MIA is debt free

Article #549 by Edward Rizzo - Published Weekly

The interim reporting season commenced on 20 July with the publication of the financial results of Mapfre Middlesea plc followed by two other announcements last week from Plaza Centres plc and Malta International Airport plc. The series of company announcements will continue over the next four weeks since companies having a December financial year-end are obliged to publish their interim financial statements by the end of August.

Malta International Airport published its interim financial statements on 25 July and the following day the company also announced its revised passenger and financial projections for 2018.

It should not have come as a surprise that the airport operator achieved another record financial performance. The company publishes its traffic statistics on a monthly basis and given the double-digit growth in passenger movements achieved in each of the first six months of 2018, overall revenue improved accordingly.

MIA reported a 16.3% increase in passenger movements during the first six months of 2018 to nearly 3.07 million arising from a 17% increase in seat capacity as well as a 16.6% increase in aircraft movements. Despite the substantial increase in seat capacity and aircraft movements, the seat load factor remained broadly unchanged at just under 80%.

Interestingly, although Ryanair remained the largest airline operating to Malta with a total of 1.15 million passengers during the first six months (translating into a market share of 37.5%), AirMalta accounted for a larger part of the incremental passengers. During a press conference held last week, MIA reported that AirMalta accounted for an additional 170,000 passenger movements while Ryanair added 131,000 passenger movements.

The heightened traffic translated into overall revenue of €40.9 million, representing an increase of 11.5% over the first half of 2017. Earnings before interest, tax, depreciation and amortisation (EBITDA) climbed by 14.6% to €23.9 million and the EBITDA margin improved to 58.6% from 57% in the first half of 2017.

The major surprise in the financial statements was the repayment of all bank borrowings during the first half of 2018. Following the early repayment of an €11 million fixed interest rate loan during 2017 apart from incurring a sizeable one-time penalty, the financial statements as at 30 June 2018 revealed that the company used a large chunk of its idle cash balance to also pay-off all of its bank borrowings amounting to €33 million.

In previous articles, I had mentioned that MIA was virtually debt-free when setting off the high amount of cash against the outstanding loans. However, MIA is now in a position where it has no bank borrowings and a cash balance of €8.86 million as at 30 June 2018.

The repayment of all loans also helped boost the profitability of the company during the first half of the year. In fact, net finance costs declined to only €0.18 million compared to €0.52 million in the first six months of 2017 helping pre-tax profits climb by 18.3% to €20.2 million. The net profit during the first six months of just over €13 million also represents a growth of 18.3% over the net profit registered during the previous comparable six months of €11 million.

In addition to the publication of the interim financial statements, MIA also presented its revised traffic and financial forecast for 2018 and an update to its investment programme.

At the start of 2018, MIA had forecast a growth of between 7% to 9% in passenger numbers to 6.5 million resulting in projected revenues exceeding €87 million, EBITDA of over €52 million and a net profit of over €28 million.

However, following the 16.3% increase in passenger movements during the first six months of 2018, the company is now expecting passenger movements to grow by 13% to reach yet another record of 6.77 million. This represents an additional 270,000 passenger movements over the initial forecast at the start of the year. The new forecast reflects the confirmed summer schedule of 100 destinations as well as the confirmation of the upcoming winter schedule with a number of the summer routes being extended into winter as well as increased capacity on a number of other routes. During last week’s presentation, the CEO mentioned that with the current summer schedule, the incremental capacity amounts to 660,000 seats mainly from Ryanair (+145,000) and AirMalta (+120,000).

The improved passenger forecast also led the company to update its financial projections. MIA now anticipates that its total revenue will surpass €90 million, which would represent a growth of 9.3% compared to the previous record revenue of €82.4 million in 2017. Likewise, EBITDA is expected to exceed €53 million (+9.1% over the €48.6 million in 2017) and net profit is projected to amount to over €29 million (+20% over the €24.2 million in 2017).

During the press conference, the company’s CEO Mr Alan Borg also gave an update regarding the sizeable investment programme in the months and years ahead. Earlier this year, MIA obtained the approval from the Planning Authority of the master plan for the further upgrading and redevelopment of the terminal infrastructure and the surrounding area into an ‘airport campus’. In addition to the imminent investment of a new multi-storey car park with works commencing by the end of the year, the CEO also announced that the company will be undertaking a significant investment in a new apron (covering an area of circa 46,000 sqm) to cater for the growing demand by commercial airlines wishing to start or increase operations to Malta. The sizeable parcel of land lies between the old terminal building and the current terminal and was granted to the company through a parliamentary resolution which was passed a few weeks ago.

Mr Borg also noted that in view of the accelerated growth in passenger traffic, the aim is to commence the €40 million terminal extension by the end of 2019. Meanwhile, design works and other studies for the SkyParks II investment is also taking place ahead of seeking approval by the company’s board of directors in the months ahead.

While it may be surprising for shareholders that the company used most of the cash balances to repay all bank borrowings in recent months despite such an ambitious investment programme, MIA’s CEO explained last week that the company aims to fund most of its capital expenditure for core operations from internal cash flow. It is worth highlighting that in 2017, the net cash flow from operations amounted to €42.7 million while a further €16.3 million was generated during the first six months of 2018.

The CEO also explained that other investments such as the SkyParks II development (at an estimated cost of €40 million) will take place via debt funding.

The optimum method to fund a company’s investment programme is highly debatable and subjective. While many proponents believe that debt funding is a cheaper alternative rather than resorting to additional equity, it seems that MIA are generating sufficient cash to fund most of these investments directly without the need for either any debt or additional capital. While this may imply a static dividend payment in the years ahead in view of more immediate priorities, shareholders must also view this in the context of the expected transformation of the company’s financial model on completion of the master plan.

  Print This Page

The article contains public information only and is published solely for informational purposes. It should not be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. No representation or warranty, either expressed or implied, is provided in relation to the accuracy, completeness or reliability of the information contained herein, nor is it intended to be a complete statement or summary of the securities, markets or developments referred to in this article. Rizzo, Farrugia & Co. (Stockbrokers) Ltd (“Rizzo Farrugia”) is under no obligation to update or keep current the information contained herein. Since the buying and selling of securities by any person is dependent on that person’s financial situation and an assessment of the suitability and appropriateness of the proposed transaction, no person should act upon any recommendation in this article without first obtaining investment advice. Rizzo Farrugia, its directors, the author of this article, other employees or clients may have or have had interests in the securities referred to herein and may at any time make purchases and/or sales in them as principal or agent. Furthermore, Rizzo Farrugia may have or have had a relationship with or may provide or has provided other services of a corporate nature to companies herein mentioned. Stock markets are volatile and subject to fluctuations which cannot be reasonably foreseen. Past performance is not necessarily indicative of future results. Foreign currency rates of exchange may adversely affect the value, price or income of any security mentioned in this article. Neither Rizzo Farrugia, nor any of its directors or employees accepts any liability for any loss or damage arising out of the use of all or any part of this article. Additional information can be made available upon request from Rizzo, Farrugia & Co. (Stockbrokers) Ltd., Airways House, Fourth Floor, High Street, Sliema SLM 1551. Telephone: +356 2258 3000; Email: info@rizzofarrugia.com; Website: www.rizzofarrugia.com © 2021 Rizzo, Farrugia & Co. (Stockbrokers) Ltd. All rights reserved. This article may not be reproduced or redistributed, in whole or in part, without the written permission of Rizzo Farrugia. Moreover, Rizzo Farrugia accepts no liability whatsoever for the actions of third parties in this respect.

This article was produced by Edward Rizzo, Director at Rizzo Farrugia, which is a company licensed to undertake investment services in Malta by the MFSA under the Investment Services Act, Cap. 370 of the Laws of Malta and a member of the Malta Stock Exchange. The company’s registered address is at Airways House, Fourth Floor, High Street, Sliema SLM 1551, Malta.