iShares Asia 50 ETF Price & Performance (AIA)

Welcome and good morning to everyone joining the call. Am joined today by Chief Financial Officer, Stuart Reynolds, and we are pleased to be able to share the interim financial results from the first half FY twenty twenty five with you. During the period, demand for travel was solid and saw strong load factors, but growth has been more subdued than expected, impacted by capacity constraints and local economic conditions. The global market to attract tourists is currently highly competitive and that's making it more challenging for New Zealand to secure additional airline routes and services than it has been historically. About New Zealand and working to develop new airline partnerships and stimulate demand from foreign visitors. And we know the long term fundamentals of New Zealand as a top tourist destination are strong, but competition is tough for that available international airline capacity. As New Zealand's Gateway's strong clinic for our economy, and we know international air capacity has a direct cascade effect [indiscernible] [indiscernible] Now despite the current subdued market conditions Auckland as we look ahead, we do remain optimistic aeronautical construction program, and I will jump into that in a little more [indiscernible] go to Slide three.

The half year results reflect the continued growth in passengers and cargo, as well as the increasing momentum in our capital investment program. You can see passenger movements increased 2% in the prior period to $9,500,000 with domestic passengers largely flat at 4.3 and an increase in international of 4.1% to €5,200,000 including transits. First half revenue increased 13% to just under $500,000,000 reflecting the increase in both aero pricing and increased passengers, higher commercial income and higher interest driven from the proceeds from the $1,400,000,000 equity raised to support our investment program. Now if you exclude the interest income, revenue was up 11% to just over $484,000,000 Operating EBITDA lifted from the prior period by 13% to SEK349.6 million, resulting in a first half EBITDA fee margin of 9.9%. Underlying profit after tax is 148.1% up 2% with total reported profit after tax, including revaluations, up 58% to 187,300,000.0 An interim dividend of $0.0625 per share will be paid on the April 4. And total dividends declared for the period of $105,100,000 continued investment is making a difference to the customer experience. We are pleased to say the introduction of new technology, upgrades in food and beverage offerings and refreshed in new assets, which is reflected in an improving customer satisfaction measures and customer journey times.

Capital expenditure of just under $600,000,000 is made up of $41,000,000 on aeronautical programs, with significant progress on the terminal integration program alongside new remote aircraft stands, stormwater airfield pavement and fuel systems. And then there was £139,000,000 on capital across the commercial projects with the completion of the transport hub, Manoa Bay Auckland the IKEA property development. Next slide.

Really calling out, we are focused and have been for some time building for the long haul It's been a really busy six months of delivery and progress. Around creating capacity, increasing resilience and improving the customer experience. Turning to Slide five, please. Our focus remains squarely on our strategy to build a better future. Now we continue to be on track with our core aeronautical investment program, the integration or STITCH as we lovingly refer to it internally, is 72% complete and the new remote stands and stormwater work is almost 67% complete and are great examples of the progress made to enable the future integrated terminal and our focus on building in that resilience I referred to. Are focused on continuous improvement across our operational efficiencies, innovation and technology to enrich our customers' experience and working hard not only to make it the best experience for the future, but also And we're optimizing performance, and that is focused through developing a Fit for Purpose aviation precinct that drives value for New Zealand through tourism, trade and enterprise. Now onto Slide six. We are really pleased and proud to serve as a critical gateway and enabler of economic growth for New Zealand with $35,100,000,000 of economic output from international and domestic travel and tourism generated by our aviation connections each year and more than €26,000,000,000 in annual trade flowing through the airport, supported by the employment here at the airport precinct. [indiscernible] with the upgrade and expansion that we have underway by 02/1932, that economic value into the New Zealand system is expected to be GBP55 billion from travel and tourism.

And £41,000,000,000 in trade, which also supports the government's aspiration to double our country's exports over the next decade. Now while I've done the headliners, I'm going to hand over to Stuart to take us through the financial performance in more detail before coming back to you a little bit later.

Turning to Page eight of the presentation, we have once again summarized a number of key financial merit metrics for the period. As Carrie mentioned, the first six months of the '25 financial year has been a very busy period for the company. The recovery in aviation activity and the proceeds from the company's equity raise undertaken in September have flowed into improved financial metrics across a range of key financial measures. Higher tax movements particularly international, combined with improved performance across all of the commercial lines of business drove a 13% lift in revenue for the year to just under $500,000,000 As Carrie mentioned earlier, excluding interest income, revenue rose by 11% in the period. The increase in revenue flowed through to a lift in EBITDA up 13% to almost $350,000,000 in the period, with that EBITDA fee margin also up on FY '24 but dropping slightly on the strong 1H 'twenty four as the business incurred additional one off costs in the period, which I'll touch on shortly.

Net profit for the year was up 58% to £187,000,000 in part due to a £51,000,000 revaluation gain associated with the company's investment property portfolio and largely attributed to the industrial asset class. Underlying profit, that is profit excluding non cash movements associated with the likes of revaluations and derivatives in the period, rose only 2% to $148,000,000 as higher depreciation costs from the company's investment program, additional operating costs and higher effective tax charge impacted underlying profitability. Capital expenditure in the period rose to almost $600,000,000 as the business made significant headway into its investment program and with the funding of this coming from the combination of strong operating cash flows and proceeds from the company's sorry, recent equity raise.

