Earnings Call: Q4 2017

Feb 28, 2018

Good day, and welcome to the Aena 2017 full year results presentation conference call. Today's conference is being recorded. At this time, I would like to show the conference over to María José Leal. Please go ahead, ma'am. Thank you. Good morning, and welcome to Aena's 2017 results presentation. Today's call will be conducted by our chairman, Mr. Jaime García-Legaz, who will share with you the key highlights of the year. Mr. José Leo, who will cover the main business trends, and I will cover the financial results. At the end of the presentation, Mr. Jaime García-Legaz will provide you some outlook for 2018, as well as his closing remarks. We will open a Q&A session after Mr. Jaime García-Legaz's presentation. Thank you. Good afternoon. I'm delighted to be with you. I will go for the key highlights of the company in 2017. I will start with passenger traffic, which grew to 265 million passengers last year. That means an increase of 8.3%. We achieved a new traffic record in our national network with cumulative growth of 8.2% and 249.2 million passengers. In the fourth quarter of 2017, traffic grew by 8%, which, in our view, compares well to the increases of 6.3% in the first quarter, 11% in the second quarter, and 7.2% in the third quarter. Contribution of international traffic has been stable at 70.5%. Growth in international passengers stood at 8.4%, and domestic traffic grew by 8.1%. With regard to Luton Airport, it has reached its historical record of 15.8 million passengers with an annual growth of 8.6%. Coming into the results, total consolidated revenue has increased to 4.027 billion euros. That means an increase of 6.8% compared to 2016, and of which, 26.3% correspond to commercial revenue. That means that in 2016, that figure amounted to 25.3%. Commercial revenue grew by 11.3% to EUR 1.06 billion. EBITDA for the period stood at EUR 2.517 billion. That means a growth of 9.8% compared to 2016. The margin moves up to 62.5%. In 2016, the margin of EBITDA was 60.8%. We've been able to maintain the efficiency that has been achieved in spite of the operational tension that has come out of increasing traffic. Consolidated attributable net profit came to EUR 1.232 billion. That means an increase of 5.8% compared to 2016. This increase is especially significant since an exceptional positive impact of the reversal of provisions for legal proceedings related to expropriations of land at Madrid Airport is included in 2016. That means that excluding this effect, which is a one-off effect, net profit would have increased by 21.9%. A relevant point is the fact that the board of directors of Aena proposes to the ordinary general shareholders meeting the distribution of a gross dividend of EUR 6.5 per share out of 2017 net profit. This dividend, which implies distributing 80% of net profit, represents an increase of 69.7% over last year. With regard to cash flow, there's been an increase in operating cash flow by 9.8%, up to EUR 2.014 billion compared to EUR 1.834 billion in 2016. The accounting net financial debt has decreased to EUR 7.156 billion, including Luton's net financial debt, which amounts to EUR 396.3 million compared to EUR 8.228 billion at the end of 2016. These figures mean that we have reduced the net financial debt ratio to EBITDA from 3.6 times EBITDA in 2016 to 2.8 times EBITDA as of the 31st of December 2017. Investment paid in 2017 amounted to EUR 371.2 million, and that figure includes EUR 66.2 million at Luton Airport. This is basically what we want to focus on regarding the key highlights of the company in 2017. I move to José Leo, our CFO, who will focus on some other figures. Thank you. Good afternoon, everyone. I will focus on the main business trends observed over 2017, starting with the traffic data. We have experienced one more year of very strong passenger number growth, both at the Spanish network of Aena and at the Luton Airport, in both cases exceeding 8% year-on-year. This is clearly significant, bearing in mind that there has been a number of surrounding issues or concerns that so far really haven't crystallized materially. Namely, the impact of Brexit for the time being, although we are clearly concerned about any future developments, and we, as everybody else in our industry, will monitor that very closely. So far, we haven't really noticed a major impact coming out from the Brexit developments. Likewise, some of the events happening in Barcelona and Cambrils, terror attacks taking place back in the summer 2017, didn't really impact, on a sustained basis, the traffic. We only observed a very minor reduction in growth over October, the beginning of the autumn. But from then on, we cannot really identify any impact. Having said that, it is clear that the traffic with the U.K., which as you know, is particularly relevant to us, is softening. Looking at the 2017 figures as a whole, the growth was really healthy, 9% up year-on-year. But it's fair to say that during the fourth quarter of the year, we could see a progressive deceleration of that growth ending up in a sort of a slowdown. Clearly, we also see the traffic in alternative destinations in the Middle East or Egypt or Turkey, in particular, coming back up from the bottom levels they reached some two years ago. We will monitor all those developments, but so far, none of those impacts are material enough as to change our expectations over the year to come that our Chairman will discuss or will comment on later. I would not dwell any longer on these figures because they are self-explanatory. I just wanted to discuss the most significant issues or potential issues we are monitoring. Moving on to the next slide number 7, looking at the performance by business