Earnings Transcript for ANYYY - Q3 Fiscal Year 2024

Operator: Thank you for standing by. My name is Kate, and I will be your conference operator today. At this time, I would like to welcome everyone to the Aena 3Q 2024 Results Presentation. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. [Operator Instructions]. I would now like to turn the call over to Carlos Gallego, Head of Internal Relations. Please go ahead.

Carlos Gallego: Good afternoon, everybody, and welcome to our nine months 2024 results presentation. This is Carlos Gallego speaking. It's a real pleasure being with all of you today. Our CFO, Ignacio Castejon, will host the call together with myself. We are going to cover the main topics explained in the results presentation that is already available on our website and on the CNMV website, and we'll finish with a Q&A session. Without further ado, I give the floor to Ignacio. Thank you.

Ignacio Castejon: Thank you very much, Carlos. Hello, everyone. This is Ignacio speaking. I would like to have my very first words for all the people affected in some areas of Spain because of the extreme weather conditions. I would like to wish them peace and strength as they navigate through these very difficult times that they are suffering. As explained by Carlos, I will touch basis on traffic, P&L, cash flow and the different business -- and the different performance, sorry, of the main business lines of the company. And after that, we'll have a Q&A session. So, let's start with the key highlights section and on the traffic part. As I'm sure you have read, over the first nine months of this year, Aena recorded a total volume of passengers of 282.5 million passengers. That's a growth of 8.9% compared to 2023 first nine months. This increase has been particularly remarkable in our Spanish network. We reached 237.8 million passengers. That's a growth of 9.8% compared to 2023. If we look at our international activities, London Luton Airport handled 12.8 million passengers, a 2.7% year-on-year increase. I would also like to highlight the performance in Brazil. Our ANB subsidiary handled 11.7 million passengers, equal to an 8.5% year-on-year growth for that portfolio of airports. And on the other hand, Bloco de Onze Aeroportos do Brasil, what we call BOAB, have received 20.1 million passengers being a growth of 3.7%. Looking at our total revenues, our total income. Aena has delivered solid performance in these first nine months. We have reached EUR 4.4 billion of total revenues, which is an increase of 16.3% year-on-year or EUR 617.6 million compared to the first nine months of 2023. This growth was primarily explained or driven by our aeronautical revenues and our commercial revenues, increasing by 14.6% and 16.6%, respectively. With respect to our total cost during this period, during this nine months, our total consolidated cost amounted to EUR 2,368.1 million. That's an increase of 4.4% compared to the same period of 2023. Removing or excluding and nonrecurring or extraordinary movements. For example, the consolidation of BOAB, the drop in energy prices, impact of construction services and the accounting, sorry, of this construction services -- that increase would have gone up to 6.4%. With respect to our EBITDA, Aena has achieved a consolidated EBITDA of EUR 2.6 billion, that's an increase of 26%. If we look at the margin, we have nearly achieved an increase of 500 basis points. So, the margin of EBITDA has moved from 55.9% to 60.6% for EBITDA. Looking at net profit, we are close to EUR 1.5 billion number. We have delivered EUR 1,449 million resulting in an increase compared to 2023 of 27.3%. Let's have a look at our commercial activity. we always strengthen the activity -- the commercial activity, looking at the things, what happens, the amount of sales of our tenants in our airports and basically the increase in these first nine months of 2024 has been 11.6% higher than traffic and the increase in sales per passenger is 1.7%. All the main categories of the company, such as duty-free, specialty shops, F&B, car park, and rental, advertising, VIP in all those activities, sales have increased more than 10%. When we look at the activity -- our tender activity, sorry, what we are receiving is very attractive proposals. You can see in the materials uploaded by the company that the MAX related to specialty shops for all the tenders that we have carried out these first nine months, have recovered to 121% for 2024 compared to 2023 and up to 133% for 2025 compared to 2023. So, a significant increase. A very similar trend. We have seen a very similar trend for food and beverage. We have carried out 334 tenders, of which 15 tenders have been awarded, and we have seen increases in 2024 and in 2025 compared to 2023 of 126% and 143%, respectively. So, very, very promising awards. When we look at the different business lines and the performance on an EBITDA margin standpoint, all the segments of the company. From an EBITDA margin standpoint, have improved. For example, Aeronautical segment, EBITDA margin have improved from 47.4% to 51.4%. And Commercial segment, we are already at 83.2% Real Estate Services, a significant increase to 78.1%. And on our international segment, we are very close to 45% for EBITDA margin. Let's move to traffic after we have covered these key points. With respect to traffic, as I was saying earlier, sorry, we have offset a very strong year-on-year growth, an increase in Spain of 9.8%, bringing the total figure to EUR 237 million passengers, I was saying before. Domestic traffic rose by 5.7% while international traffic increased by 11.8%. International passengers accounted for 68.5% of the total traffic and European passengers represented 59.3% of this total traffic. These figures from a market share standpoint