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

Welcome to Groupe ADP 2026 Half Year Results Presentation. [Operator Instructions] Now I will hand the conference over to Cecile Combeau, Head of Investor Relations, to begin today's conference. Please go ahead.

Good morning, everyone, and thank you for joining us for our 2026 half year results presentation. I'm here with the management team, Philippe Pascal, Chairman and CEO; Justine Coutard, Deputy CEO; and Christelle de Robillard, Group CFO. Philippe and Christelle will first go through prepared remarks on H1 and on our economic regulation agreement project before we open the line for a Q&A session. Before we begin, I would like to remind you, as usual, that today's discussion may include forward-looking statements, which are subject to risks and uncertainties that could cause actual results to differ materially. For more details, please refer to the disclaimer included in our press release and on the last slide of our presentation. And I will now hand over to our Chairman and CEO, Philippe Pascal.

Thank you, Cecile, and good morning, ladies and gentlemen. Thank you for joining us to discuss our 2026 half year results and progress on our economic regulation agreement project. Let me first start with the key message for the first half on Slide 3. The first half reflects 2 realities. First, the operating environment became progressively more changing, while the direct impact of the Middle East conflict has gradually faded since April, its indirect consequences are spread more broadly affecting traffic growth and airline behavior and ultimately demand trends. Second, the group demonstrated resilience. We reacted quickly by implementing targeted cost and efficiency measures expected to deliver EUR 40 million to EUR 60 million of savings. This action will help protect margin while preserving our strategic investments and our quality of service. At the same time, we continue to deliver on our industrial road map and strategic priorities. We completed the partial monetization of GMR Airports restarting EUR 257 million of value while continuing to prepare the group's next strategic plan. We also reached an important milestone on the future economic regulation framework, which will provide greater visibility for the 2027 to 2044 period. I will come back to this important topic in the last part of this presentation. As a result, while we are revising our traffic and EBITDA guidance to reflect the current environment, we remain confident in the strength of our business model and in our ability to deliver long-term value creation. By far, show that despite the challenging environment, we delivered key investments. In Paris-Charles de Gaulle, we commissioned a new baggage and link system at Terminal 2. In India, GMR added 2 airports to its portfolio. And in the U.S., PS opened 2 new premium terminals. These achievements illustrate our continued focus on operational efficiency, growth and customer experience. Turning now to our first half results on Slide 5. Revenue increased by 1.6%, while recurring EBITDA remains above EUR 1 billion and attributable net income reached EUR 312 million, supported by the partial monetization of GMR Airport. These numbers show that despite a significantly more challenging environment, we delivered resilient results book decision to protect profitability and continue to execute our strategic priorities. Christelle will now take you through the details of this result.

