Ladies and gentlemen, thank you for standing by and welcome to the Auckland Airport Interim Results 2021 conference call. At this time, all participants are in listen only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one on your telephone. Please be advised that today's conference is being recorded. Now I hand the conference over to your speaker today, CEO, Mr. Adrian Littlewood. Thank you. Please go ahead. Good morning, everyone. Great to have you on the call for the results for the first half of FY 2021. I'm joined by Philip Neutze, our CFO. Phil and I will be working our way through our results presentation. I think it's pretty obvious to say this is unlike any other result previously. It has some information in here that will set a milestone for us in terms of the first time we've made an underlying loss in a period since 1998. It also reflects the wide and significant impact of COVID on our business. We'll touch on various elements throughout the result and time for questions at the end. Look, starting out on page four. Some of this is a matter of record in many ways, for those who don't have a chance to listen to the webcast. It's been a real period of adjustment, in a very dynamic way, day to day, as well as month to month as we've dealt with COVID. Our team are at the front lines dealing with the very ongoing changes to managing the border. Our team have done a stunning job of managing that, as well as keeping on with core business around infrastructure upgrades and taking care of issues there. We've also managed to keep the business ticking on other fronts where it has been less affected, for example, our commercial property business, and the team played an important role in connecting our country through cargo and other things. We are still spending a lot of our time resetting our business for the COVID environment, keeping on with some of those projects that matter for the long term: roads, fuel lines, airfields, as well as taking care of other projects in our commercial development area. We'll touch on those highlights as we go through, but I think it's important to start out with a big thanks to our team for the incredible hard work over this last year and this last half. With that intro, I'll turn to page five and just touch on some of the results there, and no, this will be a surprise to you. Heavily impacted by the reduction in passenger numbers flowing through to our results. Revenue down 65% odd in the period. Underlying earnings, just to click over that, it's 68% down in the period, leaving us with an underlying loss for the first time, as I've said before, of about NZD 10.5 million. That compares with the corresponding period last year at about NZD 140 million underlying profit. Quite a significant change for us in the period. As you know, passenger movements down about 74% to 2.8 million, that flowed through. Unsurprisingly, and as signaled prior, no dividends obviously will be paid out in this period. Just turning to page six, getting into a bit more detail. Again, some of these are not as meaningful as they usually are in terms of segment breakdowns. Probably what's more of interest is the difference between the performance across the different segments. Aeronautical revenue down, as I said, 74%, tracking reasonably close to passengers. Retail obviously has been more affected, and that is a function of the exposure to international travel and the dominant impact there. We've adopted a supportive model with our, particularly our terminal retailers, to try and keep them stable in this intervening period. Transport has performed a bit better at 63% down as domestic travel has recovered. Hotels have been supported by some of the MIQ managed isolation and quarantine facility support they have had there, but also some impact on the other hotel, the Ibis, that hasn't been part of that program. Property has been, again, a real highlight, and continued its very strong performance. Really, as I'll touch on later, reflects the underlying quality of the asset and the team's performance there. We have about NZD 220 odd million under construction, and our portfolio valuation continues to grow. Finally, on associates, Queenstown has had a tough year, like we have in Auckland, with revenue down there 53%. That's the highlights from a segment point of view. If I just touch on page seven, just into a bit more detail on passengers, this is just showing the layup of passenger ins and flows over the period. At a high level, we've gone from having 43 destinations across our network pre-COVID with about 30 airlines. We're now down to about 13 airlines, with about half of those destinations suspended. That's obviously hit our international hard, we're running at only about sort of two or three percent of normal international volumes in that period. For a whole half, we only had about 150,000 international passengers, that compares in the previous half, five and a bit million. Domestic has also been hit, it's been pleasing to see that recovery come back and the team have worked hard to get domestic traveling fully operational at level two COVID response. You can see in that chart on the right-hand side of page seven, the impact that had in terms of passenger volumes once we managed to work with the government to remove some of those travel restrictions at level two there. Cargo has continued to be an important part of keeping New Zealand connected. Cargo has still been down about 11% in terms of tonnage carried from 91,000 in the previous period to 81,000 in this period. Quite a dramatic change from our normal operations, if you call it that. On page eight, I just wanted to call out the work that our teams have done. While we've been living with the management of COVID at the border, we've worked really hard with our partners in travel and tourism and aviation to try and play our part to help figure out how we work in this new environment. As I said, we helped resolve level two domestic travel, but we also worked with our partners to propose models for trans-Tasman. We developed a risk-based border model with medical peer review process to suggest a model that could be applied to reopen to safe zones like Australia. We split our terminal into two operating models to allow safe zone travel to occur, and we've been a launch partner for a new saliva PCR tests to help our staff have a less invasive and more rapid