FNM S.p.A. (FNM) Earnings Call Transcript & Summary

Ladies and gentlemen, good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the presentation on the 2021 results of the FNM Group. [Operator Instructions] At this time, I will hand you over to Ms. Minazzi, IR Manager of the FNM Group. You have the floor.

Good afternoon, everyone. Welcome and thank you very much for joining the presentation on the results of 2021. Mr. Marco Piuri, General Manager of the group; and Ms. Valentina Montanari, CFO of the group, will lead you through the consolidated results of 2021. And at the end of the presentation, there will be a Q&A session. I'll hand you over to Mr. Marco Piuri. Thank you.

Thank you very much, Valeria, and good afternoon to you all. I will confine myself to making a brief introduction, giving you the fundamental [indiscernible] of the 2021 results. And then Valentina Montanari, the CFO, will get into the details. The first thing I'd like to say is that we are going to present the pro forma data, which is the way with which we can compare 2020 with 2021. In February 2021, as you know, the group completed the acquisition of Milano Serravalle and acquired also the Milano stake of [indiscernible]. We closed 2021 with all positive results in terms the group performance. Speaking about the consolidated results. We've seen an increase in revenues in EBITDA, but also we have an increase in net profits. And this is the result of the -- results of the different segments of our business, which are part of our group, which, of course, have different performances. Before continuing with my comments, let me say that one of the fundamental factors, one of the drivers of our results is demand since we are an individual group working in the field of mobility. What comes out is that 2021 recovered versus 2020, but did not recover fully, if compared to 2019. And [indiscernible] performance is different in different segments. The motorway sector certainly has recovered more rapidly. And of course, this is due also to the fact that heavy-duty traffic was still high during the pandemic has recovered quite well when we speak of public transportation while demand has recovered partially. And we are, at the moment, add values, which indicate a low number of passengers. We are slightly below 40% if we compare this to 2019. When it comes to demand for the railway network in particular, Trenord, which is not consolidated. Demand has shown certainly a recovery -- though recovery here is a bit slower the mobility or transportation on road. Here we -- when it comes to trains, we are at 45% of demand of the -- compared to 2019. If we look at the 4 segments, very happy, but then Ms. Montanari will get into the details what we can see is that looking at the segments, that is operations, mobility, road transportation, motorways, where we can see that we've had an increase in revenues. And of course, here when it comes to local public transportation, you also have to include the grants provided by the government to make up for the missing revenues to the pandemic. Investments in the road transportation segment have been limited. Whereas if we look at the train transportation, if we look at Ferrovie Nord, our concessioner has continued its acquisition of trains. You know that Ferrovie Nord is the operator, which, on behalf of the Lombardy region, acquires trains. So we're speaking of around EUR 120 million for 261 trains. And then Ferrovie Nord has continued its activities to develop further freight transportation. What I said before, in 2021, we have completed the acquisition of Milano Serravalle, 96% of the stakes is in our hands. Then the group approved the business plan or the strategic plan, which is the framework within which we then make our own considerations. And then we have had EUR 650 million of the bond issuing, which allows us to convert or to make up for the previous bridge financing. And basically, it's a bond related to the acquisition of Milano Serravalle. Last, before giving the floor to Valentina, is that in 2021, among the activities, which do not reflect themselves so strongly in the figures to the facts actually occur that FNMPay, the payment institute received the authorization from the Bank of Italy. So within the group now, we have a company which takes care of the payments and has decided to focus its attention on the acquiring side of the payment business, and this is part of the overall strategy of the group. FNM Group is a multi-model integrated mobility group. And of course, payments are certainly very important when it comes to developing services. And then in 2021, we concluded deals for the [indiscernible] of start-up like now it. And for this reason, we have a group of entities, which within our own strategic view, have a fundamental importance. Because they allow us to develop a concept of mobility, which is modern and which is set complementary to the services that we have always provided in field of public transportation but also the partners for great mobility aggregators. And then when it comes to our project to [indiscernible], the Hydrogen Valley in the Camonica Valley. This is a project which comes from a request of Trenord that wants to progressively decarbonize the fleet of its trains. So for the railway between [indiscernible], we have conceived this kind of project having at the center as a driver mobility. In this case, the train to boost the hydrogen supply chain, if you wish, with the fundamental characteristics. And then we have the [indiscernible] project, which is a project of urban development, which is going to be developed on the territory of Ferrovie Nord from lantern to Milano, the airport. And starting from Milano Cadorna and Milano [indiscernible]. This project aims at reviewing -- regenerating the social fabric, if you wish the urban fabric driven again by mobility. This is what we presented to the market and through our investors as we are strategic plan. I'll hand over to Valentina.