lines. Clearly, the performance has been good across the board, disregarding for a while the real estate services business, which, as you know, is still a relatively minor segment of our activity. Most of it is based on legacy contracts and legacy activities. But the rest of the activities really perform well. In terms of the aeronautical margin, we carry on showing a very healthy EBITDA margin north of 57%. That is against, obviously, a number of, well, it is clearly enhanced by the traffic developments, but it is clearly sailing against a number of other issues like, clearly, the reduction in tariffs, the impact of commercial incentives, the increase in the rebate figures. Namely, very importantly, this year, we have experienced a dilution in the aeronautical yield. That dilution is the result of the different reality of the billing of the different components of our aeronautical charges. They never are exactly as they are planned when the regulatory settlement is established. As a result of that, we did not achieve the maximum annual revenue per passenger we are entitled to. That translates into a dilution that we quantified at EUR 57.8 million. That element will be recovered through the so-called K factor, which is well established in the regulatory framework, in a way that will be incorporated in the 2019 tariff calculation, capitalized at the cost of capital, at the weighted average cost of capital of 6.98%. That is probably the most relevant element of the aeronautical revenue performance to be highlighted this year. Moving on to the commercial activities, I think the performance has been remarkable. All the main segments are growing very healthily, but I would like to highlight the performance in food and beverage, which is being really positive with growth close to 14%, as well as car rental. Car rental clearly is now run under a new contract that entered in place at the back end of 2016, and in 2017 has delivered a very significant and very healthy growth. The rest of the lines are also doing well, although, as we always highlight the impact of the minimum guarantee rents on some of them, particularly duty-free, is relevant. The international business did well, clearly is dominated by Luton. Luton traffic is growing significantly, and also the performance was good, excluding one-offs and taking into account the performance in British pounds rather than in euros, something you can see on slide number 8, the main indicators did really well. In terms of pounds, the revenue went up by 10.6%. Particularly remarkable, the commercial revenue that grew 13.4%. Now the terminal developments are starting to deliver, obviously with new shops, with state-of-the-art shops, they are delivering better revenues. Finally, the EBITDA also, on a like-for-like basis and taking into account the pound figure, went up 8.9%. In general, every aspect of the Luton performance is doing well with the Project Curium progressing. By mid-year this year, we will see the airport already capable of accommodating 18 million passengers. I would stop here and I will hand you now over to María José Leal. Thank you, José. Looking into the financial results, it's worth mentioning, first of all, on revenues, the outstanding increase of 6.8%, considering that on aeronautical revenues, we have seen a reduction of tariffs of 2.2%. It's also worth mentioning the increasing weight of commercial. After all the new strategy that was defined three, four years ago, the company keeps increasing the weight of commercial revenues within its P&L, which helps us improve our EBITDA margin as well. Looking into EBITDA margin, considering the operational tensions and the commitments made within the DORA to keep quality indicators in line with what was previously achieved, and even improve some of them, the outstanding 62.5% margin, which leaves us within the leaders of the industry. On OpEx, considering the growth of traffic, we have managed to keep OpEx, excluding amortization, at only 2%. Excluding Luton, OpEx grew only by 0.2%. We have managed to keep the pressure both on our own staff and also on suppliers that provide us services through the airports in order to keep the efficiency achieved within the business, keeping our quality standards as well. On net profit, the growth of 5.8% is strongly affected by the reversal of a one-off extraordinary provision in 2016, which amounted on a net impact to EUR 153 million. Excluding this impact, there would have been a growth of almost 22% on net profit. On income statement, we won't cover again revenues as this was duly covered by Mr. José Leo. I will just focus on operating expenses, which remain stable with only a slight increase of EUR 5.5 million. Luton increased OpEx by 10.3%. As we already mentioned, there was a special one-off relating to the agreement achieved with the pension trustees in 2017, which amounted to EUR 8 million. Excluding Luton, operating expenses decreased by 0.2%, down by EUR 4.7 million. This reduction was mainly due to the agreement achieved with the air traffic control company, ENAIRE, which reduced the cost by EUR 6.2 million in 2017. This reduction was partially offset by staff costs, which increased in line, first of all, with the salary review that was taken for 2017 of 1%, the incorporation of some personnel as interim staff, and also the agreement achieved with the trade unions in September that was ratified in January, which amounted to EUR 8.5 million. This EUR 8.5 million will be partially paid in 2018 and partially paid in 2019, but they were fully booked at the end of the year. Other operating expenses have increased by EUR 5.2 million, mainly as a result of technical assistance increases, security increases, passengers with