Aena Sme S.A Unsp/Adr

Good afternoon, everybody, and welcome to this third quarter 22 results presentation. At the call today, we have next to me, sitting next to me, Ignacio Castejón, who is the new finance director of AENA. He joined just three weeks ago. He has a wealth of experience both in the finance side of the business and in the airport industry. I will hand you over to Natio, who will be welcoming you and saying hello. Thank you, Jose. Good afternoon, everyone. It's a real pleasure being today with all of you. I'm really looking forward to start working with you in the near future, and I hope that we are able to interact very soon. Thank you, Jose. Thank you, Ignacio. And without further ado, we'll start going through the main slides of the presentation, starting with the key highlights. I think we are presenting to you today a good set of results. Honestly speaking, it is a good set of results, and I will do my best to make you convinced that this is the case over the rest of the call. To start with, the traffic numbers are going really well. We see a significant growth indeed in the Spanish network, more than 140% year-on-year, and similarly more than 133% across the group. We will later on comment on how this process involves a significant improvement vis-a-vis 2019 and improvement vis-a-vis our expectations a couple of months ago, three months ago, on the guidance that we provided exactly at that time. The total revenue is growing by 65.6%. As we discussed over the last results presentations, this is not in line with the passenger number growth due mainly to the accounting adjustments impacting the commercial revenue that we will discuss as well in a minute. The EBITDA is now reaching a really meaningful figure. 1.3 billion euros in EBITDA is already a very healthy figure, taking into account the background, where we are coming from, and the challenges of the industry. Reaching already more than 44% EBITDA margin, going in the right direction and trajectory. The net result is healthy as well, close to 500 million euros in net profit. Obviously, now entirely out of the tunnel of the losses and the challenges of the COVID experience. Finally, I would like to stress very, very importantly the performance in terms of cash. we have generated more than 1.5, 1.56 million euros in cash. The difference between the cash generated by the operational activities and EBITDA is precisely the impact of the accounting adjustments impacting or affecting the commercial revenues. as they are obviously deducted from the EBITDA, but they have no impact whatsoever in cash terms. And I would like to stress that this is the company back in its good self of generating very healthy cash very, very quickly, and now in full compliance with the governance and the obligations stated in the Moving on to the next slide, the most relevant thing here is that, as I said before, we are already recovering a good chunk, a very significant chunk of the 2019 traffic. For the whole group, we are close to 86% of the total traffic of 2019. In the case of Spain and the Spanish network, this is 86.1%. For Luton, this is slightly less. As we discussed a number of times in the U.K., the traffic recovery is only slightly lower. It's lower, but it's still very good, 71%. And in the case of the Brazilian airports, we have already exceeded the 2019 figures. Particularly in the month of September, the traffic in that group of airports exceeded the September 2019 traffic by 8%. So this is a very good signal. of how attractive and healthy that particular market might be. Taking into account that the October traffic is also going in the right direction to the point that it's showing a level of recovery even above the one experience in the summer months, we are now indicating that we expect to close the year with a level of traffic that will be slightly above the upper end of the range that we provided some months ago. So we will be north of 85%. I don't propose to dwell any longer on this slide, so we can move on to the next slide. As you know, in the month of August we were awarded the concession of 11 airports in Brazil. We are providing here some, let's say, descriptive information. We may provide more insight into this project when we share with you the strategic plan in the coming weeks. Probably you are aware that we are planning to share with the market to arrange a capital market day on the 16th of November. And at that time, in that occasion, we will probably do a little bit more on this. But in the meantime, I would like to share with you the strategic side of this transaction. Of course, when you travel abroad, when you are acquiring airports in other countries, there is always an element of risks, extra element of risks, if you like, that is the knowledge of the market, whether or not you are right strategically, whether or not you feel that you can apply some of the experiences and templates you applied in your own country. Well, we believe that Brazil is ideally shaped for AENA to deliver the sort of value and values that we have delivered in Spain over the last decade. The reasons for that are, first of all, this is a large country. It's a country where the tourism industry hasn't been developed to the extent that we believe it could be developed. It's far from the, let's say, volumes and the level of revenue that the tourism industry is generating in Spain. But we believe that Brazil is ideally placed to do this and even more. On the other hand, for the country, the air transport connections are critical for obvious reasons. I don't need to tell you why. There is still a huge headroom to develop the low-cost carrier business proposition. Of course, there are very healthy and very low-cost carriers on the belt, but still they have room. to grow and to improve that industry. Also, it's a country where, honestly, our experience of operating over there in the Northeast region is extremely positive in terms of the seriousness, how trustworthy the regulations and the institutions are. So with all that in mind, we believe this is a good country to be long-term. This is a good country to try and apply the similar, obviously with some differences, but similar, let's say, experiences that we have already had in Spain. And we believe there is value to be generated there. Now, we are going to manage 20% of the total traffic, air traffic in Brazil, more than 40 million passengers, 17 airports, and the second largest airport in the country. So we believe there is value on that proposition. I just wanted to share this with you. Of course, there will be more questions later. Later on, I'm pretty sure. And then finally, I'm going straight to the slides on commercial revenues and OPEX. The commercial revenue performance that we can see on page 10, because you know that one thing is the headline revenue figure. A different thing is the real underlying business. When we look at the fixed variable rents that we are invoicing and collecting day in, every day, we are reaching now a level of 903 million euros. That is 136% more than in 2021, which is not a surprise at all. But when you look at the next slide, slide number 11, and compare These