testing protocol to protect them and New Zealand as well. We've been hard at work on that. I think what we really need to look at is say, well, what's the path out of this current model? I think there are many things that we think need to happen, but a lot of those are in train, which is good, but need to be turned from concepts into operation. Again, operationalizing that risk-based border model, I think, is important. Confirming what are the tick required around authority to fly technologies and how the travel pass is one of those ideas with strong support from the airlines. We need to be clear, I think, around the thresholds, the metrics, vaccine rollout targets, et cetera, that is required to safely restart countries like Australia. Then we need to restart those when it is safe to do so. That's all burnished by the ongoing development of our domestic health security around testing, tracing, and new technology. I think those things are all quite important. I think for us, I think that's about building some clarity. We know certainty is hard to achieve in these times, but getting clarity on what are the things that matter and what's the path that business in New Zealand needs to work through, I think will be really important in the coming months. I think that's the path to restart safe markets like Australia and the Pacific Islands. For us and the tourism industry in particular, and particularly also for friends and family who are heavily connected with Australia and the Pacific Islands, that's very important. For our business, it's really material in terms of the recovery part. With that, I'll hand to Phil, who will take us through some of the detail on the financial performance. Phil, over to you. Thanks, Adrian. 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. We did, however, report a GAAP-compliant after-tax profit for the half year to 30 December 2020. As set out in slide 32 in the appendix to this presentation, reported profit benefited from a couple of items. There was a circa NZD 30 million upward revaluation in our investment property portfolio, and that was due to development margins achieved on two recently completed developments. It also benefited from the circa NZD 15 million reversal of previously accrued CapEx project termination costs, and that reflected successful contract termination negotiations with construction companies. Turning now to slide 11. As Adrian mentioned, thank goodness for our investment property portfolio. That's continued to trade strongly, and that's despite us providing just under NZD 3 million of rent abatements to our tenants most adversely impacted by COVID-19 during the period. All other revenue streams were down on PCPs, with retail income and aeronautical passenger charges most significantly impacted. That's owing to their reliance on international passengers, which were down 97% as a result of COVID-19. Airfield income, on the other hand, that comprises landing and aircraft parking charges, held up better, was down by only 50%, and that's owing to strong international cargo and traffic and aircraft parking. Car parking also performed comparatively strongly, that's owing to the contribution from domestic passengers, which were down by 45% in the period, versus international, down 97%. Also because domestic car parking outperformed domestic passenger numbers, decreasing by only 25%. We think this reflects the preference to use our own vehicles rather than taxis, rideshare, and public transport during the pandemic. Moving to slide 12. As we guided at the full-year results announcement last August, we pretty much delivered on our target of reducing core operating expenses by 35% compared with pre-COVID levels, with a NZD 33 million or a 34% reduction in the period. This excludes some one-off benefits that were also booked in the period relating to partial reversals of the prior provisions for project termination costs and credit losses. Don't try to say that too quickly. These took the total OpEx reduction to 55% versus PCP. The main savings in core OpEx were through staff cost reductions, reduced marketing expenditure, lower consultancy spend, that's the professional services line, and reduced outsource operations expenditure. That's all within the asset management maintenance and airport operations expense line. These are savings included outsourced car parking operations, bus operations, VIP lounges, baggage and trolley services, and cleaning costs. I'll actually skip slide 13. This shows pictorially what I've just explained on the prior slide, and a little bit more information for you to pore over at your leisure. We're now on slide 14, and this provides a breakdown of the circa NZD 100 billion of capital expenditure carried out in the first half of FY21. This is around 50% of the FY20 CapEx runway, and it reflects the brakes that we put on our CapEx program this year in response to COVID-19. In addition to completing or initiating construction of the five investment properties mentioned on this slide, the majority of the CapEx undertaken this half was on essential airfield and roading projects. Restarting the rest of our suspended aeronautical infrastructure program will depend on a resumption of quarantine-free international travel between New Zealand and Australia. At this stage, the timing of the Aussie bubble remains unclear. Before I hand back to Adrian to give a bit more color on how we are positioning for the COVID recovery, I wanted to touch briefly on our financial liquidity, and that's set out on slide 15. In a nutshell, we have a lot of liquidity, and this could see us through an extended period of border restrictions. Just over NZD 900 million of that NZD 1.6 billion of liquidity is in the form of undrawn bank facilities, and the remaining nearly NZD 700 million is in cash. We've got waivers in place for our interest coverage and gearing covenants until 31st of December 2021. As you can see on this page, gearing is very unlikely to be breached, but interest coverage is now negative, and that's versus the one point five times coverage that would have been required barring the waivers that we've put in place. Dividends remain suspended while the waivers are in place, and Standard & Poor's is comfortable with our A- credit rating. I'll hand back to Adrian now. Thank you, Phil. That's given a good overview of some of those core numbers. As I said earlier, some of this following pages is just a bit of a function of a record, just to record what has happened in the period. It's important to note it, given the significant work put in by the team. Page 17, 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. There have been some additional things that we've had to do. For example, we've created an offsite facility for repatriation of passengers with bags under the terminal split model, Terminal B model, that we announced late last year, and there has been some modest investment required there. The team have done a stunning job on managing with that. We also successfully achieved the Airports Council International health accreditation for COVID-19 management. 