reduced mobility services, and all of these are very much related with the increase of activity at the airports as a result of traffic. There has also been a change on VIP lounges management. They were previously managed by a different company, and now they are managed internally by Aena. The improvement of the quality standards have led to an increase on cost as well of EUR 2.3 million. All these cost increases were partially offset by some bad debts provisions that were booked in 2016, and the reversal of some provisions in 2017. The improvement on our electrical energy costs, which led to a reduction of EUR 6.6 million, and also some one-off maintenance costs that were incurred in 2016 and not in 2017. Depreciation, there was a review in 2016 of useful lives of some assets, which has led to a reduction in amortization in 2017. Finance expenses have been down by EUR 25 million, mainly as a result of the reduction of the interest rate. The impact is almost EUR 10 million. Also, the repayment of debt according to calendar, which leads to a EUR 9.8 million reduction, and also the variation of the impact of the foreign exchange rate difference, with a loan that we have granted in pounds. Additionally, in 2016, there was a recognition of EUR 11.8 million, which was duly explained in our accounts last year and as well this year, relating to the change in risk weighting of the Bank of Spain on Aena. This is offset by the recognition in 2017 of some write-off of capitalized costs relating to the refinancing of the Luton Airport, which leads to EUR 8 million cost in 2017. Interest expense on expropriations is linked to the reversal of a provision in 2016 that we have already explained. Corporate income tax is up according to the profit generated this year. The tax rate has also gone up slightly, up to 23.5%, and this is a result of the reduction of deductions relating to investments in the Canary Islands. Net profit, again, has gone up by 5.8%, but excluding the impact of the reversal of the provision in 2016 relating to expropriations in Madrid-Barajas, net income would have been up by 21.9%. I will now leave the word to Mr. Jaime García-Legaz, so he can provide you his final comments and outlook for next year. Yes, I will start with our prospects for passenger traffic. We estimate an increase in the number of passengers in 2018, 5.5%. You may recall that we committed to provide some prospects and estimates of passenger traffic in the year to come, and we have been able to provide this estimate. We also consider that this estimate of 5.5% increase could suffer variations of around 1%. We must also refer to the strategic plan. We committed to get it done in the months to come. We have made good progress in terms of this strategic plan of Aena, which will cover 2018, 2021. That means the whole period under the airport regulation document. The main strategic lines that we're working on and that will be part of these strategic plans are, point number one, on the regulated business, compliance with the commitments set forth in the current DORA, the current airport regulatory document, but also to get Aena ready for the new DORA, which will come after the current one. In terms of commercial activities, the future strategy will also be reviewed, in terms of optimizing spaces, new contracts, and new business activity lines. A pillar of the new strategic plan will be the real estate development plans, which will take place following all the studies that are being undertaken. Of course, we will also include a model for international expansion of Aena. Another piece of the strategic plan will also be the dividend policy that will be part of the strategic plan to be approved in the next few months. I would also like to refer to one of the key issues that we've been working on in the last few months, which is Barcelona Airport Master Plan. The aims of this plan can be summarized basically in the adaptation of infrastructures to growing demand, the improvement of connectivity and intermodality. We have also made the decision to incorporate Girona Costa Brava Airport to the Barcelona-El Prat Airport system. The total estimated investment for the period 2018-2026 stands at EUR 1,264 million. This amount does not involve an additional increase on the period of the first DORA. That means 2017, 2021. So the investment that will be accomplished according to current DORA is the one that has already been forecasted. We are including additional investment that will be required to cope with higher demand in the period 2022, 2026. These are basically my comments regarding 2018. Thank you. We may now open the Q&A session, please. Thank you. If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star one to ask a question. We will now take our first question from Vittorio Coralli from Santander. Please go ahead. Good afternoon, gentlemen. Thank you for receiving my questions. I have three topics. The first one is related to the K factor. First of all, you mentioned that the impact was about EUR 58 million, and the tariff reduction impact on 2017 accounts was about EUR 56, EUR 57 million. Should we expect the tariff in 2019 to be flat instead of decreasing, offsetting the tariff decline by the K factor? Obviously, assuming unequal numbers of passengers. Why this impact is not implemented into the 2018 tariff? The second point is regarding Luton. It seems that Ardian is looking for selling its stake in Luton. Are you interested in increasing your stake in Luton, and which is the current situation of the discussion about the concession? The third point is about the payout. 