Earnings Call: Q1 2020

May 14, 2020

afternoon. This is the Chorus Call conference operator. Welcome and thank you for joining the ENAV First Quarter twenty twenty Results Conference Call. As a reminder, all participants are in a listen only mode. After the presentation, At this time, I would like to turn the conference over to Mr. Stefano Sungini, Head of Communication and Investor Relations. Please go ahead, sir. Thank you, operator. Good afternoon, ladies and gentlemen, and good morning for those of you connecting from The U. S, and welcome to ENAV's First Quarter twenty twenty Results Call. I'm joined here in Rome by Roberta Neri, our Chief Executive Officer and Luca Coleman, our Chief Financial Officer. As always, we will walk you through a formal presentation, after which we will be happy to take any questions you should have. With that, I will hand the call over to Roberta. Thank you, Stefano. Good afternoon, ladies and gentlemen, and welcome to Enapps First Quarter twenty twenty Results Call. As you carefully know, the aviation sector has suffered suffered from the severe impact of COVID-nineteen. This will start in March 2020 with the route service units down 12.3% in the first quarter of the year and a negative trend expected to continue into the second quarter. Despite the challenging environment, we have maintained the full business continuity while also protecting our employees in terms of health and physical safety while maintaining their full salary. More in general, we are supporting the national emergency efforts with all ACC and Corporal Towers operational providing air traffic control services to cargo, medical supply and repatriation flights as well as with donation by the company to hospitals and the so called Producione Chile. On top of that, we have decided to donate 50% of our twenty twenty short term management incentives to scientific research to conduct the COVID-nineteen virus. Now let's take a closer look at our first quarter financial performance. Net revenues decreased by 3.8% year on year to €171,600,000 with traffic revenues declined largely offset by a positive balance. EBITDA was also down by 6.7% year on year to €28,900,000 with cost efficiency measure offsetting most of the decline in revenue. Similarly, EBITDA margin was down 0.5 percentage points year on year to 16.8%. Indeed, the first quarter of the year is seasonally the weakest, as you know, due to the very low traffic coupled with linear costs. And this effect has been further amplified by the COVID-nineteen issues. Consequently, we expect experience of a decrease also on the bottom line with a net loss of €6,200,000 compared with the two net loss of €3,600,000 recorded in the previous year with the difference mainly due to a higher taxable income in the 2020. CapEx in the first three months of the year was €15,300,000 so in line with the 2019. Despite of the critical situation created by the coronavirus, we are well equipped to weather the storms, relying on a stronger liquidity profile and a solid balance sheet that provides resilience over 2020. Indeed, given our financial solidity, we are able to confirm the dividend payment per share of €0.2094 provided in the 2019 financial year's results, which is an increase of 4.8% over previous year. The dividend, as you know, will be paid on 05/27/2020 with an ex dividend date on May 25 and the record date May on May 2026. Moving on to Slide two of our presentation, let's have a closer look at the traffic trends recorded in the first three months of twenty eighteen. As I previously mentioned, route traffic performance already shows some effect of the lockdown started in the February with a total decrease of 12.2% in service units year on year. This decline is the combined effect of a very strong growth in traffic experienced in January and in February when service units growth was 8.5% in January and 11.2% in February. And a sharp slide in March went traffic decreased by 51.8% year on year. In terms of which segments, it's important to note is that the decline in service units are mainly characterized national and international segments, while overflight continued to grow at a slightly positive rate percent over the first quarter of the year. Also in the cases of other flights, this positive performance is mainly explained by a double digit growth in the first two months of the year and the growth in the first two weeks in March after which the effect of the COVID-nineteen has become visible unfortunately. Finally, for the sake of comparison, it's useful to note that the decrease in traffic which emerged in Italy in the first three months of the year is in line with the performance of the other major countries in Europe, mainly U. K. Suffering the least with a decline of 10.8% and France suffering the most with a decline of 14.8. Terminal traffic growth in the 2020 is also hit by the virus emergency, which with 22.4% decrease in service units, the dominated by an overall negative performance in both national and international traffic segments. And in all three, zone, so one, two and three. In percentage terms, Terminal 1 is the most of several hit followed by Terminal 2 and Terminal 3. This higher impact on Terminal Zone 1 is also due to the