Given the regular announcements published by Malta International Airport plc disclosing the monthly traffic results, it should not have surprised shareholders that the company registered another record financial performance during the first half of 2013.
The interim financial statements published last week showed a 14.1 per cent increase in pre-tax profits to €8 million.
This came about from the higher revenue generated from the initial rental contribution of the Sky Parks Business Centre and the 9.2 per cent increase in passenger traffic which was described as “phenomenal growth” by chief commercial officer Alan Borg during the presentation to the financial community convened the day after the results announcement.
Mr Borg explained that the higher passenger numbers were mainly driven by the increased seat capacity. The company benefited from higher airline capacity initially during the winter schedule but also as a result of the five new airlines that starting operating to Malta together with the additional routes by existing carriers for the summer schedule. The new airlines that started operating in recent months were WizzAir, Turkish Airlines, airBaltic, transavia.com and Monarch Airlines.
When reviewing the traffic results for the first half of the year, the chief commercial officer also explained that the 1 percentage point increase in the seat load factor (airline occupancy) to 75 per cent was surprising when taking into consideration the additional airline capacity. Mr Borg also compared MIA’s 9.2 per cent passenger growth to other European airports which rose by an average of 1.8 per cent during the first half of the year.
MIA’s chief financial officer Austin Calleja gave further details behind the figures presented in the interim financial statements. While revenue from the airport segment grew by 7.5 per cent to €17.6 million, the retail and property segment registered an improvement of 21 per cent to €7.4 million.
Mr Calleja indicated that this mainly reflects rental income from the Sky Parks Business Centre.
The announcement revealed that 90 per cent of the available space at SkyParks is now covered by lease agreements. However, the CFO explained that the revenue accounted for during the first six months of the year only reflects between 50 per cent to 65 per cent of the rentable area in view of the fact that tenants moved in gradually into the centre during the first half of the year.
As such, more meaningful revenue contributions will be evident in 2014 and in later years once all tenants are operating from Sky Parks.
An important financial indicator for analysts is the EBITDA margin which improved by 3 percentage points during the first half of the year to 45.6 per cent - the highest level ever recorded by the company at the interim stage, indicating the improved performance and efficiency following recent investments undertaken. The various initiatives carried out in recent years related to attracting new airlines, increasing the retail concession areas, reducing the number of employees as well as the Sky Parks investment.
All these measures contributed to a strong increase in profitability in recent years and the strategy of focusing on non-aviation income is especially evident in the first half of 2013 with such revenue now accounting for 29.5 per cent of overall income.
In fact, some investors may fail to realise that MIA’s pre-tax profits jumped by 71 per cent since 2009, equivalent to an average growth rate of 17 per cent per annum.
While the market may have anticipated another new record financial performance by the company, the extent of the passenger forecast upgrade may have caught some analysts by surprise.
Last week, MIA upgraded their 2013 passenger growth forecast from the initial level of 1.5 per cent announced in January to a level of 6.7 per cent. This would translate into a total of 3.89 million passenger movements and must also be seen in the light of the upward momentum in recent years with growth rates of 6.5 per cent in 2011 and a further 4.1 per cent in 2012.
During the meeting, MIA’s CEO Markus Klaushofer also spoke about the outlook for the company and the various initiatives being considered not only to sustain the recent record financial performance but also to seek further profitability growth in future years.
The CEO stated that the retail and property segment remains a very important sector for the company and as was done in past years, management is constantly seeking ways of improving the retail experience to further enhance revenue particularly related to the catering establishments. Mr Klaushofer also referred to the area around the Sky Parks Business Centre for further property investments. The CEO explained that discussions are still taking place with the Malta Environment and Planning Authority on the master plan presented by the company, however, MIA’s priority is to first achieve full occupancy on Sky Parks before taking a decision on a further property investment.
Mr Klaushofer also stressed that a large anchor tenant is important before embarking on such a development while acknowledging that airports worldwide are now moving away from the traditional terminals into business and service centres attracting visitor flow from locations in close proximity.
The CEO believes that the company was successful to date in this respect as evidenced by the success of the Sky Parks Business Centre which also helped improve footfall to other airport amenities.
Other cost efficiency measures are being considered to drive the company’s future financial performance. In recent years the company embarked on various early retirement schemes to seek a reduction in certain specific departments leading to overall savings in staff costs. The CEO explained that some consultants have been appointed to streamline certain business processes and this could result in lower staff requirements also in the future.
One of the natural ways of sustaining the strong financial performance is by ensuring continued strong capacity for airlines.
MIA’s chief commercial officer argued that the feedback received from the new airlines is positive and as a result the company’s executives believe that these carriers will also operate to Malta again next summer although no firm agreements have been concluded to date.
Moreover, the CEO explained that some markets remain underserved and he believes that specific promotions are required in the shoulder months to improve passenger numbers.
In addition to the MIA Incentive Scheme, Mr Klaushofer believes that there is strong potential for Malta in the winter months but this needs to be packaged with Valletta as the centre of attraction and further activities to entice people to visit the island.
Another initiative that is being considered is an investment in a photovoltaic farm.
For the purposes of the studies being carried out to look into the feasibility of this initiative, the very large tract of land leased to MIA has been split up into a ‘critical area’ and a ‘non-critical area’ due to the safety measures that must be taken into consideration.
Representations were made with the Malta Environment and Planning Authority who have so far approved the ‘non-critical area’, mainly encompassing the visitor and employee car parks which could be roofed and used as a sizeable photovoltaic farm.
However the CEO insisted that a number of studies are still ongoing and a decision in this respect is still some way off.
The net interim dividend declared by MIA last week of €0.03 per share was unchanged for the sixth consecutive year. This may have disappointed some investors as evidenced by the marginal decline in the share price despite the strong uplift to the passenger growth forecast.
With the company possibly adopting a more cautious attitude when declaring dividends in order to maintain higher reserves to meet future investment requirements, the board of directors of the company may need to also consider local investor requirements when debating the final dividend to be recommended to shareholders at next year’s annual general meeting.
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 from 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.
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Edward Rizzo is a director at Rizzo, Farrugia & Co. (Stockbrokers) Ltd.