80%, should we assume this 80% as the new dividend policy? Thank you. Good afternoon, Vittorio. I will focus on the third question, and then I will leave the floor for José Leo in order to address your first two questions. With regard to the payout decision, we must make clear that the reasons that are behind this decision. First of all, Aena is generating higher free cash flow than its peers. It is quite clear we are at the bottom of the CAPEX cycle and enjoying a significant increase in traffic. Secondly, we are deleveraging at a good rhythm, but it wouldn't make too much sense, and it wouldn't add any additional value to the company to further deleverage the company with the current payout ratio. These are the two reasons why the board of directors made the decision to increase the payout ratio and to increase the remuneration of our shareholders. This increase is applicable to 2017 results. That means that we are moving to a dividend yield of something close to 4%, so above our peers. With regard to the dividend policy, it will be reviewed on the occasion of the approval of our strategic plan. The decision of the board of directors was, let's make a decision on the 2017 dividend, an 80% payout ratio seems appropriate. Then let's fix instead the dividend policy on the context of the strategic plan on which we are working hard. There's also a general principle that has been agreed by the board, which is that free cash flow generation that will not be required to finance CAPEX or M&A, international M&A, will turn back to shareholders. That's what I can comment on this. Our goal is to set an efficient capital allocation policy, and the new dividend policy will be part of it. I am sorry. It means that the free cash flow to equity net of CAPEX will be distributed entirely to shareholders? I just stick to the general principle that I am not setting any particular figure. The view of the board and the principle, the philosophy is that the free cash flow that is not required in the future years, in the long term to finance CAPEX or international expansion should be returned to shareholders. Okay. Thank you. With regard to the K factor and Luton Airport questions, I will give the floor to José Leo. Hello, Vittorio. Well, clearly, the K factor mathematics are pretty easy to run. With this figure in mind, the 2019 tariffs are likely to be close to flat. That is perfectly legitimate, and we are entitled under the existing regulations. So the mathematics are not very difficult to run the numbers. Obviously, also subject to other factors like traffic estimates. With regard to the question on Luton, frankly, we cannot comment on, let us say, news or rumors that involve partners. Furthermore, we cannot comment and we wouldn't comment on any particular intention, should we have any, to take a further stake or otherwise. Okay. Thank you. We will now take our next question from Bruno Sousa from CaixaBank BPI. Please go ahead. Good morning, everyone. I have three questions, starting the first with a follow-up on the shareholder remuneration. I just wanted to understand, reading from what has been said today, that the payout policy, depending on the final terms of the strategic plan, that this payout could be reduced or increased depending on those conclusions. Or did the board take a conservative view and probably this payout could only be maintained or increased? I just wanted to understand if implicitly, you are basically affirming that there won't be surprises or upside in terms of capital expenditure over the first DORA, considering what you are seeing in terms of opportunities in the market and expansion abroad. The second question, it's a detailed question, and sorry for being so narrow in looking just at the fourth quarter. But in terms of commercial activity, when we look on a per pax, it significantly decelerated. I think the numbers are, per passenger, around +0.5%, significantly below the average in the previous quarters. Is there a justification for this quarter alone, or are there reasons that make it more structural for 2018, or if the minimum guaranteed revenues have something to do with this? Thirdly, a detailed question on taxes. I didn't quite understand to conciliate the differences between the cash flow and P&L taxes, that I think there is a gap of over EUR 100 million. If you just could help me understand this gap, I'd appreciate it. Thank you. Thank you. Moving into the first question. I just make clear that the discussion of the board of directors was that the long-term dividend policy should be decided in the context of the strategic plan, taking into account the real estate development plan's CapEx needs and the international M&A strategy, and in that regard, the capital need in this strategy for international expansion. The conclusion would be, we will wait for the board of directors to meet to approve the strategic plan. In that occasion, a clear decision on long-term dividend policy will be made. Okay. Sorry for the quick follow-up. It means that the payout could be dropped next year. I'm not making any comment on the debate that will happen in 2 to 3 months from now. What I can make clear is that the board of directors decided that the 80% payout was appropriate for the 2017 results, and that a new debate should take place on the occasion of the approval of the strategic plan. That's what we will have in a relatively short period of time. It seems there is a full commitment to have the strategic plan ready in 2, 3, 4 months maximum. Okay. Thank you. Thank you, Bruno. I will cover your questions on commercial revenues and taxes. On commercial revenues, you have to bear in mind that the Rent-A-Car contract, which has implied an increase by 30% in 2017, came into force in November 2016. Therefore, the new terms of that contract were already applied to November and December 2016. This has