Earnings Transcript for AUKNY - Q2 Fiscal Year 2021

Operator: Ladies and gentlemen, thank you for standing by, and welcome to the Auckland Airport Interim Results 2021 Conference Call. . I'd now like to hand the conference over to your speaker today, CEO, Mr. Adrian Littlewood. Thank you. Please go ahead.

Adrian Littlewood: Good morning, everyone, and great to have you on the call for the results for the first half of FY '21. I'm joined by Phil Neutze, our CFO. And Phil and I will be working our way through our results presentation.

Phil Neutze: Thanks, Adrian. So we're now on Slide 10. It's fair to say that pre-COVID, I never expected to be announcing an underlying loss for Auckland Airport. But our world has changed for now, and it's unlikely that we'll report an underlying profit after tax until quarantine-free international travel resumes in part, at least with Australia. So we did, however, report a GAAP compliant after-tax profit for the half year to December 30, 2020. And as set out in Slide 32 in the appendix to this presentation. Reported profit benefited from a couple of items. There was a circa $30 million upward revaluation in our investment property portfolio. And that was due to development margins achieved on 2 recently completed developments. That also benefited from the circa $15 million reversal of previously accrued CapEx project termination costs. And that reflected successful contract termination negotiations with construction companies.

Adrian Littlewood: Thank you, Phil, for giving that overview of some of those core numbers. So as I said earlier, some of these following pages is just a bit of a function of record just to record what has happened in the period, but it's important to note it, given significant work put in by the team. So Page 17, look, we've continued to work really hard to respond to the operational requirements right throughout the business. It's mainly been through process, protocol and people that we have managed that, but there have been some additional things that we've had to do, for example, we've created an off-site facility for repatriation of passengers with bags. Under the terminal split model, Terminal B model that we announced late last year and has been some modest investment required there. But the team has done a stunning job on managing the debt. We also successfully achieved the Airport Council International Health Accreditation for COVID-19 management. So that has been very welcome and the team are ready and willing to respond to whatever happens in the next little while in terms of managing COVID. Just turning on to Page 18. As I highlighted earlier, and as Phil mentioned, we have continued on with some of that core infrastructure where the opportunity has been often. So obviously, we did the runway east and west upgrade. Those are very significant and operationally complex with shortening of runway. So both of those in the runway have now been done, and we've actually pulled forward a bit of extra work announced last month around taxiways in April. While the volume of movements remains low, and we're continuing to do that as we look out to the coming years. We've also done some work on fuel lines, and we'll look to see how we can continue that work while the opportunity is there.

Operator: . Our first telephone question is from Andy Bowley from Forsyth Barr.

Andy Bowley: I've got a couple of questions for you. And the first around just your comments there, Adrian, around trans-Tasman bubble. Now I appreciate the opportunity is still there for two-way quarantine travel. We're hopeful that it will happen. You're clearly very hopeful. The government have suggested that it's a priority. But my question to you is, is really how realistic is the trans-Tasman bubble now in light of everything we've been through, what Australia has been through, ahead of a complete vaccination program?

Adrian Littlewood: Look, Andy -- and congratulations for being first again. Look -- like we just don't know. I think all the work as I understand it, has been done in the background. So I think it's both the political and sort of health advice around when it is safe to do so that we'll guide this. As you know, we -- as I said earlier, we've done a little work at our end. We're in close regular contact with our colleagues in the airports and the airlines across the Tasman. So I think many of the elements are there, but it's a judgment for the leaders of the 2 countries and their advisers to make that final call. So look, I can't -- going into Christmas I was actually quite hopeful that first quarter this calendar year, we'll be operating. Obviously, conditions have changed. So look, as I said before, it's a little bit why we're calling for clarity. Uncertainty is really hard to give. And there will always be new information coming down the tubes. But clarity in understanding what are those metrics? What are these thresholds? I think, would be incredibly valuable. And I think we can look across and see in October last year, the Aussie federal government sort of laid out a plan for the national reopening framework. I think that will be really valuable just to really hone in on our map. And I don't mind if there's uncertainty in certain areas, there were a few. But where we can start to drill into things that matter and things to focus on, I think that's what's important. So Andy, I can't give you any more than that, unfortunately.

