ENAV S.p.A. ($ENAV)

Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the ENAV Full Year 2025 Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Fabrizio Ragnacci, Head of Investor Relations. Please go ahead, sir.

Thank you. Good afternoon, ladies and gentlemen, and welcome to the Full Year 2025 Results Presentation, which will be hosted by our CEO, Pasqualino Monti; and our CFO, Luca Colman. In the presentation, management will provide some highlights of the period, and then we'll walk you through the operational and financial performance for the group. Following the presentation, we will have the usual Q&A session. Before we start, let me remind you that media can be connected to both the presentation and the Q&A session. Thank you. And now let me hand over to Pasqualino.

Thank you, Fabrizio, and good afternoon, everybody. I will start with a closer look at the operating performance. Since 2023, the Italian airspace has shown a full recovery and continue to grow year after year. In 2025, en-route traffic for Italy stood at plus 24% versus 2019, up by more than 10 percentage points versus the comparator group in Europe. 2026 started on a strong note. As of February, en-route traffic is up by 7.6% versus 2025. In this record growth environment, ENAV's operating performance has been remarkable and confirmed our rule as best-in-class in Europe. Results in terms of quality of service are evident. The number of flights assisted has grown over the years. And still, we have always beaten the regulatory target even by quiet some margin. This track record gives us confidence that we will continue to overperform and achieve the performance bonus also in the coming years. The significant operating performance was coupled with visible results also on sustainability. We have achieved a reduction in CO2 emissions of 86.4% versus the 2019 baseline. We have been confirmed in the Climate A List by CDP for the second year in a row and we have been included in the Sustainability Yearbook of Standard & Poor's for 2026. Besides the core business, the risk return profile of the group has improved also thanks to the focus on the nonregulated business. Managerial efforts to valorize ENAV's expertise and know-how resulted in a growth of around 1.6x in revenues from the nonregulated business that now accounts for approximately 5% of total revenues. The acceleration started in 2023. And in 2025, this business recorded revenues of EUR 52 million, position us well to reach our target of more than EUR 100 million by 2029. We have exposure to growing markets and technologies with almost 50% of the revenue stream generated outside of Europe and with a well-diversified portfolio of products. The growth has been achieved both organically and through M&A. In the defense sector, the higher spending planned by the government offered us the opportunity to contribute to modernization of Radar Surveillance Systems at 6 Italian Air Force bases. In Malaysia, we have proven the commercial feasibility of the remote tower concept. And ultimately, with the acquisition of AIView, which we expect to finalize in the coming days, we can expand further our presence in the drone segment, which we believe will grow significantly in the future. The solid trajectory of both core business and nonregulated segment are mirrored by the performance of the stock. Since the start of the mandate, the re-rate of the stock has been consistent. The share price is up by 51% versus the average level recorded in 2023, recorded a growth of 46% since the Capital Market Day back in April 2025. Visibility of the path forward and our focus on shareholder remuneration resulted in a distribution of around EUR 430 million in dividends over the 2023-2025 period. As a result, total shareholder return for the period is equal to 57% higher than the TSR recorded by the Italian Mid-cap Index by 6 percentage points. As we are now at the beginning of a new year, the focus on shareholder remuneration remains unchanged and our dividend policy fully confirmed. Let's now start on full year 2025 results. 2025 results show our ability to execute and be resilient. We have fully met the guidance upgraded as of last July and even outperformed in terms of net income. Luca will elaborate on the key drivers, but let me highlight the results at the EBITDA level. EBITDA came in at the higher end of the guidance range as we were able to extract additional efficiencies and react to the weaker traffic trend emerged from August 2025. Results were strong also on cash generation. Free cash flow reached a higher level than projected with around EUR 260 million, up by EUR 20 million versus the initial expectation of the year. These results are the best basis for the next steps in our path to 2029, but the external context is currently very difficult to predict. We are facing an extremely volatile environment with recent turmoil in the Middle East, generating potential consequences that are difficult to forecast and are still evolving on a daily basis. In terms of our exposure, Middle East accounted for only 10% of en-route service units in 2025. We are monitoring the situation. January and February have shown solid growth, en-route traffic is at plus 7.6%, but actual data for March will be available only at the end of April. In order to grasp better the potential sides of the impact, we are also waiting from the update of traffic forecasts from Eurocontrol. For what concerns the impact, let me highlight that our regulatory framework foresees a balanced mechanism on traffic that protects in case of volatility. Beyond a 2% decrease in traffic versus the planned level, the downside will be shared with airlines with only 30% left on ENAV's accounts and 70% borne by airlines. As a sensitivity, you can consider that each percentage point en-route traffic accounts for around EUR 6.5 million in revenues. In light on the ongoing crisis and the lack of actual data to elaborate on, we have decided to postpone the communication of our 2026 targets to the Q1 results at the beginning of May. Operating variables are under our control, bear with us as we develop a more refined view on traffic for the coming months. Despite the turmoil can look ahead to 2026. Our results have proven the resiliency and predictability of our business model and the solidity of our strategy. We improved our targets for 2025, delivered on expectations and want to share the incremental results with our shareholders. To this end, we are upgrading the DPS curve for the next 2 years. We will propose to the next AGM in May a DPS of EUR 0.29 per share for 2025, and the Board of Directors approved a DPS of EUR 0.30 per share for 2026. As I said, our dividend policy is fully confirmed and based on cash flow generation, which remains visible and supported by a protective regulatory framework. And now I hand over to the CFO that will walk you through the numbers of 2025. I will come back later for closing remarks.

