Afternoon. This is the Chorus Call Conference Operator. Welcome, and thank you for joining the ENAV Nine-Month 2023 Results and Conference Call. As a reminder, all participants are in listen-only mode. After the presentation, there will be an opportunity to ask questions. Should anyone need assistance during the conference call, they may signal an operator by pressing star and zero on their telephone. At this time, I would like to turn the conference over to Ms. Francesca Mazza, Investor Relations. Please go ahead, madam.
Thank you, Shirley. Good afternoon, ladies and gentlemen, and welcome to the ENAV nine-month 2023 Results Call. Now we will be running you through the presentation. After that, we will be at your answer your questions. With that, I give the floor to Luca.
Thank you, and good afternoon, ladies and gentlemen. Before analyzing ENAV nine-month performance, please accept our apologies from the CEO, who is unable to join the call due to some connection issue that we are having now, as the CEO is in Emirates for a business trip, and we have problem to connect him to this call. So he's very sorry, but we cannot manage his connection issue. So I will drive you through the presentation. First of all, I would like to highlight the favorable air traffic trend that characterized the summer season, and that is continuing to positively impact the Italian airspace in the recent months.
We are very satisfied with this, robust, rebound and acceleration, which will certainly allow us to achieve significant targets. Let us now analyze the results of the nine months of the year, where the air traffic volume showed a solid growth year-on-year in terms of service unit, with an increase of approximately 11% in both en route and terminal, as a positive consequence of the excellent, performance during the summer season. This increase was also confirmed by the comparison of the en route volumes for the nine months of 2023, with the pre-pandemic volumes of 2019, which, in terms of, service units, exceeded by 4% the traffic, of 2019, a record year in terms of volumes for ENAV.
Revenues from operating activities in the nine months increased by 7.2% compared to the same period of last year, amounting to EUR 756.8 million, and they boosted the total revenue at EUR 74.2 million, increasing by 3.6%, despite the partially offsetting of the negative balance of EUR 44.6 million. The positive performance of revenues totally offset the 5.2% increase of costs, mainly due to the higher personnel cost, plus 7.2%, and other operating costs, plus 1.1%. As a result of these effects, the group closed with an EBITDA of EUR 220 million, substantially stable year-on-year, with an EBITDA margin of 29.7%.
Let me remind you that ENAV closed the first half of 2023 with a lower EBITDA compared to the same period of 2022. The amount spent in CapEx was EUR 54.4 million , while net financial debt was EUR 329.9 million, an improvement of EUR 78 million compared to the EUR 407.8 million recorded at the end of 2022. Therefore, the net debt to EBITDA ratio decreased at 1.2 x, compared with the 1.55x we reported at the end of 2022. Cash totaled EUR 380 million at the end of the nine months of 2023, confirming the solidity of the group, with a free cash flow of approximately EUR 97 million.
Now we can go deep dive, we can deep dive into the details of the nine-month results. Moving to slide 3. Let's look at en route traffic trend reported in nine months of 2023. Service unit went up 11% year-on-year, driven by a solid increase in international and overflight traffic, which grew 17.1% and 12.7%, respectively. This robust result was fueled by a combination of a successful summer season and a widespread increase in travel demand, despite the generalized increase in price for fuels, particularly airline fuel. National traffic declined marginally year-on-year, and yet recovered pre-pandemic volumes, starting from the last year, and therefore far earlier than the other traffic companies.
Analyzing the various components of the en route service units, we see that the most significant one is still overflight, accounting for 44% of total, growing 10.7% compared to the pre-pandemic year, 2019. This outstanding outcome has been driven by an increase of flights in all destinations, and particularly related to the intra-European flights. As already anticipated, it is notable that the en route traffic volumes showed a full recovery in the nine months compared with the pre-pandemic levels, exceeded by 4%. Regarding flights, I can also attest that this impressive trend is continuing with a 9.4% increase reported in October 2023, compared to October 2019.
Let me remind you that in terms of service unit, usually, those who register in average a growth, which is a few percentage points higher than the one seen in the number of flights. Let me tell you that just a couple hours ago, EUROCONTROL published the October traffic result, with an increase of 14.7% in terms of service unit, compared to October 2019. If you look at the year-to-date increase, we have a 5.1%, sorry, 4... Yes, 5.1% increase at the moment, so year-to-date. Let me see, let me tell you also that even November is registering a very, a very good performance, at least these very first days of the month, very close to October.