fact that Terminal Zone 1 traffic was decelerating already in January and February also due to the ban of flights to and from China, while Zone 2 and Zone 3 were performing very well in those months. The business mix of the Italian market with all the flights representing more than 40% of the group traffic has assured the partial mitigation of the COVID-nineteen emergency impacts until mid March. Looking at revenues in more detail and I'm looking at Slide three. Net revenues decreased by 3.8% year on year due to a decline in revenues from operations down 23.5% at 154,900,000 largely offset by a positive balance of €28,400,000 We saw a material decrease in both routes and terminal revenues, down 2450.8% respectively, mainly as a result of the lockdown following the COVID-nineteen outbreak combined with lower to 2020 tariffs versus 2019. However, thanks to the traffic protection mechanism in place, this revenue decrease was mitigated by a positive balance in contrast to the negative balance recorded in the 2018. The positive balance amounting to €28,500,000 in the first three months of the year and that was mainly driven by a group and terminal traffic material lower than forecast. More specifically, a group traffic balance accounted for €12,600,000 while terminal traffic balance was €14,000,000 On top of that, we are we also recorded a slight positive balance reversal applied in 2020 tariff of €1,700,000 Further positive contribution came from the low regulated business with revenue at €5,800,000 more than double the revenues in the same period of 2019 and it is mainly due to the revenues from IDS and NAV that was not consolidated in the 2019 due to the acquisition in July 2019. Finally, other operating income was at €8,300,000 marginally lower by €500,000 over the first quarter of last year, mainly due to the lower level of EU project financing. Moving on the cost on Slide four, in the 2020, we continued to deliver on our OpEx efficiency plan. And more in detail, we streamlined the personal costs given also the sharp decline in traffic from February onwards. In general terms, total costs declined by 3.2% year on year, reaching €142,800,000 in the 2020. On a comparable basis excluding IES RNAV, total costs were reduced by 6% year on year. More in detail, as you can see on the top graph, recorded external cost of savings of €600,000 a 1.8% reduction year on year. We were able to significantly reduce the cost of several services such as utilities and telecommunications cost declining by 17% also due to the lower consumption driven by the most employees working from home in March as well as due to lower costs related to our full IP digital network. We also saw the reduction of some expenses related to the activities performed by our subsidiary, Tecrosky, which is down 12% even to the slowdown of many activities due to the health emergency. These significant reductions were partially counterbalanced by higher cost for external services linked to COVID-nineteen specific initiatives undertaken by the company, including extraordinary certification of our facilities and by higher expenses related to international activities performance by IES and NAV and by ENAV Asia Pacific. Personal costs in the first three months of the year decreased to €117,000,000 down 3.5% year on year, including ABS related costs. These results is a combination of several factors. First of all, material degrees in variable pay and social security costs as a consequence of reduced order time combined with use of outstanding vacation balances, given the material slowdown in traffic starting date of February as I told before. Secondly, we experienced an increase in fixed pay of EUR 1,900,000.0 as effect of 2018 labor cost renewal and more importantly, the inclusion of and other employees. These effects were partially offset by headcount reduction of 70 employees on average, excluding the effect of ABS acquisition as, I mentioned before. Indeed, the when including also ABS and NAV at the end of the 2020, our authorization reached account of 4,258 people. Lastly, capitalized internal work was almost stable year on year at about €6,600,000 Let me now give you our view on the main developments we are seeing in 2020. In light of the significant impact of COVID-nineteen, Honeo's traffic over the last three months and by its own and in collaboration with other players at the relation sector is currently undertaking several measures to deal with the implication of the traffic performance for 2020 and beyond. As you may know, Aerocontrol, as the vast majority of its member states agreed to postpone the payment of drastic charges due by airlines to urbanization service provider related to the period February 2020. These will allow our lines to tackle the liquidity issues that they are facing currently and be able to pay those charges starting from November 2020 onwards. To understand the impact of these measures, I invite you to look at the timeline in the slide. We prepared a slide to explain better as you can see. February 2020 traffic will be paid within the current year in November, next November, while March, April, May payments will be postponed to 02/2021. Sorry. 