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 offered. Obviously we did the runway east and west upgrade. Those are very significant and operationally complex with shortening the runway. Both of those ends of the runway have now been done, and we've actually pulled forward a bit of extra work announced last month around taxiways and apron while the volume of movements remains low, and we're continuing to do that as we look out to the coming year. 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. On transport, we started to gradually just reignite some of the project components we had initially suspended. One of those was the new integrated terminal exit road that we had paused. We've restarted that, so that will be an important part of the future terminal transport system. That is going, as well as the north to the city route connection upgrade and the south with NZTA, Waka Kotahi, to the Puhinui Interchange. Both of those are getting a significant upgrade, mass transit lanes, new intersections, and the like, which will mean both our north and south entry points are significantly upgraded for the future. We'll continue to pick our way through those, both small and modest or medium, where we think those are justified for operating requirements. As Phil said, and I'll come back to this later, the big moves will be subject to recovery. Just moving on, 19. In terms of our consumer business across retail and transport, look, it's been a super tough period. As I said, it's been in management mode, really, trying to support the retailers as much as we can to keep their businesses either in hibernation or in low turnover models. That's flowed through to our results. It's been great that domestic has returned, and as level two and level one travel has grown, we've seen no reluctance to engage in retail. In fact, we've been trying some things with our duty-free operators, getting some end-of-line stock out down there. We've also launched the domestic mall business, so that's an online channel with pickup in the domestic terminal. Look, not big business, but we're still trialing and testing ideas out there, and important we do that. Phil touched on domestic parking before, and that chart on the right there just shows the return of domestic parking volumes has been good, and we've been trying to use excess capacity where possible to support that. On page 20, as I talked before and Phil touched on as well, investment property has continued to do a great job in terms of providing an underpin for our business while our core travel business has been tough. The team have concluded the Foodstuffs development as well as the spec warehouse, which is now being leased out, as we have done in the past, been very successful in getting that spec leasing away. Foodstuffs development on the right-hand side there, you can see both the DC and the head office there. A fantastic development, enormous development, and a real mark of the team's performance, and clients are very, very pleased with that. We've got a pipeline of about NZD 172 million of new developments coming down the line. That's starting to show up in the key metrics. Occupancy has remained high despite COVID, the team have worked very closely just to take a very tailored approach to managing any arrangements with that. It's been more about abatement rather than forgiveness of lease terms. WALT has now clicked over 10, which has been great, and we still have 180 hectares available for development. Just a quick comment on hotels, and if you traveled to the Airport, you would've seen the hotels, the four and five-star hotels we're continuing. Look, we said earlier, that's really focusing on getting the structure and facades and enclosing those buildings. Fit-out is really a trigger-based arrangement that won't continue unless markets, particularly international markets, are going ahead. A great result from the property division. Just thinking again out then to recovery, and we touched on this. The outlook is still uncertain around international travel. We're drilling into Australia as being the most obvious, and Pacific Islands example of the path on recovery. It does make a significant difference to our business. How much of a difference, it's hard to say other than that it is almost a switch for us. What we wanted to highlight is obviously the Aussie outbound market is very significant, and about 11 million outbound trips internationally a year, which is significantly more than they ever came to New Zealand. I think, as I said earlier, the feedback from airlines has been very positive in terms of two-way travel can occur. There will be no shortage of capacity available on Tasman for people to go and visit their friends and family. Particularly so as Australians are limited in where else they can travel to. That represents a very strong opportunity, and certain surveys that we've seen suggest that New Zealand has always been a place of interest for Australians. The issue has always been why now? There is no better reason than now if that two-way flow can be opened up. We're really looking forward to that happening when it's safe to do so. Just on infrastructure more generally and outside of the core resilience work that we're doing. Obviously, the big question is the infrastructure upgrade program that we had underway. It was a very significant multi-billion NZD program. Appropriately, we put that on hold, and we've really been retesting that with airlines and border agencies and others through that program. The key headlines here is that the big eight programs have been set on hold, but that the master plan still remains appropriate for our long-term