Flughafen Wien Aktiengesellschaft (FLU) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to our conference call for the first half year results of 2021 of Vienna Airport. Today's presentation will be held as usual by our Board members, Mr. Günther Ofner; and Mr. Julian Jäger. Presentation will be followed by a Q&A session, but you will be given the opportunity to ask your questions. [Operator Instructions] The call will be recorded and will be available on our website shortly. And the slides of the presentation that will be held now are also available on our website under Presentations. Now I would like to hand over to our CFO, Mr. Ofner. Please go ahead, sir.

Good afternoon or good morning. Our pleasure to introduce to you our results for the first 6 months of 2021, which are no real surprise, I assume, as they are more or less in line with what could be expected. So the first 6 months have been weak in respect of traffic figures. And this is also affecting our financial results, with minus EUR 34 million in revenue, and in -- with minus EUR 22.5 million (sic) [ EUR 32.5 million ] in net profit. As you might remember, compared to last year's first 6 months, we had full speed traffic until mid of March, even plus roughly 10% compared with 2019. So clearly, we saw a decline in the first 6 months this year. And hopefully, we will see a substantial recovery now in the summer and in months to come. What we also see is that cargo figures are quite strong and simply 4% below in '21. So the problems with shipping and other distribution issues are favoring air cargo right now. Also belly load is only limited available due to the reduced number of passenger plane movements. I'm sure that it's more interesting for you then to look at the figures of the first 6 months, what is the outlook for full year '21. And there, we can state from today's perspective that also passenger numbers are now reduced to 12 million to 13 million, and 10 million at Vienna Airport. We can confirm our net profit proposition for the '21 full year to around plus EUR 4 million. And we can also confirm our guidance on EBITDA to around plus EUR 150 million. And these irrespective the fact that now guidance for revenue is EUR 380 million, which is roughly EUR 50 million below the previous guidance. What we see is that due to the virus, traffic levels in the first 4 months have been below what we initially expected. And July now, we saw a strong recovery. So what is very evident is that need from a customer side and passenger side for a sound offering of holiday flights is intact. So the problem is not that people don't want to travel on holiday and summer holiday, the issue is that there are still travel restrictions and limited offers. And therefore, once the virus not any more influencing the travel regime or not to the same extent, we can expect that demand will be back at least for holiday purposes, it might be and will be a little bit different for customer or business-related flights. What also explains the positive results despite the lower revenue are material cost saving measures, so especially lower expenses for incentives, lower maintenance expenses and also reduced personnel costs. And on the other hand, we received higher government subsidies as a result of the extension of the existing and currently used short-term work program until the end of the year '21. And we also have included in the first half year's result roughly EUR 3 million extra income from a transaction in our property base, we sold land to DLH, where they are now building cargo facilities. Our net debt was slightly increasing until summer, so to roughly EUR 220 million. And it will go down now as expected to around EUR 100 million. And especially reduced the position of capital expenditure and our investments, which will be around EUR 60 million. In regard of the guidance, I have also to point out that contrary 2 statements in analyst reports, we do not see any dilution of revenue per passenger. On the contrary, revenue per passengers are going out, especially because the expenses for incentives, as pointed out before, are going down. And this should also be, at least in tendency, the case for the years to come because the new tariff regime due to a change in the Austrian tariff law -- air charges law provides for [ these ] tariffs for the coming years, at least with consumer price index adoptions. We look together at the financial result, you see a slight improvement, which results from some gains in investments we made, but also in the reduction of our EIB loan. You might -- you remember that we are paying back EUR 25 million portions each year. So the respective costs for interest are slightly going down year by year. If you look at Slide 4, you see a significant cost reductions in all positions. In regard of personnel expenses, it's -- one effect is subsidy from the short-time work program. But the other effect is that, the year-to-year look, we reduced our staff number by roughly 12% through voluntarily leaving employees. And this process of reduction is ongoing, unchanged, more or less unchanged depreciation, and substantially reduced other expenses, as you see in the table there. Net debt went up, as mentioned, to EUR 222.9 million, but will go down further down the road. CapEx amounted to EUR 17 million and we'll end up maximum EUR 60 million for the full year. In regard of our share price, you see that still, we are in the position to outperform our main peers. Also, we saw some decreased share price in the last base, which are in line with also losses in markets. A key strategy to overcome the crisis is vaccination and testing. So far, more than 80% of our employees are vaccinated, and we performed more than 300,000 antigen or PCR tests at the airport and this service still is available and is [ for ] our customers. Very interesting is that we see ongoing interest to settle down as companies around the airport. Our Office Park is rented out now roughly 50%. And there is lot of interest, and we also see especially from logistic companies, a high interest to newly set up business at the airport. This might be a result of the logistic problems many companies are facing right now, and it should result in much higher demand for storage houses like that. Despite the crisis, we are continuing our efforts to be a CO2-neutral airport operation very soon. Especially our photovoltaic footprint is substantially increasing. So we are, right now, building the biggest photovoltaic plant in Austria with roughly 24 hectares. Altogether, with our already operational power supply stations, we will produce roughly 30 million to 35 million kilowatt hours for next year, which equals roughly 1/3 of the energy -- electricity energy consumption on the airport. And what is also very important, we are expecting the finalization of the respective investment of [ OLV ] that the airport is supplied by CO2-neutral district heating, the latest from end of '22, which would then be one of the final major steps to reach CO2 neutrality. We sum up. The forecast, it's around EUR 380 million in revenue, around EUR 150 million plus EBITDA, around plus EUR 4 million in net profit, around EUR 100 million in net debt and around EUR 60 million in regard of CapEx. What always has to be added at this stage is that any of our predictions are based on the situation as we see it right now. And the further course of COVID-19 might negatively impact our guidance, but there is a high degree of uncertainty what really will happen in the months to come. So that's from my side, and I hand over to Julian Jäger.

