Aeroports de Paris SA (ADP) Earnings Call Transcript & Summary

[Interpreted] Ladies and gentlemen, hello. Thank you for being with us today for the presenting -- presentation of the financial results 2019. I would like to welcome our Internet attendees as well. We're going to be hearing from Philippe Pascal, who is going to talk about the figures of year 2019, which was extremely full. If we had to choose a few events of note in the year, we have a hard time making a choice because so many things happened. If you had to, because in 3 minutes, you're going to be delivering your refrigerator. The only -- the important thing about 2019 -- the important things are very good financial results with the intrinsic performance, which is very good. All things being equal, other than nonrecurring effects, EBITDA increased by 2.8%. The quality of service, historically, up 8.2%. We've never had such good results in quality of service, despite, as you know, the concerns that we've had with respect to the waiting times at our border police. The third point I want to go into is that we have an opportunity for putting into practice our precepts as economists. The offer reveals -- the supply reveals the demand. And the figure is so impressive that this year, we were led to -- had an increase in passenger spending of more than 7%, which is incredible. We know the investments we're making in this area will continue. And fourth, one thing was expected, but when it happens, it's even better. That is the payment of the indemnity due to the closing of the Istanbul airport. Normally, we have the right, but so long as the money hasn't been notified and cashed in, and we should have that by the end of the week, at least the first half, we were paid by the closing -- about the closing of the Istanbul airport. So, so much for this year, very good quality of service, very good retail results and good growth and a resolution of Atatürk. So let's get into the details. As you know, the events of note in 2019. In this list, you have the first point, which I just spoke about, which is the closure -- the early closure of Atatürk airport in the last line. The authorities have paid us off. We're going to be receiving EUR 389 million, which will have an impact of plus 14% only on the accounts because we had provisioned this. The traffic is up 2.3%, not counting Atatürk. As you know, the traffic is down by 16.6% at Atatürk. So quality of the service, very good performance. 2019 was also a year of the public consultation document and the discussions for the upcoming Economic Regulation Agreement. We also talked about the company public consultation for Terminal 4 development project, commissioning of the junction building and Runway 3. And publication of the PACTE law, which is very important for the life of -- along with the shared initiative referendum. The Prime Minister formally committed to starting work on CDG Express for the commissioning by 2026 or 2025. So all is doing -- going well for us. About figures, and I'll give you just the main lines here, and Philippe will give you the details a bit later. As I said, what you need to remember is that the operating performance was good. The sales here, 17.3% in terms of revenue, was buoyed up by the SDA results from the duty-free activity with Lagardere, which is in the Relay stores, and the effect of integration over 12 months of the -- of Jordan. EBITDA, up 5.5%, and the operating income -- net result attributable to Groupe, minus 3.5%. So the decrease corresponds to the loss, the fact that we're no longer operating Atatürk. It corresponds exactly to that. So this -- and we will be maintaining a stable dividend. Now events of note in 2019. To choose the most important ones, let's -- there are 2 of them. First of all, Orly. You know that Orly Sud and Orly West are now finished. We have a building of 80,000 square meters that will be able to welcome 10 million passengers under better conditions of comfort. We also have a new layout, which goes along with the efforts being made in the signing. So great contribution of the new junction building, the Orly 3 junction building, good contribution to quality of service. I'd recommend that you go have a look and the continuum, this huge corridor, it was a travelator that goes from the south to the west. So that now it is a real junction between those 2 airports, and a corridor -- that is real corridor and it's not just into the wind. So also, we've achieved an outstanding project, the recommissioning of Runway 3, which is extraordinary. 20 years ago, you would have needed 3 years to do that. It was done in a few months. In the 29th of July [indiscernible], to December, 700 workers, 24 hours a day, every day. They did not destroy the runway and remove the rubble. They destroyed it and recovered and recycled, and they made a cement out of the rubble. So they saved a lot of truck movements. And we were able to build 7,500 houses with the remaining rubble after the work was done. So the ecological results were exemplary. That's why we've insisted on talking about this particular work site project. Now as to trade and retail. We'll get back to this, but you should know that this is one of the bits of good news about 2019 is that when you offer to passengers something that's quality, they buy it. Plus 7.3% in pack sales compared to 2018, boosted by end of the year sales in 2019 and the beginning of 2020 sales. In other words, whatever the circumstances, the sales per packs at the beginning of 2020 reached unheard of levels, which are -- presage well for the figures in 2020. 