Aeroports De Paris Sa

Good morning and welcome to Group ADP 2024 First Quarter Revenue Conference Call. Today's call will be recorded. And if you want to ask a question at the end of the presentation, please press star zero, sorry, please press star one on your telephone keypad. I now enter the call to Cecile Kumbo to begin today's call. Please go ahead. Thank you.

Good morning. Thank you. Thank you for being with us this morning for first quarter revenue publication. I am Cécile Combeau, Head of Investor Relations of Groupe ADP, and I am here with Philippe Pascal, our CFO, who will go through some prepared remarks before taking your questions. One or two per analyst, please, to allow for a greater number of you to dialogue with him. Before we start, I remind you that certain information to be discussed on today's call is forward-looking. and is subject to risks and uncertainties that could cause actual results to differ materially. For these, I refer you to the disclaimer statement included in our press release and on slide 26 of our presentation. And with that, let me hand it over to Philippe.

So thank you, Cecile, and good morning, everyone. Let's jump directly to slide two with the highlights. Q1 shows solid start to year in line with expectation. Our total revenue is turning at 1.3 billion euros in this first quarter, up 10.9% compared to last year. Traffic has been developing in line with our assumption, with strong momentum in our international asset, except for AMAN. In Paris, spend per pack was strong, up 7.8% to 32.7 euros. Some headwinds are expected to kick in later in the year. Teams are fully mobilized and getting ready to welcome the Olympics and Paralympics games in addition to the summer traffic. At GMR, we continue to expect the merger between GMR Airport and GMR Infrastructure Limited, our listed partner, to be completed towards the end of the second quarter. Moving on to slide three, the latest Skytrax fronting was the issue last week. Paris-Charles-de-Gaulle continued to be the best airport in Europe for the third year. and early is now ranked as best regional airport in Europe. That is a huge improvement for us. Five other airports of the group are also in the top 100, including Delhi and Goa, which had opened in January 2023. Every day, our teams try to deliver the best quality of service to passengers, and we are delighted with this recognition of our work. These results also encourage us to continue to focus on hospitality in line with EDP's raison d'être. Slide four. Slide four shows overall traffic evolution fully in line with our assumption as I commented earlier. Let's focus on Paris on slide five. In Paris, we welcome 22 million passengers in the first quarter, up 4.4% against Q1. Last year, Q1 was impacted by some strikes, with an impact estimated to 470,000 passengers, 2024 being leap year, the 29th of February brought an additional 250,000 passengers. On the opposite, air traffic control carried out trials with the new for-flight system, leading to some scheduled flight cancellations in January and February. Overall impact on traffic is estimated, for this reason, to 1 million passengers. Traffic with mainland France show a decline of 4.8%, reflecting the impact of the for-flight trial and the closure of several domestic routes compared to before COVID. For international traffic, this traffic growth is strong, up 6.5%. Traffic with North America see strong momentum, which is up 7.1% overall, driven by traffic with Canada in particular, which is up 31.9 euros compared to last year. Traffic with Asia-Pacific is up 41.9%. This is notably driven by traffic with China, which was six times higher than Q1 2023. There are currently around 48 flights per week between Paris and China, which is around 60% the frequency of the pre-COVID winter season 2019. We are not expecting this frequency to evolve in the coming months. The share of low-cost traffic is close to six points of percentage above pre-COVID level, to 26.7% of Paris traffic. Let's now move on to slide six. We will focus on Ex-Time Paris spent per pack. Performance remains very strong, to 32.7 euros, up 2.4 euros or 7.8%. Bear in mind that Q1 2023 was the first quarter of the operation of Terminal 1, which was not yet full speed, providing a favorable basis of comparison. We continue to see strong performance in fashion and luxury goods, which is the greatest contributor to sales in our airside shops. This growth is driven by international traffic in the flagship terminals, Terminal 1, of course, but also Terminal 2E as well. Spend-part-packs in food and beverage continue to grow with additional selling points. Media and advertising is performing very well with a strong contribution to SPP in the first quarter, driven by advertising campaigns ahead of Olympics. In the coming quarters, we expect to see the effect of the reopening of Terminal 2E and 2C materializing from the second quarter. I remind you that this terminal was closed to upgrade the security system of luggage system, the retail offering in Terminal 2E and 2C being less powerful compared to Terminal 1 International. The reallocation of a portion of the international traffic to this terminal is expected to create a downward rebasing of SPP starting in Q2. Effects of working terminal 2EOK are now not material for the moment. Slide seven. Moving on to slide 7, we will focus on our two main international assets. As a reminder, TAV numbers are fully consolidated in our accounts and GMR Airport results are equity accounting. As you can see on the left part of the slide, traffic growth at TAV Airport was excellent, up 21.8%. In Turkey's international network of airport, traffic is up 26% with outstanding growth at Almaty. The new international terminal at Almaty is expected to open in June. And we can reach capacity to 13 million passengers at the end of the day. Turkey's airport in Turkey saw strong growth as well. up 18.2% with international traffic growing 30.6% compared to Q1. On the right side, GMR report traffic was solid, up 10.7% compared to Q1 2023. Here, as well, international traffic is seeing the strongest growth. Traffic growth in the international asset of group EDP was up 14.3%. Moving on to slide eight. Revenue reached 1.3 billion euros in Q1, up 10.9% versus last year. Aviation revenue is up 17 million euros. The segment is growing 4% in line with traffic growth in Paris. Keep in mind that the regulated tariff increase of plus 4.5% in average is being applied from 1st of April 2024, so no impact in our numbers for the moment. The retail and services revenue is growing 4%. to 42 million euros, including a scope impact of minus 13 million euros corresponding to the change consolidation method of Eckstein Food and Beverage, which is now equity accounting. The asset revenue segment is up plus 4% versus Q1 2023 due to new assets but also in addition to rent indexation. Abroad, Thierry Airport is growing 71 million euros, bringing by far the biggest contribution to revenue growth this quarter. Amman Airport is impacted by the geopolitical context. To conclude, let's move to slide 10. Our traffic assumption and financial guidance for 2024 and 2025 are confirmed. We continue to expect traffic in Paris to grow this year between 3.5% to 5% and above 8% at group level. Our target to deliver at least 4% growth in EBITDA is also confirmed. Achieving this objective imposed a high degree of discipline given the OPEX increase expected this year again, as commented already in the past quarter. Investments are expected to ramp up this year in Paris. We are guiding for 900 million euros on average between 23 and 25. And you remember, we were below that number in 2023. All our other targets are confirmed. And with that, let's open the line for the Q&A. Thank you.

