Earnings Call: Q3 2021

Oct 22, 2021

Hello, and welcome to the Group ADP 2021 9 Month Revenue Call. My name is Jess, and I'll be your coordinator for today's event. For the duration of the call, your lines will be on listen only. However, there will be the opportunity to ask and you will be connected to an operator. I will now hand over to your host, Philippe Pascal, CFO, to begin today's call. Thank you. So good morning, ladies and gentlemen. So a short introduction and Jeff. Perhaps to give you some elements that in fact when you Geoff. We can see that we are globally in line with our forecast in terms of traffic, but also in terms of revenue. Perhaps to give some elements in terms of traffic, we are for the traffic group in terms of recovery At around 30% of the 2019 traffic level, 39% 39.1 percent of the 2019 traffic level For the group and for Paris, we are globally at 31% of the level of So the 1st 9 months traffic of 2019. So in line with our forecast, You know that we give you some element and guidance in terms of traffic, and we can confirm our guidance at the end of the day. That is, at the group level, between 40% 50% of 2019 for the full year At the group level and for Paris Airport, between 30% 40% of The 2019 airport traffic, yes. So when you see in the details of presentation, First of all, we can see in the first slide the level of Paris airport traffic With a decrease compared to 2020 decrease of 5.5% and at the Jeff. And for the group traffic, an increase of 14.5%. Slide 2, we can see the details for all our platforms around the world. We can see that we have Good recovery, for example, in price early, plus 19% compared to 2020, But also for New Delhi and Iderabad, plus 11% and 30% For New Delhi in Hyderabad. But we have also a strong recovery, in particular in Turkey with Antalya Plus 130% in Antalya and Milad Boardroom plus 110%. We can see also a good performance in Jordan with plus 80%. So the recovery is now in line with our forecast. And in Paris, we can see Slide 3 that compared to the other European airport, we have a good performance, Very close to Madrid, but higher than Schoppel, Stifel and London with a recovery of 32% compared to 2019 in Paris. In details, we can see that we have Stable connecting rate for around 22%, 23%. Good performance in terms of low cost traffic We have an increase of 4%, 4%. And we can see that the recovery I have a dilutive effect in terms of international traffic with more European traffic and domestic traffic, So we can see a decrease of 11%. That is in line with our forecast. And also in decrease in term of load factor, Due to the fact that we have a strong recovery in term of movement, more than in term of passenger. Slide 4, we can see Our revenue with a good increase for around 12%, Mainly due to TAV Airport and with a huge part of TAV Airport due to the integration of Almaty Airport For €57,000,000 for this first 9 months. So a very strong impact of Almatis and a good impact Due to the recovery of traffic in Jordan, but also in Paris through the retail activities. For the last slide, Slide 5, we can see that we confirm all Our guidance in terms of traffic, in terms of EBITDA and Margin. And in term of net financial debt and EBITDA ratio. So I am now available for your question. So don't hesitate to ask all the questions we have to ask. Thank you very much. Jeff. Jeff. And the first question comes from the line of Elodie Rall from JPMorgan. Please go ahead. Thanks. Good morning, Heath. So maybe a couple of questions. First of all, on your guidance, so you haven't revised it, but the midpoint of guidance does imply about traffic about Q4 at 46% of 2019 versus 51%. And that's just Ahead of November reopening with the U. S. So why not like revising in a little bit upwards to be a bit more accurate? Or Do you expect traffic to actually come down versus Q3 overall Q2, Q4? So that's my first question. Second question would be on the regulatory review at the moment, if you have any update on that and on tariffs And third question, maybe on Schiphol, What is the process, if you could remind us of the process of the unwinding cross shareholder arrangements? Thanks very much. So thank you Elodie for your question. So your first question about the traffic. So we can confirm our guidance in Paris, but also For the group, in Paris, we expect between 30% 40% With the opening of the U. S. Destination, but also with due to the strong dynamic At the beginning of October November, we can probably reach the high Part of the range, so between €35,000,000 €40,000,000 in Paris. So globally in line with our forecast, but in the higher part of the range. And when you check our assumption to reach this level, we In October, November December, traffic higher than 50% in Paris, Between 50% 55%. So and for that, we take account all the opening, In particular, the U. S. Traffic, that it's a good traffic in terms of number of passenger, but also High contributive traffic because it's international destination with a good effect, not