Thank you, Günther. Good afternoon, ladies and gentlemen. I would like to continue to talk a bit about the traffic development in recent months and discussing the current environment here in Vienna. H1 was extraordinary, and the passenger figures of 2 million passengers in 2021 in H1, brought us back to 1986. So this was the year when we have a very similar figure of passenger numbers in the first half of the year. Our subsidiaries in Malta and Kosice saw a similar development. So overall in the group, we were down over 2020 by 61%. The good news is essentially cargo. Cargo was, even in the first 7 months of this year, 7% down of 2019 figures, so not 2020 but 2019 figures. July was even better with minus 4% versus 2019. And I think the good news is that from the second half of June into July into August, that things improved quite substantially so far. In the first 6 months of this year, Austrian was, by far, the biggest carrier in Vienna, with a market share of 56%. I can tell you that in the course of July and now in August, the market share of Austrian went down a bit because with the summer season kicking in, the low-cost carriers put significantly more capacity into Vienna. Still, they maintain a market share of roughly 50%. They've got a very decent load factor. And I think overall, given the circumstances, Austrian Airlines is doing relatively well. I think what is doing really well for them are transfer routes from Eastern Europe via Vienna to the U.S. And I think this is the potential that if the U.S. market should open up for Europeans and vice versa, I think this would be a major opportunity for Austrian and Vienna Airport hub to -- yes, to gain some ground there and for Austrian to sell significantly more tickets at decent prices. July, as I said before, looks better. We had 1.5 million passengers in July, roughly 40,000 passengers on average per day. So compared to the 2 million in the first 6 months of this year, this was a significant improvement and we were at roughly close to 50% of 2019 figures. I can say that August is better than July. So the average number of passengers went up. We expect August overall to be better than July, both in absolute numbers and in relative numbers compared to 2019. As I said before, cargo did very well with minus 4% versus 2019. The seat load factor went up as well in July, went further up in August. And as far as we can see, we're optimistic that for the remainder of the core summer season, second half of August, first half of September, things should look similar. After that, there's obviously a big uncertainty. And so the biggest question mark right now is about Q4. There were some good signs in recent weeks. I mean Air Canada came back, we got Etihad Airways for the first time coming to Vienna. EVA Air commenced their flights to Vienna. Saudia came back. So overall, they are small, but positive signs in terms of recovery. I think summer this year gives us some confidence for the whole summer season in 2022, which starts from the first of April next year. This year, April, May up into June, we still had lockdown in Austria, so things are very complicated. And after that, we saw that things changed quite significantly in a very short period of time. So what happened in the last 6 weeks gives us some hope and confidence for the summer season 2022. The 5 strongest countries in July were Greece, Germany, Spain, Turkey and Italy. Greece had even more passengers this July than in 2019. Germany is really, really difficult, nearly minus 66% in terms of passenger numbers. So what we see here is that, so far, city tourism didn't really come back. Business travel didn't really come back. So there's a very significant decrease in passenger numbers this year. On the other hand, there are very strong relations between Austria and Germany. And many people -- Austrians working in Germany or vice versa. There are many personnel and family connections. So I think this is an opportunity as well because I think a significant number of these passengers which were lost this year can be regained in the future. From an operational perspective, summer is challenging. We are operating only half of our capacity in terms of departure gates. We -- and the peaks are as high as they were in 2019. So what we see now is that the traffic is concentrating on the weekends and on 2 or 3 times during the day. So even in this respect, the short work scheme of the Austrian government is very, very supportive for us. So we -- I think from an operational perspective compared to many German airports and so the other hubs in the Lufthansa Group, we are doing very well. And in terms of punctuality, we are always among usually the best airport in Lufthansa Group as #2. So I think overall, the performance here, together with our partner Austrian Airlines, is pretty good. In terms of passenger numbers, we are doing better than the German airports as well. For the first 6 months of this year, we were pretty much in line in terms of recovery versus 2019 with the old German airports. But from July onwards, our recovery was significantly quicker. So we are right now at 50-plus percent from 2019 figures and the Germany airports overall are below 50%. So there's a spread of 7, 8 percentage points in terms of passenger numbers. And even with the other Lufthansa hubs, we -- in July, for instance, we had more passengers than Zurich and Frankfurt -- not Frankfurt, sorry, Zurich and Munich, both airports, which used to be bigger than in pre-COVID times than Vienna Airport. So I think the recovery of Austrian is been relatively well as well. And on the other hand, I think the low-cost carriers help now to push the leisure traffic in the [ airport ]. From a global perspective, Europe still lags behind. I think the recovery in the U.S., mainly in the intra-U.S. market is still very strong. China is still dominated from the crisis. China has already numbers in the domestic traffic, which were significantly bigger than they used to be pre-COVID. Now with lockdowns coming back, they had a pretty stark reduction in traffic again and then they are now at minus 50% to 2019. But overall, I think the biggest problem we have is that the European Union and the Schengen Area is not really a domestic market. But simply the national states, every state with different regulations. And I think what Europe needs to manage until the next summer season is that we have the utmost freedom of travel within the European Union and the Schengen Area, and then hopefully an open connection to North America. Air Canada, as I said before, started operation a couple of weeks ago, doing extremely well, having very high load factors. So I think the demand will be quickly there. And I think this would be our opportunity for -- or the European opportunity for next summer. I fear the traffic towards Asia will still be difficult next year, probably even a bit longer. And this is mainly due to many countries they are adopting the zero COVID strategy with relatively low vaccination rates. So I think this is something or this traffic might still be difficult in the years to come. What works this year already relatively well is the Arabian Peninsula. So with flights now from that Etihad, Emirates, Saudia. So I think this is working relatively well. Looking forward now into the next few months, as I said before, it's still very difficult to predict Q4. So far, there are not a lot of bookings coming in. So this is the information we get from the airlines. So everything is right now, obviously, very short term. And yes, in the end, it depends on the next -- the development of the pandemia in coming months, if we have a decent autumn or a difficult autumn. Obviously, we expect in the months to come that both in relative and in absolute terms, passenger figures are going down again. We think that we will peak now in August, and from then onwards, it will go down again. In our assumption in terms of the forecast for '21, which we reduced now to 10 million passengers in Vienna and 12 million to 13 million passengers in the group, [ effected in ] something between 35% and roughly 45% in the months to come from the 2019 figures. A few words regarding our segment results. The Airport Segment is obviously hard hit in H1 from the passenger numbers, obviously. You can see here that the passenger-related fees went down by 64%, aircraft related to fees, minus 34%. That's the reason as well or one of the reasons why our average revenue per passenger in H1 went up to more than EUR 17. This is not the figure we expect for the full year. We think the full year figure would be something around EUR 14.50, which is in line with last year's figure. Because now the load factors are higher, so the percentage of the passenger fees is higher. There will be more incentives in H2, obviously, than in H1. But overall, we should be, this year, pretty significant above the EUR 12, roughly EUR 50, we had at the net revenue from the Airport Segment in 2019. Overall, external revenue, EUR 42 million, minus 50% nearly. EBITDA, minus EUR 1 million. And then the depreciation keeps in with minus EUR 40 million EBIT. One thing which Günther already briefly mentioned, which was a very positive development in recent weeks is that the Austrian Airport charges law was amended by the Austrian Parliament and -- which means that until 2026, we will increase our airport charges by inflation. There is no risk that there would be a