Earnings Call: Q1 2021

Apr 28, 2021

Hello, and welcome to the ADP First Quarter 2021 Revenue Call. My name is Rosie, and I'll be your coordinator for today's event. Please note this call is being recorded, And for the duration, your lines will be on listen only. However, you will have the opportunity to ask questions. And you'll be connected to an operator. I will now hand you over to Philippe Pascal, CFO of Group ADP to begin today's conference. Thank you. So good morning, ladies and gentlemen. Thank you for joining this Conference call for the Q1 of 20 29 revenues. So this first question It's markedly by the continuation of the COVID-twenty 19 pandemic. As you know, we have a huge impact in our revenue, in particular, in the aeronautical revenue, but also in the retail activities in Paris, but also around the world. When you see the traffic figures Slide 1, we can see a sharp decline in traffic in Paris and around the world. Group ADP traffic decreased by 60% over the Q1 of 2021 compared to the Q1 of 2020. At the Paris level, for Paris, airport traffic, This traffic decreased for 75.1 percent over the Q1 of 2021 compared to the Q1 of 2020. Globally, We can see that we have a good resilience for our international asset around the world, especially for the moment in India and through TAV Airport. You can see the detailed slide 2 for each airport of ADP Group. We can see that in We have a decrease compared to 2020 for around 50% in Antalya and Ankara. We can see also that in India, we have a decrease, but a slight decrease of 35% 30% or 35% in Hyderabad and New Delhi and a strong impact in Jordan with 70% decrease, Chile, 66 percent and obviously in Paris airport with around 75% decrease. Slide 3, we have the detail of the traffic figures for Paris airport. You can see that if we have a strong decrease in Paris with 75%, We have also a strong decrease in the other European airport like Madrid with 80%, Frankfurt with 7% Amsterdam with 83% and London ISRO with 88%. We have different elements in Paris to explain this bad performance, Especially the strong decrease linked by the new lockdown in France with the domestic traffic, But also the impact of the restriction in Europe for the European traffic and Cengain traffic. But we have also good news, for example, with a huge increase of the connecting rate, Plus 5.5 points to reach 30% of the traffic at Paris for Paris Airport. We can see that we have a good resilience of the Africa traffic, but also the Asian traffic. That is a good news for us. We can also see the good performance of the North America Perfect for the moment. That is clear and you can see slide 4. We have an impact for all the activities of Groupe L'Epee except The Real Estate with good resilience linked by our strategy with long term rent policy. In the aviation sector, we can see that mechanically the decrease in price Of the level of traffic, we can see also this impact in the retail activities. We have 2 impacts in the retail activities. The first is obviously the decrease of the traffic And the second, it's the French policy to close a part of shops at the end of the first quarter. But at the same time, we can see that our strategy to concentrate all the flow of Passenger in a few number of terminal have a good result. We can see our sales per pack with a Strong increase compared to the next year to 2020 specifically with a strong increase plus 31% to reach €26.1 per pack. That is a good performance, Especially in CDG, we have a strong recovery in term of duty free shop. For our international activities, we can see Impact, obviously, but also moderate impact in TAV airport with a good performance with just a decrease of around 50% compared to 2020. So all in all, we can Confirm our guidance and this is the slide 5. We can confirm our forecast In terms of traffic, with 2021 group traffic assumption between 45% to 55 Percent of the 2019 group traffic, we can confirm our guidance in Paris Airport. You know that we are also very cautious to in terms of guidance, so we can assume With this guidance, the new impact of the new wave of pandemic in France and the new lockdown, We can confirm that we can reach the range between 35% to 45% of The 2019 Paris airport traffic, we can mechanically Assume the consequences in term of EBITDA and group revenue ratio between 18% to 23 Percent and we can assume our guidance in term of net financial debt And EBITDA ratio between a multiple with 6 to 7 by the end of 2022. So for the moment, we know that we have a new wave in France, Probably a new wave around the world, especially with the bad news in India. But we can, for the moment, confirm our guidance and assume the fact that We can reach our target for the end of this year. So I am now available for your question. Thank you. Don't hesitate to ask your question. Thank And our first question comes from the line of Elodie Rall from JPMorgan. Please go ahead. Hi, Philippe. Thanks for taking my question. So my first one will be on traffic. You haven't changed your guidance, But can you give us a bit more granularity on your expectations for the summer? Are you seeing some bookings improving? You previously said that you were expecting traffic to ramp up in June. So is this still the case? So that's my first question. My second question