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

[Foreign Language] [Interpreted] Thank you for joining us for the yearly revenue presentation for ADP 2021. Philippe Pascal and myself are going to give these presentations. 2021 was an outstanding year for ADP Group. We're going to tell you about the details. But if I was to summarize what I want to say, I would say that it was outstanding because of the group employees. What they have accomplished is really unique because in a year where there was a major crisis, first of all, they increased the quality of service, and it's close to 4 out of 5 in terms of rating. They also enabled some solidarity that meant that we could avoid redundancies. And also, we had a very large increase of aeronautic fees. As you could see, we also continued our expansion abroad in order to prepare a remarkable growth for the 20 coming years. If you look at the first document, you will see that 2021 was divided into two. The first half had not a very good traffic, but the business picked up again mid-May for all the activities of the group for Paris Airport, that's on the left-hand side; and for the other airports of the group, it's on the right-hand side. What these graphs show is that this recovery took place in the second semester for all our airports and in a more dynamic way, for the other airports beyond Paris Airport. Because for the group airport, we reached 48.6% of the level in 2021 -- in 2019, while in Paris, we are only at 30.6%. This year was outstanding for many reasons and also from the financial viewpoint. All indicators are up. The revenue up by 29.9% at EUR 2,770,000. The EBITDA up by EUR 583 million, and it can be explained because we have very strong cost-cutting measures with an organic growth of EBITDA that represents 3/4 of this EUR 583 million. The operating income is almost breakeven and the net result is negative because of the depreciations that were recorded in 2020. Philippe Pascal will tell you about all this. Regarding the passenger satisfaction, and it's really at the heart of our concerns. All the group's airports improved their rating in the Skytrax ranking. Well, CDG in Paris is 15 -- is the 15th. Delhi is the 45. And I'd like to remind you that almost -- well, even 10 years ago, Paris-Orly was beyond the 100th ranking. There was also an audit of the Paris airport. Most of the airports have 5 stars: Charles de Gaulle, Paris-Orly and Tbilisi, 3 of them. The service quality grade has increased for the third year in a row. And we had for the third year in a row, an award for the mobile application Paris Airport that was awarded as being the application that really showed the best creativity and the best innovation during the COVID period. On top of key client satisfaction, we had to adapt the company to this COVID general situation. First of all, by adapting and optimizing the competitiveness of our infrastructures. We have closed some terminals. We opened others in order to work on the passengers coming from the other infrastructures. We were extremely agile, for example, to recycle all the company hardware in Terminal 1 and that had to move to the 2AC and 2E terminals. We also opened other infrastructures, 2B-2D that enabled us to open a huge surface after 9 years of works with adjunctions between the 2B and the 2D building in which are 5,200 square meters of shopping mall. In the 2E, we have also a new baggage sorting system, the TBS4 in order to improve the quality of service and the competitiveness of the air companies. Adaptation also showed in the social measures, first of all, the implementation of the collective mutually agreed termination agreement that fixed at 1,150, the number of the voluntary departures with a target of 700 unreplaced departures. We have to highlight that the number of volunteers for these departures was above the number of positions that were set up at the beginning. We also adapted the employment contracts. We asked our employees to do some sacrifices by giving up some bonuses by reducing also marginally the 13th wage months, which led to some savings explaining the resilience of the group during this crisis period. We also reorganized all our organization and flu shots trying to retain talents. 2021 was also a year for the development of our international activities. And that came after a COVID year that really set up the basis of a new ADP Group. If you look at 2019, the average duration of our concessions abroad -- and I'm not taking into account Paris because we are in a full ownership, but for the concession abroad, by including TAV, the average duration was 8.8 years. If you add up the acquisition of GMR with concessions of 60 years, the acquisition of Almaty, the extension of the concession in Antalya for 25 years until 2051, the average duration of our concessions was increased almost fourfold since in 2022, we have an average duration of the concessions of 32 years. So that was made possible because of GMR that was acquired in 2020. We also acquired Almaty, the airport of the large city in the south of Kazakhstan, the largest airport in Central Asia. We also acquired a concession in Indonesia in the Medan Airport. So an extension of 25 years in Antalya. And we also have the extension of the concession durations for the 5 Turkish airports that was granted by the government in the wake of COVID as well as an extension in Medan. Furthermore, the group proceeded to some debt restructuring and we grew some assets in Mauritius, for example. And in the Netherlands, regarding the Netherlands assets, we decided not to renew the partnership agreement with a Royal Schiphol Group in November 2021, which triggered the unwinding of the cross shareholding of the Royal Schiphol Group. The details will be communicated in the press release that will be available in a few moments. And Philippe Pascal will tell you about it also. We did not renew the technical assistance contract in Mauritius either. We actually sold it to the Mauritius government, the participation that we had. We also closed the European business Europe of ADP engineering. In terms of ESG, the group was very active. It signed a partnership with Air Liquide and Airbus to pave the way for the arrival of the liquid hydrogen aircraft. We promoted the sustainable aviation fuels, this SAF with the experimentation of fly between Paris and Montreal. We also won, along with several airports, a call for tender and was really essential by the European Union. It was called Olga in order to develop the technologies of green airports. We also do many initiatives in order to improve our social footprint with the setting up of a stakeholder committee made up of 16 external figures. We also externalized objectives in terms of decrease of the noise around Paris Airport in order to reduce noise in relation to what it was in 2018. This work on ESG responsibility was extremely active in 2021 and will have founded the strategic road map, which details will be communicated to you tomorrow. And now I'm going to give the floor to Philippe Pascal.