reduction of the airport charges out of the formula, which you are pretty well aware of. So we will be in a position to increase our airport charges by inflation in the years to come, unless we surpassed the 3-year average in terms of traffic volumes, from the 1st of August 2016 to the 31st of July 2019. So overall, this is something -- this is a problem we would be very happy if we would get there so that we reach this average in the years to come, and then the formula would kick in. The Handling & Security Services segment, obviously, very significant as well, minus 26% in revenue to EUR 35 million and EBITDA of minus EUR 5 million and EBIT of minus EUR 9 million. We expect things to change there for the better pretty significantly as well in H2. Here, the cargo handling was the only area where we actually had an increase in revenue. So this is something, yes, which reflects the relatively positive development in the cargo segment. As I said before, we have very high peaks here and the short working scheme is very helpful in this respect as well. And therefore, we expect now H2 to be significantly better in this segment as well. I think what works very well in the whole company is cost control. I think we managed very well our staff costs. We take full advantage of short working scheme and therefore, overall, we are still optimistic. Despite the reduction in passenger numbers, we expect, versus our guidance from January, to be in positive territory in terms of net result by the end of this year. This segment is the Retail & Property segment. The rentals are doing very well. It's 1% above 2020. Parking does better than the passenger number suggests. So there are more people coming now by car to the airport and park their car here. This is a trend which goes on in July and August. Center management and hospitality did significantly better as well. We have to clarify that we have a one-off here as well from a shop which was given back to us and then we got quite a significant amount for taking back the shop. But overall, even now in July and August, the average revenue per passenger, for instance, in duty-free shop goes up by roughly 12%, 13%, we see the positive effect on most airlines on most destinations. So those people who travel spend significantly more than they used to. And I think this gives us hope that when the high spenders we used to have from Russia mainly, but from East Asia as well, come back. If we see a similar trend there as well, we could see a very positive contribution there from center management and hospitality in the future. There are some changes in our shopping and F&B environment as well. There will be some new restaurants the Hollywood star chef, Wolfgang Puck, opens its first restaurant in Austria towards early 2022 here at the airport. We've got some healthy food coming in. We've got some new shops. So overall, the -- we are very happy with the occupancy rate in terms of shopping, there are hardly no shops -- there are hardly any shops which are empty. Whenever some shops are given back, it's absolutely no problem to fill them again. So overall, there is -- despite the difficult times and the crisis, we -- everybody is optimistic for the years to come. Yes, a few words about Malta. Malta, disappointed us a bit in terms of traffic in recent months because of the very strict regulations, the Maltese government established in terms of the freedom of travel. There were some harsh measures towards English language students, which is a very important part of the Maltese tourism segment. The decision to allow only vaccinated people to travel to Malta obviously had an impact as well. And so I think Malta did not do as well as other countries like Greece. But in the end, I think the results are still relatively good. We had the external revenue of EUR 12 million and EBITDA of EUR 2.4 million, and an EBIT of minus EUR 4 million. Malta Airport gets subsidies from the Maltese government as well. We expect this -- it's confirmed that these subsidies will continue to be paid until the end of this year. And I think for next year, still I think Malta is a sun and sea destination close to most destinations in Europe. I think there's a lot of -- a big opportunity that Malta comes back stronger next year. And I think where Malta suffers right now as well is obviously the strict measures of the English government in terms of travel. the English open up within the country, but they're very strict in terms of travel, the freedom of travel. So I think if these changes in next years, I think there's a big opportunity for Malta as well due to the affinity of the people from the U.K. to Malta. Yes. That's it from our end, and we are now happy to take your questions.

