Appendix A: The current structure of Sydney Airport................................................................

1
Appendix B: Internal Debt Policy..............................................................................................1
Appendix C: External Debt Policy.............................................................................................1
Appendix D: Revenue Components.........................................................................................2
Appendix E: Base Case, Pre-Simulation Historical and Projected Financial Statements..........3
E1. Income statement projection..........................................................................................3
E2. Balance sheet projection................................................................................................4
E3. Cash flow projection.......................................................................................................5
Appendix F: Assumptions on financial analysis........................................................................6
F1: Property, plant and equipment........................................................................................7
F2: Debt position..................................................................................................................7
F3: Other important assumptions..........................................................................................7
Appendix G: Largest Shareholders..........................................................................................8
Appendix H: Macroeconomic Factors.......................................................................................8
Appendix I: Comparable Airports and Multiples Analysis..........................................................9
Appendix J: SYD Executives....................................................................................................9
Appendix K: SYD Board MembersExecutives and Board Members Remuneration..............9
Appendix L: Corporate Governance Statement......................................................................10
Appendix M: Sydney Airports Environmental Policy..............................................................11
Appendix N: SWOT Analysis..................................................................................................12
Appendix O: Porters Five Forces Analysis.............................................................................14
Appendix P: Beta Analysis.....................................................................................................15
Appendix Q: Effective Real Tax Rate......................................................................................15
Appendix R: Stock Historical Performance.............................................................................15
Appendix S: Discounted Cash Flow Analysis.........................................................................16
Appendix T: Discounted Dividend Model Analysis..................................................................16
Appendix U: Monte Carlo Simulation......................................................................................17

Appendix A: The current structure of Sydney Airport

Sydney Airport Holdings is listed on the Australian Securities Exchange under the code SYD. As
illustrated, for every share of SYD, an investor owns one stapled security which includes
Sydney Airport Trust 1 (SAT1), the entity that provides internal finance to Sydney Airport Limited
(SAL), the entity that effectively owns 100% and manages Kingsford Smith (Sydney) Airport.
This simplified corporate structure is the result of Macquarie Group divesting their stake,
management being internalized,

Appendix B: Internal Debt Policy

SAT1 offers loans to SAL and hence, is able to control the internal interest rate which SAL has
to pay. The structure of a trust enables SAT1 to enjoy a zero tax rate (as reported in SYDs
annual reports) compared to the usual 30% tax rate imposed on a business. We have therefore
factored this into our calculations of DCF where free cash flows to firm are in fact, include the
amount which would have been taxed if SAT1 were registered other than a trust.

Appendix C: External Debt Policy

The current capital structure is 46% debt which is financed via both domestically and overseas.
Sixty-five percent of bonds, including USPP and Euro-denominated bonds, are effectively
hedged in terms of interest rate risk and exchange rate risk.
All assets, excluding deferred tax and goodwill, are pledged as collateral to secure loans.
One of SYDs core operating strategy is to deleverage in the long run which has been shown
through historical trend of Sydney Airports less dependency on debt finance. The executive
team has consistently and potently taken on new debts to repay the old ones.

Description
Bank Facilities
(Both current
and non-current)

Principal
Due, million
(AUD)
$508.43

Fixed/Floating

Maturity

Other
Hedged

Fixed
(Bank Bill Swap Bid
Rate +
Predetermined
Margin)
Both fixed and
floating

2014-2017

2028/2029
April 2024

Domestic Bonds

$1,683

USPP
Foreign Bonds

$569.7
$2,548.7

Fixed
Floating rate

Capital Indexed
Bonds

$1,029.6

Fixed rate

$1,883.1
hedged
$275 not
hedged

$979.8
Undrawn
$1,500
maturing in
2014-2017
Hedged here
means being
guaranteed by
Insurance
Corporations

Entirely
hedged
Tied to inflation

Appendix D: Revenue Components

Aeronautical: 42%
Retail: 22%
Property and Car Rental: 17%
Car Parking and Ground Transport: 12%
Other: 7%

