AUKNY (AUKNY) Q4 2026 Earnings Report, Transcript and Summary

Good day, and thank you for standing by. Welcome to Auckland Airport Annual Results 2026. [Operator Instructions] Please be advised that today's conference call is being recorded. I would now like to hand the conference over to your first speaker today, Carrie Hurihanganui, CEO. Please go ahead.

[Foreign Language] Welcome, and good morning. With me today is our Chief Financial Officer, Stewart Reynolds, and we are pleased to be able to share financial results for the 12 months 'til 30 June '26. Overall, the year is one of steady performance amid global headwinds. We have seen resilient demand for travel to and from New Zealand as far as from an underlying perspective. And we did see strong momentum in key international and domestic markets in the first half, but certainly proved to be a more challenging second half due to increasing geopolitical instability, most notably the events in the Middle East. The year did see a modest uplift in overall passenger numbers. It saw new capacity announced and/or commenced, continued strength in both operational and commercial performance alongside growing customer satisfaction and tangible progress against our sustainability objectives. As we navigated through these challenges, we have remained focused on disciplined cost management and delivering the resilient and fit-for-purpose gateway that New Zealand needs with $1 billion of assets commissioned in the year and strong momentum continuing on our infrastructure program. We have currently more than 1,500 people working on sites across the precinct, and that number is set to continue to grow as we move into a peak activity period in the year ahead. We're going to get straight into it as plenty to cover today. So if we could jump to Slide 4, I'd just like to touch on some of the key highlights of progress in the year. Total passenger movements were up almost 2% on the prior year to just over 19 million, and cargo movements were up 3%. In the year, we also demonstrated that we can deliver shorter journey times more consistently with ongoing investment in infrastructure and the strong collaboration that continues with border agencies, aviation security, airlines and ground handlers, resulting in improved processing times across all measures. Most notably for us, the international and domestic departure median processing times improved 15.6% and 7%, respectively, in the prior -- versus the prior comparable period. But if we step back and look at FY '23 to FY '26, the international departure median processing times have reduced by a total of 27%, demonstrating the ongoing focus and effort that has gone into that area. If we turn and look at international arrivals, the median time from entering customs to exiting the arrivals hall improved year-on-year 2%. But again, if you look at that '23 to '26 period, that improved by 47%. Alongside this, customer satisfaction, it's been pleasing to see, has continued to improve across both the international and domestic terminals, reaching 83.5% satisfaction for the year. So overall, we're pleased with these strong outcomes given the scale of change and activity underway across the airport ecosystem. If we move to Slide 5, a couple of other call-outs. Commercial income is up 2% to $442 million. Now that's primarily driven by car park and rental income, up 9% and 4%, respectively, and retail income down 4%. Now we'll come back to the details sitting behind this a little later in the presentation when Stewart will cover those. Infrastructure delivery continues to transform the precinct upgrades across the 400,000 square meters of airfield, terminals, and transport infrastructure. I mentioned earlier the $1 billion of assets commissioned in the year and the terminal integration is now in its peak phase and over 53% complete as at 30 June in regards to spend, and we saw $700 million of CapEx in the financial year on that particular program. We've also made tangible progress against our sustainability and community objectives, and that includes a 75% reduction in our Scope 1 and 2 emissions versus our 2019 baseline. We had an upgrade to our commercial air conditioning systems, resulting in an expected reduction of natural gas use for our heating and cooling by about 40%. We generated 12% of electricity needs from on-precinct solar, and we celebrated 10 years of the Ara Jobs and Skills Hub supporting more than 1,400 people into employment and more than 1,700 youth to access training. Moving to Slide 6. Delivery momentum is probably what I would call out here, the infrastructure program, key assets that we delivered in the year were upgrades to stormwater systems, the 250,000 square meter Northern remote stands, the connection of what we refer to as the stitch between the international terminal and new integrated domestic jet terminal, the temporary check-in pavilion, and that enables the in-terminal check-in transformation to progress and the cargo precinct. And of course, there are many others, but those are some of the large ones that were in year. If we move to Slide 7, I am just going to touch on headline financial results as Stewart is going to take you to a deep dive to those shortly. But the year had 2 distinct halves with the first half seeing increased capacity, improved visa settings, and a favorable exchange rate for inbound travelers that resulted in positive tourism recovery for international. However, the second half or probably more specifically the last 4 months of the second half was impacted by what were significant externalities with the Middle East conflict and fuel price spikes, resulting in measured capacity consolidation by airlines alongside a growing caution in consumer sentiment. Full year revenue increased 3% with discipline on cost management seeing operating expense growth held at 3% during an increased activity period, which also included increased disruption across the precinct. Operating EBITDAFI of $724 million was up 3% on the prior year and net underlying profit after tax was $309 million, down 0.5% on the prior period. Capital expenditure momentum continued in line with the prior couple of years at just under $1.07 billion with $881 million in aeronautical and $187 million in non-aero CapEx. And this is the third consecutive year of $1 billion-plus capital expenditure. If we look ahead, we are seeing airline capacity returning, including Air New Zealand indicating that its fleet is largely now back online and the Northern Winter '26 slot filings signaling that airlines continue to have a positive outlook on New Zealand as a destination. So I'll call the highlights to a pause there, and I'm going to hand over to you, Stewart, now to take us through the detail on the financial performance before coming back to talk about how we're progressing against our strategy. So over to you, Stewart.