Sure, thank you. Ladies and gentlemen, as a reminder, if you wish to ask a question, please press star 1 on your keyboard. One or two questions per analyst, please. We have a first question from the line, Christian from UBS. The line is open now. Please go ahead.

Hi. Thank you very much for taking my questions. Maybe the first one in terms of your M&A strategy. In terms of potential future acquisitions, how much would you be willing to increase your net debt EBITDA leverage in the context of M&A? There are some investors there expecting you may do some larger acquisitions, so I was curious if you can give us some color there. Secondly, the retail spend per pax performance. Apologies, this is a technical question, but when you compare Terminal 1, versus the terminal 2A, 2C, could you comment a bit about the retail spend per packs in each of them and the differential? And could you remind us the passenger capacity in terminal 2C and 2A, just to get a better picture of that dilution that you mentioned in spend per packs? And if you allow me the last one on traffic, modernization of air traffic control, can that potentially further negatively impact your traffic in Q4 or is that done? And equally so the entry exit system starting later this year. Can you comment anything on the preparations and if you believe there is any risk of disruptions once the entry exit system comes into force? Thank you.

Thank you for your question. About your first question about M&A strategy. For the moment, we have some targets, but we work a lot about that. Not substantial for the moment in terms of deal flow. In fact, we have some small targets, but also some huge potential acquisition. But it's It's not for the moment, so we can confirm our guidance in terms of debt net EBITDA. In fact, if we have a huge opportunity or a good opportunity with a strong relative impact at the short term, but also at the long term, we can assume a bad impact in our net data without huge trouble in terms of sustainability, financial sustainability in our account. So, all in all, for the moment, it's not a question. obviously, but if we have a good opportunity, we can give more color directly to the market if we need. So no issue. In terms of retail, so to be very clear, we expect some headwinds in Q2 with the reopening of Terminal 2E in May and Terminal 2C in May and 2E later in the year. As a portion of the highly-contributive international traffic currently allocated to Terminal 1, this portion is expected to be redirected to Terminal 2E and 2C, which has less powerful commercial offering, so we have mechanically a slight dilution. It's not a question in terms of capacity for the terminal. to be clear. So the question, it's more the question of the relocation of airlines. So if we try to optimize our strategy, we need some additional capacity. It's the reason why we reopened the terminal for capacity for the summer. But the main question, it's not the number of passengers, but the quality of the traffic and the mixed traffic. So for that, we try to manage the situation. Remember that Terminal 1 is our best performance in CDG, with sales per pack around 75 euros per pack. compared to the terminal 2E or 2K with 65 or 70 euros per pack. For the terminal 2E and 2C, it's difficult to compare because we closed this terminal during the COVID crisis with not the same quality of the traffic and with not the same level for each airline and probably not the same airlines in Terminal 2 and 2C compared to pre-COVID. So it's not a good comparison. Terminal 2 and 2C, we have good brands, good luxury brands, but the main impact is due to the fact that It's not a next-time terminal for the moment, first of all, with the same quality in terms of atmosphere, the same quality in terms of retail area. And the second point, it's the main point, the fact that we have less synergy in the flow of passengers. with less number of square meters in terms of retail error. So mechanically, we can expect a dilution, but we don't disclose the figures. For the ETC and the question in terms of the for-flight system. We have in our guidance and in our assumption in terms of traffic some buffer, buffer for the trials and the for-flight system, but also buffer for strike. For the moment, we confirm and we fully confirm our assumption in terms of traffic in Paris. We don't expect a huge impact in the next year about this system. We don't expect a huge trouble with the implementation of this system. With this system, we expect more robustness and more capacity to manage a huge number of movements. So thank you for your question. Thank you very much.