been the main driver of the improvement on a per passenger basis of commercial revenues. Excluding this impact, if we just look at total yearly revenues, 2017 revenue would have increased by 10.1%. Therefore, I hope that explains your question, but there is no issues with accruals of minimum amount of guaranteed rents or anything else. It's simply the entering into force of that contract. Looking into the cash flow reconciliation on taxes, there was a refund coming from 2015 tax return that was received in February 2017. Going forward, the company no longer has any annuals to be offset, and therefore you should expect tax cash to be in line with tax expenditure, with the tax expense line. Okay. Thank you very much. We will now take our next question from Arthur Truslove from Credit Suisse. Please go ahead. Hi there, Arthur Truslove from Credit Suisse. I was just wondering how we should think about the run rate, going forward for both labor costs, but also other OpEx as we look forward to 2018, in light of all of the new service agreements that have been brought in, and also the wage agreement that's been concluded. Okay. In terms of labor costs, it's still early days to be precise on the run rate. What is clear is that the trend is going to be for those costs to increase. This year, in particular, in 2017, we have seen the first indication of that in the sense that we were able to agree on a number of extra remuneration elements with our staff. Namely, on top of the 1% increase, a one-off payment that took place in early 2018, but it was fully provided in 2017. Going forward, we are fully dependent on the pay discussions and pay agreements at the Spanish public sector. Clearly, anyone following that up can see that the discussions are now on pay rises that could clearly will be north of 1%, maybe 2%, 3% for the first time in a number of years. But it's early days. But suffice to say that the cost will tend to go up. By how much? Difficult to say. Probably in terms of the relative weight in our operating costs bill, what is more relevant is the cost of third-party services, namely security, cleaning, et cetera. We think those are likely to grow double digits. We said that a number of times. It is true that the time for this to happen is being delayed. But there are reasons for that. For instance, the new security contracts were tender. They were challenged, they were appealed by some unions, and they are being now examined by one very particular, let us say, administrative court that will make a decision very quickly. But the PRM, the people with restricted mobility, tender or contract was already awarded, and we are seeing the cost going up. Having said that, our determination is to make sure that those increases in costs are linked to a better quality of service, to more strict and more demanding rules and standards on our suppliers. Obviously, to make sure that those costs are partly absorbed through the operating leverage because the traffic growth will not be obviously paid pound, or penny, or cent for cent to the supplier. And finally, we will carry on fighting and working hard to make sure that no one single euro is paid over and above what we believe is consistent with the quality of service, the volumes, et cetera. But clearly, we are likely to see some particular services like security, cleaning, growing not very far from double digit, and then getting flat, because obviously that is not going to carry on forever, no? That is likely to be a step, if you like, a quantum leap, if you like, but not involving further significant increases. Sure. Just to be clear on that, when you have those contracts which kind of have double-digit impact straight off, do they then tend to rise by a couple of percent a year for inflation, or do they tend just to be flat after that? How does that usually work? And when you talk about- Look- The double-digit increases, is that starting from January this year, or is it middle of the year? How should we think about that? Well, for instance, security, which is by and large the most important one, is something that the tender was initiated, has been stopped. We may end up waiting until some months until we are able to implement it. Anyhow, my point is that those external services, the cost of them will go up. But still, we will focus very much on making sure that the increases are linked to volumes, quality standards, quality of service standards, et cetera. So in a way, it will be mitigated through that management process. But clearly on a per unit basis, the former costs are not sustainable in long term. Thank you. If I may add something on this particular point, I will provide example of security. If you look into the figures, you will find that the volume of the contracts to be tendered should be divided in two parts. One of them account for the wage increase that has been agreed between employers and the trade unions as a result of the wage bargaining agreement process. But the good part of the higher price of the contract has to do with the scope. There has been a substantial increase in traffic, and that means we need more people in security checks, and that means a substantial increase in the scope of the contract, which does not mean an increase in the unit cost of the contract, but just the increase in the scope of the contract. That is an important point to be addressed, that it is happening as well in cleaning services and all the other services that happen in our airports. I would also like to highlight that the increase in, let's say, in unit labor cost, that apply to these contracts, are the result of the wage bargaining process, which, of course, means slightly higher costs for us, but it also means social peace for our