[Interpreted] Good morning, everybody, or good afternoon, rather. A few more details about the financial results of 2021, starting with the first driver for business, that is to say traffic. On all the group platforms, the traffic was up this year in quite a contrasted manner, with a strong increase for touristic traffic, especially in the Turkish platform, a major increase, which led to a good performance in the second semester for TAV and for the other platform of the group. Similarly, you will observe platform per platform evolution, contracted development, which are due to the performance of traffic in 2020 and the consequences of the differentiated waves of the COVID pandemic but also differentiated performances related to the different restrictions in various countries. Regarding Paris traffic. Here you have more details. And first of all, to compare ourselves to the other European platforms. The traffic of our 2 Paris airports, Orly and Charles de Gaulle, 42 million passengers, it's -- it represents 38% of the traffic in 2019. A much better performance than Amsterdam, Frankfurt and London. It is a performance that is slightly below the one in Madrid, in PM. This performance was also contrasted on Parisian platforms with the traffic back in Paris more quickly than in Charles de Gaulle with only 34%. You can see the small table here on the right-hand side of this slide. It's the different timetables to -- our extremely resilient domestic timezone and growth in Africa and overseas. Our silos. Regarding the main indicators for Paris Airport, we see that the low-cost traffic in 2021 and in proportion of the overall traffic was above the one in 2019, which means that the reestablishment of the low-cost traffic is much quicker. The international traffic is still below. But quite -- in a quite measured way with is 37.1% compared to 2019 with 41.3% of the 29 traffic. The connecting, the local load factor 69.7% below compared with 2019 because our competitors want to keep the competitiveness even though -- and to keep the time slot, even though the companies might not be able to keep these modules. Very concretely and regarding our main indicators in terms of revenue. The -- in relation to 2020, the revenue is up by 29.9%. This increase can be explained by 3 main factors. First of all, the traffic has picked up again on all our platforms, ADP SA, TAV, Amman, they were major consequences on our aeronautic fees and commercial fees. A very good result of our revenue per passenger in the retail with EUR 21.6 per passenger, even though a lot of shops were closed because of the restrictions in the airport, but also a general restriction over the different travels especially with the international destination. The other major factor of the good revenues, the integration of the Almaty Airport, an airport that was consolidated in the global integration in 2021. And it meant an increase of EUR 105 million in the revenue compared with 2020. The EBITDA, while this is driven by the very good control of our cost, there were savings on the payroll. There were savings linked to partial activity that was only applicable in Paris during the first quarter, but also for SDA, EUR 27 million, with TAV for EUR 15 million. We also have a good EBITDA. We have EUR 20 million contribution of EBITDA since May 2021 until December 2021. So it's an EBITDA relative distribution. We have 2 piece -- 2 good piece of news. The drop of the production taxes in France for a positive impact of EUR 51 million and the return to full ownership of certain buildings, which generate a product -- a revenue of an additional EUR 109 million. So good EBITDA characterized by a good control of our cost. We would like to zoom on this. At the group level, we see that even we -- even though we neutralized the outstanding effects -- nonorganic effects, linked to depreciation, for example, gains on the real estate, the full ownership of the AOT, but also the reform of the production taxes, we have an increase that is mainly driven by an organic growth of business, aeronautic, real estate and commercial activity. Regarding the operating expenses, ADP SA, well, we have an increase in terms of expenses, but it was contained to a plus 1.9% to be compared with the increase of 26.8% increase in traffic, which is the sign of the good efforts provided by everybody. And also major item are the staff cost slightly down because of the social measures implemented in '21 that actually offset the reduction in business in Paris. Now the net result. These indicators are marked by a major base effect linked to the recording in 2020 of impairment of intangible assets. Internationally, an impact of EUR 252 million for the Société de Distribution Aéroportuaire. But also a depreciation in Paris related to some of our joint ventures. And operating income that is also characterized by an organic improvement because the equity company have been doing well, especially Antalya, a major asset for this financial performance. The continuation shows a major dynamism and a potential value creation for the next 25 years with a result that has been increased by EUR 38 million. The net income now, we have all the base effects that were mentioned with the depreciation last year. We have a one-shot effect that we had talked about before EUR 109 million for the debt restructuring and a negative impact of the situation improvement that is linked to the increase in income tax. Our Chairman was saying that this year in 2021 was also characterized by a very good cash flow with a debt repayment schedule that is completely controlled and phased out over time and a cash flow -- available cash flow within ADP SA, within the group that is completely under control. We had announced that in the second semester 2020, we were controlling our cash. This year, again, in the second semester, we are controlling our cash after the reimbursement of the bond issuing for EUR 409 million in the beginning of July. Our performance is also due to controlled investments and to control expenses. S&P so renewed its rating recently last December. So these were the different details, I wanted to tell you about. And I'm going to give back the floor to my colleague.