2021 with the last cash in due in August 2021. Now to better understand the impact on our financials, first consider that in the normal pre COVID-nineteen scenario revenues from our core business, I think, internal charges amount to about 16,000,000 to €17,000,000 per month with higher volumes in the summer season and lower volumes in the winter seasons, excuse me. Starting from this part, we tried to provide some assumptions of traffic development in the coming months. As already mentioned, we estimated April and May traffic down by 90% and a gradual recovery starting from the summer. In terms of revenues, these also means lower revenues recorded before fully compensated by May will be much lower than usual between minus 50% and minus 90% versus a normal year, which will greatly reduce the cash flow impact on the delayed payments. On the other hand, the payments for February 2020 in last month with drastic volume effect at pre COVID-nineteen level will be cashed in November with a positive impact on the liquidity by the year end. Starting from traffic flows from June 2020 onwards, we expect the system to return to the standard two months billing and settlement cycle. With regard to regulation and RP3 development, the RP3 regulatory framework was approved in February 2019. The country specific performance plan and negotiation process is still underway. Based on the formal submission by our country, by Italy, the applied 2020 tariffs are the following. The tariffs that we are applying starting from last January, euros 66.02 per service unit for a route, 177 point per Terminal Zone 1, EUR167.56 for Terminal Zone 2 and EUR298.93 euros for Terminals on 3. So with that, I will hand to call Horace to Luca. Thank you. I will switch to Perth on mute. Just to be clear. Okay. Thank you, Roberto. So as you can see on Slide seven, our net revenue in the first quarter of the year decreased by 3.8% year on year, driven by a negative performance in our revenue from operations, both in route and the terminal business, which was largely offset by a positive balance. The main contribution to the year on year decline in revenue from operations came from EnWood activities, which saw a revenue decrease of €29,800,000 Then we have terminal activities that also posted a negative performance with revenue down €14,400,000 over last year. And it is worth noting that positive results were impacted by the effect of COVID-nineteen emergency combined with lower tariffs applied in 2020 on Enroute and Terminal. Indeed, Enroute applied tariffs was reduced by 15.3% to €66.02 in 2020. Similarly, Camelozzone one tariff was reduced by 12.3% to €167.33 Terminal Zone 2 tariff to €167.56 down 15.2%. And finally, Permian's own free tariff shrunk to €298.93 down 6.3%. As mentioned above, the negative contribution of revenue from operations was, however, largely offset by a positive balance of €28,400,000 in the first three months of twenty twenty compared with a negative balance of €6,700,000 in the same period in 2019. More in detail, the difference between actual and planned and booked traffic has inverted from plus 2.4 in the first quarter twenty nineteen to minus 15.5% currently. Despite the material reduction in top line, thanks to our continued focus on personnel and external cost discipline, we managed to contain impact on EBITDA to a decrease of 6.7%, reaching 28,900,000 As a result, EBITDA margin decreased by 0.5 percentage point to 16.8%. As Roberta mentioned before, the first quarter margin is seasonally the weakest and is also affected by impact of the COVID-nineteen outbreak. Looking at the P and L on Slide eight, as you can see, the decrease in net income was mainly driven by the negative contribution of the top line, partially compensated by cost efficiencies and a lower D and A. Moreover, a high tax item further contributed to net income decline. With regard to the below EBITDA items, G and A decreased by €500,000 mainly due to the lower depreciation and slightly higher CapEx contributions. Provision and write downs remained quite stable in absolute terms. We have witnessed a marginal increase in net financial expenses as a net result of lower interest income from VAT receivables and lower gains on foreign exchange transactions, more than offsetting lower interest expenses in the period. You can also see a marginal increase in income taxes in the first quarter, also explained by higher taxable income from our subsidiaries Tecnoskaya and Enel Sao Pacific. As a result, we recorded a net loss of €6,200,000 compared to a net loss of €3,600,000 last year. Moving on Slide seven, let's have a look at our cash flow and financial position. Enav's liquidity and financial position remain very solid. Sorry, slide nine or seven. So Enel's liquidity and financial position remain very solid, enabling a small management of the COVID-nineteen emergency in the coming months. Our cash balance as of March 31 increased to €477,000,000 up by €27,000,000 versus 2019 full year. Mainly as a result of the cash in of traffic revenue related to the period in November 19, January 2020, as well as of VAT receivables. Three elements more than these elements more than compensate the cash absorption of about €29,000,000 from investment activities performed at the 2019 and from other current