Now turning to Page nine, where we've outlined a summary of the With increased aeronautical activity, improved trading in the commercial lines of business, revenue, as I mentioned, was up $60,000,000 in the period or 13% to just under $500,000,000 It was pleasing to see the growth in revenue flowed through to a higher EBITDA fee up to $350,000,000 in the period with the EBITDA fee margin up to This, the margin growth was constrained as operating costs rose at a rate above revenue growth. And I'll touch on some of the elements of these shortly. Looking below the line, Auckland Airport's total share of profit from associates in the period was slightly down on a profit of $4,700,000 in the prior year, to 3,500,000.0 reflecting resilient trading at both Queenstown Airport partially offset by an ongoing loss at the Pullman Hotel as that newly opened hotel continues to build its position in the Auckland market. Hotels typically take three years following opening to reach maturity, Whilst we're pleased with the product proposition, it is trading behind where we'd like it to be, reflecting the lack of events in the local market and tourism activity. Depreciation expense in the period increased 18% to 99,000,000 largely reflecting a revaluation of the building and services asset class at the full year last year New assets commissioned in the period and the accelerated depreciation for Demoche assets, whilst the net interest expense rose to $43,900,000 in the period, reflecting an increase in borrowing levels over 5.76%.

The tax expense has risen significantly, but also the impact of the recent change in the government's policy on depreciation for building structures with the effective tax rate in the period now up to 29.4% from 26.1% in the prior year. Reported profit for the year rose to $187,300,000 reflecting the improved trading and the revaluation gain I mentioned earlier from our investment [indiscernible] Excluding the benefits of revaluations of investment property, fixed asset write offs and fair value movements Auckland derivatives, the underlying profit in the period rose only a modest 2% to 148,000,000 Now turning the page to Page 10, where we set out a breakdown of revenue across the different lines of business. As can be seen on this page, the increase in aeronautical the second year of the new aeronautical charges associated with PSE4 have resulted in a total aeronautical revenue up 15% in the period to a combined $224,000,000 Total aircraft movements in the half were actually down 0.5% in the period to 79,000, reflecting the ongoing capacity constrained environment. The increase in international activity in the second year of higher aeronautical charges in PSC4, reflecting the up uplift investment that has occurred and the recovery of the impact to the price freeze in 2023 to support airlines during their recovery post COVID, drove a lift in airfield income up 12% to $84,500,000 in the dollars in the period, including $3,500,000 of aircraft parking charges.

Despite the reduction in aircraft movements in the half, passenger movements rose 2% in the period to 9,500,000.0 with international passenger movements making up virtually all of this increase domestic activity remained flat. The significant rise in international travelers combined with the uplift in aeronautical drove the passenger service charging come increasing 17% to a chut changer touch under, sorry, dollars 140,000,000 in the period. This increase in international activity also was a key driver to improve performance across our commercial lines of business. With retail and car parking income up 46% respectively. Retail income rose 4% in the period to $94,000,000 as the increase in international travelers combined with improvements in the retail offering in the international terminal and promotional activity resulting in increased shopping engagement during the year. Improvements were seen in retail performance across a number of our categories in the terminal, including duty free, specialty and destination. These resulted in a slight lift in PSR and a 2% lift in income per passenger to $10.16 for the period. Notwithstanding this, we saw weakness in some of the luxury segments as consumer patterns changed in the period reflecting the current economic climate. In car parking, following the opening of Park And Ride South in June, and the transport hub later or sorry, late in the the first half of the year, the number of spaces available the public has increased by 58%.

With the transport hub added that much needed approximate covered parking right next to the international terminal, and we're now seeing the migration of people to this new facility from the more remote parks where they've been for the last couple of years. As we grow into the step change in capacity, ARPS decreased by 20% on the prior period and paying exits were only up 2% on the prior period with the growth in total exits moderated by weakness seen in our domestic parking business. The reduction in the domestic business travel continued to weigh on demand for domestic parking compared with our ex Domestic exits were down 7% on the prior period reflecting this weakness in domestic business travel, but we also saw a shift in consumer behavior in parking becoming more price conscious in the period with exits up 95% at a more remote price related park and ride facilities. Property and other rental income from investment property rose by $11,000,000 in the period or 13%, driven by a combination of newly completed developments in the year, which contributed $4,200,000 alongside the rental growth from the existing portfolio. And finally, Auckland Airport booked a $4,000,000 of income in the year associated with insurance proceeds for the January 23 flooding event and almost $16,000,000 in interest income as a result of the equity raise that was undertaken during the period.

Now turning to Page 11, Reflecting on the increase in both aviation activity and also commercial and constructed activity in the period, operating expenses rose 15% in the six months to 150,000,000 as the airport experienced continued cost pressures across a number of categories, whilst also investing in the airport precinct and enhancing the traveler experience. Staff costs increased by $6,000,000 or 6% in the period as employees at Auckland Airport rose 14% to $6.83 Auckland at December. The increase in staff costs has been undertaken to accommodate the ongoing recovery in aviation activity in resourcing to manage the airport operations during the ongoing investment program as well as operate some of the new commercial activities that are commenced in the period. [indiscernible] Asset management, maintenance and airport operation expenses increased by just over $13,000,000 or 26% in the period. Similarly reflecting a scaling up of activity based to support baggage handling, parking, cleaning Auckland lounge operations as well as a number of one off items including the transition to a new provider of our sourced baggage services, as well as cost to manage the opening of Manawa Bay, the transport hub. Rates and insurance expenses increased by $3,000,000 or 18% in the period, reflecting higher council rates and also insurance costs associated with the increase in the asset base of the business.