are very consistent with our 2019 and 2023. If we look at our main markets, you can see the different market share of the UK., Germany, Italy, France and the Netherlands. You can see the market share of those countries in Slide 10. I would like to start with all of you the growth that we are seeing in those main markets of Aena. Growth from the UK. has been 8%, Germany, 10.1%, Italy, 15.1%, France, 8.2% and the Netherlands, 8.3%. So, very sound growth rates for the main markets of Aena. I would like to touch base on the long haul because we are seeing, as I was saying earlier, traffic for international. International traffic increased by 11.8%. And when we look at South America and North America, we have managed to deliver a growth of 15.7% and 17.3%, respectively. So, very high growth coming from the Americas, especially North America with 17.3%. In terms of our performance by -- from our airports, our main airport, Madrid-Barajas had an increase of 10.7%. Barcelona-El Prat, 11.5% and Palma, 7.2%. And -- so very remarkable traffic growth from our three largest assets. Regarding the traffic from our main clients, the airlines. Our top airlines, our top 10 airlines carry 172 million passengers. That's an increase of 8.3%. These operators, sure, you concentrate around 72% of our passengers. The top three being Ryan Air, Vueling and Iberia. I would like to highlight the growth coming from Ryanair, 9% in this first nine months of 2024. Moving to the next topic to the next slide. Basically, I would like to note that in the third quarter of the year, in a register a dilution in regulated income amounting to EUR 56.2 million, so the accumulated dilution in the first nine months of this year amounts to EUR 124 million. As you know, this is an amount that according to our regulation the company will be recovering in two years -- in two years' time, being properly capitalized at the applicable one. With respect to traffic, and I will finish with this topic. Basically, as you know, we updated our traffic forecast back in June, I think it was June 2025. At that moment in time, we updated to 36.7 million passengers for 2024. We don't see any need to change the number that we shared with all of you. So, growth for the year would be 8.3%. Looking at the next weeks or the next months, we are seeing October delivery still delivering growth. Likely lower than the growth that we have seen through summer, but no material deviation from the numbers and the assumptions that we use for this year with respect to the last quarter of this year. And finally, on load factors, very healthy load factors confirming the strong demand. We load factors around the same levels of 2023 for this first nine months. Let's move to commercial. If we look at a slide 12, basically, the total commercial and real estate revenues for this period increased by 16.2%, that's a figure of very close to EUR 1.4 billion. This performance is mainly driven by traffic but also commercial yields. So, if we look at these revenues on a per passenger basis, we have managed to deliver EUR 5.9 per passenger in this first nine months of this year. When we exclude the multiyear straight lining and other adjustments that you can see in the last line of this table before the total ordinary revenue, basically, the growth is 12.8% delivering a growth on a per tax basis of 2.8%, still very healthy growth rates for our commercial business. So, in summary, for commercial, during these first nine months, the commercial segment reached EUR 1.1 billion of revenues compared to EUR 911 million in the same period of last year. That's an increase of 20.9%. EBITDA -- sorry, and with respect to real estate, the segment rose to EUR 67.8 million -- EUR 67 million, sorry, that's an increase of 33.1%, very -- in absolute terms as well, very healthy results. I'm going to share some info, some details with you on the different business lines of the commercial segment. That's Slide 13. I think the very first message with respect to duty-free activity, a very strong -- very positive performance, recording a growth in terms of sales of [indiscernible] circa to 15%, 14.8% year-on-year growth. Ordinary revenue growing at 38% compared to 2023, reaching EUR 394 million for these first nine months of the year. With respect to F&B, very similarly, growth in terms of sales of 11.6% and delivering a growth of 8.1% in the first nine months of the year. With respect to some activities that we manage internally, VIP services and car parks. VIP services, as you can see in this slide, keep delivering very material high growth, 30.9%. Basically, the reason for that increase is explained by the activity in the VIP launches that are increasing up 27% and is supported by higher customer volumes around 24%, but also higher prices. We are witnessing higher penetration rates of this activity in our airports penetration rates in this activity around 1.9% in for this first nine months of the year. And with respect to car park, that is the other business that we manage. You can see in this Slide 13, the increase in our ordinary revenue of -- sorry -- 13.5%, that is basically explained by the optimization of available parking spaces, more facilities available in Barcelona, Alicante, Ibiza, but also our improved pricing strategies. Let me finish with two pieces of information on car rental and advertising. With respect to car rental, performance remains very strong. Number of contracts keep growing. flat -- from a pricing standpoint, we are seeing some flattening is that we have -- we are coming back from a situation in which prices were really up. And the main message on the car rental business is, as you know, the new contract, the new 179 licenses that were awarded back in spring of this year, those licenses are starting at the early -- basically tomorrow. Tomorrow is the last day of the existing contracts. So, we are hopeful that the new terms and conditions of these licenses will deliver more growth for Aena. Let me finish with advertising. Finally, advertising that was one of the business lines that had, I would say, the most challenging recovery after COVID in this quarter we have witnessed a very strong recovery delivering in this quarter compared to the very same quarter of last year, an increase of 23.8%. So, advertising finally coming back. Let's spend some minutes on OpEx, on total cost. As you can see in Slide 16, if I am not wrong, basically, at group level, operating expenses in the first nine months totaled EUR 1.7 billion, showing an increase of 6.2%. Basically, the main drivers behind this increase are related to the consolidation of BOAB that is contributing EUR 61 million, sorry, higher staff costs across the group, more or less 10% year-on-year. IFRIC 12 consolidation accounting rules, cost increases in Luton, energy price evolution helping and also some activities mainly related to the operations in Spain, such as security, maintenance, PMR services, that because of the new contracts and the very high levels -- very high levels of activity of Aena through this summer and also increasing at a higher rates than traffic. If we look at Aena on a stand-alone basis, so the activity only in the Spanish network, operating expenses reached the amount of EUR 1,449 million, that's an increase of 7.2% and other operating expenses rose by 8.2% in this quarter, in line with the first half with other operating expenses on a per passenger basis decreasing 1.5% year-on-year on the first nine months of this year. When we -- all these numbers are excluding -- are taking into account the movement of energy prices that I'm sure you have seen in the information that we have had a reduction of almost 21% in our cost. If we exclude this effect, our other operating expenses in the Spanish network would have increased 12.1% in the first nine months of this year. Let's move to cash position, cash generated, sorry, cash position and net financial debt. Very briefly, in terms of cash generation, the group has seen a very robust performance in the first nine months of the year, with net cash generated by operating activities reaching EUR 2.3 billion. This is an increase of 23.5%. Regarding the group debt, consolidated net financial debt amounted to EUR 5.7 billion in the first nine months of 2024. that's a decrease of EUR 523 million. From a net debt-to-EBITDA standpoint, you will have seen that there has been a material reduction from 2.06 to 1.6 in our consolidated accounts. Basically, all these movements happen on a very similar basis at our parent at parent level. I would like to highlight that in the next quarter, we have some significant outflows. We have to repay financial liabilities amounted to EUR 932 million and also some tax obligations -- normal tax obligations, but those payments are happening in the last quarter of the year. So, you will have seen -- you will see -- sorry, a reduction in our cash position because of those obligations happening in the last quarter of 2024. With respect to our hedging policy, no big changes from last year, around three fourth of our debt remains a fixed debt and 26% is floating debt. Let's move to our international activities. So, I'm referring to Luton, ANB and BOAB. With respect to Luton basically, I would like to note that this airport delivered a growth of 2.7% in terms of passengers. So, we reached the amount of 12.8 million passengers. That's a recovery versus 2019 of 92.3%. Total revenues grew by 16.7%, increasing from GBP 226.6 million to GBP 264 million. From an EBITDA standpoint, we delivered also an increase of 10.5% and the margin set at 40.5%. If we close the Ocean and we go to Brazil, let's start with ANB, the portfolio of airports for the Northeast of Brazil, where the traffic reached a level of 113.8% compared to 2019 levels. This year, we are seeing a growth of 8.5% interest of traffic. This strong traffic performance, sorry, is driving an increase in aeronautical revenues of 19% and also is delivering -- is helping to deliver an increase in commercial revenues, per circa of 30%. EBITDA is growing from BRL 193 million to BRL 249 million with a very attractive margin of 45%. If we were excluding all the IFRIC 12 accounting rules, this margin would be very close to 60%. You will see a very strong reduction in the CapEx that this company is delivering because basically all the mandatory CapEx that were part of these concessions are almost finish. Let's move to our newest asset, that is BOAB, Bloco de Onze Aeroportos do Brasil, that delivered a traffic growth of 3.7%, as we were saying earlier. Total passengers for these first nine months of the year amounted to 20.1 million passengers. So, we are already above 2019, 100 and 1.4% versus 2019. You will see in slide 23 that the total revenues for this company were BRL 776 million. EBITDA recorded for this company amounted to BRL 427 million. That's around -- in euros, we are consolidated EUR 75 million. So, that's an important contribution that is already coming from this company. And basically, the CapEx figure is that low this year because we are just starting the execution work of some initial quick wins from a CapEx standpoint but the material part of the CapEx program to refurbish the Congonhas Airport will start next year. And I think that's all from our side. So, we have around 30 minutes left for the Q&A session. Happy to start the Q&A session. I would like to ask all of you that are in the line that the just share with us one question per analyst or per person so everyone has time to raise their question in the next 30 minutes. Thank you very much.

