Earnings Transcript for ANYYY - Q4 Fiscal Year 2023

Ignacio Castejon: Good afternoon, everyone and welcome to our Results Presentation for the Year 2023. This is Ignacio Castejon speaking. It’s a real pleasure being with all of you today again. Our Chairman and CEO, Maurici Lucena, will host the call; together with Carlos Gade, Head of IR; and myself. Now I’ll give the floor to Maurici. Thank you very much over Maurici.

Maurici Lucena: Thank you, Ignacio. Good afternoon, ladies and gentlemen, and thank you for joining us today. I think that we can confirm that we are very proud and very satisfied with the results that we have presented today. I will start, as usual, commenting the key highlights, and then I will give the floor back to Ignacio Castejon, and then I can again, of course, join you in the Q&A section. I will start with traffic. Aena Group traffic increased year-on-year by 16% to 314 million passengers, which represented an increase of 2.3% compared to 2019. And if we go to the Spanish Network, traffic increased 2.9% compared to 2019 and with, I would say, a very good level, which was a record and it was 283.2 million passengers. Domestic traffic increased by 8.2%, while international traffic increased 0.5% compared to 2019. London Luton airport traffic was not as good as the average of the Aena network. But in the context of the UK traffic, I think it was a normal behavior. It reached 90% of the traffic of 2019. And in contrast, in Brazil, our ANB concession increased 6.3% compared to 2019 levels. I move now to financials. Ordinary revenue stood at a little bit more of €5 billion, which is another record. Aeronautical revenue stood at €2.8 billion; commercial revenue, €1.5 billion and real estate revenue, €105.5 million. As you can see at our presentation, total operating expenses stood at almost €3 billion, specifically €2.9 billion. This variation, as we have tried to clearly explain on the presentation reflects principally the reversal of the impairment of the airports of the Northeast of Brazil, which amounts to €155.5 million. And secondly, the decrease of €121.2 million in the electricity bill, which was really good news after the nightmare of 2021. I’m, of course, referring to the electricity bill. All-in-all, the EBITDA for the period came at €3 billion. And the EBITDA margin closed at 58.8%. And if we – as we should exclude the reversal of the debt impairment, the EBITDA would have been 55.8%. Again, I’m referring to the Aena Group, not Spain. All-in-all, again, the net profit produced by the company reached €1.6 billion, a little bit more of €1.6 billion, which is, again, the highest net profit in Aena’s history. I now move to the commercial activity. The Commercial business behaved very, very well. First, the commercial sales exceeded 2019 by 17%. Second, the ratio of sales per passenger was 14% higher than in 2019. And third, the variable and fixed rent invoiced surpassed 2019 figures by 21.8%. I would also like to highlight that at the present time, we are ready to award in the coming months, the contracts for the rental car activity. And you also know that in 2024, we will put in the market the 13% of the Specialty Shops business and the 9% of the Food & Beverage business. On the other hand, I would also like to highlight that the Duty-Free business, and in this case, I’m referring to the variable income of Canaria and Barcelona lots exceeded the minimum annual guaranteed rents in 2023. And this is the first time ever that the mentioned two lots simultaneously invoice the variable income. Of course, you can anticipate that we are highly proud of this achievement. And finally, I would like to underline a few important milestones. First of all, tariffs, I think that it was a remarkable achievement that the 2023 – excuse me, the 2024 tariffs Aena’s proposal was finally approved, and it was approved by the Spanish government on the part that affects the inflation, but by – especially by the CNMC. This represents – these tariffs represent an increase of 4.09% or in other words, €0.40 per passenger. And I think that ultimately, these tariffs approval reflects the robustness of the regulatory framework. And in general, I think that it reflects the solidity of the lot in general in Spain. Secondly, BOAB, our second concession in Brazil; I would like to underline that in the last quarter of the last year 2023, we took over the full control of the 11 new airports Aena in Brazil. I’m very, very satisfied with the very smooth process. And I would also add that the BOAB concession, this is the name of this new concession that consists of six airports – excuse me, 11 airports among which, of course, the most important one is the Congonhas Airport in Sao Paulo. And I was saying that – I would say that the concession is performing smoothly according to our business plan. And I would highlight first that in May, the Brazilian regulator ANAC granted the operational certification to the Airport of Congonhas. And second, the full concession BOAB has already submitted CapEx projects for the mandatory investments to ANAC, which is very good news. Again, I think that so far, the concession is performing adequately. Thirdly, dividends. Yesterday, as we have publicly announced the Board of Directors of Aena proposed for approval at the Annual General Meeting, the payment of a gross dividend of €7.66 per share, again, a new record. And fourthly, concerning ESG; Aena has been included for the first time in the Dow Jones Sustainability Index and remains at the FTSE for good. And finally, the fifth milestone that I would like to underline, it’s about our Capital Markets Day. You know that on the 7th of March, we will hold the update of our strategic plan, and I hope to, again, be in contact with you on that day. Thank you very much. I give the floor back to Ignacio Castejon, and we will move to a more detailed explanation of the considerations that I have tried to convey to you. Thank you.