Thank you, Carrie, and good morning, everyone. Turning to Page 9 of the presentation. We have summarized our results in what has been, as Carrie mentioned, a big year for the Auckland Airport team. Let me take you through the numbers. Revenue for the year was $1,036 million, up 3% year-on-year, driven by increased aeronautical revenue and commercial activity across the precinct with the investment property portfolio and parking holding momentum despite softer markets. EBITDAFI came in at $724 million for the year, also up 3%. And excluding one-off items, normalized EBITDAFI was up a pleasingly 6% on the prior year. Reported profit after tax of $335 million is down 20% year-on-year, but that is largely a fair value story and underlying profit for the year of $309 million was essentially flat on the prior year. In the year, Auckland Airport invested, as Carrie mentioned, $1,068 million of capital and commissioned just over $1 billion of assets. So our regulatory asset base is growing meaningfully. FFO to net debt sits at 16.9% at 30 June, comfortably above our A- hurdle, and we've declared a final dividend of $0.0675 per share, taking the full year distribution to $0.1325, consistent with the prior year. Now turning to Slide 10, titled revenue growth, and this is where I'll step down the P&L. As I mentioned earlier, revenue in the year was up over $30 million or 3% off the back of higher aeronautical charges, an increase in passenger numbers in the year and stronger commercial income. This was the second year in which the company revenue exceeded $1 billion, and we were pleased to continue revenue growth on the prior year despite the slower final quarter as a result of the outbreak of conflict in the Middle East and the resulting reduction in aeronautical capacity deployed by some carriers connecting into Auckland. Operating costs were held to a 3% growth year-on-year, and that includes $5.9 million of fixed asset write-offs in the year, showing the success of our Match Fit cost program to continue to offset the additional investment in new digital capability and the cost of managing the disruption through the build. With higher revenue and lower cost growth than the prior year, EBITDAFI was up 3% to $724 million with a margin a smidgen under 70% for the year. Associates and joint ventures contributed just over $4.5 million in the year, with Queenstown Airport performing strongly in the year and the airport hotels trading well despite the fluctuating external environment. The hotel results were particularly pleasing and with the airport hotels continuing to outperform their Auckland peer set, they continue to demonstrate the merits of the airport proposition. The 2 lines to focus on below EBITDAFI, you'll see depreciation is up 20% in the year to just over $241 million. As assets commissioned in the prior year came into service as well as the additional depreciation from over $1 billion of assets commissioned in the year. And secondly, interest expense was broadly flat at $72.6 million with higher drawn debt offset by a lower cost of funding. The net result, as we mentioned earlier, was underlying profit of $309 million, down $1.4 million year-on-year. Now turning to Slide 11, revenue composition, where we've outlined where the 3% lift has come from. Firstly, starting with aeronautical. The revenue rose 6% year-on-year with airfield income up 9% to $186.7 million and the income from passenger service charges up 4%. The 6% lift in total aeronautical income reflects the combined effects of passenger growth in the year of nearly 2% plus the higher aeronautical charges in the year to fund the investment program. Aeronautical income also includes $11.9 million of aircraft parking income, offset by $8 million of landing charge discounts in the year. Retail income fell 4% in the year to $181 million, largely reflecting the staged duty-free redevelopment, the full year impact of revised duty-free concession rates and a continued shift in sales mix towards lower-margin categories. While it was pleasing to see sales, basket size and passenger spend rate all lift during the year, these gains were not sufficient to offset the combined impact of the redevelopment, concession rate changes and category mix shift. As we noted in the interim result, the duty-free refurbishment was expected to create some short-term revenue disruption, and we are now more than halfway through that program. The works have reduced the footprint of the main departure store by around 30%, but customer metrics remain encouraging. As I mentioned, sales are up 5%, more than double the passenger growth and basket size has increased 8%, supported by the benefits of a single operator model, a broader range of SKUs and thus greater choice for travelers. In that context, against both the short-term disruption from the redevelopment and broader retail market conditions, this is a solid result. Car parking revenue was a standout in the year, up 9% to $79.2 million on the full year effect of the FY '26 capacity expansion in the prior year. A focus on revenue management and the continuation of a shift that we commented on at the interims of a movement towards parking more proximate to the terminals and staying longer. Investment property rental income grew 5% to $182 million, reflecting just over $7.6 million lift from the full year contribution of developments completed in the prior year with the balance of $1.7 million from rental growth in the year. In the second half of the year, I'm pleased to report that Auckland Airport concluded its insurance claim relating to the January '23 flood event, booking a further $9.5 million in the half. This final payment brings total proceeds related to the flood to just over $40.5 million and importantly, a conclusion on that matter. Another income line moving against us, you'll note from the page is interest income, down $9.2 million from $31.8 million in the prior year, and this largely reflects a reduction in cash balances in the year as the 2024 equity raise proceeds were deployed into the build, and I'll touch on the implications of this shortly. Turning the page to Page 12. Cost control was an area where we worked really hard in the year, with total operating expenses growing just over 3% to $311.4 million. This achievement was pleasing for the team given the result was well down on the headline cost growth of 8% we saw in the prior year and secondly occurred while activity across the precinct continued to increase. In the year, the company incurred costs of 5.2 -- sorry, $5.9 million associated with the write-off of assets no longer expected to deliver value to the business. And excluding these costs, normalized operating expenses in the year would have been $305.5 million. With headcount up 11% in the year to resource airport operations and secondly, the infrastructure team to deliver on our build, much of which is capitalized, it was pleasing to see staff costs in the year only up 3% to $88.3 million. Asset management, maintenance and operations grew 2% or $3.3 million on higher activity-based costs like baggage handling, busing and parking operations, partly offset by some significant savings arising from improved procurement in our property and transport businesses. Rates and insurance were up 11% year-on-year. But with insurance flat, this change year-on-year is really a reflection of higher council rating costs, which is in part driven by higher asset values from commissioning new developments. Some of this, you'll see is recovered from tenants, and you can see that in the income section of our P&L. Marketing and promotional costs fell materially in the year, down 26% after the prior year launches of Manawa Bay and the Transport Hub meant that the team could move into a more normalized run rate. Importantly, professional services and other discretionary costs were held to quite tight limits with the team spending very judiciously in this area. Notwithstanding the above, the largest change in expenses in the year was depreciation, which I mentioned earlier, reflects the additional assets commissioned in the year and the full year effect of those assets commissioned in the prior year. In particular, $18 million relates to assets commissioned in FY '25 and $24.7 million for assets commissioned in the current year. In addition, that figure also includes $9.3 million of assets that we accelerated the depreciation of in the year because of substantially shorter lives owing to the redevelopment program, most of these relating to the Airfield. Finally, gross interest expense was a touch under $130 million, 6% down on the prior year as the higher average debt levels was more than offset by a lower cost of funding in the year. Reflecting the significant commissioning of assets, capitalized interest fell by $8.8 million to $56.5 million in the year. Now turning to Slide 13, where we outlined an earnings bridge for EBITDAFI, which will assist readers in understanding the trajectory of the underlying business. In FY '25, reported EBITDAFI included what we consider as nonrecurring items such as impacts from the flood, SaaS costs and interest income. In FY '26, nonrecurring side, the business incurred fixed asset write-offs, as I mentioned, plus $3.5 million of financial support to regional carriers here in New Zealand. Normalizing for these, it's pleasing to see that the EBITDAFI on a normalized basis was up 6% year-on-year. Now turning to Slide 14. Auckland Airport, as Carrie mentioned, deployed over $1,068 million of capital in the year with the aeronautical program passing the midpoint in terms of spend. This is a pleasing full year outcome and reflects the expected lift in activity across the domestic terminal program in the second half, something that you'll recall we spoke about at the interims. Terminal integration was the largest single call on capital with $700 million spent in the year, a 38% increase on the prior year or $192 million, reflecting what is outlined on the slide here, activity across all main programs of work. Airfield spend of $133 million in the year, whilst down materially on the prior year, largely reflecting the completion of the Northern Stand development program, were expected to remain still slightly elevated, reflecting the significant pavement and lighting renewal activity going forward. Commercial property investment was $163 million in the year, including a recent land acquisition, which Carrie will touch on shortly. Turning to Slide 15. We've provided some new content for this year, outlining the key assets commissioned in the year and a preliminary estimate of what our closing regulatory asset base for FY '26 is. With over $1 billion of assets commissioned in the year, this lifts the estimated closing regulatory asset base to approximately $3 billion. The largest items contributing to this are outlined on the page. Whilst the actual commissioning continues to track below the original PSE4 price setting assumption, the gap seen in the prior year has reduced as the number of assets were commissioned and made available for our customers. Just a reminder to the readers of this slide that these figures are estimates only and the definitive numbers for FY '26 will be made available as part of our information disclosure in November. Now turning to Slide 16, balance sheet and funding. Our balance sheet remains well positioned to carry us through the peak of the investment program. Total debt at 30 June was $2.769 billion and was up 11% or just over $280 million on prior year as the last of the proceeds from the 2024 equity raise were deployed. With the proceeds now deployed, importantly, liquidity is materially stronger with committed undrawn bank facility increased to around $1.5 billion, up from the $355 million a year ago as Auckland Airport put in place a number of facilities to cater for this investment program. During the year, Auckland Airport also repaid $250 million of floating rate notes and completed 2 domestic issues, both of which were on terms we were very pleased with. So recognizing the proceeds of the equity raise are now deployed and the elevated investment phase is still 2 more years to run, we have planned further domestic and offshore issuance for the coming year. Now turning to Slide 17. We outlined the credit metrics, and you'll see from the material outlined on the page, we have a significant headroom in each of our metrics. Gearing at 19.7% is well below the 60% test and interest coverage is 10.12x against a 3x test. FFO to net debt on a spot basis is 16.9% at 30 June, down from the prior year figure that reflects the step-up in drawn debt through the stage of the build program, but remains importantly well clear of the 11% A- hurdle. Weighted average interest costs have come down to 5.15%, and we've increased the proportion of fixed borrowings to just over 80%, which has given us good protection given the current rate volatility. And finally, before I hand back to Carrie, turning to Slide 18, dividends. The Board, as I mentioned earlier, has declared a final dividend of $0.0675 per share, fully imputed for qualifying shareholders, which together with the interim takes the full year distribution to the same as the prior year. This distribution equates to a payout ratio of almost 73% and continues the company's capital settings of paying towards the bottom of its dividend policy range, albeit gradually lifting off the bottom. The dividend will be paid on the 2nd of October, and Auckland Airport will continue to offer a dividend reinvestment plan for this dividend payment. But reflecting the improved outlook for headroom in the business and importantly, the credit metrics, we've reduced the discount on the DRP to 2%. And with that, I'll now hand back to Carrie.