payables. In a nutshell, our net financial position reflects a solid net cash of €153,000,000 at the end March twenty twenty. Moreover, in order to ensure the financial stability of the company, we are currently working on many initiatives. As previously mentioned by Roberta, we have agreed with Aerial Control to defer and route the terminal charge for February to be cashed in November 2020, while charges related to March, April and May to be cashed in 2021. En route and terminal charge from June onwards are expected to be cashed in regularly, which means within the normal two months billing and settlement cycle. On the cost side, we have reduced our average cost run rate from approximately €50,000,000 per month to €45,000,000 per month, thanks to further cost cutting initiatives. We also have an additional liquidity buffer by postponing part of the twenty twenty CapEx, which have been reduced from approximately €120,000,000 to about €80,000,000 It is important to point out that the remaining CapEx of €40,000,000 are only postponed also due to the difficulties in deploying investments due to the lockdown. Finally, I would like to highlight that we have no material debt maturities until 2022. Moreover, we have additional liquidity available including €70,000,000 EIB financing and approximately €150,000,000 of other credit lines. We are also in the process of negotiating committed credit lines of approximately €150,000,000 in total. As a result of our solid liquidity position, we can confirm our dividend on 2019 full year results amounting to a total of €113,000,000 to be paid at the May 2020. I will now hand the call back to Rebecca. Okay. Before opening the floor to your questions, let me give you an outlook on 2020. Given the information on the COVID-nineteen situation available currently, Tafsik could reach an inflection point in late June and gradually recover for the second half of the year. But also in this complicated and uncertain situation, we are committed in maintaining the full operational continuity in the light lockdown phase while assuring maximum protection obviously for our employees. Moreover, in addition to the reduction of cost weakness in our first quarter results, we have put in place further cost efficiency measures in order to defend the margins. In this moment, the situation is highly uncertain and we are not able to provide a detailed and real guidance for the full year 2020. However, thanks to the visibility afforded by our regulatory framework, we can provide an indication of revenues declining mid single digit. Thanks to the additional cost initiatives we have to put in place, our net income should decline high single digits over last year. Last but not least, we decided to postpone a portion of our 2020 planned CapEx. So we expect CapEx to be around €80,000,000 in 2020 rather than the previous target of €120,000,000 Finally, I would like to remind you that our AGM will be held next week on May 21. AGM will elect the new Board of Directors including the new CEO and Chairman. As you may know, this is my last results conference call as CEO of Enav. I would like to thank all of you and wish Enavsa and its employees all the best and to continue delivering on Essex's With that, we are now ready to answer any questions. Excuse me, this is the Chorus Call conference operator. We will now begin the question and answer session. The first question is from Niccolo Pessina with Mediobanca. First question is on the regulatory review. I'm wondering if you could give us an update. I'm not really asking for any number. I just want to understand if you perceive any risk given the current situation. What you would expect as the outcome of this regulatory review if extending RPQ is an option? Or what we should expect going forward? Second question on the balance generation. Would you expect the balance generation of this year that is likely to be very relevant to be deployed into the tariffs during RP3. Is it feasible? Do you perceive a risk of having very high tariffs at the treatment of traffic volumes? And final question on the outlook. I would like to ask if you could explain the traffic assumption underlying the indication you provided and if you could add a comment maybe on EBITDA also. Thank you. Okay. Think Luca will answer the first question on regulation. Yes. I'll answer the one, sir. So the regulation, as we told you last time, I mean, the last update was that the commission was going to have a civil scale committee on April, beginning of the May to decide what to do with the performance plan of the different countries. The point was that, I mean, the single share committee was supposed to be hold on May 6. And the commission decided to postpone this meeting because still they don't I mean, the commission didn't have the right idea how to I mean, how to approach this situation. Mean, didn't define yet how to discuss how to approach the performance plan. Because on the table, you can imagine there are different different talk and also because so what what they decided to do was to postpone this meeting. They decided not to have any more just a couple of weeks ago. Decided just a couple of weeks before they decided to not drive it and to postpone in a in a couple