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

Hello, and welcome to the Group ADP 2021 9 Months Revenue Call. My name is Ja, and I'll be your coordinator for today's event. [Operator Instructions] I will now hand over to your host, Philippe Pascal, CFO, to begin today's call. Thank you.

So good morning, ladies and gentlemen. So a short introduction and presentation before the Q&A. Perhaps to give you some elements that, in fact, when you see our figures, we can see that we are globally in line with our forecast in terms of traffic, but also in terms of revenue. Perhaps to give some elements in terms of traffic, we are for the traffic group, in terms of recovery at around 30% of the 2019 traffic level, 39% -- 39.1% to -- of the 2019 traffic level for the group. And for Paris, we are globally at 31% of the level of the first 9 months' traffic of 2019. So in line with our forecast, you know that we give you some elements and guidance in terms of traffic, and we can confirm our guidance, at the end of the day, that is for the -- at the group level between 40% and 50% of 2019 for the full year at the group level. And for Paris Airport, between 30% and 40% of the 2019 airport traffic. So when you see in the details of the presentation, first of all, we can see the -- in the first slide, the level of Paris airport traffic with a decrease compared to 2020 decrease of 5.5% and -- at the Paris level, and for the group traffic, an increase of 14.5%. Slide 2, we can see the details for all our platform around the world. We can see that we have a good recovery, for example, in Paris-Orly, plus 19% compared to 2020. But also for New Delhi and Hyderabad, plus 11% and 14% for New Delhi and Hyderabad. But we have also a strong recovery, in particular, in Turkey we have Antalya, plus 130% in Antalya. And Milas-Bodrum, plus 110%. We can see also a good performance in Jordan with plus 80%. So the recovery is now in line with our forecast. And in Paris, we can see Slide 3 that compared to the other European airport, we have a good performance very close to Madrid, but higher than Fraport, Schiphol and London with a recovery of 32% compared to 2019 in Paris. In details, we can see that we have a stable connecting rate for around 22%, 23%. A good performance in terms of low-cost traffic with an increase of 4.4%. And we can see that the recovery has a dilutive effect in terms of international traffic with more European traffic and domestic traffic, but so we can see a decrease of 11%, that is in line with our forecast. And also in decreasing term of load factor due to the fact that we have a strong recovery in terms of movement more than in terms of passenger. Slide 4, we can see the -- our revenue with a good increase around 12%, mainly due to TAV Airport and with a huge part of TAV Airport due to the integration of Almaty Airport for EUR 57 million for this first 9 months. So a very strong impact of Almaty and a good impact due to the recovery of traffic in Jordan, but also in Paris through the retail activities. For the last slide, Slide 5, you can see that we confirm all our guidance in terms of traffic, in terms of EBITDA and margin and in terms of net financial debt and EBITDA ratio. So I am now available for your question. So don't hesitate to ask all the questions you have to ask. Thank you very much.

[Operator Instructions] And first question comes from the line of Elodie Rall from JPMorgan.

So maybe a couple of questions. First of all, on your guidance, so you haven't revised it. But the midpoint of guidance does imply about -- traffic about Q4 at 46% of 2019 versus 51%. And that's just ahead of November reopening with the U.S. So why not like revising it a little bit upwards to be a bit more accurate or do you expect traffic to actually come down versus Q3 level to Q4? So that's my first question. Second question would be on the regulatory review at the moment. If you have any update on that and on tariffs and the negotiation? And third question, maybe on Schiphol, what is the process, if you could remind us of the process of the unwinding cross-shareholder arrangements?