For what concerns the terminal traffic that we can see on slide four, service unit increased by 10.7% year-on-year, showing a generally positive trend throughout all three charging zones. This growth was mostly the consequence of a positive summer season performance and the rise in travel demand. Considering the terminal traffic by destination, we can see how the national component increased by 18.1%, while the international one remains relatively stable, having recovered as for the en route the pre-pandemic levels ahead of the other components. This growth has been steady and consistent quarter after quarter, reaching in the third quarter, 2023, 99.8% of the volume managed in the same period of 2019.
Moving to slide 6, you can see that the group revenue in the nine months of 2023 grew 3.6%, or EUR 25.8 million year-on-year, reaching EUR 714.2 million, driven by positive contribution of the core business. Within the total revenue, en route and terminal increased both by 7.3% and 9.1% year-on-year, respectively, supported by the rise in traffic volume, especially during the summer season. Let's now analyze what happened to the balance in the nine months of the year, where we registered a negative balance contribution for EUR 44.6 million, mainly due to a EUR 35.2 million euro positive balance accrued in the period, mainly coming from a positive balance from inflation of about EUR 49.2 million.
Continue the inflation reported in October 2023. This is higher than the figure for customer performance. The positive balance of the period was partially offset by a negative balance linked to depreciation, EU grants, and other minor changes related to the terminal traffic this year EUROCONTROL. And then we have a EUR 78.5 million negative balance reversal, related to the one accrued in the combined period 2020, 2021, and cashed in throughout the parties starting from January 2023. And then we have EUR 1.3 million negative balance related to the balance actualization of the period. On slide seven, we can see the cost for the nine months of 2023, in comparison with the same period of last year.
The total operating costs were EUR 520.2 million, up 5.2%, or EUR 25.6 million year-on-year, mainly due to the increase in personnel costs. For what concern the top 93 units, among controllers and technicians, that coupled with the renewal of the labor costs completed in the fourth quarter in 2022, pushed up fixed remuneration by seven point seven million. Six, sorry, point seven million. Actions to put in place to manage the high level of traffic related to the higher and higher traffic controllers over time, the adjustment of the ATO and the agreement with the operative staff, which introduces more flexibility on the current working hours. This component, driving up variable remuneration by EUR 11.5 million year-on-year.
As a consequence of these two key components, also social security contribution grew in the nine months by EUR 5.1 million, other personnel costs also increased, mainly due to the redundancy incentive in the period, and the higher price of health personnel insurance compared with the, the nine months 2022. Concerning external OPEX, they increased EUR 1.2 million year-on-year, mostly due to the increase in maintenance cost for EUR 2.9 million, the rise in the EUROCONTROL contribution, which went up by EUR 4.6 million, and, one point three million growth in costs related to the personnel business fee. These increases were more than offset by the reduction in energy costs. The capitalized internal works increased by EUR 4.7 million compared with the nine months 2022, mainly due to the group personnel activity in investment projects.
Moving on to the next slide, we can comment EBITDA and the movements below. EBITDA stood at EUR 230 million, substantially stable year-on-year, as a result of the higher revenues in the nine months, thanks to the intensive air traffic volume reported in the period, which completely offset an increase of total costs, mainly the staff expenses. D&A, provisions and write-downs, stood substantially in line year-on-year. Moving down in the P&L, the net financial expenses amounting to EUR 7.8 million in nine months, increased approximately by EUR 10 million, mainly due to the increased interest rate on debt, which resulted in financial expenses totaling approximately EUR 17 million, partly offset by EUR 9.4 million for financial income, primarily coming from the balance actualization mechanism.
With regard to income taxes, we recorded -EUR 37.6 million, decreasing EUR 3.9 million year-on-year, due to the lower taxable income. As a result of these movements, we recorded the EUR 86.3 million net result in the nine-month. Given the current and expected traffic volumes, supporting our positive economic and financial performance, we confirm 2023 outlook already known to the market. In the last slide, we present ENAV liquidity and our financial position, which, as you can see, remains very strong. We closed the nine months with roughly EUR 310 million euro cash, and additional undrawn credit lines for EUR 199 million, out of which EUR 150 million are committed.