Thank you. We will take the next question from line Andrew Loewenberg from Backlist. The line is open now. Please go ahead.

Oh, hi, Philippe. On your remarks about guidance and the EBITDA goal, you highlighted the pressure you're going to have from rising costs. So I wondered if you could just, you know, give us a reminder of the scale of those pressures. And when we look at the results today and you've beaten the consensus on international and retail, how easily should we think those revenue beats drop through to EBITDA? And then can I just ask on the transaction in India, you previously guided to a 100 million non-cash impact, but you flagged that it will be higher. clearly the scale of the share price rise for GMR is quite dramatic. So whilst the details are not there, can you help us understand the scale of that outperformance, the scale of the increase in that cost? Is it going up 10% or is it going up five times? How large a non-cash expense should we expect to come in that second quarter? Thank you.

So thank you for your question. So clearly, we can see a very strong first quarter in terms of revenue. But at the same time, we confirm our guidance in terms of EBITDA. Our guidance in terms of EBITDA is quite realistic. because we continue to expect a challenging OPEX increase in 2024, in line with what we can commence during our annual results in February. We know that we have some impact in terms of inflation. When you see our figures in 2022-2023, we can see that we don't have a huge impact in terms of inflation, but we are very clear now, we have an impact in terms of inflation due to the renegotiation of a huge part of our purchase agreement due to the fact that we don't have the same impact in terms of energy cost. Before, in 22, 23, we have some edging, but we don't have fully this year. We worked to cover our energy costs for 25, 26, 27, but now in 24, we manage the situation with a mechanic increase in terms of energy costs. At the end of the day, we have also the main driver of our OPEX, that is the number of square meters in our terminal. And as you know, we reopened the terminal 2E and 2C, and we have a mechanic increase in terms of OPEX. operational costs due to cleaning, due to all the operations in the terminal. And finally, we have part of costs linked by the Olympics and Paralympics Games. But it's not so huge. And we have an impact in 23, as you know, but also 24. But not so huge, but it's also manageable. We expect for 2024 an impact in terms of Olympics, in terms of OPEX, between 10 or 20 million euros. So it's not so much. But at the end of the day, we have an impact in terms of OPEX. So all in all, we confirm our EBITDA guidance. plus 4% compared to 2023, and we assume this guidance. But it's clearly not in line with a strong growth in terms of revenue. In terms of your second question about GMR, So, in fact, when we disclose this operation, we have clearly disclosed the fact that we have a one-off effect with a strong impact and with two main explanations in terms of financing impact of this operation. The first effect, it's an effect in terms of ratchets and also dilution in our economic interest. And for this first issue, we expect a first negative impact. We have also a second impact, that is the integration of the asset of New Deal, whose net value is expected to be negative at the date of merger. So all in all, we know that we have a strong impact, higher than 100 million euros. It's difficult to know and to give you figures now due to the fact that we have to know and to the level of stock market valuation at the moment of the operation, but it is likely to increase significantly due to the the valuation of the stock of GMA Infrastructure Limited. This one-off will impact the net result, which is the basis of calculation of dividend, 60% payout policy, I remember. Nevertheless, our dividend policy also includes a floor at 3 euros per share, to protect our shareholders. So, no issue. It's a pure accounting impact. It's a one-off, and we don't expect a huge bad news in terms of dividend due to the floor.

