Auckland International Airport: Financial Management Plan Report

This report provides a financial management plan for Auckland International Airport, analyzing its financial performance based on annual reports. The report includes an executive summary, stakeholder analysis (government and shareholders), and capital budgeting using NPV and IRR methods. It evaluates profitability ratios (net profit margin, operating profit margin, return on equity, return on assets) and efficiency ratios (asset turnover, inventory turnover, accounts payable turnover). The analysis covers risk and return, country risks, and the company's hedging strategies. The report also includes suggestions for improvements and concludes with an assessment of the airport's financial health and future prospects. The report finds that the company is committed to meeting the needs of its stakeholders and has increased revenue, despite some declines in profitability ratios. The company is also shown to be managing its operations effectively.

Running Head: FINANCIAL MANAGEMENT PLAN
Executive Summary
The purpose of the report is to do a financial management
plan of Auckland International Airport. The study is supported by
analysing the annual reports of the three financial year of the
company. It is found that Auckland airport is committed to
meeting the needs of the stakeholders and the shareholders of
the company. The business has increased its revenue in the
current financial year. The company is able to manage their
operations.

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Contents
Part A.........................................................................................................................................2
Part B..........................................................................................................................................3
Part C..........................................................................................................................................4
Part D.........................................................................................................................................5
Part E..........................................................................................................................................7
Part F..........................................................................................................................................8
Part G.........................................................................................................................................9
Part H.......................................................................................................................................13
Part I.........................................................................................................................................15
Part J.........................................................................................................................................16
References...........................................................................................................................19
Part A.........................................................................................................................................2
Part B..........................................................................................................................................3
Part C..........................................................................................................................................4
Part D.........................................................................................................................................5
Part E..........................................................................................................................................7
Part F..........................................................................................................................................7
Part G.........................................................................................................................................9
The company communication framework and structure designed in such a
way in order to ensure proper communication with shareholders and other

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stakeholders of the company properly managed.This strategy forms part
of the disclosure and communication policy.The company keep internal
stakeholder and shareholder informed and communicated through various
strategy involved namely:.............................................................................................12
Part H.......................................................................................................................................13
Part I.........................................................................................................................................15
Part J.........................................................................................................................................16
References...........................................................................................................................18

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Part A
Auckland International airport is one of the largest
airportairports of New Zealand and Itand It is a service provider,
Thethe company is listed both in the New Zealand Stock Exchange.
Auckland airport is an aviation industry, which is located in the
Ray Emery Drive of Auckland. It handles around 71 per cent of the
international passengers. The number of flights operated by the
giant airport on an average is 420 per day with an annual
turnover of approximately 153,300. Auckland Airport is also the
busiest airport of New Zealand and has more than 21 Million
passengerpassengers catered to in 2019. The airport is the hub for the
aircraft Air New Zealand, Virgin Australia and Jetstar Airways. (Auckland
International Airport Ltd, 2020)
https://corporate.aucklandairport.co.nz/corporate-responsibility/
managing-aircraft-noise/understanding-aircraft-noise/auckland-flight-paths
The services provided by Auckland airport encompass the
following:
(a) Flight Information;
(b) Providing parking space for visitors and local cabs;
(c) Shopping and dining;
(d) Clubs;

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(e) Transportation (Auckland International Airport Ltd. , 2020)
https://www.aucklandairport.co.nz/information/terminal-services-and-
facilities
Part B
In any business organisation, there is an owner who invests fund
in the business of the company with an expectation to earn
sustainable returns over the investment horizon. These people in
the accounts of the company are considered as shareholders or
principal. On the other hand, for a company to operate efficiently,
it needs to be managed by a group of experts with diverse
knowledge and wisdom. These people who are managing the
affairs of the company on behalf of the owners/ principal are
considered as agent.
The relation between these two group are critical for the success
of the organisation and vision of the Auckland International
Airport to be the best in the field and catering to a large group
and section of the commuters. In the concerned case, the needs
of the principal isare to earn a steady return on the investment
made over the investment horizon. On the other hand, the agent
shall be required to manage the affairs of the company in a
manner that take care of both the shareholder and stakeholder.
Principal is shareholder of Auckland airport and the agent is the
board of directors and discuss the relationship.