future. The way we get about executing on that master plan and the structure of some of those projects may look different to where we were before, and I think that is the appropriate response to the post-COVID world. We can't just carry on the way we were. It was very different conditions, and we need to reset that plan. We're going through that in detail. The fundamental strategy about getting to integration still remains important. That also supports a hub strategy, which has been our focus, but we are looking at different ways to get after that goal. Just wanted to note that we are engaging with Airways New Zealand in terms of the possibility of purchasing their locally affected assets as they make a proposal to exit that service at various airports around the country. To the final few slides on FY23 and FY 2024. One of the hardest things we've had to figure out is, how do we set our business in the broader sense for this new world and not let go of things that mean a lot to us and our local community? We have worked really hard to hold onto things that we think are important for the long term or where we have been supporting local organizations for a long time. Pleased we've kept up with our community trust work, supporting local organizations. We've kept up with our community support through the 12 Days of Christmas program. Our Ara Jobs and Skills Hub, obviously the volume of jobs we were targeting has suddenly dropped away. We are working with the government agencies to try and figure out how can we use our capacity and our resources in a different way to support kids getting training locally here, building apprenticeships and skills here. We will be restarting at some stage, and we want to maintain that as an important role for our support for the community for the long term, as well as support for the Leukaemia & Blood Cancer New Zealand team through the Sky Tower Stair Challenge and Life Education Trust. These things are continuing. We just had to narrow our focus onto the ones that we've been supporting for a long time. Finally, on page 24, in terms of the overview, we have done a lot of work in this last period around looking at our long-term sustainability plan. We're not new to this rodeo. We've been at this for a long time. We set a whole bunch of targets for our business around waste, carbon, and water. The good news is we smoked on some of those targets and really beat them comfortably, but didn't hit our water target. That was partly because we hadn't accounted for the water use around our construction activities. Having beaten those primary targets in waste and carbon and looking at our water one, we want to reset for the next couple of years, 10 years. We're going through that process at the moment, and we've got a longer-term view about our role around those four pillars of purpose, people, community, and place. We'll be talking about that more in the future. That's on the overview of the business. I just want to now turn to the outlook and guidance. It's no surprise there is significant uncertainty, more so than ever before on our outlook. Obviously, the recovery of international very much affects that outlook. We had decided to seek guidance, and we had a long discussion about this. We felt, given where we are in the year, as much as we can give guidance, we would. We've sought guidance for this year of an underlying loss of NZD 35 million to NZD 55 million. Now, there are some key assumptions in there. I just wanted to stress we don't have any special insight into the restart of trans-Tasman travel. We do note the government still has, and still is clear that restarting two-way travel on the Tasman is a priority. We have, for the sake of this, assumed that that doesn't materially start inside the balance of this financial year. We're also assuming no further lockdowns of an extended period. Again, we don't have any special insight into that timing, and if that trans-Tasman travel does start in that period, that would obviously be very beneficial for us. We've just taken a more conservative position for the purposes of setting guidance. For CapEx, we've just clipped that down from NZD 250 million to NZD 300 million to a NZD 200 million to NZD 230 million range. That covers a range of different projects completing in that period. Obviously, no dividend will be declared for FY21, which we talked about before. Obviously, the guidance, as I said before, is subject to any material adverse change, significant one-off expenses, and other qualifications laid out there. Before I hand for questions, I just wanted to, again, I started out with this, but I wanted to conclude again with a sincere thanks to all our team. Literally, the team have been through the meat grinder, have worked incredibly hard, and taken on additional duties and work in a very fluid environment. They've done a superb job. I think they can all feel proud of the role they played in both supporting protection of New Zealand's border, as well as trying to plan and help support a path out of this into a new environment post-COVID. With that, I'll finish and hand back for questions. Excellent. Ladies and gentlemen, we now begin the question and answer session. Thank you very much. We have multiple questions in the queue. Our first telephone question is from Andy Bowley from Forsyth Barr. Please ask the question, Andy. Thanks, moderator. Good morning, Adrian. Good morning, Phil. I've got a couple of questions for you. 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 has suggested that it's a priority. My question to you is really how realistic is a trans-Tasman bubble now in light of everything we've been through, what Australia has been through, ahead of a complete vaccination program? Andy, congratulations for getting first again. We just don't know. I think all the work, as I understand it, has been done in the background. I think it's both the political and sort of health advice around when it is safe to do so that will guide us. As you know, as I said earlier, we've done all the work at our end. We're in close regular contact with our colleagues in the airports and the airlines across the Tasman. I think many of the elements are there, but it's a judgment for the leaders of the two countries and their advisors to make that final call. Going into Christmas, I was actually quite hopeful that the first quarter of this calendar year, we'd be operating. Obviously, conditions have changed. 