Flughafen Wien Aktiengesellschaft (FLU) Earnings Call Transcript & Summary

Okay. Ladies and gentlemen, welcome to our conference call for the preliminary results of Vienna Airport for 2020. Today's presentation, as usual, will be held by our 2 Board members, Mr. Günther Ofner and Mr. Julian Jäger. The presentation will be followed by a Q&A session, where you will be able to ask your questions. [Operator Instructions] As already mentioned before, the call will be recorded and will be available on our website shortly after this call. And the slides of the presentation, which I will also show in parallel, will be held -- are also available on our website under Presentations. And now I would like to hand over to our CFO, Mr. Günther Ofner. Please go ahead, sir. Thank you very much.

Yes. Hi to everybody. And I think our results for 2020, which we published today, have not really surprised you because it's very much in line with the guidance we gave in the last month. Clearly, COVID-19-induced losses are predominant, so we had minus 71% in our revenues and a net result of minus EUR 75.7 million. As will be seen in more details later, we have immediately started to do countermeasures covering all parts of our company. So we substantially reduced our CapEx. We had cost savings in all major positions. And therefore, we were able to limit somehow the negative impact of the COVID-19 pandemic. A very important factor to overcome the crisis is the short-term -- the short-time work program of the Austrian government, which is used by more or less all of our workforce. And we also did very major initiatives to prevent security and health for our employees and also for our customers and passengers. Looking ahead, and this is maybe more insecure to give a prognosis about '21 than it has been for previous years where we had a more or less a stable situation, but from today's perspective, we are still optimistic that we can reach our guidance for '21, which includes a revenue of roughly EUR 430 million and a black zero in net results. And what is very essential from our point of view is that the legal framework for traveling is coordinated, at least European-wide -- Europe-wide. Our optimism is grounded and supported by the fact that a recent survey found out that roughly 1/3 of the Austrian population wants to travel abroad by plane this summer and autumn, given that the situation of COVID-19 will allow it. So this means that demand exists and that we see the possibility that once vaccination rollout gets to more or less the whole population, traveling will be back. And especially for the holiday season, we would see a very quick recovery. One of the main preconditions of these elements are European-wide coordinated regulations, a digital vaccine and test certificate and also some coordination on an international level in regard of what are the conditions for quarantine, for testing and things like that if you are traveling. Let's now look a little bit closer to the figures. So revenues, EUR 333.7 million, down EUR 520 million compared to '19; EBITDA, in the positive territory with EUR 54 million; EBIT, so earnings before interest and taxes, with minus EUR 86 million; financial results, even to the year before; and altogether, net profit for the period, EUR 75.7 million. Financial results, even means that we still have very, very favorable conditions for lendings, except our EIB loan, and there is no problem of liquidity whatsoever. So from that point of view, we are on the secure side, and we are well prepared for everything that may lay ahead. Unfortunately, it's the first time in the history of our company that we had to report an overall loss. And if you look at the last 9 years, you'll see it has been a constant growth in profitability since '11. But I think that we will be back on a good track and on profitability not later than '22, given the current situation and our expectations thereof. If you look at the expenses, significant cost reductions could be achieved in all major positions. Net debt slightly rose from EUR 81 million to EUR 201.9 million and, if things are coming as we expect, should go down again to more or less EUR 100 million throughout '21. So we will not have no cash burn, but on the contrary, we will produce free cash flow throughout 2021. You see the respective figures in the next slide. So currently, net debt at EUR 201 million; equity ratio, unchanged from '19 to '20, which underlines the very strong balance sheet we can rely on, and it's more or less unaffected by this exceptional loss for 2020. Altogether, this, I think, is also reflected in our share price development. If you look at the last 5 years from January 2016, you might see that we are clearly outperforming Fraport and Zurich Airport. And we already reached somehow 2019 -- 2018, 2019 levels again. And let's hope that our guidance for '21 will work. So to reiterate it, it's revenue around EUR 430 million; EBITDA, around EUR 150 million plus; consolidated net profit, black zero; net debt, around or slightly above EUR 100 million; CapEx, around EUR 62 million. I think what is very important to understand is that our CapEx prognosis for 2020 was roughly EUR 220 million, and we finally ended up with EUR 79.9 million, which is caused by the fact that we did not start the big projects of the terminal enlargement as it was planned for 2020. And the renovation of Pier East should be pushed back for more than 5 years. Therefore, we took out the respective expenses already end of the third quarter. And the south extension is more likely to be restarted earlier, but that is dependent on the levels of passengers we see up to that point in time. We also announced that we will have to postpone the investments for the third runway. And we are now preparing applications to the authorities to substantially postpone the plans for building the third runway by 5, maybe more years. And we are quite sure that beyond 2025, we will see additional growth, not only on the global level in aviation, but also in Europe and in Austria. But in any case, the investment for the runway will have to be pushed down the road. So far, we expected start of construction somewhere in '25, and now this might be shifted backward to around '28 to 2030. What is very important in our policy and what we are prepared for is that Vienna Airport is on its way to be the first bigger airport and hub airport who can operate CO2-neutral, and the respective projects are well underway. So we will substantially enlarge our footprint in regard of producing electricity from PV. So the latest, end of the year, we will cover roughly 1/3 of our yearly electricity consumption through our own production from PV. And economically, it's very viable because construction plus public subsidies are well below grid parity. So we will substantially save costs by substituting electricity out of the grid by our own production. And a lot of additional initiatives are underway. Last but not least, I think it would be very important that the plans of ACI recently published would also be supported by the European Commission and the European Parliament to include the production of synthetic kerosene into the Green Deal because this would make the insurance that we see CO2-free air traveling up to 2015 -- 2050 would make it viable to reach this goal. And I hope we can substantially contribute through our sustainability policies. So that's from my side for now, and I hand over to Julian Jäger.