Let me go to Page 4, reported and pro forma results. We tend to make our comments on the pro forma results because we believe they are more meaningful, but you also have the reported results, revenues pro forma revenues EUR 543.7 million, up [ 14.7 -- 15% ] like-for-like against the 2020 EBITDA, EUR 165.3 million, up 10.7%. EBIT, growing by some 30% from 86% to -- from EUR 66.8 million to EUR 86 million. Net profit 2020 was negative. The 2021 net profit is EUR 45.6 million. Revenues, reported revenues from EUR 279 million to EUR 514 million. The EBITDA more than doubled from EUR 70 million to EUR 153.5 million. As we mentioned when we spoke about coming about acquisition. One of the drivers is that of making a transformational acquisition for the group's results. And this is the result of the EBIT from EUR 26 million to EUR 76 million. Net profit from EUR 22.7 million to EUR 37.4 million. As to the net financial position in 2020, we had an NFP of EUR 43.8 million 2021 and net financial position at EUR 758.7 million. This is the adjusted NFP. And the NFP versus EBITDA 4.5x, which is what we had in our strategic plan ratings. We have Moody's and Fitch ratings above investment grades. Moody's BAA3 stable. And Fitch ratings, which has gone up by a notch BBB stable outlook. Now as to mobility demand, Mr. Piuri gave you a summary on this. So I skip this. Let me move on to the revenues and adjusted EBITDA by segment pro forma. Page 7 railway infrastructures growing by EUR 6.1 million RoSCo & Service decreasing by EUR 4.7 million. Road passenger mobility growing by EUR 29.3 million, 31% motorways, 25%, almost, EUR 48 million growth of revenues. EBITDA railway infrastructure is almost similar, a decrease 0.7%, minus 12.1% in absolute terms is EUR 700 million. RoSCo & Service decreasing by EUR 8.1 million. Road passenger mobility growing by EUR 2.7 million, 27%, and Motorways at EUR 22 million, [indiscernible] 28%. Overall, year-on-year, the adjusted EBITDA pro forma has grown by 7.7 -- 10.7%. Different segments, railway infrastructure revenues have grown thanks to higher leasing of rolling stock given in use to Trenord by [indiscernible]. And as a result of the greater investment for the expansion of the fleet finance by the region, we also have an increase in revenues from the sale of residual stock and land. We have here lower revenues from public contracts and the grants, which made up for the higher proceeds recognized by Regione Lombardia for -- because of the impact of the pandemic COVID-19. As to the adjusted EBITDA decreasing by 12%, EUR 700,000 because of infrastructure and maintenance costs. And then lower costs -- sorry, higher costs for real estate management, including sanitation and extraordinary cleaning of stations. And this is also a consequence of the pandemic of COVID-19. Moreover, greater costs for the upgrade of IT systems to improve the efficiency and the efficacy of site systems especially related to the operating management services for the company. And then higher provisions for running stock fleet maintenance and then also an increased net debt, which is related to factors, which are again related to the pandemic of COVID-19. Slightly lower cost of personnel and lower maintenance costs versus the costs we had in 2020. But this is an impact, which is only due to phasing as to RoSCo & Service, we have lower revenues by 5.7% because of a reduction of rolling stock leasing. Also of a reduction in leasing contract on tough trains, partially compensated by new leasing contracts related to a new TILO trains and a number of locomotives and then higher proceeds from service contracts and IT services offered or provided to group companies. And then we have a one-off related to the sale of the building, EUR 300,000 in 2021. And in 2020, we had no insurance compensation, which in 2020 amounted to EUR 1.3 million. As to the EBITDA, it's decreasing because of lower revenues, higher operating costs relating to start-up operations and the launch of FNMPay, the payment business and also the start of a number of projects, including the hydrogen project, which has partially affected the costs of 2021. And then higher personnel costs related to a different mix and the increase of 3 full-time equivalents. As to road passenger mobility, we have higher revenues related to higher proceeds from public contracts and the grants from the government. We also high revenues from transportation services, thanks to an increased demand. As to EBITDA, we have, of course, the effect related to higher revenues and then higher costs for outsourced additional transport services. For instance, self-fleet management, there is fuel, maintenance and cleaning, also personnel costs increased, which did not benefit from the grants and subsidies that we had from the government in 2020 motorways. You can see a higher tolling revenues, thanks to the recovery of traffic demand in 2021. And in 2021, we've had no tariff increase from motorways. And also, we had higher revenues from service areas, concessions. Consequently, EBITDA grows, but we also have higher costs related to greater amount of traffic. We have an increase in construction fees, collection fees and electricity consumption. We have higher labor costs and higher provisions for planned maintenance services and repairs of the motorway infrastructure. And we used in 2021 less the renewal that the company has in 2020. As to Trenord, Mr. Piuri is the CEO of Trenord as well, and he will let me speak about this nonetheless revenues from EUR 703 million to EUR 760 million, plus 8.1%. We are on Page 10. This is related to revenues from public contracts and grants and also a higher ticketing revenues that is a great number of passengers transported EBITDA from EUR 153 million to EUR 145.8 million due to greater costs of production. In order to meet the request of decrease that published by the government in 2020, well, the company had to make greater efforts and this led to a greater cost [indiscernible] operating costs. In 2020, we need to remember that Trenord had greater benefits in terms of subsidies and grants. And therefore, compensation costs because of the reduction of revenues. EBIT and net result EBITDA from EUR 33 million -- from minus EUR 33 million to minus EUR 26 million as net