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. Clarity and understanding what are those metrics, what are those thresholds, I think would be incredibly valuable. 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'd be really valuable just to really hone in on that. I don't mind if there's uncertainty in certain areas, as I said. Where we can start to drill into things that matter and things to focus on, I think that's what's important. Yeah, Andy, I can't give you any more than that, unfortunately. 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? Yeah, look, I think 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. 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 and models that can be applied. Look, I think as the government said publicly, the will is absolutely there. They're judging many different factors at the same time. It's really a call for government. We can only play our part in supporting that reopening when it's safe to do so. Yeah. Okay. No, I appreciate that. The second question around the retail concessions and the three prongs to this question, essentially call them three different questions, but which concessions have exited the international terminal over the past six months, would be the first one. The second would be what's the timetable for concession renewal, re-tender processes, particularly for duty free? Thirdly, at what stage do you make the decision to go to a single duty free operator? Just on the first one, I don't think we've had any exits yet. 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 wage subsidy came off to terminate a lot of those staff, which is a real disappointment. We haven't had any formal exits yet, which has been great. In terms of the timetable on the re-licensing, that timeline hasn't changed from what we indicated earlier. I think we're broadly a couple of years plus away from that cycle, but they aren't exactly the same in terms of timeline. It's going to be interesting to see how this plays out post pandemic in travel retail. I still think that, as I alluded to before, New Zealand as a destination will have a characteristic of being quite an attractive and safe place to travel to, where people may be uncertain. That's just the tone we're getting from airlines when we do our channel checks. That will be attractive. It's still a very attractive channel, and will continue to be so, I believe. Yeah, a few there from that. On single operator, as we said before, that remains an area of focus for us, of real interest. It seems as an anachronism, the two operator model when the world has completely changed from the 2007, 2008 period when that last came up. Look, we'll work our way through that. I think timing will 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. I don't have a formal date for you, Andy. Great. No, I appreciate that. Thanks, Adrian. Thank you. Our next telephone question is from Rob Koh from MS. Please ask the question, Rob. Hello, Mr. Rob Koh. Your line is open to ask the question. Since there's no response from Rob, we'll go to Adrian Allbon from Melbourne. Please ask your question, Adrian. Good morning, team. Two questions, principally. The first one, 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, like within your outlook kind of assumptions here? Yes. I can respond to the high level on that. Looking at interest and depreciation, we expect that to be six to seven 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 four million of expected credit losses, doubtful debt. Don't expect that to repeat. We're also not factoring in any further wage subsidy receipts, and we had about two million of those in the first half. That adds up to roughly 10 million after tax impact. Also we've allowed potentially for some forward-starting swap closeouts at the end of this financial year if we don't refinance an upcoming NZD 150 million bond issue. That would have a hit this financial year of NZD 6 million to NZD 10 million, but then you would get the benefit of that equal amount over the next five years. That adds up to about a NZD 20 million deterioration from H1, which would give you a result of around about NZD 41 million underlying loss. The midpoint of our guidance range is NZD 45 million loss. Okay. That's clear. If we sort of touch your second quarter EBITDA, I guess, per month, that's the sort of operating assumption that sort of just vary across the second half and most of the sort of delta is in the elements you just described? Yes. That would be a sensible approach. Yeah. Okay. Thank you. The second question. The presentation, I guess, is light on markers as to how you kind of approach the next regulatory period. Can you give us a little bit of detail around the expected timing of that, and what your sort of thinking or process steps are as we sort of move through the middle of the year? Sorry, you're talking about the timing of the next aeronautical price reset? Yes. Sorry. That is uncertain at the moment. Currently, we're expected to reset as at first of July 2022, so for FY 2023 onwards. There's a lot of uncertainty out there at the moment. 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. We wouldn't go ahead and reprice until we had more certainty around the infrastructure development program. Just reflecting on what Adrian was saying earlier, would the key market in terms of the process really be certainty on when a trans-Tasman bubble would potentially operate? Because clearly a lot of your bigger items are sort of ticketed to that event as well. Yes, that's correct. Okay. Literally, there's sort of nothing really to do at the moment until you get certainty or clarity on those features. Yeah, that's right. 