Aena S.M.E., S.A. (AENA) Earnings Call Transcript & Summary

Thank you for joining the Aena's conference call. My name is Lucy, and I'll be coordinating your call today. [Operator Instructions] It is now my pleasure to hand over to your host, Carlos Gallego, Aena's Head of Investor Relations, to begin. Please go ahead when you're ready.

Good afternoon, everyone, and welcome to the Airport Regulation Document presentation, the so-called DORA III, approved by the Council of Ministers on 15th September. This is Carlos Gallego, Head of Investor Relations. As always, it's a pleasure to be with all of you today. Our Chairman and CEO, Maurici Lucena, will be leading the call, joined by Javier Marin, Executive Vice Chairman; and Ignacio Castejón, CFO. We'll walk you through the main elements of DORA III and we will close the session with a Q&A. To help us stay on schedule, please limit yourself to 1 question per person. Without further ado, I would like to hand the floor over to Maurici Lucena. Thank you.

Thank you, Carlos. Good morning, everybody, and thank you for joining us. First of all, I wish that you have had a good summer. And as you know, today, we will present, as Carlos was saying, the main elements of DORA III, which covers the period 2027 to 2031. It was approved last week by the Spanish government in its function as a regulator or the airport regulator. And I think that in itself, this is good news. We are happy because this has been a very long process. This is a very important DORA, DORA III, because it will significantly transform the airports in Spain, Aena's airports in Spain. Throughout the presentation, we will look at the main elements and assumptions, and I will start with the main figures. This document, DORA III, as I have mentioned, enables Aena to carry out the investments required by its airports, and at the same time, this DORA III defines a very competitive profile of airport charges in Spain in a challenging environment. So it's true that all in all, we think that it could be because we will know if it's good or bad DORA at the end of the period. But we think it could be a good DORA. But at the same time, it's very important to stress that it is challenging, it is demanding, not only because the context in terms of geopolitics and macroeconomics and so on. It's also because the main parameters of the DORA are challenging in themselves. As you know, the document assumes that the Spanish network of airports will reach 363 million passengers in 2031, which is a huge amount of passengers. And that is why we need to expand and improve our Spanish airports. The approved regulated investment plan amounts to almost EUR 10 billion, while the total investment, in other words, if we add the nonregulated, the commercial investments, the total investment will reach almost EUR 13 billion. The WACC, which is also a very important figure, has been finally set at 2.32%. And all in all, the average annual airport charges increase will be 0.33%. Now I will be very brief on investment, because I will summarize our impression with this DORA III approved in the following way. The approved plan covers all the necessary investments in the network. As you know, the investments proposed by Aena have fully been approved by the government. So we are convinced that these investments are what in terms of terminal and airfield works, our Spanish airports need. With regard to regulated costs, Aena will continue to be the most efficient airport company. the regulated cost assumed for the purpose of DORA III are expected to increase from EUR 1,929 million in 2027 to EUR 2,079 million in 2031. Remember that, that is in constant 2026 prices. And as you know, and fortunately and reasonably, the cost base is reset at the beginning of its regulatory period. And in this regard, taking into account the LEAP, the regulated costs in 2025, the figure was EUR 1,650 million. And at the beginning of DORA III in 2027, this OpEx will jump to EUR 1,929 million, which simply reflects the new reality of the OpEx. You know that it's not only because we have more demanding environmental norms, more demanding security and safety norms, more demanding cybersecurity norms. It's also that there's been inflation in the world economy, particularly we have faced inflation in Spain, not just because of the general inflation, but also because of the increase in the minimum wage and so on. So doing the same costs more money, and you have to add to this reality this increasing adjacencies of the regulation in terms of safety and security, environment, quality and so on. And from another perspective, this means that the compound annual growth rate of the ratio of regulated OpEx goes no, it will be, excuse me, 1.9% because as I was saying, it's an annual growth rate. So the Atos versus OpEx or OpEx -- the ratio of OpEx to Atos will increase almost 2% annually. Now in short, to conclude, I would say that the approved DORA is demanding, is challenging, but we are also optimistic. We will do our best to perform very well. And we would like to clearly state that the mere approval of DORA III strengthens the Spanish airport sector and prepares it for the future because it accepts all the investments that the Spanish network considers necessary. And in summary, one, the new DORA reinforces the Spanish regulatory framework. Two, it ensures a network of airports with sufficient capacity to accommodate future air traffic demand. You know that from recent years, the traffic growth in Spain has been impressive. So we have to prepare for the future. Three, the approved investment is a material value driver for the regulated business. In other words, Aena's value is higher after the approval of DORA III. And of course, I know that to really materialize the theoretic value, we have to accomplish all the demanding objectives that this DORA III includes. Four, the company's strong financial position, we think it's a very good starting point, particularly in this DORA III because you know that our investment will increase significantly. Our debt will increase significantly. So I think it's an important relative advantage when we compare Aena to our peers, our very solid financial position and our very low debt in terms of any of the big parameters that you use to measure this financial position. Five, you know that in the coming weeks, we will elaborate and release before the end of the year our new strategic plan for the period of DORA III, 2027 to 2031. This is when we will elaborate a lot more on many of the probable questions that you will convey to us in the following minutes because we need time to digest all the information and we need time to, let's say, define the profile of ambition, which I can anticipate will be high in many of the financial targets that we will include in our strategic plan. And six, in principle, we will -- clearly, we have 2 main priorities because of its inherent risk. One is OpEx. Two is the CapEx execution. Both CapEx execution and OpEx are, let's say, significantly different when we compare them to the same parameters of past DORA. Because OpEx is increasing above the past profile for many reasons and because the CapEx will be a lot more demanding because of its very significantly increased volume. But all in all, I repeat, I think that we are happy because we finally have a very well clearly defined DORA III. And I think that it will be very important both for Spain and especially for Aena, the transformation that we will carry out during the period of DORA III. Thank you very much for your attention. I will now give the floor to Ignacio Castejón, so that we can start the Q&A session.