Carrie will touch on this shortly, but marketing and promotional activity increased significantly in the period as well as Auckland Airport continued to stimulate the markets its operates in, including supporting airlines connections into Auckland Auckland, opening of the transport hub in Manawa Bay, which despite the tough retail environment is trading in line with our expectations. Other expenses increased by a touch under $4,000,000 reflecting a non recurring SaaS charge that was incurred as part of the upgrade of several critical key aeronautical systems that operate the airport. Last year, total operating costs rose £130,000,000 in 1H24 to £150,000,000 in the second half the year. Whilst costs in the first half were in line FY 2024 at circa $150,000,000 We Recognizing the ongoing great focus of the team on effective cost management and reducing the one off costs that have occurred during the first half of the year that I've mentioned earlier. Expect costs in the second half of the year to drop on that scene in the first half. As mentioned earlier, depreciation rose almost $15,000,000 or $8 in the period, reflecting new assets commissioned, the full year effective assets commissioned in prior years and the increase in the book value of assets as a result of the revaluation of building and services.

At June. In addition, we incurred accelerated depreciation depreciation of $2,500,000 during the period associated with the reduction in use for life of assets that were demolished due to the need to commission new assets. Finally, gross interest expense rose in the period to almost $75,000,000 an increase of $17,500,000 or 31% on the prior period reflecting the funding of the airport's investment program and the significant ramp up in debt over the previous twelve months. Partially offset by the lower average cost of funding I touched on earlier. The increased capital investment drove an increase in capitalized interest, rose to $30,700,000 in the period and this compared to only 24,000,000 the equivalent period last year. As a result, net interest expense for the six months was just a touch under $44,000,000 up $10,800,000 on the prior period. [indiscernible] Turning to Page 12, where we've outlined a bridge in the underlying profit between the 1H24 and what we've gone through in 1H25. As you can see on the chart, the increase in aeronautical activity in the period together with the part period revenue contributions from Manawa Bay and the Transport Hub helped drive an increase in underlying performance in the business.

This improvement was partially offset by ongoing cost pressures seen across the business and additional operating expenses to support the increased activity. As well as increased depression on depreciation on the asset base. As mentioned at the full year results, the increase in the effective tax rate in the first half of the year reflecting the change in government policy on depreciation has resulted in an increase in depreciation And this combined with the cost pressures that we talked about earlier has resulted in a modest 2% lift in underlying profit. As we look to the second half of the year, we will see the benefit from a full six months' worth of revenue from the recent commercial investments [indiscernible] lower operating expenses. [indiscernible] Now turning to Page 13, the first half of twenty twenty five was another pivotal period in the company's investment program. With, as Carrie mentioned, a touch under £600,000,000 of capital expenditure incurred spanning right across precinct in both the aeronautical and commercial tools. This investment occurred right across the precinct, as I mentioned, with the majority of the spend on key aeronautical upgrades including terminal integration, airfield works, and the substantial expansion going on to the North Of Pier B. A series of related infrastructure projects including utilities, roading and important digital and system upgrades and complementing this the airport continued to invest across a range of commercial projects which are completed in the period.

Carrie will touch on some of these shortly. Now turning to Page 14, As outlined on the page, the increase in error in order to be alongside the commercial growth drove an improvement in operating cash flows, up 19% to a touch over $310,000,000 As can be seen from the chart, the significant investment in infrastructure Auckland the new commercial lines of business totaling almost $600,000,000 in the period was funded in part by this uplift in operating cash flow alongside the proceeds from the equity raise that we also used to partially pay down some of the debt. Finally, before I hand back to Carrie, on Page 15, we outline our credit metrics. On this page, you will see that despite the significant CapEx expenditure that was incurred in the period, reflecting the capital management initiatives the company has undertaken Auckland Airport maintains a strong liquidity position and robust credit metrics at the half year. Total drawn debt at thirty one December amounts to circa 2,500,000,000.0, with undrawn bank facility headroom of $625,000,000 and cash in the bank of $789,000,000 at this date. Setting the balance sheet up well for the elevated capital expenditure over the coming years. At thirty one December, Auckland Airport's key credit metrics remained strong, with its FFO interest cover and FFO to net debt on a spot basis remaining well above their respective tests of 2.5 times and 11% respectively.

Auckland Airport has declared an interim dividend of $6.02 $5 per share down on the $6.75 per share paid in the equivalent period last year reflecting the 14% increase in shares following the September 24 capital raise. This dividend declared equates to a payout ratio of roughly 71% retains the company's capital settings paying out at the bottom of its current dividend policy range. Addition, Auckland Airport is turning on its dividend reinvestment plan for the half year and will offer those shares at a 2.5% discount consistent with what we've done previously. Now with that, I'll hand back to Carrie who will take us through how we're building a better future. Excellent. Thank you, Stuart. And I am on Slide 17. I think what's become apparent over the last year is New Zealand's tourism and the rate of that. It is now at a point that it is lagging international peers with growth softer than expected, particularly for inbound visitors. 'twenty five impacted by capacity constraints and other factors such as Air New Zealand's fleet issues and the challenging local economic conditions. Now international air capacity is still sitting at 91% of 2019 levels, and that is in line with last year.

Outbound tourism by Kiwis, however, has almost fully recovered.