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 first of July 2022, we'd have to get cracking very quickly, at the start of FY 2022. We'll be making that call round about the end of this financial year. Okay. Thank you. I will try the line of Mr. Rob Koh again from MS. Please ask your question, Rob. Thank you. Can you hear me, guys? Yes, we can. Great. Okay. Can I just ask a follow-on question about the price resetting? If heaven forbid, we have no certainty heading into FY 2023, what are the fallback arrangements? Most likely in fact, it would be inevitable that pricing would remain unchanged from today, because we hadn't undertaken a formal price reset. Then we'd be in holding pattern until we had confidence around clientele free travel, certainly with Australia. Yeah. Okay. That makes sense. Just I guess a more, I don't know, third order type issue, but previously you had an interest rate hedging strategy, which focused on the near term. Given that rates are actually moving, how are you evolving your rate hedging strategy? A good question. At the moment, we're fully hedged versus treasury policy. Our 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 program compared to what we expected when we put on those hedges. We don't have any headroom really to lock in more at the moment under policy. Yeah, I think it's off the top of my head, circa 60% hedged at the moment. Okay. 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? Yeah, 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. The next step is to discuss at our treasury management committee and then at the board, should we load up on more hedging, given that there's a bit of inflation pressure coming through now and potential for that to feed through to interest rates. Yeah. Okay. All right. Thanks very much, Phil. That's all from me. Our next telephone question is from Wade Gardiner from Craigs Investment Partners. Please ask your question, Wade. Hi, guys. A couple of quick questions from me. First of all, you've made a lot of operating cost savings over the last six months. Looking forward, do you think some of those will be permanent savings, if we go forward back into normal operations in a couple of years' time? If so, would you like to provide some quantity around that? Wade, over to you. I'll start. Phil might jump in. Look, I think we've peeled back reasonably firmly. We don't carry a lot of overhead normally. I think as we add back, we will need to grow again. We've always had that general target about gross operating margin about that 75% mark. That's probably the best guide we can give. I think if we're not investing in that way, we're not investing in the rebuild of the business, particularly if I think about marketing and other costs, consumer growth, spend growth. Having said that, there'll always be some things that we've managed through this period to improve on. Net-net, we are probably at a similar level. There'll be some benefits around the traps, I think. I know that's not specific. That's a broad guide, I think. That's all right. In that, on a short-term basis, with these safe zones that you've added, what does that do to operating costs? Is there a lot of extra costs involved in that? 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. We've tried to focus on enabling infrastructure. There are some modest additional costs for us, but manageable, I think. A lot of those have fallen to agencies. Okay. In regards to the USPP waivers, you made the comment in the presentation that I think you sort of assumed December, 2021, in terms of borders reopening. If let's say it extends for another six months beyond that, maybe even longer, when do you run into an issue with those waivers again? What's the process? Ballpark to comply with that one point five times interest coverage covenant, we would need Tasman and Pacific back to 50% of pre-COVID levels on average in FY 2022. What that means is if we're into FY 2022 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. Okay. The next telephone question is from Marcus Curley from UBS. Please ask the question, Marcus. Good morning. Just two from 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 a factor complete? When the vaccination program is finished, you've got to be careful because I'm not a medical expert at all. Clearly, that's a mark that matters. I think it's quite clear there's some critical questions to be answered at longer term around how vaccination take up rates and everything plays through and effectiveness. Look, I think this is the unknown, and this is why the call for clarity is important, because we need to be able to plot a path through. I think part of the other perspective we've been bringing is what is the risk appetite. As the Chris Hipkins has said, there is no risk-free option. It's how do you judge that risk from a public point of view? That's really the call. Vaccines will no doubt play a big part of that, and we're just on the eve of our workers getting vaccinated. It starts this weekend, so that's really positive. As that happens, as those vulnerable people receive that vaccine, that obviously must, by implication, change the risk parameters. We just don't have that answer right now. Okay. Secondly, just on the domestic terminal, 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? Yeah. 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. We're working that through. We'd like to sort of share some of that as soon as we can. As Phil said, probably towards the end of this financial year before we're able to talk about that. That work's going on in detail at the moment. Okay. 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? All still to be worked through, Marcus. Okay yield on that too early. Okay. No problem. Thank you. Thank you. The next telephone question is from Owen Birrell from Goldman Sachs. Please ask the question, Owen. Yeah. Hi, guys. Just a couple of questions. Same themes that everyone else is talking about. The rate resets coming up over the next few years. You guys have traditionally, or the regulators traditionally looked at offshore examples and comparables as a means to, I guess, benchmark your rates. 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? Okay. I think there's a couple of elements to that. Are you thinking specifically on interest rates, Owen, on that question? Yes, I was talking about interest rates. Yes. Okay. Yeah. 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. It's hard to say. Is that fully priced in right now or not? Certainly moved by 75, 80 basis points over the last three or four months. I think the long-term direction is upwards, we would say, and that, yes, will indeed feed through into WACC calculations and our target return that is based off that. The other thing to bear in mind is systematic risk, asset beta. There is some emerging evidence that for airport companies globally, that has increased post-COVID. 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. 