So thank you, Elodie, for your questions. So your first question about the traffic. So we can confirm our guidance in Paris, but also for the group. In Paris, you expect between 30% and 40% with the opening of the U.S. destination. But also with -- due to the strong dynamic at the beginning of October and November, we can probably reach the high part of the range, so between 35% and 40% in Paris. So globally, in line with our forecast, but in the higher part of the range. And when you check our assumption to reach this level, we expect in October, November and December traffic higher than 50% in Paris, between 50% and 55%. So -- and for that, we take account all the opening, in particular, the U.S. traffic. But it's a good traffic in terms of number of passenger, but also high contributive traffic because it's international destination with a good effect. Not a strong effect, but a good effect in the retail side. Your second question about the regulation. You know we have 2 main issues in terms of regulation. The first issue, it's our tariff proposal and the question of the level of regulated WACC. And the second question, it's a question of the cost allocation, the accounting method, but we expect some decision from the French regulator. So in terms of -- for the moment, we don't have a strong update and news because we are just -- we prepared our proposal, and we have just to start the process. And if we -- we have to put on the table a proposal at the mid of November, and we'll have probably the first answer at the mid of December. So it's a little bit early to give you some color about that. In terms of cost allocation, for the moment, we wait. The -- and we don't have any news from the French regulator. All in all, we expect a final decision about the cost allocation principle at the mid of December at the end of this year, but no news for the moment. Your third question about the process and to -- from the Schiphol issue. You know that at the end of November, we have some -- we conclude -- we have a termination in terms of agreement with Schiphol. And as the process is very clear, we have 2 main steps. The first step for Schiphol is to sell during the next 18 months the share of ADP. And the second step after this first step, it's the fact that ADP has to sell the share of Schiphol directly to Schiphol at the end of the day. So for the moment, we work a lot to prepare this both operations. And we don't have any details to give you for the moment. So thank you for this question. Do you have another question?

The next question comes from the line of Ruxandra Haradau-Doser from Kepler Cheuvreux.

Three, please. First, coming back to the tariffs. Your major peers plan significant increases in tariffs over the next years. Schiphol more than 40% increase over the next 3 years, tariffs in Heathrow and Frankfurt are likely to significantly increase as well. I understand you cannot give details at this stage, but how should we think about the trend of your tariffs medium term? Second, my understanding is that nowadays, the magnitude of the traffic waves at the airport has significantly intensified with peak traffic discrepancies between peak and off-peak hours and between different days of the week. With a likely higher share of leisure traffic going forward, how do you think about the peaks at the airport going forward? And implicitly, what will be the implications for your cost base? And third, the Skytrax ranking of Charles de Gaulle has massively improved during this crisis from position 30 in 2019 to position 15 this year. Charles de Gaulle is now better ranked in terms of passenger satisfactions at Lufthansa's main hub. What has been the driver for this improvement? And do you expect the current ranking to be sustainable?

