Sydney Airport posted its results for the full year 2016, with continuing strong international passenger growth
A summary of the key points from the half year result are outlined below:
- FY16 revenue rose 11% to $1.36bn (from $1.23bn), per corresponding period (pcp), primarily driven by strong international passenger growth, investments (focused on increasing capacity, operational efficiencies and enhancing passenger experience), a related 4.8% increase in international charges from July 2016, and strong retail performance. The full year financial results also include the first full year of contribution from Terminal 3
- Total passengers through Sydney Airport was 41.9m for 2016, up 5.6% pcp, with international passenger growth up by 8.9%, the strongest in 12 years. International passenger growth – mostly in the double digit range – was supported by many major markets including China, the United States, India, Korea, Japan and Indonesia. Domestic passenger growth remained solid at 3.8% for the financial year
- Sydney Airport concurrently released its January 2017 traffic performance figures which are available here. Total passenger growth recorded a 4.8% increase pcp, driven by strong international growth of 9.7% in January 2017 pcp, due to solid passenger growth across many Asian routes because of Chinese New Year on 28 January 2017. Domestic passenger growth remained positive at 1.7%
- FY16 EBITDA (excluding Western Sydney Airport (WSA) project costs expensed) was $1.1bn, up 10.3% pcp from $1bn on the back of higher revenue. This was partly offset by higher operating expenses of $32m, up 14.3% pcp due to the step up in cleaning and maintenance standards, higher electricity prices and increment expenses in relation to a full year of T3 operations. Despite the higher operating expenditure, Sydney Airport maintained its EBITDA margin in the low 80% range
- Net debt/EBITDA reduced to 6.9x at 31 December 2016 – compared to 7.4x at 31 December 2015 – as shown in Figure 1. The increase in leverage at 31 December 2015 was due to the Terminal 3 acquisition, and the leverage ratio has improved as the full year financial results incorporate Terminal 3’s full year contribution. Figure 1 also shows Sydney Airport’s ongoing delevering, including stronger interest coverage of 2.7x in FY16 from 2.5x in FY15
Source: Sydney Airport
- Sydney Airport continues its shareholder friendly policy and increased its distribution to shareholders by 21.6% to 31 cents per stapled security, which is fully covered by net operating receipts (excluding Western Sydney Airport project costs expensed)
- On 20 December 2016, the government issued a Notice of Intention (NOI) in relation to the Western Sydney Airport (WSA). Despite the lack of material support from the government in the NOI to make WSA commercially viable, Sydney Airport is continuing to evaluate the project and the impact on Sydney Airport. The company has undertaken confidential and detailed market soundings with contractors to assess the construction costs. Sydney Airport’s response to the NOI is due on 8 May 2017, a much shorter four month consideration period than the nine month consideration period it expected
A link to the results is available here.
We note that on 16 January 2017, S&P revised Sydney Airport’s rated entities’ BBB ratings’ outlook to positive from stable. The outlook revision reflects S&P’s view that Sydney Airport is unlikely to participate in the development of WSA, which would enable the group to continue generating strong financial metrics. S&P believes that the government’s proposal in the NOI makes the project not economically viable for investors to earn an adequate return for at least ten years, and as such the rating agency believes that there is a low possibility of Sydney Airport participating in the development of the WSA. As such, the positive outlook also reflects S&P’s belief that the airport's strong forecast financial metrics are unlikely to face heightened risk of increased leverage from the project. S&P would raise Sydney Airport’s ratings if the latter confirms that it will not participate in the WSA project.
Sydney Airport reiterated its confidence in the outlook for the business and will remain focused on integrated, sustainable growth. The following guidance was provided at the FY16 results announcement:
- FY17 distribution to increase by 8.1% to 33.5 cents per stapled security
- Five year capex for the 2017 to 2021 period of $1.3bn, with FY17 capex of $450m linked to a 4.3% increase in international aeronautical prices
- Continuing with the WSA evaluation and market sounding process