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 conference call on consolidated results for the year 2022 of the FNM Group. [Operator Instructions] At this time, I'd like to turn the conference over to Ms. Valeria Minazzi, IR Manager. Thank you. You have the floor.

Thank you. Good afternoon. I'd like to welcome you all, and thank you very much for attending this conference call on the results of the FNM Group as at the 31st of December 2022. We have here Marco Piuri, General Manager, and Mr. Giavatto, CFO of the FNM Group. Mr. Piuri will start the presentation by making a brief introduction. And then Mr. Giavatto will illustrate the results. As usual, at the end of the presentation, you will have the possibility to ask questions. At this point, let me hand you over to Mr. Piuri.

Thank you. Thank you very much. And good afternoon also on my behalf, a very brief introduction to underline and give you the highlights that we believe are most interesting. Now the first thing to say is that when presenting 2022 results, we are happy to say that we are going to present a group which despite the turbulence of the environment, and despite the macroeconomic issues, our group continues to show resilience and shows that it is capable to deal in a positive manner the context. So the positioning that we have adopted for the group and which we want to maintain and develop, that is we want to remain and become a physical and digital integrated mobility platform, and this is turning out to be quite positive. It's not up to me to talk about the events that occurred in 2022. However, as far as our business is concerned, we had to take care of the tail so to speak of the pandemic, which led to a reduction in the number of passengers, limited activities and so on. And then the terrible war in the Ukraine, which has had an effect on the overall cost of energy. And as you know, then we have the additional factor of inflation, which we hadn't seen for many years. Now as you, however, will see the group has all positive results, actually improving versus the results of the previous year. Let me get into some of the details about certain topics. Now on the one hand, we have continued our activity of ROSCO and FNM, that is the activity of Ferrovie Nord of management of trains and the purchase of trains. The fleet has grown for a new train are now available, managed by TILO. And then, we also have a part of new trains that allows us to have a longer useful life. Now this does not apply only to trains, but also to buses where we have modernized our fleet of 784 buses and 84 cars. Now over and above this, we have not only provided 47 new trains in 2022, 86 trains supplied used by Trenord, and which certainly has a positive impact. And then MISE, Milano Serravalle motorway, while it took us long there, but we then have had the opening up of the motorway to traffic as we wanted. Now we still are continuing the work on the bridge on the river Po. And something else, which we believe is interesting is that the ministry has recently published the ranking of plan of stocking and distribution of hydrogen for road traffic. Now you know that we have 4 service stations, and we have received EUR 7 million from the European Union. However, this is not reflected in the results because this ranking by the ministry was published a few days ago, but which testifies to the positiveness of the resources of the PNRR plan, managed by the Transportation Ministry. And so we are now witnessing the beginning of such financing, then we will see, I believe, better funding from this point of view. At the same time, we continue with the hydrogen project for the railway business. The program is confirmed. There is a delay of a few months in the supply of the first trains for the testing. Commercial service, let me remind you, will start in 2023, 2024. We've had a number of technical problems in the part of the producer in supplying the trains. FNM has set up a vehicle company, which is to control this business, FNM Power and 100% by FNM and a company that takes care of stocking and production solution of energy. And for the group, it is going to be this company doing this. And then we are waiting for the decisions of the Ministry about the financing of hydrogen to be used in the railway sector, to make sure that such financing falls under the PNRR, the regions or the regional authorities are responsible for this. And at the end, we'll -- at the end of the month, we'll have the decisions about this. What I'd like to underline is that one of the activities that we have launched and it's over the past few years, which we call the Mobility as a Community, MaaC, that is a new model of mobility to better meet demands, well it is now going to give us the preliminary results and better visibility. As to contracts, the positive note is the signing of the contract between Ferrovie Nord and the Regione for the period, 2023-2027, the concession is going to expire in 2060. As to Trenord, the regional authority with a regional law last year, extended the existing contract up to the 21st of July -- sorry, the 31st of July, 2023. And starting from the 1st of August, we will have the enactment of the new contract. And then MISE, MISE started the procedure for the new economic and financial plan. The plan will be submitted at the end of this month. And then we will have the beginning of the procedure, which we know is going to last between 6 and 12 months. This is the plan, which contains fully the regulation #67 of ART for the period 2022-2024. Last topic, ESG sustainability also in the light of our strategic plan, which is an integrated plan with very specific ESG targets. In 2022, we witnessed a reduction by 7% of CO2 emissions, Scope 1 and Scope 2 emissions versus 2021. And then FNM has been awarded an ESG rating with a ranking, which places our company at the fourth position among the companies operating in this business. And so these are, for us, the highlights and the most important factors as you look at the results of the group, and you take the pro forma results. We have all positive figures. Revenues are growing by 11%, over and above EUR 600 million of consolidated results, EBITDA plus 17%, almost EUR 200 million. EBIT 18% above EUR 100 million, adjusted net result and net results, you see EUR 68 million and above, plus 51% adjusted net result and plus 42% net results. So these are all positive results. And considering the -- in the last 3 years, what I believe these results show the resilience of the group and the capability of the group to manage difficult times. A further positive note, the net financial position at EUR 767 million and so 1.5% above what it was in 2021, so above the expectation. Before giving the floor to the CFO to get into the details of our financials, let me -- there is something about mobility demand. Now 2022, as we said before, well, we saw an increase -- a progressive increase in the mobility demand, mobility demand on the road had already recovered quite strongly. As a matter of fact, if we measure such demand using millions of vehicles, and if you take MISE, we are almost back at the levels of 2019. As you can see, demand there grew by 12.3%. APL, certainly less relevant than Milano Serravalle, where you can see the mobility demand recorded plus 19% versus 2021, even better than what it was in 2019. If we look at public mobility, now bus transport, plus 22% over 2021. But here, we are still far away versus 2019. There is a gap of 24%. And if you look at Trenord as well, mobility here has grown by 30% almost. So this figure is certainly meaningful and important, but we're still here again quite far away from the figures we had in 2019, almost minus 30%. But if we take the figures of this year, 2023, we still see an improvement and the demand that we are seeing over the past few weeks can be classified as new normal, a new normal structural demand. So we're getting very close to the before the COVID pandemic. Well, at this point, I'd like to hand over the floor to the CFO, who will get into the financials. Thank you.