Thank you, Günther. Good afternoon, ladies and gentlemen. I would like to continue with the segment results for 2020, starting with the Airport segment. The Airport segment, obviously, had a decrease in revenues pretty much in line with the reduction in traffic. So we had EUR 133 million external revenue, a minus of 67%; a positive EBITDA of EUR 17 million; and the negative EBIT of EUR 70 million. Obviously, the Airport segment is the segment where most of the depreciations are in. Obviously, all the investments into runways, terminals and so on are in this segment. So therefore, the EBIT was quite significantly negative. We -- as Günther already said, our countermeasure is a significant stop in terms of investments. Terminal 2 is the only part of our terminal expansion project which is still going on and will be finished in the course of this year. On the other projects, the south extension of Terminal 3 and Pier East renovation are shifted down the road, whereby our priority would be to restart the south extension of Terminal 3 as soon as traffic and financial results allow. And probably Pier East will never be done in the way which we initially planned for. The ground handling, Handling & Security Services segment was hard hit as well. The reduction in external revenue was close to 50%, EUR 86 million. You can see here in the revenue distribution that cargo handling was a positive outlier. Obviously, cargo was hit as well. We had minus 25% roughly last year in terms of volumes. Revenue was down 17%. Especially, import still works very well. Export was partly shifted on the road to the major hubs in Germany, Frankfurt and Leipzig for cargo. And obviously, we took a lot of measures to reduce costs, both in materials as in terms of personnel expenses to counter the impact of the reduction in traffic. Overall, the EBITDA was minus EUR 19 million. The EBIT was minus EUR 28 million. So we were hit very hard. But we expect this segment as well to get significantly better results in this year and be back in the positive territory -- in the significant positive territory in 2022. The best segment was the Retail & Properties segment, mainly due to the fact that the rentals of office space, cargo, warehouses and so on was not really impacted by the Corona-19 crisis. Revenues were down in this area by 1.9%. Parking was down minus 65%. Center management and hospitality was down minus 70%, both obviously heavily impacted by the reduction in passengers. So overall, the external revenues were EUR 70 million, a minus of 56%; EBITDA, EUR 36 million; and EBIT, plus EUR 17 million. The average revenue per passenger in center management was up. So the total PRR management -- center management and hospitality was EUR 3.27 over EUR 2.70 in 2020, obviously, mainly due to fixed rents, so minimum guarantees. The duty-free sector was hit, obviously, very hard with the absolute disappearance of any passengers from Asia, China, the Arabian Peninsula, Russia and so on. Malta, our fourth statement. Malta has a development which is so far pretty close to ours in terms of passenger numbers and traffic. Last year, minus 25% in traffic; this year, so far, around 10% of the traffic of 2019. The external revenue was down minus 68% and to EUR 32 million; EBITDA, EUR 5.8 million; EBIT, minus EUR 6 million. Looking forward, I'm pretty optimistic for Malta. I think Malta could be one of the places which does well this summer. It's a sun and sea destination. It's 2 hours away from Central Europe, and it has close links to the U.K. So with all the announcements of the U.K. after their excellent vaccine program to open up the country later on in May and June, I'm optimistic that the tourists from the U.K. will come back to Malta. And this is -- was always historically the most important tourist group for Malta. So I think Malta could be a positive surprise over summer. Kosice, just a few words. Right now, we have 1 weekly flight to Kosice from London. Last year, 100,000 passengers, a net result of minus EUR 900,000. Obviously, we cut cost very significantly there as we did in Malta to counter the crisis. My hope for Kosice will be as well that the opening up of the U.K. in the second half of this year should be very beneficial for Kosice as well. There's a big group of people from Eastern Slovakia who work in the U.K., and so therefore, traffic should resume in the second half of this year as well. Günther already mentioned the initiatives on the European Union level, which Austria and some other countries which are heavily dependent on tourism, launched in the -- in recent weeks. Obviously, in Vienna, the city tourism is probably even harder hit