Thank you, gentlemen, for your presentation. So now we're opening the floor for questions. [Operator Instructions] Do we have any questions, please?

May I start, its Bernd from RBI.

Please, Bernd. Go ahead.

Then I start on the Q&A session coming to the CapEx plan going forward. It was earlier this year stated that probably with H1 results, you will present new CapEx plans. When is this now scheduled so that you informed about planned future investments? Or is everything on hold now, what would be understandable given the uncertainty with the pandemic? A related question to this is the last plan with -- for shopping space of some 30,000 square meters. Is this still something we should base our models on? And I think of an enlargement of shopping space to this size? Or is there a big question mark and it remains to be seen if this number can be reached at all? And the second question would be when -- thinking of the shareholder structure of the Airport Malta. In light of the pandemic and consequences, would you see an opportunity and you have interest in enlarging your shareholding in the airport? Or is this no topic at all? These are my 2 questions.

I mean regarding the South extension, which had a very significant increase in terms of retail and F&B space and lounge space. I think we have -- the plan is to have 12,000, 13,000 additional square meters retail space. I mean right now, everything is on hold, as you can imagine. And South extension is still definitely in our plans. But right now, it's very difficult to give you any year when we think that this project would start again. I mean, first, we have to get into positive territory in terms of net results. I think definitely, we would need something like 25 million passengers again. If you remember, in 2017, we had 24 million passengers. We already have seen this project plan. So I think before we see a very significant increase in passenger numbers, definitely, this is not a project we would spend a lot of time and money on. The good thing is that we've got the plans ready. Obviously, it might be that we need to adapt them slightly. But I think overall, the idea is not to change the concept. And as soon as our financial results and the passenger numbers allow, obviously, this is the first project we will take out of the drawer and would restart. In terms of your second question, I would not foresee that we will increase our shareholding in Malta Airport, definitely not substantially. We are happy with the government as a core shareholder here in Malta. I'm meeting the Prime Minister of Malta on a regular basis. He never mentioned anything that they would be interested to sell nor did we ask them to sell. So I think this is shareholding structure is pretty stable. And as you probably saw that the share price in Malta is very stable on a pretty high level as well. So I think the Maltese people, and we've got roughly 5,000 families with the shareholders in Malta Airport, they believe in their country, they believe in their airport. And for us, it's always important to have a strong backing of the Maltese people as well. So I don't think that the shareholding structure in Malta would change really.

Any further questions?

Hi. This is [ Harry Hodgkinson ] from Kempen.

Okay. Fine.

Could you talk a little bit about what specifics of the pandemic impact has caused you to downgrade the full year guidance?

I mean we did not change the net result guidance. We changed our outlook in terms of passengers and revenue. But I think it was pretty obvious that by the end of last year and even early this year, we had a more positive view of mainly Q2. So it was always clear -- even in November, December last year when we did our budget, it was clear that Q1 would be difficult. But back then, there was much more optimism in terms of the vaccination rate and the progress of vaccination in Europe. So I think the main difference in our new guidance in terms of passenger number and the old guidance in terms of passenger numbers is Q2, because right now we are pretty much in line with our initial budget and projections. We have -- even the outlook for Q4 is pretty much in line with our initial projections. But what we did not manage, we had hoped that we would gain some of the losses in H2. But what we see now is that we don't gain over our initial projections. And therefore, we have to decrease our passenger guidance. But positive, as we pointed out already, is that mainly due to cost savings due to support from government, our short working scheme and many others, say, some short -- some one-offs in terms of real estate. So we are confident that we still managed a positive number. If it's then exactly [ EUR 4 million ] is probably -- is still up in the air. But we are optimistic that we will manage a black 0 by the end of this year.

Any further questions? Well, okay. So if there are not -- there aren't any more questions, then this concludes this call for our half year results. Thank you very much for joining. Have a nice summer, and speak to you again in autumn for our Q3. So bye-bye.

Bye-bye.