Thank you, Ruxandra, for this question. So your first question about the tariff. So clearly, what is key for us is to have a progressive increase in terms of tariff, but with a strong moderation approach. As you know, the French regulation for the moment, -- so without a new huge change linked by the French regulator, is a very good and performance regulation because we can assume a long-term approach, and we can increase our tariff with a moderated approach, and at the same moment, improve our regulated ROCE to reach the cap that is the regulated WACC. So when you see the other regulation like Schiphol for the moment, we can see that the regulation Schiphol is more volatile. When we have a strong CapEx plan, mechanically, you have a huge increase in terms of tariff. And when we have a strong decrease in terms of revenue, mechanically, we can -- we have, the consequence, it's the possibility to increase the tariff. And it's the same in Schiphol. For ADP, it's possible to manage the situation in other way. So -- and to improve step by step our regulated ROCE to recover the strong position if we have a good regulated WACC and high regulated WACC without strong and very high tariff increase. You know that the position of ADP, it's a key position. We believe that the competitiveness of the platform, it's more linked by our infrastructure, and at the end of the day, our CapEx plan than in terms of tariff. We assume the fact that when we have a good dynamic or when we don't have a good dynamic, we can increase slightly the -- our tariff, and we assume that. But all in all, when you check our tariff increase during the last 15 years, we increased our tariff between 0 and 3% or 4% maximum. And with this crisis, we -- our strategy is to confirm the fact that we have a moderation in terms of tariff and we have to increase our tariff. And we try to manage the situation and the recovery of the regulated ROCE in the other way, with OpEx control, with CapEx control, but also with a strong management in terms of infrastructure. The second point, it's the question of the quality of traffic, the mix of traffic in terms of -- and the management of the -- this recovery. In fact, for all the airlines, the key element is to increase the traffic at the peak hour. The main reason is the fact that, for the airlines, the traffic at the peak hour, it's strong traffic with a huge and high contributive consequence for the airlines. That is very important for our clients. So we -- our strategy is to accompany the recovery of the traffic and to accompany the -- our clients, all the airlines to recover a strong financial position. But at the same time, for environment issue, but also for optimization in terms of infrastructure, you know that it's difficult for us to increase the traffic at the peak hour because we need to reopen some infrastructure and we need to develop and to increase the capacity of the airport. For the moment, we don't have these questions. We know that it's possible to accompany the recovery of the traffic, to accompany at the peak hour with a strong impact in terms of CapEx, with a strong impact in terms of OpEx. But you're right, in fact, probably for the end of this year, but also for the next year, we have to reopen infrastructure. It's manageable in terms of OpEx. When you reopen an infrastructure, we can reopen without a strong impact in terms of OpEx. We learned a lot during the crisis, and we know that it's possible. But the key element, it's not the OpEx. The key element, it's the retail activities. Because when we reopen infrastructure, we can have the consequence, it's to dilute the high contributive passenger in a lot of infrastructure that is not efficient for our retail activities. So we have a strong discussion with all the airlines about that because, obviously, it's very good to assume the fact that we can have a good contract rate. Obviously, we have to accompany the airlines to recover a good position, including the peak hour, but at the same time, it's not possible for us to have a strong and bad impact in terms of retail activities. For your third question, the Skytrax awards. In fact, we have a strong improvement for Charles de Gaulle but also for Orly, but also for all the platform of the group. It's not a conjunctural effect. It's a structural effect. It's in line with our policy, and we worked a lot during the last 3 or 4 years to improve this -- well, and we know that we learned a lot in terms of drivers to improve this quality. We changed the manner to operate our platform. We changed the atmosphere in the boarding gate. We improved the quality in the car park. We improved the quality in the check-in area. We improved the quality in the security check activities and so and so on. So we have a structural effect with a strong improvement. But at the same time, it's a competition. And the improvement, it's a key element and a structural element, but all the airports try to improve the quality. So -- and we know that for the moment, we are in a good position to continue the story and the success story in this way. So thank you, Ruxandra, for this question.

The next question comes from the line of Cristian Nedelcu from UBS.

Maybe the first one, coming back on the regulatory decision on the cost allocation, maybe can you give us a bit of color what is -- what are the -- sorry, what is the tool kit of actions that you have at disposal, let's say, if the regulatory decision is a bad one. What can you effectively do in terms of CapEx, in terms of OpEx or other measures that you could use in that sense? The second one, could you offer a bit more color how you talk about the financial stabilization of the international assets and taking actions in some of the international assets? Can you elaborate a little bit on the latest situation there? And the last one, could you give us an update where do you see your net debt position at the end of this year? And in particular, with the traffic guidance you have in place for 2022 and with the CapEx guidance you have in place, what is the range of free cash flow generation that you see for 2022?