Thank you, Philippe. I'm turning now to Paris traffic on Slide 7. Traffic grew by 0.5% in the first half. The direct impact of the Middle East conflict peaked in March and has since progressively faded. However, this improvement has been offset by softer demand across other international destinations, particularly long haul. Combined with higher fuel costs, higher ticket prices and more cautious and capacity deployment, this led us to adopt a more prudent view for the second half. This is the rationale behind our revised full year traffic outlook of around 0.5% growth. Looking now at our international assets. Traffic remained broadly resilient across the portfolio, although performance varied by geography, reflecting both different exposure of assets to the current geopolitical environment and specific operational headwinds. At TAV airports, traffic grew 1.3% in the first half. GMR traffic grew by 0.6%, while AIG was more significantly impacted by the Middle East conflict with traffic down 15%. Turning to our commercial performance on time line. Extend Paris pax stood at EUR 31 in H1, reflecting resilience despite a still software luxury environment the invest currency effect from stronger euro in Q1 and the impact of work in Terminal to E.K. Encouragingly, SPP remained broadly stable year-on-year in the second quarter as the adverse FX impact that weighed on SPP in Q1 is materially in Q2. Turning now to revenue, Slide 10. Group revenue increased by 1.6% to EUR 3.2 billion, demonstrating the resilience of our diversified business model. In Paris, aviation revenues continue to benefit from tariff increases in the first quarter as well as traffic growth, which remained slightly positive in the first half. Retail & Services proved broadly resilient despite the more difficult environment. In international assets, strong revenue growth at TAV Airports more than offset the impact of the conflict in Jordan on AIG. Overall, the diversity of our activities enabled us to continue growing revenue despite the challenging environment. Turning now to EBITDA, Slide 11. Recurring EBITDA stood at just above EUR 1 billion and down only 1% year-on-year. We maintained tight cost discipline while continuing to invest in the business and absorb inflationary pressures across the group. In addition, the majority of the benefit from our cost saving measures are expected in the second half. Moving on to Slide 12. Net income reached EUR 312 million, more than 3x last year level. The strong increase was primarily driven by the EUR 257 million gain generated by the partial monetization of GMR Airports, together with a more favorable financial results than in the first half of 2025, which was impacted by noncash negative one-offs, as you will all recall. The key takeaway is that we continue to generate value for us through the resilience of our operations and through active portfolio management. Now on Slide 13. Net debt is totaling EUR 9.1 billion at the end of June, corresponding to a leverage ratio of 3.9x recurring EBITDA. Our financial position is robust. At the end of June, our net debt position reflects continued investment in the business, the annual dividend payment for EUR 3.8 per share as well as the noncash accounting impact of GMR-related options, which partially offset the cash proceeds from the transaction. Let me now come back briefly on the past show disposal of our stake in GMR Airport on Slide 14 to emphasize 1 point that might have been overlooked by the market. This transaction is not only about crystal leasing value from GMR. It is also a significant deleveraging transaction. Compared with our net debt at the end of 2025, once all 3 components of the transaction are completed and all else being equal, net debt would be reduced by more than EUR 1.3 billion and leverage would improve from 3.7 to 3.1x EBITDA. At the same time, we preserve our strategic relationship with and maintain significant economic exposure to India long-term growth potential. In other words, we are at the same time to closing value, reinforcing the balance sheet and retaining access to 1 of the most attractive aviation growth market in the world. That combination is what makes this transaction particularly compelling for ADP shareholders. Let's now turn to our 2026 outlook. As this cuts throughout the presentation, we are operating in a more challenging environment. Slide 16 illustrates how we are responding to it. We have deployed targeted cost-saving measures across the group, focusing on discretionary spending, outsourced services, hiring discipline and expenditure prioritization. These actions are expected to deliver between EUR 40 million and EUR 60 million of savings in 2026 with most of the benefits materially easing in H2. Importantly, we are protecting profitability without cutting strategic investment or reckoning quality of service. In many respects, this action are also accelerating the efficiency journey embedded in our future economic regulation framework. Let me conclude with our updated outlook on Slide 17. With the prolonged Middle East conflict, our assumptions now reflect a more cautious traffic scenario for the second half. We now expect Paris traffic growth of around 0.5%. Extra sales per percent would be stable at EUR 32, and recurring EBITDA in the range of EUR 2.3 billion to EUR 2.35 billion including EUR 40 million to EUR 60 million of saving measures. At the same time, we are maintaining our investment program broadly unchanged at around EUR 1.45 billion of CapEx at book level. We continue to target a disciplined balance sheet with net debt expected at around 3.8x recurring EBITDA. All in all, the key message is simple. We navigate the current environment with discipline to protect profitability in the short term without compromising our long-term growth. And with that, let me hand back to Philippe who will provide an important update about the economic regulation agreement.