of weeks. So we are waiting for this meeting to have some indication about what the commission is going to do. We believe that something that could be done or would be done for 2020 to partially offset this very in terms of rent, in terms of probably we really don't know. We really don't know anything, but we just know that there could be some I mean, they'll try to find some rent for everybody. Maybe they find something else for us. But in this case, the regulation at the moment is not an issue from what we know. And so we still have to wait a couple of more weeks to understand better what would be the future situation. And so I will answer with that, I will answer also your second question about the balance. For sure, the balance we are going to generate this year is going to be very high. I'd say let me say that much will depend on the of what will happen in the summer, above all in September, October, November in terms of traffic volume. And so but still the balance will be very high. The first discussion that we had with the counterpart, Eurocontrol, under the commission was to at least to postpone this balance sheet in more than one, two or three years, probably. It depends on the amount. At the end of the 2020, we will decide. For both consumer and other, as long as we don't have pressure on liquidity, probably we will be able to postpone a little bit more the receivables of the balance. So that's our point. About the traffic, I don't know if Roberto wants to Yes, yes. About the outlook for the outlook of regarding traffic, what we assume are the the forecast of our control in the, I can say, worst scenario in the cases of no coordinated measure and considering that that's the forecast effectively the lower level of traffic could be around June and starting from the best to data traffic will hopefully rebound. In particular, starting therefore from the considering the assumption of error control, the hypothesis is that around December, the level of traffic compared with the previous year is around minus 25%. Thank you. I would like just to Nicolas, I would like just add to what Luca said about the balance, we have also to consider that the measure that some countries are considering to support the Life Company are in order to contribute to the sustainability of the system of the air traffic and so in the medium and long term, the possibility to recover the bond, not the balance, obviously known in one year considering the extraordinary level of balance, but in more than one year is something that could be. Sure. If I may still ask on the outlook on EBITDA, if you are willing to provide any indication on this? We prefer that we indicated the level of the outlook about net revenue net sorry, net income. So it's not difficult to understand what is our view about EBITDA considering that the relevant impact coming from COVID-nineteen is on revenues side and obviously on cost side is considering the efficiency and the action that we already put in place in order to mitigate the reduction of revenues on our EBITDA. Okay. Many thanks. Okay. The next question is from Yuri Dzanieri with Kempen. Please go ahead. Hi. Thanks for taking my question. Two on my side. But before asking them, I would just would like to say that I'm sorry to see missus Nirav leaving. I'm sure she can say that the early days at Enova were a success. So first question is maybe if you could spend some additional words on the non regulated business, what you can expect in the next few quarters? Also how Eirion, for instance, is performing and Okay. Regarding your non regulated business, we are our outlook is to consider a growth in non regulated revenues compared with 2019, and it is obviously mainly due to the ABS consolidation. Although the critical situation coming from COVID-nineteen, ADS is continuing to deliver our contract also from remote side and it is a good factor considering so considering that we expect to increase the level of revenues from non regulated business compared with 2019. Regarding Ireon, Ireon is not consolidated. So in terms of revenues, non regulated revenues can Ireon is not impact. What we expect about IREO is to start to receive dividend starting from 2022 And it is confirmed also considering the last update of the Iridium business plan. And about CapEx, what is important to underline is that the reduction of level of CapEx of the current year is not a is mainly a postponement of some activities and of some payments regarding CapEx. So it is to contribute to support the free cash flow of the year, but also considering the capability to effectively deliver some program of investment due to the friction coming from COVID-nineteen. What we expect is that in the medium long term, so in the CapEx investment plan the five years, not impacted with the lab. And the reduction of about €40,000,000 is a remodulation of, of some program such as for flights or, other Inet. Inet for the last, the the the final part of the implementation and some others Small small some others small small projects or small investments. It's not easy for us. That's a good point. Yes, yes. No, no, I get it. Maybe if I can just follow-up on, Irene. I mean, guidance so far always have been like very limited. I think