Andy Bowley: Great. Albeit, in terms of your government engagement, Adrian, when you ask those kind of questions to the government, what's the response that you get back?

Adrian Littlewood: Yes. Look, I think it's really -- it's a cabinet call. I think there are many dimensions they have to weigh up. We are not close to all that detail that they have to consider. And so I can't give you more than that other than to say that we're doing our part, and we're trying to propose answers in models that can be applied. Look, I think as the government have said publicly, the wallets is absolutely there, but they're judging many different factors at the same time. So it's really a call for government. We can only play our part in supporting that reopening when it's safe to do so.

Andy Bowley: Yes. Okay. I appreciate that. The second question around the retail concessions and the three pronged to this question and essentially go on 3 different questions. But which concessions have exited the international terminal over the past 6 months, would be the first one. The second would be, what's the timetable for concession renewal retender processes, particularly for Duty Free? And then, thirdly, at what stage do you make the decision to go to a single Duty Free operator?

Adrian Littlewood: Yes. So just on the first one, I doubt we've had any exits yet. And again, I think that reflects our approach as being to very much allow these retailers to go on hibernation. There's tons of people involved, and they've had to move once the late subsidy came off to a lot of those staff, which is a disappointment. But we haven't had any formal exits yet, which has been great. In terms of the timetable on the relicensing, that time line hasn't changed from what we indicated earlier. I think we broadly, a couple of years plus away from that cycle, but they aren't exactly the same in terms of time line. It's going to be interesting to see how this plays out, post pandemic and travel retail. I still think that, as I alluded to before, in New Zealand, as a destination, we'll have a characteristic of being quite an attractive and safe place to travel to, where people maybe uncertain. And that's just the time we're getting from airlines, when we do our channel checks. So that will be attractive. It's still a very attractive channel and will continue to be so, I believe. So yes, a few moves away from that. And on single operator, as we said before, that remains an area of focus for us, of real interest. It seems that there's an anachronism, but to operate a model when the world has completely changed from the 2007, 2008 period when that last came up. So look, we'll work our way through that. I think timing we'll be working back from when a sensible concessioning process works for the Duty Free to work out when that formal decision needs to be made, but I don't have a formal date for you, Andy.

Operator: Our next telephone question is from Rob Koh from MS. Since there is no response from Rob, we'll go to Adrian Allbon from Jarden.

Adrian Allbon: Two questions, principally. The first one, can -- and maybe this is for Phil. Are you able to just give us a bit more sort of depth on why you expect, I guess, the second half loss at the underlying impact level to deepen within your outlook kind of assumptions here?

Phil Neutze: Yes. Yes, I can respond to the high level on that. So looking at interest and depreciation, we expect that to be $6 million to $7 million higher in the second half than the first half as a result of recently commissioned assets. We had a tailwind from a reversal of about $4 million of expected credit losses for this. Don't expect that to repeat. And we're also not factoring in any further wage subsidy receipts and we had about 2 million of those in the first half. So that adds up to roughly $10 million after-tax impact. And also we're allowed, potentially, for some forth starting swap closeouts at the end of this financial year, if we don't refinancing -- if we can't finance an upcoming $150 million bond issue, and that would have a hit this financial year of circa $10 million, but then you'll get the benefit of that equal amount over the next 5 years. So that adds up to about a $20 million deterioration from H1, which would give you a result of around about $41 million. Underlying loss in the midpoint of our guidance range is $45 million plus.

Adrian Allbon: Okay. That's clear. So look, so if we sort of took your second quarter, EBITDA, I guess, per month, that's a sort of operating assumption that sort of buried across the second half and most of the sort of -- most of the delta of the elements you just described?

Phil Neutze: Yes. That will be a sensible approach, yes.

Adrian Allbon: Okay. The second question, like, the presentation, I guess, is lodged on markets as to how you kind of are going to approach the next regulatory period. Can you give us a little bit of detail around the expected timing of that? And what you're sort of thinking or process steps are as we sort of move through the middle of this year?

Phil Neutze: Sorry, you're talking about the timing of the next aeronautical price reset?

Adrian Allbon: Yes. Sorry.