72 shop openings in 2019 and 21 openings on the second half year. So all of the analysts that were worried about the retail side, I -- when I arrived at ADP in 2013, I said to our teams, yes, but there's too many luxury shops. We need middle-of-the-range shops. We don't want customers to think it's only for rich people. So we ran a test, we opened up a MANGO in Orly, which was a catastrophe. So now we assume that our customer -- we're giving -- we now only have luxury stores. We have a few Fnacs, for people who want to buy battery chargers or books, you might know one. We need food and beverage, obviously. So we have taken that decision of an airport, this needs to be an icon of Paris. And we know with the opening of the [indiscernible], the competition exists in all areas. And here as well in 2020, we are starting out with a very promising work on retail. Quality of service. As you know, that's the most important. Since we've been measuring the quality of service, this is the second best level of progress, even with all of the border police problems and delays. This is due to the efforts we have in the welcome system. As you know this is a new system called Welcome to Paris. We have no longer -- staff are no longer behind the counter. They are out and running -- walking around as they're trained to go and talk with passengers to see what they need. It's though they're coming into the lobby of a big hotel. Paris Orly renewal as well, renovations with a lot of customer space. We have action plans for -- to reduce waiting times, we have a new software called [ Zavice ], which lets us calculate that minute by minute. How many people are on the line and the border police and other areas in the airport, where the obstacles -- where the blockages are. And lastly, we have customized the Parisian experience with a loyalty program and various applications that are increasingly sophisticated. Now the objective is to reach a level 4 in quality of service, and we have every hope of succeeding in doing that as soon as we open up the new junction and the new satellite to reach that level 4 very quickly. 2019, and I said -- as I said this morning, was a real change for the environment. I must say that until the middle of 2019, there were strikes in schools and the strike movement of Greta Thunberg. The world of aeronautics saw the reduction of -- in greenhouse gases as something that was important, but not necessarily existential. Today, it has become existential. And naturally, the road map for 2019, 2020 was important in 2 areas. In energy, we improved our energy -- the goal is to improve our energy efficiency by 1.5% per year in sustainable construction and land development, where they are -- we're talking about 25% vehicles are now clean. We've reached our objectives with water and waste, biodiversity, we've reached those -- we will have reached those at the end of 2020. So this is really a turning point in terms of climate change. ADP Groupe has committed in June to 0 net emissions by 2050. We'll be at 0 emissions with a compensation in 2030. Internally, we made the choice of using a carbon price that would be discriminating for investments, EUR 60 a tonne and EUR 100, starting in 2023. And we launched a movement for mobilization of the sector. There was a journal, an newspaper article about the decision of ADP to group together Airbus, [indiscernible], Air France and other French airports because we know that if we wish to continue to grow, we have to give tangible proof that we are reducing our CO2 emissions. Even though the aircraft sector is only 2.5% of CO2 emissions worldwide, we know that the growth in air traffic is such -- so sustained that this could become a major issue. And lastly, we installed, in our platforms, small kiosks, which enable you to contribute to ecology projects around the world to reduce CO2 emissions. In 2019, we have also a very important point, which is the Terminal 4 project. So there was a consultation which was a run for these terminals with 75 hours of public meetings, 6,000 people were involved, we got their opinions, 3 months, 440 towns. So I could go back over this, if you should -- you so desire. I don't want abuse of your time. We have taken the commitment to do what we call a balanced study or project in terms of the noise levels to verify that we're able to recommend all of the regulatory measures to minimize noise. So this is a summary of the main elements in 2019. And now I'm going to hand over to Philippe Pascal, who's going to be talking about some precise figures.

