Earnings Transcript for ARRPY - Q3 Fiscal Year 2019

Operator: Good day and welcome to the Groupe ADP 2019 Nine-Month Revenue Conference Call. Today's conference is being recorded. I will now hand over to Mr. Philippe Pascal, Chief Financial Officer. Sir, please go ahead.

Philippe Pascal: Thank you, Paul. Good morning, everybody. Thank you for attending this conference call. So for our consolidated revenue for the first nine months of 2019, we have a very good performance in all the group business segments. To go directly to the slideshow to speak about our first driver, the traffic, we can see for the Groupe ADP traffic excluding Atatürk, a good increase, plus 2.8% and we reached 171 million passengers. If you include Atatürk for the first month of this year, we reached 187 million passengers. You can see the main performance of our different airports, plus the 6.1% in Paris-Charles de Gaulle, plus 12% in Antalya, 10% in Santiago de Chile and plus 5.7% in Amman. We can see a slight decrease in Paris-Orly due to the works of the runway and a decrease in Ankara and Izmir, mainly due to the domestic traffic, in the decrease of domestic traffic in Turkey. Slide two; we can see our specific focus in Paris airport with an increase of traffic linked by 3.4%, with a good performance, if you compare with London, Heathrow, Amsterdam and Frankfurt. Globally, we have a good traffic mix with international traffic growth plus 4.4% compared to the global increase of 3.4%, a good increase in terms of load factor, in terms of low-cost traffic and a good increase in terms of connecting rate. We have a significant connecting passenger number increase, plus 8%. It's, I think, the main characteristic of our performance in Paris for this nine months' traffic count. So in good news in Paris, despite the works of Orly's main runway since July 2019 and despite the effect of the bankruptcy of airlines Aigle Azur and XL Airways since September of 2019. I can confirm our assumption for the traffic for this year between 3% and 3.5% compared with 2018. Slide three. We can see the routes in Paris and the different destinations. We have a very strong performance with Americas, North Americas plus 8%; Latin America plus 8.1%. We can see very good performance, also with Japan plus 7.4%; China plus 7.9%. But globally, with -- in Asia Pacific, we have a slight increase plus 2.1% due -- mainly due to the India and Thailand destination linked by the bankruptcy of Jet Airways India. Slide 4, we have the several main drivers of our revenue. It's the retail activities. We have a good performance in terms of retail shop and duty-free performance. We can see our retail sales per pax. We have a good increase plus 6.6%. We reached €19 per passenger for the first nine months. We are in the good way to reach our target. For the 2021 performance, we have €23 per passenger. This good performance, the main explanation is due to the continuing good traffic mix and the very good dynamism of fashion and beauty activities in Paris despite the works on Satellite 3 in Terminal 2E at Charles de Gaulle. So slide 5, we can see that our performance it's good in all the group business segment. Aviation activities despite the bankruptcy and the works of the runway, retail activities we can see the full effect of the consolidation of SDA, but also we have very good and very strong organic goals linked by the mix traffic and the good performance of fashion and beauty. We can see a good trend in our real estate activities with a new rent and a good performance in our international activities with TAV linked by good traffic mix in Turkey and significant traffic recorded in overall TAV Airports, notably in Tunisia plus 23% -- 26% and Macedonia 12% and a good effect with our acquisition of GIS, which operates the VIP lounge in various airports with a full effect of €21 million. And finally, ISA we have the impact due to the full integration of ISA and a good dynamic in terms of traffic. So all-in-all, our revenue increased up to 17.8% and we are very confident to reach all our targets and our guidance for this year's further momentum. So, I am now available for Q&A. Don't hesitate to ask your question. Thank you.

Operator: [Operator Instructions] And we'll take our first question from Elodie Rall from JPMorgan.

Elodie Rall: Hi. Good morning, Philippe. Two questions please. Can I have the first one on the news on Atatürk compensation? I mean last time at H1 results you were talking about a very imminent compensation. And now we're already end of October. So can you give us an update on that? And second, could you give us the retail spend per pax for Q3 and not just nine months? Thank you.