So thank you for your question. So your first question about the cost allocation. So you know that the cost allocation principal was fixed by the French state and was the consequence of the economic regulation agreement of ADP. So at the end of the day, we had the definition of the regulated and nonregulated scope. It's at the end of the French state. And in the cost allocation, it's a discussion between the French state and ADP. Now the rule changed. During the summer, we have a specific decision, and the decision -- the French decision in line with the judge is now very clear. It's not the -- it's -- the rule have to be fixed by the French regulator. So -- and we wait the decision of the French regulator. We have a good discussion with the public consultation. We know that, for example, the French regulator wants to fix the cost allocation with an accounting method, not with the economic method, that is for us good news. But we have some -- we have to wait to know exactly what is the methodology. First point, if the methodology, at the end of the day, it's not favorable for ADP. Obviously, we can have a strong consequence in the regulated scope because we have to decrease probably our level of tariff. And bad consequence in the nonregulated scope because we can have a strong impact in term of nonregulated ROCE, that is probably a huge part of the issue. So the good manner to manage the situation if we have a strong impact, it's first, to get all the regulated CapEx. And second, to develop strongly our nonregulated activities. And so it's not a good solution for French regulator because at the end of the day, if we decrease our CapEx plan in the regulated scope, we can accelerate the decrease of the tariff. But at the same time, we can have more firepower to invest in the nonregulated scope. But it's not rational for a public authority. So we try to convince that the competitiveness of the platform is mainly due to the CapEx, regulated CapEx, more than the tariff level. And we try to convince that for all the party for the French regulator, for the French state, for the airlines, but also for the airport, with a good balance in terms of cost allocation and with a good appreciation of the tariff versus the CapEx, we can have a strong position with a good policy. So your second question about the stabilization of international assets. So for the international assets, so we have a good recovery in TAV Airport. And you know, TAV Airport have strong assets in terms of tourism, for example, Antalya, first of all. And the second element, TAV Airport manage the level of OpEx. And all in all, and have no financial issue. So all in all, all is under control with TAV Airport. For GMR Airport. GMR Airport, the situation is a little bit different because during the crisis, GMR has to continue to build extension and to develop the capacity of Delhi and Hyderabad. So we have a strong CapEx plan. And now we have also a good recovery and we expect a strong position of Delhi and Hyderabad in the next few months but with an increase, a strong increase in terms of debt. So our priority is to deleverage GMR Airport. And we discuss a lot with our partner that is GMR Infrastructure Limited. For the moment, it's manageable, and we don't have a strong issue about that because GMR Airport refinanced a huge part of the debt and have some time to deleverage the company in the next few months. The main issue is in Santiago and in Amman. And it's the 2 main issue for the moment. And we discussed a lot with the Chilean authority with all our lenders, and we discussed a lot with the Jordan government. And for the moment, we are confident to stabilize the situation. If we have to put some money on the table, it's not for TAV, it's not for GMR, perhaps for Jordan, and perhaps if at the end of the day, if it's necessary for Santiago de Chile. Your third question is the net debt position. For the moment, we have a guidance, very clear. We have to reach our target at the end of 2022. You know that when you see our guidance, we can see that we expect a strong increase in terms of traffic in '22. And all this traffic increase can manage the situation of net debt in 2022. For the moment, I am sorry, but I can't give you more color about that. In fact, at the end of '21, our multiple should be very high. So thank you for your question.

The next question comes from the line of Dario Maglione from Exane BNP Paribas.

How much was spend in tax in Q3? It seems quite low. Is that concerning? Question number 2 on the regular proposal to change the regulatory scope. In the worst case scenario, how much cost could be moved to the regulated -- nonregulated side? And third question on the Schiphol cross holding, how likely is that the ADP shares are floated on the market?

Excuse me, but I don't understand your third question. What is your question, the third question?

Yes. Is it possible, how likely is that Schiphol held the ADP shares on the open market?