[Interpreted] Good morning, everybody. A few facts and figures regarding 2019. Our financials have been marked quite a lot by some scope effects and particular elements, a lot of particular elements, bringing us upwards and downwards. And another scope effect because of the full year and full consolidation of AIG in Jordan since April 2018. Another scope effect connected with the closure of the Atatürk airport. And other small scope effects that are less visible, but worth noting, like the acquisition by TAV of a small subsidiary for VIP lounges, a Spanish subsidiary that has worthwhile and accretive business. Now on the particular elements, particular elements that we encounter, bringing us downwards. The increase in the taxable basis subject to the property tax in 2019. Some bankruptcies, XL Airways and Aigle Azur, bringing us to a write-down of EUR 20 million worth of fees. Also, the base effect of the capital gain from the reevaluation of the stake in AIG in 2018 that did not happen, of course, in 2019, EUR 23 million of a difference. And positive effects with the offsetting done following the early closure of the Atatürk, generating an income of EUR 14 million. And some reevaluation of our stakes in SDA and Relay following the full consolidation, EUR 43 million and a modification of the complementary pension scheme that generated a positive to the tune of EUR 41 million. So all told, all of these items taken together -- if we cancel them out shows a lot of underlying performance that's going in the right direction, keeping a lid on OpEx in spite of negative impacts since Paris is connected with additional taxation issues such as by the French budget enacted on the December 28, 2018. Now regarding fundamentals underpinning our performances, the main driver of the business activity for us is our traffic. You have the traffic figures here for 2019 for the ADP group and all of these airports growing by plus 2.3% if we cancel out Istanbul, Atatürk in 2018, 2019. If you don't cancel it out, there's a drop in the traffic of minus 16.7%. With traffic in Turkey, particularly buoyant and value-creating. International, which you see here, the upswing in traffic in Antalya, plus 12.6%. And domestic traffic going down. However, as you see in Ankara minus 18.2%; Izmir, minus 7.6%. But all told, all taken together, if you look at the international routes that have grown in traffic, it tripled the size of the domestic route. So that's overall positive, value creating for us here in Turkey. Now the other main airports abroad. You have Chile faring well, in spite of the geopolitical context that was difficult, growth of 5.7%. Jordan, growth of 5.9% there. So if you zoom in to see the Paris traffic then, Paris traffic in our 2 airports, we've seen an increase of 2.5%, reaching a number of passengers hosted in our 2 Paris airports of more than 108 million passengers, all told. Now if you compare us with other airports, we're doing well compared to London, Amsterdam or Frankfurt, where the traffic grew by 1%, 0.9%, 1.5%, as you see on the chart. Only Madrid with 6.6% of an increase posts higher growth than what we've seen in the 2 Paris airports. So there's a good financial and economic health in the country, but also the tourist impact in Spain. So the main indicators for Paris airport all going up, as you see. International traffic, more and more international traffic that is, plus 3.7% compared with the total traffic increased just 2.5% of an increase. Low-cost airlines growing quite well, plus 2.4%, now representing 22.3% of our total traffic. Connecting rate and load factor also going up. So the year was characterized by a strong asymmetry among our different airports. If you look at Charles de Gaulle, the traffic volume went up by 5.4%; Orly, traffic went down by 3.8%. Now Orly's underperformance is connected with the works going on, on the runway, which, of course, led to the runway being closed, and we had to do a whole new rescheduling of flights for airlines that had to be therefore transferred to Charles de Gaulle. Now you have Aigle Azure that went bankrupt. Of course, XL Airways, that also have been generally outperformed, especially in Orly. Regarding the routes. You see America here, North