is on sales per packs. Obviously, very strong performance here in Q1. How do you expect this to go through to evolve for the remaining of the year? How do you actually justify Strong performance in Q1, is it because of such a small number of passenger that actually the comparison is not that relevant or is it the mags? And my last question is on the ban on domestic flights that has been announced by the government, Where a 2.5 hour rail journey could be substituted. How do you think this could impact ADP, please? Thank you. So thank you for your question. So in terms of traffic forecast, your first question. As you know, we When we announce our guidance, our assumption for 2021, we give some elements with more color. We can see that for the Q1, we don't expect a huge traffic. And for the moment, with these Figures, we can say clearly that we are in line with our forecast for the Q1 despite the new wave. So we don't have bad news for this 1st quarter, we are in line. 2nd element, in fact, with this new We have probably a huge impact in our 2nd quarter Because we expect previously beginning of recovery in May, End of April beginning of May. And we know now that we don't have to expect a new recovery before the end of May June. All in all, for the summer in our forecast, We our main assumption is to recover Around 50% of the traffic. So it's Good figures. And for the moment, it's very coherent with the assumption of all the airlines. In fact, in our traffic figures, we can see that we are in the low Part of the range, not the high part of the range. But we can confirm for the moment with forecast without a huge In terms of sales per parts, the key element for us It's our strategy to concentrate all the flow of passenger. So for that, we try to manage Our terminals to close and to open in very Smart policy to be able to concentrate this flow of passenger With and to create the commission to guarantee a good performance in our retail area. For that, we have to work with all the airlines and we have to modelize step by step if we have to open or to close If we can implement this policy at the same level that we tried to do In the end of 2020 and in this beginning of this year in 2021, we can assume the fact that we have a Slight increase in terms of sales per pack in 2021. For the moment, it's difficult to give you some comfort about that because As you know, we don't if we know clearly that we have probably a good recovery at the summer, We don't know exactly the quality of traffic and we the mix traffic and we don't know exactly That is a load factor of so the load factor in Paris CDG and Paris Oils. That is a key element to open or to close some infrastructure. So for us, The self tax, it's a key element because we can make the proof that our Model in terms of retail activities, it's a good model, very resilient. And this crisis of this It's not a game changer in terms of retail. It's just a huge impact, very bad impact, But we cannot change our strategy because this strategy makes the proof that When we can implement this retail strategy, we have a huge performance like this Q1, for example. For your third question in term of the government, The decision of the French government to close part of flight in domestic flight With Bordeaux Lyon, it's just a free line Between Paris only, not CDG. So as you know, we have a cap In terms of number of slots in Orlish, we have also curfew. And when you we don't expect a huge impact and bad impact for ADP. It's just 1% of traffic for Paris I. R. B. It's 3% Of the traffic of Paris only. So it's very little part of the traffic, the first point. 2nd point, it's not A huge and very important part in terms of quality of traffic and we can Expect new medium range routes with more High contributive passenger and with probably good rentability Profitability for the airline and probably a huge load factor more than The current load factor between Paris Saint Louis and Bordeaux, Young and Mont. So for us, It is not a problem. Perhaps Opportunity, but not a problem. Great. Thank you very much. Our next question comes from the line of Christian Nadeaucu from UBS. Please go ahead. Hi, good morning. Thank you for taking my questions. 3, if I may. First of all, for Q1, So if passenger traffic in Paris was down 75%, the spend per packs was up 31, But the retail activities revenues were down 69%. What explains this dimension? It seems that the spend per pack doesn't fully reflect That doesn't fully fall down into revenue per pack. The second one, Just in terms of retail stamper packs the next 12 to 8 months, we understood your answer earlier with The optimization of space and the self help that you have there. Could you elaborate a little bit what trends do you actually see in terms of retail spend per packs Over the next 2 years or so, both positive and negative and a bit of color from those. And lastly, just looking at your strong growth in the connecting rate recently, I guess when you think at the next 12 to 18 months, how do you see transfer traffic evolving in Paris? Do you believe you can benefit from a weak recovery in point to point connectivity over the next couple of years? And how do you account for that within your midterm traffic guidance? Thank you. So thank you for your question. So for your first