A - Ignacio Castejon: Thank you very much, Maurici Well, hello, everyone, again. What we believe we have a set of financial results in front of us that we did a very good one. You will have seen total revenues have increased by more than 21%. EBITDA around 45.4%, and net result, net income, 80.9%, all of those consolidated figures. What are the main drivers in our understanding for these achievements, basically traffic performance, commercial trends, a larger contribution from our international business and also the OpEx performance with some one-offs in our OpEx operational structure and also on the financial side. As highlighted by our Chairman and CEO, there has been a significant impact coming from the reversal of the impairment at ANB that has contributed €155.5 million to our consolidated accounts. So excluding that impact, our EBITDA could be at a level of €2,867 million; margins could be around 55.8% as explained by Maurici. There is another one-off that is a subsidy related to COVID expenses, that’s €45 million that have been received by the company in December. This is also affecting our EBITDA and our margins. Discounting this subsidy our EBITDA margin could be at 55.4%. In the following minutes, very briefly, I’ll try to summarize and focus on these drivers that are behind the performance of the company in 2023. Traffic; Maurici has already mentioned that traffic recover in Spain has been 2.9% above 2019 levels. What we have seen through the year is that traffic recovery has improved for the year. We started the first quarter at 101.6% versus 2019. And we finished in the last quarter at 108.6%. So the improvement has been happening through the full year 2023. If we look at the segments, Domestic and International, full recovery compared to 2019, €108.2 million and €100.5 million for domestic and international, respectively, and [indiscernible] with respect to these two markets, international and domestic. On International, what we have seen is Latin America, North America and Africa already surpass in 2019 levels. And the Europe market at 99.9%, so 2019 levels with countries such as Italy, France, the Netherlands, Portugal materially exceeding 2019 levels. Our two main markets, the UK and Germany, still sits behind 2019 levels, 95%% and 91%, respectively. However, we have seen in the last quarter a significant improvement with the two markets already performing in that specific quarter above 2019 levels. With respect to airlines, Ryanair has increased the number of passengers coming to our airports by 21.7% and also IAG Group by 7.3%. So with respect to traffic, a very satisfactory performance. The second driver that we have identified commercial trends, commercial performance. Maurici has already explained to us the main trends behind the improvement in variable revenues and sales. So I’ll spend a few minutes talking about some of the main business lines behind those big numbers. Duty-Free, the largest category and going to slide, Carlos, 15, sorry, ‘17 with respect to Duty-Free our largest category. Sales have performed very positively in 2023, with an increase of almost 15% compared to 2019. What is behind this growth? Basically, the average spending by British passengers. Food & Beverage, the revenue in this category increased by 33.4% compared to 2022. Main reasons behind that would explain this growth is price increases, more transactions and also new brands being attracted to the airports by our commercial team. Specialty shops was one of the categories that suffered the most during COVID and also because of the commercial trends out of the airport. We are finally seeing this category contributing to the company with €133 million, plus an increase of 47.7%. That’s the largest increase this year in all the commercial activities. And what we are seeing is that in airports in which the commercial offer is complete and traffic has recovered this category is performing very satisfactory. I would like to say that we have managed to add 5,000 square meters to this category through the year. Car-rental activities; Maurici already pointed out that in this year, the contracts because they are expiring in October ‘24 will be hopefully awarded. And I would like to share the trends behind this activity that we have seen in 2023. We have seen prices – number of contracts increasing by nearly 20%, but prices compared to 2022 have come down, and this is normal. Prices in 2023 compared to 2019 are still 30% higher. So this decline in the value of the contract is basically a reaction of having more supply by the car rental operators available after the crisis and the supply chains have been mitigated. Let me dwell for a second VIP services. This is a category that is already contributing €118 million to Aena. This line has materially increased this year by 44%. What we have seen is that the largest contributor of this line, that is VIP lounges, is performing very well with the customer base with – because traffic and higher penetration and average contract prices, average charges that we are charging in this activity materially increasing. The third reason for the performance of the year is higher, although still at levels below 10% of our international activities – Maurici pointed out that traffic recovery on Luton is 90%. However, EBITDA is already £20 million higher than in 2019, reaching £108 million. If we look at Brazil, the performance of the airports over there from a traffic standpoint is better than comparable airports similar to, for example, to Recife and is performing well ahead of 2019 levels at 106%. EBITDA, discounting all the effects of impairment reversals that took place in 2022 and 2023 have grown from BRL185 million to BRL220 million. And let me finish just one sec. I pointed out the fact that BOAB being Congonhas the largest airport in that portfolio is already contributing with just a few weeks of performance €13 million, 1-3 million to our P&L. This is still a small number, will be much higher next year because of the 12 months, but it’s already a good sign that, that is part of our activities. The other driver for the performance is OpEx. What we have seen in OpEx? In OpEx, we have seen that it’s true that a total level at group level costs have decreased. Maurici has been very clear that there is a very important driver that is the reversal of the impairment. That is a negative – is a minus causes a negative cost, so affecting positively. But we have also been managing costs very carefully and trying to mitigate all what’s happening in the airport industry and also in the economy in general because of inflation, because of salary increases going up because of the inflation and also minimum salaries increasing in Spain materially in the last few years. Maurici has already pointed out the positive impact of the reduction of the cost of energy in our accounts amounting to €120 million. And that has also been a tailwind in our OpEx performance. Let me finish with the cash generated by the company, a very strong cash generation by the company at €2.2 billion, 19% increase year-on-year. And basically, net debt position already at 2.06x level, so very healthy and a strong position, even better than in 2019. And with basically available cash and available credit lines of more than €5 billion that should ensure to everyone that future dividend payments especially in 2024. And debt repayments that are materials into 2024 can be easily managed by the company. Let me finish with a remark. All of you know that we have in a week, hopefully, the Capital Markets Day, where we will be explaining – we’re providing some guidance and update to our 2022 to 2026 strategic plan. So I would ask you to hold questions related to guidance for this year and for the strategic plan to that event so that we can focus the conversation today in the results of 2023. And that’s all from my side. Thank you very much. I don’t know, Maurici, if you want to add anything? Thank you, everyone. Operator, we are ready to start with the Q&A.