Thank you very much, Marco. Good afternoon also on my behalf. Let me get into the results of the group and look at the different segments. Now if we look at the ROSCO segment, you can see revenues went up. This is mainly due to the increase in revenues from rolling stock leasing but also of services provided to the companies of the group. The EBITDA is in line with what it was in 2021 before -- because of the higher service costs and higher personnel costs. Railway infrastructures, an increase by EUR 12 million plus 9.6%. Basically here you have higher service revenues, mainly also due to engineering and planning of infrastructures, but also greater revenues for Ferrovie Nord in terms of leasing revenues on the rolling stock. Now as to the EBITDA of the railway infrastructure, there is a considerable difference versus what it was last year. Last year, however, we had a big negative one-off. And so if you consider this, the EBITDA of the two years are almost aligned. If you consider revenues, there is greater inflation related to personnel costs and energy. If we move on to road passenger mobility, Page 8 of the presentation, revenues are growing almost EUR 95 million (sic) [ EUR 9.5 million ], EBITDA is slightly decreasing here. Again, we have the inflation effect combined, of course, with the increase in fuel and also an increase in personnel costs. As to motorways, well, you can see a big jump in terms of revenues. This is due to higher traffic but also because of -- ever since the 1st of January 2022, we had the tariff increase by 2.62% over and above traffic in terms of volumes and in terms of prices. We also have some cost efficiencies in the motorways business, especially in the renewal of the service concession contract. As to the EBITDA plus 26.4%, that is EUR 26.7 million more versus 2021. This, of course, had to absorb a greater inflation related costs. We mentioned before that some of the maintenance costs, investment well had -- was increased because of the inflation, and that was not recognized within tariffs. Now something else I'd like to point out the tarmac for motorways simply has a considerable effect. Last year, Tarmac price went up by 200% in its unit price. So this certainly has an impact on revenues and EBITDA. Trenord, as to EBITDA, we have an improvement here. However, Trenord had to deal with some different issues, which is related to the government subsidies. I don't know whether Marco wants to step in, you can see that in terms of ticketing revenues, we have quite a considerable increase, plus 61% versus 2021. Now the ticketing revenues around in 2019 was around EUR 350 million. So there's still a gap in terms of number of passengers. There is a higher revenue per passenger. And for this reason, ticketing revenues are getting closer to what we had in 2021. As to the government subsidies, well, in 2022, we have the amount of subsidies following the measures adopted by the government, which is below the requirements calculated because of the missed revenues. So the ministry has decided so. For this reason, we did not put in our resources the whole amount that we are to receive but only the amount of money that we have actually received. Now you need to take into account that when it comes to these compensations, we need to make all of the necessary reasons. Now as to Trenord, we need to mention that in August, we had to reposition the service because we had a problem in the edges of the wheels of the train, 12 trains. We had to replace the wheels, but this is due to a special problem of the Passante. And we had to discuss this with the Regione, the costs EUR 10 million and for this there is no coverage, but we are confident that because of the good relationship that we have with Regione Lombardia, I think this money can be recovered. Thank you very much. Let's move on with APL. Revenues are growing. This is due to traffic growing. And here, however, we also need to take into account the greater traffic that has used this service. As to the -- you can see the operating results are growing, but is an impact financially, let me remind you that APL has financial charges related to the funding for the new parts of the Pedemontana and so we will have the financial charges until the activities of this part of the motorway will come into operations. So we envisage beginning of operations in 2023. Now as to the -- next slide, that is the EBITDA to net result. You can see