question, sales tax tax increased by 31% Compared to a decrease in terms of traffic in Paris for 75%. So clearly, the key element, it's Our strategy to concentrate the flow of passenger to create a good mix traffic. The quality of traffic, it's a key element. It's for example, We know clearly that an Jia passenger spent a little more Van French passenger. And when you open the internal 2E or K, Very huge and very good offer with Luxury Brands. We can mechanically increase the sales per pack if we put a good mix traffic in this terminal. And this is our strategy. We closed part of retail area, but when we open The retail area, we try to guarantee the fact that we have good mid traffic And this is the main explanation of these figures. In terms of infrastructure, in fact, we know that for this year, we probably I have to open some terminal in the summer. But we try to manage this situation with 2 main issues. 1st, it's a retail issue and second, in our So it's a management of our cost cutting plan because when we open new infrastructure mechanically, We have a rebound in term of OpEx. For the moment, when I can say clearly, We probably stay close to Terminal 1 in CDG for All this year, Terminal 3 and Terminal 2J, That is the 3 main terminal for the moment. Probably we try to manage the situation to in Paris Saint Louis to open step by step Paris Orly, to accompany the recovery of the traffic. The main element for us is to manage this situation step by step And we have a huge agility to be able to accompany the recovery and to guarantee It's a key element for us for the moment. And your last question in term of connecting rate, obviously, we've In terms of recovery, we expect a huge recovery with the domestic traffic after recovery in terms of European traffic and at the end of the day international traffic. And for international traffic, we expect a huge recovery for North America and After for Asia and Africa. When we start the recovery by the domestic and European traffic, mechanically, we have a decrease in term of connecting rent. But in the absolute figures, we expect an increase In terms of number of connecting passenger. It's just a mechanic decrease due to the recovery, The fast recovery of domestic and European flight compared to the international flight. As you know, We expect a full recovery of the traffic between 24% 27%. We expect a huge recovery 70% or 80% in 1 or 2 years, probably 2 years. And due to the fact that we have a huge Full recovery with domestic and European flight. For international flight, we expect a huge recovery, But not a full recovery in the next 2 or 3 years. So we have to wait For the full recovery, probably 25%, 26%. So thank you for your question. May I kindly add one short follow-up on my first question. So if traffic was down 75% and spend per packs was up 31 Why aren't the retail revenues down 40%? So retail revenues or retail activities are down 69%. So there is what's the incremental negative there that doesn't make this relationship hold? Yes. In terms of passenger, we have In our decrease of number of passengers, we have the arrival and the departure passenger. And when you Calculate the sales per pack, we are just the departure passenger. And So be careful when you modelize this element. It's not the same level of traffic. And in the self care packs, we have just the air side shops. We don't have the shops in the public zone. For the moment, all the shop of Publison are quite closed. But be careful, it's not the same element. Understood. Understood. Thank you. The next question comes from the line of Siobhan Lynch from Deutsche Bank. Please go ahead. Hi, good morning. Thank you very much for taking my questions. 3 also from me, if possible. The first, would you be able to remind us if you're considering any incentive fees for this summer or for the rest of this year for the airlines in Paris? I think it was something you'd considered last year, but will you be going ahead with it? My second question, Just following on from the questions on French domestic, are you able to tell us how much of the French domestic traffic in Paris feeds into connecting flights, I guess, flying into Paris and then onto a long haul flight? And then my final question was just on the flex in the CapEx levels for 2021 and I guess also 2022. So if traffic is much worse, let's say, similar to last year, can that kind of €500,000,000 to €600,000,000 CapEx come down further? And then I guess on the other side, if we have a stronger recovery this summer than expected, can that CapEx be flexed up? I guess, what is the ease to kind of move that around? Thank you very much. So thank you for your question. First question, for the moment, we tried to implement a new incentive in terms of connecting traffic, But we don't, for the moment, have to implement other incentive than In terms of connecting traffic, that is a key element for us because as I said previously, we have to accompany the recovery of the connecting traffic due to the fact that we have we start by the recovery with the domestic and European flight. So but as you know, we try to accompany all the airlines We've a good operational exchange and a good element In terms of operational activities like infrastructure. I don't have in mind the figures for the connecting traffic between domestic and international flight. Probably it's in 2019 is The main part of the connecting traffic, the main part. But I don't have in mind, We can give you the figures after the call if you want. And your third question for the CapEx. The CapEx policy is not it's a long term policy. When you decrease the CapEx, we try to decrease the CapEx not for further years, Not just for 2020 or for 2021, but we have to decrease the CapEx For several years, first point. 