Thank you, Pasqualino. Good afternoon, everybody. Let's start with the operating details. Traffic in 2025 continued to be robust. And as I said by the CEO, outperformed the European average. En-route service units grew by 5.9% year-on-year, driven by overflight in international, up, respectively, by 7.8% and 6.9% year-on-year, which mitigated the national traffic, which is down by minus 2.1% year-on-year. Terminal traffic increased by 3.4% year-on-year with growth in both charging zones 1 and 2, mainly driven by international traffic that more than offset the weakness in national traffic. As a result, terminal performance came in below plan expectation by 3.6 percentage points. Let's move now to the economic results, starting with revenues. Total revenues for the period amounted to EUR 1.025 billion, supported by the continued strength of the core business regulated activities and the positive performance of not regulated business. Looking at the regulated business, net regulated revenues amounted to EUR 12.1 million, driven by en-route revenues that increased by 15.5% year-on-year. Terminal revenues remained broadly stable, reflecting the slowdown in national traffic that we mentioned earlier. The nonregulated business contributed with plus EUR 2.8 million, achieving the target for the year, in line with the planned expectations. Balance for the period impacted for a negative EUR 32 million as a result of a positive balance for the period for around EUR 49 million in 2024 and only EUR 70 million in 2025. Let me highlight the following. In 2024, we accrued a positive balance related to inflation worth of around EUR 64 million, which has been reset in 2025 for the start of the new regulatory period. And then 2025, we recorded mainly a negative inflation balance for around EUR 5 million, a positive balance for traffic overall of about EUR 4.9 million and EUR 13 million related to the en-route performance bonus, achieved thanks to the remarkable result in terms of punctuality versus the regulatory target that set for ENAV. Moving to costs on Slide 11. Total operating costs for the period amounted to EUR 772 million, up by 6.4%, well below the projected 9% increase embedded in the plan, thanks to the efficiency measures and the cost control initiatives that were also activated in response to the traffic dynamics in the second half of 2025. Personnel costs reached EUR 633 million, up by 6.8% versus the previous year, as a consequence of higher fixed component due to contractual wage adjustments, mainly linked with inflation and higher variable component, mainly driven by union agreements to handle the higher traffic volumes. Other operating costs increased by 7.6% due to higher maintenance costs, Eurocontrol contributions and other personnel expenses. Moving on Slide 12 on EBITDA. EBITDA for the period reached EUR 253 million, meeting the higher end of the guidance range for the year. This result has been achieved, thanks to the focus on cost efficiencies that allowed us to mitigate the impact stemming from the soften of en-route traffic started in August '25 as well as the weakness in terminal traffic. Moving now to Slide 13 on the profit and loss statement. D&A decreased by EUR 10.4 million to EUR 109.3 million as the negative impact from provisions of EUR 2.7 million was more than offset by lower depreciation following the full depreciation of some assets as well as the dynamics related to the accounting of EU grants like PNRR funds and other forms of subsidized finance. Net financial expenses of EUR 8.1 million decreased by 2.5% year-on-year, reflecting lower interest expenses on variable cost of debt due to falling interest rate, partially offset by an increased charge related to the first tranche of EIB loan. Cost of debt in 2025 was equal to 3.59%, down by 47 bps versus previous year. That was 4.06%. Let me highlight that at the beginning of 2026, we executed a liability management exercise and subscribed 2 new loans, 3 and 5 years bullet with a pool of banks that fully cover our needs for the plan period. This liability management will help us drive further more -- further down the cost of debt in 2026. Net result amount to EUR 93.1 million, marking a 4% increase compared to the 9 months 2025. Let's move to cash flow and net debt on Slide 14, where we can see that net debt for the period is equal to EUR 137.5 million, down by EUR 120.8 million versus December 31, '24, and that was driven mainly by the strong operating cash flow generation of EUR 340.6 million, up by 1.3x versus 2024. Then we had also the cash absorbed by investment activities for around EUR 77 million and the dividend payment of EUR 146.2 million. Free cash flow for the period was equal to EUR 263.6 million, up by EUR 64.5 million year-on-year or 32%, confirming the company's strong and consistent cash generation profile. To the same extent, in 2026, we expect to generate a free cash flow of around EUR 250 million. And now I hand over back to the CEO for the closing remarks.