a strong effect, but a good effect in the retail Jess. In the retail side. Your second question about the regulation. You know, we have 2 main issues in terms of regulation. The first issue, it's our tariff proposal and The question of the level of regulated WACC. And the second question, it's So question of the cost allocation, the accounting method that we expect some decision From the French regulator. So in terms of for the moment, we don't have a strong update And news, because we are just we prepared our proposal And we have just to start the process. And if We have to put on the table a proposal at the mid of November and we have probably the first Francois, at the mid of December. So it's a little bit early to give you Some color about that. In term of cost allocation, for the moment, we wait. Jeff. And we don't have any news from the French regulator. All in all, we expect a final decision about the cost allocation principle at the mid of December, At the end of this year, but no news for the moment. Your third question about the process and to From the Schiphol issue, you know that at the end of November, We have some we conclude. We have a termination in terms of agreement with Schiphol. As the process is very clear, we have 2 main steps. The first step for Schiphol is To sell during the next 18 months the share of EDP And the second step after this first step, it's the fact that EDP Craft to sell the share of Schiphol directly to Schiphol at the end of the day. So for the moment, we work a lot to prepare this both operation And we don't have any details to give you for the moment. So thank you for this question. Do you have another question? The next Question comes from the line of Ruxandra Haradao Dosa from Kepler Cheuvreux. Please go ahead. Jess. Yes, good morning. Thank you very much for taking my questions. 3 please. First coming back to the tariffs. Your major peers plan significant increases in tariffs over the next years. Shipaul more than 40% increase over the next 3 years tariffs in Heathrow and Frankfurt are likely to significantly increase as well. I understand you cannot give details at this stage, but How should we think about the trends of your tariffs mid and Jess. Nowadays, the magnitude of the traffic waves at the airport has significantly intensified with big Traffic discrepancies between peak and off peak hours and between different days of the week. With a likely Higher share of leisure traffic going forward, how do you think about the peaks at the airport going forward? And implicit What will be the implications for your cost base? And third, the Skytrax ranking of Shard Degold has massively improved during this crisis from position 13 in 2019 to position 15 this year. Shard Degold is now better ranked in terms of passenger satisfaction at Lufthansa's main hub. What has been the driver And do you expect the current ranking to be sustainable? Thank you very much. Thank you, Luca Anne, for this question. So your first question about the tariff. So clearly, that is key for us. It's to have a progressive increase in terms of traffic, but with a Cong moderation approach. As you know, the French regulation for the moment, So without a new huge change linked by the French regulator, it's Very good and performance regulation because we can assume a long term approach And we can increase our tariff. We've a moderate approach and at the same moment Geoff. Improve our regulated ROCE to reach the cap that is regulated WACC. So When you see the other regulation like Stipple for the moment, we can see that the regulation Stifel, it's more volatile. When we have a strong CapEx plan, mechanically, you have a huge increase in term of tariff. And when we have a strong decrease in term of revenue, mechanically, we can we have the consequence, it's the possibility to increase the tariff. And the same is true. For EDP, it's possible to manage the situation in other way. So and to improve step by step our regulated ROCE To recover a strong position, if we have a good regulated WACC and high regulated WACC Without strong and very high tariff increase, You know that the position of EDP, it's a key position. We believe that The competitiveness of the platform, it's more linked by our infrastructure and At the end of the day, our CapEx plan. Then in terms of tariff, we assume the fact that When we have a good dynamic or when we don't have a good dynamic, we can Increase likely our tariffs and we assume that. But all in all, when you check our tariff increase during the last 15 years, We increased our tariff between 0% and 3% or 4% maximum. And with this crisis, we our strategy is to confirm The fact that we have a moderation in term of tariff and we have to increase our tariff. And we try to manage the Jeff. The recovery of the regulated ROCE in the other way with OpEx control, with CapEx control, but also We have a strong management in term of infrastructure. The second point, it's the question of the quality of traffic, The mix of traffic in terms of