Net financial debt stood at EUR 330 million, decreasing EUR 78 million, compared with the net debt of EUR 407.8 million as of end of December 2022. More specifically, the change in net debt is mainly driven by net cash in from operation for EUR 140.9 million, an increase of EUR 11.6 million compared to the nine months of 2022, that reported a cash in of EUR 109.3 million. Cash out for EUR 44.3 million related to the capital investment. A cash outflow for EUR 2.2 million related to 500,000 treasury stocks buyback. So this performance between January and February 2023 for the management LTI.
A negative change for EUR 16.4 million in non-current commercial debts, mainly related to the gross negative balances to be returned to airlines. As a result of these changes, net debt to EBITDA ratio at 1.2 x, slightly decreased compared with the end of 2022. With that, we can now open the Q&A session.
Excuse me, this is the Chorus Call conference operator. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. To remove yourself from the question queue, please press star and two. Please pick up the receiver when asking questions. The first question comes from Nicolò Pessina of Mediobanca.
Good afternoon, all. I would like to understand what your view on the traffic for next year. EUROCONTROL suggests an 8% growth compared to 2023. So you are aligned with EUROCONTROL estimates for 2023. I wonder if you also agree with EUROCONTROL for next year? Second question on the tariff. Airlines may seem to be in a good shape, so arguably this could be a favorable environment to put as much balance as possible into the tariff, and this is presently something you are discussing with EUROCONTROL in these days. So, I wonder if you can give us an update on where the tariffs could land next year. And a final question on the new-...
Targets, back in August, you mentioned that an update would be provided to the market by the end of November. We have seen no mention today so far, so I wonder if this planning confirmed them, so if we should expect an update over the next couple of weeks? Thank you.
Okay, Nicolò . I will start with the last one. As you know, we are actively working, as the CEO said the last time, with a primary strategic consultant firm on updating of our industrial plan, which is considered by our CEO as an essential step for our group. We are aware that the previous indication about the closing of the updating was the end of November, but in this moment, we need a further effort for the fine-tuning, given also our current strong commitment to manage the high increase of traffic volume that we are registering and managing in this, in this moment. Therefore, the intention is to finalize the update in the very first month of the next year, and as soon as it will be completed, it will be presented to the financial community.
So we still have to wait, we say a couple more months. I don't know, Nicolò, if I answered to your last question?
Yes, it's clear.
Okay, perfect. So I will move to the first one about the traffic for the next year. As you can imagine, we are in connection with the EUROCONTROL. We always talk with them. We kind of compare our feeling with their feeling, where they do the forecast, and we're very updated on what they do. In general term, at the moment, we are kind of waiting for the forecast of next year. Before, you know, I mean, the real forecast, the one everyone is looking for, and that will be used for, let me say, for the RP4 performance plan, will be the next one, the one that will be published more or less in April next year.
So, till now, yeah, we believe there could be a good forecast for 2024. The one done by EUROCONTROL, the one forecasted by EUROCONTROL for Italy at the moment. But we would like to wait for April 1, to better finalize our figures for the performance plan. We will use that one, that volume, that value, not only for 2025, 2026, and 2027, but also 2028 and 2029. So what concern our budget, probably we will use for 2024, the forecast of EUROCONTROL published in October.
For what concern the second question, I'm not sure that I understood your question because we just changed our telephone, this was not a very good idea because the Microsoft is not very good. So I... Did you ask about how the RP4 is going in term of negotiation or something else? So if you could, Nicolò, please, repeat your question, that would be nice.
I'm wondering if you can give us an idea of the tariff for next year, for the end tariff. We know it took, of course,
Yes, okay. I get it. I get it. Sorry. Yeah, the tariff. For what concern our route, because I guess it's the main one, we are going to present it officially in an enlarged committee that will be, I guess, on 21, 22 of November, in just a couple of days. Right after that, will be more, I mean, perhaps, it will be easier to give you some more detail. But at the moment, the tariff is going to be a little bit less than the one that we apply now, for, you know, for the reason that you probably know, because we have to give performance year after year, and other than the balance that we can put in our tariff.
This is going to be reduced just a couple EUR from 2023. I cannot, at the moment, tell you any more details just for a technical reason. We have to wait for approval. A really technical approval, but it's still approval of the EUROCONTROL after the large committee that will be held in a couple of days.
Okay, many thanks.
Okay.
The next question is from Aleksandra Arsova of Equita.