than other areas of tourism. January was down minus 95% in terms of overnight stays in Vienna. So Vienna needs a pickup in the whole tourism industry. And we think that a European-wide commitment to, one, go for a green power solution where you have a digital solution to certify vaccines, to certify if people are immune because they were already sick and 3 current tests is a prerequisite for the recovery of the aviation and the tourism industry. I think this summer, probably in a lot of parts of Europe, vaccines will be not as much distributed as we probably would like it to be. So therefore, I think for this summer, it's very important that recent tests are treated equally to a vaccine. And I'm optimistic that this will happen as well. And I think a European-wide solution is as well the prerequisite for a worldwide solution. So I think we should reach a stage, similar to security, where the European Union, the U.K., the U.S., Canada and Japan accept each other's security levels. I think we should reach a stage where our green certificate that a person is -- has got the vaccine is accepted in China and vice versa. So I hope that probably not in 2021, but in 2022, the global tourism has a rebound as well, and I think this is what we all need. So on the one hand, the technological solution and then, as you can see in this slide, there are many different initiatives. So I think, one, we need a technological solution, and on the other hand, we need the European member states, to a certain extent, to allow people to travel again this summer. Probably it will not be possible for a common European Union-wide solution. But I think even if some countries coordinate with each other, this should be a significant improvement over the last few months, which leads me to our traffic forecast. As we discussed in January, we expect 12.5 million passengers in Vienna this year and roughly 16 million passengers in the group; for 2022, approximately 70% of 2019 levels; and 2023, approximately 80% of 2019 levels. Obviously, 2021 is probably a bit more challenging than we thought when we did this forecast in December and announced it in January. But still, I think it's absolutely doable. And obviously, it relies on the performance in the second half of this year. Until the end of February, we were slightly above our expectations. H -- Q2 will be definitely below our expectations. So what we need to reach this target is roughly 50% starting from July this summer. I think this is doable considering that last August, we were, without the vaccine, without proper testing, only very expensive PCR testing, we were at the level of 25%. So I think with a stronger effort in Q2 in terms of vaccines, the green pass initiative and the sheer need for EU member states to open up to allow tourism, I think, should get us to a roughly 40% for the full year, what we expected. Personally, I'm convinced that demand will come back essentially overnight. So I think we will reach a stage where demand will shoot up. And my best guess would be that in the next 12 months, we will see a period of 3 to 6 months where flying will be actually pretty expensive because the capacity will be slower to come into the market than the demand. So I hope I'm right, and this should be a bit of good news for a certain period of time for the airlines as well. One or 2 last comments on sustainability. Günther already mentioned the Destination 2050 initiative of Airlines for Europe, ACI and some other organizations. This is something we take very serious as well. But I think to decarbonize aviation, we need a political effort as well to push the development of sustainable aviation fuels. I think we need some public investment and part of the money which is being taken as taxes from the aviation sector. In Austria, the aviation tax was just increased last September to EUR 12 and increased for the ultra-short haul to EUR 30. I think part of this money should be used to create demand for sustainable aviation fuels because I think, right now, we are a bit in a circle where sustainable fuel is very expensive. That's why there is no demand. Because there's no demand, there's no production. And I think this has to be -- this circle has to be broken with political influence. And I think this would be the best way to significantly reduce the CO2 emissions from the aviation sector. And I think when traffic bounces back, and I'm pretty sure this will happen in the next 12 months, the top point on the agenda in Europe and for the aviation industry as well will be decarbonization. Thanks a lot for your attention. That's it from our end, and now we are looking forward to your questions.