Operator: [Operator Instructions] Your first question comes from the line of Graham with Jefferies. Please go ahead.

Graham Hunt: Yes, thanks very much. I'll just stick to one. I was a little bit surprised not to see any kind of change in the passenger outlook. Is there anything that we should be thinking about that's driving the slowdown that you're seeing from the summer into that you mentioned? And then on that, just in terms of your strategic plan and looking beyond 2024, when should we expect an update to that? Does that -- do you just wait until the full year? Or could we expect an update before then?

Ignacio Castejon: Thank you, Graham. This is Ignacio speaking. With respect to this year, I think my message would be that we are not seeing information data and data points that make us think that we need to update the traffic guidance provided in June for this year. What we are seeing for October is a similar trend than the one that we took into account back in June when we were updating our guidance. And we respect to November and December, very similar position. We might end it higher than when we were forecasting, but we are not changing the guidance given that we are not seeing material changes. With respect to next year 2025, we are right now in the middle of all our budgeting exercise. That's a process that, hopefully, we -- there's an internal process, sorry, reckon that, which should be done -- that should be done, sorry, through November and getting the board in our budget in the board of December. So, after that date, I think we will think about when is the right moment to share our traffic guidance for next year. Normally, as you know, we like to wait for information related to the next summer season, and that information is not normally available until very late January. So, that's -- that's what I can say with you, Graham.

Operator: Your next question comes from Elodie with JP Morgan. Please go ahead.

Elodie Rall: Hi, I have a question a little bit unrelated to results since I can only ask one. It's about the possible increased taxes that on air travel in Spain, we've read about that in the press. I was wondering if you could give us your insight or if you have any information on that? And what could be the potential impact on traffic you think?

Ignacio Castejon: This is Ignacio. We don't have much information we don't have different information to the one that is publicly available that I'm sure you have read, and we are following so that we are prepared and ready to basically understand the potential changes to the regulation. With respect to impact, I think it's too early. We don't have an estimate with respect to impact. It's -- you know that there is always sensitivity to prices. And if because of taxes, lift ticket prices that are increased in prices that could affect traffic. It's too that in the last two years, we have had a very strong recovery despite the material increases in the flight ticket prices. So, let's see how things evolve. But I don't have an estimate to share with you Elodie, unfortunately.

Operator: Your next question comes from Satish with Citi. Please go ahead.

Sathish Sivakumar: Hi. Yeah, thanks again for the presentation. My question is around the commercial activity like on the tenders, right? If I look at the specialty shops versus the food and beverage, you made a good progress on the specialty shop in terms of signing the available tenders, which is more than 50%, whereas on the food and beverage is slightly lagging, can you like help us understand like what's actually driving this slightly lag on food and beverage and these specialty?