Phil Neutze: Yes. So that is uncertain at the moment. Currently, we're expected to reset as at 1st of July 2022, so for FY '23 onwards. But there's a lot of uncertainty out there at the moment. And as we touched on our aeronautical infrastructure program, to a large extent, is on hold at the moment until we get some quarantine-free travel up and running with Australia and the timing of that's uncertain. So we wouldn't go ahead and reprice until we have more certainty around the infrastructure development program.

Adrian Allbon: And so like just sort of reflective on what Adrian was sort of saying earlier, would the key market in terms of the process really based certainty on when the trans-Tasman bubble would potentially operate? Because clearly a lot of your other items are sort of particular to that event as well.

Phil Neutze: Yes, that's correct.

Adrian Allbon: Okay. So literally, there's sort of nothing really to do at the moment until you get certainty or clarity on those features?

Phil Neutze: Yes, that's right. Well, I think we'll have a clearer view by the end of this financial year. In fact, if we wanted to go ahead and reprice as at 1st of July 2022, we have to get cracking very quickly at the start of FY '22. So we'll be making that call round about the end of this financial year.

Operator: I will try the line of Mr. Rob Koh, again, from MS.

Robert Koh: Can you hear me guys?

Phil Neutze: Yes, we can.

Robert Koh: Great. Okay. Can I just ask a follow-on question about the price resetting? If, heaven forbid, we have no certainty heading into FY '23. What are the kind of fallback arrangements?

Phil Neutze: Most likely that, well, in fact the inevitable that pricing would remain unchanged from today because we haven't undertaken a formal price reset. And there would be a holding pattern until we had confidence around quarantine-free travel, particularly with Australia.

Robert Koh: Yes. Okay. That makes sense. And then just, I guess, a more, I don't know, third order-type issue. But previously, you've had an interest rate hedging strategy, which focused on the near term, given that rates are actually moving, are you -- how are you evolving your rate hedging strategy?

Phil Neutze: Good question. So at the moment, we're fully hedged versus treasury policy. So a level of fixed rate borrowing, including hedges, is right at the top of the range. And that's because we've slowed down our buying programs compared to what we expected when we've put on those hedges. So we don't have any headroom really to lock in more at the moment under policy. So we're -- I think it's -- off the top of my head, circa 60% hedged at the moment.

Robert Koh: Okay. And I guess, I know you've got a lot on your plate, but is there any thought about reviewing the treasury policy in view of the rates environment, I guess?

Phil Neutze: Yes. We are looking at it. In fact, we've made the conscious decision not to rectify the treasury policy breach of being over hedged at the moment. And the next step is to discuss at our treasury management committee and then at the Board, should we laid up on more hedging, given that there's a bit of inflation pressure coming through now and potential for that to see through to interest rates.

Operator: Our next telephone question is from Wade Gardiner from Craigs Investment Partners.

Wade Gardiner: A couple of quick questions from me. First of all, you've made a lot of operating cost savings over the last 6 months. Looking forward, do you think some of those will be permanent savings? If we go forward into -- back into normal operations in a couple of years' time? And if so, would you like to provide some quantity around that.

Adrian Littlewood: Wade, Adrian here. I'll start and Phil might jump in. Look, I think we've repealed back reasonably firmly. We don't carry a lot of overhead normally. So I think as we add back, we will need to grow again. We've always had that sort of general target about gross operating margin by that 75% mark, and that's probably the best guide we can give. And I think if we're not investing in that way, we're not investing in the rebuild of the business, particularly for things at marketing and other costs, consumer growth, spend growth. But having said that, there'll always be some things that we've managed through this period to improve on. And so net-net are probably enough -- at a similar level, but there will be some benefits around the traps, I think. So I know it's not specific, but that's a broad guide, I think.

Wade Gardiner: That's all right. And then on a short-term basis with the safe zones that you've added, what does that do to operating costs? Is there a lot of extra costs involved in that?

Adrian Littlewood: Not significant. There are some costs. We've managed that pretty well. A lot of those extra costs actually fall to border agencies and others, MIQ. So we've tried to focus on enabling infrastructure, but there are some modest additional costs for us. But manageable, I think. A lot of those are falling to agencies.