here in 2022, we have a negative effect of D&A because of write-down of ATV's goodwill and E-Vai's rights, overall EUR 5.6 million. There is an increase of premiums that started to be used. If we move on to the financial part of this, we have a reduction of financial expenses in general. In 2021, we had a bridge loan with a higher interest rate interest rates versus the bond they replaced the bridge loan taxes. Well, this is the result of the fact that the revenues or the results are better than last year. And then 68.8% of the adjusted net result before companies consolidated at equities and minorities. The impact of companies consolidated at equity is negative because of Trenord and APL as we saw before. So this led us to EUR 68.5 million of overall group net result. Let's look at CapEx analysis. Now CapEx overall, as you can see EUR 145.5 million but growing, versus the previous year by EUR 46.4 million, especially CapEx went up for ROSCO and road passenger mobility and this is due to the increase of investments in the rolling stock here. Now motorways are more or less in line with the previous year, then you need to add the railway infrastructure CapEx. And so you have a total CapEx before contribution -- public contribution, EUR 58.8 million. And then financed by the Lombardia region. And so the overall amount of CapEx has to be -- taking into account EUR 58.8 million of public contribution for railway infrastructure and EUR 13.3 million for motorways. Let's now move on to the cash flow. Now the cash flow starts from the EBITDA of EUR 193 million. And then you have a net working capital of EUR 32 million. EUR 8.7 million in net financial expenses and then taxes, and considering all of these items, these are absorbed by the net CapEx, EUR 136.5 million between gross CapEx and public contributions. And at the end, you have a cash absorption of EUR 23 million, then you need to add a small dividend of -- from Omnibus and EUR 23 million something that was presented already during the previous conference calls. This was the amount of money to completely finalize the purchasing of MISE. Total free cash flow, EUR 25 million, which has an impact on the net financial position of EUR 755 million. Then here, you need to take into account the closing of debt, plus small impacts of IFRS 16, which leads to an adjusted net financial position of EUR 766.9 million, EUR 11 million more than what it was in 2021. Now if you consider then the liquidity of EUR 42 million, which at the end of the year were in a constrained account. However, this constraint was then released, this cash was related to the loan that was received. So however, the financing was then finished, so this cash is now free, has now been released. So if you consider this, then the net financial position would be better than what it was in 2021. Now if you start from EUR 766.9 million of 2022 and considering the cash available for financed investments, our debt would be EUR 907 million. There is EUR 123 million of credit lines, which are not being used. Now let me only -- let me just underline that our debt is 85% represented by the bond with a lower interest rate cost. The bond was issued before the increase in interest rates. Well, at this point, we can move on to the outlook and dividends. Okay, we are moving towards the conclusion. As far as the outlook for in 2023 is concerned, we confirm a positive trend with an increase in revenues and in the EBITDA. You can see here that the revenues are envisaged to grow by 1%-5% year-on-year. But you need to take into account La Linea and the contribution to E-Vai. And if you take this into account, the outlook could be between 2% and 7%, both revenues and EBITDA. As to the net financial position, again, between EUR 700 million and EUR 750 million. So a more real representation as the CFO told us before as to CapEx with the FNM funds, we see such funds decreasing between 10% and 20%. Now as to the NFP-EBITDA ratio, 3.5-4x, which further confirms the progress made in the past few years. Now the Board of Directors then approved the dividend per share of EUR 0.023 per share, EUR 10 million total cash out with a dividend yield slightly above 5%, which we believe is quite meaningful, which testifies to the fact that the management and the Board of Directors sees the company being resilient and positively operating. This is it. Thank you very much. Now at this point, we can move on to the Q&A session.

