MIA grows its revenue despite sharp drop in passengers

The 2009 half year results published by Malta International Airport plc on July 31 may have surprised some shareholders as the company's revenue grew by 2.1 per cent to €20.6 million despite a 10.9 per cent decrease in passenger income - their main source of revenue. The company's strategy of seeking to mitigate the dependence on aviation revenue has paid off as the sharp decline in tourism numbers in the first half of the year was offset by a 33 per cent increase in retail and property income.

While aviation revenue decreased by €1.1 million to €14.9 million, MIA'S non-aviation revenue (mainly encompassing the retail concession income, rental income as well as revenue from the car park) climbed by €1.35 million. Non-aviation revenue accounted for 26.6 per cent of total income in the first six months of 2009 and the company is on track to achieve the target of generating 30 per cent of total income from retail and property sources by 2010.

The sharp increase in this segment during the first half of 2009 comes as a result of the new outlets that opened as part of the air terminal extension (mainly the sizable area leased to Nuance), the recent re-negotiation of most contracts of the concessionaries at higher rates for an extended period of time and the rise in car park revenue due to a surge in usage coupled with higher parking rates. Moreover rental income also rose as a result of the completion of the 60,000 sqm area leased to Lufthansa Technik.

The segmental reporting included in the half-year report published on July 31 revealed another interesting statistic. The operating profit contribution from retail and property at €2.8 million exceeded that generated from aviation revenue and accounted for 52.4 per cent of the total operating profit of €5.4 million during the first half of the year.

MIA's depreciation charge increased to €2.7 million (+ €0.4 million) in the first six months of 2009 in line with the substantial investments made in recent months to the air terminal extension, the taxiways and the replacement of some plant and machinery within the terminal. Meanwhile, operating costs increased by €0.64 million (5.4 per cent) to €12.5 million.

With the largest component (staff costs) only marginally higher, the company benefitted from the decrease in water and electricity tariffs during the first six months but these were offset by higher marketing and PR expenses.

The main reason for the hike in costs is the charges paid to the ground handlers related to the services for Persons with Reduced Mobility which amounted to €0.62 million. In this respect MIA's contribution from departing passengers only netted €0.28 million resulting in a shortfall of €0.34 million.

In effect the €0.4 million decline in pre-tax profits to €4.7 million is almost totally related to the increased expenses related to persons with reduced mobility. Therefore excluding the PRM charges, MIA's profit for the period is marginally unchanged. This can be considered to be a very healthy financial performance given the current economic scenario and the resultant decline in passenger numbers shows that the objective of the airport operator to become less reliant on aviation revenue is materialising. Possibly as a result of these encouraging results, MIA confirmed an unchanged net interim dividend of €0.06 per share payable to those investors who acquired shares until close of trading yesterday.

During a stockbrokers' meeting held shortly after the publication of the results on July 31, CEO Julian Jaeger announced that in view of the additional costs being incurred by the company to provide PRM services, as from August 1 the fee levied on each departing passenger has doubled to €0.92. This should enable MIA to recover the shortfall incurred in 2008 and in the first half of this year in respect of this service.

Following the 10.9 per cent decline in passengers in the first half of this year, Mr Jaeger confirmed that July and August should show a decline of circa six per cent compared to last year's record levels. As a result, earlier last week MIA revised its 2009 traffic forecasts to a 6.8 per cent drop compared to the earlier estimate prepared at the start of the year which showed a decline of 5.5 per cent.

In effect this amounts to a decrease of a further 40,000 passenger movements as the global recessionary environment impacted Malta's main tourism markets of the UK and Germany. On the other hand, the company should continue to benefit from increased non-aviation income during the second half of the year as some of the new retail operators in the departures lounge and the food court did not contribute to a full six months of operations.

The strategy of the company to place increased focus on non-aviation revenue also reflects the recent announcement made on the new property investment. The €16 million business centre intends to leverage on the vast parcel of land surrounding the air terminal and the demand for quality office space. As indicated in the press at the time of the announcement, Vodafone Malta Ltd will be the anchor tenant of this new development as it has already entered into an agreement with MIA for the lease of 2,500 sqm apart from a large number of parking slots.

While MIA has not actively commenced marketing the remaining area to potential tenants, the CEO revealed that since the unveiling of the project, the company received various enquiries from prospective tenants. When speaking about this new development, Mr Jaeger also made reference to the previous plans of a Mediterranean Business Park. At the time, MIA were seeking investors to take over the complete area around the terminal (over 77,000 sqm) and convert this into an international trade centre featuring a combination of business, retail, leisure and hotel accommodation facilities. However, talks with a number of international consortia failed.

The CEO confirmed that the company could consider further additions to the new business centre or similar projects on the remaining land available for development. On his part, MIA's chief financial officer Austin Calleja explained that the company intends to finance this development through a long-term bank loan. The new business centre is earmarked for completion in the second half of 2011 and according to the CFO this project should contribute between €2 and €3 million in additional revenue to the company as from the 2012 financial year.

With the impact of the recent air terminal extension on the company's financial performance highly evident and additional income to be generated from the new business centre, MIA is strongly positioned to continue to grow its business in the years ahead and take advantage of the eventual upturn in the tourism industry.

Rizzo, Farrugia & Co are Corporate Stockbrokers to Malta International Airport plc.

Rizzo, Farrugia & Co. (Stockbrokers) Ltd, RFC, is a member of the Malta Stock Exchange and licensed by the Malta Financial Services Authority. This report has been prepared in accordance with legal requirements. It has not been disclosed to the issuer/s herein mentioned before its publication. It is based on public information only and is published solely for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. The author and other relevant persons may not trade in the securities to which this report relates (other than executing unsolicited client orders) until such time as the recipients of this report have had a reasonable opportunity to act thereon. RFC, its directors, the author of this report, other employees or RFC on behalf of its clients have holdings in the securities herein mentioned and may at any time make purchases and/or sales in them as principal or agent. Stock markets are volatile and subject to fluctuations which cannot be reasonably foreseen. Past performance is not necessarily indicative of future results. Neither RFC nor any of its directors or employees accept any liability for any loss or damage arising out of the use of all or any part thereof and no representation or warranty is provided in respect of the reliability of the information contained in this report.

Mr Rizzo is director of Rizzo, Farrugia & Co. (Stockbrokers) Ltd.

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