Wade Gardiner: Okay. In regards to the USPP waivers, you made the comment in the presentation that I think you sort of assumed December 31, 2021 in terms of borders reopening. If let's say, it extends for another 6 months beyond that, maybe even longer, what's the -- do we -- when do you run into an issue with those waivers again? And what's the process?

Phil Neutze: Yes. So ballpark to control that 1.5x interest coverage covenant, we would need Tasman and Pacific back to 50% of pre-COVID levels on average in FY '22. So what that means is if we're into FY '22 by the end of Q1, and we don't have a Tasman bubble, that's when we need to pick up the phone and start our conversations with the banks and USPP lenders.

Operator: And the next telephone question is from Marcus Curley from UBS.

Marcus Curley: Just two for me. Adrian, I just wondered if you could talk to if you can, your views about whether the borders -- or how quickly the borders reopen when our vaccination program is finished. Do you think that's fair to conclude?

Adrian Littlewood: When the program is finished, the key here is I'm not a medical expert at all, but clearly, that's a mark that matters. But I think it's quite clear there's some critical questions to be answered longer-term around how vaccination take-up rates and everything plays through effectiveness. So I think this is the unknown, and this is why the call for clarity is important because we need to be able to fly a path through. I think part of the other perspective we've been bringing is a -- what is the risk appetite? Or as the minister said, there is no risk-free option. So it's how do you judge that risk from a public point of view? And that's really the core -- but vaccines will not outplay a big part of that. And we're just on the eve of our workers getting vaccinated starts this weekend. So that's really, really positive. And as that happens, as those vulnerable people receive that vaccine, that, obviously, must by implication, change the risk parameters. But we just don't have that answer right now.

Marcus Curley: Okay. And then, secondly, just on the domestic terminal, yes, that's obviously one part of the business that's going okay. Can you talk about whether you've come to any landing on what you're going to do with the new domestic terminal project at this stage?

Adrian Littlewood: Yes. I can't speak in detail on that. We are looking at options, and particularly considering what our previous development plan was and what are different ways to get after it, as I said. Those are the conversations that are in detailed discussion with the airlines, agencies and others at the moment. So we're working that through we'd like to sort of share some of the -- as soon as we can, as Phil said, probably towards the financial year before we're able to talk about that. But that work is going on in detail at the moment.

Marcus Curley: Okay. And do you think there's a possibility even if your, let's say, your Aeronautical pricing gets deferred, that you could put in extra charges for a domestic terminal? Or that would have to be complete before you would sort of be able to do anything on that front?

Adrian Littlewood: We'll all still to be worked through markets, I wouldn't want to get on that too early.

Operator: Our next telephone question is from Owen Birrell from Goldman Sachs.

Owen Birrell: Just a couple of questions, same theme that everyone else is talking about. But the rate resets coming up over the next few years, you're going to traditionally -- or the regulators traditionally looked at offshore examples and comparables to -- as a means to, I guess, benchmark your rates. And I'm just wondering in this post COVID world, post low interest rate world. What is your expectations for global aeronautical rates as the world comes out of COVID?

Phil Neutze: Okay. Sorry, I think there's a couple of elements of debt. Are you thinking specifically on interest rates, Owen, on that question?

Owen Birrell: Yes. I was talking about interest rates, yes.

Phil Neutze: Okay. Yes. So they've already started to move at the long end. And of course, the world is awash with liquidity at the moment. And there's some green shoots of inflation. So it's hard to say, is that fully priced in, right now I'm not certainly moved by 75, 80 basis points over the last 3 or 4 months. I think the long-term direction is upwards, we would say, and that, yes, will indeed feed through into that calculations and our target return. That is based off that. But the other thing to bear in mind is system at risk asset beta. There is some emerging evidence that for airport companies globally debt has increased post-COVID. And I think there's an argument that Australasia might be higher yet again owing to higher international traffic, but more volatile. And more of a correlation with what's been happening in the share market over that time. So there's a few angles that we think that the Commerce Commission would be receptive to that could potentially flow through to a higher target return moving into PSE4.

Adrian Littlewood: And I would just -- further on that, and what every airport regulatory environment is slightly different. You are starting to see pricing adjustments coming through on the upper side as airports are reflecting some of those elements and the there are various pricing models through into the business. So the way we have a little bit of benefit of time to observe how that unfolds, which will be helpful and instructive for when we get into our own process.