Okay. So ladies and gentleman -- or gentlemen, in that case, thank you very much for your presentations. And I would now like to open the floor for questions. [Operator Instructions] Please go ahead.

Here is Vladimira Urbankova, Erste Bank. I will have 2 very short questions. First one would be related to short-time work program and personnel costs. I noticed that in 2020, you cut your personnel cost by roughly EUR 120 million, which was the biggest chunk of your savings program. And I believe that this was also helped by this short-time work. And what is the outlook for 2021? How much do you calculate with -- in your guidance? And did you decrease also your headcount? Or do you plan to do so in the future? And the next question would be related to, yes, again, to your guidance. Which segments, apart from the retail, you expect could turn into profitability in 2021 on the operating level?

Yes, to start -- okay, to start with your first question, you are right. Something, EUR 70 million are included in personnel costs from state subsidies in 2020. And for 2021, it will depend to what extent the growth is coming. So these are commuting barrels because if we have less traffic, then we will receive more support from the short-work program because the hours worked by our people will be less and will go down. If we have more traffic, we will have higher revenues, but lower income from state subsidies because people will work more hours, and working more hours means you get less subsidies. So the overall planning is related to the volume of 40% passengers and foresees a higher degree of subsidy in the first month where we see very weak traffic figures. And this subsidy then will go down and in accordance with traffic growth. The outlook thereof is that we would need this program even beyond '21, but not for the whole company, but for certain parts who still are not fully employed. And we hope that from the political side, these will be supported. If you look at the headcount, we already reduced our headcount in 2020 by roughly 500 people. And we are trying to further reduce the headcount, but on a mutual agreement term, and we are not planning to lay off people. So that finally, we will be at around 80% of workforce level in 2023, where we expect also then roughly 70% to 80% of the traffic. A very important issue in that regard is that we also in-source work that was so far done by external contractors. And insofar, we have also saved costs and supported the necessity for our workforce and headcount. And so there are a lot of effects that have to be put together.

Regarding your second question, we expect, obviously, the Retail & Properties segment to be positive. Malta should be positive. Airport, I would say, a black zero; and the Handling & Security Services, still in the minus. And overall, as we guided, we expect a black zero for the full year of '21.

Okay. Any other questions?