Thank you. Thank you.

Thank you. We will take the next question from line Louis Perreault from Capital Shares. The line is open now. Please go ahead.

Good morning. Thanks a lot for taking my questions. I had two. The first one is focusing for a moment on next year's aeronautical tariffs in Paris. Should we continue to assume that there should be a pass-through of the remaining impact of the environmental tax? Do you expect any area of meaningful disagreement with the regulator in this situation? The second one is, in the past you have talked about the need to stabilize the rules of the game before the reinstatement of an era regulatory framework. Could you provide us with an idea of when this could be, as well as the amount of time that the preparation for the switch could take? Thank you.

So thank you for your question about regulation. So about regulation and the tariff, clearly, The tariff proposal is the consequence of a business plan for the next year. So when you propose a tariff, we have to give... some color about the business plan, the regulated business plan for 25 and 26. Why we have to give two years? It's the reason why we have aviation rules and the tariff is between April 25 and March 26. So when we give this business plan, the French regulator checks the level of traffic and the assumption in terms of traffic, check the level of OPEX, check the level of CAPEX with the regulated asset base and the consequence in terms of regulated asset base, and at the end of the day, check the regulated roadshed. If this regulated roadshed, the estimation of this regulated roadshed is higher the assumption of the regulated work, we don't have a formal approval in terms of tariff. So your question about the tax and the capacity to offset this tax through the tariff, it's a question of the global balance. In fact, mechanically, with this new tax, we have a mechanic decrease in terms of regulated roadshed. So this decrease creates a room of manoeuvre to increase our tax. It's mechanic. It's a law. It's a rule. So no issue, all in all, it's not an issue. But the question, it's more the question of the dynamic in terms of traffic, the question of the real level of work for the French regulator, and the capacity for us to deliver our CAPEX plan. So mechanically, for the month, it's a little bit early to provide an outlook on 2025 tariff and to anticipate the nature of the discussion with the French regulator. But globally, we try obviously to find the good economic balance to offset the other part of the tax. So the second question about the economic regulation agreement. In fact, we have more visibility in terms of traffic. We have also more visibility in terms of industrial strategy with the decarbonization in Paris, with all our needs in terms of maintenance, and with all our capacity to increase our square meter to welcome more passengers in Paris. So clearly, we have more visibility. We have also more visibility in terms of regulation with a new law that we can confirm and the French government have just published that is a new way to appreciate one of the cap in terms of regulation that is the moderation of tariff increase. This moderation of tariff increase now should be appreciated on average when we have an economic regulation agreement. That is good news for us and probably a good opportunity and a good incentive to try to have an economic regulation. As you know, now we are not so incentivized before this law to conclude an economic regulation agreement because with an annual basis, we can have more capacity to manage our situation, to create the room of manoeuvre, to increase our time. If we have a global appreciation in a five-year basis, it's probably better for us for that, and it's a good incentive to try to have an economic regulation agreement. So we have to work about that, and if we start the work now, we need two years to manage the negotiation, the signatures, and after the implementation of economic regulation agreement. So, if we start now, we can have an economic regulation agreement in 26, perhaps more in 2027, but we have to decide, and it's not the case for the moment, but we give you some color in the next few months.

Thank you. Thank you very much.

We will take the next question from the line. Roxana Haradao-Dose from HSBC. The line is open now. Please go ahead.