Thank you, Luca. 2025 results proved our ability to deliver the solidity of our business model and our technical excellence. 2026 will drive significant progress in the implementation of the key strategic initiatives at the core of our industrial plan. We are currently experiencing high levels of volatility in light of the situation in the Middle East. The year started on a strong note in terms of traffic, but we must monitor the evolution of the events and their implications. We are confident on the evolution of all the business variables under our direct control and we'll share with you the targets for 2026 in the Q1 results presentation of next May. Based on this confidence and the robust delivery of 2025, we have improved the DPS curve for both 2025 and 2026. And now let's open the Q&A session.

The first question is from Carlos Caburrasi, Kepler.

Two from my side. First, on the 2026 guidance, I understand your cautious stance. And I know you've said that more visibility will be provided in Q1. But at the same time, you are providing a free cash flow target of EUR 250 million. And I was wondering if you could at least provide some visibility on the key assumptions of that figure. And second, on dividends here, it's actually two quick questions. One is that while you haven't provided guidance in 2026, how likely is that we see the [ EUR 0.01 ] upgrade or improvement continuing through the rest of RP4? And the second is that although it's still far away, how should we think about dividends in RP5 given that in RP4, these are largely supported by balance reversals? And would it be something reasonable to expect higher debt to sustain dividend payments?

Okay. Carlos, I will go directly to the second one and then back to the cash flow. I mean, if you look at what is our profile, our net debt on EBITDA ratio above all target in 2029, we have a lot of room to have a better -- I mean, we can even have more debt without no problem. So in general term, I would answer, yes, there is the possibility to. This will decide by the future Board of Directors in that time, also looking what would be the real free cash flow generation in that time. But in general term, we would say, yes, we definitely can use that to pay our dividend also to increase our dividend. Say that, coming back to the cash flow, to just give you a flavor of what is the main item in 2026. If you think that in 2025, our forecast was around EUR 240 million of free cash flow, and now we have EUR 250 million, you should consider more or less the same assumption that we had last year, a little bit more an improvement that will be around EUR 10 million on the plane base, mainly related to more traffic en-route and related to the fact that the cash flow that is supposed to be cashed from the balance of the previous year in 2026 tariff is more or less the same on 2025. So it doesn't really move too much the figures.

The next question is from Nicolo Pessina of Mediobanca.