and the management of Geoff. In fact, for the all the airlines, the key element is to Increase the traffic at the peak hour. The main reason is the fact that for the airlines, The traffic at the Picower, it's a strong traffic with a huge High contributive consequence for the airlines. That is very important For our client, so we our strategy is to accompany the recovery of the traffic And to accompany our clients, all the airlines to recover a strong Financial position. But at the same time, for environment issue, but also for optimization in term of Infrastructure, you know that it's difficult for us to increase Jeff. The traffic at the Picaware, because we need to reopen some infrastructure And we need to develop and to increase the capacity of the airport. For the moment, we don't have these Questions. We know that it's possible to accompany the recovery of the traffic to accompany At the peak hour, we have a strong impact in term of CapEx, we have a strong impact in term of OpEx. But you're right, in fact, Probably for the end of this year, but also for the next year, we have to reopen infrastructure. It's manageable in terms of OpEx. When you reopen an infrastructure, we can reopen without a strong impact in term of OpEx. We learned a lot during the crisis, and we know that it's possible. But The key element is not OpEx. The key element is retail activity because when we reopen Infrastructure, we can have the consequence is to dilute Jeff. The high contributive passenger in a lot of infrastructure that is not efficient For our retail activities. So we have a strong discussion with all the airlines about that because Obviously, it's very good to assume the fact that we can have a good contact rate. Obviously, we have to accompany the airline to recover a good position, including the peak hour. But at the same time, it's not possible for us to have a strong and bad impact in terms of retail activities. For your first question, the for Skytrax Awards, in fact, we have a strong Jeff. For Charles De Gaulle, but also for Harley, but also for all the platform of the group. It's not a conjunctural effect. It's a structural effect. It's in line with our policy, and we work a lot during the last 3 or 4 years to improve Jeff. This well, and we know that We learned a lot in terms of drivers to improve this quality. We changed The manner to operate our platform, we changed the atmosphere in Jeff. We improved the quality in the car park. We improved the quality in the Checking area, we improve the quality in the security check activities and so Antoine. So we have a structural effect. We have a strong improvement. But at the same time, it's a competition. And the improvement, it's a key element and a structural element, but all the airports try to improve the quality. So and we know that for the moment, we are in a good position to continue the story and the success story in this way. So thank you, Oksam Ravi, for this question. The next question comes from the line of Christian Nadeaucu from EUBS. Please go ahead. Hi, good morning. Thank you for taking my questions. Maybe the first one coming back on the regulatory decision on the cost allocation. Maybe can we can you give us a bit of color what is Well, what are the or sorry, what is the toolkit of actions that you have at disposal? Let's say, regulatory decision is a bad one. What can you effectively do in terms of CapEx, in terms of OpEx or other measures that you could use in that sense? The second one, could you offer a bit more color, though you talk about the financial stabilization of the international assets I'm taking actions in some of the international assets. Can you elaborate a little bit on the latest situation there? And the last one, could you give us an update where do you see your net debt position at the end of this Here. And in particular, with the traffic guidance you have in place for 2022 and with the CapEx guidance you have in place, what is the range of free cash flow generation that you see for 2022? Thank you. So thank you for a good question. So your first question about the cost allocation. So you know that The cost allocation principle was fixed by the French state And was the consequence of the economic regulation agreement of EDP. So at the end of the day, We have the definition of the regulated and non regulated scope, it's at the end of the French state. And in As a cost reduction, it's a discussion between the French state and EDP. Now the rule Change. During the summer, we have a specific decision and the decision the French decision In line with the judge is now very clear. It's not It's the rule Have to be fixed by the French regulator. So and we wait The decision of the French regulator, we have a good discussion with the public consultation. We know that, for example, The French regulator wants to fix the cost allocation with an accounting method, not So with the economic method, that is for us good news. But we have some we have to wait Jeff. To know exactly what is the methodology. First