profit from minus EUR 7 million to [ EUR 0.1 million ], also thanks to deferred taxes. As to [indiscernible] APL, where we have not entire control, which we consolidate at the equity level here following the acquisition of Milano Serravalle. We have the results of APL. You can see revenues are growing because of traffic recovery from EUR 28.8 million to EUR 36.5 million. These revenues are up 26.8%, the EBITDA reaches 17.6%, growing by 61.6%, thanks to greater revenues, greater operating costs. However, to greater volumes and also a greater labor costs, which because of the fact that we did not have in 2021 subsidies from the government. EBIT and the net result from minus 4.7 to minus 2%. This is -- sorry, net losses we had greater financial charges related to interest on the bridge financing and greater financial expenses related to the senior 1 loan issued in September 2021 for the construction of the B2 and C to complete the APL infrastructure. EBIT from EUR 5 million in 2020 to EUR 11.4 million in 2021. And you can see that the net losses are only negative by minus EUR 2 million despite the issuing of debt and greater financial charges. Now if you look at the walk through from EBITDA to net result, you see that [ D&A ] absorbed almost EUR 80 million, EUR 86 million is the level of EBITDA, which allowed us to cover the net financial expenses at EUR 21 million. EUR 14.8 million are upfront fees and other commissions related to the bridge financing related to the acquisition of Milano Serravalle, which was then closed with the issuing of the bond in October. You see the group net result, EUR 48.4 million. The adjusted net result, EUR 45.6 million. And so including profit of company's consolidated minority interest net profit there, you get to a group net result of EUR 48.4 million. CapEx which is a relevant item. Accrued CapEx EUR 418 million. And you can see EUR 261 million related to trains and the railway infrastructure financed by regional Regione Lombardia. The rest EUR 99 million are the CapEx paid by the group: EUR 61 million of which related to motorways; EUR 13 million are related to RoSCo and Services; EUR 4 million railway infrastructures; and EUR 4.8 million related to the renewal of vehicles for public -- local public transportation. On the right, you have the investments paid and which related to the overall accounted CapEx side I just mentioned. Cash flow, Page 14 of the presentation. If you start from the reported EBITDA, the relevant component is about the acquisition of stake of Milano Serravalle, EUR 364 million investment, EUR 106 million and operations, EUR 154 million. And then changes in net working capital, EUR 38 million, financial expense is EUR 20 million. Taxes EUR 14.8 million. So the cash flow generation is negative for EUR 24 million because of the investments paid. Page 15 and net financial position evolution which reflects mostly the acquisition of the stake of Milano Serravalle and the financial consolidation of the same company. And so from EUR 43.8 million, the net financial position adjusted end 2021 to EUR 797.2 million at the end of 2021, which includes EUR 61.5 million of advanced collections from Regione Lombardia because of the rolling stock renewal. And as I said, the net financial position of 2021, EUR 697.2 million, which is the reported net financial position at the end of 2021. So we have a difference of EUR 715 million of which as you can see, EUR 526.5 million for the acquisition of Milano Serravalle. And then EUR 155.3 million, is, again, the net financial position of MISE consolidated at the end of March. And then next page, gross debt composition. As you can see, from EUR 697.2 million, considering the available cash at EUR 253.3 million, considering investments funded while this to EUR 1 billion of debt. On the right, you can see the pie charts of the debt is 75 -- sorry, 65% is related to the bond issue on the 13 October within an [ EMTN ] program up to EUR 1 billion. And then we have banking debt related to the acquisition of Milano Serravalle, which still is on the book of Milano Serravalle. We have a mid- to long-term debt of the parent company with the EIB for the acquisition of TILO trains, which are progressively getting in operations. And then we have leasing IFRS 16 related to the components that we have with this type of funding. And then last, we have other as an item of the debt, which relates to 2 topics. As to the duration of the debt, 84% of the debt is noncurrent, and 81% of the debt is a fixed rate of debt with an average cost that in 2021 of 1.94%. Let me remind you that the group has a liquidity headroom as at the 18th of March 2022, which amounts to EUR 131 million is roll uncommitted lines. Maturities on the next slide, and you see the different maturities say, year after year. You can see that the most component, the most -- the biggest chunk of debt matures in 2026. So we have an average life of the debt, which is in line with the asset structure. As to the outlook and our targets for the 2022 versus 2021 targets. Now here on the slide, you see 2023, but we are actually [indiscernible] 2022, we don't want to give you targets for 2 years, but only for 1 year revenue. So we see them growing on a pro forma basis between 10% and 15% and the same applies to the adjusted EBITDA. The EBITDA margin in 2022, we see it growing -- very slightly growing as to the reported targets that is considering -- is consolidated from the beginning of March. So considering 2022 full numbers and 2021 MISE consolidated only for 10 months revenues -- 10%, 15% growing. Adjusted EBITDA growing by 20%, EBITDA margin is slightly increasing. And then the adjusted net financial acquisition between EUR 750 million, EUR 800 million in line with our [indiscernible] in line with the rating requirements to be able to maintain an investment grade rating. Adjusted NFP EBITDA, 4x. The Board of Directors approved the financial accounts last [ Friday ] and approved the dividend distribution that is a dividend per share of EUR 0.023 with the total cash out of EUR 10 million at yield of 4.2%. And will be payable as follows of EUR 5.1 million from 2021 net profit and EUR 4.9 million from reserve profits carried forward. The moderators of -- last March, approved also the [indiscernible]