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The two relevant stakeholders of the company are mentioned
here in below:
1. Government: The interest of the government lies in the
collection of taxes from the Auckland Airport, helps in easy
connectivity of the people round the world, also helps in
attracting tourism and many other benefits.
2. Shareholder: The shareholders can raise question for their
Board and can make comments about the company’s
operation and performance and the main interest lies in the
profit maximisation.
Part C
NPV, IRR, Capital Budgeting
Proforma Income statement 2019($)
2020(
$) 2021($) 2022
Details
Sales 11Sales 11% 743.4 825 916 1017
Less:operatingLess: operating
expenses 188.6
206.2
9 228.99 254.17
DeprecitionDeprecation 102.2 102.2 102.2 102.2
290.8
308.4
9 331.19 356.37
net profit before tax 453
516.6
8 584.76 660.32
Tax 28% 127
144.6
7 163.73 184.89
Net profit After Tax 326 372.0 421.03 475.43

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1
Add DeprecitionDeprecation 102.2 102 102 102
Operating cash flow 428
474.2
1 523.23 577.63
less: Baseline (Operating
cashflow) - 428 428 428
Incremental cashflow - 46.21 95.23 149.63
Cost of Capital 10%
Initial Investment -140
Incremental Cash Flow (Y1) 46
Incremental Cash Flow (Y2) 95
Incremental Cash Flow (Y3) 150
NPV 93.02779865
IRR 38%
Capital budgeting is done by taking the income statement of
last three years. The sales value has been taken for each of the
trend period as a cash inflow source and the required returns
around 10%. The NPV is computed at $9318.32 Million and IRR of
project is around 1381% The assumptions is done for a sum of
three year whereby the income statement is projected. Increase
in revenue of the company will be done based on an assumed
growth rate of 111% and depreciation has taken into
consideration as a non-cash expense (MalenkoMalenkov, 2019). The
resultant profitability will be addressed with the help of NPV and
IRR Approach.
Based on above computation, it may be inferred that the future
prospects of the company are strong based on financial feasibility
study. A positive Net Present Value symbolise the opportunity in
the business and an IRR greater than the cost of capital gives a

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green signal to further investment in the project. In the current
case, since the IRR and NPV of the project are good, investment
in Auckland International Airport from an investor point of view is
a good opportunity.
Suggestion: Based on above deliberation it may be inferred that
investment in Auckland International Airport is a feasible option
Part D
Profitability Ratios
Measures Formulas 2019
201
8
201
7
Profitability
Ratio
Growth in
sales
cureentcurrent sales -previous
sales/ previous sales*100 8.70 8.68 9.65
Net Profit
Margin Net profit after tax/Sales* 100 70.42
95.0
6
52.9
0
Operating
Profit Margin
EBIT(EBIT (Earnings before
Interest and taxes)/Sales*100 95.56
129.
13
80.8
8
Return on
equity ratio
Net profit after tax/Average
equity*100 8.94
13.3
9 8.42
Opening equity+endingequity
ending equity/2 5857.5
485
5.55
395
4.85
Return on
assets ratio
EBIT(EBIT (Earnings before
Interest and taxes)/Average
assets*100 8.41
12.0
1 8.05
Average
Assets
Opening total
assets+closingassets closing
total assets/2 8446.95
735
0.15
632
2.50

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Trend-
Net profit margin of the company has decreased from 95.06 to
70.42 on account of increase in direct and indirect expenditure of
the company without a parallel increase in the revenue of the
company. Accordingly, the Airport has witnessed a downward
trend in margin from last year. However, there has been an
improvement compared to 2017. The formula for computation of
net profit margin is described as under:
(Revenue- direct and indirect cost) / Revenue
Operating profit margin of the company has decreased from
129.13 to 95.56 on account of increase in operating expenditure
of the company without a parallel increase in the revenue of the
company. Accordingly, the Airport has witnessed a downward
trend in margin from last year. However, there has been an
improvement compared to 2017. The formula for computation of
operating profit margin is described as under:
(Revenue-operating expenditure) / Revenue
Return on Equity of the company has decreased from 13.39 to
8.94 on account of increase in direct and indirect expenditure of
the company with a parallel increase in the equity of the
company. Accordingly, the Airport has witnessed a downward
trend in margin from last year. However, there has been an