point, if the methodology Yes. At the end of the day, it's not favorable for EDP. Obviously, we can have a strong consequence A strong consequence in the radiative scope because we have to decrease probably our level of tariff. And the bad consequence in the non regulated scope because we can have a strong impact In terms of non regulated watching, that is probably a huge part of the issue. So, the good manner To manage the situation, if we have a strong impact, it's first to cut all the regulated CapEx And second, to develop strongly our non regulated activities. And so it's not a good solution French regulator because at the end of the day, if we decrease our CapEx plan in the regulated scope, we can accelerate The decrease of the tariff, but at the same time, we can have more firepower to invest in the non regulated scope. But it's not rational for our public authority. So we try to convince that the competitiveness of the platform It's mainly due to the CapEx, the regulated CapEx, more than The tariff level. And we try to convince that for all Geoff. The party for the French regulator, for the French state, for the airlines, but also for the airports With a good balance in terms of cost allocation and with a good Appreciation of the tariff versus the CapEx, we can have a strong position with a good policy. Your second question about the stabilization of international asset. So For the international asset, so we have a good recovery in TAV Airport. And you know, JV Airport has Geoff. Strong asset in terms of tourism, for example, Antalya, first of all. And second element, TV Airport manage the level of OpEx and all in all and have no financial issue. So all in all, all is under control with TAV Airport. For JMR, JMR Airport. In JAMA Airport, the situation is a little bit different because during the crisis, JAMA I have to continue to build extension and to develop the capacity of Delhi and Hyderabad. So We have a strong CapEx plan. And now we have also good recovery, and we expect a Stronger position of Delhi and Hyderabad in the next few months, but with an increase Strong increase in term of debt. So our priority is to deleverage JMR Airport, And we discuss a lot with our partner that is Jema Infrastructure Limited. For the moment, it's manageable and we don't have a Strong issue about that because JAMA Airport refinanced a huge part of the debt and have Some time to deleverage the company in the next few months. The main issue, it's in Santiago I'm in Amman. And it's the 2 main issue for the moment. And we discuss a lot with the Chinyan authority, with all our lenders, and we discuss a lot Jeff. If we have to put some money on the table, It's not for JV. It's not for Gemma. Perhaps for Jordan and perhaps if at the end of the day it's Necessary for Santiago Du Chy. Your third question, it's a net debt The position, for the moment, we have guidance very clear. We have to reach our target at the end of 2022. You know that when you see our guidance, we can see that we expect a strong increase in term of traffic In 2022. And all this traffic increase Can manage the situation of net debt in 2022. For the moment, I am sorry, but I can give you more color about that. In fact, at the end of 2021, our multiple should be very high. So thank you for your question. The next question comes from the line of Dario Magione from Exane BNP Paribas. Please go ahead. Hello, good morning. How much was the spend per pack in Q3? It seems quite low. Is that concerning? Question number 2 on the regulatory proposal to change the regulatory scope. In the worst case scenario, how much cost could be moved to the regulated non regulated side? And third question on the Schiphol Cross Holdings. How likely is that the EDP shares are floated on the Marc, thanks. Excuse me, but I don't understand your third question. What is your question, The third question? Yes. Is it possible, how likely is that as KeyBolt sell the ADP shares On the open market? Yes. So to start with this question, in the first step, Schiphol have to sell 8% of EDP. And Schiphol has a choice to sell in the open market or to So I'll be directly for the specific investors. It's at the end of Keepal. But We have for EDP, but also for the French state, veto rights and the terms shown rights. So all in all, at the end of the day, if it's a good operation, Jeff. We have to assume that we need a strong alignment between Schiphol, EDP and the French government. So but the question of the open market, we don't know the answer because it's at the end of Schiphol. Probably, It's difficult for the moment to give you some color because it depends of So the apetee of all the investors. Your first question about the self care pack, So you know that we expect for the end of this year self per packs higher than 2019. So probably higher than €20. When you see our performance during this Yes, we can see that we have a high sales tax during the spring. And We know that the recovery with an acceleration in terms of recovery due to the European flight more than the international flight, we can have a dilutive Perfect. That is okay. But for the moment, it's in line with our expectation. And we know that we have enough room of maneuver to improve the situation in 2022, 2023 We've 2 main pillars. 