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

Ladies and gentlemen, good morning. This is the Chorus Call conference operator. Welcome to the presentation of the consolidated results of the first 9 months 2023 of the FNM Group. [Operator Instructions] At this time, I would like to turn the conference over to Ms. Minazzi, who is the Investor Relations Manager. Ms. Minazzi, you have the floor.

Now good morning, and welcome. Thank you very much for being here to the presentation of the group FNM, for the first 9 months of 2023. Mr. [ Giavatto ], our CFO; and myself, will illustrate the results of this period. As usual, at the end of the presentation, you will have the possibility to ask questions. And at this point, I hand you over to Mr. [indiscernible] for the introduction.

Good morning. And we do apologize for the slight delay. We are now going to talk and illustrate the new results of the group as at the first 9 months of the year. And as you can see, revenues are growing versus the previous year. And this applies both to the reported results in absolute terms, but also if you take the like-for-like analysis, we have restated the data to take into account, the change in [ parameter ] of for the exit of the line materials and also because of the extraordinary event, there is the lack of recognition of the contribution. Now revenues are growing by 2% or EUR 456.3 million versus EUR 447.2 million. As to the EBITDA, as you can see, it went up 3.4% reported from [ EUR 157.7 million ] to EUR 161 million. Now if you take the like-for-like result, the EBITDA would go up to 5.9%. Now as to the EBIT after amortization and depreciations, the result is lower than the previous year from EUR 87 million to EUR 83.4 million. The result -- this result of the new route [indiscernible] in the motorway system. And then we also have investments in the rail and motorway sector. Now the net result as you can see, EUR 56.5 million, slightly lower than the previous year. And here, we need to take into account a greater financial charges, higher financial charges. More than half is due to the IFRS effect because of the adjustment of the funds in accounts. If you take into account the equity companies. You can see the group net result of EUR 54.3 million versus EUR 38.4 million. Let me point out here that in 2022, Trenord in September, had not yet taken the COVID-related contributions our grounds, which were given in the last part of the year, and the difference at the end of [indiscernible] you see here in group net result, decreased at the end of the year. The NFP goes down by EUR 55 million. And so a decrease by EUR 55 million of debt, from EUR 766.9 million to EUR 711.9 million. Now the main drivers of this evolution is due to the recovery, both in terms of the revenues and volumes of all businesses. Now let's start from motorways over the next slide. Finally, we can say that we have reached the full recovery of light traffic before the pandemic. You can see 2.384 million cars lead us to 2.362 million cars that we had before the pandemic. Now as to the growth versus the previous year, I would say, 6.4%, and the mix here is slightly different to what it was in 2019, although this is a minor element. Now the growth, we can see it cumulatively in absolute terms in the first 9 months. But if you look at the chart, the dark blue line you can see it is almost always above the line for 2019. Next slide, you can see the mobility demand of bus and rail transport, as the bus transport, you can see it went up by 24.8% from 40.4 million passengers to 50.4 million passengers, we're getting close to 56 million passengers that was back in 2019. We still have a gap here of around 10%, which is going to be recovered because of change in habits as well on the part of people. But if we look at the density of people on buses while there is also increased. There is still room for improvement. As to Trenord, you can see it went up by 28% versus the previous year from 106.9 million to 136.8 million people. Some 800,000 people take Trenord trains every day. Before the pandemic, we had some 850,000. So we still have a gap here to recover between 10%, which you see here on the slide in terms of trends. Now we also reporting it by European companies sales sector. There must be a change in habit, working from home and different habits after the pandemic. This lead us to say, it is not certain that we can make up for the gap of 10% passengers. So this is more or less the picture [indiscernible] as at the September 30, 2023. Now if we move on you can see the EBITDA reported and like-for-like for different sectors. At this point, I'll leave to [indiscernible].