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 P24. Owen, just further on that, and while 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 there are various pricing models through into their business. In a 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. Yeah, that's very useful. Just a second question, I guess, again, on trans-Tasman bubble. 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. The states have been locking down more readily in response to these infections, particularly the UK 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 statewide shutdowns in New Zealand. Would you be more comfortable having an open trans-Tasman border and increase the likelihood of shutdowns domestically? It's not our decision, obviously. It's a decision for government and their health advisors. I think this is, again, our theme on this has been is just understanding the risk. Is the risk that different? I think, as we've said before, the strategies of Australia and New Zealand have effectively converged over time. New Zealand started out very strict, and still has an elimination strategy. How they manage that risk, and we've seen it with the quick and short lockdown and the exit out of that in the last day, has actually got closer to how Australia's effectively managing it as Australia has come closer to New Zealand. They've kind of met in the middle. That would suggest, is the risk that materially different between the states as it is to New Zealand, in some cases for W.A., Queensland, Tasmania, others not? I do think, as I said earlier, I think the path out on this is going to be clunky and a bit messy and complicated. I do think travelers, and particularly friends and family who've been separated for over a year now, will put up with some disruption. Particularly if those disruptions are short and sharp, as we've seen, this may be the path out. People will put up with a bit of disruption for that to occur, I believe. It's, again, not our call, government call, when it is safe to do so. That's great. Thanks. Our next telephone question is from Adam Fleck from Morningstar. Please ask your question, Adam. Hi. Good morning, Adrian, Phil. Thanks so much. Adrian, wanted to follow up on your point on airline capacity. Appreciate that airlines have been supported should the trans-Tasman open up. You, of course, cited New Zealand as an attractive destination in your conversations with international airlines. In those conversations, are items like jet fuel prices starting to come up? I'm just curious how those are going. No, it hasn't in terms of the feedback I've had. 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. 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. I don't think that changes. Some of the parameters inside that might change. Jet fuel is important. We're a high-commitment destination. I think there will be a bit less price sensitivity, let's call it that, in the restart of travel period. 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 in 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. That's what I've sort of been reflecting on has been positively received. I think the trans-Tasman and Pacific Islands are 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 ton of capacity sitting around the tarmac not doing anything. I think there will be a strong desire to get traveling again. That will be a different dynamic, particularly if those borders are closed to other destinations. Two parts to that story. I think both look reasonably positive for our point of view. Again, I'd caution it's not going to be a switch that turns everything back on. It's going to be a gradual path. Yeah. No, that makes sense. Thanks, Adrian. Then maybe just to your earlier point on margin and cost, 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? Look, we will certainly be back in and doing it. I think we've highlighted to various sort of partners, if I think about Tourism New Zealand and others, that we're going to still be in recovery phase. We will be careful about how we deploy that, and be judicious about where that is put. We are looking for Tourism New Zealand government to play an important part in that recovery. I think our point has been you get a double banger from both air cargo as well as passenger connectivity, everyone you open up. There's a significant and widespread benefit to our country if it's safe to connect to new markets. 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. Yep, 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. Okay. That's clear. Thank you. Our next telephone question is from Jason Familton from ACC. Please ask your question, Jason. Morning, guys. First of all, well done guys on doing a good job of managing this because simply what's been a pretty difficult six months or 12 months or so. Just a couple of questions. First one, just on Australia. Can you talk to, of the 3.9 million pre-COVID, what was the mix between VFR, holiday, business, and how you think that may impact demand coming back? Then sort of linked to that, of the surveys you've done, where do the Aussies actually want to go in New Zealand? Do they want to go to Waiheke Island and try some weed, or do they want to go surf on ski fields? What sort of activities or interests are there? I'm just trying to get a gauge of how much demand could come back if the travel bubble was to reopen. Yes. For sure. Look, and these are sort of broad numbers, Jason. Part of the problem is people can tick multiple boxes, so it doesn't always add up to 100. Broadly, holidays would be 40, maybe 50% of that normal. VFR, visiting friends and relatives, around about the same. Business at about 20%. There's some other education other bits around the edge. 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. I think you could see a real spike in visiting friends and relatives. I think that'll be the first out of the blocks. Just anecdotally, I'm sure you've all heard it, the stories about the 600,000 Kiwis in Aussie and the disconnection with their friends and family in New Zealand, and vice versa, and people separated. There's some really big pent-up demand there. 