Hi, good afternoon. Thank you for taking my questions. Two on hand. The first one may be on dividend policy. So if you will provide in the update of your business plan, also an update of the dividend policy for, of course, 2023 and beyond. And if you are, let's say, comfortable with the current consensus on 2023 dividend of more than EUR 0.20 per share. And then the second one is on RP4. So how is the discussion with the regulator undergoing? And if you can share some color on the evolution you expect. Thank you.
... Okay, Aleksandra, let me see. What concerns the dividend, as you know, we are very, we pay a lot of attention to this item with our CEO. We really take care of what would be the next dividend. The, sorry, 2023 dividend. We are starting to think about, but we would like to wait for the end of the year to really be sure of our figures, and then, finalize our thoughts on the dividend. As you already know, our dividend policy is quite flexible. Even if you look at the consensus of our...
At the moment, even if we apply the 80%, if you look at the consensus of our net result, the precision and CapEx, you can already imagine that the dividend is going just applying the 80% of the dividend policy is already a good dividend. Apart this, we are thinking how to manage the 2023 dividend, but it's still something in working progress, that we will finalize right after closing, having the first final data of 2023. For what concerns the devolution or the discussion about before, let me tell you that we don't have, at the moment, any particular update.
In general terms, Europe and European Commission is very focused on capacity issue. There is a capacity issue because increase of traffic is very, very important. Even if in some, even if some states haven't reached yet the volume of 2019 volume yet, the increase year by year has been so important that a lot of countries are facing a problem to manage. You can see it from what I mean, the discussion coming from discussion also with the other service provider in Europe. It's the main one, the most important one, the biggest one. So the focus, very, very important focus on capacity, on capacity issue.
For what concern, instead the cost efficiency, you know that the EUROCONTROL has issued... Sorry, not EUROCONTROL, but PRB, has issued, a study, not really a proposal, but just a base of discussion, where the range between 0.7 to, what, 3.7, I guess 3 point something, a range of cost efficiency. That has to be at the base of discussion for the next regulatory period. On base of this, there was no discussion, yet there was some discussion, some, like, light discussion within council, with the service provider, you know, some environment, but not really with the regulator, national and international regulator.
So I think everyone is now focused to close the year, and then on the base of this value, also is these numbers also have a deeper discussion on this topic. You know that we are going to finish all the discussion within the first of June, as the commission has to publish the targets. And so from now to, let me see, from the beginning of next, of the next year, January next year, to May, there will be the bigger discussion. But at the moment, I don't really have any particular update.
Okay, thank you.
You're very welcome.
The next question, sir, is from John Campbell of Bank of America.
Hi, good afternoon, thanks for taking my question. I wanted to ask how you see operating expenses evolving in 2024. I suppose on the positive side, you should hopefully have a little bit of a benefit from lower electricity or utility costs, although it's not the main area of your operating expenses. But how should we be thinking about that, and also the evolution of labor costs that you see so far? Thank you.
Sorry, are you asking for the next year or for this year?
For 2024, and even beyond, if you have any view.
Perfect. Okay, 2024, right. We are now under budget process. In general terms, we don't expect to have an increase of external costs or other operating costs important increase from 2023. The point is actually to better understand what will be the impact of this increase of traffic next year on the staff costs. At the moment, we are working on this item together with HR division. And maybe we need to update our forecast, I mean, on this point, because actually it's a work in progress.
We are going to bring our budget in our board of directors in December, late December, and so we are now finalizing all the analysis and discussion and planning.
Thank you. Could I just ask a second one as well? So I think it was a previous analyst was asking about your traffic expectations for 2024, and I think the analyst mentioned that in 2024, EUROCONTROL sees en route traffic in Italy basically 14% above pre-COVID levels. So do you want to confirm that you feel generally comfortable with that assessment, given the sort of consumer pressures that people are seeing so far in Europe? Do you see any signs of that in your industry so far?
Yeah, this, this is the point, as also, as you are in line and also Nicolò before, this is a huge increase, really, it is a huge increase. We believe maybe it's a bit too much, but before I say that, we are trying to understand how to manage, how to ... I mean, we would like to go deeper on this, this, this value, because as long as 2023 values was in line with our expectations, remember also on the, in this, in the half call that we had, half results that we had, in August, we, we continue to see probably we close the 2023 at 6%. Okay, actually, now we are at 5.1%, so really close to the, to the, to, to what we planned.