1st pillar is the recovery of the international freight And the second pillar, it's our new retail area. You know that we have to reopen some infrastructure And we have to open the international junction of the Terminal 1 And we have a strong retail area. We have also in the 2nd pillar a good strategy to accompany The development of the retail activities through our luxury brands, through our JV, And we work a lot and the retail team work a lot to prepare a new strategy To accelerate the recovery. Your second question about the regulated scope. We The definition of the regulation, the regulated scope, regulated and non regulated, it's at the end of The French state. The regulator had to fix the cost allocation. So for a huge part of the asset, for a huge part of the OpEx side And for all the part of revenue, it's very clear. When you have a landing fees, it's regulated. When you have retail revenue, it's non regulated. So for the revenue, we don't have to expect any change. For the asset, when you have a runway, it's obviously regulated. And when we have Retail shop, it's obviously non regulated. The question, it's the allocation of the common Infrastructure, for example, the corridor of all the terminal. And so this situation, we have to we have, for the moment, good and strong growth. And For us, it's a good rules. But it's difficult for the moment to give you some element and some figures because we don't know what is The decision of the French regulator, we don't have any element about that. Perhaps it's a very good decision and very favorable for the airport, Perhaps not. But it's our duty to give some air to say clearly For the financial market, Matt, we don't know. We don't know. So thank you for your questions. The next question comes from the line of Martin Voigtel from Bank of America. Please go ahead. Yes. Good morning. Thank you so much for taking my questions. The first one is just on cost cutting. I think in H1 results you disclosed that you are targeting 100 to 150 of structural cost savings in Paris. And I believe this is not included in the chart for 9 months. So can you just confirm that this is obviously still the target Of ADP. 2nd, just to clarify, in the statement today, you mentioned that you are pursuing some arbitrations On international assets, so have this already started? And are you referring to Santiago Jess. Jordan or there are arbitrations in some other assets? And maybe last question, Apologies. Just to come back to that regulatory review by ART, I think you mentioned in answer to one of the previous questions that you think ART will be using an accounting principle to determine cost allocations, and you are currently using an economic principle. And I think you suggested that could may even be positive. So can you maybe elaborate a little bit, just give us some color on what these Principles imply? Thank you. So, thank you for your question. So, first of all, I can, for your first question, confirm that We are in line with our forecast to assume the fact that we can have a sustainable effect In terms of OpEx, in Paris, between €100,000,000 €150,000,000 so it's Sustainable OpEx, so it's at the end of the day when we have recovered all the traffic. But before the recovery, in fact, We expect more cost cutting effect. For the €100,000,000 and €150,000,000 It's just in Paris. It's just in the regulated and non regulated scope, Part in non regulated, to increase our non regulated ROACE. And we it's Mainly due to the our social measure like The decrease in terms of number of people, first, for around 60 €1,000,000, €60, €65,000,000 The decrease of the remuneration of all the people in EDP for around €20,000,000 €25,000,000 And the other element, it's purchasing policy and Over Action Plan. It's in Paris, so it's not just EDP Motor Company, but Also our JV, consolidated JV like Asia. Your second question about the Arbitration. So you have 2 main discussion and we wait for arbitration. The main issue is in Santiago. We have a strong Jeff. And the second element is in Delhi. Due to the first measure during the crisis. And after, we have some elements, but Jess. It's more little. We have a strong discussion in Jordan. Your third question about regulation. So we have 2 main manner to allocate all the cost and the asset base. The first, it's the accounting method. We take the figures Jeff. In our account, and we fixed some Key allocation and we affect all the OpEx and the asset. The second method, it's economic method. We have some, For example, some activities that we try to find And to have a good valuation of the positive externality of all the activities. And it's not based with the accounting figure. Jeff. It's based off the economic approach. For example, what is the contribution