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. For example, I know research that I think Tourism New Zealand did suggested urban breaks or short breaks are really attractive. Three or four days, a bit of adventure, so land here. Could be a Waiheke wine tour sort of theme, or it could be a down to the big woods in Rotorua with a cycle and kayaking kind of experience. It could be down to Queenstown for a ski and outdoor experience. I think New Zealand has a wide range of products, which is why it will appeal to Australians significantly. You've got the broader long stay road tour category, and that's sort of the retirees to silver surfer kind of category, which will go very, very well if I judge by local behavior. I think that will be very strong and very positive and bounce back hard. Again, the airlines are quite excited by that opportunity when it is safe to do so. Okay. Second question, just on, probably the hardest thing around the stock at the moment is just, I mean, obviously I've seen your own charts, Jevons. The CapEx outlook, I'm trying to understand exactly what your CapEx is going to look like. Sort of alluded to earlier you'd hope to do something more in the full year. Does that mean we're likely to get more on what CapEx will look like beyond this year? Yeah, I think that's fair. I mean, we will certainly continue some of the investment in our core infrastructure for resilience and other purposes in the commercial properties we talked about. The bigger licks, as Phil described it, we've called it trigger-based. 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. Some of those will be system capacity issues, some of those will be passenger-related, some of those will be road-related. Some of those may be construction sequencing-related. All of those things are being worked through at the moment. We're hopeful that 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. Okay. Just one more sort of linked to that. Obviously no dividend this year. Potentially depending on what happens with boards throughout then for 2022, where are we on reviewing the dividend policy and potentially how that may sit with the CapEx program, you may or may not have at your disposal? Yeah. We formally review the dividend policy every June, typically. Given that there won't be a dividend paid for this financial year, they'll probably get put off to the end of this calendar year. It might be a slightly surprising answer. Actually, when we get quarantine-free travel going with trans-Tasman and Pacific Islands, because of our equity raise, we will have very strong credit metrics. Longer term problem is more likely to be stronger than required credit metrics for a stable A- credit rating over the long term rather than weaker than required. It all depends on the shape of the recovery. We'll be monitoring that closely, and we'll be in at least annual Great. Thank you. Our next telephone question is from Andy Bowley from Forsyth Barr. Please ask your question, Andy. Thanks, moderator. 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, Philip, in the previous question, in the context of you think pricing may remain unchanged from first July, 2022. I recognize there's no wash up for the current under-earning in the current price-setting period. How would that play out then in the next price-setting period? Would it still be NPV zero? Would that allow some flexibility thereafter to be able to ensure that you get a fair return over the time frame involved? 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 have some ability to influence what happens there. 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. I think it would be difficult for us to look to achieve an overall 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, in which respect is probably advantageous because they actually haven't set the pricing for PSE4, and so it will encompass the period from before the pandemic arose. There might be some opportunity for under-recovery in early years to be made up by over-recovery in later years, possibly a bit different for Auckland Airport. Would that happen for you from first of July 2022, though? Does that effectively fall under an extended PSE3? 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 set, would look to average the return from first of July 2022 onwards. Effectively NPV, yeah. Yeah. NPV equals zero. Yep. Okay. Great. Final question from me, just in terms of CapEx. The highlight, as you pointed out in the prezo, 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 NZD spent. What's that likely to look like over the next few years? Yeah, look, I think we'll be selective and careful about where we invest. I think we've got the luxury of having a high-quality asset with great clients and covenants. So that'll be kind of the model we'll continue with in the next period. And we'll just pick 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'll be the plan going forward. But it'll track market and our appetite for different clients, different opportunities. In terms of dollar value, do we get back to NZD 100 million plus per annum? Should we be thinking lower or higher? I think that'll depend on where we're tracking and what's coming down the tubes, 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. Okay. Great. Thanks, guys. The final question for today comes from Suraj Nebhani from Citigroup. Please ask your question, Suraj. Oh, thanks. A couple of questions have been answered, but just wanted to clarify the comment, Phil, you made on the dividend. I think what you're saying is that once that bubble starts, the credit metrics might be better than A-minus rating. 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? Our long-term capital structure strategy really is based around a stable credit rating. A-minus credit rating is what we target long term. The strength of the credit metrics will depend entirely on the strength of the recovery in international passenger flows. 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. That obviously gives a lot of firepower to the infrastructure program that we'd be looking to restart as soon as we get the travel bubble underway. That would chill us to some extent. There is the potential that there could be more strength in the balance sheet than what is required. What we wouldn't want is an unwanted credit rating upgrade. If that positive scenario was to arise, 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. Okay. That makes sense. There are no further questions at this time. I'd like to hand the call back to the speakers for closing remarks. Please continue. 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 then. Thanks again.