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improvement compared to 2017. The formula for computation of
return on equity is described as under:
Net Profit Margin / Avg. Equity
Return on Assets of the company has decreased from 12.01 to
8.41 on account of increase in direct and indirect expenditure of
the company with a parallel increase in the assets of the
company. Accordingly, the Airport has witnessed a downward
trend in margin from last year. However, there has been an
improvement compared to 2017. The formula for computation of
return on assets is described as under:
EBIT / Avg. Assets
Interpretation- The overall profitability ratios has been decreased
as compared to past years by a significant margin on account of
increase in both direct and indirect cost of the company. This indicates
that, the business has not generated enough revenue inrevenue in
the current year..year. It has done investments in the Queensland
airport (Laitinen, & Laitinen, 2018). However, when compared with
the 2017, a good return has been observed so one may also consider that
2018 was a one offone-off spin. Further, the airport has been generating
constant growth and returns over the periodThe company is unable to
manage its assets.

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Suggestions- Auckland International airport should continue
doing investments for increasing the business profitability and
properly manage their assets.
EfficiencySolvency Ratios
Trend-
Total Assets Turnover Ratio - There has been a decline in the ratio
from 0.4 to 0.3. This reflects an increase in the average total
assets or more specifically the assets at the end of the closing
period, thereby, signifying an increased investment in the assets
by the concern. Also, it may be observed sales has increased but
the relative increase of sales is lower compared to assets.
Further, the increase in assets has been mostly on account of
investments in fixed assets made by airport.
Fixed Assets Turnover Ratio - There has been a decline in the
ratio from 0.3 to 0.2. This reflects an increase in the average total
fixed assets or more specifically the fixed assets at the end of the
closing period, thereby, signifying an increased investment in the
assets by the concern. Also, it may be observed sales has
increased but the relative increase of sales is lower compared to

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assets. Further, the increase in assets has been mostly on
account of investments in fixed assets made by airport.
Inventory Turnover Ratio - The significant increase in this ratio is
an evidence of better working capital management on the part of
the company. The ratio has increased on account of higher
increase in sales volume compared to increase in inventory.
Trade Receivable Turnover Ratio – Overall, there has been an
improvement in the ratio which shows that less funds are getting
blocked with debtors while the sales levels are rising which
augurs well for the business.
Age of Trade Receivables Ratio – The ratio is reflecting an
downward trend compared to last year, thereby, indicating a
decrease in the credit period of debtors. This indicates a
stringent credit policy has been adopted. Further, when
compared to 2017, the aging has increased.
Accounts Payable Turnover Ratio – Overall, there has been an
increase in the ratio which shows that average creditors with
respect to level of sales is on a decline indicating that the
business is able to maintain a low level of creditors with increase
in sales.
Age of creditors Turnover Ratio - This ratio is also reflecting a
downward trend, thereby, indicating a decrease in the credit

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period for payment to creditors. This is an indication of decrease
in the liquidity position of the business.
Interpretation- The efficiencysolvency ratios has been
decreased in the current FY 2019. This indicates that, the
company is not able to meet the short and long-term liabilities.
The company is not able to meet the debt obligations (Rahman,
2017).
Suggestions- Company should focus on maintaining their
debt obligations and control the fair value of existing debt. They
should also focus on managing the assets for meeting the short-
term debt obligations.
Part E
Risk and Return
The coefficient of variance for the Auckland Airport has been
consistently high and estimated from the calculations done,
which shows that the company has generated a return of about
1.99%15.60% (monthly) and standard deviation of 524.040%. The
Shanghaiydney Airport generated a return of about 410.8698%
(monthly) and standard deviation of about 823.9714% which on a
comparable basis was not good as coefficient of variation for Shanghai
is lower than Auckland(Auckland (Baro et al., 2019).
Auckla
nd
Shang
hai
Expected
return 1.99% 4.69%

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Standard
Deviation 5.40% 8.97%
coefficient of
variation 271.4%
191.4
%
Particulars Sydney
Aucklan
d
Return 10.88% 15.60%
Standard Deviation 23.14% 24.04%
Co-efficient of
Variation 2.13 1.54
Part F
Country risks
Since the financials of the company are reported in New Zealand
dollar and major transactions are carried out in the same. Further, there
are foreign bookings and investment loan taken by the company in varied
currencies encompassing Dollar, Yen and Renminbi. The fluctuation of
these currencies can impact the financials of the company as loan has to
be repaid along with the interest to the strategic investor of the company.
Thus, appropriate safeguard in this regard needs to be applied by the
company for the purpose of managing the affairs of the company.