Owen Birrell: Yes. That's very useful. Just a second question, I guess, again on trans-Tasman bubble. And I guess a bit of -- I just wanted to get your thoughts on this. We, in Australia, the different states effectively all open to each other, but it does open up the risk of more domestic infections. And the states have been locking down more readily in response to these new infections, particularly the U.K. strain. If we consider that the trans-Tasman bubble opens up between Australia and New Zealand, I would imagine that there would be a higher likelihood of ongoing, I guess, statewide shutdowns in New Zealand. Would you be more comfortable having an open trans-Tasman border and increase the likelihood of shutdowns domestically?

Adrian Littlewood: Look, it's not our decision. Obviously, it's a decision for government and the health advisers. I think this is, again, our theme on this has been -- it's just understanding the risk and is the risk that different? I think, as we said before, the strategies of Australia and New Zealand have effectively converged over time. New Zealand started out very strict until there's an elimination strategy. But how they manage that risk, and we've seen it with the quick and short lockdown on the exit out of that in the last day. Has actually got closer to how Australia is effectively managing it and Australia has come closer to New Zealand. So that's kind of met in the middle. So that would suggest -- is the risk that materially different between mistakes as it is to New Zealand in some cases for WA, Queensland, Tasmania, others not? And I do think, as I said earlier, I think the path out on this is going to be clunky and bit messy and complicated. But I do think travelers and particularly friends and family have been separated for over a year now. We'll put up with some disruption, and particularly if those disruptions are short and sharp as we've seen. This may be the path out. And so people will put up with a bit of disruption for that to occur, I believe. But it's, again, not our call, government call, when it is safe to do so.

Operator: Our next telephone question is from Adam Fleck from Morningstar.

Adam Fleck: Adrian, I wanted to follow-up on your point on airline capacity. I appreciate that airlines have been supported should the trans-Tasman open up. And you, of course, cited New Zealand as an attractive destination, your conversations with international airlines. But in those conversations, are items like jet fuel prices starting to come up? I'm just curious how those are going.

Adrian Littlewood: Yes. Yes, look, now it hasn't, in terms of feedback offhand. It's been more -- so let me sort of wind it back a little bit. We were -- as we said previously, pre-COVID, already a high-quality, high-value and profitable destination for many of those carriers. And I sort of called out airlines like American and some of the Chinese carriers and others sort of describing it as one of their most high-performing routes internationally. So I don't think that changes. Some of the parameters inside that might change. But jet fuel is important, but we're a high commitment destination. And I think there will be a bit less price sensitive, let's call it that, in the restart travel period. So I think if you're an airline looking to deploy fleet on destinations you perceive to be more reliable or more likely to succeed, our position has been and our proposals back in for when it's safe to do so, here's what a restart plan looks like, has been to call out the prior performance of some of those routes. And that's what I've sort of been reflecting on has been positively received. I think the Tasman and Pacific Island is slightly different because I'd focus more of that on the fact that people are quite keen to go traveling, when the government says it's safe to do so, and if there's a part capacity sitting around the tarmac not doing anything. So I think there will be a strong desire to get traveling again. And so that will be a different dynamic, particularly if those borders are close to other destinations. So two parts of that story. And I think both look reasonably positive from our point of view. But again, I'd caution, it's not going to be a switch to turn dividend back on. It's going to be a gradual path.

Adam Fleck: Yes. No, that's what makes sense. And then maybe just to your earlier point on margin and costs, thinking out medium-term once quarantine-free travel starts to reopen. Should we expect a big push, perhaps, on the marketing expense on your P&L to try to reinvigorate some of that travel?

Adrian Littlewood: Look, we will certainly be back in and doing it. I mean, I think we've highlighted to various sort of partners, if I think about tourism more than others, that we're going to still be in recovery phase. So we will be careful about how we deploy that and be judicious about where that is put and we are looking for tourism in New Zealand and the government to play an important part in that recovery. And I think our point has been, you get a double banger from both a year cargo as well as passenger connectivity, everyone you open up. So there's a significant and widespread benefit to our country, if it's safe to connect to new markets. So look, I think every country in the world will be in this mode. So we don't want our country to be late to that party and not bringing the tools it needs. So yes, we will be investing, but I wouldn't expect us to outsize our previous commitment. It's more about how we deploy it and how we partner.