Yes. So to start with this question. In the first step, Schiphol have to sell 8% of ADP. And Schiphol has the choice to sell in the open market or to sell directly for the specific investors. It's at the end of Schiphol. But we have, for ADP, but also for the French state, data rights and the permission rights. So all in all, at the end of the day, if you -- if it's a good operation, we have to assume that we need a strong alignment between Schiphol, ADP and the French government. So -- but the question of the open market, we don't know the answer because it's at the end of Schiphol. Probably, it's difficult for the moment to give you some color because it depends of the gravity of all the investors. Your first question about the sales per pax. So you know that we expect for the end of this year, sales per pax higher than 2019. So probably higher than EUR 20. When you see our performance during this year, we can see that we have a high sales per pax during the spring. And we know that recovery with an acceleration in terms of recovery due to the European flight more than the international flight, we can have a dilutive effect. That is the case. But for the moment, it's in line with our expectation. And we know that we have enough room of maneuver to improve the situation in '22, '23 with 2 main pillars. First pillar is the recovery of the international side. And the second pillar is our new retail area. You know that we have to reopen some infrastructure and we have to open the international junction of the Terminal 1 and with a strong retail area. We have also, in this second pillar, a good strategy to accompany the development of the retail activities through our luxury brands, through our JV. And we work a lot, and the retail team work a lot to prepare a new strategy to accelerate the recovery. Your second question about the regulated scope. We -- the definition of the regulation, the regulated scope, regulated and nonregulated, it's at the end of the French state. The regulator have to fix the cost allocation. So for a huge part of the asset, for a huge part of the OpEx side and for all the part of revenue, it's very clear. When you have landing fees, it's regulated. When you have retail revenue, it's nonregulated. So for the revenue, we don't have to expect any change. For the asset, when you have a runway, it's obviously regulated. And when we have a retail shop, it's obviously nonregulated. The question is the allocation of the common infrastructure, for example, the corridor of all the terminal. And -- so this situation, we have to -- we are, for the moment, good and strong growth. And for us, it's a good role. But it's difficult for the moment to give you some elements and some figures because we don't know what is the decision of the French regulator. We don't have any element about that. Perhaps it's a very good decision and very favorable for the airport, perhaps not. But it's our duty to give some -- to say clearly for the financial market, but we don't know. We don't know. So thank you for your questions.

The next question comes from the line of Marcin Wojtal from Bank of America.

Yes. The first one is just on cost cutting. I think in H1 results, you disclosed that you are targeting EUR 100 million to EUR 150 million of structural cost savings in Paris. And I believe this is not included in the chart for 9 months. So can you just confirm that that's obviously still the target of ADP? Second, just to clarify, in the statement today, you mentioned that you are pursuing some arbitrations on international assets. So have this already started? And are you referring to Santiago and Jordan or there are arbitrations in some other assets? And maybe last question, apologies, just to come back to that regulatory review by ART. I think you mentioned in answer to one of the previous questions that you think the ART will be using an accounting principle to determine cost allocations, and you are currently using an economic principle. And I think you suggested that could may even be possible. So can you maybe elaborate a little bit, just give us some color on what these principles imply?

So thank you for your question. So first of all, I can, for your first question, confirm that we are in line with our forecast to assume the fact that we can have a sustainable effect in terms of OpEx in Paris between EUR 100 million and EUR 150 million. So it's sustainable OpEx. So it's, at the end of the day, when we have recover all the traffic. But before the recovery, in fact, we expect more cost cutting effect. For the EUR 100 million and EUR 150 million, it's just in Paris. It's just in the regulated and nonregulated scope, partly in nonregulated to increase our nonregulated ROCE. And we -- it's mainly due to the our social measure like the decrease in terms of number of people, first, for around EUR 60 million, EUR 65 million. The decrease of the remuneration of all the people in ADP for around EUR 20 million, EUR 25 million. And the overhead element, it's purchase -- purchasing policy and other action plan. It's in Paris, so it's not just ADP mother company, but it's also our JV, consolidated JV like there. Your second question about the arbitration. So you have 2 main discussion, and we wait for arbitration. The main issue is in Santiago. We have a strong discussion with the Chilean government. And the second element is in Delhi due to the first measure during the crisis. And after we have some elements, but more -- it's more little. We have a strong discussion in Jordan. The -- your third question about regulation. So we have 2 main manner to allocate all the costs and the asset base. The first is the accounting method. We take the figures in our account and we fix some key allocation. And we affect all the OpEx and the asset. The second method, it's economic method. We have some, for example, some activities that we try to find the -- and to have a good valuation of the positive externality of all the activities. And it's not based with the accounting figures. It's based off the economic approach. For example, what is the contribution of the retailer part to create positive externality in terms of quality of service, in terms of attractiveness for the airline activities, for example. And for the moment, we know that the French regulator wants to choose the first method with accounting method. But at the same time, we don't know if the -- if we -- if the French regulator wants to change and to color the accounting method with an economical push. For example, take the accounting figure but put some adaptation to say that for this kind of activities, we have a strong positive externality. For example, for the retail curve, we know that if we have a good mix traffic, we have a good efficiency in terms of retail. And we have to color our accounting approach with a specific rule. And it's a question, and we don't have the answer.