Thanks, Stewart. I'm on Slide 20 now, and for me on this slide really is that New Zealand has -- continues to hold its appeal as an attractive tourism destination. You can see inbound tourism has almost fully recovered to 99%, up 7 percentage points from the prior comparable period. Outbound tourism fully recovered to pre-pandemic levels, although a consistent theme through today's discussion did slow a little bit in that second half as we saw geopolitical events unfold. Moving to Slide 21. At Auckland Airport, additional seat capacity in the financial year helped boost tourism recovery and create more choice for our travelers. Airlines have continued to identify opportunities in the New Zealand market and highlights really for us include a 4% uplift in the Trans-Tasman capacity over FY '26. Chinese visitation rebounded strongly, up 11% year-on-year, and that was helped by improved visa settings and growing airline capacity, including the launch last December of the Shanghai-Auckland-Buenos Aires service by China Eastern. We continue to work hard to connect international airlines to Auckland, supporting them to grow capacity and opportunities for tourism, travel and trade, including delivering more choice for our customers. And the pipeline that I have talked about in the past continues as we engage with airlines and the opportunities that we believe New Zealand presents. If we move to Slide 22, international capacity grew a net 1.3% on the prior year. When you look at the growth for the 9 months leading up to March at plus 2% -- 2.4%, excuse me, and then partly offset by capacity reductions of 2.3% in quarter 4 due to that fuel price volatility that we've talked about. Average load factors, however, have remained high in the mid-80s throughout. And so that underlying demand continues to sit there. If we move to Slide 23 from a domestic jet perspective, capacity Auckland grew 5%, while passengers grew 4% on the prior year. And again, you're seeing the sustained high average load factors of 85%. However, similar to international, there was seat capacity rationalization in quarter 4 as a result of the fuel price implications and volatility. Moving to Slide 24. It has been another challenging year in the regional market with declining capacity and high airfares. Regional passenger numbers have declined 4% year-on-year as a result. Seat capacity reduced by 5% in the prior year and is sitting at minus 18% versus 2019 levels. Now noting the sudden escalation of the fuel prices due to the Middle East conflict and the importance of keeping regional New Zealand connected, as mentioned by Stewart, Auckland Airport offered assistance to regional airlines in the financial year through targeted and time-boxed lease support of $3.5 million. If we move to Slide 25, new and additional services are due to commence in FY '27, which will support the growth in the Northern Winter '26 peak season with international capacity up 4.3% on the same period last year. That means that we do see international capacity largely recovered. It is domestic that is kind of lagging behind in terms of that recovery period. And of course, you've got 2 different elements of domestic being jet and regional, which have slightly different profiles. But internationally, it's great to see Air New Zealand increasing capacity across Singapore, Vancouver and Taipei. STARLUX announced plans to launch Taipei, Auckland via Sydney. China Southern, China Eastern and Air China are all increasing capacity in the year, and Air Niugini is relaunching Port Moresby from November. We also know Thai Airways last year referred to commencing in FY '27, and that still remains on the cards. However, I think starting a new route in the current environment with fuel price that they are looking for a little bit more stability before they launch into that. If I move to Slide 26 and moving off capacity in airlines into the infrastructure program itself, we certainly have remained focused on delivering the right infrastructure at the right time and in the right place as part of our focus on long-term growth for Auckland and New Zealand. Significant progress was made in the financial year, advancing the integrated domestic jet terminal, and that remains on track for practical completion in 2029. The new terminal headhouse and pier structure is clearly visible. For anyone that's been out to the airport, you can see the pier extending out towards the runway and the new terminal frontage is taking shape nicely. We've now reached the point where the steel structure of the headhouse and the headhouse is that main terminal building that will house the baggage system, main dwell spaces and airline lounges, plus what will become the arrivals area for domestic travelers. That is all now in place. Fit-out trades are advancing to the floor areas, including the installation of major plant and equipment. The facade is being installed around the main terminal building and pier construction continues to progress well with the superstructure inclusive of steel frame and cross-laminated timber decking now past the halfway mark. And finally, on the integrated terminal in late 2025, we converted about 60,000 square meters of airfield into a land-side construction site for the airfield pavement and new domestic jet terminal pier operations. That is also progressing very well with all deep-level aviation fuel pipe work now installed on the western side, along with the start of concrete airfield pavement. So very busy indeed in that space. Moving to Slide 27. If we then move inside the terminal, the future of the integrated check-in is underway and will transform the travel experience. In financial year '26, the temporary check-in zone or what we refer to as Zone T was successfully built and operationalized to clear the way for what is now underway with a zone-by-zone upgrade of the international check-in area for the future integrated check-in. This begins a significant change that will ultimately deliver a more seamless journey for our travelers. Now inside the terminal, that check-in reconfiguration project that's underway, that includes the new ICS baggage upgrade that has started with its first portion of installation in check-in Zone C. And this will be an upgrade for the baggage system for both international and domestic capacity and operations when it's completed alongside the new domestic jet terminal. Now we do want to call out the construction of the scale within a live operating environment brings with it its share of challenges. And for the next 18 months or so, we will be moving through what we see as the most intensive stage of the construction inside the international terminal. Clearly, our focus is on managing that transition safely and carefully while also trying to minimize disruption and supporting customers and stakeholders throughout that change. But there is a great outcome on the other side of that when it is complete. If we move to Slide 28, just briefly want to touch on the regional pathway. We are tracking to plan with our airfield works. Now that's important because it will provide flexibility to support future regional and jet connectivity by adding either 4 new regional aircraft stands or alternatively 3 narrow-body jet stands. That flexibility is important as far as that future growth, and that is due for completion in FY '28. Moving to Slide 29. Key milestones were achieved in the year towards that multiyear infrastructure delivery program. And if we look ahead to FY '27, it is another year of $1 billion-plus capital investment and the profile of activity is expected to be very similar to that of FY '26 with terminal integration again being the dominant segment of CapEx for the year. Moving to Slide 30 and retail. Listen, Stewart commented earlier on the drivers behind retail income, noting a change in sales mix and the impacts of the reduced footprint with the refurbishment