Ignacio Castejon: This is Ignacio again. And I think I had understood your question, but please correct me if I'm not or just let me know if I'm not providing you the right answer. With respect to F&B, from a performance standpoint, we have delivered, I would say, a very satisfactory performance. If we look at ordinary revenue, this has increased 8.1%. In terms of tendering activity, basically, we are very satisfied. We have achieved very satisfactory results, looking at the remarks proposed by the bidders. With respect to brands, sorry, what we are witnessing is a very significant increase in sales in the F&B activity when the brand or the change in the F&B activity and especially when the unit is updated. We now have more spaces, more surface in the F&B activity through the network, delivering or accruing minimum guarantee rents. In terms of average transaction value, F&B is one of the categories in which we are seeing increases in the average transaction. And with respect to sales per pax is also performing better than 2023. So, I think in general, we are satisfied is to that there are some units that are still pending to be finalized in Madrid. And we'll see the results from -- in the F&B activity in Madrid when those units are finalized, but I would say that the results are promising. With respect to specialty shops, very similar trends than F&B. I would like to highlight that what we are seeing is a trend in which the all the different products on offer by the tenants are being missed mix between the three main categories. I'm referring to specialty shops, F&B and duty free. So, we are getting more and more a situation in which all these shops or units are more hybrid and we are seeing more a situation in which we have to analyze the results on an aggregate basis because the kind of consumption money spent in these shops, sometimes you have a bottle of water in the duty-free area, but you also got F&B in the duty-free area because we are adding -- as I'm sure you have read in the documentation F&B offers in those shops. So, I would encourage you to look at these three categories as a whole because it's too that the pattern of basically, the pattern of our passengers with respect to this area and our tenants and how we are basically allocating our offer to these categories is becoming more and more hybrid. That would be my comments.

Operator: Your next question comes from Andrew with Barclays. Please go ahead.

Andrew Lobbenberg: Hi, can you just update us on what your thinking is around external assets one of the ones of interest are you actively pursuing the regional airports available in the UK.? Or are there other assets on the block that you're chasing at the moment are investigating at the moment?

Ignacio Castejon: Andrew, this is Ignacio. As I'm sure you will understand the companies don't talk about any project publicly. With respect to our capital allocation, I think we have been very clear on our strategic plan that there is an intention of the company. to look at potential opportunities in order to increase a bit our consolidated EBITDA contribution from 10% to 15%. As we have always said, this is not mandatory. This is not an obligation. It's just an intention, a soft goal always subject to finding the right opportunity at the right price. We are the largest airport operator. We look at opportunities globally always that with those criteria. Having said all that, we are very busy these days trying to deliver the CapEx program in Brazil. Trying to get all the CapEx program and the refinancing of the upfront payment in Brazil being accomplished in the next months through early 2025. That's one of our, I would say, top one priority when we talk about -- when we look at the international activity. That would be my answer to you, Andrew. You know there is an intention to increase but we'll always be subject to finding the right opportunity at the right price, and we will scrutinize that any potential transaction with -- in a very calmly way to avoid wrong decisions for our shareholders.

Operator: Your next question comes from Marcin with Bank of America. Please go ahead.

Marcin Wojtal: Yes, good afternoon. Thank you for taking my question. I wanted to ask you for an update with regards to your airport in Catalonia. Is there anything new on the potential change in the governance model for this airport. It is a topic that was extensively discussed during the Q2 results call. And at the time, you were indicating that it was a key area of focus for management. So, could you perhaps just tell us if there's anything actually happening? And what are your expectations?

Ignacio Castejon: Thank you very much for your question. There is no change with respect to what we stated, sorry, back in late July, -- thank you, Carlos. Back to late July, no developments on that from, Marcin.

Operator: Your next question comes from Hari with Deutsche Bank. Please go ahead.

Harishankar Ramamoorthy: Yeah, hi. Thanks for taking my question. It might be a bit early, but on DORA 3, would you be able to provide any color on how you're thinking about cost inflation for the plant needed and what that you might look to get?

Ignacio Castejon: I think your question was referring to cost indexation for the next quarter, basically...