2nd point, we don't need Immediate CapEx when we open the terminal or when we have a new strong recovery in terms of traffic. Our job is to anticipate this policy to prepare the infrastructure to accompany the traffic. So last year in 2020, we managed the situation To preserve part of CapEx, that is very important for us to accompany the recovery of Tracit in 2021, in 2022 and 2023. For example, we confirm the finalization of the works in Terminal 1 despite the fact that we don't We don't need the Terminal 1 before 2022, but we have to finalize now The works to prepare the recovery. So it's just a long term policy. We don't have it's not volatile element for us. So I can confirm the figures that we have in the slideshow. For 2021 and €56,000,000 per year for the regulated and non regulated scope in Paris For 2021 202022 after for 2023 2024, clearly we need probably a slight increase of CapEx, but we try to manage the fact that we have to preserve our room of maneuver, Our agility to guarantee a good recovery in term of debt net and EBITDA ratio. Thank you for your question. Thank you very much. The next question comes from the line of Jean Christophe LeFebvre Moulin from CIC. Please go ahead. Good morning. I have only one question. It is a follow-up question regarding annual investments. Could we have maybe more flavor on the consolidated investment this year and maybe in 20 22, including, of course, TIAV and Jordania. Many thanks. So in terms of CapEx and investment at the group level, The main part for around 60%, 70% for the consolidated figures of CapEx, It's linked by Paris airport. So we have the figures. 2nd element, we have small CapEx In TAVIS, around, if I have the good figure in mind, euros 100,000,000 €200,000,000 But as you know, we prepare a new element in excuse me, I checked the figures. So We have new elements in this COP. It's the fact that TAV has to see and finalize The deal with Kazakhstan and Maty Airport and if we reach to close this deal in the next few weeks or few days, We have to launch a part of works for around €80,000,000 or €90,000,000 So it's not a huge impact If you compare with the CapEx of EDP, for the other airport included in Jordan Airport, we have a very, very low CapEx, Around €10,000,000 or €20,000,000 but it's not significant. Okay. Many thanks. The next question comes from the line of Laurence Frost from Thompson Reuters. Please go ahead. Hi there, morning. I just wondered if you could give us a bit of color on the way that the Comments we've had or the disclosure of talks between the European Union and Washington on mutual recognition of Vaccination certificates and opening traffic to those passengers, the way that might inflect or influence your Q3 expectations for traffic and so on? So thank you for your question. Clearly, in our expectation, we modelized for the summer Good recovery for the North America traffic, linked by Good policy between European Union and the U. S. Government. As you know, it's vital for a large part of the airlines To operate the flight between Europe and North America, it's a very profitable line. So it's a key priority for the French government. It's a key priority for all the European governments to recover a good level of Between North America and Europe. So for the moment, we have the full support of the European Union and the French government To reopen quickly this line linked by the vaccination, but also By very easy Administrative element between the both countries. Okay. So do you send me to those comments by us, Levon De Lion, do they materially improve your outlook or not necessarily? No. It's in our forecast. We don't expect we don't have an upside. We have just to deliver. Okay. Thank you. The next question comes from the line of Arthur Truslove from Credit Suisse. Please go ahead. Good morning. A few from me, if I may. I guess The first one is just in respect to any restructurings that are going on in TAV in country India as well. And I was just wondering in what circumstances would the mother ship, if you like, have to put in more cash into those businesses? Question 2, just wanted to touch on what your latest thinking was in terms of when we might ultimately see a new ERA in place. And then finally, just following up from a previous question. You mentioned that you were expecting sort of 50 of 2019 traffic for the summer. Just to confirm, how do you think about that Split between the Q2 and the Q3 or indeed does that just refer to the Q3? And within that Assumption. What are your assumptions on the use of vaccine passports? Thank you. So thank you. So for your first question, we don't expect a new injection for TAV. Included if TAV Rich to close the Almaty Airport, first point. 