[Interpreted] Thank you, Philippe. A few information about the guidance for 2022 in terms of traffic. For the group, we believe that we'll recover between 70% and 80% of the group traffic we had in 2019. As for every year, in Paris Airport is slightly below because the other airports have a better demography and are more dynamic in Paris. Therefore, is slightly below, it's between 65% and 75%. Regarding the EBITDA margin, it should be between 30% and 35% in 2022 with a ratio of financial debt over EBITDA, that will be between 6 and 7 at the end of 2022 in compliance with what we had announced, we had a -- we were at 15% in 2020 and slightly just above 3 in 2019. We are also announcing positive net results in 2022 in terms of investments, I'm going to get into more details. We believe that there will be EUR 1 billion per year on average between 2022 and 2025 with in Paris between EUR 550 million and EUR 600 million for the regulated and the nonregulated in Paris in 2022. So these various aspects led to our forecast for 2022-2025 that will be presented in detail tomorrow, but I'm just going to give you an outlook here. The road map that we're going to tell you about tomorrow is a road map for radical transformation of the group model. We actually concluded that the air traffic is not going to be developing if it's still carbonated. So the decarbonation of the air traffic is one condition for its survival. This is why I would like to invite you to listen to us. Tomorrow, you will get all this information in details. But I can tell you now that regarding the forecast and the financial objective for 2020 to 2025, we'll tell you why we believe that the ADP Group will recover the level of 2019 between '23 and '24 and for ADP between '24 and '25. Regarding the turnover per passenger, we'll explain why and how the renewal of our approach in terms of service and trade will lead us to a turnover per passenger for all the services in the airport. So slightly more with the advertising, the luggages and so on, would be of some for passenger of EUR 25 -- EUR 27.5 by -- per passenger. Regarding the expenses now, we plan to come back to a level of EUR 32 in 2020 to a level of EUR 18 in '24 and '25, similar to the level in 2019. As soon as 2024, we intend to recover EBITDA level that would be above the one that we had in 2019. Regarding the EBITDA margin, it should come back to a level between 35% and 45% in 2024, 2025 -- no, between 35% and 40%, sorry, there was a mistake in my comments. And the net result of the group will be positive again this year in 2022. And we'll tell you about the investments for the group of EUR 1 billion per year on average between 2022 and 2025. And for ADP SA, it will be more moderated than what we would have done before the COVID pandemic. You see between EUR 550 million and EUR 600 million, EUR 750 million, EUR 800 million in 2023. And you can see the figures on the table. The financial debt will remain under control, 6x or 7x the EBITDA in 2022, 4.5x or 5x in 2025. The dividends due for the year and minus 1%. In 2023, we're going to start paying 60% in terms of payout rate and a minimum of EUR 1 per share, a minimum of EUR 3 per share in 2024. All these financial data, of course, have to come along with the detailed description of our strategic road map. And this is why at 9 a.m., tomorrow morning, whether we are here physically or with the video conference, you are invited to listen to about 10 or 15 employees of the group who are going to tell you, along with myself and Philippe, explain the major transformation road map for ADP. It will be the first global road map for the whole group. Thank you very much for your attention. And now I think we can take some of your questions.

[Operator Instructions] [Interpreted] We don't have any questions in France. We have a question just arrived from Nicolas Mora. And you can ask a question, Mr. Mora.

[Interpreted] Yes. So I'll just have a look at the results. And I thought it was quite surprising to see the good performance of the retail. In terms of expenses, and we consider that the fourth quarter would be quite difficult, but actually wasn't. So in terms of profitability, could you say what happened? How things happened during the second half of 2021 because we see an improvement in the revenue. So it was -- to understand the dynamic behind all this?