figures with the 2019 figures, that was a year, an exceptional year in terms of traffic, as you know, the best in history. Can we move on to a slide that might let you have a brief? You can see there that the performance of the business has been improving quarter by quarter to the point that in Q3 overall, rents are exceeding the same period rents in 2019 by 8.5%, with only one activity or only one commercial line, the specialty shops, underperforming for obvious reasons because this is the part of the business that was more affected by the COVID in the sense of a number of shops ended up shut down, and they remain shut down until we, let's say, put them again in the market through different vendors. So in total, we are now at close to 900 million euros of fixed and valuable rents built and collected on a regular basis. Again, 887 million euros in 2019. For me, this is good performance. And we can discuss the drivers. We can discuss the reasons. We can discuss whether or not this is structural or it's just a matter of time that this can be impacted by other factors that frankly nobody knows in full. But goodness me, this is good performance. Finally, on other operating expenses, What we can see is that what we have been telling you a number of times is the reality. The operating costs of this business, excluding the electricity costs, is at the levels of 2019. And I believe this is going to be the case for the rest of the year. This can be seen as bad news by some. This can be seen as a reality and the confirmation of something that I have been sharing with you for years already. And I share with you the reasons and I'm happy to answer any questions about what is behind this. It's a combination of structural changes in the business It's a combination of quality standards required by renovators and passengers and airlines and stakeholders. It's a combination, of course, of change in the reality of the Spanish market, the Spanish labor market, so on and so forth. With regard to the electricity cost, this is the result of the evolution of the market conditions. We are not hedging yet. I'm sure you will be making questions on that and I will be very happy to provide some answers. But, you know, the electricity is the maverick element of this year's operating cost base. And let me finish and spend five minutes trying to wrap up a number of things. Obviously, I'm not going to be focusing on any particular slide. I think Reina's situation coming out of the COVID tunnel is really good. To start with, We have improved right in the way we manage through the crisis in terms of our resources. And we are not experiencing, we are not facing any of the havoc situations that other airports are experiencing across Europe. So we are accommodating a significant amount of growth and providing what I believe is a very good, very good, never perfected the operational experience with no issues whatsoever, other than, obviously, strikes in some of the airlines and things like that we have to face. But other than that, We haven't experienced any of the terrible situations. Obviously, we are not happy with that. Some of our colleagues faced over the last two months. Secondly, the traffic is performing really well. It's surprising us positively. Believe me that we were not expecting this kind of performance to become a reality so quickly. Of course, nobody knows what is behind or around the corner as a result of the macro conditions. Nobody really. The airlines themselves are, let's say, watching out and monitoring this by the day. So far, they have no indication of any setback, but they remain vigilant, and we do the same. Thirdly, the revenues, the airport revenues, the airport charges are what they are. They are not set. I mean, it's a surprise. You know our regulation. You know what the level of charges is set by the regulator. You know that we are, until 2026, we have a tap, and this is it. So no surprises. In terms of the commercial revenues, In my view, we are performing really, really well. I believe exceptionally well. Much better than we could do six months ago. Obviously, the headline figures are affected by the DS7 adjustment, but that makes no difference to the cash, and that makes no difference to the reality of the business. In terms of costs, the operating costs evolution is nothing. We are celebrating, of course, but it's not coming as a surprise, other than the energy costs that I'm prepared to take any hit you want to give me. In terms of cash, the business is generating 1.6 billion euros in cash. And as a result of that, debt is evolving very, very well, very healthily. And the impact of the changes in the market conditions is not going to be huge. We can discuss it later. It's not going to be a sort of make-or-break kind of situation in terms of the financial costs because we have already, already now, as we speak, This is not what you can see in the presentation, but we are already now under fixed rates for 80% of our debt. In terms of international experience, Luton and the Northeast Brazilian airports are performing really well. They are contributing already a meaningful amount to our EBITDA. This is going to improve over time. So they are good contributors. They are good businesses. And in the case of Brazil, the recovery of the traffic is amazing. In the case of our international strategy, I share with you our strategic views about Brazil. But, of course, I'm ready to discuss further in detail. And finally, in terms of developing new businesses, the real estate business is already moving on with the award of the first plot of land to P3 with a very good result. So, in my view, of course, this is not the world we were used to in 2019, but I believe, honestly, that China, from any angle, is coming out of the COVID crisis in a very positive and a very attractive manner. This is it. Now we can open the Q&A session. Thank you very much, everyone.

This is the conference operator. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the touchstone telephone. To remove yourself from the question queue, please press star and two. Please pick up the receiver when asking questions. Anyone who has a question may press star and one at this time. The first question is from Nicolò Pessina of Mediobanca. Please go ahead.

Yes, good afternoon all. I've got three questions. The first one, we read about the approval of the new strategic plan, so I'm wondering if you can give us any visibility on the dividend policy. Second question, maybe if you can provide an update on the level of yield dilution and concentration in the nine months and if you can give us any visibility on the full year figure and on the 2024 K factor. And a last question on the new airports in Brazil. If I look at the material made available by ANAC in Brazil, I see a regulated tariff of approximately 16 reais per passenger in 2023. increasing 50% in 2024, which is well below the 43.6 you indicate, for example, for Congonhas in the press release this morning. So I'm wondering if you can explain how tariffs work in the contract, which kind of tariff you expect to implement, And if it's correct, to assume a 50% increase over the next year. Thank you.