2nd point for the economic regulation agreement. As you know, We have to preserve our room of maneuver. In this situation, we want to guarantee that we can deliver our financial guidance linked by the net debt EBITDA ratio first, but also to deleverage the components. So if we have to manage or to change our CapEx plan, we have to do. But in the main commitment for the airport in the economic regulation agreement is the level of CapEx. So it's not in the it's not the full interest of ADP to conclude an economic regulation agreement for the moment. Probably we have to conclude an economic regulation agreement when we have enough visibility And for the next 8 years. As you know, an economic relation agreement is just for 5 years. We have 2 years to negotiate and 1 year to prepare the negotiation. So we have to we need 8 years with a good visibility to conclude an economic regulation agreement. It's not the case for the moment. We have to wait probably 1 or 2 years to prepare an economic regulation for 2025, but not for the moment. For the moment, we want to preserve our room of maneuver to manage the CapEx plan without Specific commitment in an agreement. For your last question, clearly, We as you know, the summer season start in the beginning of April, April, May June. This is the 2nd quarter. And traditionally, it's the beginning of the summer season in IATA season. For the moment, we don't expect with the new wave a huge recovery before the end of May or the beginning of June, Probably the middle of June. But for the summer, so for July, August September, we expect A good recovery with 50% of the traffic globally in Paris. And in September, October November December, we expect a good effect in term of vaccination with a strong recovery in term of domestic and European flag. That is the key of our forecast. It's to stabilize our recovery After July this year. If we have some delay in term of recovery, Probably we have to change our guidance. But for the moment, when you see clearly The capacity program of each airline, we know that we are probably in a good position Thanks very much. Just one follow-up on your on the first one. In what sort of circumstances could you see yourself having Put more money into India. Thank you. For the moment, Without the new lockdown in India, that is the case Since last week, we don't have to inject a new element For the moment, yes. But you know that In India, it's not the same traffic because In our Indian airport, we have a huge part of the traffic that is domestic flight with more than 70%. And it's very resilient traffic. And when we close the domestic flight, When we reopen, mechanically, we recover immediately the level of traffic. So it's difficult to modelize for the moment. We can modelize, but we don't have for the moment The next question comes from the line of Nassim Wojtal from Bank of America. Please go ahead. Yes. Good morning. Thank you for taking my questions. So the first one, it relates to the so called COVID passports and in Europe there is an initiative called well there are digital green certificates that are Supposed to be rolled out by the European Union. So what is your view on these efforts? I mean, do you believe Passengers will require to have some sort of they will need to have some sort of certificate to travel over the summer, Whether it's a European Union certificate or it is some sort of different COVID passport issued by One of the member states, and what about people who do not have these certificates yet over the summer? So they don't have a vaccine Perhaps or they don't have a negative test. Do you think these passengers, they actually will not be allowed to travel? And overall, are you more optimistic on the call? Progress that is being made on all these initiatives compared to 2, 3 months ago. Thank you. So thank you for your question. Clearly, for us, the certificate is a facilitation. It's not an obligation, but it's a huge facilitation that it's a key element to recover a strong level of traffic Between Europe and countries, but also with a specific partner like North America. And as you know, ADP was very pushy and are still is still very pushy to implement of this strategy in Europe. We work a lot with the European Commission. We work a lot with the French government. And yesterday In Paris Orleans, we had the first experimentation of this certificate with digital specific apps That is your current apps in France that is called 2 Centricovid. We've declined these new apps With 2 centricovid, CARNEY, that is the key element to have The proof that we have vaccination or we have a good test in the last 24, 30 6 or 72 hours before the flight. So we implement this experimentation between France And Corsica, and we for the month, we can have a good result. We have a specific visit yesterday with 2 French ministers in Paris Saint Louis to launch This experimentation, that is the first experimentation in Europe. So it's linked by ADP and probably we can have if we can hear correctly The different passenger, a good element in this policy. So thank you. Thank you. We have no further questions in the queue. So I will now hand back to Philippe for any closing remarks. So thank you for joining this call and see you for the half present in July. Thank you very much. Bye bye. Thank you for joining today's conference. You may now disconnect your lines. Thank you.