projects on operational and service performance; and customers are also benefiting from the changes through upgraded facilities, improved airport processes and a wider range of retail choices while at the airport. In 2018 we sustained our customer satisfaction levels with an average customer satisfaction rating score of just above four out of five at both terminals based on the independent and globally recognised Airport Service Quality survey.

Auckland Airport will continue to work hard on delivering our upgrade programme and remains committed to taking care of customers during this period of significant change. To continue to improve customer experience, this year we deployed new traffic operations tools and developed new road and public transport options to better manage traffic flows through the airport precinct. We also partnered with NZTA to roll out the RideMate app to enable customers to make smarter decisions about their trips to and from the airport. In the airport terminals we invested in new technology, including additional mobile check-in kiosks, real-time customer feedback tools. In addition, we rolled out an artificial intelligence (AI) online assistant, Ava, to ensure people can find help more easily and get through the airport smoothly.

We also made significant investments in other customer-facing areas with the launch of our new Strata Lounge in late 2017 for customers who want to choose a premium airport experience and we continued to grow our Strata Club membership programme to recognise regular travellers through Auckland Airport. In late June 2018, we launched an online virtual shopping channel called ‘The Mall’, which allows passengers to conveniently shop online from anywhere in the world choosing from over 2,300 products sold by several of our international duty and tax free stores. The Mall’s online platform is one of the most advanced of its type for airports, this means that customers can easily purchase online from multiple retailers with a single convenient online checkout.

It was pleasing to see another year of solid growth in travel and trade markets given the significant growth in the prior two years with many new carriers and new routes servicing both domestic and international markets out of Auckland. In the year to 30 June 2018, the total number of passengers using Auckland Airport increased by 5.7% to 20.5 million with international passengers reaching 11.2 million (up 4.1% on FY17) and domestic passengers lifting 7.7% to 9.3 million.

The last 12 months also saw growth in international passenger markets with Chinese arrivals continuing to grow, up 10.9% in the year, and routes into the United States and European markets increasing too, through the use of larger, next-generation aircraft such as Boeing 787 Dreamliner and Airbus A350.

The aviation market continues to be dynamic with many changes throughout 2018 as airline alliances and network plans evolved. Following the success of its Dubai direct service, in March 2018 Emirates withdrew its A380 services from the Tasman market and added a new service to Dubai via Bali. At the same, time existing Tasman carriers - including Air New Zealand, Qantas and Virgin - announced new services, replacing much of the Tasman seat capacity lost by Emirates. Auckland Airport has responded well to these changes and it highlights the importance to Auckland Airport in maintaining a long-term view on infrastructure requirements rather than simply reflecting the airline alliances and business models of today.

During 2018, we continued to invest significant effort in the Commerce Commission’s review of our five-yearly aeronautical pricing decision set late in the 2017 financial year. The Commerce Commission’s draft report has showed that it was satisfied with all elements of Auckland Airport’s pricing decision other than our target return for which it requested further evidence. Our team continues to engage with the Commerce Commission and we await its final report.

We were pleased with the performance of Queenstown Airport in 2018 and its passenger growth of 13.1% across both domestic and international routes. Capacity increases on the Auckland to Queenstown route helped Queenstown Airport’s 13.5% growth in domestic passenger numbers. Overall our share of Queenstown Airport’s net profit after tax for the 2018 financial year was $3.8 million, or a $0.8 million increase on the previous year. The long-term lease that Queenstown Airport signed for Wanaka Airport in March 2018 now opens up opportunities to plan and develop important aeronautical infrastructure for the Wakatipu Basin over the long term.

Returning to Auckland Airport’s financial performance in 2018, total revenue increased 8.7% to $683.9 million against an increase in operating expenses of 13.6% to $177.5 million. Retail income was $190.6 million (up 17.1%). Property rent roll was $90.2 million (up 23.7%). Earnings before interest expense, taxation, depreciation, fair value adjustments and investments in associates (EBITDAFI) increased 7% to $506.4 million. Total profit after tax was up 95.3% to $650.1 million, while underlying net profit was up 6.2% to $263.1 million.

Reflecting these gains, underlying earnings per share rose 5.8% to 22.0 cents. Our final dividend for the 2018 financial year is up 4.8% to 11.0 cents per share, delivering a total dividend of 21.75 cents, an increase of 6.1% compared with the 2017 financial year. The dividend reinvestment plan was first reinstated for the interim 2017 financial year dividend payment and will again be available for the final 2018 dividend at a 2.5% discount to the market share price.

The table within our Financial Summary shows how we reconcile reported profit after tax and underlying profit after tax for the full-year periods ended 30 June 2018 and 30 June 2017.

The following adjustments have been made to show underlying profit after tax for the 12-month periods ended 30 June 2018 and 30 June 2017:

  • We have reversed out the gain arising from the sale of our investment in North Queensland Airports. This sale was a one-off transaction that does not reflect normal business activities
  • We have reversed out the impact of revaluations of investment property in 2018 and 2017. An investor should monitor changes in investment property over time as a measure of growing value. However, a change in one particular year is too short to measure long-term performance. Changes between years can be volatile and, consequently, will impact comparisons. Finally, the revaluation is unrealised and, therefore, is not considered when determining dividends in accordance with the dividend policy. None of the property, plant and equipment revaluation in 2018 affected reported profit. Therefore, no underlying profit adjustment was required in 2018, nor in 2017 in which there was no property, plant and equipment revaluation
  • We have reversed the impact of derivative fair value movements. These are unrealised and relate to basis swaps that do not qualify for hedge accounting as well as the ineffective valuation movement in other derivatives. The group holds its derivatives to maturity so any fair value movements are expected to reverse out over their remaining lives. Further information is included in note 18.2 of the financial statements
  • In addition, to be consistent, we have adjusted the revaluations of investment property and financial derivatives that are contained within the share of profit of associates in 2018 and 2017
  • We have also reversed the taxation impacts of the above movements in both the 2018 and 2017 financial years.

We expect underlying net profit after tax (excluding any fair value changes and other one-off items) for the 2019 financial year to be between $265 million and $275 million. This guidance would deliver underlying earnings per share growth of 1% to 4.5% in 2019, with slower growth than in recent years reflecting year two of declining international passenger charges for the new five-year aeronautical pricing period and increasing interest and depreciation expense associated with the recent step up in our infrastructure build. It should be noted that this guidance is subject to a number of factors including 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.

Finally, and most importantly, we would like to thank all of our people, communities and customers for their hard work, patience and understanding during this critical period of airport transformation.

Turning to the year ahead, we look forward to welcoming Dr Patrick Strange into the Chair role ̶ we will no doubt benefit from his deep experience in complex infrastructure businesses. We would also like to thank all of our people, communities and customers for their patience and understanding during this next period of transformation. We look forward with confidence to the coming year as we continue to deliver the airport of the future.

Sir Henry van der Heyden
Chair

Adrian Littlewood
Chief Executive

Underlying net profit

  $263.1m
an increase of 6.2%

The directors and management of Auckland Airport understand the importance of reported profits meeting accounting standards. However, due 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 profits 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 gains 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 on the Financial Summary page.