Thank you, Christelle. And let me now turn to the economic regulation agreement, starting with Slide 18. We have reached an agreement with the French state on the parameters and provision of the future economic regulation agreement. This is a decisive milestone. This updated project address the main issue raised by and reflects the key recommendation for the April nonbinding opinion, and it provides a visibility needed to move forward with the final phase of the process launched in December. It is a result of several months of negotiation with the French Civil Aviation continued dialogue with airline and extensive technical works with the regulator. In order, while a few regulatory steps remains ahead of us, included airlines formal consultation and the ART binding opinion, we now have a clear and credible path towards implementation on January 1, '27. This agreement reiterates the key fundamental of the project presented in December. First, it confirmed an ambition investment program aimed at enhancing the competitiveness of Paris Airport, improving operational efficiency, reinforcing quality of service and accelerating decarbonization. Second, it ensures a balanced economic framework, combining tariff moderation for airlines and a fair return on invested capital. Since the proposal we issued last December, we took into account the recommendation of the regulator. We listened carefully 2 airlines and engaged in extensive negotiation with the civil aviation. As a result, we confirm a program of EUR 8.2 billion regulated investment over an unchanged duration, supported by strong productivity commitment of around EUR 650 million annual savings cumulated over the duration of the contract and a balanced tariff trajectory capped at CPI plus 2.1 percent points on average. The revised framework also relies on updated traffic assumption, updated allocation is that better reflect infrastructure use and redesign risk-sharing adjustment factors. This change directly address the regulatory recommendation and airline concerns, and we believe the contract now provides a robust basis of ART review. Ultimately, the parameters agree with the French state, support the convergence of the regulated ROCE with the regulated WACC at 5.8% in average over the duration of the agreement. One important outlook today is the confirmation of the 8 years duration of the agreement. I am now on Slide 21. This is critical, becomes the transformation of Paris Airport require long-term visibility and a stable framework to deliver an unprecedented investment program. The agreement, therefore, confirms the planning region on which our industrial road map is built. And it's also established the necessary sales growth associated with such long-term commitment included a midterm revenue mechanism and revision clause. The result is a framework that provide both the visibility needed to invest and the flexibility required to manage long-term uncertainty. Let me now turn to the weighted average cost of capital for the regulatory scope, which is the central component of the agreement. As we are required by law, the framework must ensure fair amination of the capital invested within the regulatory perimeter. Consistent with the principle, our objective remains for the expected regulated ROCE to converge on average over the duration of the contract with the related WACC. Importantly, the level of WACC retained in our proposal is fully consistent with the ART methodology. Based on the last market parameter and applying the regulator's own approach, the result is an updated range of 5.1% to 5.9% with our proposal set at 5.8% in the upper part of the range. We believe this positioning is consistent with the framework set out by the ART in its opinion published last April. The economic regulation agreement last 8 years and compared with the initial proposal issue in December, the revised framework increased our exposure to a number of operational risks while maintaining protection against exogenous risk. Therefore, we believe that a regulated WACC of 5.8% appropriately reflects the duration and risk profile of the contract fully in line with the ART methodology. I will now hand over to Christelle regarding the other parameter of this agreement.

Thank you, Philippe. Another important evolution compared with the December proposal is the allocation keys used to strict cost and assets between the regulated and nonregulated businesses. This was a key issue identified by the regulator. We introduced 2 main changes. First, a wider recognition of mixed-use areas within terminals; and second, a more granular allocation of passenger infrastructure based on actual usage. . The result is a transfer of around EUR 50 million of OpEx and EUR 64 million of regulated assets out of the regulated perimeter. ART has estimated an allocation bias of around EUR 50 million to EUR 100 million of OpEx in its opinion. Therefore, the adjustment is very much in line with the regulator's assessment and addresses 1 of its main expectations. Turning now to OpEx discipline. Our project relies on an efficiency plan with aim to deliver around EUR 140 million of annual cost savings by 2034. This represents around EUR 650 million of cumulative savings over 8 years. Despite higher business as usual cost trajectory compared with the December proposal, and this is driven by the slightly hastened traffic growth rate, regulated OpEx are expected to remain broadly unchanged by 2034. The main savings levers remain unchanged, better procurement, more efficient operations and maintenance improved support functions and continued control of staff costs. All those initiatives will allow us to contain regulated OpEx growth as around CPI plus 1.3 points. Let's now move to traffic. We included a few adjustments to our assumptions. First, the lower pricing points, our revised 2026 outlook mechanically as around 0.2 points to the average growth rate over the period. And second, we have also refined our assumption regarding the impact of deployment and other price-related regulatory effects on demand, and we are expecting a more limited effect compared to our initial assumptions. As a result, we now expect average traffic growth of 1.9% per year between 2026 and 2044. Moving on to our industrial project. Since December, we have refined project cost estimates, completed additional technical studies incorporated feedback from procurement consultation and airlines and finalized a number of regarding the design of some projects. As a result, we confirm EUR 8.2 billion regulated investment with the main project maintained, reflecting our unchanged ambition to improve operational efficiency of our platform and enhanced quality of service and reinforce competitiveness of both airlines at the Paris hub. Let me now turn to the airport charges trajectory. The realized tariff path remains concluded with CPI plus 4 points in the first 2 years, followed by CPI plus 1.5 points for the rest of the agreement. This trajectory support the convergence between regulated ROCE and regulated WACC on average over the 8-year period. And I would also like to remind you that the signing of the era will validate at the same time the 2027 tariffs, implying an increase of CPI plus 4 points from 1st first April 2027. Overall, the agreements provide for a moderate tariff increase capped at CPI plus 2% points on average, while preserving the competitiveness of Paris airport tariffs related to European peers. The next slide illustrates the expected convergence between regulated ROCE and regulated WACC at 5.8% on average over the life of the era. This trajectory is not based on ADP assumption alone. The underlying business plan has been exhaustively challenged by both the state and the regulator, including traffic, investment and execution assumptions. The resulting economic balance has been calibrated to deliver this convergence while an adjustment mechanism help preserve it over time. As can be seen on the graph, we expect convergence from the very beginning of the contract. This is supported by the front-loaded tariff trajectory with the 2027 tariff validated upon signature of the era. Overall, we believe this is a robust and credible path towards the fair remuneration and results. Let me finish with the adjustment factors that help secure the long-term economic balance of the contract. Following IFC recommendation, the revised framework is simple, ADP builds more of the risk it can influence or manage through its operation, traffic, operational performance and project delivery, while remaining protected against major external risks, particularly fiscal risk. These mechanisms have preserved the contracts economic balance and support a fair remuneration of invested capital over time. Together with the review close, they provide the flexibility and protection needed for an 8-year agreement. With that, I will hand back to Philippe for the conclusion.