work. So I'm not going to cover that again. But what I will call out is that our French -- sorry, our partner, the French global-travel retail operator, Lagardere, got underway earlier this calendar year with a major refresh of the duty-free offering in FY '26 to deliver a competitive proposition that both provides the customer with value and future growth. The first 2 stages of the project have now been delivered, including a new duty-free entrance, revamped walkways, a runway view tasting bar, and New Zealand's first full-format Victoria's Secret store. Alongside this, we are underway with an upgrade of the international departures Airside dining precinct. If you move to Slide 31, just continuing on the duty-free and international airside dining precinct, it is well advanced and will bring a significant uplift in the experience when it's complete. The duty-free refurbishment is expected to be complete by the end of the first half of FY '27 and fully operational throughout the second half of the financial year. The dining precinct upgrades will be progressively completed throughout the first half and 16 new or refurbished dining options are to be delivered by December. Slide 32. Our investment in our parking product range is delivering an improved customer choice, and we are seeing revenue growth. As Stewart already talked to, revenue was up 9%, reflecting the full year operation of the Transport Hub, the uplift in premium products and an increase in the average duration of stay. However, we did note, you'll see on the slide, the exits declined 2.5%, and that is split between international exits down 2% and domestic exits down 9% due to reduced passenger activity. Now this was partially offset, however, by the resilient performance of the Transport Hub and Valet premium products as well as the Park & Ride product offering. If we move to Slide 33, investment property rental growth, that does continue to grow despite a more subdued market with the commercial property rent roll up 5% due to growth in the existing portfolio and Manawa Bay leasing. And softer market conditions have contributed to a slower-than-expected investment property activity during the period. However, interestingly, we are continuing to see interest from prospective commercial property tenants. If we look at some of the specifics underway, the Foodstuffs chilled distribution facility is progressing to plan and on track for completion late calendar year 2027 and activity is also underway on 2 new pre-leased projects. Phase 6 of The Landing is in design, and that is forecast to create up to 20 hectares of future development-ready land reserves to deliver future growth and value. And so work is underway on that. If we touch on Manawa Bay, it continues to perform well. Consumers were up 3% and sales up 15% for the October to June period versus the prior comparable period. And finally, if we turn to hotels, they are seeing an average occupancy of 84.4%, which is up 4.5% from the prior period, which is positive to see. And you will recall at the interims, we were talking about the ibis refurbishment program. That has now had full project completion achieved as at the end of July this year. Moving to Slide 34. In financial year, you would have seen the announcement that we have purchased 82 hectares of land adjacent to the precinct and the proposed future second runway location as a long-term strategic initiative to safeguard the future development. And a key consideration for us in this was managing reverse sensitivity. The planning risk that arises, obviously, if you have incompatible developments such as residential buildings, if they're established near critical infrastructure like airports, that can create challenges. So the acquisition of the land and quarry helps safeguard the future and ensure the surrounding land use remains compatible with long-term airport operations. A scoria quarry, I have to say that slowly, is currently operating on site alongside grazing activity, and Auckland Airport plans to run the quarry operation on a more limited basis in the future, although the nature of this is yet to be determined. If we move to Slide 35 and just touching in the regulatory space, you might recall in December 2025, the High Court declined the appeals lodged by airports in relation to the services Input Methodologies or IMs, merit review and Auckland Airport at that time elected not to pursue the matter further. Following that, the Commerce Commission did commence consultation on amendments to the airport cost of capital IMs in light of the coding errors in the 2023 IMs. In May this year, 2026, the Commission published its draft decision, which went beyond correcting the errors themselves and proposed the third materially different approach within the space of 3 years. Auckland Airport has significant concerns about that draft decision and the uncertainty it will create not only for airports, but also their funders and investors. And as a result, we made a further submission. Now a final decision is expected on that in the final quarter of calendar year 2026. If we look at to June 2026, the Commission also began its process to consult on the information disclosure requirements for major airport capital investment. Auckland Airport has made submissions and the Commission is targeting a final decision in quarter 3 this calendar year. If we turn to the master plan, we completed consultation on that earlier this year, and that final master plan was published in June. And then finally, preparations are now underway for PSE5 or Price Setting Event 5, which is the 5-year pricing period from the 1st of July 2027 to 30 June 2032, with consultation now having commenced. If you move to Slide 37 and the look ahead, we remain focused certainly on delivering to our strategy of building a better future, and that includes the continued growth of our aeronautical network and the quality of our commercial offerings across the precinct, the enhancement of the customer experience in both the short and long term, and that includes minimizing the potential disruption during the peak construction activity that I was talking about earlier. We also are focused on investing in the critical core aeronautical infrastructure that underpins headroom for capacity growth and future resilience, and that clearly will be in line with our master plan. And of course, we want to continue to deepen our links with our community and our people. So moving to Slide 38. So as we look forward to the 2027 financial year, we do remain optimistic about the future and the outlook with strong underlying demand for air travel in the upcoming summer peak period and the continued momentum in our commercial products and services. However, we do look at the current environment and anticipate the ongoing airline seat capacity constraints to continue in the near term as a result of the geopolitical instability, fuel price volatility and the broader economic conditions that may affect travel demand. This alongside the continued need for the business to operate in a live and increasingly construction-based environment. Reflecting this, Auckland Airport is providing underlying earnings guidance for FY '27 of between $290 million and $330 million based on both the anticipated domestic and international passenger numbers of about 8.3 million and about -- sorry, 10.8 million, respectively, together with higher depreciation as a result of the investment program that Stewart was referring to earlier. With ongoing significant investment across the airport precinct, including terminal integration, we are also providing guidance on capital expenditure of between $1 billion and $1.3 billion for the financial year. As always, this guidance is subject to any material adverse events and significant one-off expenses or deterioration due to global market conditions. So with that, I suggest we open up to questions.