Harishankar Ramamoorthy: Sorry.

Ignacio Castejon: Sorry, I didn't hear you well. With respect to cost indexation in DORA 3, what do you mean by that? Sorry? .

Harishankar Ramamoorthy: Sorry, it was indexation, it was more about the cost inflation that you might be seeing for the next plan period. And what you might have internally as your expectations on how costs might shape up for DORA 3. Any indications there?

Ignacio Castejon: Okay. Sorry, I just wanted to clarify to avoid you about giving you an answer that is not useful for you. We don't have any anything different to the current regulation that basically related OpEx, sorry, will be reset for the next DORA 3. And basically, that OpEx will be linked the tailor-made index that is enforceable under our regulation. That's where we are. No more news. It's that we are right now starting to work in dollar 3, very preliminary works in a number of fronts. So, it's too early to even have a position or feedback a specific item of the next regulatory period.

Operator: Your next question comes from Dario with BNP Paribas. Please go ahead.

Dario Maglione: Hi, good afternoon. If I look at the Spanish airports, traffic in Q3 was up 7% year-on-year. OpEx was also up by a similar percentage. And if I exclude the benefit of lower energy bill, increase in OpEx was even higher. So, basically, there was no operating leverage in the business. Could you explain why?

Ignacio Castejon: This is Ignacio speaking again. Let me check what you were referring. Well, we -- when you look at the other operating expenses, let's use Slide 17 so that we can talk about specific numbers. When we exclude -- I think you were excluding electricity in your assumption, but let me share with you that in the third quarter, when we look at our other operating expenses, you will see that in the -- in some categories, increases were double digit and increases of 20% or 30%, 36% for example for professional services. So, in this specific quarter, we have had excluding energy, when excluding electricity cost, an increase of 15%. We could say that this increase is higher than traffic growth, of course. But there are drivers behind that increase, and I'm happy we happy to share with you. As we have been explaining to all of you in many of our contracts that we are renewing we are being impacted by increases in costs because of inflation and because of new regulation and that resulted into higher cost, the negotiations between the unions in many of the sectors in the -- between the unions and the companies in many of the sectors that provide to us services or negotiations that are resulting into labor cost being higher, that's affecting, for example, handling PRM services. If you look at the other category, we have there a couple of millions -- we have got an increase of 20% in this quarter, that's contributing to the number or to the situation scenario that you were explaining. There are some items that are explaining that increase. There is a couple of million euros related to provision that we provided related to the DF7 that now -- that we thought that was the right approach. We have had increases in costs because of the activity in our, I would say, hottest months of the year related to Passport Control and the use of the remote gates by the company. We are experiencing as well increases in our cost related to insurance, insurance costs are increasing. If you look at professional services, that is another significant increase that we have had this specific quarter are that is 36%, EUR 4.8 million in this quarter. That increase is very automized. But is spread in many different contracts, but I would like to highlight that every company and is no exception. We are being encouraged and sometimes force regulation to invest a lot of money and OpEx related to technology and cybersecurity. So, we are updating a lot of our activity on that front on IT, and we are spending money there. On top of that, we are also using more consultants in order to have the company prep for the next [indiscernible] and that's resulting in to more cost. We are, as you know, we have had a couple of very significant bids for example, car rental that I was referring earlier in my opening remarks, and we have been using some help from some consultants. So, we have had some extraordinary items that have driven the other operating costs at a Spanish level. a bit higher than in the previous quarter. I think if you look at us through nine months, you will see that we are a 12% increase, excluding electricity at a very similar rate than the first half for the next months, excluding energy, that is 8%. So, yes, we have had a, I would say, a higher increase in other operating expenses this quarter are, but there have been some items there that have been extraordinary. But having said that, Dario, the cost base because of regulation, because of inflation, because of say, labor costs, et cetera, are going up as we said at the beginning of the year. And that's something that we are trying to mitigate as much as possible. Energy prices are helping, but that's happening. I hope that I have addressed your question, Dario.

Operator: I will turn the call back over to Carlos Gallego for closing remarks.

Carlos Gallego: Thank you, Kate. And there are not any other questions, so I think we can put an end to the results presentation. Thank you very much to all of you. It has been a pleasure having the discussion today with you. Thank you.

Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.