But we are seeing inbound tourism still seeing at 84%, and Australia is one of the key drivers of that shortfall. Now despite the subdued growth in seat capacity overall, airlines are benefiting from stronger load factors, and you are seeing that both internationally and domestically. Internationally, it was positive to see the load factors strengthen on Auckland China routes to 81%. As you might recall, their borders opened later, so very good to see that starting to recover. Now the key areas of focus remain on growing supply, stimulating demand, removing friction Auckland ensuring ensuring the right infrastructure is in place at the right time to deliver growth. As you might recall, each daily widebody flight to New Zealand delivers annual tourism spend of $150,000,000 and $500,000,000 in high value freight. Moving to Slide 18. When we look at international passenger movements in the first half, as we've said, those are sitting 89% of 2019 with international passenger growth primarily driven out of Asia. In the period, there were 26 airlines operating to 42 airlines operating airlines. However, comparatively, we are seeing that pace of growth of acceleration that I was just referring to little bit behind. If we look and take Australian Auckland as just a benchmark example, airline seat capacity is now exceeding twenty nineteen levels in a number of the ports.

And a key factor driving this is that we are seeing Australian travelers looking beyond New Zealand and choosing other destinations, particularly seeing up the list of preferred locations. Certainly welcome the government's commitment to boosting international tourism including the new campaign to encourage visitation from Australia that was announced earlier this week. Slide 19, It was a similar story in the domestic market. Capacity was flat at 88% during the first half of FY 'twenty five, constrained by New Zealand's fleet issues Auckland again that local economic environment And we know that Air New Zealand is facing difficult fleet challenges, which is constraining their ability to grow. It's a tough environment for them at the moment Auckland we certainly see that. I think the question or the challenge New Zealand has is that there are now 1,500,000 fewer seats flying per year in the domestic network versus 2019, that's equivalent to 29,000 fewer seats per week and you're hearing regions talk about that feeling the pain. And as we step back to say, well, if New Zealand Inc. Is looking to grow tourism and stimulate tourism, also need to ensure that those tourists as they come into Auckland have access to schedules and capacity to get out to those regions.

Now with the capacity down, flights are very full with an average load factor of 85% on domestic flights, and that is meaning higher airfares. Slide 20. We are investing in driving efficiency and improvements across the precinct and the customer journey. Travelers are already experiencing tangible improvements in their travel experience. Now this extends from the transport hub opening and the to replacing traditional check-in counters with self-service kiosks and automated bag drops, to the introduction of technology and digitization across key platforms and working with all airport partners to optimize the ecosystem that we operate in. Delivering infrastructure improvements in a 20 fourseven airport highly complex, and our focus is on making travel journeys as seamless as possible throughout. I'm certainly very appreciative of the patients of both travelers and our airport partners as we undertake construction in a live operating environment. Now we still have more improvements to deliver to our targeted experience, both for today and in the future, and that is why our airport upgrade is just so important. Slide 21. Now we know we've stated before as New Zealand's primary gateway is critical that we do continue to invest in the infrastructure development program continues to make very good from transport and loading to enabling works and now construction for the integrated jet terminal and upgrades to the airfield stormwater systems and we are tracking to plan.

Moving to Slide 22, the terminal integration program is gaining momentum. We've reached some really significant milestones in the past couple of weeks with the 21 meter high structural steel columns going into place as part of the vertical construction As that gets underway, terminal integration project is now 31% complete with more than 1,000 people currently working on the project, and it would be one of the biggest private infrastructure investments underway in Auckland. New integrated jet terminal is the most significant portion the infrastructure program, but by no means is it the only. There's a very interconnected program of work across terminals, transport and airfield underway. On Slide 23, the 250,000 square meter airfield expansion is on track to deliver important capacity and resilience. That airfield expansion alongside major stormwater improvements is expected to be cleared completed in the second half of this calendar year. Across the airfield expansion, there's more than 3.5 kilometers of stormwater pipe going into the ground with around half of those being 1,800 meters in diameter. That stormwater feeds into a coupled wetland biofilter system, the first treatment pond of its type in scale in New Zealand, which ensures water flowing into the Monaco is treated to remove any contaminants.

Moving to Slide 24. Now in retail, Stuart did touch on these. Certainly, the increase in passenger numbers along with new store concessions and the improved performance duty free retail, and single operator have all contributed to a positive result for the half year period. I won't run through the financial again as Stuart has already done that, but I am sure there are a few questions around duty free It is a key component of our retail strategy. And following the completion of the full retender that is underway, we remain on track for announcement on the successful operator in the second half of this financial year. Slide 25. The opening of Manoa Bay is a new premium outlet shopping center offers something new and different to the New Zealand market. Now airport outlet centers themselves are fairly common and successful overseas. Manawa Bay opened in September and is now home to 109 retail tenancies. With a weighted average lease term of just under five years at four point eight years Auckland includes 20 new stores that are first in New Zealand and new entrants to the local market, which is something that we are incredibly proud of. The shopping center has created employment for more than 500 people across a range of retail and 75,000 people who engage with the airport every single day, including airport workers and the Auckland community.

Slide 26. If we're looking from a car park perspective and the capacity, we did see a step change with both the capacity and the customer experience with the opening of the transport hub and park and Ride South. Again, I won't repeat Stuart's summary around the revenue and what we've seen in that. You'll see that in the presentation, but we were really pleased alongside that to deliver key transport projects that enable smoother journeys and a net 4,200 additional car parking spaces across the precinct. Our new Park And Ride South facility opened and has created easier travel connections for traffic from the South They actually make up 40% of all precinct traffic, so an important opening up of capacity and access. The new facility offers convenient parking options with over 3,000 spaces and easy connections to the terminal via bus services and all of those buses completion of the transport hub during the half year period delivered improvements in parking options for travelers returning car parking to the front door of the international terminal and having a new pickup and drop off area that's undercover and protected from the weather. And also saw the introduction of a new car park XS solution with full license plate recognition across international parking facilities making for a much smoother customer journey.