The recent economic setback of China has raised a concern of whether this will significantly
affect aeronautical revenue stream to Sydney Airport. However, we believe the impact is
minimised as a weakened AUD will attract foreign tourists of other nationalities to Australia.
Additionally, Australians are more willing to travel domestically as opposed to take their
vacations overseas. Sydney Airport has a policy of limiting the passengers from China at 67,000
people per week. Approximately, assuming 67,000 people would take a return trip, we arrive at
6,968,000 passengers per year, comparing to the Chinese GDP per capita at $12,882 per year
and the Chinese population at 1,371,720,000. Therefore, Sydney Airports foreign aeronautical
revenue stream should be impacted minimally.
The recent 7.5-year contract with Gebr. Heinemann starting from 17 February 2015 marked
SYD management teams commitment to increase the second-largest revenue stream every
year. Retail includes duty free shop, food and beverage, gifts etc. that would fully cater to the
2

needs of passengers. Gebr. Heinemann was established in 1879 and has had an intensive edge
in operating Duty Free shops. This is evident in their operation in more than 100 countries,
serving more than 30 million customers annually.
From September 2015, revenue from T3 operated by Qantas will be collected in full by Sydney
Airport and from 2019, other airlines will be able to operate in T3. Prior to Qantas selling its
terminal lease to Sydney Airport for $535, T3 was exclusive to the airline which the airline was
able to retain all the revenue after paying lease to Sydney Airport. The early sale of the T3 lease
is expected to bring higher property revenue to SYD and even higher from 2019 moving
forwards.

(Source: Half Year 2015 Presentation SYD)

Appendix E: Base Case, Pre-Simulation Historical and Projected Financial Statements

E1. Income statement projection
ITEM
Aeronautical
revenue
Retail revenue
Property and car

2013
464200000

2014
486800000

2015E
508462600

2016E
527784179

2017E
547839978

2018E
568657897

2019E
590266897

241600000
187200000

255200000
194000000

264132000
200790000

273376620
207817650

284311685
215091268

294262594
222619462

304561785
230411143

rental revenue
Car parking and
ground transport
revenue
Aeronautical
security recovery
Other revenue
Total revenue
excluding interest
Employee benefits
expense
Operating
expenses
Ebitda
Depreciation
Amortization
Ebit
Net interest
expense
Tax expense
Net profit after tax
before abnormal
Weighted average
number of shares
Eps adjusted

132300000

139900000

146895000

154239750

161951738

170049324

178551791

83700000

81500000

82000000

82000000

82000000

82000000

82000000

6200000
1125200000

6200000
1163600000

6000000
1208279600

6000000
1251218199

6000000
1297194668

6000000
1343589277

6000000
1391791615

-46900000

-46900000

-46900000

-46900000

-46900000

-46900000

-46900000

-245400000

-215300000

-241655920

-250243640

-259438934

-268717855

-278358323

879800000
-198200000
-101900000
579700000
-435800000

948300000
-225000000
-101400000
621900000
-451600000

966623680
-222323446
-97008556
647291678
-425939740

1000974559
-230224149
-95659898
675090512
-446810085

1037755734
-238683819
-94329991
704741924
-449863136

1074871422
-247220427
-93018572
734632422
-434938579

1113433292
-256089657
-91725386
765618249
-458214156

-96800000
47100000

-58500000
57400000

-95019641
126332296

-115364820
112915607

-122027073
132851715

-129581014
170112830

-136972604
170431489

1976500000

2213500000

2317182171

2317182171

2317182171

2317182171

2317182171

0.031

0.027

0.055

0.049

0.057

0.073

0.074

E2. Balance sheet projection

ITEM

2013

2014

2015E

2016E

2017E

2018E

2019E

Ca - cash

443300000

446700000

540992581

740083708

667769654

345586618

596993964

Ca receivables
Ca investments
Ca - other

122200000

128400000

132910756

137634002

142691413

147794820

153097078

35000000

30000000

30000000

8900000

700000

700000

700000

700000

700000

700000

Total current
assets
Nca receivables
Nca - pp&e

574400000

610800000

674603337

908417710

811161067

524081438

750791042

38300000

35400000

48331184

50048728

51887787

53743571

55671665

2556600000

2584700000

2779043080

2877801857

2983547736

3090255337

3201120715

Nca -

7079200000

6977800000

6880791444

6785131546

6690801555

6597782982

6506057597

intangibles(ex
gw)
Nca - goodwill
Nca - other
Total nca
Total assets
Cl - account
payable
Cl - short-term
debt
Cl - provisions
Cl - other