[Operator Instructions] Now the first question by Dario Michi, Exane BNP Paribas.

I have a few questions to ask. Can you give us a bit more visibility on the guidance, perhaps with some more details to see what are the moving parts that we can expect? And then the dividends. Do you have any idea of the dividends to be applied to 2023 dividends? And then what kind of assumptions are you making for tariffs in 2023? And what kind of expectations do you have for 2024 as well?

Now let me see if I understood well. First question, guidance 2023 and dividends 2023. And then tariffs. Okay. As to the first question, guidance for 2023. We do apologize there's somebody who has the microphone open and we hear everything. So as to the 2023 guidance, what do we expect? Now we expect traffic on motorways to go back to what it was before the pandemic. Then we expect a substantial recovery of road traffic. And then Trenord will still have a gap of 10% for traffic. There is also an inflation threat. The latest data, however, tell us that inflation is going down, and therefore, lower costs versus the costs we had at the end of December. At this moment, however, the budget hasn't changed. And as also our forecasts haven't changed. The EBITDA in 2023 will be similar to that of 2022 as to D&As. Of course, we will have greater D&As or higher D&As because of the implementation and investments for motorways and for rolling stocks. As to the dividends policy for 2023, well, for some time, we've been saying this. The idea is that of dividends to be in line with the results that we make. As to MISE tariffs, now this is a regulatory issue. Now we mentioned the presentation of the PEF, which has -- also includes a tariff increase. This is the request made by MISE to the Ministry based on the rules envisaged by ART on the regulatory period 2022-2024. And therefore, we should also take into account inflation there. It's clear that this will not impact tariffs as we could expect but we are thinking of issuing a PEF for the period 2024-2028, which because of inflation will see an inflation increase by 2.2% versus what we have in our plan, which is 0.80%. This is an absolute value before -- then introducing it into the tariff before calculating margins but we're speaking of some EUR 330 million. These are the A-R-T, ART rules. And from the regulatory point of view, this is something that cannot be discussed.

The next question by Luca Bacoccoli with Intesa Sanpaolo.

Now the first question is about the dividend proposed by the Board of Directors this year. Now my question is, what has changed and what has led the board to suggest a dividend similar to what it was in 2021. I think the majority shareholder will approve the Board proposal. I'd like to ask a second question, which is, do you think you can recover the losses that you had during the COVID pandemic, which I guess, I mean, there's a lot of money to be recovered which might also have led to the extension of the concession. Another question about Trenord. What should we expect in 2023? Are we going to have big losses as we had in 2022? Now in the first 2 months 700,000 passengers, before pandemic 800,000 passengers. Have you changed prices because ticketing revenues plus 60%, number of passengers plus 30%. And so I wonder whether you are seeing the same effect at the beginning of 2023.

Okay, let me start from dividends approved and proposed by the Board of Directors. I mean the directors do their own job, the shareholders during the shareholders' meeting do their own job. Now the results of the group, the solidity, the soundness, the resilience of the group lead the management and the directors to confirm the plan and to make this proposal. We'll see what the shareholders are going to say during the shareholders' meeting. Now we have kind of controlled the type of policies that have been followed by similar companies. And we have seen with companies that can only be compared to our group limitedly because they have either road transportation only or train transportation. However, when it comes to those companies that offer local passenger services, we see that their Board of Directors are behaving more or less in line with our own Board because I've seen a recovery of results, which means that the directors and the management team actually wants to give a signal. As to your question about MISE, and going back to what Eugenio has said before and the regulatory effect. And the calculation of the inflation. Now we certainly expect or we would like to have a compensation for the MISE results during COVID. And based on our calculations, we are around EUR 120 million. Trenord, I wouldn't say big losses. It's quite complex, and I might also appear boring. The monetary compensation by the government flowing a year later. And they are then put in the accounts a year later in the results of 2021, you have the compensation for the lower revenues because of pandemic suffered in 2020 and so on. The calculation of the monetary requirements based on the model worked out by the model by the Ministry. In 2021, FNM or Trenord has had the full amount, 100% of what was lost in 2020. The money available at the moment is only available at 50%. In 2022, the missed revenues were fully recognized EUR 70 million. If we had received all of the money, Trenord would have seen positive results. Please remember that Trenord and companies that operate at public transportation have the right to these compensations based on a European Union regulation. So the full amount of the compensation is EUR 70 million, but we put in our accounts only the money that we have actually received, which is around 50%. And then we will put in place all of the necessary actions to have the recognition of the full amount of money. And from this point of view, the results shows Trenord's capability to react and to have lower negative results. Now please remember that we still have to get EUR 35 million. Please remember then the greater costs related to the technical problem we had with Passante, speaking some EUR 45 million in total. That's for 2022. So make your own calculations. As to 2023, we more or less conceptually are going to have the same situation, but revenues are progressively growing and the per capita revenues are higher than what it was in 2019. In the present tariff scheme that was not changed by regional authority, the fact that there are a number of important transportation policies in the Milan area. And this makes it so that people tend to opt for tickets for individual traveling or travels rather than taking out monthly or a yearly subscription. But individual tickets are simply higher than monthly or yearly subscriptions as a whole. This, of course, leads to an increase in revenues, also thanks to tariff increase approved last year by 3.8%. That was an automatic increase related to inflation. For Trenord, we expect ticketing revenues to further go up. In 2023, we also need to take into account the beginning of the new contract service that will start operating on the 1st of August of 2023. So if we put together all of these items as to 2023, we see Trenord position stronger than what it was in 2022.