On Page 22 and Page 23, this is Piuri speaking. You see the targets approved by the Board of Directors of March, which is in line with an integrated strategic business line with goals of sustainability and ESG. Let me remind you that the periods of our business or mobility, infrastructure, fleets, people and community. But the same ESG targets require the enablers that you see on Page 23, innovation, data management, energy efficiency and emissions reduction governance, ethics and sustainability culture [indiscernible] and well-being of our employees. I'm not going to go into the details of these 2 slides. But I confine myself to say that in 2021, all of the items have improved versus 2021, and we are on a good way to achieve our targets for 2025. You see here, we had different targets that we have. This is very important. And we will see it when we speak of a true value because it gives you the idea of the social value of our group. Within enablers, we have the environment-related issues in our strategic plan, what comes out very clearly is that we are continuing to have a growing share of energy from renewable energies, so as to reduce the emissions of CO2. 2025 reduction by 30%. So although the context is very complex, it's very difficult. The commitments of the group for ESG targets at sustainability, well, the group is committed to achieve its goals. Now when it comes to EU taxonomy, eligible activities, revenues, OpEx and CapEx, Page 24. Now you can see that lowest data is 96% of OpEx, which is a percentage of eligible activities according to the EU taxonomy when it comes to revenues at 98.3%, and CapEx at 98.6%, which testifies to the commitment of the group. Now the last 2 slides refer to a method which the [indiscernible] is using called True Value and [indiscernible] developed by KPMG, which measures in euro, the values issued by the group, which are represented by 3 group, the economic and financial activities, environmental related activities and social-related activities. As you can see, we have a CO2 emissions amount of production of waste services training and so on different parameters, as you can see on Page 25. And then on Page 26, you have the value for 2021. What I meant to say is that the True Value generated by the group is EUR 2.8 billion, including Trenord, which is around EUR 2 billion, and you see the economic impacts and environmental impact and social impacts. This is why I was referring when speaking about ESG targets. So now sustainability is certainly focused on the environment. But since we managed trains and motorways. We've made different investments in different segments when it comes to our activities. We have a very strong commitment on sustainability, that's it. So at this point, we can take your questions.