669700000

669700000

669700000

669700000

669700000

669700000

669700000

12500000

7500000

7500000

7500000

7500000

7500000

7500000

1036620000
0
1094060000
0
548300000.0
00
733600000

1071790000
0
1132870000
0
182000000.0
00
474000000

1038536570
8
1105996904
5
193324736.0
00
393175144.8

1039018213
1
1129859984
1
200194911.8
08
412440078.2

1040343707
7
1121459814
5
207551146.8
23
415258279.8

1041898189
1
1094306332
9
214974284.3
21
401481765.1

1044004997
6
1119084101
8
222686658.4
41
422966913.4

9900000

410600000

410600000

410600000

410600000

410600000

410600000

30900000

31600000

31600000

31600000

31600000

31600000

31600000

Total curr.
Liabilities
Ncl - long-term
debt
Ncl provisions
Total ncl

1322700000

1098200000

1028699881

1054834990

1065009427

1058656049

1087853572

6006800000

6760200000

6159743935

6461561225

6505713051

6289880986

6626481643

1700500000

1955500000

1955500000

1955500000

1955500000

1955500000

1955500000

7707300000

8715700000

8115243935

8417061225

8461213051

8245380986

8581981643

Total liabilities

9030000000

9813900000

9143943816

9471896215

9526222477

9304037035

9669835214

Total equity

1910600000

1514800000

1916025229

1826703625

1688375667

1639026294

1521005804

E3. Cash flow projection

Item
Receipts From
Customers
Payments To
Suppliers And
Employees
Interest Received
Tax Paid
Other Operating
Cashflows
Net Operating
Cashflows
Payment For
Purchase Of Ppe
Investments
Purchased
Other Investing
Cashflows

2013
1223600000

2014
1303500000

2015E
1203556354

2016E
1246494953

2017E
1292137256

2018E
1338485870

2019E
1386489358

-341400000

-330400000

-252980656

-257113816

-266795169

-276140993

-286070697

15000000
-500000
100000

11700000
500000
0

0
-95019641
0

0
-115364820
0

0
-122027073
0

0
-129581014
0

0
-136972604
0

896800000

985300000

855556057

874016317

903315014

932763863

963446057

-236100000

-261700000

-194343080

-98758777

-105745878

-106707602

-110865378

15400000

-35000000

-119000000

200000

Net Investing
Cashflows
Proceeds From
Borrowings
Repayment Of
Borrowings
Dividends Paid
Net Interest
Expense
Net Financing
Cashflows
Net Increase In
Cash
Cash At
Beginning Of
Period
Cash At End Of
Period

-339700000

-296500000

-194343080

-98758777

-105745878

-106707601

-110865377

634300000

2266700000

769000000

321082223.6

335970026.9

345391420.4

358085804.9

-329300000

-2383600000

-475000000

-289000000

-575000000

-436300000
-415000000

-406700000
-161800000

-434980656
-425939740

-450438551.6
-446810084.7

-466990080.4
-449863136.5

-483692139.7
-434938578.8

-501044981.5
-458214156.1

-546300000

-685400000

-566920396

-576166412.7

-869883189.9

-1148239298

-601173332.7

10800000

3400000

199091127.4

-72314053.98

-322183036.2

251407346.2

433700000

443300000

94292580.5
4
446700000

540992580.5

740083708

667769654

345586617.8

444500000

446700000

540992580.
5

740083708

667769654

345586617.8

596993964

Appendix F: Assumptions on financial analysis

Item

12/13

12/14

Australia GDP

2.45%

AU CPI Growth
O Revenue
Aeronautical, 0.42

Assumptions

2015
E

2016E

2017E

2018E

2019E

TV

2.57%

2.91%

3.83%

3.92%

3.79%

3.65%

2.45%

2.39%

2.5%

2.5%

2.5%

2.5%

2.5%

2.5%

8.7%

3.4%

4.1%

3.7%

3.7%

3.7%

3.7%

4.3%

7.2%

4.9%

4.45%

3.80%

3.80%

3.80%

3.80%

4.65%

3.00%

2.50%

2.50%

2.50%

2.50%

2.50%

1.50%

1.50%

1.50%

1.50%

1.50%

2.00%

Macro

International
Growth

2.3%

Domestic

1.2%

Sum of passenger and

infrastructure growth and CPI
Agreement with China in
January 2015, with an
immediate 136 per cent
increase in capacity
Major increase in domestic

