MESSAGE FROM THE CFO
Siphamandla Mthethwa
CFO
Aeronautical revenue improved significantly by 121.7% to R1.8 billion (2021: R810 million) due to the increase in aircraft landings and departing passenger numbers during the period.
Airports Company South Africa recorded a loss before tax of R1.5 billion for the year ended 31 March 2022 (2021: (R3.6 billion). The losses in both this period and the previous one are in notable contrast to the profit of R1.4 billion recorded in the 2020 financial year and are directly attributable to the impact of the COVID-19 pandemic, which severely curtailed both aeronautical and non-aeronautical revenue.
The results for the reporting period nevertheless demonstrate the Group’s resilience in the face of the unprecedented crisis precipitated by ongoing lockdowns, travel restrictions and the need to dramatically scale back operations. They indicate that the business is now in a recovery phase, although recovery is gradual.
The R900-million Capital and Operational Expenditure Reduction Programme introduced in the previous year to sustain operations in light of significantly reduced revenue enabled the Group to meet the liquidity challenges it faced throughout the reporting period. Reduced expenditure and a disciplined cash management process also enabled the Group to maintain relatively low levels of borrowings.
REVENUE
The recovery that occurred during the period was supported by a gradual and intermittent recovery in passenger numbers in comparison to the previous year, which resulted in an 81.1% increase in total revenue to R3.9 billion (2021: R2.2 billion) and an increase in EBITDA to R342 million (FY2021: -R1.8 billion).
As severe travel restrictions began to be lifted both at home and abroad the demand for air travel slowly increased. Recovery was, however, uneven, with domestic and regional traffic recovering to 57.9% and 36.1% of pre-pandemic levels respectively. In contrast, international traffic, hampered by the impact of the Omicron variant in the third quarter of the financial year, only recovered to 28.9% of its pre-pandemic level.
Aeronautical revenue improved significantly by 121.7% to R1.8 billion (2021: R810 million) due to the increase in aircraft landings and departing passenger numbers during the period as well as the 3.3% tariff increase for the year. Aircraft landings increased by 104.6% to 176 816 (2021: 86 434) and departing passenger numbers improved by 130.6% to 10 538 341 (2021: 4 69 758).
Non-aeronautical revenue followed suit, increasing by 56.5% to R2.1 billion (2021: R1.3 billion). This improvement was again due to increased passenger numbers as well as the lifting of certain trade restrictions during the various levels of lockdown. Total revenue from non-aeronautical sources takes into account the rental revenue reprieves of R591 million (2021: R1.4 billion) granted to tenants to offset the negative impact of the pandemic.
In a similar vein, retail revenue increased by 95.8% to R607 million (2021: R310 million) due to increased traffic volumes. This should, however, be seen within the context of a reduction of 15.1% in retail revenue per passenger to R57.56 (2021: R67.77).
Property revenue for the period increased by 11.1% to R730 million (FY2020/21: R657 million).
OPERATING EXPENDITURE
In line with the intermittent relaxation of lockdown restrictions, operating costs increased by 3.9% to R2 billion (2021: R1.9 billion) during the period. The cost-reduction initiatives introduced in the previous financial year continued to minimise operating costs, which have been maintained at 75.2% of pre-pandemic levels for the past two years.
Some operational costs did, however, increase in comparison to the previous year. Most notably, repairs and maintenance expenditure increased by 16.4% to R317 million (2021: R272 million) and security costs increased by 6.9% to R452 million (2021: R423 million). Information systems operational costs reduced marginally by 4.9% to R247 million (2021: R259 million).
Utilities costs, which include property rates and taxes, water and electricity, accounted for 23.0% (2021: 22.6%) of our total operating costs. Expenditure for the year increased by 6.0% to R466 million (2021: R440 million).
EMPLOYEE EXPENDITURE
Employee expenditure decreased by 29.9% to R1.3 billion (2021: R1.9 billion) driven by the early retirement and voluntary separation processes initiated in the previous financial year. As in the previous period, there were no salary increases during the reporting period and no incentive bonuses were paid. Total headcount was reduced by 11.4% to 2 493 staff (2021: 2 752)
Packages paid to employees in terms of the early retirement and voluntary separation processes amounted to R45 million (2021: R243 million).
Staff transportation costs amounted to R76 million (2021: R90 million) for the period. The staff transportation initiative, which was introduced in 2019 to provide safe and reliable transport for shift employees after business hours is now being wound down.