On this slide, you can see the breakdown of the EBITDA for different segments reported and like-for-like. Now as you can see, there was an increase of EBITDA by 3.4% and 5.9% respectively. Change in perimeter is worth EUR 6 million without taking into account the change in the perimeter and also the lack of contribution for the car sharing, the drivers of EBITDA growth are basically the recovery of traffic from to rails and buses. And then as the Ro.S.Co new trains that have become operating since 2022. As we have a slight underperformance for the railway infrastructure. We still had such a low performance in [ 2022 ] slightly recovered at the end of the year. We can confirm that the greatest contribution is given by the infrastructure of the group. Now let's move on to the next slide. And here, you can see the consolidated result, which is growing by 40%, EUR 16 million. This is due to the EBITDA as includes also negative effects of the sale of La Linea/Martini Bus of EUR 6 million. And then we have an increase in depreciation mainly from due to investments of the motorway infrastructure. And then we have an increase of borrowing costs, financial charges, due to the increase in net interest rates, both are outstanding debts, but also on that's for the application of IFRS taxes go down by some EUR 6 million. Here we include EUR 2.4 million of positive one-off driving from the resolution of a tax query that we submitted to the ministry, but also a refund of 2008 for a tax wedge of EUR 2.4 million. Then the main effect is related to the better performance of company's valued equity. Trenord, for instance, have had the best performance. It is still negative, but has recovered almost everything versus the results of the previous year. The company is closing the 9 months with a bottom line of EUR 54.3 million on this slide. Let's move on to the next slide, you can see here the motorways segment, where the EBITDA has gone up by EUR 11.3 million, 11%. This is due to an increase of revenues of 13.4%. And then this is related to volume increases, had a positive effect both on tolls, but also on revenues from concessions. There is money that we cash in from [indiscernible] also because of the review of the contracts. [ Royalties ] are better month by month, increase in the volume of traffic. Moreover, we also have the effect of the Tangenziali Nord Milano starting in March 1, 2023, and then as costs, costs are growing by EUR 2.2 million. Let me break them down. As to operating costs they are up by EUR 3.7 million, following the higher variable costs linked to traffic performance and then we also had an increase in intercompany service costs and IT expenses. In 2022, these costs were certainly lower, we should see what is going to happen in Q4 versus 2024. And then we also have the some costs related to energy. And then as to costs, maintenance costs, they have a positive trend that is they are down by EUR 1.7 million. And therefore, this is the result of higher net releases from the renewal fund and more greater set of greater maintenance cost of minus EUR 7.4 million. But many related to works on the Po Bridge and Zerbolò gate. And also interventions on signs and signals that help avoid accidents. Last year, we had greater costs related to the digitization of the segment [indiscernible] actually had gone up considerably. However, we also have -- the renewal fund has a positive effect of around EUR 9.2 million, which is to our provisions to the renewals and also to a release of great maintenance service that was [indiscernible] 2022. As to personnel costs basically that is stable. It is decreasing by EUR 0.1 million. On the one hand, this is due to the renewal of the National Collective Bargaining Agreement and variable components, almost fully offset by the absence of redundancy incentives charged in 2023 period. Overall, the 9 months close with EBITDA of [ EUR 113 million ] As to Ro.S.Co. & Services, positive trend. You can see the EBITDA moves or grows by EUR 1.7 million. This distributed higher revenues driven by rolling stock leasing up to EUR 2.2 million and thanks to the TILO trains revamping of TAF high capacity trains leased to Trenord. And then other revenues for administrative and IT services provided by FNM Holding to Group companies. Here, the revenue is up by EUR 2.5 million. Moreover, we have higher operating expenses and personnel costs. OpEx go on by EUR 2.1 million related to the development of FILI and H2IseO projects. And also EUR 400,000 due to an increase in financial charges. Staff costs are up by EUR 0.9 million most related to head count increase, plus 11 FTE. If we now move on to the railway infrastructure, now you can see on this slide that the EBITDA goes down from EUR 14.6 million to EUR 8.2 million and basically [indiscernible] by EUR 6.4 million. Without taking into account revenues related to maintenance of rolling stock, which is granted by Regione Lombardia Trenord, plus EUR 4.4 million, but here you need to take into account the provision for a cyclical maintenance of fleet has no impact on EBITDA. You can see revenues that are excluding the leasing EUR 1 million driven by public contracts and grants related to the increase of revenues related to the access to the network of [ Milano ] also for the adjustment of the targets. We, however, see an increase of operating expenses by EUR 3.9 million, mainly because of costs or infrastructure maintenance, and design, especially [indiscernible] Milano area and the maintenance of machineries also on signaling [indiscernible] 2023 and then also a greater cost of energy has to be taken into account, which is related to the negotiation of energy supply contracts and renegotiations occur at the end of 2022. Staff costs are also growing up due to the head count increase on the one hand and also because of the of EUR 2.3 million in 2022 related to the absence of recovery of sick pay charges that we do not have in 2023 versus 2022. Let's now move on to the road passenger mobility. And here, I would -- only the trend without the change in the perimeter of the group. Yes, you can see that EBITDA is growing like-for-like from EUR 3.3 million to EUR 5.9 million, growing by EUR 2.3 million. This is basically an increase in revenues. On the one hand, we see revenues growth because of transport services and greater traffic. On the other hand, we have a reduction in revenues related to public contracts. So this is due to the lack of grants for additional services of EUR 4.5 million in 2022, which were not there in 2023, plus a reduction of subcontractors that is going down by some EUR 6 million. We also have that reduced revenues from tickets EUR 3.7 million contribution paid because of COVID-19 related the losses. And then we also have a fewer operating expense down by EUR 3.2 million, mainly due to the normalization of fuel cost and fewer subcontracts to third parties to carry out additional services of EUR 4 million. And then staff costs are up by EUR 1.8 million to headcount increases. But overall, costs are going down by EUR 1.8 million, as I told you before, normalization of fuel costs and fewer subcontracts. As I have already said, there we have an increase in personnel costs, and this is mainly due to the increase in the headcount. Let's now move on to the companies consolidating equity. We are going to dwell first on Trenord and then APL. As to Trenord, as we said before, in 2023, we still have a negative result, but it is certainly improving versus 2020 to minus EUR 51 million to minus EUR 1.1 million in terms of net result and this is due basically to a different operating trend, an increase of revenues by EUR 77 million. So EUR 2 million are increase at ticketing due to the increase in net passenger volume and increase in tariff that we had in September 2022, but also in January 2023. And then an increase by EUR 3 million of the service agreement revenues basically related to rolling stock, energy and tolls and then an increase of other revenues including EUR 5 million related to tax credit on energy cost. As to OpEx, they are going up by almost EUR 14 million, mainly related to personnel costs. We have a reduction of D&A up EUR 2.1 million. And then financial charges are going up because of the tax rates increase. Those taxes are growing, out of which leads to a loss of EUR 1.1 million, but a better result versus 2022. Let us point out the renewal of the sales contract with Regione Lombardia positively evaluated by ART and is in the late stage of the approval process. The signing of the contract should be -- should occur at the end of the month of November. Let's move on to APL, and here, the trend result is quite different in the first 9 months of 2022. There was a negative result of EUR 3.2 million at the end of the first 9 months of 2023, minus EUR 8.7 million and this has been due to financial charges. As you look at the operating results, revenues are growing by EUR 2 million, this is due to the increase in traffic. And however, there is an increase in operating costs, especially related to personnel costs and insourcing some activities. As to D&A, as you can see, they slightly increased. Whereas as you can see, there is an increase in result for net financial charges minus EUR 5.7 million. And then you have to take into account the effect there is a higher net loss year-on-year mainly due to the financial charges linked to higher interest rates on existing loans at variable rate and amortization of the senior loan 1 accessory fees. The funding was signed because of the continuation of the works on new routes. And then let's see now at CapEx. You can see the 9 months of 2023 versus the first 9 months of 2022. You can see CapEx are decreasing by 50%. As to motorways, we have lower investments in 2022, investments were represented to work to requalify the [indiscernible] Ro.S.Co., a reduction by EUR 38 million of CapEx. This is due to the fleet that was supporting 2022 revamping on the contract in early in 2023. The railway infrastructure, minus EUR 1.7 million, whereas road passenger mobility, investments are slightly growing, and this is due to greater investments in buses. In 2023, we purchased 69 buses. Now move on to the next slide, which represents a cash flow, which is positive, and this is due to operating results, EUR 161 million of EBITDA, partly made up for by the negative trend of net working capital, which is to payment delay of Trenord and [indiscernible] then we have EUR 32 million negative of altogether in net working capital from a negative CCN from investments with earned funds for EUR 32.6 million. And then you can see the dividends have an impact of EUR 10 million. The net financial position because of all these changes is EUR 711.9 million adjusted, whereas [ EUR 553.8 million ] this is the reported net financial position. At this point, I hand you over to [ Eugenio ] who will talk about the debt.