Operator: [Operator Instructions] Our first question comes from the line of Luis Prieto with Kepler. Your line is open.

Luis Prieto: Good afternoon and thanks for taking my questions. Two from me. The first one, you have explained the moving parts of the sharp increase in commercial revenue per passenger observed last year. But why the market jumped in Q4 and not before – a meaningful jump? Is it a direct function of the jump in traffic? Any idea you could provide us with in terms of average ticket per passenger to give an explanation to this? And the second question would be that there seems to have been a relevant change in traffic behavior over the last few months, obviously given what you said, I’m not going to ask you to provide any guidance before the CMB, but how stable do you think all of this is at the moment? Thank you.

Ignacio Castejon: Hi, Luis. This is Ignacio speaking. Thank you very much for your question. I understand your question was related to the last quarter of 2023 related to commercial revenues. Is that right?

Luis Prieto: Correct.

Ignacio Castejon: Okay. Well, you are seeing in a combination of effects. Traffic has performed very well in the last quarter of the year, we were discussing speed of recovery was faster those months, although are weak months. Two, we have already seen some of the latest awards to some of our categories, adding to these commercial activities. Third, we have been adding more surface to our activities. So it’s a combination. And on top of that, I will also highlight from a pure accounting standpoint, the MAGs signing some of those latest contracts are also contributing in this quarter, Luis. With respect to traffic, of course, we are very happy with the performance of traffic. We have seen November, December performing very strongly. There is a public information that we have already shared on the performance of January. What we have seen so far in Feb is not bad. But Luis, with respect to perceptions in guidance, I would kindly ask you to hold until Thursday next week. It’s just eight days.

Luis Prieto: But if I may rephrase my question just a little bit. In view of what you have seen, there’s nothing that leads you to believe that it’s not sustainable. Is it? It is a sustainable trend. There’s nothing abnormal.

Ignacio Castejon: What we are seeing is that the traffic performance in December and January has been performing very, very strongly. So, so far, so good with respect to impact of all what is happening out there on traffic in the following months. That’s the kind of discussion that we would like to have with you on Thursday next week.

Luis Prieto: Okay. Understand. Thank you.

Operator: Our next question comes from the line of Christian Nedelcu with UBS. Your line is open.

Christian Nedelcu: Hi. Thank you very much for taking my questions. The first one is on the Spanish Network OpEx – 2024 and the sort of the moving parts there. I think we can see on your Slide 20 that your other operating expenses, excluding electricity, Q4 are up 29% year-over-year, a meaningful step up in that line. So I was curious what is driving that and how we should think about that line going forward, but please tell how we should think about electricity cost as you are seeing the electricity prices coming down? Secondly, slide 16; it’s very helpful to see the duty free rents collected per passenger. One trend that I noticed here is, in Q4, your Duty-Free rents collected per passenger are up 11% versus ‘19%. In the first 9 months, these are up 24%. So there is a material deceleration in Duty-Free collected per passenger in Q4. Is this related to a slowdown in passenger spend in retail – have to do with rising guarantees or can you give us a bit more color there? So how should we think for this line going forward in 2024? Last one, if I may, more of a cyclical question, but we are seeing for the full year, MAG revenue is €155 million, straight-line depreciation, €60 million. Very difficult for us to model with precision these lines but give us any help there, any color, at least directionally, do you expect the MAG revenues recognized to grow over the next couple of years well above €150 million or will they come down on the straight-line depreciation, should we take the €30 million in Q4 and annualize it? Is that the new normal or any color or indication that would help? Thank you.

Ignacio Castejon: Thank you Christian. A long list. I hope I will be able to remember all your questions and provide good answers, which is more important, I think. I think your first question was related to Page 20 and the breakdown of other operating expenses for the network in Spain, if I’m right. And I think you were highlighting the increase that you have seen excluding electricity and in particular in the last quarter. I would like to share with you that in the last quarter, what we have had is a provision related to the [indiscernible] have been issued that have not been in our favor. So we have decided to provide for those concepts and that has been a bit more than €10 million, and that’s impacting the last quarter in the category of other that you will see in Slide 20. And that’s something that is negatively adding, of course, to the performance of other operating expenses. I think in your question, Christian, you also highlighted – your comment on electricity. As you know, the company sign this – sign a long-term supply contract for a few years with our current providers. And part of that contract, around 30% was provided – is going to be provided at fixed prices. So we’ll be taking advantage, of course, of the better prices of energy, and we have been taking advantage in the past weeks and hopefully, it’s happening these days as well. But having said all that, taking advantage of this soft market, the company is also very active and is analyzing options to hedge – to potentially hedge a bit more so that we can mitigate the potential of volatility coming from that item in our cost structure in the future. We don’t know what is going to happen with gas prices, electricity prices. So going above that level is something that we are analyzing and materially considering. I think you also referred to MAG. That was your last question, but it’s one in between. I will ask you again. With respect to MAG, I think you were referring at the per format that is difficult to anticipate. Our plan next week is share with you the calendar, the scale of MAG per category for the whole life of the strategic plan so 2024, 2025 – 2025 and 2026. So you will have that visibility. What is happening and why they have increased in some categories and linearization or a straight line are increasing. What you have seen in, for example, in Duty-Free is that the new contract kicking in October – well, November 1, and those MAGs are higher than the ones that we had before. So that’s why that’s contributing a bit more. With respect to a straight lining that you will see in Slide 13, [indiscernible]. That number is increasing because our – the average life of our commercial contract is very low because we have awarded very recently a number of contracts, for example, food and beverage for Madrid and also the Duty-Free that I was mentioning earlier. So the newer our contracts are the higher that number is going to be. I’m referring to the 59.1. If our portfolio of contracts get older, expire, we will have the opposite effect in the following years. And I think that those are all the questions that you raised, Cristian that I can remember. I would ask for you if I something.