On Slide 27, we have seen the investment property rental growth momentum continue. And that has been through income growth and diversification. Which really reinforces the key role that the airport plays as a trade hub for New Zealand. Recent property developments include the construction of just over 49 Auckland a half hundred square meters of new warehousing, one being IKEA that is now completed Auckland the other being DHL, which is underway at Landing Business Park. Rental income of $83,400,000 for the dollars for the period and saw an increase of 3.9% in the rent roll in the period to $160,800,000 off the back of growth in the existing portfolio and the Manoa Bay leasing. Now the investment property portfolio value is now sitting at £3,300,000,000 and occupancy rate remain strong at 99%. Hotels across all kind of seen softer occupancy to [indiscernible] sitting at 78% compared to 91% in the prior year, and that excludes the Polman in those numbers. Slide 28. I guess stepping back and across it all, we remain committed to our role in tackling climate change and building a resilient future We continue to progress our scope one and two decarbonization pathway. To achieve a 90% reduction against our 2019 baseline by 02/1930 and so far have achieved 25% reduction. 1.2 megawatt solar array that is now operational and reduces the airport's energy needs, and we are building additional climate resilience into our infrastructure with the airfield expansion currently underway, including the major stormwater upgrade the western of the airport that I mentioned earlier.

And this is designed to manage any future extreme rainfall deluges that may come. And finally, in this space, we are focused on reducing waste and have several initiatives [indiscernible] it into the design of the new integrated domestic jet terminal and working with MPI or biosecurity Auckland improving the way that waste from relevant flights airline lounges and airside waste is managed. Separating low risk, clean recyclables and diverting these from biosecurity treatment. And disposal and landfill. Moving to Slide 29, Now Auckland Airport's aeronautical charges remain amongst some of the lowest in the region and average 4% to 6% of the overall cost [indiscernible] As you'll be aware, aeronautical returns are exposed to industry volatility And when you see that in the PSC4 forecast, which is showing lower passenger numbers particularly in domestic driven by airline capacity constraints and the weak domestic economy. And Stuart also touched on some of the costs that we've incurred incurred to improve the customer journey and mitigate disruption during the significant infrastructure program that's underway. Now the Commerce Commission continues to progress its review of price setting event four with the final review expected still to be released by the end of quarter one of this calendar year.

Might recall in its draft report in July, the commission's conclusion was that we had undergone extensive consultation with airlines on the capital plan and that the airports planned expenditure appeared reasonable and had significant rigor applied to it and benchmarked well internationally. Commission in that draft report also indicated that Auckland Airport is targeting a weighted average cost of capital that's higher than what it considers to be reasonable, in particular they shared a different perspective regarding how the effects of the pandemic should be accounted for. They did, however, recognize that there were legitimate reasons to reflect that risk of pandemics in our Auckland we had calculated ours with reference methodologies established by them. Following us setting those prices the Commerce Commission updated the WEC methodologies to reflect pandemic risk but adopted a different approach. Now we have subsequently provided further information to the commission about why we think the basis for our WEC is appropriate. However, if the final report continues to say our WACC is too high, we have said previously that we will adjust our pricing consistent with the approach we took in the previous pricing review. Now alongside this, an appeal is underway with the High Court for a merits review and the twenty twenty three IMs following a decision by the Commerce Commission.

Auckland Airports joined alongside other regulated airports and the New Zealand Airports Association in that appeal. And finally, on Slide 30, as we look ahead to the remainder of the financial year, we expect aeronautical and commercial activity to be resilient. But acknowledge that uncertainty remains around seat capacity, particularly domestically and New Zealand's subdued local economy in the short term. So reflecting this, we have narrowed the guidance of underlying profit after tax to between €290,000,000 and $320,000,000 reflecting the anticipated domestic passenger numbers of $8,400,000 and international passenger numbers of $10,500,000 With the ongoing significant investment across the airport precinct and continuing momentum that we have, we are reconfirming guidance on capital expenditure between $1,000,000,000 and $1,300,000,000 And as always, this guidance is subject to any material adverse events and other criteria As summarized on the slide that you will be looking at, But at this stage, let's open it up to any questions you might have.

Thank you.

Our first question comes from Andy Buehle with ForCit Bar. You may proceed.

Thanks, operator, and good morning, guys. A couple of questions from me. The first one around the capital plan. I recognize there's a lot of different projects going Auckland. And Carrie, you made the comment in your remarks there that you're tracking to plan. But keen to hear your thoughts as to where the program is versus what you anticipated at the time of pricing. And by that, I mean, both in terms of dollars spent and also what's in the ground. And I guess by that, I also infer what variances in cost inflation have you witnessed versus expectations?

Thanks, Andy, and good to hear from you. And I'll kick Auckland I'm sure Stuart will add because it was a multifaceted question, Andy. If I think if I start with talking about capital and how we're progressing against plan and where we thought we would be, there is certainly [indiscernible] but overs and unders, and I don't mean that to sound flippant. What I mean is we have elements that we've now we've been able to accelerate because of either timing or access. We know there's other elements that we've discovered things or re sequenced them because that suits the efficiency of the program. But overall, if we step back to say, well, what is it we wanted to be doing on the Enabling Works and what is it we want to be doing on transport hub, roading and otherwise. Those are tracking well. But I also acknowledge any there are and if you double click into it, there's some movements of that both forward and back which is not unusual for these types of program. In terms of timings and cost against that Stuart, have you got that? I don't have that in front of me. In terms of comparative of the pace of that.