[Operator Instructions] First question comes from Amit Kanwatia from Jefferies.

I'm just curious on the passenger outlook for fiscal '27. And -- I mean, you're highlighting the situation to be uncertain, which is driven by the Middle East conflict. I'm just curious to understand, what is built into your thinking around capacity growth and then the load factors for both domestic and international for '27, please?

And just -- thank you, Amit. Great to hear your question. And you were wanting to know that forward look across the board or specifically domestic?

Yes. I'm just interested domestic as well as international, both in terms of -- I mean, you're highlighting pressures in domestic, a bit more capacity growth for the Northern Winter '26. So maybe just -- maybe a bit more color around some of those?

Yes, certainly, I'll start, and I'm sure Stewart may have some points to add. Amit. I guess I'd start by saying airlines have already -- and the decisions were made in about April from memory or possibly into May, but they've already made capacity consolidation decisions domestically and internationally, and many of them go right through to the end of October. And so when you look, a lot of those are precast. Those flights haven't been on sale. It's northern summer, which mean it tends to be lower season. So an element is we've come into this financial year knowing that airlines had made those announcements. So that's one element. If you look at quarter 1 into quarter 2. That being said, however, then we do see the slots that have been filed and what airlines intend to operate as we head into the Northern Winter or the peak summer season, and that's that 4.3% uplift I was referring to earlier as that washes through. So we're pointing to that view that some of the volatility that we've been talking about largely is impacting quarter 1 and quarter 2 as soon as we're out of the gates in the financial year, but the summer peak is looking more positive. And then there's other elements in it that we continue to pursue in terms of opportunities, the pipeline that I was talking about of airlines and the potential for increased capacity. We continue to have those conversations, but some of those things, it's usually a long game. They may manifest later in the financial year or they may fall into future financial years. So that just gives a little bit of the thinking in terms of that why we have both a caution in terms of the way the year started, but we have an optimism with the underlying growth. But Stewart, do you want to add anything to that?

Yes, Carrie, the only thing I would just add is just the piece to Amit's question around domestic. Naturally, we've seen and you would have seen from our monthly traffic updates is that capacity has been pulled out of the domestic system, particularly over the last quarter. And whilst we expect that will continue over the coming quarter, we do believe domestic will lag the 4.3% that Carrie talked about. And so whilst we'd like to see that capacity return, our expectations is some of the challenges that you've seen across the regional system and the domestic jet system may continue further into the year.

Sure. And then just on the retail side, I mean, the new duty-free tender, I think that's halfway through is what you're highlighting. But maybe if you can just talk to maybe provide an update on when is that expected to finish? And then maybe trading conditions, I think that seems to be positive. So that's good. But if you can provide a bit more color around different categories as well?

Yes, certainly. Again, we'll tag team on that. I'm sure Stewart will have elements that I won't have covered. But I guess if we step back generally, what we are seeing is the passenger spend rate is growing, and we are seeing sales income growing at a faster rate than passenger growth. So there's a number of things there that are positive. That mix change that we talked about earlier is playing through. And obviously, with mix change, you also differing concessions associated to those mix. So there's a number of factors that play into that. I think you referred to halfway through the refurbishment. I think is what you're referring to. It just cut out for me, but that -- we are expecting that to be complete in the first half, which means the second half, we should have a comparatively clean run, if that's how you want to refer to it in terms of the new refurbished new operation, both across food and beverage in the dining precinct and duty-free. But Stewart?

Yes. And just on your question around the retail performance. If you think about the year as sort of 2 halves, the second half of the year was very much impacted by the renovation of the duty-free space and some of the work that we're doing in the international departure dining precinct. Those will essentially continue into the first half of FY '27 before the completion of both of those programs are expected to see much more normalized trading for our second half of the financial year. So from a categories perspective, the way I would sort of look at that is essentially duty-free, you could expect it and to continue in a similar shape to what we're seeing for the current year before the expected benefits of that renovation come through in the second half. Whilst other categories like food and beverage, et cetera, and some of the destination and specialty stores, we remain confident around improvements in those will flow through into improved trading through FY '27.

And then just a final question, and this is just around the regulatory stuff. And then, if I'm thinking about the asset beta in the draft decision from ComCom, that's lower. We've seen some MBIE review last year as well, which was positive. Just interested in some of your views around this. You are investing significantly in building the airport for the future. Your returns have been lower during PSE3. PSE4 is tracking below as well. Yes, just views around some of those regulatory headwinds that continue to be facing the business?

Yes. So if we think about that and you go back since the start of information disclosure, Auckland Airport has overall underearned relative to the original sort of targets for each of those pricing periods. So you talk about sort of PSE3 and PSE4. And when you look at some of those metrics, yes, we've underearned relative to most of those years in there. And as you look forward, the asset beta that's been put forward in the draft decision is essentially trying to determine what is an industry benchmark over a relatively short period of time. And so the Commission then would use that metric once it throws it through the WACC to determine what is an appropriate return for Auckland Airport. Now Auckland Airport can then use that as a guide to how it forms its price, whether it looks to price at the 50th percentile or something different to determine essentially its aeronautical return. And that's the exercise that we're working through now with airlines. But what we want to ensure is that the risk that the airport takes is fairly reflected in the return that we price for in our aeronautical pricing.

Sure. I mean from your perspective, the current regulatory settings or the regulatory environment, is that -- does that seem to be working? Or I mean, I guess, is there any risk for a bit more heavy-handed kind of regulation?

Amit, I'll talk to that. I mean I think the -- there's been 3 reviews in 3 years, and each one of those reviews have come back to say, in terms of Part 4 and the Commerce Act and what it's intended to deliver, the regime is fit for purpose. Now that doesn't stop the noise and the headwinds in some of your question. I accept that. But our view is the regime does work as it's intended, and that's why the 3 reviews in 3 years have, in effect, come out with that. There's been very strong response to the draft report that came out on IMs on all fronts and actually across more regulated sectors than just airports in terms of the criticality of stability for New Zealand, not only airports, but all regulated industries in terms of investors wanting to invest in New Zealand and stability is one of those key elements. So I -- my view is the breadth of the feedback on that in this latest draft decision remains to be seen. But as I said, 3 have come out with the same answer each time that it is fit for purpose, and we believe that it is.

Next, we have Andy Bowley from Forsyth Barr.

A couple of questions from me. The first will stick to the regulatory side of things and CapEx RAB in particular. Stewart, I think you made the comment that the -- well, there has been a closing of the gap in terms of the run rate RAB at the end of FY '26 versus PSE4 pricing. Now the question I've got is, what about FY '27? Do we close the gap further? I think I recall the forecast that you had for total RAB to climb to about $4.1 billion, $4.2 billion by the end of FY '27. So does the gap close further? And if not, could you talk to why, please?

Yes. Thank you, Andy. So when I look forward to FY '27. Looking at your question, we have and anticipate roughly about just under $0.5 billion of assets to commission. Now the timing of those are phased throughout the year. And so some of that will influence how close that gap is essentially closed, Andy. But you can see it will make further progress to -- if I look at sort of the page in our presentation, the overall RAB number, which was closer to $4.1 billion. So it will still create a little bit of a gap relative to the PSE4 pricing. And when you add those sort of 2 numbers of today plus, call it, $0.5 billion, you can anticipate then if all things believe to be true, then that gap should continue to remain there, and that really reflects some of the assets that was spoken around like things like the regional headhouse won't be commenced during this pricing period. And then also some changes to the assumptions around the timing of commissioning of airfield works, particularly associated with the new domestic processor. In pricing, we planned for that to occur in late 2027 -- sorry, financial year '27, and that's now into PSE5. So I suspect the gap will continue there. But what we're showing on the page in the presentation is the gap that was there last year has closed somewhat.

Yes. Okay. No, sure. So just putting some numbers around that FY '27, I think in your PSE4 pricing, you had about $900 million of assets commissioned. So that gap does widen again over the next 12 months. But is it fair to assume that we'll see those assets commissioned that do represent the gap in early PSE5? Or are you going to see that spread across PSE5?

Yes. I think, Andy, like the change in the opening RAB will then get adjusted for as essentially those assets that were previously going to be in the closing for PSE4 then get phased in through PSE5, and that's what we're in consultation with airlines around.

Great. Okay. Let's move on. The second question around retail. So you've talked to PSR being up, which is great. You talked to basket sizes being up even a bigger rate of growth, 8%. Retail income per pax down. So that kind of suggests that concession yields are down. And I suspect there's a mix component to that. But can you give us a sense of what your best guess of the overall disruption impact is within these numbers for each of those metrics?

Andy, it's really hard to estimate that because when you've got 1/3 of the floor plate out under construction, what you're seeing from those headline figures that I gave you is that the departure retail proposition is still very much resonating with travelers. It's just there's less product there. And so if you go back and look at the sort of 1H versus 2H performance, you could probably use that to dimension some of the renovation impact, all things considered equal. But sitting here today, it's very hard for us to put a figure on that.

And Andy, we continue to -- whilst it doesn't answer your question about the number roll forward, we're very aware of that mix, too. And so there's things in terms of as we think about retailers and products and mix, what we can do to also look at that. And so things like you may or may not have seen the announcement on Aesop and Le Labo, which are 2 high-performing, high-demand premium kind of fragrance skincare. That view of -- that's launching before the end of this calendar year as part of duty-free. So part of it is what we've currently got the disruption, but also we continue to look at the mix and the products and offering that we've got along with Lagardere to try and continue to promote, obviously, not only basket size, to your point, but also that overall income.

Sure. So in the context of the disruption, are you -- from a duty-free point of view, taking a lower concession yield during that period? Or is it effectively that's manifested in just the PSR, which I'd imagine for duty-free is somewhat pressured because of the reduced floor space?

Sorry. Andy, if I understand your question, you're saying, are we taking a different concession rate during the renovation period?

Yes. Yes. Is there any risk that you take on around that to at least provide a performance outcome for the concessionaire that isn't impacted to the extent that they need to undertake significant refurbishment to combine effectively the 2 previous concessions and create a more retail-friendly environment for travelers?

Yes. Look, the way I would answer that is when new providers take over a space, they build into the economics of the concession and the terms of the contract, what would occur during a renovation. Lagardere is very experienced at this sort of thing. And so you don't tend to have specific disruption periods where you have a different concession rate, et cetera. So it's part of the whole contract return.

Next, we have Tom Peyton from RBC Capital Markets.

Just a quick one from me. On Manawa, are you able to talk through the growth in the rent roll, the changing WALE, and I guess, when you sort of expect that to reach an optimal level of occupancy? Just to get a sense on timelines for that.

And so sorry, just cut out for me, Tom, were you -- did you say Manawa? Manawa Bay?

Yes, Manawa. Yes.

Yes. So that's performing very well. I don't have the number in front of me. But as far as leasing and occupancy, it's very high. So it's in a very good space and as far as its trading activity. So I would say the view of it is it's hitting its straps now. This is kind of our view of how it's performing kind of year-on-year in that October to December period. Generally, it's in good shape. I think the occupancy is above 99%. So we're very, very pleased from that regard. But Stewart, any other additional context you want to add?

Yes. And I would also add, Tom, that what we've seen is, as part of that initial portfolio of tenants in there. As those tenants have learned to operate within the space, and we've seen some of those work, but in a very limited number of cases, some of them not work, then they have been effectively rotated out of the facility. And so what you're seeing now is we're moving through that phase of the initial leases into periods, in some cases into that second stage of leasing, which sort of goes to your question. They're not all aligned to one particular date. So I think you can still expect those over the next couple of years to impact in terms of the rent roll as essentially we move into that more mature state.

Yes. A question about depreciation in FY '27, obviously, up 20-odd percent in '26. Are we expecting something similar in '27?

No is the quick answer to that, Tom. So in '27, there was an element of what I called out accelerated depreciation that was largely attributable to some of the airfield assets that we wrote down because of new construction activity. We're not expecting that to continue through FY '27. And also the commissioning profile is a little bit lower through FY '27 as well. And so from a depreciation perspective, you should expect only either flat to a very modest increase over the current year.

Awesome. And then one final one for me, and I'll jump back in the queue. Higher council rates you flagged in the recovery. I was having a quick look at the recovery rates, and they seem to be marginally higher year-on-year. One, is that what you're seeing as well? And two, do you expect that to continue moving forward?

Look, it's probably at the margin, I think, Tom, will be the way I'd describe it. Yes. So it really reflects essentially the valuation of those properties and what then passes through to our tenants and the change in tenancy. So any occupancy changes, obviously, it limits our ability to pass that through.

Next, we have Suraj Nebhani from Citi.

Just a couple of quick questions. So firstly, on the guidance range, it does seem a bit wider than normal. I'm just keen to unpack what's driving the top and the bottom end of the ranges, please?

Yes. So yes, similar to last year, the way I would encourage you to look at that guidance range is if we hit our passenger forecast, you could expect us to hit into the top part of that guidance range. But that would be absent any sort of other one-offs that may flow through the results. Now if those occur, then that's what would test essentially the bottom half of that range.

Sorry. So just to be clear, the passenger forecast, so the 8.3 million and the 10.8 million that assume you reached the top end, so $330 million. Is that right?

Top half. Yes. It's -- you could get into the top half, right, not the top end because essentially, what the philosophy that we try and look at this is you have an equal opportunity of underperforming as outperforming. So it's effectively a midpoint.

Understood. And Stewart, in the prior results, you've given us a bit of a steer on, I guess, interest tax overheads. Can you just help us with that, if possible?

Yes, there's a lot of moving parts below the line. And obviously, the timing of commissioning is quite material on what those 2 combined lines could be through the year. But in terms of direction, I would not be uncomfortable with something that was close to sort of $340 million as a direction for both of those items, so depreciation as well as interest.

Understood. And just one final one on the, I guess, the passenger outlook. I know, Carrie, you mentioned some stuff in response to one of the earlier questions. I'm keen to understand how you're seeing the airlines respond? The fuel price outlook has been -- it's been rocky to -- is probably the right way I would put it. How are you seeing the airlines respond? And what are your discussions suggesting on the outlook into, I guess, calendar '27?

Yes. Thank you, Suraj. It's -- there definitely isn't a one size-fits-all is how I would put that. And I think that comes down to airlines, their hedging or not. There's a number of things that come into play of how they are looking at it. Generally, I would say the consolidation to date has been rational, considered in terms of that. And they've obviously been able to put passengers on other services on those routes, which is why you've gotten the 85% load factors. We haven't seen straight-out withdrawal from routes, which again is good. That means that kind of rational approach to it. To your question of the outlook of what would you have to see, I do think that the stability has been bouncing around so much. I think for the existing services, I think airlines will continue to ensure. I don't think we'll see necessarily exits from routes unless something changes dramatically. The reintroduction of services and potentially the desire to kick off a new route probably does come with just a little bit more stability. And that doesn't mean getting the fuel price back to what it was in February necessarily. It's probably just the bouncing around the extremes that we've seen in the last couple of months is certainly seeing a little bit more caution. But as I said, the outlook, the intent to fly over summer peak because of the higher demand, because of those elements, we do see airlines looking through in that regard, but they're not going to rush into what is currently off-season in New Zealand, which is that through to October period that I referred to earlier.

I understand. And if you'll indulge me, just one final question from me on PSE5. I guess just keen to -- we have some good clarity on the commissioning schedule. So thanks for that. But just keen to understand the actual pricing. So let's say, you have some big commissioning around '29, 2030. Is it fair to say that the price growth or, I guess, the way it comes through the slope of that, will that be weighted to the years where the major commissioning happens? Or is that more front-ended over that 5-year PSE5 period?

Yes. Look, that's a great question, and that really goes to the heart of a lot of the conversations we're going to have with our airline customers over the next year. And so what the return tries to do is essentially determine the IRR over that 5-year period. And we are discussing with our substantial customers, not only what we anticipate is that commissioning profile, but then essentially what that aeronautical recovery will look like over the years of that commissioning profile. So it's still to be determined. And if you look back over time, we've tended to prefer a step change at the start of a pricing period and relatively stable increases thereafter. But in this instance, the magnitude of the change over that '28, '29 and '30 period are quite different. So that's really still to be determined as part of that consultation process.

Our last question comes from the line of Rob Koh from Morgan Stanley.

Can you hear me okay?

We can.

Can I just ask a little bit into the pax outlook. If I look at Slide 49 with your kind of city pair or country pair type data, it looks like a lot of the UAE traffic did actually divert through Singapore, Hong Kong, Malaysia. Is that right?

Yes. The short answer is yes.

Okay. Cool. So -- and I guess with the new routes coming in, a lot of them are Asia-centric. So should we probably be looking for a Lunar New Year peak increase?

Well, I think -- and again, I think I commented earlier, we've got quite a bit of additional capacity coming in over the northern peak from a lot of the Chinese airlines. So China Eastern, China Southern, Air China, they've all got capacity increases over northern peak, which does include some of that Lunar New Year as well.

Yes. Okay. Great. And then moving to the purchase of the quarry. I'm probably going to screw up this sentence. How are you thinking about the cost of carry on the quarry? And does it go into the RAB?

Let me sort of answer that in reverse order. So no, it doesn't go into the RAB at the moment. It is -- if you look at where it sits in the accounts, it is split. And so at the moment, and it is sitting as essentially as land, but also in our property, plant and equipment notes, so Notes 11 and 12. In terms of the cost of carry, what we're doing is keeping the quarry operating, as Carrie mentioned, albeit in a limited capacity, which offsets some of that cost of carry. And then also the land around the quarry itself is essentially we're retaining as grazing at the moment until we determine what the future use of that is, once again, to offset it.

Okay. Okay. So if I were thinking, I don't know, well, you earn a WACC of 8-ish percent on that $20 million investment. Is that roughly the kind of income that we should be factoring in?

No. No, you shouldn't.

Okay. All right. Cool. Okay. And then just a final question. I guess with the -- you got Zone T up and running and I think C and D coming on stream, should we be thinking there's like a dual running cost during that transition period? Or is that pretty small?

It's a great question. As far as overall capacity, one of our nonnegotiable principles in this infrastructure program is retaining capacity for all sorts of probably obvious reasons in that regard. And what we've done is -- so at the point we've opened Zone T, we had Zone C closed. So much of a muchness in terms of core running support, labor costs, et cetera, Rob, but there is an element we often talk about the fact that we have to manage and minimize disruption because we continue to change, et cetera. So the way that we've sequenced it is as C needs to come back online, Zone C before we take the next zone out. And so kind of we want to ensure we're not reducing capacity and therefore, the kind of resourcing support costs for each of the zones should hold true, all things being equal, because of the way that we've sequenced it. So the -- you might get a little bit of operational disruption management, which we've been dealing with for the last couple of years, but no, definitely not dual operating costs or anything near that magnitude.

Thank you for all the questions. I will now turn the conference back to Carrie for closing remarks.

Well, thank you, everyone. Auckland Airport certainly takes great pride in our role as New Zealand's gateway, and we would like to just take a moment to extend our sincere thanks to the Auckland Airport team, our partners and you as our investors for your commitment as we continue to build for the future. So thank you for your time today, and we look forward to connecting with many of you over the coming weeks of investor meetings, both here in New Zealand and Australia. Have a great afternoon.