Yes, good morning. Thank you very much for taking my questions. Congratulations on the Skytrax rankings. Impressive performance of both Aeroport de Paris and Air France. Two questions, please. Could you please give us an update on the CAPEX in Antalya? And could you please remind us about the bridge loan at Antalya Airport? Have you concluded discussions with banks to replace this loan? And second, could you please talk about the current shopping behavior of Chinese passengers relative to pre-COVID level? And what is the feedback you receive from airlines on capacities to China? I understand that some European airlines consider to cut again capacities to China due to weak yields. Do you expect this also in Paris over the next month? Thank you very much.

Thank you, Roxandra. About your first question, Antalia. As you know, we finalized all the financial issues. TAV finalized all the financial issues. For the moment, in terms of bridge loan, and we secure a huge part of the refinance approach. So no issue for us at this date. So I don't have more color about that. About your second question about Chinese trafficking. So, as you know, traffic with China is contained by low frequencies by the two countries, France, but also China, and the airlines' capacity to operate. For the moment, we have currently around 48 weekly flights scheduled. That is globally 60% of the pre-COVID capacity. And we don't expect a huge recovery in 24. Clearly, we don't expect a huge recovery, perhaps more in 25. So thank you.

Thank you.

Thank you. We will take the next question from line Graham Hunt from Jefferies. The line is open now. Please go ahead.

Yeah, thanks very much. Maybe just a couple of short questions. Just coming back to the China capacity, maybe just get your longer-term thoughts in terms of how you're performing relative to some of your European peers who are seeing, for other reasons, Chinese capacity back pre-COVID or above. Does that worry you from a long-term competitive standpoint? And is there anything that you're doing maybe on the digital front to remain engaged with the Chinese consumer? That's question one. And then second question, just on the Gilgal merger, do you expect that to sort of just coming back to this point about transactions and potential M&A, do you expect the Gilgal merger to create new opportunities for you in the Indian market once that completes? Thank you.

So thank you for your two questions. So about China, we are confident to have a full recovery at the end of the day in terms of traffic compared to the pre-COVID situation, but not in 24 and probably not in 25. They are small in 26. We have a good dynamic in terms of discussion. We know that For the moment, it's linked by the fact that we have expensive price in Paris for hotel, for example, but we have also the question of the capacity to reopen some routes due to the frequency, the load frequency by the two countries. For your second question, the merger between GIL and GAL, the main target is to have liquidity and to reveal the value. It's not to create new capacity to develop the group. Perhaps at the end of the day, we can create some capacity, but now our target is It's more to deliver the company than to develop the group. If we have a good opportunity, obviously we work on that. But the reverse merger, it's not a question to create the capacity to develop the group at the end of the day. It's more a question of robustness. It's more a question to reveal the value. It's more a question to have a liquidity, a liquid shareholder structure for us.

Thank you. Thanks very much.

So we will take the next question from Lion Dario McLean from BNP Paribas. The line is open now, please go ahead.

Morning, morning everyone. So three questions, if I may, quick ones. On Spenter Pax, it was very strong in Q1, more than 40% above 2019 levels on my numbers, and it's an acceleration compared to Q3 and Q4. So I'm just wondering, is there like any one-off or anything that is playing such a big jump in Q1? Second question on GMR infrastructure. So it's the leased entity, I mean the share price has almost doubled over the past 12 months. Some people may say it's a bubble. What do you make of the current valuation? And last question, maybe a bit technical on the OPEX allocation. between regulated and non-regulated till. I understand that you make a proposal to the regulator for the tariff in 2024, I believe 10 to 15 million euros. Is this enough in your view or shall we expect more OPEX to be shifted? Thanks.