Operator: And next telephone question is from Jason Familton from ACC.

Jason Familton: Just a little nod to you guys and good job of managing this business in clearly what's been a pretty positive 6 months or 12 months I suppose. Just a couple of questions. This one, just on Australia. Can you talk to -- of the $3.9 million pre-COVID, what was the mix between midterm sort of VFR holiday business? And how you think that may impact demand coming back? And then sort of linked to that, of the surveys you've done, where do they actually want to go in New Zealand? Do they want to go to Wiki Island and try to lead? Or do they want to go step on ski fields? Or what sort of activities or interests are there? I'm just trying to get a gauge of how much demand could come back and if the trans-Tasman bubble was to react.

Adrian Littlewood: Yes. Yes, for sure. So just -- and these are sort of broad numbers, Jason. And part of the problem is people can tick multiple boxes. So it doesn't always add up to 100. But broadly, holidays would be 40%, maybe 50% of that normal VFR, visiting friends and relatives are around about the same in business at about 20%. So -- and there's some other education other bits around the year. So that's rough numbers. It's quite hard to, though track that back to what will happen post-COVID given, I think, normal doesn't exist. So I think you could see a real spike in visiting friends and relative. I think that will be the first out of the blocks. Just anecdotally, I'm sure you've all heard it. The story is about the 600,000 Kiwis and all the disconnection with their friends and family in New Zealand. So -- and vice versa and people separated. So there's some really big pent-up demand there. So that may come out hard out of the blocks. From a holiday point of view, I mean the benefit about New Zealand is it's relatively very accessible. It is easy to access and there's a wide variety of experiences to go for. So for example, I know research that I think through New Zealand had suggested urban brakes or short brakes, are really attractive. So 3 or 4 days, a bit of adventure, some land here, could be a Wiki winter sort of theme or it could be a down to the woods and ride Aurora with a cycle and kayaking kind of experience. It could be down to Queenstown for a ski and outdoor experience. So I think New Zealand has a wide range of products, which is why it will appeal to Australians significantly. And then you've got the broader long-stay road to category, and that's sort of the retirees, the silver surfer kind of category, which will go very, very well, if I judge by local behavior. So I think that will be very strong and very positive and bounce back hard. And again, the airlines are quite excited by that opportunity when it is safe to do so.

Jason Familton: Okay. Second question, just on -- and probably the hardest thing around stock at the moment is just -- obviously, is not seeing your own , but the CapEx outlook, I'm trying to understand exactly what your CapEx is going to look like. It's a little bit early, you could actually do something more at the full year. Is that when we're likely to get more on what CapEx will look quite beyond this year?

Adrian Littlewood: Yes, I think that's fair. I mean we'll certainly continue some of the investment in our core infrastructure for resilience and other purposes and commercial properties we talked about. The bigger lifts, as Phil described and we called it trigger-based. So doing all the hard work now with the airlines and agencies around sort of reframing some of those projects and trying to reset that for the post pandemic environment and then being clear on what those triggers are. And some of those will be capacity, system capacity issues, some of those will be passenger-related, some of those will be road-related. So -- and some of those may be construction sequencing related. So all of those things are being worked through at the moment. So we're hopeful that for the full year, we can lay that out in a bit more resolution, acknowledging that we may still be in a period where exactly when those triggers will be struck will still be unclear.

Jason Familton: Okay. And just one more sort of linked to that. Obviously, no dividend this year. Potential depending on what happens with borders routing for '22. Where are we on reviewing the dividend policy? And potentially now that may set, what's the CapEx program you may or may not have when release ends?

Phil Neutze: Yes. So we formally review the dividend policy every June, typically, given the way the dividends paid for this financial year, they'll probably get cut off to the end of this calendar year. And it might be a slightly surprising answer. Actually, when we get quarantine-free travel going with Tasman and Pacific Islands because of our equity raise, we will have very strong credit metrics. So longer term, our problem is more likely to be stronger than required credit metrics for a stable and almost crude rating over the long-term rather than weaker than required, but it all depends on the shape of the recovery. So we'll be monitoring that closely and reviewing at least annually.