First question on CapEx. EUR 77 million of CapEx is -- looks the lowest level since the IPO at least. So I'm wondering if you can elaborate a little bit more on why such a low figure. And I'm also wondering if the target of EUR 570 million total CapEx plus recovery of the past delays over the 2025, '29 period that you provided a year ago with the update of the business plan is still valid because it implies a sharp acceleration in the next few years. In particular, following up on the following -- on the previous answer, which amount of CapEx is included in this EUR 250 million free cash flow generation for 2026? Second question on the defense spending by the Italian government you mentioned during the presentation. I'm wondering if you can provide maybe some example of additional opportunities of new contracts, maybe similar to the one you signed for the surveillance systems in [indiscernible] basis and maybe there are other opportunities with the Italian Military Institutions or other Government Institutions?

Okay. Nicolo, for what concern the CapEx, just think that we always think about cash CapEx, if you look in the cash flow, the impact on the cash flow. So the cash CapEx of this year in '25 was very close to 2024. So we didn't have so difference. And we believe we are more or less the same for the next year in terms of cash CapEx. In terms of CapEx of the year, we still have an amount of money that -- I mean, amount -- yes, of money that is [ a factor ] 3 things mainly. One, the discount that we have. As you know, we go everything -- every time we buy something, but on the investment side and the CapEx side, we always go on bid. And this allowed us to have a discount on the price that we planned in our figure. And this is effect positively in terms of the money that we spend. But actually, we already do exactly the plan that we are thinking to do. So this doesn't really impact in any way our investment in invest payment just to save money. Second of all, if you look at the D&A, the D&A is a little bit lower from the one that was planned just because we have 2 impacts. The first one comes from the PNRR and [ bond ] and [ chev ] all the grants that we are getting from European -- from the Italian state. This will reduce the number -- I mean, the amount of D&A in our P&L and also in our tariff. And the second one was also the fact that we have already -- we had actually fully amortized a couple of important assets came out from our D&A. And so actually, this has impacted a bit more than the value. So in general terms, we don't see any particular impact on our plan of the CapEx, just think that is more related to the discount that we are and the other factors that I explained. Or the other point, I will hand the -- just a second.

Okay. Yes. We are always looking for new opportunities. We are working on some options. One example is the control of price zones with drones where we wait for a tender to be launched. Defense opportunity will grow also because then the initial contract is expected to extend to other [indiscernible] spaces. That's it.

The next question is from Marco Limite, Barclays.

My first question is on M&A. You have announced an acquisition of AI a few months ago. Any update you could provide on that front is the first question. And the second question is more, let's say, on the strategy around M&A because clearly, this deal is not huge. But back at the CMD, you were planning for a pretty sizable firepower balance or pool for M&A. So the question -- the two questions are, number one, if you are expecting more M&A activities, maybe of larger companies? And number two, if you don't, do you have, let's say, leverage target that you have in mind and therefore, we should start thinking about extraordinary dividends or distribution to shareholders in order to have a slightly more efficient balance sheet.

Okay. For M&A, we expect to finalize in the coming days the acquisition of AIView. In the past, we shared with the market that we were running due diligence also on another target. We are currently still evaluating, but there has been no further progress on that target. In general, we continue to scout the market for opportunities and keep looking at different potential targets, maybe bigger than the first one.

And as Pasqualino said, in case we need to raise money, so more debt, they will be focused on this M&A for even bigger targets and for CapEx. That's our profile at the moment.

The next question is from Luca Bacoccoli, Intesa Sanpaolo.

Could you hear me?

Yes, yes. We can hear you, Luca.

Okay. So first question regards the traffic trend on March. Looking at Eurocontrol data regarding the first week after the war in Iran and the third week, it seems that traffic or better the average flights per day are still up in the region of 3%, 4%. So can we assume the data as a proxy of the en-route unit service for the March data. And the other question regards the OpEx trend in 2026 on which you can probably have good visibility. So I was wondering what should we expect in terms of cost efficiency given the very positive results delivered in 2025. Then the other question is on the nonregulated business for this year, if you have any target that you can share with us? And finally, a question for Mr. Monti. For several months now, the Italian press has been reporting that you might be moving to another listed company controlled by the government. So my question is, do you feel that you have successfully complete your mission at ENAV?