Passenger Growth

1.6%

70% from domestic growth

1.95%

1.80%

1.80%

1.80%

1.80%

2.15%

1.9%

1.1%

Major increase with T3

2.50%

2.00%

2.00%

2.00%

2.00%

2.50%

2.8%

5.6%

New store in new airport

4.0%

3.5%

3.5%

3.5%

3.5%

4.0%

10.8%

3.6%

New rental income in new

airport

3.5%

3.5%

3.5%

3.5%

3.5%

4.0%

10.9%

5.7%

Slow down

5.0%

5.0%

5.0%

5.0%

5.0%

5.5%

21.8%

18.5%

Proportional to revenue

20%

20%

20%

20%

20%

20%

Infrastructure
Growth
Retail Growth,
0.22
Property and car
rental revenue,
0.17
Car parking and
ground transport
revenue, 0.12
O Expense

As the mean driver of the revenues, Aeronautical business which accounted 42% of the total
revenue enjoyed 4.9% growth in 2014. Taking account of CPI, there was still 2.5% growth in the
business, which could be attributed to 2.3% growth international customers and 1.2% in
domestics.
In line with the passenger growth, the retail sector and transport sectors swelled by 5.6% and
5.7% respectively, while the property revenue increased at slightly lower rate of 3.6% in 2014.
Assuming the GDP will growth will remain at current level (2.5% - 3.0%) and CPI at 2.5% under
stable economics.

F1: Property, plant and equipment

Item

2013

2014

2015E

2016E

2017E

2018E

2019E

Opening PPE

250950000
0

255660000
0

258470000
0

277904308
0

287780185
7

298354773
5

309025533
7

Depreciation to
PPE

-0.08

-0.09

0.08

0.08

0.08

0.08

0.08

PPE to Sales

2.27

2.22

2.30

2.30

2.30

2.30

2.30

Capex to
Revenue

0.21

0.22

0.33

0.26

0.26

0.26

0.26

Capex

-236100000

-261700000

401119080

321082224

335970027

345391420

358085805

Closing PPE

255660000
0

258470000
0

277904308
0

287780185
7

298354773
6

309025533
7

320112071
5

2013
643870000
0
0.07
-470000000

2014
674370000
0
0.07
-464100000

2015E
662680000
0
0.07
-425939740

2016E
655291908
0
0.07
-446810085

2017E
687400130
4
0.07
-449863136

2018E
692097133
1
0.07
-434938579

2019E
6691362751

0.78

0.81

0.77

0.79

0.80

0.80

0.82

634300000

226670000
0
238360000
0
662680000
0

401119080

321082224

335970027

345391420

358085805

289000000

575000000

F2: Debt position

Item
Open debt
Effective IR
Interest
expense
Debt to Equity
ratio
Borrwoing
Repayment

-329300000

Closing gross
debt

674370000
0

475000000

0.07
-458214156

655291908
0

687400130
4

692097133
1

669136275
1

7049448556

F3: Other important assumptions

Item
Recevables to
Revenue
NCAreceveables
to revenue
Intangibles
reduction rate
CL - Account
Payable to
Revenue
Weighted
Average
Number of
Shares

2013
10.86%

2014
11.03%

2015E
11.00%

2016E
11.00%

2017E
11.00%

2018E
11.00%

2019E
11.00%

3.40%

3.04%

4.00%

4.00%

4.00%

4.00%

4.00%

-1.43%

-1.44%

-1.40%

-1.40%

-1.40%

-1.40%

-1.40%

48.73%

15.64%

16.00%

16.00%

16.00%

16.00%

16.00%

197650000
0

221350000
0

231718217
1

231718217
1

231718217
1

231718217
1

2317182171

Appendix G: Largest Shareholders

Top holders
UNISUPER
FIL LIMITED
VANUGUARD GROUP INC
BANK OF NEW YORK MELLON GROUP
MTAA SUPER FUND UTILITIES
DEUTSCHE BANK BANK AG
CAPITAL GROUP COMPANIES INC

16.26%
4.98%
2.33%
2.24%
1.78%
1.54%
1.43%

Appendix H: Macroeconomic Factors

Economic growth and inflation

The macroeconomic indicators display a very sluggish economic growth along with relatively
stable inflation and unemployment. Also falling interest rates mean that the environment is in
favor of low returns. As such it improves the appeal of Sydney airport whose payout does not
follow growth rate.

Appendix I: Comparable Airports and Multiples Analysis

From a qualitative standpoint, Australia will experience lower GDP growth, lower interest rate
and recently, the devaluation of the AUD. Accordingly, the rate of domestic travelling from
Australian passengers will be higher while a weakened AUD is important in attracting foreign
passengers to spend their holidays in Australia generally and Sydney particularly. We expect the
business of Sydney Airport, in line with the reasons above, would not be affected significantly in
regards to the negative trend in the macroeconomic settings.