you just indicated roughly 10% IRR on the investment you made. Can you at least confirm that this is going to be the case for the years to come? Or maybe you are continuing to revise this type of guidance? For now, we can confirm the previous outlook about the year in terms of IRR, in terms of timing of dividend payment. Okay, perfect. Thanks. The next question is from Rigid De Bellis with Equita Sim. Please go ahead. Yes, good afternoon. Some questions for me. The first one is on balance. Putting in another way the question of my colleague, Looking at the speed of recovery of balance, what is the level of en route tariff that do you think is acceptable for the carriers to avoid less traffic on Italy? I mean, an acceptable level also from a commercial point of view. The second question is on the net debt. Based on your assumption and guidance, can you provide us an indication of net debt level expected by year end or an indication of working capital change expected in your scenario? The third question on provisions. Based on your experience, do you expect a relevant level of write downs by the year end, making a comparison with the past crisis in your sector? And last question, do you think the bonus margin mechanism will remain in place in 2020? Thank you. Talking about the balance. Balance, right now it's very difficult to define the right level of tariff applied in twenty twenty two, three and '4. It will depend on the general discussion that we are having now will hold the counterfactors. So at the moment, we cannot give any more information because actually we really don't know it. It's just a problem. Net debt, we even if we have some simulation, at the point now, the real point and Roberta said at the beginning, there is no real scenario, traffic scenario for our security in the country for 2020. So the point is, it's very difficult to give disclosure of our, I would say, net debt without taking consideration what could be the very good scenario that is in some way defined by the official stock for the unit that is the one that was supposed to do it. We have some internal one. We don't feel I mean, at the moment, we stress this scenario, this internal scenario. So we are not I mean, in general, I'm worried in this moment, but we don't disclose it because actually there's no traffic forecast available at the moment official forecast available for Italy at the moment. Provision, still with the provision at the moment, actually, let me say, it's not a problem because there's no flight going. So as long as the airlines are not paying this moment because Roberto said before, as we said before, the cash in that we are supposed to have enabled May, June and July are postponed. So the airlines, they don't have cash out in this sense. When they will come back to fly and will regenerate a new I mean, cash revenue and cash related, so I'm talking about July sorry, August to September, October. So probably in the next year, we don't see why they shouldn't pay us. Even if and on top of that, still remember that we still have our system that cannot protect us because if they don't pay, then they cannot run it because they could be stopped and still on pace is visible. And then the last one was on bonus models. In general terms, the relation say the bonus model is on at the moment. But we believe, we think that at the level of traffic that is now and it's probably by the 2020, we don't believe that there will be any bonus models on capacity performance because the capacity will be so low. Actually, there's no problem. So actually, this year, I'm talking about 2020, probably we'll be back in 2021, 'twenty two, but we don't think even if we don't still have the certainty, but we don't think that the bonus models will be applied in 2020. Thank you. The next question is from Rishika Sovjani with Barclays. Please go ahead. Hi, good afternoon. I wanted to ask two questions. The first one is in the context of you reaffirming your dividend for 2019 to be paid at the end of the month and also the strong liquidity position. Can I ask you to talk about how the Board is thinking about protecting the dividend going forward? Do you intend to still protect that in 2020? Or do you think that the dividend may potentially have to reflect the environment being very challenging at the moment? And then my second question is on the business plan, the five year business plan. With the argument that the air travel industry will be smaller in the years to come with airlines restructuring and shrinking their businesses, do you think that the business plan needs to be accelerated, more aggressive bigger changes need to be made in order to make your business adaptable to the new environment? Thank you. Okay. Talk about the unit that you can imagine there would be an issue of the next Board of Directors as Bressa said, it's changing at this moment. So we cannot actually see something about it without having this discussion with them. But other than the the let's say that it will depend on the cash, the cash we will generate in twenty twenty two twenty twenty and how the traffic will go and how the business will go. So we will have a general talk and a complete talk with our Board at the end of the year and we will