Yes.

So if you go to page 29 of the presentation, Andy, we sort of outlined bit of a bridge in terms of our returns and we disclosed some of this material as part of the information disclosure last Auckland it's fair to say the overall program elements, as Carrie mentioned, some of them are moving within that program, but we still remain comfortable with the direction of travel and importantly the timing of some of the critical aspects to it. So things like the airfield expansion, that Carrie talked about, we will commission and I think it's sort of first quarter next financial year as opposed to things like I think originally in pricing, it was June when we originally had it. So it's slipping like a quarter. Notwithstanding that, we still remain comfortable around the costs of it. And so whilst we're getting some unders and overs each of the projects, overall, we're still comfortable with the direction of travel and the commissioning profile that we talked about with pricing.

Great. So kind of cost inflation basis, that's broadly on plan versus where we were at the time of pricing?

It's a constant challenge, Andy. Costs, I think, it will always be whilst we have it underway just to make sure that we keep the costs of the build under control. And with that, as the market environment changes and [indiscernible] our airline customers in the lower cost of the build. And so the overall inflation factors that we built in in terms of pricing at the time of PSC4, we're still comfortable with that, that we're remaining within that [indiscernible] around the duty free tender, I recognize you'll be down to the final phase and I assume final bids have come in. Can you give us any color as to what the outcome of that tender may mean financially for you?

Thanks. Andy, we're not in a position to do that yet. We are still going through with the shortlist and haven't kind of concluded those go around. So unfortunately, we're not in a position yet to comment on that, although I am very keen. We are targeting, as I said, we will get we will land on that and make an announcement In this last quarter, Great. And then in terms of when that concessionaire takes on the new contract, what's the specific timing of that? And I guess there could be some transition into that as well.

Yes. Certainly, we've been engaging in terms of kicking off in the new financial year. Is the targeted timeframe. But again, as we get into the final the pointy end of those elements, there will be considerations around transitions and anything else that may be required. But we're aiming for the new financial Great. Thanks, guys. Thanks, Hany.

Thank you. Our next question comes from Grant Lowe with Jarden. You may proceed. [indiscernible] Hi, Tim. You for the presentation. Just in terms of the OpEx side of things, it's a bit higher than I had in my numbers. Just wanted to sort of understand that a little bit. In terms of the one offs that you called out, there's a few with Marlborough Bay and Transport Hub, etcetera.

What was the sort of quantum of that in the first half? And secondly, like are there any sort of one offs that you would expect to see in the second half?

Yes. So in effect, becoming two offs or something, Grant. So look, go to your first question. The overall quantum, if you sort of including things like the SaaS costs, the marketing costs, some of the duplication associated with transition and baggage handlers, etcetera. And some of the investment that we've done in relation to the passenger journey you can say it's around $10,000,000 be a good number. And so as we look to the second half of that, it's fair to say I would anticipate there will always be things when we're building infrastructure that we will have to do that are out side of plan to deal with some of the disruptions or improve the passenger experience as they're interfacing with construction. So I would like to see that sort of rough $10,000,000 number come substantially down. But at where we sit today, I'm not aware of anything significant.

In the second half.

And I think if I could just add to that sorry, Grant, if I could just add to that, Stuart's done a great job of summarizing and that's a little bit of the element of kind of what we plan for and a laser focus on cost management on the one side of the ledger, on the other side of the ledger as we need to ensure We're undertaking open heart surgery with the patient awake. And so as as these things are interfacing, we are going to need to make the right decisions [indiscernible] the customer in that journey. And so we're conscious of that, but certainly very actively managed. [indiscernible] So we should expect to see maybe some low single digit millions figures per half during the construction hearing?

Sure.

Yes, I think it would be fair. There will always be if we want to call it known unknowns that will come up. [indiscernible] [indiscernible] just in terms of the depreciation side of things, so you called out accelerated depreciation of $2,500,000 I haven't got the numbers in front of you. I think that's down on [indiscernible] period. What's the sort of thinking go on the go forward for depreciation Yes. So in terms of the depreciation we're not anticipating there's any significant increase in depreciation charge associated with revaluations this year. But as we move into the second half, you should expect a sort of mid single digits increase in the second half of the of the year as you get a full period effect of what's being commissioned during the period flowing into depreciation, but also a reduction in some of the accelerated depreciation going forward.

So that will be a fairly small number on the go forward. Just in terms of the retail, and final question for me. Retail income per passenger, Can you just it is up on the first half. Last year, but it is down on the second half. So some softening. Can you just give us a bit more color on where we're seeing those pressure on, it's been great and income per passenger, whether that's New Zealanders versus foreigners. And could you give us a bit more color around the luxury that you sort of called out?

Yes. So, couple of areas I just call out, Grant, that sort of impacting that sort of net income per passenger. What we're seeing one, is I think a byproduct of where we are in the economic cycle. People are still looking to reward themselves when they travel and the halo effect is there. And the team and our retailers are doing a great job providing those products and services to the traveling public. But what we're seeing is that that customer behavior changing. So some of the more luxury end of our offering is effectively it's harder for the team. And also what we're seeing is some of the industry change that Auckland Airport is not immune to in areas like FX where you're moving to sort of digital wallets effectively, those sort of things are impacting sort of volumes. And so so as we've gone through the period, we've seen that acting as a sort of a bit of a headwind to the improvement in retail performance.