Appendix J: SYD Executives

Executive
Kerrie Mather BA, MComm

Title
Managing Director & CEO

Hugh Wehby, BEc

Jamie Motum BEc, LLB

CFO
General Counsel & Company Secretary

Appendix K: SYD Board MembersExecutives and Board Members Remuneration

Director
Trevor Geber
BAcc, CA

Title
Chairman
Member of Audit and Risk
Committee, Nomination and
Remuneration Committee and
Western Sydney Airport Committee

Roles
The Non-executive Chairman and involved with:
Tassal Group Limited
Novion Property Group
Leighton Holdings Limited
Regis Healthcare Limited
Experiences include:

10

Westfield Holding Limited Treasurer

Westfield Trust and Westfield America Trust Director of
Funds Management

Hon. Michael
Lee BSc, BE,
FIE Aust

John Roberts
LLB

Chairman of Safety, Security,

Envirnoment and Health Committee
Member of Audit and Risk
Committee, Nomination and
Remuneration Committee and
Western Sydney Airport Committee
Chairman of Audit and Risk
Committee
Member of Western Sydney Airport
Committee

Stephen
Ward LLB

Chairman of Nomination and

Remuneration Committee
Member of Western Sydney Airport
Committee

Ann Sherry
AO BA, Grad
Dip IR,
FAICD,
FIPAA,
HonDLitt
Macq

Member of Nomination and

Remuneration Committee, Western
Sydney Airport Committee and
Safety, Security, Environment and
Health Committee

Kerrie Mather
BA, MComm

Managing Director & Chief

Executive Officer
Member of Western Sydney Airport
Committee and Safety, Security,
Environment and Health
Committee

Lee was involved with:

DUET, Superpartners former director
NSW TAFE Commission Board Chairman
Minister for Tourism, Communications and Art in the Keating
Government
Roberts is involved with:
DEUT Group Director
Macquarie Atlas Roads Limited Director
Macquarie Infrastructure and Real Estates (MIRA) nonexecutive Chairman
Experiences include (within Macquarie Group):
Head of Europe
Joint Head of Macquarie Capital Advisers
Global Head of MIRA
Executive Chairman of Macquarie Funds Group
Ward is involved with:
Simpson Grierson commercial partner
Sovereign Assurance Company Limited Director
Light Flight Trust Deputy Chair
Wellington Free Ambulance Board Member
New Zealand Rugby Union Appeal Council member
Carnival Australia CEO
ING non-executive director
The Myer Family Company Holdings Ptd Ltd non-executive
director
Australian Rugby and Cape York Partnership non-executive
director
Safe Work Australia chair
CLIA Australia chair
Experiences include:
First Assistant Secretary, Office of the Status of Women in
the Department of Prime Minister and Cabinet
CEO of Bank of Melbourne and Westpac New Zealand
CEO of Sydney Airport
Deputy Chair of the Tourism and Transport Forums advisory
board
World Governing Board of Airports Council International
Experiences include:
Eighteen years in different airports including those in Europe
and the UK.

Appendix L: Corporate Governance Statement

A document that outlines the framework and practices used in SYD with respect to corporate
governance. The SYD guidelines are imitated and appraised by the ASX Corporate
Governance Principles and Recommendations Report. The principles SYD have adapted
include the following:
o

Principle 1: Lay Solid Foundations for Management and Oversight

11

There is a close relationship between the board of directors and the company
directors. This promotes strong strategic outlook and support of the management
team.
o

Principle 2: Structure the Board to Add Value

Through operating a majority independent board, SALs Directors are able to add
value to the SYD through experience as well as policy implementation. The Board of
Directors has a strong representation of both genders reinforcing equitible
expectations and also require constant re-election to avoid the idea of a captured
board.

Principle 3: Promote Ethical and Responsible Decision Making

Ethical and responsible business practices are set out in the documents what
Sydney Airport Stands for and Sydney airports guide to business conduct. These
documents detail appropriate management procedures to reduce any conflicts of
interest and promote long term ethical success.

Principle 4: Safeguard Integrity in Financial Reporting

SAL has implemented an Audit and Risk Committee comprising of only independent
directors whom aim to comment of financial reporting based on ASX principles.