Christian Nedelcu: That’s very helpful. Just in the middle was about Duty-Free rents collected. It seems that in Q4, there’s a deceleration. If I look at your Slide 16, Duty-Free collected per pack 19% are roughly 11%, while in the first 9 months, they’re up 24%. So I’m just asking if you’re seeing a slowdown and your spending, retail spend in the airports or is there any other effect from the MAGs there? Or I’m just trying to get us here on ‘24, do you actually think that number can grow the rent collected per pack can grow at the end of the day? Thank you.

Ignacio Castejon: No. It’s a very good point. So happy to address it Cristian, I’m happy to – thank you for remembering. What is happening? There is a normal thing in airports. The contracts, the new contracts started November 1, and it’s true that most of our Duty-Free activity has been transferred. They have to be changed with respect to the operator. But as part of our RFP, there were obligations related to new concepts, new layouts, new brands. So some construction works are taking place in the Duty-Free activities and that’s affecting some of the Duty-Free shops and that might be affecting the variable rents that we are collecting in that activity in this specific quarter that you were highlighting, Cristian.

Christian Nedelcu: And these are done – the refurbishment activities are done in Q4, no longer impact in Q1.

Ignacio Castejon: Sorry, I couldn’t follow you. There was some background noise.

Christian Nedelcu: The construction work and refurbishing is done in Q4.

Ignacio Castejon: Yes. That’s likely to finish hopefully in the following weeks. Thank you.

Operator: Our next question comes from the line of Nicolo Pessina with Mediobanca. Your line is open.

Nicolo Pessina: Thanks. Good afternoon, all. And thanks for taking my questions. The first one on the 2025 tariff. Do you calculate again a P-factor above 1%? And do you plan to ask indiscernible] authorities again, the permission to apply a P-factor above 1% as we have seen for 2024 tariff? Second question, if you can remind us if there is any agreement already in place with the trade unions for salary increases over 2024 and ‘25? And a final question on M&A, if you can confirm you are considering the acquisition of Edinburgh Airport? Thank you.

Ignacio Castejon: Thank you, Nicolo. Happy to speak with you. I think with respect to 2025 tariffs, we’ll have a full discussion next week. But I’m happy to say that the P-index is a function of an evolution change that take place previously. So we were able to have a P-index higher than usual for this year because the P-index was taken into account on what happened in 2022. So given that we are starting at those high levels, it’s very likely that in the future, what we will see is much smaller increases because the starting point is already much, much higher. So it’s a function of any single index of what has happened in the past. So that’s the figure that I would give you. With respect to salary increases the agreement that is already – is still in place is up to 2024 up to this year. So that’s a 3-year agreement signed by the unions with the Spanish Government and Aena is regulated is part, as you know, with respect to compensation of that agreement. So that’s closed up to 2024. With respect to M&A, Nicolo, your question was about? I think you referred to a specific airport but I couldn’t hear the name.

Nicolo Pessina: Edinburgh.

Ignacio Castejon: Okay, Edinburgh. Yes, there have been some press news. Nicolo, what I can say with you is, Aena is the largest and top one airport operator globally speaking and in terms of performance. We have a healthy position and when there is an opportunity out there, wherever that is available, we may decide to look at that. However, that can be any airport globally speaking, but also always subject to all our internal criteria of risk return. With respect to Edinburgh there has been leakage by presses. The company is not confirming, rejecting or saying anything. And what I can say with you is what I have said before, Nicolo, I think the company being the number one leader and with an intention to increase the international EBITDA coming from international activities, we’ll explore opportunities, and we will reject opportunities always subject to a strict criteria of risk return. Nicolo, the Chairman would like to add some more.

Maurici Lucena: Yes. Hello, this is Maurici Lucena again. Yes, I completely share what Ignacio Castejon has just said. I would just add a general reflection. Our top priority at present is to consolidate what we have achieved abroad. In this case, I’m referring to Brazil. I think that we have to, as a company we have to digest correctly the 20% of Brazilian air traffic, which is a considerable amount. But this is comparable with what we consider our responsibility, which is as Ignacio Castejon said, to analyze any opportunity as – by the way, all our competitors do all the time. I mean this – we are not different compared to our competitors, to our peers. But I would like to clearly state that Brazil is our priority in the sense that we want to consolidate what we are already doing. And in general, our international approach at present is what we could call opportunistic. Opportunistic in the sense that we don’t have, let’s say, specific targets. We are open to analyze any opportunity, but we are not impatient in other words. We will be very happy if in a few years, in the future, we communicate to the market that we have not purchased anything else. But at the same time, we would be happy if we consider that we have – we can find good international opportunity concerning always the quality of the asset, the price, the regulatory risk and so on, okay? So I hope that my intervention has helped to clarify or to – in other words, to add some information to what very correctly Ignacio said before. Thank you.