Yes, if I may. Bernd Maurer speaking, Raiffeisen. First question, tariffs and incentives. We learned with your tariff policy in the call in January that tariffs are up by 1-point-something percent. And our latest info on incentives was still unchanged, the so-called ramp-up incentives for airlines reaching more than 65% of originally planned capacity for 2020. This -- what, if at all, only a few ones would qualify, unfortunately, so is there any adoption to the incentive policy now on the table, which you can share with us? It's point one. And point two, rental agreements, be it office and totality airport and also from shops on site, can you update us on any adjustments going forward for this year and next likely with waiving rents, lowering rents? How does it look?

Yes, let me start with your first question. There are no adoptions at this point regarding the incentive scheme for 2021, and we don't plan to do it. It has to go through the ministry -- or they would have to go through the ministry in any case, so what we are working on now and what we will decide later on this year if we want to make adoptions for 2022. But for this year, we stick to the incentives and contracts as they are. We saw last year that the revenue per passenger went quite significantly up in the aviation or in the Airport segment, mainly because there were fewer incentives paid out because most of the airlines did not reach their goals. I agree with you that probably our ramp-up incentive conditions will not be met by many airlines. So therefore, we expect for this year as well that we will be 10%, 15% above -- definitely above the net revenue levels per passenger from 2019, probably 10-or-more percent than in 2019. Your second question, I would like to answer regarding shops and F&Bs. We are in a lot of discussions with our partners for the shops. I think the main change has been done in the contracts that we are reducing minimum guarantees, that we are, to a certain extent, and this is something we did already before corona, that we are fixing minimum guarantees to certain passenger levels. But there won't be any surprises compared to 2020. So there are no significant changes between the revenues per passengers to be expected in 2021 and 2020. In 2020, we had an increase, as I told you before, mainly because of minimum guarantees and mainly because the reduction in advertising was not, and in the F&B, was not as sharp as in center management. So there is no significant change in the levels of revenue per passenger. What we expect the main changes in the contracts are a reduction in minimum guarantees. And on the other hand, we will get, in the future, higher percentages if certain revenue levels are met again.

Okay. Any other questions? I have just received a message on the chat. That's [ Paul ]. You might want to ask some questions?

Just wanted to know if you could maybe give us a bit more color on the 2 slides on sustainability that you presented. They're both very interesting. And particularly on the new aviation fuels that you mentioned, do you already have an idea of what the timing could be for implementing those new fuels? What CapEx could that represent?

I mean no CapEx for us because definitely, we will not be among those who will engage in investing there. I think it's a matter of the bigger, today, still oil-related companies to engage there. And the timetable is very much related to the political framework. So I think the best way to, stepwise, reduce the CO2 footprint of aviation would be to stipulate an obligation of a certain percentage to use synthetic kerosene because it's mixable with conventional kerosene. And up to 50%, you need not to change anything in the plane. So the turbines and all other stuffs can be used. So it would be very easy to stipulate, okay, you have to use 5% in 5 years and 10% in maybe 10 years or something like that. And the initiative on the European level should support more cost efficiency in production because still, these synthetic fuels are more expensive than oil-related ones. But I think this could be overcome by optimizing and improving the ways how it is produced. And if you think of it on a very large scale, so in the timescale of 15, 20 years, the ideal combination would be that the places where we get from now a lot of oil in the desert, they would be ideal places for photovoltaic electricity production. And there, you could easily use this kind of CO2-free-produced electricity to produce synthetic fuels. And you can use the same means, ships, pipelines, transportation, lorries and things like that, to deliver these synthetic fuels as you use today to transport oil-related, petrol-related fuels. And therefore, I think the time to utilize it would be much shorter than with other technologies which are necessary to change planes, turbines and the whole infrastructure because this is always slowing down the transformation process. With synthetic kerosene, you can still use the planes as they are today, and you have all the necessary logistic in place.

