SEPANG – Malaysia Airports Holdings Berhad ("MAHB") had registered earnings before interest, tax, depreciation and amortisation (“EBITDA”) of RM861.4 million representing growth for the year of 4.1%, achieving its financial headline KPI for FY2014. The achievement was on the back of a 4.7% growth in passenger movements in Malaysia in 2014. MAHB had recorded revenue of RM3,343.7 million, while profit before tax (“PBT”) for the same period grew by 50.8% to RM834.2 million.
In recording its revenue, MAHB adopts IC Interpretation 12: Service Concession Arrangements (“IC12”). Following this, the Group recognises construction revenue and costs in accordance with FRS 111: Construction Contracts by reference to the stage of completion of the construction works of infrastructure assets. For FY2014, MAHB recognised construction revenue and costs of RM662.4 million and RM633.9 million respectively for klia2. These revenue and costs were recognised upon the completion of klia2 and Penang International Airport.
Excluding construction revenue and costs, MAHB registered revenue of RM2,681.3 million for FY2014 which was 8.9% higher than the RM2,462.9 million registered in its corresponding period in 2013 (“FY2013”). PBT had increased by 67.4% to RM805.6 million while profit after tax (“PAT”) had also increased by 135.6% to RM720.0 million from RM305.6 million in FY2013.
The higher operating revenues were attributable to improved results from the airport operations segment which grew by 7.9% to RM2,509.8 million. Revenue in non-airport operations segments grew by 24.5% to RM171.6 million. The increase in PBT and PAT were attributable to gains arising from the acquisition of the final 40% stake in Istanbul Sabiha Gokcen Uluslararasi Havalimani Yatirim, Yapim ve Isletme A.S. (“ISG”) and LGM Havalimani Isletmeleri Ticaret ve Turizm A.S. (“LGM”) upon which both entities became wholly owned subsidiaries of MAHB effective 31 December 2014. RM379.1 million was recognised when MAHB acquired ISG for less than its fair market value, also known as gain on bargain purchase. A further RM502.5 million was also recognised as gains from fair value re-measurement of ISG and LGM assets.
The increase in PBT and PAT was offset by impairment of goodwill, associate and unquoted shares of RM229.4 million, RM9.0 million and RM15.0 million respectively. If the gain on bargain purchase, gain arising from re-measurement of fair value of ISG, and various impairments are excluded, the Group will have recorded a PBT of RM177.5 million. The increase was also dampened by higher operating, finance, depreciation and amortisation costs as well as the recognition of previously unrecognised one-off losses upon the acquisition of the 40% stake in ISG back in April 2014, amounting to RM42.5 million.
Airports Operations Segment
Airport operations revenue continued to be driven by passenger growth of 4.7% in 2014. The commendable growth is on the back of the 18.4% growth achieved in 2013. Total aircraft movements grew 7.3% to 791,577 aircrafts while cargo movements grew by 8.0%, registering a volume of 1,011,904 metric tonnes, the highest cargo volume handled through MAHB airports since 2006.
The 7.9% increase in revenue generated by airport operations segment was mainly driven by aeronautical revenue which had improved by 10.7% to RM1,341.1 million on the back of the increase in passenger and aircraft numbers. The improvement in aeronautical revenue was also attributed to the recognition of Marginal Cost Support for Passenger Service Charge (“MARCS PSC”) as the new PSC rates are lower than the benchmark rate as stipulated in the Operating Agreements signed with the Government. Also contributing to the increase in aeronautical revenue is the rise in landing and parking charges which became effective from 1 January 2012 and increased 9% and 18% respectively (compounded annually) until 1 January 2014.
As mentioned above, higher operating, finance, depreciation and amortisation costs curtailed the impact of improved revenues, thus causing a reduction in PBT. Operating costs which contributed to the increase during FY2014 were mainly user fees, utilities and staff costs.
The non-aeronautical revenue recorded a growth of 4.9% to RM1,168.7 million on the back of improved performance in the rental businesses. Revenue from rental of space, advertising and other commercial segments grew 9.9% to RM554.0 million, contributed by higher occupancy rate and higher rental resulting from increase in rental space at klia2. MAHB's own retail business registered a marginal growth of 0.8%.
Non-Airports Operations Segment
The non-airport operations segment recorded revenue of RM171.6 million in FY2014, representing an increase of 24.5% from RM137.8 million recorded in FY2013 mainly due to higher revenue recorded in all segments. The project, repair and maintenance segment grew by 62.6% to RM66.1 million due to new facility management work won including for the provision of facility maintenance and IT services at the new Doha International Airport.
The hotel segment revenue increased by 12.0% to RM74.1 million contributed mainly by higher occupancy rate (FY2014:75%, FY2013:68%) and average room rate (FY2014:RM371.30, FY2013:RM357.50). The agriculture and horticulture segment registered higher revenue of RM31.3 million, 1.2% higher than FY2013 due to higher Fresh Fruit Bunches price against lower production volume (FY2014: RM497.07/63,458MT vs FY2013: RM471.68/64,819MT).
Industry Review
The system of airports operated by MAHB Group recorded 83.3 million passenger movements in 2014, a growth of 4.7% over 2013. This is the first-time that passenger movements exceeded the 80 million mark. Despite the unprecedented airline incidents that affected sentiment and traffic performance from May 2014, there was progressive recovery in the air travel market towards the end of the year. International and domestic passenger movements recorded strong growth at 4.9% and 4.5% respectively.
Total passenger movements in KLIA increased by 3.0% to 48.9 million passengers, outpacing most ASEAN capital airports. Other airports in Malaysia recorded an aggregate growth of 7.2% during the year. Several of these airports registered strong double-digit growth for 2014 including Alor Setar, Kota Bharu, Kuala Terengganu, Ipoh, Lahad Datu, Langkawi, and Subang. Penang, Langkawi and Subang airports each achieved a new milestone whereby Penang Airport surpassed the 6 million mark while Langkawi and Subang both reached the 2 million passengers mark respectively. Aircraft movements recorded a growth of 7.3% while cargo movements grew by 8.0%.
Malaysian Aviation Industry Outlook
IMF is projecting a 3.8% growth for its global economy forecast in 2015 while Malaysia's GDP is expected to grow between 4.5% to 5.5%. ACI, ICAO and IATA have projected global passenger traffic growth of 4.7%, 6.3% and 7.0% respectively for 2015. Air travel is a function of GDP, consumer and business sentiments, and overall macroeconomic factors. The recent drop in fuel price may help stimulate air travel demand in 2015 as profitability for airlines will increase and in turn, encourage increased seat offerings and lower fares. The positive outlook will continue to be supported by Malaysia Airlines' inclusion into the oneworld alliance in February 2013, which naturally extends connectivity from Malaysia by many folds. The ASEAN Open Skies policy would help improve intra-ASEAN travel further.
Based on the prevailing factors, we expect 2015 passenger traffic to record 85.8 million movements, a growth of 3.0% from 2014, as we are more cautious in light of the market outlook. There is room for further optimism for 2015, being the Malaysia Year of Festivals campaign as well as the return of British Airways to Malaysia. MAHB Group’s EBITDA KPI target for the financial year ending 2015 is RM1,522 million including RM642 million from its operations in Turkey.
Turkish Aviation Industry Outlook
The growth rate for the Turkish tourism industry has grown more than the global travel and tourism industry. Turkey was ranked 6th among the top world tourist destination due to rich cultural resources, with 20 World Heritage cultural sites, several international fairs and exhibitions and strong creative industries. Also, the tourism industry was backed by supportive policy rules and regulations governing the industry improvements in its air transport and tourism infrastructure.
In 2015, ISG’s passenger movement is expected to grow by 15%, in which 19% growth is expected from international sector and 12% from domestic sector. Aircraft movements are expected to register a 13% growth while cargo movements would likely experience a 5% growth over 2014.