Nicolo Pessina: Absolutely, yes. Very helpful.

Operator: Our next question comes from the line of Graham Hunt with Jefferies. Your line is open.

Graham Hunt: Thanks very much. I’ll keep it just to two questions. Just coming back to the, I think, just over €10 million provision you mentioned, I think you said it was related to the DS7 disputes. Can I just get a sense of – is that the entire scope of the risk there? Or is there – should we anticipate potential for further provisions going into 2024? Just trying to understand the scope of risk there. And then if I could ask on Duty-Free, I wonder if you could just give us your thoughts on sort of the tailwind that you’ve been seeing from the British traveler since Brexit and their access to Duty-Free. Can you just dig into some of the details of what is going on there, maybe some of the specific verticals within Duty-Free which are benefiting or the specific travel routes, which you’re seeing the biggest tailwind? Just trying to drill into what has obviously been a very positive trend for you over the past couple of years. Thanks.

Ignacio Castejon: Thank you, Graham. This is Ignacio speaking. I think on your first question, this provision is related to SANCO ruling with respect to business activities that the company is defending and is still defending that shouldn’t be affected by DS7. And however, we have got SANCO rulings that are applying in DS7 to some of those business lines that our understanding is that they are excluding, the DS7 shouldn’t be applicable. So after getting those initial court rules, the company has decided to provide for that. With respect to the future, it’s difficult to say because there are a number of court proceedings taking place with respect to some of these activities. We are doing our best in order to reach an agreement when it makes sense with our tenants. But the evolution will depend on future court rulings following that criteria or changing the criteria because we are seeing different criteria being applied, depending on the specific judge, depending on the specific court. In general, the company feels that is the right decision to provide for this 11.7%, if I remember well, related to that specific category, and we will take the similar approach in the following months if we perceive that, that trend remains as we have seen so far. With respect to Duty-Free, you were asking about the British passengers. I think that there are two main trends behind what’s happening. I think the change in the regulation in the UK is helping us a lot. And it’s, of course, affect – negatively affecting the British airports. Why? Because they have reduced the offer that they can provide on a tax-free basis to their passengers and is very limited to tobacco and alcohol. So we are benefiting or taking advantage of that limitation. That is a change in regulation that was approved a few years ago in the UK. And simultaneously, given that we have all the British passengers becoming non-European Union and not having that kind of limitation in our airports, those passengers being our largest customer base, after the Spaniards, after the domestic is helping a lot. If you ask me about the specific details, what I can share with you is that on average sales per packs at this moment in time of UK passengers are around €3 higher than the total average of that activity. So the delta between a non-Brit and a British passengers is material for this activity, and they are taking advantage of, of course, of the Duty-Free experience in Spain. If you add to that, all the renovation of our Duty-Free activities taking place in Aena, that’s helping a lot our P&L. That is explaining our 23.5% increase in that activity. Graham, I hope I have answered your question.

Graham Hunt: Yes. Thanks very much.

Ignacio Castejon: My pleasure.

Operator: Our next question comes from the line of Andrew Lobbenberg with Barclays. Your line is open.

Andrew Lobbenberg: Hi, there. I’ve got two questions really. The first one is looking at the change in the operating cash flow compared to the EBITDA because the EBITDA was up €1 billion and the operating cash flow was up €400 million. So can you talk us through the very big difference in change of operating cash flow against EBITDA and help us understand how we should think about EBITDA translating into cash into the future? And then the second question, I’m aware you might try and put it off until next week, but let me ask. You are very careful with your answers around M&A and your thinking around external expansion. I’m very keen to explain that you’re going to be patient, not in a hurry. And yet the business is generating cash flows. So how are you going to think about incorporating shareholder returns in the context of an external inorganic growth, which is going to be lumpy and hard to predict?

Ignacio Castejon: Thank you, Andrew. This is Ignacio speaking. On operating cash flow, I think what is happening, if we compare, for example, operating cash flow to profit before tax, I can discuss with you, Andrew, a few changes that we have seen this year. I think the first one in EBITDA, we have discussed – we have already discussed the reversal of the impairment. That’s €155 million. That is a non-cash item. We have also had some financial items that are non-cash items, which is, for example, closing a derivative position. There is a significant impact coming to cash flow going out related to taxes. The tax bill last year from a payment standpoint was €177 million. In 2023, we have had €447 million of cash going out. So that’s around almost €300 million. With respect to changes in working capital, you will have seen a small negative impact. That’s because at the end of 2022, we have a number of short-term suppliers that invoice us very late in December, and those invoices were not paid until 2023. So, we had a positive impact in 2022, and that’s why we have a small negative one this year. And that’s really what is happening – Andrew, those are the main drivers. Some non-finance – some no-ncash items related to finance, the impairment, that is a non-cash item, some write-off of financial assets related to DS7, the negative movement but a small on the working capital and the material increase in tax payments, Andrew that would be all.

Andrew Lobbenberg: And the MAG is not a big part of it?

Ignacio Castejon: The MAG, you said. Yes, of course, the MAG – sorry. That’s a good point. Of course, the MAG is affecting because it’s a non-cash item. You are totally right. But I view – I just want to be very, very careful when we are talking about MAG, Andrew, and the non-cash items nature of MAG, what we are referring is to the straight lining and other adjustments because that’s the adjustment that is a long-term one related to the newer contracts, so that’s generating more EBITDA than cash. When we look at the MAG revenue to be invoiced, that is the €154.9 million. Andrew, that’s normally MAGs that are invoiced and collected very early in the year following when that revenue has been accrued. So that’s also affecting a bit. But significant – I wouldn’t use the word significant, but the important effect from an accounting standpoint of the straight lining this year is 59%, and that is also non-cash as you correctly highlighted, Anderw. Okay. I think you raised another question on M&A, but...