Thank you, Christelle. So today our agreement represents a major milestone in the economic regulation agreement process. There are 3 reasons why we believe uncertainty around this process has been significantly reduced. First, our revised contract address the key concerns raised during the review of our initial proposal. And we now see a credible path towards the signature of contract before year-end. Second, the industrial project and its economic fundamentals have been confirmed. Third, the contract provides a credible path towards convergence between regulated ROCE and regulated WACC and at 5.8% on average over the 8 years period, fully consistent with the methodology of the French. Now broadly, this agreement supports the most ambitious investment program ever undertaken at the Paris Airport with EUR 8.2 billion of regulated investment over 8 years. And just as importantly for investors, it preserves the group's strategic flexibility with a confirmed capacity to invest in future nonregulated growth opportunity remain, maintain our dividend policy of a 60% payout ratio with a floor of EUR 3 per share and preserve our current credit profile. Looking ahead, the next step are well identified, consultation of airlines in September. IST binding opinion later in the year and our unchanged objective of implementing the economic regulation agreement on January 1, '27. We, therefore, approach the next phases of the process with confidence. With that, let's open the line for questions.

[Operator Instructions] The next question comes from Cristian Nedelcu from UBS.

Both of them are on the economic proposal. The first one, a few months back, suggested that in order for the WACC to be at the higher end of the range, they would like to see more risk taken by ADP. And I think in Slide 30, you bring us your references to the changes to the adjustment factor that you've made versus your first proposal. Could you elaborate on these changes? And what gives you confidence that the changes you made on the risk adjustment factors are sufficient to allow WACC at the higher end of the range? And secondly, just from a scenario perspective, could you tell us what's the tariff, the CPI plus 2% tariff sensitivity for a 50 basis points lower WACC than in your base case? Just for us to visualize, if by any chance the walk ends are being a bit lower, what does it actually mean for the tariff you proposed today?

Thank you for this question. So for the first question, in fact, we are fully in line with the ITM methodology with a range of the WACC and the fact that when we are in economic relation agreement, mechanically, we are in the high part of the range. And we are also very comfortable with the WACC at 5.8% due to the risk that we have in our economic regulation agreement, that is a business risk and not exposing us risk. And just to remind the main risk that we have in this proposal. That is not the proposal of EDP, but the proposal of the French state and ADP. The first risk is the traffic risk. We increased slightly as a traffic growth trajectory to try to have a good and well balance in our business approach. The second element is the investment risk that we increase and with a new mechanism liking remuneration to deliver cost of certain major projects in addition to existing schedule-related incentive. On the last, but very important risk, it's the service quality incentive that we have reinforced with a larger penalty in case of underperformance. At the same time, it's very important to understand, it's the protection against tax-related change remain in place. So we don't have exogenous risk in terms of tax change in the corporate tax are covered at 75% for the expenses accounting for as CapEx. And the taxation of any kind factors allowing to offset any impact from an evolution in tax framework other than corporate tax, above EUR 5 million. So a good balance between business risk and other risk that we also cover. Today, the proposal is calibrated around 5.8% conversion target, which we believe is consistent with French regulatory methodology and the revised risk profile of the contract. So after a good negotiation with the Civil Aviation Administration after a good dialogue with their lines, but also after extensive work, technical work with the regulator, we are fully confident. For the second question, Christelle.