Principle 5: Make Timely and Balanced Disclosure

Sydney Airport has developed a continuous disclosure and communications policy in
order to provide timely, open and accurate information to all stakeholders.

Principle 6: Respect the Rights of Investors

Sydneys continuous disclosure and communications policy effectively imposes and
promotes a high standard of information flow for stakeholders. Communication
mediums include the company website as well as ASX announcements.

Principle 7: Recognise and Manage Risk

SALs directors have introduced a Risk management policy aimed at addressing and
governing policies about risk with the broader goal of implementing internal control
systems to mitigate these risks.

Principle 8: Remunerate Fairly and Responsibly

Sydney Airports remuneration report outlines appropriate policies and practices for
remunerating SAL directors or SYD staff. To guide these policies, the SAL board has
established a Nomination and Remuneration Committee.

12

Appendix M: Sydney Airports Environmental Policy

Sydney Airport connects Sydney to domestic destination as well as to a global network and to
the global economy. Due to SYDs close proximity to the city centre, the management team
recognizes the importance of sustainable practices. Decisions are made ethically and within the
outlined guidelines of the Sydney Airports Environmental Policy.
The Environmental Policy is a company-wide commitment to sustainability, pollution control,
community involvement and regulatory compliance. The broader aim is to devlop, implement
and maintain an environmental management system which improves the local community. This
is reinforced through the Sydney Airport Community and Stakeholder Engagement Program
which typifies future company plans with respect to continual environmental performance
improvements.

13

14

Weaknesses

Threats

Strengths
1

15

Strengths
1

Opportunities

Appendix N: SWOT Analysis

16

Strengths

Weaknesses

Opportunities

Threats

SWOT
Location - Australia is an island so main transport is aeronautical
73.3% international load factor - diversified demand
Partnership with Gebr. Heinemann
Full hedge of borrowing for T3
Hotels performing above expectations
Economies of scale
Management
Sum
A maximum of 80 flight movements can only be operated within
one hour but studies say 85
Parking at full capacity during peak time
High leverage
Limited ability to pay short-term debts- Low liquidity ratios
Sum
Government funding projects
Low interest rate environment
Depreciating AUD
Emerging markets such as China and India are still expanding
Badgery's creek
Sum
Qantas and Virgin have pointed at airports being monopoly :
dissatisfaction
Government regulation to prevent monopoly power.
Terrorism may restrict operations, security fees hike
Ageing population
Sum

17

Rating
3
2
2
1
1
3
3
15
3
2
3
3
11
3
3
2
2
1
11
2
1
1
2
6

Appendix O: Porters Five Forces Analysis

A unique feature of Sydney airport is the monopoly it currently enjoys within the industry.
Similar rivals within the same industry would include other airports such as Melbourne airport.
This means that there are geographical barriers to entry which reinforce that market dominance.
Other rivals such as regional airports within NSW or military airports do not have the same
capacity and cannot accommodate for large carriers. Close substitutes for the customers (airline
companies) do not exist as the high level of complexity of the services prevent them from turning
away from the runway and logistics of a physical airport. For passengers, they would have to
consider trains or coaches along with another airport service provider. If they are travelling using
their airport, services such as parking and car rental are exclusively sourced by Sydney airport.

Bargaining Power of Suppliers - Low

As a service provider, Sydney airport does not require extensive inputs for its operations.
Contractors undertaking work for the infrastructure might be categorized as suppliers. It is a
small portion of operating expenses and there is competition among contractors.
Bargaining Power of Customers - Moderate
There is limited buyer choice due to the prevailing monopoly position of Sydney airport. Large
pool of customers includes all airlines using the airport. Since there is no concentration of power
with the airlines, bargaining power is minimized and influence exerted is subdued. There is a
low buyer price sensitivity.
Intensity of Existing Rivalry - Low
High volume of revenue is unmatched by similar airports (Melbourne, Perth) or smaller airports
(Banks town). Major international airlines do not land on other smaller airports. Brand name is
superior to rivals.
Threat of Substitutes - Low
In the transport sector, there are limited options for substituting aviation. Naval and land
transportation are available but will usually involve higher costs. As such it is quite a niche
industry and in the foreseeable future, Sydney airport will still enjoy a major boost of being a
facilitator for a hardly replaceable product.

Barriers to entry- Low

Sydney airport has a 50-year lease contract with an extended 49-year option that can be
exercised at no cost on the land which it currently uses. Moreover, barriers to entry take the
form of high capital investments and government regulations which purchase and own the land
before allowing airport operators to start operations.