Okay. Starting from the net debt financial position, EUR 711.9 million, cash EUR 232 million, which includes a part of the advances for investments and the overall debt gross is EUR 874.8 million. If you look at the structure of the debt, it hasn't changed for the past few months. It is basically connected to the bond which is related to a lower interest rate that was agreed upon before the interest rate hikes, an average interest rate of 1.81%, which certainly is interesting. We have still a number of credit lines, which are not committed, and which have not been drawn for a total of EUR 100 million. Well, this is the financial position as at the end of September 2023. Perhaps we'll go on to the outlook to conclude the presentation. Similar to what we have displayed previously as you can see here in terms of the revenues and adjusted EBITDA. The EBITDA margin is going to be in line with 2022, we do not expect surprises or shocks, whereas we have a reduction of the net financial position with a relative effect on adjusted NFP on EBITDA. I think that we have completed the presentation. We can now take your questions if you have any.

This is the Chorus call conference operator. We can now start the Q&A session. [Operator Instructions] The first question is by Milo Silvestre with Equita.

I have a few questions. The first one about CapEx. Can you give us the breakdown of CapEx in 2023, and do you expect the reduction of CapEx in 2023, is going to be recovered in 2024. And the guidance is it still okay for 2025? And then another question about MISE, do you expect changes versus the initial request of [ EUR 490 million ]. Can you give us an update also on the situation? And then I'd like to ask when do you expect to disclose the new business plan?

Thank you, Milo. As to the CapEx is go through the CapEx breakdown again. Most of the CapEx -- through the CapEx breakdown again. Most of the CapEx is due to a delay in the delivery of trains of rolling stock. And partly, it is related to the world of buses. At the moment, we believe that we can keep the 2025 guidance. Well, I have to say that the dynamic of investments is quite strange. In April this year, we had assume buses to be late in delivery or as the companies called us and they told us the buses were available. So it's very difficult to make forecasts if we had delivered buses or run stocks as sooner than expected, then we can recover revenues also, we can make investments. Second question about the prices of MISE, 2024 tranche. We met again with ART, and we went through a number of issues that were not clear for them. Basically, 2024 is going to be a very strange period and it was based on a traffic plan that was devised before the outbreak of the pandemic, but which could no longer be implemented. So within the 2024 plan, MISE presented to ART to traffic plan. So one worked out before and then make the second one after the pandemic, it's no right or wrong here, ART has to comply with a number of rules, which envisage the drafting of two plans. But then you have to take into account then the plan is going to be approved at the end, not in advance. So this is to explain how difficult it was to communicate with ART, we started talking with them in September. And we finally found a common approach, which comprise all respects, the initial plan, but this does not mean that we have to put aside what has happened over the past few years. So traffic analysis was completed and integrated to explain why there was such a change. I expect this to be closed within the end of year because as at the beginning of January, we need to work on the actual plan for the next 4 years, basically from 2024 to 2028. As to the renewal of the concession, maybe here, I am anticipating that question. At the moment, there's no clarity about the renewal of the concession yet what is clear is that we have those figurative costs, which are quite encouraging. But history, because of the examples tells us that a closure of the concession is quite unlikely. And so we realistically expect the [indiscernible] 2 years. As to the plan we'll have a Board meeting at the end of December and we should finally disclose the date of the presentation of the business plan. It's not going to be a totally new business plan, it's going to be an update of the 2021 business plan. At the moment, I cannot give you precise indications. The business plan will be reviewed to see what has actually happened versus 2021. Strategically, we are already working on it, and we'll keep you posted when we have information about this.

