Earnings Transcript for ANNSF - Q1 Fiscal Year 2024

Operator: Thank you for standing by. My name is Mark, and I will be your conference operator today. At this time, I would like to welcome everyone to the Aena First Quarter 2024 Results Presentation. [Operator Instructions] I will now hand it over to Carlos Gallego, Head of IR. Carlos, over to you.

Carlos Gallego: Thank you very much, Mark, for the introduction and instructions. Good afternoon, everyone, and welcome to our results presentations for the first quarter of 2024. It’s a real pleasure being with you – all of you today again. We are going to cover some of the main topics explained in the results presentation that is already available at our website and in the CNMV website. And we’ll finish with a Q&A session as explained. So, if you have any questions, please send it to our email, ir@aena.es. Our Finance Director, Ignacio Castejon, and myself will host the call. Now, I’ll give the floor to Ignacio. Thank you.

Ignacio Castejon: Thank you very much, Carlos. Good afternoon, everyone. This is Ignacio Castejon speaking. I would like to have my very first words and thoughts for Jose Leo. I’m sure many of you already know that Jose passed away 17 days ago. I would like to ask you for 30 seconds of silence in honor of Jose, so all of us can remember and think of all the good interactions that we had with him, and we can send him our best wishes. Rest in peace, Jose. Hello, this is Ignacio again. Thank you very much for your sympathies. Well, let’s start. I’ll begin commenting the key highlights of the first quarter, and then I will proceed to explain some of them in further detail. As explained by Carlos, we’ll have a Q&A session afterwards, taking into account all the questions received before and during the call. Well, let’s start. Let’s go to Slide 4 and 5. And basically, we’d like to share with you that in the first 3 months of 2024, the tailwinds that we saw in traffic for most of the 2023 continued. Aena Group traffic increased versus last year by 11.9%, with passengers reaching 74.6 million passengers. The Spanish network traffic increased by 13.2%, up to 60.8 million passengers. That’s a recovery of 115.2% of the traffic in 2019. With respect to total income of the group, this was up by 20.1% to €1.2 billion against the first quarter of 2023. We are enjoying higher performance than our traffic growth in all our business lines