The next question by [indiscernible].

I have a few questions. I'd like to ask a question about traffic, where you've seen a recovery, but certainly EUR 10 million less versus 2019. So why this difference APL. Second question. What is the debt structure? How much is it fixed rate? And how much is it floating rate? And then CapEx, what is the breakdown of CapEx in 2023 between Trenord and ROSCO and what are the CapEx which are envisaged at the end of the contract for motorways?

As to the EBITDA of 2019 and 2022, there are a number of items that explain the difference. Please remember that we had a pandemic, meanwhile a war is going on. Interest rates have gone up. And so all of these items leads to a difference. And then you need to take into account the external factor, specific factor to our business. Different habits, more people working from home, less passengers or lower number of passengers. So there's still a gap to be recovered, which is related to all of these factors. So then we can identify one by one. As to APL, now APL received a funding. I was referring before to the nonutilization fee. Please remember that when it comes to APL and its funding, when construction starts, funding are part of the cost of the works. So they are posted in a different manner. And then a last question about CapEx. So you have the breakdown of CapEx. Now 2022, EUR 145 million of CapEx, EUR 58.9 million were motorways related CapEx. In 2023, our assumption is that of having EUR 44 million of CapEx, this is what we budgeted. And this is what we expect. However, I do not rule out the fact that there may be an acceleration and because of the speed with which works start at the end of planning and designing and the availability of materials. Of course, when it comes to the decision of purchasing materials, we tend to make sure that we get the materials when we need to start construction. As to ROSCO, from EUR 51.9 million to EUR 44 million of CapEx. There is no major difference basically because of the reasons I mentioned before, this explains the difference. Perhaps you also asked MISE CapEx now versus what we had in the plan, EUR 350 million of CapEx for the motorway infrastructure. Now in '23, we probably reached 50% of the CapEx envisaged in 2021, '22 and '23, okay, for motorways infrastructures.

[Operator Instructions] Ms. Minazzi, at the moment, we have no other question from the conference call. I do apologize, Luca Bacoccoli with Intesa Sanpaolo has a follow-up question.

I do apologize. I have a couple of questions to ask. Now the plan that you gave us envisaged EUR 250 million of EBITDA, so this means that there must be a strong acceleration. I wonder whether this target is achievable, is reachable. And I have another question for MISE as of July, do you think that you might have a possibility of increasing tariffs, and therefore, having a positive effect in the second part of the year?

Well, now your questions are well put, well placed. Now versus the 2023 plan, the EBITDA was around EUR 20 million versus the budget EUR 196 million. The difference here is related to inflation. We have identified first EUR 7 million which are related directly to inflation energy costs in general and EUR 3 million, which are inflation costs related to other costs that we have and then EUR 4 million are on the contrary related to postponement in the operation of FNM Bay Malpensa District as a postponement of FNM-related operations, which are, however, due to the slowing down of the supply chain and slowdown of procurement. So EUR 12 million basically. And then a change in perimeter in 2023. We will not have the contribution of the La Linea and E-Vai. And then we do not have the logistic terminal. The project was suspended. On the other hand, we have 2 projects that require, let me call it, investments, FNM Power and FILI H2iseO, which certainly implies certain costs and revenues will be seen later on. As to tariffs, well, we hope that tariffs can change in -- at the end of July. We actually asked to make sure that our tariffs could recognize an increase in costs based on Articles of law will put pressure to bear on the ministry. In this case, we hope that this increase in costs because of inflation will be recognized.

Now ladies and gentlemen, there are no other questions from the conference call. I'll leave the floor for your conclusion.

Well, thank you very much for taking part in this conference call. We certainly are available. Should you have any other questions or requests for clarification, the IR office and the IR team is always available. And we will then come back to you for the conference call when we present the results of Q1 2023. [Statements in English on this transcript were spoken by an interpreter present on the live call.]