I think it would be fair to just call on that FX thing in particular Stuart that it's not a blip. As you talk about digitization, the view of kind of understanding the pressure digitalization as opposed to a six month bump in the road, so to speak.

Understood. Okay, thank you. That's very helpful. Thanks, Scott.

Thank you. Our next question comes from Wade Gardiner with Craig's Investment Partners. You may proceed.

Hi. A few questions from me.

First of all, at the retail, you said that the overall PSR was 0.3% for the same, but international was down 1.5%. So what does that imply for domestic given the weighting is more towards international.

Yes. So domestics had a good period. Effectively, what was seen as improved trading in the food and beverage reflecting some of the work that the team's done there with the retailers. We've seen improvements in some of the special Auckland as well. And so with that, offset what's happened in international.

Can you give a percentage of what that PSA was?

For the DTP? No, I wouldn't By the domestic?

Okay. So in terms of the retail revenue in the current contract, I mean, I know there's contract is coming to an end, but how leveraged is retail revenue to the PSA? I mean, relative to to say just trading on a mag, It's a lot more leverage than what it used to be. So you recall, obviously, we had Back when we last did a duty free tend of sort of pre COVID, airports, we're used to sort of essentially receiving quite high mags from retailers Auckland I think COVID has really changed the structure of that. So airports are taking on much more volume risk and with that, retailing risk in terms of the effectiveness of retail in terms of providing those right products and services to the traveling public. So a lot more sensitive Okay.

In the guidance that you've given for underlying earnings. How have you allocated the equity contribution relative to debt? In other words, what should we assume for the interest costs in that guidance?

I think you should assume going forward in relation [indiscernible] interest that the business will look to spend a lot more of that cash on hand and prioritize that rather than effectively drawing new debt. So the interest income should drop materially effectively in the second half albeit that will be offset by the full period effective of that interest income because in the first half obviously only had it for a couple of months. So you should see that interest income which was a sort of touch under £16,000,000 probably get closer towards 10 in that regard. And then offsetting that, you'll see that our interest expense also drop away in the second half. And so I think in the first half, our interest expense was much more so like $44,000,000 and that would be more closer to 30 Okay. In the calculation of the underlying, there's sort of $11,000,000 in tax at sort of abnormal, what does that relate to?

That's essentially the difference between sort of the tax paid that's gone through the tax expense and the way that it's reflected in the change in the depreciation policy. So part of it is also attributed to IP revalves as well. So there's a tax effect of that Okay. That's all for me. Thanks. Thanks, Ryan.

Thank you. Our next question comes from Suraj Nobani with Citigroup. You may proceed.

Thank you. Just Just one question, Kerry, for you. I think in your prepared remarks, you mentioned that you have been trying to get more airlines and air capacity back into New Zealand Given capacity does seem to be lagging versus other airports. Can you just touch on Auckland how you're going there? And I guess how do you see things evolving? On that [indiscernible] Yes, absolutely. Sorry. I mean, it's not an I should say it's not a new thing. Obviously, our business development team is has been and continues to be very active in the markets of building and curating a new route. It's not unusual. It can take five years. From where to go to get a new route started up. So there's kind of this constant cycle we have. So again, that development team Auckland at times myself will head out to for Kim meetings and engagements. And part of that is about showing the business case for New Zealand. And sharing with them everything from the number of residents, students, visitors over indirect routes. For example, if we're trying to get a direct route, to create that picture. Obviously, we've got good base cases in years gone by where we've introduced a direct point to point in the stimulatory effect of that that's therefore growing the market.

So a lot of engagement on that front. So again, we continually to head out to all of the regions both to continue to build the relationships with existing carriers on existing routes but also explore new routes, new airlines wherever possible. If your question is kind of leading towards, is there anything we can expect in the second half? That new capacity second half would be kind of lower expectation to evolving Auckland part of that is because it is interconnected with the broader challenge of fleet capacity constraints globally, coming out of Boeing and otherwise. And so our job when we know that there is the industry is generally a little bit fleet short is to get out there to try and bump ourselves up the list The positive thing we are hearing is the interest in New Zealand as a destination remains strong, but we sometimes get the playback going when we get our next deliveries of X, Y, Z, then we'll look at New Zealand Auckland. Our job is to try and get in there to say how do we bump ourselves up that priority list, so to speak. So we will continue working that both in the short, medium and long term.

Got it. And just one guess, related question there. We've seen a bit of activity in Australia from an airline perspective. We see Qatar Airways getting close to taking guess pottering up with the Virgin. Have you I don't know if you can talk to similar activity or in our likelihood of further routes opening up [indiscernible] As a result of that. Where I'm getting at is Obviously, Auckland Airport is undergoing a new pricing discussion with the Commerce Commission. Part of the reason where Oktun Airport is not able to make the returns can is because fleet capacity is not up to pre COVID levels.

So just trying to think of potential solutions there.