So on traffic, as you said, Luca, we only have the number of flights for the first half of March, so 2 weeks since the war start actually. Flight -- I confirm that the flight for the first few weeks of flight and non-service unit of March are up by low to middle single digit year-on-year, so still positive. So if we compare this to the last year period, same period, we had an increase. We are having an increase, still increase. But we don't see -- I mean, we don't have the information now to understand what will be an impact on service unity. We believe that could be still positive. But for the service unit of March, we need to wait the second half of April when we were going to publish the actual value. Also Eurocontrol, as you see, that normally, they publish the update on traffic in the middle of March, the new update, the forecast for traffic. They haven't published yet. That's the reason why they still are -- they also want to see what will -- what is happening in this couple of weeks -- sorry, the couple of weeks of March. So we need to wait a little bit more to be more precise even if the impact at least in terms of flights seems to be not bad at the moment. For what concerns costs, let me say, you should consider that we haven't anticipated most of the cost that -- I mean, part of the cost, the efficiency that we could have done in 2026 also for the traffic impact we had in 2025 for the terminal. So we anticipate part of this effect. This is a part of the answer why we are performing so well in 2025 costs. You should translate part of this efficiency also in 2026, but you should also add a part of the consolidation of cost of [ IB Group ] that is the company that we are acquiring and also the increase of the cost that we have starting from 2025 related to the agreement on the performance bonus sharing with air traffic controllers. So you remember that this year, we had this agreement with them that push us to get -- push them to get the performance plan. And so this seems to be the performance bonus, and this works very well, and we will supply this year. So in general terms, you should consider an increase around 6%, probably more or less an average that you could consider in your assumption.

On the nonregulated business, the not regulated business will grow by around EUR 10 million from EUR 52 million of 2025 to around EUR 62 million in 2026. On my mandate, the decision will be taken by the majority shareholder. I'm happy at ENAV and I'm focused on the implementation of the strategic plan.

The next question is from Amal Patel, UBS.

Just two from me. Just on AI, can you articulate a bit more how you're leveraging AI to achieve cost savings in the business? Clearly, the shift from digital to remote towers will be a tailwind to OpEx towards the end of the decade, and you already have this -- the [ AMAN ] system, which you're employing. But can you maybe talk about any new AI initiatives you expect to implement in the coming years and what incremental cost savings you expect these to achieve? And my second question is, can you help me understand a bit better the age distribution of your workforce? Approximately what proportion of your workforce do you expect to retire in the next 5 to 10 years?

Okay. So we'll conserve the curve of the retirement. Let me see that we have several, let me say, several -- a number of -- important number of controllers that we retired. We will -- our purpose is not to substitute all these controllers, thanks to the fact that the implementation of our business plan related above all in remote tower and digitalization of power will help us to optimize the number of people. So depending on the trajectory and in respect of the timing of this 10 years project, we've adjusted the number of hiring controller -- the number of controllers that we will hire in the period. So in the moment, by the end of this business plan, so '28 and '29, we foreseen to have a very positive impact on personnel costs, thanks to the -- what I just said, technology and the capability not to -- I mean, to hire new controller when they will go to retire. That is more or less our strategy on this point.

On AI, digitalization is one of the strategic pillars for us, and we are already one of the more advanced in Europe from a technology standpoint. Artificial Intelligence can be a lever to improve over time, the efficiency and capacity of the AI space. It's important to highlight that in our sector, technological evolution can only happen progressively and in line with the safety standards and regulatory framework defined at EU level.

Ladies and gentlemen, there are no more questions registered at this time. I turn the conference back to you for any closing remarks.

So thank you. Thank you to all who participated, and we'll be in touch with the Q1 results in May. Thank you. Bye-bye.

Ladies and gentlemen, thank you for joining. The conference is now over, and you may disconnect your telephones.