America, plus 7.3%; Latin America, plus 6.1%; Asia Pacific growing by only 1.1%. But if you look at the Greater China areas, up 6.6%; and Japan within Asia Pacific, more than 7%. So if you go into the details then, the main indicators, they're presented this year with a group vision. And each of the bricks here, so to speak, show you the variation in SDA Relay on the one hand, Jordan TAV airport and also the Persian activities, the more historical activities, that's it. Now SDA and Relay, you see the mechanical effect of the full consolidation, integrating all of the revenues and, of course, all of the charges, too, all of the expenses, knowing that we are remunerated on the base of a percentage of the revenues via fees, concession fees. And it's via the concession fees that we capture most of the value creation such that there's a slightly deforming effect between the revenues and the EBITDA, diluting the EBITDA in spite of a fine performance in EBITDA margin that is concealing actually a very good underlying performance. Jordan, then, there is the full consolidation effect there as well for a quarter of the year, which also conceals a fine organic performance because of buoyant traffic figures, as we saw a minute ago. On TAV then. TAV, the revenues and the EBITDA going up, especially shored up by traffic and the more international dimension of that traffic. However, TAV had to bear some expenses, payroll expenses because of the departure of several thousands of employees following the closure of the Atatürk airport and also a loyalty plan, a retention plan for staff who had to stay on. So the Paris activity is very resilient, again, with the landing charges and retail fees faring very well and also the Charles de Gaulle Express work going forward nice and Grand Paris work going forward as well. And of course, we are players in those infrastructures. So regarding the operating income from ordinary activities going down because it's impacted by our full consolidation effects that we saw, but also some events in Turkey that led us to negative impacts, especially the discontinued activities in Atatürk, impacting the duty-free subsidiary, ATU, and also accounting impacts, write-downs and so on for Bodrum and Medinah. But on the rest of it, especially the Persian activities is the capital expenditure policy that we see kicking in here. And there's an increase in the amortizations, weighing on the operating income from modern activities. The net income, well, this is also slightly down, as our Chairman said, EUR 20 million down because it reflects the loss of the contribution enacted with the Atatürk airport. And of course, there were -- Bodrum down with variations. If you combine them all, as you see here, you see the result. But a fine financial performance and taking account of the compensation in respect of the early closure of Atatürk, generating a EUR 14 million profit. And we've taken on board the receivable here, and the right-of-use items have gone into the accounts as well. So there were upward and downward flows, but the net gain is EUR 14 million. So all told, the results are good, not easy to come to terms because there are a lot of details in there, but the organic growth comes out fine. If you cancel out the nonrecurring items, growth in revenues and EBITDA coming out at 4.2%. If you cancel out as well all of the one-shot items that weigh on the EBITDA, concealing growth of more than 8.2% in the EBITDA itself. So the financial health of the company is very good. Then as you can see here, our financial status. Here is our debt repayment schedule, staggered very well with -- over time, staggered from 2019 up to 2028 with 2026 showing a big dip. But this is all leveled off with the net debt at EUR 5.2 billion at group level, including the TAV and the Jordanian debt. Also a portion of fixed-rate debt, 75% with an average maturity of a bit more than 7 years, average cost, 2.6%. And the rating then coming out at A plus and outlook stable. This rating is quite satisfactory in our eyes. There are not a lot of us in France that are in the SBF 120 index that have the headroom we have, we think, in terms of coming to terms with our future capital expenditure requirements in France and abroad. Thank you.