Philippe Pascal: So thank you, Elodie. So for the compensation, we work a lot with the DHMI and we have a lot of meetings for the moment. We don't expect any trouble, any problem with the compensation. We have just a huge -- not a huge discussion, but a huge process internally of DHMI and we have to wait the Board of DHMI probably I hope so in a few weeks or perhaps in a few days. But for the moment no problem for us. In terms of sales per pax, we don't disclose our sales per pax for the Q3. But we -- you can deduce it if you are very good in mathematical theories. It's -- but you know we have a good performance in Q4 obviously when you see the trajectory the usual trajectory of sales per pax. The main impact in terms of sales per pax it's at the end of the year.

Elodie Rall: All right. Thanks.

Philippe Pascal: Thank you.

Operator: We will now take our next question from Olivia Peters from Macquarie.

Olivia Peters: Thank you. And just two questions – well, one question please. I just wanted to get an update on where we are in the regulatory process and when we expect to hear an update on that? And also can you provide us with the consensus WACC for the next regulatory period? What is consensus and then their numbers? Thank you.

Philippe Pascal: So thank you for your question. So in terms of process we published our proposal at the beginning of April this year. And we wait the decision of the French state to ask the specific advice of the Airport Consultative Commission. But before this step the French state wants to challenge our investment plan -- CapEx plan and want to audit our key accounting method -- analytic method. For that we have further audited internally and we wait the conclusion of the both audits probably at the end of November. After the French state has to ask the advice of the CCAéro -- the Airport Consultative Committee and after this step, we have three months of negotiation with the French state and four months to have the formal decision of the new airport regulator. So we expect a final decision of our economic regulation agreement if it's possible summer 2020. Second question about the WACC. So just a technical position for the regulation scope, it's not the WACC of the ADP Groupe, it's not the WACC of the company, it's regulated WACC. So we don't have a consensus in the regulated WACC. We have to wait the methodology of the new regulator. And as you know, the methodology are very clear in the backlog. We have a specific method to have a valuation -- a good valuation of our WACC. So in the new process with the regulator, it's possible for the French state to have, to ask for the new regulator to have a global view in terms of hunch of the regulated WACC at the beginning of the process. So perhaps the French state decided to ask the question at the end of this year. We have to wait.

Q – Olivia Peters: Okay. Thank you.

Philippe Pascal: So for the moment -- thank you. Thank you very much.

Operator: We will now take our next question from Stephanie D'Ath from Royal Bank of Canada.

Stephanie D'Ath: Hi, good morning. Three questions for me please. The first one you just said you were being challenged on your CapEx plan, so is that concerning the 7 billion to 9 billion you expect to pay for Terminal 4 at Charles de Gaulle? And could you just remind us why the cost of that terminal is so high maybe compared to other terminals that have been built on that site? Second question is anything you would want to share on the lack of privatization at this point, especially after La Francaise des Jeux privatization just started in France? And then the third question is safety and security revenues in aviation are gone. Can you just remind us more about the terms of law? Thank you.

Philippe Pascal: So thank you for your question. In terms of Terminal 4 and CapEx plan. Terminal 4 effectively we -- our first estimation its CapEx plan between 7 billion and 9 billion between 2021 and 2037 and it's a terminal for around 40 million passengers. So it's a terminal that's more important than all the Orly airports. When you compare the different ratios of Terminal 4 with our competitor round one, we can see that we are in line with our competitor in line not so huge. Why? Because it's not just a building, it's not just the Terminal 4 with the check-in area, the boarding area. It's a new airport. We have a huge hold access a huge parking a huge sort-luggage system. It's -- we have to build two lines, two subways, internal subways to people moving internally of this airport. And all in all, it's like a new airport. So when you compare the different ratios, it's not so huge. We are in line with this competitor first point. Second point and in terms of privatization, we have to wait the political decision after the final decision of the referendum and probably the local election in France. So for the moment, no news. And we -- it's -- we have to wait to the end of March the beginning of April probably. Your third decision. As you know in the pack -- in the law in the finance law for 2019, we have new rules and these rules it's very clear in that ADP will have to support 6% of the cost of the safety and security activities. You know that we have airport tax and this airport tax now cover just 94% of the cost not 100%. So we have an impact in our accounts around of three -- €30 million each year. It's not really OpEx, but at the end of the day we have an impact in terms of P&L.