airports in the next few years. These agreements have been signed with trade unions for the next two to three years, and that means that we will apply these agreements, but we will also enjoy social peace in our airports, and we will avoid the impact of the events that happened in Barcelona in this last August and similar events in our airports. We believe that this is a good outcome for the company. Smooth operation of airports, no strikes, that is something desirable. Thank you. We will now take our next question from Kristjan Tetel from UBS. Please go ahead. Hello. Thank you very much for taking my questions. A couple of questions from my side. First of all, on the real estate, you mentioned in the report that you will monetize around 4.5 million square meters around Madrid and Barcelona. I understand it is early stage, but could you offer us some color in terms of how the space will be split between office, hotels on the one side, and warehouses on the other? Also here, could you also give us some color around how much of this space Aena could be involved in the development of the respective space versus leasing it to third parties? Secondly, looking at CapEx investments associated with real estate. My analysis indicates that potential CapEx commitments going forward are limited, having in mind the long timeframe you are developing these projects, as well looking at the prices of development in Spain. On my analysis, I am seeing maybe a couple of hundreds of millions per year in terms of CapEx allocated to this. Would you say that this is a fair ballpark estimate, or do you expect it could actually lead to more CapEx commitments? The third question on the P adjustment factor, if you can just give us an update in terms of the timeline for the publication of the formula. Also wanted to check if my understanding is correct that the overall environment in Spain is somewhat more positive for what concerns Spanish state companies passing through inflation costs. I believe there was a 1% threshold in the past, and I understand this may no longer be in place. Very shortly, the last one, if I may. What do you think is the optimal leverage net debt to EBITDA for Aena? Do you see a scenario where leverage could increase from the current levels? Thank you. Yes. Thank you. I would refer to the first question related to the real estate plans. We have made good progress up to now, and now we have some concrete figures for Madrid and for Barcelona. We will develop 562 hectares in Madrid. 396 hectares will be subject to commercial use, and that results in 2.7 million square meters of building plots to be developed in the next years, probably decades. With regard to Barcelona, we will develop 226 hectares, and this means 1.5 million square meters of building plots to be developed. Two important highlights. The first one is that Aena is ready and about to launch a tender to hire an external advisor that will address the legal structure, the corporate structure, and the business model to run the real estate business. This will happen quite soon. And of course, these advisors should detail the strategy to maximize the value out of a real estate business, including the CapEx strategy as well. The second highlight has to do with our schedules. We plan to make a detailed presentation of the real estate development plans for Barcelona and Madrid in the next few weeks. The work has already been done, and we are ready to release both real estate development plans in the next few weeks. We will, of course, announce the concrete dates in the days to come. Well, with regard to the P factor, we don't really know. We expect, obviously, the regulation on this particular factor to be out in the coming, I would say, weeks or months, because the discussions for the setting of the 2019 tariffs are upcoming. They will be launched in the coming 2, 3 months. So that P factor regulation is needed. With regard to whether or not the atmosphere or environment is more or less favorable to regulated companies in Spain, I think that the P factor is a very particular, let's say, framework. And I would say it has its own life, regardless whether the environment is more or less favorable. What I have to say is that over the last months, when we engage with the regulator in discussions around the P factor, well, they listen, and that's really good. There were a number of consultations. Whether or not that will translate into something, but I was probably more pessimistic at the earlier stages than I could be now, in the sense I don't mean that the P factor will be good or bad, but at least we were listened, and they took into account all our views, and they hopefully consider them properly. Thirdly, with regard to the leverage, I don't think we can comment on any particular target leverage. More importantly, until we finalize the strategic plan discussions, any leverage target would be meaningless. But once again, as the chairman said, we are committed to make efficient use of the capital and not to, let's say, run the business on equity only. That will be neither prudent nor responsible. Yeah. Thank you very much. We will now take our next question from Stephanie Diaz from RBC. Please go ahead. Hi, good afternoon. My first question is on the EBITDA margin, please. Taking into account your commentary on 5.5% traffic growth, plus or minus 1%, and tariffs for 2018, and the fact that OpEx, in particular, the other OpEx might increase double digit, do you expect margins to hold, or do you even see maybe potential for further margin expansion from the 2017 level? My second question is regarding the timing of the announcement of your strategic plan. You mentioned we would hear more on real estate in the next few weeks. Is