define it. Oishi, about your second question, first of all, it's up to the new CEO. What I can say is that the industrial plan and the industrial program of the company remain very solid in my opinion. I have to say that could be this critical situation and the next step of the critical situation could be the right trigger to also to try to anticipate some program, I. E. Main remote power or cluster of the approach activities. The next question is from Arthur Truszlov with Credit Suisse. Go ahead. Afternoon. Arthur Truszlov from Credit Suisse. Just a few for me. So I mean, firstly, in terms of OpEx reduction, how should we really think about them in respect of how they move with traffic? So clearly, variable personnel costs were down materially in the first quarter. So can you just give us some color on how your OpEx is influenced by traffic performance? Secondly, from a personnel cost perspective, again, clearly, they were down in the first quarter. But if you strip out IBS ANR, what was the trend that you saw there? And I guess, finally, on cost savings as well. You've obviously put forward previously a plan to reduce the number of employees. You've obviously used used up people's holiday balances at this time. Are there any other sort of serious measures that you've been taking since the outbreak of the COVID crisis to cut costs? Thank you. The link between the level of traffic and our cost, in particular for labor cost is that there is a strong component that is fixed that I can say. But there are also some components on labor costs that are variable linked to the dynamics of traffic mainly I refer to over time that in a normal in a situation of high level of traffic during the summer season are very high normally. In and so it is a variable component on which it's possible to leverage. The traffic cost of people that move in from a site to another site in particular during summer when we need for example in some airport to enforce the number of controllers to support a very feasible dynamics of traffic and obviously when traffic is so no initial costs are in place. The outstanding vacation is another important leverage that we are using that we used over the last three initial first quarter of the year, but the effect of this leverage will continue also during the coming years considering the high level of outstanding vacation. Training activities because also due to the critical situation of COVID in terms of distance between the people and the other one, the social distancing, also some activities of training are going to be postponed when the traffic will rebound when the situation sorry, no, the traffic will rebound, but when the situation of COVID-nineteen will hopefully became better. And the cost of EBITDA? What I would like to underline is that the level of cost total cost in the first quarter of the year compared with the previous one without considering excluding the conservative IBS is 6% of reduction, 60% is a huge amount considering the fact that the labor cost represent about 80% of our total cost. And it's important to consider that in the first quarter of year normally due to the seasonal dynamics of our business some valuable components are normally lower than in summer. So it means that the effect coming from the reduction of over time, for example, will be huge in summer compared with the previous quarter of of the year. The next question is a follow-up from Niccolo Pesina with Mediobanca. Please go ahead. Yes. Just a very quick follow-up. Maybe an update on the auction for the control towers in Spain. Thank you. Yeah. We know that the processes in place. There are no change about the initial program and the expectation is that around summer could we receive the outcome of the the the offers more or less in full line we expect. Thank you. There is a follow-up question from Arthur Truszlov with Credit Suisse. Please go ahead. Hi, just a quick follow-up. So with your regulatory framework, you obviously have the balance mechanism, which compensates you for some of the traffic loss that you may incur. But if your variable costs are lower than what is laid out in the performance plan, is that a benefit that you are likely to retain? Or is there some measure laid out within the regulation would mean that you would lose some of that benefit? Thank you. At the moment, the regulation say no. So actually, we don't have any other indication at the moment. So the answer would be we will treat the cost and the traffic in the same way we have done till now till somebody say that something's changed. At the moment, we don't have this. Information. Did I answer your question? Yeah. That was perfect. Thank you very much. Okay. You're welcome. Ms. Neri, there are no more questions registered at this time. All right. Well, thank you. Thank you, operator. Thank you, ladies and gentlemen, for joining us on this call. My personal thank you to Roberta Neri for these last five years. I think she's done an incredible performance for the company, and we will surely meet her. With that, thank you very much. And if you have any follow-up questions, please reach out to me and Alexandra. Thank you. Bye bye. Bye. Bye. Thank you. Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones.