MIA’s ambitious investment programme

Financial Article 530 by Edward Rizzo - Mar 22, 2018

Malta International Airport plc published its 2017 financial statements on 21 February. However, the main highlight in recent weeks was the company’s announcement confirming that the Planning Authority approved the master plan for the further upgrading and redevelopment of MIA’s terminal infrastructure and the surrounding area.

The company is currently finishing off the latest terminal reconfiguration project which commenced during early 2017 and included a new La Valette VIP lounge with panoramic views on level 3, a new public observation deck, the construction of a mezzanine level to increase the floor space, the relocation of the central screening area with a doubling of the footprint and 8 additional check-in desks amongst others.

The ultimate aim of MIA is to continue transforming “the airport complex into an easily accessible business and leisure hub, in line with the international trend that is seeing airports move away from serving solely as passageways to the world”. In fact, MIA has now started referring to the ‘airport campus’ which should lead to a significant transformation of the company’s finances in the years ahead.

In view of the company’s long-term vision of transforming their sizeable land area into an ‘airport campus’, the new investment programme will commence with the construction of a multi-storey car park at a cost of €15 million creating an additional 1,396 parking spaces. This project is expected to commence during the last quarter of 2018.

In MIA’s company announcement issued on 22 February and also in the new section of its website dedicated to the upcoming investment programme, the company makes reference to a €100 million outlay during the next five years which will be executed in three major phases entailing: (i) the construction of three mixed-used commercial blocks including also a business hotel; (ii) the expansion/extension of the various existing terminal facilities; and (iii) the construction of a multi-storey car park.

MIA held its customary meeting with financial analysts last week during which it discussed the 2017 financial statements, the 2017 traffic statistics as well as the 2018 traffic and financial forecasts and naturally gave ample coverage to the masterplan.

MIA’s CEO Mr Alan Borg did not indicate when works on the construction of SkyParks II will commence. Following the success of the SkyParks Business Centre which opened in 2012 and indications that local as well as international businesses operating in Malta are seeking high-quality office facilities in alternative locations, the company has been eagerly awaiting the approval of the master plan to set in motion the development of SkyParks II. Mr Borg indicated that the construction of SkyParks II will also include a business hotel of between 80 to 100 rooms and both buildings will represent an investment of €40 million. MIA’s CEO also explained that this investment will create 21,000 sqm of office space for rent as well as 1,500 sqm of commercial space mainly in the form of showroom facilities on the ground floor of SkyParks II. This would represent a larger rentable area than the current 18,000 sqm SkyParks Business Centre, which has already been fully leased out for several years.

The various stages of the upcoming investment programme as part of the entire master plan also include an extension of the terminal onto the open-air car park apart from a further eventual lateral extension to both the departures and arrivals lounges for more check-in desks, gates as well as retail outlets. In this respect, MIA’s CEO explained that international designers have been engaged to perform works on the designs of these two new lateral extensions.

With reference to the extension of the terminal onto the car park, Mr Borg confirmed that this will create 14,000 sqm of rentable area for commercial activities as well as 3,000 sqm for terminal facilities. MIA’s website indicates an additional €40 million investment for the terminal expansion project.

The master plan also envisages the construction of an additional office complex branded SkyParks III. Mr Alan Borg explained last week that this development will create a further 11,500 sqm of office facilities and 800 sqm of commercial space.

During the meeting with financial analysts, the company also provided a detailed review of the traffic highlights during 2017 which as explained in my article on 25 January, was another remarkable year with the airport registering a growth of 17.5% in passenger movements to just over 6 million passengers. The other notable achievement in 2017 was that double-digit growth in passenger movements was registered in each month during 2017 and this led to a rise of 1 million passenger movements in only 1 year.

A review of the 2017 financial performance was also presented at last week’s meeting. MIA’s CFO Mr Karl Dandler highlighted how the strong rise in passenger traffic led to a 12.7% increase in revenue to a record of €82.4 million. More interesting to investors should be the 21.5% increase in the earnings before interest, tax, depreciation and amortization (EBITDA) to €48.6 million and especially the jump in the EBITDA margin to 59% compared to 54.7% achieved in the previous financial year. This is a noteworthy financial indicator especially when compared to the ratios of other airport operators across Europe. It may therefore have surprised many shareholders that the net profit ‘only’ increased by 15% to €24.2 million. The CFO explained that this was mainly due to the €2.8 million penalty incurred related to the voluntary early repayment of an €11 million 6% per annum fixed interest rate loan.

On 12 January, when MIA had published the 2017 traffic statistics it also announced its 2018 passenger forecast as well as the financial guidance for the current financial year to 31 December 2018. The airport operator had announced that it is projecting a growth in passenger movements of between 7% and 9% to yet another record figure of around 6.5 million passengers. This was based on the current winter schedule as well as the summer schedule that had been confirmed by then. It is not clear whether this also includes the additional routes being operated by Ryanair commencing in October 2018. On 8 March, Ryanair disclosed that it will be operating a further 8 routes to and from Malta in their next winter schedule which will lead to a total of 2.5 million passenger movements to Malta. This equates to an increase in 300,000 passenger movements from the 2.2 million registered in 2017. As such, Ryanair alone will therefore contribute to an increase in passenger volume of circa 14% by 2019.

MIA’s financial targets for 2018 show an expected revenue figure in excess of €87 million (+5.6% over the actual figure for 2017 of €82.4 million), EBITDA of more than €52 million (+7% over the actual figure in 2017 of €48.6 million) and net profit in excess of €28 million (+15.7% over the 2017 actual figure of €24.2 million). The stronger growth in profitability of 15.7% compared to the single-digit growth in revenue and EBITDA shows the benefits that will begin to accrue as from 2018 following the early repayment of an €11 million high interest rate loan in 2017 which led to a one-time penalty in 2017.

Despite the remarkable financial performance as well as the ambitious investment programme, the market seems to have been disappointed that the final net dividend was left unchanged at €0.07 per share given the very strong balance sheet of the company with overall debt of only €33 million and cash of €38.4 million. In fact, the share price trended lower in the aftermath of the financial results and dividend announcement on 21 February and has so far failed to regain the €5.00 level.

Investors and financial analysts must view the dividend policy in the light of the sizeable investment programme being undertaken over the next few years which could transform the financial model of the airport operator given the addition of circa 50,000 sqm of rentable area on completion of the master plan.

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