Andrew Lobbenberg: Yes, the variability of M&A and how that impacts what you think about shareholder return?

Ignacio Castejon: Okay. Well, let me say very clearly, the company has only invested and will only explore opportunities in which equity IRR makes sense, is attractive from a risk-reward standpoint. So that’s the value creation filter that we always apply to any single transaction or opportunity, that has been analyzed and that could be analyzed, Andrew. So we are very careful and very serious so that any equity IRR makes sense in the long-term for the company and of course, for the company shareholders. Dividend payout is at 80% of the individual net income. This year has increased materially for our shareholders, and we are hopeful that that increase will – of those levels will remain there. So our shareholders can benefit from that generation. The Chairman would like to add some further color to my answer.

Maurici Lucena: Thank you. This is Maurici Lucena again. I – once more I would like to convey that, of course, I share the reflection of Ignacio Castejon, and again, I would only like to complement it. And I would kindly ask analysts and investors who in the past and at present have trusted Aena, how it is managed. They have trusted our Board of Directors, our management. And I would kindly ask that we analyze carefully, honestly, the track record of Aena internationally. If you analyze Luton, if you analyze Colombia, which is ending, in Cali, Cartagena de Indias, if you analyze Mexico gap, we would unanimously conclude that this has been very good investments, very good investment. So I hope, and of course, this, of course, does not mean that any potential international operation is adequate for Aena, of course. But when I try to look carefully at Brazil and our investments and acquisitions there, and I project them in the future in the next 30, 35 years, I’m sure because I’m seeing how our management team and our employees, they are working. I’m now being a privileged witness of how our financials in Brazil are evolving, of course, you know that at the beginning of a concession, you have to assume CapEx, you have to assume debt. But in the long-term, I’m sure so far that Brazil will also be a very good investment and a very good bet for Aena. And when I refer to Aena, I’m referring to its shareholders, which are our most precious treasure. So I’m just trying to say that please trust our Board, our management team because honestly, we will only bet for new operations if we are quite, quite, quite sure that the figures will be the adequate ones. We are very aware that investing Aena’s money is shareholders’ money, and we will bear this in mind all the time. Thank you.

Andrew Lobbenberg: Thank you.

Operator: Our next question comes from the line of Johannes Braun with Stifel. Your line is open.

Johannes Braun: [Indiscernible]. I have two as well. The first one would be on the 4.1% increase of fees this year. My question would be how the airlines reacted on that? And I’m just asking because Ryanair was in the press saying that they will not open five new bases in Spain if the fee increase goes ahead, just trying to get a feeling of the risk for traffic growth. And then secondly, I think at Luton Airport, the EBITDA in Q4 was down quite a bit year-over-year. And I think that was due to a €30 million impairment. So just curious what happened there, please? Thanks.

Maurici Lucena: Thank you. I will take the first question, the airport charges – the airport tariffs. Well, yes, this is something that surprises me every year. I mean, I cannot understand why we always finish in a hot debate between Aena and on the other side, the airlines. The airlines are our precious clients, our customers, our partners. We really appreciate them. We are – we feel very fortunate to live together with some of the most important airlines in the world, Ryanair, the airlines within the IAG Group, etcetera. They have very good managers. So the only thing that I try to indicate is that Aena’s shareholders, they deserve the – exactly the same consideration as the shareholders of anyone else, specifically the airlines. So when the airlines frequently question the increase – the potential increase of our airport charges, I can just say, one, we have shareholders, which, again, are at least – they have at least the same quality as the shareholders of the airlines. Second, it is in the interest of the airlines that the long-term quality of the Spanish airports and Aena’s airports is preserved. And this can only be achieved through a robust regulatory framework, which must be followed each year line by line. And this was what explained the 4.09% increase of 2024 tariffs. And third, which is Aena’s secret, that we are probably the most efficient airport company in the world. This is the only secret. And I would like that this is recognized because on the other hand, in relative terms, the increases of profits – of the 2023 profits have been much higher. Again, in relative terms, the increase of profits have been much higher in the case of airlines. And I don’t see there any debate. And finally, take into account – I mean, I’m conveying it to you, but I know that you know this very well. Probably, I’m speaking more broadly. Take into account that from 2015 to 2023, nominally, airport charges in Spain decreased by more than 11%. And in real terms, it means taking into account inflation from 2015 to 2023 airport charges in real terms have – they have decreased 31% – more than 30% in real terms. So – and I would wonder this is still sustainable in the long-term if you take into account the necessary future investments in Spanish airports, in the quality, in safety and security and so on. Well, this is something that we, together with the airlines, must reflect on. And if we, for a moment, forget the short-term interest, probably we will conclude that it makes complete sense that the remuneration of Aena shareholders, through the regulatory framework, which is due without casualties. You can recover, the OpEx and your CapEx is reasonably remunerated. It’s a scheme that I would say makes sense, and it is the shared responsibility of all the air transport sector at the risk to preserve this model for the benefit of the quality of airports, air traffic, tourism and ultimately, the functioning of the Spanish economy.

Johannes Braun: Thanks. I mean I agree or I tend to agree with your thoughts. But I mean more concretely, did Ryanair come back to you in terms of those five new bases that they plan to open this year or no?