[Operator Instructions] The first question by Stefano Gamberini with Equita SIM.

I have 3 questions and a request for clarification. The first question is about the growth of EBITDA than 15%, EUR 180 million to EUR 190-something-million for the next year. What kind of assumptions have you made in terms of growth for the different segments? And then the cost of energy, the impact, what kind of assumptions have you made there, and the cost of fuels and same thing. Now in the press release, you pointed to the worsening of situation. Because of the war in Ukraine, what are the assumptions that you have made there in terms of costs? Another question is about the update for the contract of MISE, what kind of tariff increase you have in the next few years. And then an update on the contract of Trenord. Have you signed it? Are you going to sign it? And then inflation? What is the impact of inflation? And how are you going to be protected from inflation -- to the question about CapEx, which is related to the first question. Now for the next year, what are the CapEx of RoSCo & Services, EUR 29 million, will appear to me to be somewhat low. Do you have a risk of train procurement? And what kind of level do you expect for the next year? It's not very clear to me the difference between net paid CapEx and investment CapEx, you should have me understand this. And then I have a curiosity about MISE, which at the end of the year had a debt of EUR 140 million. And now you have indicated EUR 155 million with the paid CapEx of EUR 31 million. To me, I have a free cash flow of EUR 60 million, EUR 70 million that is scaling by EUR 15 million up.

Now let me take this last question. And last year, the net financial position was around EUR 200 million, not very different. Now for the presentation you did in April, I read EUR 114 million April last year. Now [ debt ] has gone down and the net financial position this year has improved. Well, to [indiscernible] last year, with stand-alone debt, EUR 140 million. April 2021. Page 21, Page 22, EUR 141.1 is stand-alone. We'll come back to you. We'll come back to this because the net financial position of Minerals [indiscernible] on, I will come back to this. As to the accrued and paid CapEx -- accrued CapEx, the one which are posted on the balance sheet, paid CapEx getting the cash flow, the paid CapEx basically affects the cash flow during the year. Milano Serravalle hasn't closed the contract, the same Trenord. The contract is being postponed to cover all of 2022 means that tariffs has recorded an increase in tariffs starting from the first of January of 2022 based on the old clauses of the plan and increase by 2.72% of the MISE tariffs. As to energy, we expect that energy prices go up within our budget. Well, we have recorded an increase in costs in line with what we saw at the end of '20, '21. We carried out a sensitivity analysis, and we confirm the soundness of our financial accounts versus the increase of fuels and energy. Now if you go up by 10%, we have an overall increase of EUR 1 million or EUR 1.5 million of absolute impact referring to an increase of 10% of all fuels. So this is the sensitivity analysis we have made for the group. As to the different segments, I'll hand you over to Valeria.

Now as to the EBITDA in 2022, we can see RoSCo & Services from EUR 46 million. We expect this data to slightly decrease because of a lower revenues because of the late operations of [indiscernible] because of new projects like H2O is there, infrastructure management or the railway network. In 2021, we had an EBITDA of EUR 5.1 million. So we expect the same in 2022. Now passenger transportation, local public transportation 2021. We had rate costs in the guidance. The numbers that we have or the numbers for which we give you a guidance do not include any possible public grants. We expect an increase of revenues, however, for motorways in line with the gradual recovery of motorway traffic. Now as to fuel, fuel prices increase. Well, we have taken as a basis, the latest price increase that we had in 2021 to verify how we stand in terms of our budget. And we remain within our budget that we will be capable to cover possible price increase of fuels as we had before, is also the result of our sensitivity analysis.

Next question, Luca Bacoccoli, Intesa Sanpaolo.