So thank you for your question. So about the self-tapax, clearly we don't have one effect in this first quarter. It's an organic growth, but we have one effect that is very important to have in mind, the fact that last year we don't have the full impact of the Terminal 1 for the first quarter. So we have mechanically effect in our figures. So that is the first main point. The second point is the fact that it's an organic and structural growth. But we expect for the next month, in 2024, two main headwinds. The first is the reopening of Terminal 2E and 2C, and the second is the works in Terminal 2E and 2K. So globally, it's a structural performance. It's not a one-off performance. About your second question about share price for GIL. So Indian market rose significantly in 2023, mechanically. It's mainly due to the good performance of the Indian industry and also the question of the balance between India and China. Regarding the aviation sector in India, the Indian government and the industry stakeholders are all aligned to build India as a regional hub. So mechanically, the GAL expansion works are fully consistent with this plan, and we try to have all and to take a great position to catch this profitable growth. So all in all, we have the explanation of the level of share price growth. And we have also good news. That is good news for GAL. That is good to support the value, the Goa and Delhi tariff, and with the favorable arbitrage on Delhi minimum annual fees, and good quality in terms of assets with high demand. All in all, we are comfortable for the moment with this valuation. About your question about the cost allocation system in Paris, so we continue to work about this cost allocation. We are in the transitory period. which is until the end of 2025. We have a lot of workshops with airlines. We challenge all our allocation key. We have to continue this work, but we don't expect a huge impact in terms of cost allocation due to the fact that for EDP, The cost allocation system is a system based on an operational key or a physical key when you check with the infrastructure. It's not a cost allocation based on economic figures or financial figures. So mechanically, when we have checked all the square meters in the terminal, we have the result of the cost allocation system. That is the policy of EDP. So no huge and substantial impact for the next months for us. Thank you.

Thank you.

We will take the next question from line from JP Morgan. The line is open now. Please go ahead.

Hi. Good morning. Sorry, I joined a bit late, so I don't know if these questions were asked. But the first question would be on the retail margin, how you think about it for the rest of the year, given the context of a slowdown for luxury brands generally in Paris. And my second question is on the drop-through into EBITDA for the revenue in retail and international. That was slightly above consensus. If you could give us some color. Thank you.

So about your first question, we don't expect a bad impact for the next month, except the two main explanations that I gave. But not over-dilutive impact for us. About your second question, what is exactly your second question about revenue?

Sorry, did you ask me about my question?

Because I just had a big plane going on. Excuse me. I don't know if you had the big plane as well. No, my other question was the drop through in EBITDA or the retail and international beat from this morning.

No, it's a global... We don't have this kind of effect for us. Clearly, we can shake and we can come back if you want. But globally, when you check the question of EBITDA, we have some challenging OPEX increase in 2024. That is the main explanation of the difference between revenue and EBITDA. So be careful. But all in all, no specific impact in terms of retail and international revenue. Thank you.

We will take the next question from line. The line is open now. Please go ahead.

Thank you so much. Two short questions. The first one is on M&A, which was mentioned a couple of times on this call. I'm just wondering, when you think about international acquisitions, Can you confirm that this will be done essentially via TAV and via GMR? Or would you also consider some transactions from your French entity? Secondly, on GMR, do you believe this company will require any capital increases over the next, let's say, three, four years? And would you be willing to participate in those? Thank you.

So thank you for your two questions. So about the second question, we don't expect any injection in GMR. Our purpose is to deliver at your company, to have robust financial figures in this company and not to reject a new capital. About your first question, so for the international development, obviously, if we have opportunity in Middle East and Central Asia, we take this opportunity through TAV. If we have opportunity in the rest of Asia, India, south of Asia, it's for GEMA. It's not an opportunity for the EDP mother company, but if we have an opportunity in America, for example, and in other countries, and if we want to finalize the capacity for EDP to to develop the group through a specific holding structure, we have to implement that. We have to take the opportunity in America. And mechanically, in this part of the world, it's for EDP mother company. So for the moment, we have a lot of opportunity all over the world. But we are very selective and very opportunist. So thank you. Thank you.

Thank you. It appears no further question at this time. As a reminder, if you would like to ask questions, please signal by pressing star 1 on your telephone keypad. It appears no further question at this time. I'll hand it back over to your host for closing remarks.

All right.

Thank you very much, everyone, for having logged on to our conference. Our next financial communication will be on the 23rd of July. We will release our H1 results just a few days before the opening ceremony of the Paris Olympic and Paralympic Games. And in the meantime, we will attend some conferences and we'll seek to meet you in roadshows. We will also have our AGM on the 21st of May, and we are looking forward to seeing you all in the coming days and weeks. Feel free, obviously, to get in touch with Elliot and I at the IR team for any follow-up questions. And with that, good day, everyone. Bye-bye.

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