We are not so confident that this increase that was forecasted for Italy by EUROCONTROL for 2024 is correct. But yes, it's something that we are now analyzing. Also in line with our capability, capacity, actually, because you know that we have hired some new controllers. We have a basket of new controllers that we can pick from, but still, it's a process that is going this moment. So it's very difficult for me to give you a feedback on the balance between this traffic volume that probably is a bit too high and the cost of staff cost, the staff cost that we need to have to manage this traffic.
This is consideration that we are doing. We are actually doing this moment, and I don't have particular feedback, so we have to, as I said before, come back on this item in a couple of weeks, just to be more, you know, more, yeah, to give you more detail on this one.
Great. Thank you for taking my question.
You're welcome.
The next question is Marco Limite of Barclays .
Hi, good afternoon, thanks for taking my question. The first question I've got is on CapEx. So there is a guidance out there for EUR 350 million of cumulative CapEx across 2022, 2024. Last year, you did less than EUR 100 million. This year, the run rate is, you know, takes to probably less than EUR 100 million for the full year. So, the question is, if you still expect to hit the target of EUR 350 million cumulative, which implies next year CapEx to pick up. And then, I mean, still on CapEx, on the midterm, in a way, you do have already a business plan out there in term of, in terms of ACC consolidation and so on. So, what we should expect on CapEx in the medium term?
Shall we expect CapEx to stay above EUR 100 million for the next three, four years? Thank you.
Yes. As we said last time, we had some problem after the COVID with the purchasing process, above all related to the, let me say, to buy goods and, you know, some new law that came out in Italy for controllers, for security, so and stuff like that. That said, we kind of, we've lowered it down to 2023 process in terms of CapEx. So we believe to have a level of CapEx that it will be, I mean, we say EUR 100 million, probably could be some million less, just some million less.
But more or less, our target is still 100, but we probably, we can, we are not so sure to get this, this point, but we'll be somewhere around EUR 100 million for 2023. For the next years, 2025, 2024, 2025, and so on, as you said, we already have our operative business plan in place, and we are going to catch up in terms of purchasing process. And, we believe to be back to our normal levels, that is around EUR 115 million. We already know, we don't know yet if we will be able to do right after next year, as we hope.
But if you have to consider an average between now and the next year, sorry, in 2023, 2024, and 2025, although you can keep 115 as the target that the company is giving.
... Okay, thank you. And then, maybe a quick one on the Q3 balance. If you could clarify, please, what a balance, negative balance linked to depreciation is. Can if you can just refresh, yeah, the theory around that. Thank you.
Yeah, the negative is just mainly related to the balance negative is mainly related to the fact that we have a reversal balance. As you know, we have EUR 660 million, more or less, of credit, balance credit from 2020, 2021 traffic that was almost 50% down to the level that was in some way agreed with the regulator in the tariff. So this amount of money, EUR 650 million, we're allowed to divide in five years, starting from 2023. So more or less, if you divide 650 in five years, you have 100 and some that is a balance that we ask in the tariff.
And the way we manage in our P&L is as we ask it, it's the balance of the year in 2020 and 2021, and then it became a balance of the... Sorry, balance reversal when we ask it to the airline to pay. So as we have this cash incoming from the tariff on the top line, we have to offset in our P&L by a negative revenue, so balance, a negative balance of EUR 78 million in the period versus EUR 35 million of the positive balance. That is the one that is related to the other items, the balance of the P&L. So the net of these two items, the negative and the positive, is a negative 1.
But we believe that by the end of the year, to have EUR 105 million of balance reversal, so negative balance register in our P&L, this is automatically coming from the tariff. On top of this, you have to put the balance of the year, that we expect to have more or less, probably around EUR 50 million-EUR 70 million.
Okay, thank you. I thought it was some sort of other, balance relative to the depreciation of asset or other things. Okay, clear. Thank you.
Oh, yes. As was speaking inside the reversal, because, as I said in the speech, maybe it was a little bit too fast. In the EUR 35 million of the positive balance, this is a kind of a number of balance in this value. There are the inflation balance for EUR 49 million, 49.2, and then we have some adjusting, so negative balance related to the depreciation, as we said before, new grant and EUROCONTROL cost. So then some adjustment that brings from 49.2 to 35. So if you take out all this balance that is negative from 49, you have the 35 positive. And then you have the EUR 70.5 million of negative balance reversal that is offset in this way. Is it clear now?
Yes, it is. Thank you.
You're welcome.
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