[Interpreted] Philippe is modest to say there are not many people to share because in SBF 120, there are only 2 companies that are better rated than we are. There are only -- and there are 2 that are a AA-, Sanofi and ASQ, 2 beautiful companies. The others are 3 banks: BNP, [indiscernible], [indiscernible], Airbus, LVMH, Total and ADP. So what about the perspectives and conclusions? Now these 2 items concern 2 important factors in 2020, which are going to be highly structuring. First of all, the next Economic Regulation Agreement. As you know, and like any airport group, we need to have some kind of overview of the future because we have to know what the return on capital employed will be, and we need the weighted average. So we have finished with the public consultation. We have meetings with IATA as of April end 2019. In 2020, we are expecting 2 important things. First of all, during the month of February, the ART, the transfer regulatory authority will be handing over its decision on the estimated level of the ADP WACC. The ART is going to enlighten us as to the amount that would be possible to give more indications as to the terms of the regulatory agreement. So the regulatory agreement cannot be approved if it is not approved first by the ART. So this is between the government and the company, but it has to receive the approval as a stamp from the ART. So -- but -- so that we don't have to work too much in the unknown, ART has already worked off-stream a great deal and very seriously, by the way. And ART will be providing a range of prices. We hope it will be very close -- very tight in terms of price. Whatever the amount that will be decided by the ART, the tighter it will be, the more visibility we will have and when we are negotiating that ERA agreement. So this includes 3 steps. And first of all, the consultative commission has 2 months to work. Then we'll have the negotiation with the government, which is at least 3 months. And then to submit this to the ART, they have 2 months renewable ones. In other words, it would be 4 months total at the most. So they are on the 13th -- 15th of February, the ART will be convened -- I'm sorry, the consultative committee was convened. So we could expect the ERA could be signed via the 15th -- towards the 15th of November 2020. So once this is signed, this is a condition to be able to commit to building Terminal 4. We cannot commit to important works without making sure that we have the money to finance it. And by the way, the fact that we are negotiating with the government on the basis that will necessarily be acquired because the ART will have giving us -- it will give us a ballpark figure, a very tight figure. We have -- in 2019, we made -- took a commitment, subsequent to the hearing of the 29 commitments, but we're not going to get into detail of those 29 commitments. We submitted a request for an authorization -- an environmental authorization in December 2019. This will be -- is currently having hearings on there, and the public inquiry should take us around the summer of 2020, which authorizes to think that the works could start by the end of the year '20 -- or at the beginning of 2020. So the first message, 2020 is important for these 2 projects. The second message is the retail motor or engine, which is behind growth, will continue to boost those effects in 2020. We have a full year effect of the opening in 2019, but we also have 60 new openings all in luxury retail outlets, luxury shops. In Terminal 2E, we have Cartier, Celine, Saint Laurent, Dior Beauty, Chanel Beauty and Vuitton. We have Terminal 2E with 9 openings. We have 2 EBD with 23 openings of shops, and we also have the opening of phase 1 of the Orly 4 terminal, where there will be 8 openings. So 2 points of attention about retail openings. Naturally, and I'm sure that you'll have the question, what's the impact out of the coronavirus? So despite the impact of that disease, which has reduced the number of flights coming from China, we have figures in January and in February which remain at a very positive trend, a very high trend, a growth of 15% in January in 2020 compared to 2019, which means that we you consider that the effect -- full year effect of the openings in 2019 plus the openings in 2020 still give us a very good perspective for retail performance in 2020. This being said, naturally, we could -- it could be necessary to take into account the effect of the coronavirus. The second point of attention, which bears watching, is that we had a project to open the merger of satellite Terminal 1 in July 2020. The lack of a subcontractor in the metalworking part of the project from the work site, we'll delay that -- the opening of the terminal by 1 year. We have the project of a kind of a commercial -- a open commercial area, a very high quality for all passengers from this -- from the oneworld alliance because our area is Lufthansa, Turkish Airlines, Singapore Airlines. And all these passengers are in A 48, but they were a very small boarding area, and this is a very small retail area. So we're going to be opening that with Orly. So we also are going to open those -- the retail shops involved in that project a year late as well. So it's only by that date that we will have a full year effect of sales per packs targeted at EUR 23. To conclude this presentation, the forecast for 2020. In terms of traffic, plus 2% to 2.5% for Paris Airport and 3% to 3.5% from [indiscernible] Airport. For EBITDA, we connect 2021. The figures we've given at the ERA, not including TAV