Okay. That was very clear. And speaking of alternatives, I think you also mentioned quickly hydrogen at some point. It's a technology that's still in very early stage, particularly for aviation. So I guess we can assume that the timetable regarding, let's say, hydrogen fuel plane is something that's even like longer term than synthetic kerosene. Am I right?

Absolutely. I mean...

I'm not -- sorry, I'm not sure. I think both ways should be followed.

I have a slightly different opinion on this one. And this is mainly why we focus on the sustainable aviation fuels. I mean I think airports announced that in 15 years, they want to have a hydrogen aircraft. And I think if it takes 15 years, and let's assume it takes 10 to 15 years, it will take another 10 to 15 years until there's a significant number of these aircraft in the air. So that's why I believe, although from a technological point of view, it will probably work, but I think it will take too long. And that's why I think the best way to reduce CO2 emissions in the next 15 to 20 years is to focus on sustainable aviation fuels.

Okay. Any further questions for our 2 Board members?

It's Andrew from HSBC. Can I ask just how are the politics playing in Austria? What are the attitudes of the German government towards -- not German, Austrian government towards -- sorry, I've just been on the call with Lufthansa. What's the attitude of the Austrian government to opening up the borders and enabling travel? I mean because I think earlier through the pandemic, you've been one of the more conservative nations. So how confident are you that your government will leap onboard with the Pan-European solution?

I mean our Chancellor was on the forefront to press the European Union to come to a decision. And I think there is no country even in the world, not only in Europe, that is so much dependent economically on tourism than Austria. So we are, I think, on the absolute forefront in regards of employment and economic impact of the crisis that tourism is coming back.

That's encouraging. How confident are you that we can get a Pan-European solution because -- yes, that is the mix there because I mean even places like Belgium are resisting it, aren't they?

Yes. I would give you a political answer. Given the huge damage in image the EU encountered with the not-so-easygoing vaccination processes and the amount of vaccines and all that, where the European Union did something very rational and understandable effort, but finally, it showed that there are a lot of issues that have not been foreseen in the right way. I think it's now more than ever necessary to prove that they can do things right. So therefore, I'm rather optimistic that this legislation will pass mid of March. And if the Pan-European standards are identified, then each of the member countries can decide on their own what exactly they do with quarantine or this or that. I think the main tourism regions like Austria, Croatia, Greece, Italy, France and Spain in the South, they will work together, and they will find a common ground because they are all very heavily depending on tourism. And so yes, I think it's pretty obvious that they have to cooperate and that we will see results out of that.

Yes. What about the prospects for opening the long haul into Vienna?

I mean long haul definitely will be a challenge. So I think this year, demand will come back from -- in summer from leisure travel to sun and sea destinations mainly. I hope that in autumn, the city tourism will come back as well and that we see a first start, that conference in Congress, tourism bounces back. And I'm sure there's a huge backlog of business trips people have to make. So although I appreciate that on the long run, I think that the number of business trips will be reduced due to technology we are using right now, but I think on -- in the first 6 to 12 months, I think people will be very eager to meet their business partners face-to-face again. So I'm sure there will be, in the next 12 months, a huge bounce back. Obviously, intercontinental traffic will come at a later stage. We've got airlines like ANA from Japan and Air Canada, which are very eager to come back. We are, for 12 months now, in talks with Etihad who wanted to come early last year. They had to postpone it, obviously. So I think from autumn onwards, I think intercontinental traffic should bounce back as well. But definitely, 2022, I think, should be a strong year where intercontinental traffic resumes.

And yes, good luck getting opened again.

Thanks.

Thank you.

Okay. Ladies and gentlemen, final call for questions. Are there any open questions?

No.

Okay. So ladies and gentlemen, thank you very much for joining our call today. Just to give you an indication of our next financial releases, in the end of April, we will release our full annual report of 2020. And on the 20th of May, we will publish our first quarter results for 2021. So thank you once again for joining in, and all the best and stay healthy. Thank you very much. Bye.

Bye-Bye.

Thank you. Bye-bye.