The next question comes from the line of Andrew Lobbenberg from HSBC.

Can I come back to regulation, but more about the principles. At the start of the presentation, you spoke about the difference between Amsterdam and Heathrow with very volatile airport charges because they're trying to instantly or rapidly get ROCE back to WACC and yourselves who are thinking of a more step-by-step gradual approach. So I just wanted to know how many steps do you expect to take? How long a journey is it to get ROCE back to WACC in your vision? Second question would be around the recovery of Asian traffic. Obviously, it's going to be slow, but how slow do you expect it to be? When do you expect the Asian traffic to start recovering and when do you expect it to get more fully recovered? And then a third question would be, you've given us this net debt EBITDA guidance of 6 to 7 for the end of '22. Wanted to check whether that included any receipts from the disposal of your Schiphol stake? Or if you got some cash in that off of that, that would further improve the debt situation for end of '22.

So thank you for your questions. So your first question, mechanically, if we freeze the tariff during 2 or 3 years, we can observe a strong recovery in regulated ROCE. The key element for us, it's a cap fixed by the French regulator. If we have a cap at 6%, for example, we have -- we can wait 3, 4 years to reach 6%, perhaps 3 years. And if we have a cap at 2% or 3% for the level of regulated WACC, perhaps we can reach the cap in 1 or 2 years so without tariff increase. So when you manage the tariff increase, we manage our tariff increase to manage the speed of the recovery. But all in all, the tariff increase, it's not a key element for us to recover our regulated ROCE. The key element is to reduce the level of CapEx and to reduce our OpEx in a sustainable way. That is a key point for the tariff increase. In fact, it's important for us to accelerate this recovery. But when you see the -- our figures and we disclosed the recovery of the traffic, we can see that in 2018 and 2019, we have a regulated ROCE higher than 5%. And if we have the same traffic with a strong effect in terms of savings, at the end of the day, we can reach without tariff increase regulated ROCE higher than 5%. The key question in terms of regulation, it's not a question of tariff. It's a question of CapEx, and it's a question of level of regulated WACC. Tariff is good, but if we now implement a tariff increase like at 40% mechanically, we reach in '22 as a very high level of regulated ROCE. And the French regulator will fix a cap that is regulated WACC. But it's not possible to -- and as a consequence, it's a decrease in terms of tariffs. It's not possible to assume a strong increase like -- why we have a strong increase in the other airport? It's the fact that for the other airport, for Schiphol, for example, we have to assume a huge CapEx plan despite the crisis. And for the other airport, it's possible for the other airport to have a compensation for the loss of profit during the crisis, but it's not possible in the French regulation. In the French regulation, we lose a huge part of our traffic and a huge part of our aeronautical fees. And it's not possible to have a compensation to -- for this element. We just have to manage the recovery. The second question about the traffic and the Asia's traffic specifically. You know that for us, the Asia traffic, the recovery of the Asia traffic will be probably during 2022, probably with a strong manner during the summer of '22, summer or September or October. Before, it's more difficult. We have a recovery but not so dynamic. In terms of debt net, we don't put in our model a strong effect in terms of disposal for Schiphol in '22. Because as I say, Schiphol have 18 months to sell 8% of GDP. And after that, ADP have to sell the share of Schiphol. So it's probably for us in '23, but if it's before, it's a good news, but we are very cautious in our approach. And in terms of debt net, we don't put the disposal of Schiphol in '22. So thank you. So thank you very much for all your questions, and see you very soon. And for our annual results in February, with probably, I hope, good news. Thank you.

Thank you for joining today's call. You may now disconnect your lines.