Stephanie D'Ath: Thank you.

Philippe Pascal: Thanks, Steph.

Operator: We will now take our next question from Marcin Wojtal from Bank of America.

Marcin Wojtal: Yes, good morning. So a couple of questions. First, can you provide a quick update on your international M&A pipeline? You made a press release mentioning Bolivia as a market that you can enter. I would be interested also to ask about your comment on Brazil there should be some further privatizations in Brazil over the next two years. Is this country interesting for your company? And question number two on Paris-Orly, you mentioned that there are some works on the runway. I guess this is not new, but are you actually losing some traffic because of these works or all of that traffic has been redirected to Charles de Gaulle so there is no impact on the group?

Philippe Pascal: So thank you for your question. In terms of international projects in fact at the end of September Groupe ADP and the Government of Bolivia signed a memorandum of understanding to start exclusive negotiations for a strategic alliance contract over a 30-year period for the Viru Viru Santa Cruz Airport. So for us it's a good news, but it's not so huge project in terms of traffic, but with a high potential in terms of increase for the next 30 years. We have looked in different projects. In fact, we can see a project in Brazil, but also in the other countries Asia included. So now we are -- it's not possible to disclose another project, another WACC about an international project, but we are clearly to -- we are clearly mobilized to develop the company in Asia and in Latin America. In term of works in Orly, your second question. In fact part of the traffic go directly to CDG airport. So we will lose a part a small part and we estimate this part around 200,000 passengers. So it's not so huge, but clearly it's an impact. We have at the same time for the end of this year, the impact of the bankruptcy of XL Airways and then also Aigle Azur. We have to wait the reallocation of the different slots and probably to have -- we recover the global traffic in Orly at -- for the summer season in 2020 so in April 2020. Thank you for your question.

Operator: We will now take our next question from Andrew Lobbenberg from HSBC.

Andrew Lobbenberg: Hi, there. Can I just follow up on the Orly traffic? Can you remind us what the time line is of the resurfacing work and when we get back to normal in Orly on that side obviously? And I guess with the loss of XL Airways, do you hope to recover that or probably not? On the privatization issue, can you just update us or remind us of what the status is of the ongoing petition? And then otherwise just looking at Turkey and the recent geopolitical development, how confident are you for the tourism market into next year?

Philippe Pascal: So thank you for your question. So in terms of Orly traffic, the end of the works in the runway will be in the beginning of December. So, no impact in December except the bankruptcy of the both airlines. For the bankruptcy of the XL Airways and Aigle Azur that is clear that it's for XL Airways, it's mainly in Charles de Gaulle, not in Orly. So it's not significant in Orly. For Aigle Azur, the large part of the traffic will be transferred to the Air Algérie. And so we don't have a huge impact. We estimate our impact at just a few thousands of passengers and so not so huge impact. In terms of privatization so the petition we are just under 800,000 signature, so it's not so huge compared to the target at 4.7 million signature. But it's not a question of number of signature. It's the question of political pause political question. And we have a very pragmatical government and you have to wait the condition of the market in March or April the condition of the interest rate. As a condition of political question, the issue of the main privatization in France included the La Francaise des Jeux and the result of the local election in France. So globally it's not possible for the moment to know exactly the decision of the French government probably no decision for the moment. In terms of traffic in Turkey and the economic commission in Turkey that is clear. For us it's – we have now and you can see an impact of the economic crisis in Turkey impact in terms of domestic profits. For the moment, we don't have – we don't expect a huge impact in terms of international traffic and tourism traffic. And so – for the moment so – and for the end of the year, it's difficult to know exactly if we have or not an impact. But for the moment, we don't have a real impact. Thank you.