that also the case for international expansion? If you could let us know maybe the milestones in announcing all the work you have been doing over the last couple of months on the strategy for Aena. Finally, my last question is regarding the spend per head and how you expect it to evolve going forward, especially given you said international traffic has been maybe normalizing towards Spain and increasing towards Turkey, Greece, North Africa. How do you see that impact the spend per head? Thank you very much. I will start with the international expansion of Aena. We are clear in the message that Aena has been successful in running the airport management services overseas. Our airport operation in Mexico, in Luton, in Colombia, has been successful, I would say very successful. We are ready to develop other airport operation and extracting the value from this activity in the years to come. The strategic plan will decide on how to do international expansion and the geographic areas to be covered, and this will be a pillar of the strategic plan to be approved in the next few months. The details on how we do international expansion will be part of the strategic plan, but the decision to go for additional international expansion is a conclusion that we have already reached. Sorry, but just to clarify, you said that regarding the real estate developments, we will have more insight in the coming weeks. That part of the plan Yes will be communicated on shorter term, but regarding the international expansion of the strategic plan, that will be communicated in the next few months. We will have different announcements regarding the different parts of the Yes strategic plan, right? Thank you. Definitely. With regard to the real estate development plan for Madrid and Barcelona, which are the two big ones, there will be more, but the two big real estate development plans have to do with Madrid and Barcelona. We will have a public release of the detailed real estate development plans in the next few weeks. That means from two to eight weeks from now, we will have both plans being released. With regard to the strategy for international expansion, that will be part of the strategic plan, so that will happen later on. I will leave the floor to José and María José for the other questions that you raised. Thank you. Well, with regard to EBITDA margins, clearly, in terms of the percentage, they will be under pressure. I think we are really performing very well in terms of this particular margin, and it is never easy, bearing in mind that the aeronautical tariffs are going down and the costs are clearly pressing up. We are not providing any further guidance. We decided to share with you our estimates, with the market, our estimates on passenger traffic for the year to come, but no more than that. The only thing I can tell you is that the margins will be under pressure, but it's one of our main objectives to protect them. The management actions are going to be clearly oriented to try and protect this level of EBITDA margin that are not going to be easy to keep in percentage terms. With regard to the spend per head that I presume you mean spend per passenger, it's very much the same. We are operating well below the maximum spend per passenger that we were allowed under the regulatory settlement. We don't want to be the same forever. We want to make sure that the quality standards are improved. We will make some investment, if you like, in running the business with a little bit extra cost per head, but to a limit. And we are very determined to make sure that we control that to make sure the EBITDA margins are protected. But anyway, María José will elaborate a little bit further. Thank you. Stephanie, Jose has covered the aeronautical revenue per passenger, and I will just cover the commercial revenue per passenger forecast we can provide you with, or more than that, the main drivers of the improvement over the last years. You know that the first improvement that took place back in 2014, 2015, related to the review of spaces, business lines, and the new strategy on the minimum guaranteed rents. The improvement you have seen basically in 2016 and 2017 relates to changes in the strategy in different business, for example, the parkings or at the end of 2016, the Rent-A-Car business. Some impact of the new food and beverage contracts that we're releasing that will have some impact in 2018. But going forward until 2020, there are no major contracts going out to the market. Therefore, you can expect some small improvements in food and beverage. We have seen a very successful strategy when our team launches those processes and we upgrade the quality, and also we adapt the offer at the airports to the most modern, if you wish, consumer habits, more healthy places, trendy places, local chefs, which is something very important so we can welcome touristic passengers to our airports, and they see a bit of what's the local gastronomy in Spain. But there are no major contracts to go out. Therefore, for 2018, 2019, and 2020, you shouldn't expect any major change. All of these will nevertheless be reviewed under the scope of the new strategic plan. And if there is any update on that will be shared with you in the early time when the strategic plan is finally communicated. Thank you very much. I want to apologize. Sorry, Stephanie, I totally misunderstood your question. Apologies. No, it was very insightful, the first part of the answer, too. Thank you. As a reminder, please press star one to ask a question. We will now take our next question from Pierre Braun from Deutsche Bank. Please go ahead. Hello, and thanks for taking my question. I have two, actually, and both of them are follow-ups. First one would