Airports Company achieves 96% of objectives

Airports Company of South African (Acsa) achieved almost full-marks for its pre-determined objectives in 2015/16, and recorded a R1.96 billion profit after tax, compared with R1.63 billion in the previous financial year. Revenue increased from R7.8 billion in FY2015 to R8.3 billion.

This performance also boosted the total emolument of its CEO Bongani Maseko to R7.2 million, as he qualifies for a 50% on-target bonus. In FY2015 Maseko earned R5 million in total. Financial director Maureen Manyama earned R4.4 million, up slightly from R4.3 million in FY2015.

Acsa held its AGM at the Four Seasons Westcliff hotel on Friday and thereafter announced its annual results during a live TV broadcast at the same venue. Journalists were not allowed to ask questions during the broadcast, but only at a separate media question session afterwards.

The company would not provide journalists with hard copies of its results booklet and integrated report that was distributed at the AGM, saying it would be published on the website. Moneyweb had not been able to find it on the website by Sunday night. We did however obtain a copy elsewhere.

In the report Manyama warns that a delay in the decision by the economic regulator, and regulatory decisions disallowing future capital expenditure, are expected to reduce Acsa’s return on capital employed from 10.4% in FY2016 (2015: 9.8%) to 4.7% in FY2017. This is due to the anticipated 35% tariff decrease, which has been assumed for year one of the 2017 – 2019 corporate plan, she states.

It is further disclosed that Acsa has halted its capacity expansion programme as a result of the delay, despite growing passenger numbers.

Accordingly ‘Failure to approve proposed tariff increase’ is listed as the biggest strategic risk for the company and it states in the integrated report that it might “not be able to realise budgeted returns due to proposed/assumed tariffs not being approved, leading to an inability to fund future growth/capacity demand”.

The economic regulator sets the tariffs Acsa is permitted to charge and its required service levels. These tariffs comprise passenger service fees, landing fees and aircraft parking fees, which are the building blocks of Acsa’s aeronautical revenue. In the reporting period it earned Acsa R5.2 billion, which is 63% of its total revenue for the period and in fact its core business.

Acsa applies to the economic regulator for tariff changes based on a business plan. The regulator decision has a direct impact on Acsa’s capital expenditure plans.

The regulator in November 2014 issued permission for a 0% tariff increase for FY2016-2020. This was however not a final decision, but issued due to delays in the permission process. Without this intervention Acsa would have been left without permission to levy any airport charges at the beginning of the new financial year and tariff period on April 1 2015.

The regulator responded to Acsa’s formal application in May 2015 with a draft decision that disallowed R4.7 billion of the R20.2 billion capital expenditure plan Acsa agreed upon with the airline industry. It further provided for a 42.5% tariff decrease in 2015/16 and increases of 4.1%, 15.8%, 15.9% and 4% for the subsequent four years.

In June 2015 Acsa submitted a comprehensive response, including proposals to smooth the price path, avoid breaching its debt covenants and enhance returns for shareholders.

According to the integrated report, the regulator in response announced that the whole capital expenditure plan and some refurbishments to the total adjusted value of R12 billion would be disallowed.

In March this year the regulating committee’s term expired without it coming to a decision and a new committee was appointed in April. According to the integrated report, a decision was expected in June this year, but none has been taken. This would be the final decision and an amendment of the 0% age point decision. During the presentation, Maseko said he was told it is imminent.

Acsa has in the meantime based its corporate plan on a zero percentage point increase in 2015/16, a 35% reduction in the current year and a zero percentage point increase in the three subsequent years.

Maseko states in the integrated report: “The delay to the permission decision introduces uncertainty, specifically in terms of the ability to make investment decisions.”

Acsa has as a result decided to halt its new expansion plans.

This comes against the background of 8.6% growth in departing passengers in the reporting period. Domestic departing passengers increased by 11.4%. Domestic aircraft landings increased by 6.7%.

Manyama states in the integrated report: “No major infrastructure activities or programmes are forecast until the 2017 financial year, owing to adequate capacity.

• Government owns a 74.6% stake in Acsa, the Public Investment Corporation (PIC) 20%, five empowerment investment vehicles hold altogether 4.21% and a staff incentive scheme 1.2%

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