Border closure will continue to hit Auckland Airport hard, plus a big Kiwifruit grower defies labour shortages to raise profit

Auckland Airport not expecting quick return to normal

Auckland International Airport CEO Adrian Littlewood yesterday delivered a reality check for travel-loving kiwis, saying the border is likely to remain closed for some time.

Reporting a 63 percent drop in net profit, he predicted international travel was unlikely to recover to pre-Covid levels for at least three years, longer than both ratings agency Standard & Poor’s and the International Air Travel Association (IATA) had forecast.

The airport had taken a direct hit from the pandemic with international passenger movements – including transits – down 26 percent on the year while domestic passenger movements also fell by the same amount.

The company reported a net profit of $193.9 million for the year ended June, which included around 14 weeks of the border being closed, while underlying profit after tax was down 31 percent at $188.5 million. Revenue fell 23.7 percent to $567 million and pre-tax interest and depreciation earnings fell 53 percent to $260.4 million.

While Littlewood said he wasn’t expecting a recovery any time soon, he did expect domestic travel to return to normal “comfortably within two years” and is hopeful short-haul Tasman and Pacific Island travel will resume sometime next year. But long-haul travel to Europe and the US is unlikely for some time yet.

About the only bright spot in the company’s result was a lift in the airport’s property revenue which increased 2.2 percent to $88.5 million while the value of its property portfolio increased 17 percent to $2.04 billion.

Littlewood said the ongoing uncertainty meant the company had suspended its underlying earnings guidance for the 2021 financial year but will reassess this at its October annual meeting and again when its interim results are announced in February next year. Dividends had also been suspended while it operates with waivers over its lending covenants.

Auckland Airport shares closed up 0.9 percent at $6.45 as investors looked through the result in favour of the airport’s long-term monopoly status.

Unexpected windfall and increased provisions for SkyCity

It was a case of good news and bad news for SkyCity effectively cancelling each other out yesterday .

The company revised its earnings guidance saying that it was anticipating a better insurance payout from the international convention centre fire last year than previously expected, but this would be largely offset by an impairment charge on its Adelaide casino. The expected amount of the insurance payout wasn’t disclosed.

The impairment relates to a proposed $161 million provision to its A$283 million casino licence in Adelaide which had failed to reach its “long-term potential earnings”,  requiring a reduced earnings outlook, primarily due to the impact Covid-19 would have on the business in the medium term.

Normalised earnings are now expected to be roughly $200 million, at the upper end of the previous guidance range of $185 million to $205 million while normalised net profit after tax is projected to be approximately $66 million, also near the top of its earlier guidance.

SkyCity shares closed up 2.4 percent at $2.51.

Government’s business loan scheme given a reboot

Changes have been made to the government’s business finance guarantee scheme (BFGS) for banks to lend more under the scheme.

The original scheme was introduced in the wake of the pandemic to assist businesses by providing a lending facility where the government guaranteed banks would be repaid 80 percent of the funds advanced. However, to date just $150 million has been lent to 780 customers out of the $6.25 billion originally allocated.

As well as aiming the revised scheme at larger businesses, it can now also be used to refinance up to 20 percent of a borrower’s existing indebtedness. This would give banks greater security and offer their customers the lower interest rates available under the BFGS.

Finance Minister Grant Robertson accepted the scheme’s uptake had been well below expectations, but said changes needed to be made and the banks had agreed to the modifications. Extending what the loans can be used for, including capital investment, will mean banks will be able to use the scheme to help more viable businesses respond to the challenges they face as a result of Covid.

Other changes to the scheme include increasing the maximum loan limit from $500,000 to $5 million, extending the maximum term from three to five years and increasing the size of eligible firms from those with up to $80 million in annual revenue to up to $200 million.

The loans can also be used for a wider range of general business purposes, including capital investment, rather than just for liquidity and/or bridging finance.

Seeka reports a lift in interim earnings

Kiwifruit grower Seeka reported a 9 percent increase in first-half operating earnings yesterday despite the impact Covid-19 has had on the business.

Pre-tax, interest and depreciation earnings were $30.4 million for the six months to June 30, up from $27.9 million a year earlier.

The company said it had harvested 33.4 million trays from its New Zealand growers and another 600,000 trays from its Australian orchards during the period. Revenue rose 5 percent to $178.7 million for the kiwifruit harvest period.

Chief executive Michael Franks said the lockdown had resulted in a shortage of about 800 workers over the period, though the firm had managed to pick up staff from other industries to partially fill the shortfall.

Franks said Covid-19 had placed “significant pressure” and operational challenges on the NZ business in particular, arising from changes in the fruit maturity confirmation process and drought conditions, which had impacted on kiwifruit volumes.

On a positive note, the company reported a turnaround in the performance of its Australian business which had returned $1.9 million in ebitda to June, from a comparable loss of $151,000 in 2019. This had contributed to a 55 percent improvement in net profits to $18.4 million from $11.9 million for the comparable 2019 period, including a one-off tax benefit of $5.6 million.

The company forecast a net profit range of $9 million to $12 million for the full year, based on the continued impacts of Covid and lower Hayward kiwifruit volumes.

Seeka declared a dividend of 10 cents per share. Its shares closed at $3.95 up 0.5 percent but are down 21 percent since August last year.

Qantas books record loss, no international flights for next 12 months

Qantas reported a A$2.7 billion loss for the year ended June, and a 91% drop in profit from the prior year. The airline also warned it is “unlikely” to resume international flights before July 2021, as it continues to suffer heavy losses due to the coronavirus pandemic.

The company said revenues had plunged by A$4 billion in the second half of the financial year described by CEO Alan Joyce as the “toughest set of conditions the national carrier had faced in its 100 years of operation.”

“We’ve had to make some very tough decisions in the past few months to guarantee our future. At least 6,000 of our people will leave the business through no fault of their own, and thousands more will be stood down for a long time,” Joyce said. “Recovery will take time and it will be choppy.”

Qantas shares closed unchanged at A$3.76 though they have rallied more than 20 percent in the past two weeks.

Air New Zealand will report its full year result on August 27.

Apple briefly achieves a market cap of US$2 trillion

Apple has achieved many firsts in its lifetime, though few would have ever predicted it would become the first US company to achieve a market capitalisation of US$2 trillion.

The iPhone maker’s stock briefly hit the $2 trillion mark before dipping back slightly to finish the day flat. The stock has surged almost 60 percent this year to an all-time high at nearly US$465 a share.

Apple is about to split its stock four for one at the end of the month, which will cut the price of a single share to about US$116. The value of Apple remains the same since the company will simply have more shares trading at a lower price.

Apple reached the US$2 trillion mark just over two years after passing the US$1 trillion level. It took just five months for the stock to more than double after sinking in March, with the rest of the market. However Apple, like many other tech stocks, has continued to push higher, seemingly immune from the impact of Covid-19

Apple isn’t the first company in the world to be valued that high. Saudi Aramco topped that mark in December when it went public but plunging oil prices since March have cut its valuation.

Andrew Patterson is Newsroom's Markets Editor and has worked for decades as a financial journalist, radio presenter and editor with Australia's ABC, Radio Live and NBR.

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