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Auckland international airport has accordingly entered into various hedge
and derivative contracts to safeguard the fluctuation in currency and
protect the financial strength of the company in a holistic manner. The
exposure has been computed in a detailed manner in the financial
statement of the company.
The group is exposed to various currency risk with respect
to Australian and US dollars. The risk of Australian dollar arises
from Australian note borrowings. This currency risk is hedged by
cross currency interest rate swapping for both principal and
interest amount. Exposure for the US dollar arises from USSP
borrowings. This exposure is also fully hedged by way of cross
currency interest rate swaps with the same combination with
basis swaps for both principal and interest amount. The cross-
currency swapping is done through fair value hedge and cash flow
hedge component. The movement on the hedge component are
taken on the statement of income along with the movement of
the hedging risk on AMTN notes and USPP Thenotes. The analysis
for capital budgeting is done by country risks. This is
incorporated with country risks by adjusting their estimated cash
flows and discount rate. Discount rate is adjustment due to
higher level of risk associated with the project. Hence, the
discount rate is higher. Adjusting the estimated cash flow can
help the multinational corporations to determine the net present
value of the associated project. Country risks will help the
multinational companies to assess the risk and accordingly revise

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their operations (Anjum & KamaluddinJamaluddin, 2017). The
countries can also eliminate the financial related problems that
could arise in the developed countries. Country risk identifies the
economic, financial and political risks that is operated in the
country. It helps in assessing the value of an assets according to
this factor. For example, corruption, military conflicts, law &
order and investment profile. It estimates the damages related to
the assets cash flows. Helps in financial decision-making related
to investments in a foreign country by identifying the economic
and political risks of a country and anticipates the losses. The
analyst forecast the economic and geopolitical risks through
regular update of the risks profile, visualisation and analytics.
Part G
Internal Stakeholders
Management board- The Company has engaged its board of
directors to maintain its company governance. The directors are
committed to a role that is accepted according to the NZX
Corporate Governance code 2017, which includes eight
fundamental principles for practicing a good corporate
governance. The senior management staff is under a strategic
alliance agreement and is the board of director of Queenstown
airport. The board of directors are considered as independent
directors. They are also involved in selecting the new directors.
They are comprised of having an experience in their areas of

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skills. The board of Auckland International Airport are
experienced in capital markets, regulatory, shareholders
connectivity and retail experience. They are accessed to the
company records and important information to perform their
duties. The information areis accessed for ensuring a decision-
making. New board members are involved in induction
programme to engage with the company business. They are also
responsible for monitoring the conduct of the company. They
have access to the services and advice of the general counsel for
the board affairs. Basically, they have committee to involve in
audit & financial risk, people & capability, nominations and safety
& operational risk.
Figure 1: Board of Directors

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Figure 1: (Media Release by Patrick Strange-board of
director)
Main Stakeholders
Shareholders
The company protects the interest of the shareholders.
Auckland airport has initiated a dividend investment plan, and
under this plan the shareholders can elect themselves to receive
the dividend values. The eight fundamental principles waswere
also set up for practicing the benefit of the shareholders. The
company monitor and approve the financial statement after
reporting it to the shareholders. The board of directors are
elected by the shareholders after every three years of period. The
communication framework and the business strategy of Auckland
is designed in a way to ensure that, the business can easily
communicate with the shareholders. They also ensuresensure that,
the approval of financial statement from the shareholders are
done by continuously disclosing the reports to the shareholders.

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Other Stakeholders
The company is also engaged in protecting the interest of
the people and community. It operates in a commercial
environment that is free from the social, economic and
environmental risks (VoinovVinod et al., 2016). Due to external
stakeholders, the company is able to do business sustainability
and create value to their external stakeholders in long-term
perspective. The ethical conduct and other company obligations
are done according to the stakeholdersstakeholder’s interest.
Figure: 2 (Corporate Governance report)
Source: (Pdfs.semanticscholar.org, 2020)
The company communication framework and structure designed in such a way in order
to ensure proper communication with shareholders and other stakeholders of the
company properly managed. This strategy forms part of the disclosure and