I have three questions myself. Now if we look at the top line trend, 2021 is certainly stronger than what we could expect that by looking at November 2021 data. But the conversion into the EBITDA is a bit weak. This is my interpretation. If this is true, which of the 4 segments has performed less than expected or less so by looking at the revenues? And then second question about the CapEx. Can you give us a guidance for 2022. And then -- and the compensation of revenues, which [indiscernible], we cannot included in your guidance. Can you help us, however, give us a range of the compensation from the government that you might expect in the current year? And then when speaking of the energy it looks as if your budget has not been worked out or has not been drafted with recent prices. But how much is going to be the EBITDA at risk if you look at the spot prices for energy fuels that you are going to pay during the year.

Now the top line is in line with our guidance. The EBITDA is slightly below the November guidance. Because of growing costs in all divisions for local public transportation, we have fuel itself for motorway. We have good [ price ] of electricity and trains as well. And that is what we had to -- we incurred into. And then we have started to implement a number of innovation processes, which in 2021 were posted on the P&L, as we said, we didn't have an EBITDA, which is at risk because of price increases at 10% share is 1 million, the part of EBITDA, EBITDA that can be read is quite limited. As to the CapEx guidance for 2022 -- just a second, I'll go back to the relative page. We have RoSCo & Service, quite a good components of trains to expand the fleet and the delivery of TILO and revamping of tough trains and new locomotives. So this is a component, which is relevant. But the same more or less investments are going to be made for the motorways infrastructure to improve and requalify the [indiscernible] and the extraordinary maintenance work and also [indiscernible] of safety barriers over and above. This, we have investments related to the improvement of IT systems and machineries, transportation vehicles and so on. As to the grants from the government, it's difficult to explain. Let me say, however, that when it comes to grants from the government that we are speaking of now, local public transportation trains and road [indiscernible] transportations and not for the motorways. Now the government has divided resources in 2 categories, grants to cover lost revenues, but also grants for additional services, for instance, the provision of transportation services for students and so on. In 2020, part of the amounts allocated for additional services were then moved to resources to be given for the reduction of services. This is what happened in 2020. So when it comes to the government, well, grounds are issued not so much on the basis of the fiscal year, but on the basis of the actual results of the year considering the amount of money allocated by or appropriated by the government. In 2021, we have -- we are going to have a portion of the grants that related to 2020, and that we did not cash in, in 2020 plus the grants for 2021. As far as we are concerned, the total amount available at national level is EUR 1.600 million. So just more or less the requirements estimated by the overall transportation industry. Let me give you an example for Trenord, the ministry for sustainable mobility has built a model that we used for the calculation of grants to the Transportation segment. That was done for 2020. The same is going to be done for 2021. If we take Trenord for -- Trenord's grants would be around EUR 109 million, this is the requirement calculated on the basis of the model. So it's a very complex process because the government has to issue a new decrease to appropriate new resources, we tend to rely on the model that I described, which determines the requirements, based on which grants are going to be issued. Let me remind you that the sector associations are negotiating this issue with [indiscernible] also in the light of the latest energy price increase. But this is something that all the industries are doing with the government. I'm not sure if I managed to explain myself.

Well, yes, I do realize that it is very complex. Now for 2022, however, what is the cash equivalent CapEx. Again, when it comes to cash, we have accrued CapEx and cash CapEx, accrued CapEx EUR 150 million to EUR 200 million. This is accrued CapEx, and then take CapEx, cash CapEx depends on the period. Now in 2022, we'll pay part of the accrued CapEx that we made in 2021.

[Operator Instructions] Next question, a follow-up from Mr. Cococcoli, Luca, Intesa Sanpaolo.

I do apologize. I just have a follow-up question. The targeted 2022, 2025 target of year that you plan. Are you confident in reaffirming such targets? Or is it difficult in this moment for you to do that?

No, we are confident by the time we said we have issued with our [indiscernible].

[Operator Instructions] Now Ms. Minazzi at the moment, we have no questions from the conference call.

Well, thank you very much. Thank you. This is the end of our presentation, but we are available to answer any possible questions you have through our Investor Relations service. And well, you'll hear from us for the presentation of Q1 results. Thank you, and good evening.

Ladies and gentlemen, this is the Chorus Call conference operator. The conference is now over. You may disconnect your telephones. Thank you.