PROPERTY, PLANT AND EQUIPMENT
Capital expenditure for the year amounted to R546 million (2021: R770 million). This was limited to airport maintenance and resilience, with most uncontracted projects remaining on hold until funding is available, which is expected to be at the end of the 2023 financial year.
Property, plant and equipment value decreased to R17.5 billion (2021: R18.6 billion) due to wear and tear as well as minimal expenditure on improvements and additions.
Similarly, depreciation, amortisation and impairment decreased to R1.2 billion (2021: R1.3 billion) due to changes in the useful economic lives of the Group’s operational assets, resulting in decelerated depreciation. This came about as a result of the need to keep the assets in service beyond their pre-COVID-19 estimated useful economic lives and due to limited capital being purposed for the refurbishment and maintenance of existing assets.
INVESTMENT PROPERTIES
The value of investment properties increased to R7.9 billion (2021: R7.6 billion) as at 31 March 2022 due to additions and transfers from the property, plant and equipment category.
The fair value adjustment of investment properties resulted in an overall fair value loss of R91 million (2021: R216 million fair value loss). The valuation decrease was driven by lower market rental growth assumptions on the back of a weak macro-economic environment and the impact of COVID-19.
FRUITLESS AND WASTEFUL EXPENDITURE
Fruitless and wasteful expenditure decreased by 89.9% to R8 million (2021: R77 million).
As the Group’s accounting authority, the Board approved a write-off R72 million in fruitless and wasteful expenditure incurred in previous financial years. This was done in accordance with the process outlined in the National Treasury Fruitless and Wasteful Expenditure Framework, which was issued in November 2019. The expenditure was on SARS interest and penalties.
Although written off during 2022, the basis on which SARS imposed these penalties and interest on previous assessments is still being challenged through the courts.
IRREGULAR EXPENDITURE
Irregular expenditure incurred during the reporting period amounted to R30 million (2021: R274 million), which was due to non-compliance with the regulations that govern supply chain management.
The opening balance for irregular expenditure in the 2022 financial year was R392 million (2021: R1.2 billion). R13 million of the previous year’s irregular expenditure has been identified in Annual Financial Statements for the reporting period. Further, an amount of R127 million condoned in the prior period pertains to two irregular expenditure condonations that were approved in the 2020 financial year. This was approved by the delegated authority as per the 1 December 2018 Irregular Expenditure Framework but was not adjusted in the cumulative amount.
The ACSA Group complies with the National Treasury Irregular Expenditure Framework as updated from time to time. Compliance is monitored through the Company’s Loss Control Function, which performs detections, assessments, determinations and investigations of expenditure transactions. Through the Loss Control Function, an amount of R114 million of the irregular expenditure was removed from the AFS for the reporting period.
In the 2023 financial year, the Loss Control Function will continue with assessments, determinations and investigations of the remaining balance of R435 million in irregular expenditure.
FUNDING
Although the Company repaid R296 million worth of amortising loans during the reporting period, debt levels did not change significantly, remaining at R9.3 billion. This was due to the accrual of unpaid dividends amounting to R211 million relating preference shares issued to government.
Interest payments for the period amounted to R546 million, with total debt service costs amounting to R844 million. The debt portfolio as at 31 March 2022 was as follows:
- Inflation-linked bonds: 19%
- Fixed rate bonds: 33%
- DFI loans: 20%
- Preference shares: 28%
CREDIT RATING
On 5 April 2022, Moody’s Investor Services affirmed the Company’s Ba2 Corporate Family Rating (CFR) and the Aa2.za national-scale long-term issuer rating. This follows affirmation of the Ba2 rating of the government of South Africa and a change in the outlook to stable from negative on 1 April 2022.
The rating outlook for the Company remains negative which, according to Moody’s, reflects the significant uncertainties around air traffic recovery prospects and the regulatory determination effective from 1 April 2023.
OUTLOOK
Global travel restrictions and regulations imposed due to the pandemic continue to pose serious challenges to air traffic recovery. It is estimated that global traffic will be between 51% to 71% of pre-pandemic traffic levels in the current period (FY2023). Countries with high levels of domestic travel showed higher levels of recovery during the reporting period and this trend is expected to continue in the current period.
The Group continues to monitor the local and international business environment in order to determine appropriate responses to this and to ensure long-term financial sustainability. Capital expenditure remains limited to maintenance and refurbishments informed by statutory requirements. The Group also continues to identify efficiencies in its operations, keeping operating expenditure to a minimum.