[Interpreted] Well, Nicolas, we'll give you some info. So we have a strategy that was fruitful. And we -- it was a strategy with first pillar with the optimization of our infrastructure and aim was at try to save money on the expenses. And I wanted to have to optimize the shops, and we have to have a better understanding of the flows of passengers. And this is why we opened the new terminal, the BD because we knew that the performance will be much better, thanks to this new infrastructure. And we also decided to close some infrastructure we consider to be non-necessary. And so we wanted to focus on the flagship terminals in Paris, the 2E and the K. So we have a strategy based on offer. And of course, we have very well-known branch, for example, the Terminal 2E because all the luxury brands are in the Terminal 2E and they have been able to have some nice performance and because we have based our actions on some clusters. And let's give the example of the reopening of America and also of Africa. So in Asia, and this is one of the main pillars that was visible during the crisis. The hub was quite resilient. You know just like I do that it was very difficult to travel to Asia, and you know that the Asian travelers, they have to travel and they have to come to Paris and especially when they have to go to Africa. Well -- and this is why we have a laboratory is we could actually have PCR tests carried out in Paris before you go to Asia. So traffic was great. We managed to improve and optimize everything, and we have a high quality offer, and we have new policies. Thanks to this new infrastructure, but we are still trying to optimize everything we already had in these terminals. So these are some elements. But tomorrow, we have these -- the day for -- specific day for investors, and we'd be able to see that the recovery of our traffic will have an effect in 2022. And we will be able to stabilize in a better way this situation. And we will be -- make a comparison with the other airports in Europe. Are there any other questions?

Questions, if I may. In the first one in terms of your EBITDA guidance in 2022, are there any one-offs in there that we should consider positive or negative? Secondly, in terms of your retail spend per passenger, what are your expectations for 2022? And the last one, please. In terms of the authorization to buy back let's say a percent of your share count, could you elaborate a little how we should think about this? I mean, it would add quite a bit in terms of your financial leverage. Is that a problem for you at all? Or it doesn't really matter? I assume your targets -- that your financial leverage target that you published today, are excluding any possibility of a buyback?

[Interpreted] Thank you very much for your first question about the EBITDA. So now we don't have any specific guidance, the EBITDA, because as presented by the CEO, we have some guidance on EBITDA and the recovery of the turnover for passenger and we'll have -- supposed to have a good modeling of this for 2022. We don't expect a specific one-off. If it happens, well, it'll be fantastic. But as we speak, we don't have any kind of modeling on this. So about the turnover of the passenger, as I said previously, we may probably reach a plateau in 2021 -- in 2022. So we may have some good news about this. But we may probably reach a plateau before a brand-new increase as will be described by Mr. Daubert in tomorrow. So about the announcement as made by the decision made by the Board of Directors to buy back some shares that RSG has in ADP, it's just modality method to enforce what we have in the exit agreement. So in line with the authorization given by the general assembly, this measure to help us to anticipate and to protect ourselves. So the company may preempt some our shares if the solutions as chosen by Schiphol wouldn't be in line with the interest of the company. So about the share buyback, as we speak. We don't expect this preemptive right to have to make a share buyback. Do you have any other questions?

Line of Dario Maglione from BNP Paribas.

Three questions. One in terms of the exceptional income that affected EBITDA. How much was in the second half if you can confirm that? Second question, can you give us an update of the unwinding of the cross holding with Royal Schiphol Group? And what are the possible scenarios? Rational cost, which seems to be -- since you have done a good job, which line items came down? And is that sustainable in 2022?

Could you repeat your second question, if I -- second question about Royal Schiphol Group? Could you repeat your question about this Royal Schiphol Group, please?

Royal Schiphol Group, what is happening?

[Foreign Language] [Interpreted] So to answer technically about your question on EBITDA, for the first semester was EUR 151 million. What -- so then we have EUR 604 million to reach the level for the whole year. So for your second question about the both 2 potential scenarios in order to buy back the shares of ADP, just need to understand this is a preemptive right. So we may have -- we may substitute other investors. And this is the schema that should be chosen and you will see tomorrow -- and we have a complete description of the road map. We may have something happening by 2022.

[Foreign Language] [Interpreted] Okay. So I think tomorrow we'll be spending 4 hours together. And I will be available to answer your questions tomorrow. So I would suggest that those of you who have any questions, and you will be able to get all to reflect on our figures and -- of the presentation. I will be ready to answer your questions tomorrow. Thank you for your attention, and we'll be delighted to see you again tomorrow at 9 a.m. at Paris [Foreign Language] or online. Thank you very much. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]