Now another demand question. Now on those EUR 490 million, you haven't received any observation.

No.

The next question by Davide Rimini, with Intesa Sanpaolo.

Thank you for your presentation. I only have one question. That is the performance of companies consolidated equity and particularly those companies who are working in the mobility sector. Now can you tell us something more about the worsening of performance at year-on-year.

I haven't understood well, which companies consolidated at equity. Let me just give you the slide numbers so that we are clear on. It's slide #28. I was referring to SportIT and the second and busforfun.com. Now these are two start-ups that have a result which is in line with our plan, and there's not much difference versus the actual plan considering that these are two start-ups. And in this case, we made investments for the future. Now as to a Busforfun, we have almost completely expensed. The order for the Olympic Games. We don't know how things are going to evolve. We made investments. We made the marketing activities and development works on the platform. And this is why. And then we have snow it. Snow it is in line with the plan. There is a bit of a delay which is related to the lack of inclusion of the [indiscernible] it's going on. So we are now assessing all of the 3-year plans of all companies, and this is making us hope that these companies are going to have quite good results.

[Operator Instructions] The next question, a follow-up question by Milo Silvestre with Equita.

I do apologize. Let me ask another question on Trenord and about the renewal of the contract by the end of November. As you said due to the previous conference call. Now as this contract [indiscernible] be able to recover 550.

Well, this is the recovery of 550 is something that we basically care for. The service contract has inside the return of the 550, but as is the case for all in ART contracts while these are to be renewed. The request is on the table of the regional authorities. But then you have been locked at clauses that we take you into account. The service contract will be closed as it was in the past in terms of remuneration. And then after that, within the regulation framework that is in compliance with the admin law. There will be a revision or a review that takes into account the difference in the macroeconomic conditions that we experienced [indiscernible] basis. So it is reasonable to think that this is going to be changed. But at the moment, I don't have indications as to when and how it will be changed.

Next question by Davide Rimini with Intesa Sanpaolo. You have the floor, sir.

I have a follow-up question in Slide 28, I am referring to Tangenziali Esterne di Milano Spa. The press have mentioned possible change in the shareholdings. I just wanted to know what your position is, should the change in the shareholding base actually materialize, and therefore materialize the change in the property.

As a matter of fact we read things in the press which is basically the result of the majority shareholder intentions not to continue with this type of shareholding positions. At the moment, we don't have much, however, to say about this. we don't have a clear indication. On the one hand, we have or we see the bylaws envisages. The first -- the right of first refusal on the part of all shareholders, but at the moment, these are only rumors, there's no due diligence activities going on. There is interest. It is an informal interest there. You read the news in the papers and so did we. There's nothing else at the moment. I don't think there will be changes for the first quarter of 2024. Well, but it's a nice piece of news. Now the article mentions the increase in value of our share by EUR 100 million. So that's a positive.

Ms. Minazzi at the moment, there are no other questions coming from the conference call.

Okay then ladies and gentlemen, thank you very much for joining the conference call. Thank you very much for being here with us. And however, if you have any other question or request for clarifications, we are at your disposal. Otherwise, you will hear from us in March 2024 for the disclosure of the full year 2023 results. Thank you very much.