Unidentified Analyst: We have a question of Jaunes Braun [ph] about the impact of Aigle Azur and XL Airways.

Philippe Pascal : So, we can confirm our guidance with – between 3% and 3.5%. So, clearly that we are very cautious in terms of traffic increase it's our traditional behavior. We can see that we have some buffer traditionally for a strike workflow. And part – a large part of this buffer now is used by the works of Orly and the impact of Aigle Azur and XL Airways. In terms of impact and some responsibility to the EBITDA that is clear for us. It's one point of traffic. It's around €12 million EBITDA but not so much.

Unidentified Analyst: Second question Nicolas Mora [ph]. Can you give us some color on the winter schedule traffic guidance? Why are you so confident?

Philippe Pascal : So for the moment, it's difficult to have a clear idea of the decision impact but we are confident because in our guidance between 3% and 3.5% we have some buffer. And we use this buffer. This is the first point. Second point we can see a huge dynamic in terms of connection traffic in terms by Charles de Gaulle. And third, the third point we have a good trend in terms of international traffic and a good traffic mix. So, globally if we have a not-so-huge performance in terms of global increase, we have a good performance in terms of international traffic. So, for the moment, we are confident to reach our absorption between 3% and 3.5%. Perhaps it's not the high runs, but we are online -- in line. So, another question please?

Operator: We will now take our next question from Will [Indiscernible] from ASP. Please go ahead, your line is open. My apologies, we'll take our next question from Stephanie D'Ath from Royal Bank of Canada.

Stephanie D'Ath: Sorry, I just had a follow-up on winter traffic. When we last ran in the Euro Gida, it looked like ADP would be down slightly in the winter and France was up low single-digits. Do you feel like the regional airports in France are becoming more aggressive and taking some shares from you? And could you please share your expectations for winter 2019, 2020 in terms of traffic? Thank you.

Philippe Pascal: Thank you. For the moment, we don't expect a huge impact linked by the regional airports. We -- when you see the mix traffic, we can see its mainly international traffic and connection traffic in France. We got one passenger hub in Paris-Charles de Gaulle. So, for us it's -- and the strategy of Air France is to increase strongly the performance of the hub. So, we have confidence to have a good trend in the international traffic. Perhaps we have a new impact in terms of domestic traffic and for European traffic, but it's not very, very sensitive for the moment in our financial target.

Stephanie D'Ath: Is it because that a lot of regional airports are developing international routes that therefore compete with Air France not the Charles de Gaulle hub?

Philippe Pascal: So, it's -- clearly, we have two kinds of traffic the O&D traffic between the regional airport and the international destination also -- traffic and so a main part of the performance is linked by the number of people around the city -- the regional city. So, it's -- perhaps we can open a new line between I don't know Nice and New York, but just for the Nice people. So, it's -- we don't have a huge impact in terms of performance for us. So, second kind of traffic, it's not connecting traffic, but filling by a regional airport to the other hubs around the world, for example, the link between here and Dubai. This is an important thing too and we check our performance for that. For the moment, we don't have a huge impact. Go ahead.

Stephanie D'Ath: And your winter expectation -- winter 2019, 2020 do you share--

Philippe Pascal: For the moment, it's too early to disclose the 2020 trends and our retail capacity. It's -- because in terms of capacity, the theoretical capacity and when you see our figures at the end of the day, it's not really linked by the capacity announcement of the airline.

Stephanie D'Ath: Perfect. Thank you very much.

Operator: Our next question comes from Woo Sun-Young [ph] from AFP [ph].