Thank you very much, Maurici. Please, operator, we are ready to start the Q&A. I don't know if there are already questions on the pipeline, but here we are to start.

[Operator Instructions] The first question today comes from Luis Prieto of Kepler.

Just one question for me. I haven't seen it in the document, but I might have missed it. What is the overall targeted capacity over DORA III? And obviously, this needs to be connected with DORA IV, the next regulatory period.

Thank you, Luis, for your question. Well, I think most of the works at the major airports, Madrid, Barcelona will be delivered in the DORA IV. But of course, we will create some capacity because -- well, the capacity is a wide concept. I mean, for example, in Madrid, we have runway capacity up to 120 operations per hour. So the expansion we are going to do in Barajas will take many years, more than one DORA, DORA III. So they will end in DORA IV, but we'll be unlocking some capacity by creating capacity and some bottlenecks that currently we have in some way that we will be able to create capacity before the end of the works. But the whole capacity will be delivered in DORA IV because the huge capacity will be created at the major airports and the works at the major airports will last more than one DORA.

The next question comes from Tobias Fromme of Bernstein.

Which is on costs and a little bit multifold. Are you surprised that the final agreement is some 10% below your initial cost assumptions? And where do you think the key differences are? And why are they so significant? And then that sort of translates into what levers can you pull to keep costs contained during the DORA III period? And then lastly, a recent tender for an expansion project did not draw any bids from contractors because of prohibitively high costs. Do you think this could be an issue during DORA III with more projects not receiving any bids?

Tobias, this is Ignacio speaking, and thank you very much for your question. Let me start with the second part on CapEx and bids coming from construction companies. Of course, as mentioned by the CEO and the Chairman in his opening remarks, the context is challenging, it's difficult. Input prices are going up in many fronts, impacting CapEx, but also OpEx. If we are hopeful or if the things could change, I think the team has made an outstanding work through the last months, trying to take into account all the different scenarios in the future. We are hopeful that we'll be able to attract the best possible bids from construction companies. We have seen some very positive movements in some projects that we have already launched. In other cases, perhaps we have been less lucky, but I think we will learn and will improve as we move on. But as mentioned by the Chairman, CapEx execution is a top 1 priority for the company together with OpEx for the next months, and we will be completely vigilant on the evolution of that item. I think we have many construction companies that Spain is their home market, and we believe that they will be highly interested in working with us developing the future of the airports in Spain. With respect to the OpEx -- sorry, Tobias, I think you referred to the OpEx item at the beginning of your question as well. I think as mentioned by the Chairman, we -- in the following weeks, we'll be working on the strategic plan we will review, of course, our OpEx assumptions that were proposed from the company side to the regulators or to the government acting as a regulator. We'll compare everything coming out from the regulator in the approval of last week and try to identify where those different points, different items are, and we will revert to you at the moment in time so that we can share where we think there is room for potential improvement and where we think there is a high risk of not being able to perform according to the DORA, but that's still work in progress. And please give us a few weeks so that we can have that open discussion with all of you. Thank you very much.

The next question comes from Harishankar of Deutsche Bank.

Congrats on getting the approvals for the DORA III. On the CapEx side, I was wondering if I could just ask a couple of questions. Do we have any tenders already out that have been approved for, say, 2027, 2028? And just wondering if these are fixed price contracts and whether there's appetite from construction companies on these type of contracts.

Thank you for your question. This is Ignacio speaking. Of course, we have started the process of bidding -- of tendering out some of the construction projects that are part of DORA III so that we could be on time with respect to the schedule of this DORA. So we have started with some construction activities across the network. All those RFPs or tender documents are publicly available. And basically, on your question on price, the company has always -- has typically worked under construction and their RFPs that require to the market fixed prices for most of the activities of the company. And that's how we have always worked and operated it. I think that in the following months and years, we'll analyze how we are making progress in that respect. And basically, we will hear from the market through their bids and make decisions based on that feedback. But generally speaking, that's how we work with fixed prices in order to avoid last-minute surprises from the construction projects. Thank you.

That's helpful. Maybe just one small follow-up, if that's okay. I was wondering what percent of the CapEx has already been tendered out, if you could share that?

Sorry, I couldn't understand you. What was the CapEx?

Sorry, what percentage of the CapEx has already been tendered out and it's...

It's still very low, still very low.

The next question comes from Graham Hunt of Jefferies.

Just on the nonregulated side, should we expect a similar profile for the CapEx there? And could you talk a bit about some of the value upside from these investments that sort of coming in the next -- in the DORA III for the retail. Is that going to be seen in the DORA III? Or is that also more of a DORA IV kind of timing because of the potential disruption at this early phase of investment?