Maurici Lucena: You are asking if, after the approval of the new airport tariffs for 2024, if Ryanair has come back to us, could you please clarify that?

Johannes Braun: Exactly.

Maurici Lucena: No, this is public message that I have now elaborated, it is exactly the same that I conveyed to Ryanair and all the airlines. So, I think that in the end, they understand our point. So, no, I don’t have any novelty. Thank you.

Johannes Braun: Thank you.

Maurici Lucena: This is Johannes’ I think you had another question with respect to Luton performance. So, can you please clarify what you were really seeking so that I can address your point properly. I think Johannes has been cut by the operator. So, let’s move to the next question. I think this it is Dario if I am not mistaken.

Operator: Our next question comes from the line of Dario Maglione with BNP Paribas. Your line is open.

Dario Maglione: Hi. Good afternoon. Three questions, one on the situation with the Catalan airports, about local parties trying to push to split Aena. Just wanted an update there and whether it’s really legally possible? And question number two, I see that the airlines are planning to increase seat capacity for like the next nine months by 10% year-on-year. This looks very bullish. So, in this context, what impact are you seeing from the Pratt & Whitney engine issues or the delays in deliveries of airplanes? And the third question, it’s more a technical question. There is a cap on the year-on-year increase in tariff. Can you remind us what this cap will be in 2025? Thanks.

Maurici Lucena: Thank you, Dario. I will take the first question. My answer has not changed an inch since last time we spoke. Concerning the possible transfer of the ownership or management of the airports in Catalan, really believe me, this is – I have said it a few months ago, this is empty noise. I think that everybody agrees that Aena’s model functions very, very well, and it’s functioning benefits all the regions, including Catalan. So – and on the other hand, there is a very strong 2014 law that defines how the Aena works in terms of its regulated activity. And finally, we have a hybrid composition of ownership. 51% belongs to the Spanish Government, 49% belongs to private investors. We are a listed company. So, this is another clear sign that the model will be preserved. Thank you.

Dario Maglione: Okay.

Ignacio Castejon: Thank you, Maurici. Dario, I will address – I think there were two more questions. Let me start with the third. With respect to 2025 tariff, I mean I don’t want to be rude, Dario, but we are going to cover guidance future next week. But I think 2025 tariff will be following regulations, as applicable. So, we will start from the IMAP, P index will be applied, and there will be the recurrent technical adjustments related to dilution, quality, etcetera, so that we can calculate the IMAAJ applicable for the year. You are aware of the restrictions applicable in our regulation that we have to comply with the IMAP index by or taking into account the P index as a restriction of a cap, and also the IMAAJ applicable to the previous year, and taking into account those caps, that will be the tariff that hopefully will become applicable in 2025. I think you raised some questions on the – the other questions you raised were related to seat capacity and potential disruptions on aircraft fleet. I think we are working with the slots communicated to us, and we are working with the information communicated to us by the airlines. So, we understand that the airlines, when they share all that information from a planning standpoint with us, they are taking into account all the potential disruption that they may have related to those events.

Dario Maglione: Okay. Thank you, Ignacio. So, that 10% year-on-year increase, it actually may be possible?

Ignacio Castejon: Dario, why don’t we have that kind of discussion on Thursday next week, when you have more info from us, and I am sure that we can talk with all that information in front of us and have a more meaningful conversation. Is that okay?

Dario Maglione: Okay, absolutely. Thank you very much.

Ignacio Castejon: Thank you.

Operator: Next question comes from the line of Marcin Wojtal with Bank of America. Your line is open.

Marcin Wojtal: Yes. Good afternoon and thank you for taking my questions. I will try to be brief. I have just a technical question on Slide #12, where you disclosed that there was a dilution effect in regulated revenue of €94 million in 2023, which I think is actually quite relevant. For 2024, could you do something proactively to perhaps to reduce that dilution? Can you change the tariff structure a little bit or actually, we should expect continued dilution? And historically, when traffic goes up also, you have pretty high dilution numbers. Could you just share some color on that particular topic? Thank you.

Maurici Lucena: Thank you, Marcin. That’s a good question. I think my short answer, to be brief and sharp is that in 2026, the different interim caps that were applicable during the interim regime of our regulation wouldn’t be applicable. So, that could be a situation in which we are just postponing that cash collection by a couple of years, and of course, duly capitalized. Of course, we work and try to have a better – we work on how to apply the IMAAJ every year to all the different cost centers and business activities of the company. We have some restrictions that are applicable in order to have those call centers operating at a breakeven in the medium to long-term. So, of course, the company does their best – we do our best to mitigate that dilution. Having said that, many times what happens is that traffic performs in a manner that is a bit different from our plans and dilution becomes higher number that we were expecting. In the last quarter, what we have seen is a trend that has been different to the previous trend through the year in which dilution was increasing, and we have had concentration. And the reason for the concentration has been the normal pattern that we see many years including which the last quarter of the year, airports are more expensive, such as Madrid and Barcelona from a tariff standpoint, attract more passengers, relatively speaking. The other factor or the other driver explaining the concentration in that quarter has been that the recovery pace of those big airports at the end of this year has been higher than the recovery of the rest of the network. So, that has also contributed. And did you have any follow-ups, Marcin? I think we can move to the next question with Elodie.

Marcin Wojtal: Thank you.

Operator: Next question comes from the line of Elodie Rall with JPMorgan. Your line is open.