Operator: Our next telephone question is from Andy Bowley from Forsyth Barr.

Andy Bowley: And just a quick follow-up, guys, in a couple of areas. One, around aero repricing. I just want to explore the answer that you provided, Phil, in the previous question, in the context of existing pricing may remain unchanged from 1st of July 2022. I recognize there's no washout for the current under earning in the current pricing period. But how would that play out then in the next price setting period? Would it still be NPV 0? Would that allow some flexibility thereafter to be able to ensure that you get a fair return over the time frame involved?

Phil Neutze: Yes. So I think the overall view in the aviation sector, and particularly from the regulator, is that the airports take most of the upside and downside risk, particularly around traffic flows. We've had some ability to influence what happens there. So where we have a pricing period that was set in advance of the pandemic, like we have, PSE3 that finishes 30th of June 2022. The general expectation is airports will bear that risk. And I think it would be difficult for us to look to achieve an over return in PSE4 to make up losses during PSE3. Now that's a bit different to some other regulated entities. You'll be aware that Wellington Airport is still working through its PSE4 pricing, which in retrospect is probably advantageous because they actually haven't set the pricing for PSE4. And so it will encompass the period from before the pandemic arise. So there might be some opportunity for under recovery in early years to be made up by over-recovery in later years possibly but different for Auckland Airport.

Andy Bowley: But would that happen for you from first of July 2022, though? Or does that effectively fall under an extended PSE3?

Phil Neutze: It would -- sorry, if the conditions continue to be soft, and we were achieving under a WACC return from the first of July 2022, yes, it's likely that PSE4, the period that we've reset would look average return from first of July 2022 onwards. And so that would be -- yes.

Andy Bowley: So NPV was zero. Yes. Okay. Great. And final question for me, just in terms of CapEx. The highlight, as you pointed out in the presser was around property development, in this result. Can you talk to the CapEx expectations for property development? They're a bit soft in the first half in terms of total dollar spent. So what's that likely to look like over the next few years?

Adrian Littlewood: Yes. Look, I think we'll be selective and careful about where we invest. I think we have the luxury of having a high-quality asset with great clients and covenants. So that will be kind of the model we'll continue with in the next period, and we'll just pick out our partners carefully on that front. And I think that's paid dividends in terms of the outcomes the team have achieved in the last few years. And so that will be the plan going forward. But it will track market and our appetite for different clients, different opportunities.

Andy Bowley: But in terms of dollar value, do we get back to $100 million plus per annum? Or should we be thinking lower or higher?

Adrian Littlewood: I think that will depend on where we're tracking and what's kind of going to choose, Andy. I think we'll be careful about how we deploy that, depending on which ones we like and which ones we don't like. We're just not chasing every deal, and that's always been our strategy.

Operator: And the final question for today comes from Suraj Nebhani from Citigroup.

Suraj Nebhani: A couple of questions have been answered, but just wanted to clarify the comment, Phil, you made on the dividend. So is it like, I think what you're saying is that once the bubble starts, the metrics -- the credit metrics might be better than an A- trading. So is it fair to say that the payout policy that was applicable previously is likely to be reviewed and potentially even increased from where it was?

Phil Neutze: So long-term capital structure strategy really is based around a stable credit rating. So A- credit rating is what we target long term. And the strength of the credit metrics will depend entirely on the strength of the recovery in international passenger flows. But let's take a very optimistic view, if within a couple of years we're back to pre-COVID levels, we would rapidly be achieving credit metrics well above what's appropriate for A- minus credit rating. Now that obviously gives a lot of fire power to the infrastructure program that we'd be looking to restart. But what I said is we get the Tasman bubble underway. And so that would churn at some extent. But there is the potential that there could be more strength in the balance sheet than what is required. And what we wouldn't want is an unwanted credit rating upgrade. So if that positive scenario was to arise, then we might look at something similar to what we did in 2014, where there was a capital return specifically to avoid a credit rating upgrade.

Operator: There are no further questions at this time. I'd like to hand the call back to the speakers for closing remarks. Please continue.

Adrian Littlewood: Well, thank you, everyone, for your questions today. And for your support. We look forward to catching up with some of you over the next coming days, and look forward to speaking to you again. Thanks, again.