airports, was between 3% and 4.5%. So that we are exactly in the middle of that range of prices that was our forecast. The ERA 3 said that the EBITDA would grow from 30% to 40% over the 5 years. In fact, we are around 35%. The group will have an EBITDA between 3% and 5.5%. This is why we are proposing to maintain the dividend, standing at EUR 3.78, and we confirm all the targets for 2016 and 2020 with the exception, as I just said, of the sales per packs and quality of service targets, which have been extended by 1 year in relationship with the opening of the satellite of Terminal 1 and the merger. So we're more about the forecast, which appear in the press release. You'll see on Page 15 of the press release, there's a small development on the new organization project, we call one group, which is a project that was set up during the year 2019, which hasn't made much noise because it was a managerial project, which -- where the target of preparing acquisitions, international acquisitions, and you know these corresponds to our program -- 2025 program. So at the beginning of 2019, we committed to having between 25 -- I'm sorry, 35% and 40% of our net current operating income coming from international projects. This ambition, it sounds good on paper, but to actually do it and have the synergies, you have to have the right internal organization. And for that reason, we've been working a great deal with Edward Arkwright and Philippe Pascal. They've worked a great deal in 2019 in order to have a business activity with a view in each of the compartments of the company to enable or develop financial synergies and sustainable development synergies in purchasing organization of operations. There are 10 business lines basically in all of the airports of the group as a whole. So for ADP Groupe, this means that we are preparing to accelerate our development internationally, while still guaranteeing a financial -- that we are financially robust and obeying a industrial logic -- industrialized activities. In other words, we are Turkish in Turkey, Jordanian in Jordan, Chilean in Chile and indigenous in new countries that we are going towards in the coming weeks and months. So have a look at that Page 15 in our press release and the one group project. We have created -- we now have 4 pillars to this, creating a new development group that is in charge of grouping together our teams, that are in charge of developing a group in all areas, including not having to do with airports. We are creating a general management of operations, which will be in charge of steering airport operations around the world run by Fernando Echegaray, who, in his former life, was running operations for the -- in our Group. We created 10 group of areas for each of which we're going to be natively integrating the sustainable development and innovation departments. Recruited a new coordination sector between the people in charge of Paris and our main subsidiaries abroad. That's what can be said, on the one hand, about 2019, which brought us a great deal of work, but I think it was a good basis to prepare for 2020, quite remarkable work. And not only in 2020 it's looking very good, but as well, we're preparing for what is to follow. One final word about the coronavirus because you're going to ask the question. Every year, we have -- we have 2 million passengers from China. Out of these 2 million passengers, they spend 15% of our -- what we rake in. So this is real material. The months of January, February and March are small ones for traffic with China. So if the flights from China start up again in April, one might say that we could absorb that in the usual margins that we have with room to maneuver. We do provisions of traffic, which we're talking about roughly 10 days of disorder a year, either strikes or snow or volcanoes or whatever. So if by the end of March, the coronavirus subsides and flights from China resume, we can absorb that. However, if it continues in April and May, this is going to affect us, and we will have to draw the conclusions from that in our forecast. One can say very simply that the experience of this SRS that the traffic picks up, again, very quickly once the crisis is over. The question is today, how long is this going to last. So there you are. With Philippe Pascal and all our teams, we are available to you for any questions you'd like to ask us.

[Interpreted] So there's a gentlemen at the back of the room with a microphone, he has a question.

[Interpreted] Just to pursue the coronavirus issue. So you mentioned the impact for Paris, could you give us the impact for other airports?

[Interpreted] Yes. Well, that's a good question. I'm not quite sure I have the answer off the top of my head in Turkey. We don't have enough aircraft with China, Georgia and Chile neither. In Paris, we're always happy that we're the prime European destination from China. We've got 13 destinations with Greater China in all with lots of connections to -- with smallish towns with Wuhan. We're the leading city in Europe connecting people to Wuhan. So it's really Paris that's the hub for that. Now we're happy to be the leading European operator regarding China. But when you're affected, you're affected. Jordan, Mid East, Turkey, Chile this is more residual in terms of traffic with China.

[Interpreted] Then what about the 15% of revenues you mentioned? Is that the airport?

[Interpreted] When I say 15%, I mean the retail outlets, retail outlets, retail outlets. The retail outlets revenues, yes, 15% with our Chinese passengers.