Yes, absolutely. And whilst you've got, yes, you're absolutely right, Virgin and Qatar, I think, is getting to the the final pieces on that. That feels like there's opportunity in Auckland we will certainly be exploring that with them. And our team looks at it from a number of fronts kind of going. One is sometimes with airlines, the adding capacity over Australia into New Zealand Auckland. And sometimes that's a starting point to then transition into direct. Clearly, our preference is direct because passengers preference is direct. But we think through those elements as well as a number of other engagements we're having with airlines. We will see international routes and frequency [indiscernible] So we're very optimistic on that front. The time frame, I think, is is the interesting question, particularly in the next six months. We're heading into low season and otherwise, but we are optimistic Auckland working very hard to try and secure some additional flying for next summer peak.

And thank you. And just one other one on the outlook for domestic passengers, not just next six months, but looking forward, into FY 'twenty six, I'm not asking for guidance in any way projections, but we've seen a rate cutting cycle in New Auckland. Would you say the how do you guys think about the outlook going forward, and the impact to domestic passengers?

Yes, absolutely. And as you say, it's whilst it's not guidance, our outlook, I guess, is current state and steady. And what I mean by that is in the domestic market, just market just by the way that it's structured, the lead really comes out of Air New Zealand and what they're saying and they've certainly indicated through some of the challenges they've got that There isn't huge amount of growth. So as I say, I'd probably if I was going to have to use a word, I would word steady. [indiscernible] Thank you. Thanks for that. Thank you.

Thank you. Our next question comes from Marcus Curley with UBS. You may proceed.

Good afternoon. Just a few from me. So could we just start with the domestic terminal timing? Like took some encouragement from the comments that things are on track. Would that include the of the domestic terminal. I just wanted to give us an update of you expect that to occur Yes, Marcus, 2029 is what we have talked about previously and that is still what we are aiming for and things are lining up to deliver to that. My caveat, Markus, is that's we've got four years of delivery and continuing to deliver as we have done in the last one to two years net capital program. But yes, at this point, we are on track as we've previously advised 2029 completion.

Is that calendar or FY [indiscernible] Secondly, you mentioned some of your remarks around the structural issues and foreign exchange. I just wondered if you can give us a little bit of color in terms of what the percentage of retail revenue segment represents these days.

Marcus, regrettably, no, because we then start talking about the arrangements with a very limited number of parties. We or one in some respects. So I can't in that regard.

Auckland You talked about starting in September. I just wondered if you could talk to what level of contribution you saw and what you're expecting for the second half? Obviously, I think that's probably why you're referring to full year or second half uplift in Commercial?

Yes, that's right, Marcus. So in the first half, we had sort of I wouldn't call it mid single digits, it's under that. But then as we move into the second half, you start to get that effectively that full period effect of it. So it doubles. And so you can add sort of anywhere from sort of $3,000,000 additional revenue in the second half.

Okay, great. And then just finally, if my calculations are right, feels like the dividend payout was sub-sixty million dollars in the first half relative to underlying earnings. Just wondered if you can comment around, A, is that sort of right? B, Yes, is the full year payout likely to be different or higher [indiscernible] in that first half dividend that we should be aware of?

The quick answer, Marcus, is no. We're still committed to a dividend policy of paying out underlying profit between 7090%. And so we'll just have to check check the numbers there. But obviously, the absolute dollars paid out [indiscernible] full period should should be closer towards the bottom end of that range. And so I'm being intrigued as to why it's in the 60s.

Okay.

Maybe it's my spreadsheet.

Thank you.

Next question comes from Olin Burrell with RBC. You may proceed. [indiscernible] Hey, good morning, guys. Let me just further to Marcus' question around that commissioning date around calendar twenty nine.

Just acknowledging the fact that the New Zealand construction market is relatively sub at the moment suggesting that you've probably got better access to materials and trades and contractors. Is there any opportunity to accelerate the build out of that domestic hub?

I love that line of questioning. Thank you. And that is an internal conversation we constantly look at that. I guess the element though is that it is we have more programs underway than just the integrated terminal. So there's the thing that always kind of makes it more challenging is that we have to look holistically across all of the interfaces from the integrated terminal to the roading. Obviously, we've now completed the transport hub, but there's lots of programs underway. And so the interface and not creating disruption that is untenable from a customer experience. And ensuring operational readiness. So if we could deliver it, we'd love Auckland it is constant challenge that we give ourselves internally. About efficiencies and resequencing to do exactly that. But at this point, the 2029 calendar year is the view of taking all of those things in with comprehensive planning that we believe is realistic across the entire portfolio of programs that Okay. And just I guess somewhat related is you've provided that reconfirm capital guidance of $1,000,000,000 to $1,300,000,000 for the group for the full year. Can you give us a sense of, I guess, what you're expecting for group CapEx into '26 and 2027?

Not at the stage, Stuart. I don't think we've landed that.

Not at this point. I think you can take a good steer from aeronautical pricing Auckland that will form the lion's share of essentially our CapEx or group CapEx as you called it for '26 and '27. As I mentioned, I think it might have been to Andy's comment that timing of some of those may move between a year or forward or back, but overall the envelope should stay the same. And then what we've tended to do is guide commercial CapEx of being roughly between $100,000,000 and $150,000,000 a So that's basically effectively non aero CapEx is?

Yes, that's right. So that's largely commercial property, a little bit of trans Sure. That's perfect.

Thank you. I would now like to turn the call back over to Kerry for any closing remarks.

Well, thank you. Thanks everyone for your time today. And probably the key outtake from today, there are some subdued market conditions in the short term that we know that we are navigating, but we remain optimistic Auckland to the long term future and are investing in our program deliver that and to deliver growth. So we look forward to connecting with many of you over the coming weeks of investor meetings, both here in New Zealand and Australia. And with that, have a great afternoon.