Elodie Rall: Hi. Thanks. I just had one left. On capacity expansion on both Barcelona and Madrid, we know Barcelona is currently at above 90%, I think in terms of utilization. So, given the news and you said it was all noise, but we know the CapEx plan has been put on hold. I think it was €1.7 billion. Is there any update on that or is this on hold until there is more clarification with the future of Barcelona? And on Madrid, we know about the €2.4 billion, but is there any update or could you give us some more details on how this will play out? Thank you.

Maurici Lucena: Hello, this is Maurici Lucena again. We – concerning the potential expansion of Barcelona airport, I think that we are – where we were – we were a few months ago, I think that the will of Aena and the Spanish Government is crystal clear. And so far, I don’t see any novelty concerning the only relevant actor, which is – I mean, only relevant actor for the decision, which is the Catalan Government. The Catalan Government is the institution that in the future should publicly explain what decision, what proposal it has for the Barcelona Airport. And of course, this proposal should be technically specified in terms of airport language, not abstract concepts in terms of what our aeronautical engineers deal with. And I don’t see any move in this sense. I think that the Catalan Government, it is where it was not only a few months ago, but I would say, 2.5 years ago. So, in the end, this is a question for the Catalan Government, because taking into account the environmental issues, we cannot change anything in the Barcelona Airport without the support of the Spanish – of the Catalan Government. So, this is what I think is relevant so far.

Operator: Our next question comes from the line of Ruxandra Döser with HSBC. Your line is open.

Ruxandra Döser: Yes. Hello. Thank you for taking my questions. First, maybe a follow-up, Elodie asked also about the CapEx at Madrid Airport. I understand from press that the largest part of this CapEx refers to Terminal 4. What is the feedback you received from Iberia on increased CapEx? And to which extent does this CapEx depend on the merger between Air Europa and Iberia and the shift of Air Europa to Terminal 4? Second, I understand from press that at many airports you have introduced new incentives this year. Could you please help understand the magnitude of these incentives, maybe relate them to the tariff increase? And do you see a risk that some airlines will shift capacities from airports with no incentives to airports with new incentives in order to optimize the net impact of the tariff increase? And third, I understand that the Spanish Government plans to progressively reduce the 40 hours working week without a reduction in wages over the next 2 years. If this was to happen, could you please talk about implications for Aena? Thank you very much.

Maurici Lucena: Thank you. My pleasure. That was a long list. Let me try to help you with my answers. With respect to Madrid plans, I am not trying to defer to next week, but our plan is said in our views and plans on the Madrid expansion more carefully and with detail on Thursday of next week. But it’s a project that we are hopeful that will take place, has the support of many stakeholders, and it’s not only affecting T4. And I think as you were pointing out, Ruxandra, that also might be affecting T1, T2 and T3, getting a single terminal in the future. So, that’s a project that we are hopeful that will get crystallized during DORA III and DORA IV. I think on CapEx, we are seeing CapEx, regulated CapEx increasing Ruxandra. That’s the short answer in the next DORA period. You also raised a question with respect to working hours. We are going to expect a material impact at Aena with respect to working hours, given the current situation of the company. So, that shouldn’t be affected. So, I think that that might materially affect other operating cost of the company and staff cost. You raised a point on incentives, the financial assessment, it will not have a material effect. And I would say, if any, will be positive, why, because we are only contributing partially to the tariff, to the passenger tariff. As you know, that’s not the whole tariff that the company – that Aena get. We get a – or part of our charges are explained by movements, by uses of our facilities, etcetera. So, we are still getting that too. And the other reason, the second reason is, all the commercial revenue that we will be attracting with those incremental volumes that we are hopeful that we will be attracting with these incentives. I think you raised the point on how that could affect the network, etcetera. We have some protection. So, there has to be a real net increase in the network because of all those incentives that could be claimed by airlines. So, there shouldn’t be a leakage or a dilution affecting the company because of that impact. And I think that was all. Ruxandra, let me know if that – if I called out your points.

Ruxandra Döser: Thank you very much. Maybe just a follow-up. What’s the current average number of hours per week that your employees work?

Maurici Lucena: I think that let me check with HR, but I think we are at 37.5 officially with shifts, yes.

Ruxandra Döser: Okay. Thank you very much.

Maurici Lucena: I will revert to you to confirm, by category and by group.

Ruxandra Döser: Thank you very much. Thanks.

Operator: Our last question comes from the line of José Arroyas with Santander. Your line is open.

José Arroyas: So, one question, please. And it’s on OpEx. You previously mentioned the one-off related to DF7 in the other operating line – other operating costs, sorry. But I was wondering if there have been any other one-off effects in some of the other cost items like CRM or security services that have increased in Q4 significantly versus the nine months, the run rate that we might not see in 2024? That’s all. Thank you.

Maurici Lucena: Thank you, José Manuel. There have been – as you can see in the information provided, there have been cost increases coming from basically minimum salary increases, new contracts being awarded, the new security contract, training, more people being added to the organization. So, I would say that in general, José Manuel, what you are seeing is a general trend more than one-offs apart from the one that we highlighted related to DF7 and some write-offs related also to DF7. I think that was the last question, operator. So, I think we can finish the conversation.

Operator: There are no further questions at this time. I will turn it over to the speakers for closing remarks.

Maurici Lucena: Excellent. So, thank you very much everyone. It has been a very helpful meeting, hope that has been fruitful for you as well and looking forward to seeing you next week on Thursday. We are looking forward to it. Thank you very much.