18

Appendix P: Beta Analysis

By running regression analysis against 5 year ASX 200 monthly data, a beta of 1.04 has been
obtained. However, the historical beta for the company was well below 1, and it could be
inferred that the sharp rise in beta would be a result from recent price moving. Therefore, the
beta has been adjusted by the firms current capital structure and resulting a beta of 0.326.

Appendix Q: Effective Real Tax Rate

The tax treatment for Sydney Airport was modeled as following:
firstly, from historical data, it was assumed that there is around $130 million of profit attributing
to the trusts SAT1 which is free of tax. Additionally, as a growing business, a large amount of
capital is invested in PPE, as those expenditures would be accounted for tax using double
diminishing methods, resulting the discrepancy between accounting and tax depreciation
expenses. Hence, tax expenses are again decreased.

Appendix R: Stock Historical Performance

Syd Share price and news flow

19

Appendix S: Discounted Cash Flow Analysis

FCFF

31-Dec-13

+
+
+
-

31-Dec-14

31-Dec-15

31-Dec-16

31-Dec-17

31-Dec-18

31-Dec-19

Net
income

47,100,000

57,400,000

126,332,296

112,915,607

132,851,715

170,112,830

170,431,489

Noncash
Charges

300,100,000

326,400,000

319,332,002

325,884,047

333,013,810

340,238,999

347,815,043

Mark-to-market/fair value
adjustment to swaps

54,600,000

Interest
Tax

370,430,000

383,860,000

362,048,779

379,788,572

382,383,666

369,697,792

389,482,033

236,100,000

261,700,000

401,119,080

321,082,224

335,970,027

345,391,420

358,085,805

41,813,980

27,853,070

32,298,823

27,680,270

32,410,117

448,407,977.
6

469,652,932.
6

544,577,986.
9

506,977,931.
3

582,052,876.
8

Capex

Working Capital Inv (CACL+Debts)

FCFF

481,530,000.
0

560,560,000.
0

Appendix T: Discounted Dividend Model Analysis

PLEASE PAST IN UPDATED VERSIONS OF THE DDM (BELOW SHOUD BE THE TOP
MODEL WITH NORMAL DIVIDEND GROWTH AND FULL CASH PATYOUT)

Assumptions:
o
o

Continued dividend growth rate based on historical evidence

Payout ratio is 100% of FCFF (therefore dividend value grows with revenue
growth)

Assumptions:
o

Dividend growth is not linked to revenue growth rate and grows at a slower
rate due to cash retention needed for future expansions (terminal 3 and
Badgerys Creek)
Assume number of shares to be consistent with Balance sheet figures

20

Appendix U: Monte Carlo Simulation

The simulation is based on the following assumptions:

Simulation table
O Revenue
Aeronautical
International
Growth*
Domestic*
Passenger Growth
Infrastructure
Growth

S1 Mean
3.59%
3.86%
2.51%

S1 SD
0.40%
0.74%
0.98%

S2Mean
4.20%
4.71%
2.51%

S2 SD
0.38%
0.86%
0.98%

1.55%
1.89%
1.97%

0.71%
0.58%
0.47%

2.05%
2.21%
2.49%

0.93%
0.70%
0.50%

Retail Growth*
Property and car
rental revenue*
Car parking and
ground transport
revenue*

3.50%
3.49%

1.01%
0.50%

4.00%
4.00%

0.00%
0.50%

5.00%

0.50%

5.50%

0.50%

Mean
4.20%
3.59%
7.00%

SD
0.38%
0.40%
0.43%

Terminal Growth with development

Terminal Growth without development
WACC Average
WACC Simulation
Risk free Rate*
Risk premium*
Cost of Equity
%Equity **
Cost of Debt*
%Debt

Mean
2.5%
5%
1.00
7%
30%
7%
70%

SD
0.003
0.005
0.050
0.006
0.038
0.005
0.038

* values are simulated with normal distribution with mean and standard deviation set in the
table.
** values are simulated with Pert distribution with the most like value set to be the mean.
All other values are calculated based on simulated values.
Assuming the discount rate follows a triangular distribution with most likely value at WACC
6.69%
Assuming the growth rate follows a normal distribution, with mean provided by revenue growth
at 2.5% and a standard deviation of 1%, minimum of 0% and a maximum of 6%.
21