A - Ignacio Castejon: We are not changing our traffic guidance that was provided as part of our update to the strategic plan. As I have explained in my previous – in my remarks at the beginning of the presentation, what we have seen is a double-digit increase this June in the first quarter of this year. We are seeing a healthy growth also in April, but smaller single-digits. And what we are basically planning to do is, in view of the existing data that we’ll have at the end of the second quarter, we’ll consider our updating guidance. Let me share with you that the band that we provided as part of our strategic plan update was included in a scenario in which traffic growth compared to 2023 amounted to 7.1%. So that’s the upper part of the range that we provided. Yes, we have received a question with respect to if there is any – if there are any one-offs in our P&L, in particular, revenues – aeronautical revenues. There are no one-offs. What is happening is that the tariff that has been applicable this quarter in January, February and March has been – growth has been higher than the tariff that was applicable in the quarter of last year because of different reasons in January and February because it is the tariff that was applicable in the previous year but excluding the COVID cost, and in March, because it’s the new tariff for this year that was approved at the end of last year. So basically, the main deviation with respect to aeronautical revenues is explained by the tariff increase. There are no specific one-offs. What I can – with respect to cost, yes, there are some more than one-offs is you have to take into account that we are consolidating Congonhas and the other portfolios and the other airports that are part of that portfolio, and that’s distorting a bit our cost performance. So if we look at the impact of the cost – of the new costs that our BOAB is contributing, that would be in euros around €25 million. With respect to energy savings, we are saving around €25.5 million related to the drop in energy cost. And IFRIC 12, because of the decrease in the construction activities related to ANB, that’s helping us to save around €19.7 million. So the cost evolution – total cost evolution of the group, as explained previously, was around 0.8%, almost flattish, €6.7 million of increase. If we take into account all these one-offs of new costs coming because of the new consolidation in our international portfolio, that would result into an increase of 2.5% of our total cost base for the group. We have also received some questions related to the recovery of COVID costs. I would like to confirm that the COVID cost recovered in the first quarter of this year amount to €6.9 million compared to €3.5 million in the quarter of – in the first quarter, sorry, of 2023. We are also receiving some questions relating to the commercial performance and how much is explained by variable rents, MAG revenues and the straight-lining and other adjustments related to the accounting treatment in the long-term of our commercial contracts. If we look at Slide 12 of our presentation, we have there the breakdown of our commercial activity, including real estate. The increase of our total business activity has been 15.6%. That accounts for – that amounts, sorry, to €54.6 million. Of that increase, €34 million is explained by the increase in fixed and variable rents, and MAG revenues are explaining €19.2 million. The straight-lining, so as we have discussed in the past, that has related to the MAGs being straight-lined in the long run, taking into account the impact in our books of the long-term contracts that we signed in duty-free and F&B, etcetera, and the allocation of those MAGs to our books, that is explaining €14.5 million this quarter. So in total, we have experienced an increase of €69 million. That is 19.3 million – an increase of 19.3%. I hope that is addressing the – that has addressed the question. We have received – and sorry, because we are getting questions as we speak, we have received a question related to the Luton concession and the potential change to that concession. As you know, we are finishing all the plans in order to have the increase that was recently approved in place from €18 million to €19 million. Simultaneously, our grantor is working in the increase in the capacity of that airport. As all of you know, we are totally supportive of that increase, and we are discussing and helping our grantor in that regard. There are no further news with respect to that process that we can share with you so far. So, no change to that concession at this moment in time. We are receiving some questions related to total cost and OpEx, in particular, with respect to the increase in staff cost, HR cost at Aena mother company level, so the Spanish network. The increase is mainly explained due to two reasons. The first one, the salary increases are applicable because of the 3-year agreement between the Spanish government and the unions that is still applicable in 2024, and also because of the new organization of the company. And we are reinforcing some of the different management levels and layers of the organization. And simultaneously, we are adding some more headcounts to our company, taking into account the increase in the activity that we are witnessing with the traffic levels that we are achieving. We have received a question related to concentration and dilution related to our tariffs. I think the dilution that we have experienced this quarter is the normal dilution that we experience because of the increase in the tariffs applicable for this quarter. With respect to the next quarters, the question was, are we expecting concentration? We don’t think that that we’ll experience concentration in the next quarters. Having said all that, I would like to remind all of you that because we – the interim regime is finishing at the end of 2025 – at the end of 2024 – sorry, at the end of 2025, any dilution generated this year will be recovered after 2 years because the caps that were applicable related to our interim regime will not be applicable any longer. Okay. On energy cost, we are receiving some questions as well. Well, we have taken advantage of the evolution of energy prices, and that has resulted in a decrease in our cost of €25 million, as explained previously. As you know, we have made some progress hedging our exposure to energy prices last year. In spring, we closed 1 million ton agreement for around one-third of our energy consumption measured as of 2019. And simultaneously, we are making some further progress so that we hedge – so that we can increase that hedge this year and in 2025, taking into account or trying to take advantage of the decrease in prices that we have seen this quarter and also in April of this year. So our goal for 2024 and 2025 is having an average hedge in place of around 50% of our energy consumption. Simultaneously, as we explained during the update of our strategic plan, we are working on a financial PPA for the long-term that will help us to even further hedge our exposure to energy prices through that PPA. The PPA has not been closed yet. We are working in that regard. We are receiving some further questions related to Barcelona CapEx and the expansion of the airport related to the runway. There is no real or material progress or no – nothing is different to the latest update that we shared with you. With respect to the duty-free activity, we are receiving some questions about the construction or refurbishment of the different units of that activity. If you have traveled through our airports, for example, in Madrid, you will have seen all that renovation. In accordance to the contract signed with the retailer, they have 1 year to accomplish all those renovations. Having said that, the progress is significant, and we are expecting that around summer, most of the construction works related to renovation of all those spaces will be done – will be completed. Yes. With respect to car rental, some of you are asking for further detail on the new contract and the expected increase of 23% that I was sharing at the beginning of my opening remarks. Well, the current contracts finish at the end of this year, in October of this year. So the new contracts are not going to start until November. That increase is mainly explained by an increase in the fixed rents. As you know, there is a part of this contract – of this business that is explained by fixed rents. Those fixed rents, the number is basically the result of the bidding that has taken place in the previous weeks. And that’s explaining part of that increase. And with respect to the variable rent, that was not part of the awarding criteria because it was an increase from the current contract of 8% to 8.5%. So what we are doing is we are estimating that 23%, taking into account the sales that we are achieving in that business line – sorry, that we achieved in that business line last year. So if sales keep – continue increasing, that number might be higher. Of course, that number is an estimate and is subject to having to maintaining a very healthy traffic growth, a very healthy traffic demand in our touristic destinations, mainly in the islands. Thank you. With respect to commercial revenue per pax, you will have seen that, that number – that ratio is increasing. And what is happening with that number is that the weight of the minimum annual guarantee rents is important in this quarter because, as you know, from an accounting standpoint, we don’t account for minimum annual guarantee rents, taking into account traffic. It’s a straight line. So the contribution of minimum annual guarantee rents is material this quarter. And that’s a fixed number. So the more passengers that we have from a per pax standpoint, we may have some dilution. That is a natural consequence of the mechanics of the minimum annual guarantee rents.

Ignacio Castejon: Well, we really thank you for your time. We are receiving – sorry, if we receive some further questions, what we will do is addressing them in writing. The IR team will be completely available for all of you, and we will be very kind to respond to all of you. I wish you all the best. Thank you very much for your time and thank you. Bye.