be on the payout, just to clarify if the intention of the board or the thinking of the board is now to move from a dividend policy linked to P&L to free cash flow. The idea is, in the absence of any M&A, to distribute fully the free cash flow. That means that your intention is not to deleverage anymore from here, as simple as that, because if you do not do M&A and you distribute all the free cash flow, you would not be deleveraging. Just to clarify on that. The second one, a clarification on the K factor, maybe for José Leo. Assuming that by 2019, the tariff will not go down from 2018 out of the K factor, that would mean that by 2020, we should expect the tariff to go down by 4% or by 2.02% as compared to 2019. That is all, thank you. Thank you, Guillermo. I would refer to the first question, and I am afraid I cannot add much more to what I already said. Full discussion on dividend policy and capital allocation will take place within the board, and it will lead to a clear dividend policy that will be communicated to the market. I expressed the philosophy and the general principles that the board of directors reached in the last meeting, and we cannot go further than that. We will need to wait for the board of directors to meet to do the full discussion over capital allocation and dividend policy, and in that context, we will move into the market and be clear on the dividend policy to be set. Thank you. With regard to the K factor, it is really difficult to say. Theoretically, that could happen, but it is unlikely because chances are that the K factor could have an impact in the coming years as well, might be less than the current one, particularly because the number of operations and the number of passengers are growing now at closer rates. In simple terms, that's one of the indications of dilution not being so significant. But, honestly, it's difficult to say, but it is unlikely. If you consider all the factors around, it is unlikely that you can see that kind of decrease from 2019 onwards. Okay, thanks, José. We will now take the next question from Isabella Etolidi from JP Morgan. Please go ahead. Yes. Hi. I have a question on the new investment plan related to the Barcelona Airport Master Plan. Can you give some details on the phasing of the investment plan? Also another question on the effective tax rate and how to think about it going forward. Thank you. I would address the question related to Barcelona El Prat Airport development plan. Over the first airport regulatory framework, Aena committed to invest EUR 191 million in Barcelona El Prat Airport and EUR 23 million in the Girona Costa Brava Airport. Of course, we are going to fully stick to our investment commitments. That means that up to 2021, these amounts will be effectively invested. These investments will not be enough to cope with traffic growth that is likely to happen in the years to come, so we must prepare both airports to cope with heavy traffic demand that is already going on. That is the reason why we have advanced the planning of both airports in the context of the second airport regulatory framework. That means 2022, 2026. In the new regulatory framework, we would invest EUR 690 million in Barcelona in the period 2022, 2026, and EUR 360 million in Girona Costa Brava Airport, again, 2022, 2026. If you add our previous investment commitments, so if you add 191 plus 23 plus 690 plus 360, that leads us to a total of EUR 1,594 million, which is what we are going to invest in order to reach a total capacity of 70 million passengers in the airport of Barcelona El Prat. Where is all this investment going? Basically, we are going to build a new terminal in the airport of Barcelona. We are going to build a connection between the old terminal and the new terminal to be built. Third, we are going to expand the current terminal capacity together with the construction of a high-speed train station at Girona Costa Brava, which will connect with Barcelona El Prat and with the city center. We must also make clear that all this investment will be included in the RAB, so we will be remunerated under the second DORA. This is something that has already been agreed with the Ministry of Public Works, and which is a crucial issue for us, as you well know. Thank you, Isabella. I will cover the question on the effective tax rate. Going forward, you should expect the rate to be around 24%, 24.2%. Basically, we will be no longer taking some deductions relating to the non-distribution of reserves or profit generated in the year, and that will lead us to a slight increase in the effective tax rate. Thank you. We will now take We have just one more question coming up. Thank you. We will now take a follow-up question from Arthur Truslove from Credit Suisse. Please go ahead. Hi there. Just on your traffic forecast of 5.5%, I was just wondering whether we could dig down into whether you have any forecasts for traffic between both the U.K. and Spain and also Germany and Spain. Any color you could provide on either of those would be very helpful. Arthur, I'm afraid we are not providing any more granularity. We thought it was appropriate to share with the markets our expectations for the Spanish network as a whole, but we will not go any further in terms of providing granularity, I'm afraid. Great. Thank you. Thank you. This is the end of the Q&A session. I'd like to turn the conference back to yourselves for any additional or closing remarks. Thank you. We'd just like to thank you for attending the call, and as always, we remain at your disposal for any further detail you might need. Thank you very much. Thank you so much. This concludes today's call. Thank you for your participation, ladies and gentlemen. You may now disconnect.