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communication policy. The company keep internal stakeholder and shareholder
informed and communicated through various strategy involved namely:
The corporate section of the company website.
The annual report
The interim report
The CSR reports
The annual meeting of the shareholders
Information provided to analysts during regular briefing
Disclosure to NZX and ASX in accordance with the communication and disclosure
policy.
Media release.
The Board consider the annual report to be an essential opportunity for communicating
the same to the stakeholder. The company publishes the same through annual and
interim report and accordingly the plan is published on the company website. The
annual meeting of the company also provides an opportunity to the shareholders of the
company to raise any question to the board and can make comments about the
company operations and performance.
Part H
Internal compliance-
The name of the compliance is New Zealand International
Financial Reporting Standards. It is required to prepare the
financial statement of the business. This compliance is monitored

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by preparing it according to the requirements of Financial Market
conduct 2013 and NZX Board rules. The company was
incorporated under the company’s act 1955. It is registered under
company’s act 1993 on the year 1997 of 6th June.
Example- Code of ethics is available for the employees,
directors, contractors and the business consultants. This ethical
and code of conduct policy deals with the responsibilities towards
the personal integrating, responsibilities towards the
shareholders, towards the suppliers & customers. It sets out
certain procedures that prohibits the obligation of confidential
information. The internal policy is set out for prohibition of the
employees trading during black out period. The procedures for
dealing with the employees, directors and the consultant is
compiled with the requirement associated protected disclosures
act 2000.

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External Compliance-
The company is controlled by the companies’ act 1993 that
is it is registered under this act. The business havehas to prepare
a constitution and register it in this act. Since, Auckland airport is
a public listed company has to publish their annual report based
on companies’ act 1993. That is every twelve month the company
is publishing its annual report which includes all the information
and the financial statement. The company should also register
their maximum capital with the company registrar. Hence, this
external policy controls the business of Auckland International
airport at New Zealand.
Part I
 Operations- The operating margin is same in the past three
year. There is no change. The business is properly
maintaining the operating expenses. The business has
proper knowledge in managing their expenses.

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 Accounting- The company collect the data, record the data
and analyse the data and prepare financial statement. The
accounting policies are set under IFRS and IAS system. It is
suggested that company should follow AAS standard for
better accounting practices.
 Sales & marketing- Sales include both direct & indirect
sales. Marketing expenses are declined by 17.4% in 2019.
But,But the existing services required market support.
 Risk management- The risk policy is set for maintaining the
credit and liquidity risk. The risk associated in the business
is less as compared to competitor.
 Auckland International Airport limited is engaged in the business of providing
airport facilities and also supports infrastructure. The following segments are
also included in its business which is Aeronautical, Retail and Property. The
Aeronautical segment provide services that helps in the movement of aircraft,
passenger and cargo services that basically support the airport area. The Retail
segment include services which is provided internally to the staff passenger and
visitor for car parking. The Property segment includes services such as cargo
buildings, hangars and standalone properties for investment purposes.

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Part J
Ethical- the Company is engaged in following the ethical
standard 1 of code of ethics issued by the international boards for
Accountants code of ethics. The ethical responsibilities are done
according to these requirements. The financial decision-making is
done according to the moral code of conduct without affecting the
ethics of a business. The decisions isare protecting the employees
and the management interest by paying wages and salaries.
Social: The company has been very environmental cautious in their ethical responsibility.
The following achievements have been made by the company in the annual report of 2019:
(a) Employee recordable injury rate was brought down by 2.2%;
(b) Passenger incident rate has been reduced by 41.3%;
(c) Environmental impact reduction has been drastically with carbon emission reduced by
33%;

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The respective role of the Board and management is recognised. The
Board main governance role includes that to work with social behaviour
with the company management and team and to ensure that the
company goals are clearly established and communicated and it is
achieved ethically with proper standard and norms. The company also
follow high ethical and corporate behaviour standards. The Board of the
company should also properly follow the proper remuneration practice
that helps in the recruitment, professional development and retention of
staff. New ways are also open in order to achieve a high level of diversity
within the business.

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References
References
Auckland International Airport Ltd. (2020, February 13). Auckland flight paths. Retrieved
from corporate.aucklandairport.co.nz:
https://corporate.aucklandairport.co.nz/corporate-responsibility/managing-aircraft-
noise/understanding-aircraft-noise/auckland-flight-paths
Auckland International Airport Ltd. . (2020, February 13). Terminal services and facilities.
Retrieved from www.aucklandairport.co.nz:
https://www.aucklandairport.co.nz/information/terminal-services-and-facilities

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Appendix
Template of Income statement
Template of financial position statement

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Template of Financial KPI

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