of the retail To start to create positive externality in terms of quality of service, in terms of Attractiveness for the airline activities, for example. And for the moment, we know that the French regulator wants to choose the first Method with the accounting method. But at the same time, We don't know If the French regulator wants to change and color The accounting method with an economic approach, for example, take the accounting figure, But put some adaptation to say that for these Kind of activities, we have a strong positive externality. For example, for the retail scope, we know that if We have a good mixed traffic. We have a good efficiency in terms of retail, and we have to color our accounting Geoff. Proch with specific rules. And it's a question, and we don't have the answer. The next question comes from the line of Andrew Lobbenberg from HSBC. Please go ahead. Hi, there. Can I come back to regulation, But more about the principles? At the start of the presentation, you spoke about The difference between Amsterdam and Heathrow with very volatile airport charges, because they're trying to instantly or rapidly get Please get Ruchi back to WACC. And yourselves, we were thinking of a more step by step gradual approach. So I just wanted to know how many steps How long a journey is it to get RoTE back to whack in your vision? Second question would be around the recovery of Asian traffic. Obviously, it's going to be slow, but How slow do you expect it to be? When do you expect the Asian traffic to start recovering? And when do you expect it to get more fully recovered? And then a third question would be, you've given us this net debt EBITDA guidance of 6% to 7% for the end of 2022. Wanted to check whether that included any receipts from the disposal of your Schiphol stake Or if you got some cash in the door for that, that would further improve the debt situation for end of 'twenty two. Thank you. So, thank you for your question. So, your first question, Mechanically, if we freeze the tariff during 2 or 3 years, We can observe a strong recovery in regulated ROACE. The key element for us, it's a cap Fixed by the French regulator. If we have a cap at 6%, for example, we have we can wait 3, 4 years to reach 6%, perhaps 3 years. And if we have a cap at 2% or 3% So when you manage the tariff increase, we manage our tariff increase to manage the speed of the recovery. But all in all, the tariff increase, it's not a key element for us to recover our regulated royalty. The key element is to reduce the level of CapEx and to reduce our OpEx in a sustainable way. That is a key point. For the tariffing fees, in fact, it's important for us to accelerate this recovery. But When you see our figures and we disclose the recovery of the traffic, We can see that in 2018 2019, we have regulated ROCE Higher than 5%. And if we have the same Traffic, with a strong effect in term of savings. At the end of the day, we can reach without tariff increase, regulatory approach higher than 5%. The key question in terms of regulation, it's not a question of tariff. It's a question of CapEx. I think it's a question of level of regulated WACC. It's good, but if we now Implement tariff increase like ISPRO at 30% mechanically, We reached in 2022 a very high level of rigidity troche. And we the French regulator fixed the cap that is regulated to what? But it's not possible As a consequence, it's a decrease in term of tariff. It's not possible to assume a strong increase like Isthorro. Why we have a strong increase in the other airport? It's the fact that for the other airport, for Stifel, for example, we have to assume a huge CapEx plan despite the crisis. And for the other airports, it's possible for the other airport to have a compensation For the loss of profit during the crisis, but it's not possible in the French regulation. In the French regulation, we lose A huge part of our traffic and a huge part of our aeronautical fees. And it's not possible To have a conversation for this element, we just have to manage the recovery. The second question about the traffic and the Asia traffic specifically. You know that for us, the Asia traffic, The recovery of the Asia traffic will be probably during the 2022, probably with a strong manner during the summer of 'twenty Summer or September, October? Before, it's more difficult. We have a recovery, but not so dynamic. In terms of debt net, we don't put in our model a strong effect in term of Disposal for Schiphol in 2022, because as I say, Schiphol have 18 months to sell 8% of EDP. And after that, EDP have to sell The share of Chippol. So it's probably for us in 2023. But if it's before, it's a good news. But we are very cautious in our approach. And in terms of debt net, we don't put So, disposal of Cipol in 2022. So, thank you. So, So thank you very much for all your questions and see you very soon and for our annual results in February with probably, I hope good news. Thank you. Thank you for joining today's call. You may now disconnect your lines.