Yes. Maybe on the second question regarding the sensitivity of a trajectory and WACC. Just to say that the sensitivity indicated in our December proposal remain valid. So it was mentioned that 10 bps of ROCE or WAC equals plus 0.7% tariff increase. On average, I really increase on average because, of course, it depends on the timing of the tariff increase. But to have just a color, it's this kind of entity. Today, the proposal is calibrated around 5.8% convergent target, as Philippe mentioned, which we believe, once again, as Philippe clearly explained, is consistent with the regulator methodology and the revised risk profile of the contract.

The next question comes from Tobias Fromme from Bernstein.

We do understand that the agreement would be with a state after all. But just because the state has issued its opinion and you published a strong proposal. We were just wondering what do you think is the leverage on the regulator here? Obviously, you will enter into agreement with this day that is clear. It's more like the regulator is entirely independent and have had a lot of sort of criticism on your first proposal in April. How much leverage do you think this strong proposal will put on the regulator?

Thank you. So we cannot prejudge the regulatory decision, and we fully respect the French regulatory independent. But with this new project contract, we are designed and address all the main issue identified by the French regulator simple opinion in agreement. So it's incorporated change to allocation key. We also have WACC with the risk-sharing arrangement. And we have a significant technical discussion during this last month included regarding the update of the WACC with the current market parameters. So all in all, we believe the contract provides a robust basis for the French regulator review. And we are -- obviously, we have to wait the formal consultation of the airline. We have to wait the audition with the French regulator and final review. But now, with the French state, it's not just EDP, we consider, but it's a very good balance with all the elements that we can have to finalize our agreement for the end of this year. Thank you.

The next question comes from Eric Lemarie from CIC CIB.

I've got 2 questions. The first 1 on India. I was wondering whether the recent social movement in India, the Cockroach political protest had any impact on your traffic there? And with the recent opening of the Noida airport close to Delhi had an impact as well or not? And the second question on traffic in Paris, did you see any negative impact from the implementation of the EES in Europe? What you -- and what's your view on the future step regarding the ESS and the potential impact on tariffs traffic?

Thank you, Eric, for your question. So the first 1 regarding India traffic. So on the social movement, so far, no impact has been observed, and the traffic trajectory increased by only 0.1% year-on-year, but it's not related to this element. And to answer to your second question on Noida Airport. So as we had already the opportunity to tell where we consider that Noida airport does not constitute a threat to daily traffic growth and prospects. You know that Noida airport is located outside the Delhi Metro area and serve more point-to-point traffic starting notably with local domestic traffic without changing the status of daily. So clearly, no straight from that perspective.

So thank you. just about EES deployment. So at this stage, we are not observing any material operational impact for the ES at our airport. We have fully implemented the infrastructure and equipment. The main point that is very important for us, it's the fact that the police and the French government taking a pragmatic and flexible approach to implementation. In part of high passenger volume, the use of ES is not applied systematically. That is a key element for us that is quite a different manner to approach this element compared to the other European country. So based on the experience to date, we do not consider to be a material operational risk and without the impact in the tariff -- in the traffic.

The next question comes from Elodie Rall from JPMorgan.

So I'll have a few follow-ups on the regulatory agreement. First of all, I was wondering if you had any discussion with the regulator during this whole redrafting of the proposal. And notably, on the OpEx to be transferred to the nonregulated scope, I think the ART had estimated in April that you should transfer EUR 50 million to EUR 100 million. And here, you're proposing to transfer EUR 50 million. So I was wondering like how comfortable you are that the ART will be okay with this amount being at the bottom of their proposal. And second, on the risk, you're saying that you've increased the risk that you are taking on your side. I'm just trying to understand with regard to traffic estimate -- in previously, I think there was the case of deviation being needed by a certain amount in order to be rebasing every year. And here, it seems like it's not really necessary anymore that every year on any deviation, no buffer zone you can rebase. So is it really taking more risk in that consideration?