Q – Unidentified Analyst: [Foreign Language]

Philippe Pascal: So, in fact, we have a good plan with TAV to recover our net result. As you know, TAV bought Antalya Airport last year. And with this new airport, we have a composition around of a third of the net result at the end of the day. So it's the first part, but a good part of the composition of the recovery of the activities. Second point, it's a huge strategy in terms of a service company. For example, the VIP lounge management in airports, we are the small, but today performed acquisition of TAV with DIF, a Spanish company. And we develop strongly all our service activities with the TAV Airports in food and beverage in lounge and also in the other IT services. And the third part of the strategy, it's to continue to grow so with a new acquisition in airports. So for the moment, we work a lot. We have probably good news in a few months to announce and we try to bid in the Santa Lucia airport in East Europe and in the Middle East area. With three areas, this is the main part of the market of TAV. So we are confident to have a good recovery. It's not possible to give a number of shares. But when we bought TAV, we are confident to have a good equity story for this company.

Operator: We will now take our next question from Jean-Christophe Lefevre-Moulenq [ph]. Please go ahead. Your line is live.

Unidentified Analyst: Good morning, everybody. I have only one question. Could we have an order of magnitude of the CapEx for 2020 next year? Many thanks.

Philippe Pascal: Yes, its in pound, it's around €1.2 billion.

Unidentified Analyst: Yes. Very good. Many thanks.

Philippe Pascal: Yes. And €1.2 billion regulated and non-regulated. it's not just regulated. Just regulated, it's around €700 million.

Unidentified Analyst: Okay. Many thanks.

Philippe Pascal: Of regulated. Thank you. Operator, now we’re complete.

Operator: We will now take our next question from Yan Derocles from ODDO.

Yan Derocles: Yeah. Good morning. It's Yan Derocles from ODDO. I've got three follow-ups. The first one on retail, could you give us a bit more color on your retail trend in Q3, and especially where the sharp acceleration in spend traffic is coming from in terms of country or activity? The second one on the bankruptcies, have you seen a direct financial impact from the shutdown of the -- of airlines like Aigle Azur XL and Thomas Cook? And the last one on Santiago, could you give us the -- I would say, some color on this -- on the issue we are seeing in Chile? Is there a specific clause in your contract that could smooth the impact of this crisis?

Philippe Pascal: So thank you, Yan. So your first question more color about the retail trend in Q3. Clearly the main drivers, it's the mix traffic with a huge international traffic increase in Charles de Gaulle. And the second impact, it's the good performance of fashion with Louis Vuitton, but also the new brands in the Satellite 3 in Terminal 2 in Charles de Gaulle with the new shops despite the works. And finally in terms of beauty, we have a resilient performance more than expected about these activities and we all saw that it's possible to continue to grow. In fact in terms of countries, we have also the same countries with good effect mainly linked by the Asia passenger, but also Americana and Africa -- Africana. Second question, the shutdown of Frankfurt, we can see that globally yes. We don't have a huge impact linked by Thomas Cook. But all in all just in terms of aeronautical fees and just for Aigle Azur and XL Airways, we have a turndown around €20 million depreciation -- aeronautical fees. And the third question about Chile, I think it's too early to speak about that. We study the question for the moment. We don't have a huge impact, but we have to wait. And probably we can give more color of course there's the annual results in February. We have a new question about Sofia.

Unidentified Analyst: [Foreign Language] So do you have any update on the appeal regarding the Sofia Port concession soon?

Philippe Pascal: So following our appealing at the end of July, the Bulgarian competition authority asked us for a document. And we have a further discussion. On the -- at the beginning of September, the authority confirmed to us that our appeal in its form was in order and we wait the final decision probably at the end of -- at the beginning of November, two months after the Santander. So, no -- not at the beginning, at the end of November; two months after the end of September.

Philippe Pascal: So thank you very much and we don't have any other questions. So thank you and -- but I'll see you in -- from our annual results.

Operator: This concludes today's call. Thank you for your participation. You may now disconnect.