Aeroports De Paris Sa

Good morning and welcome to group ADP2024 nine months 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 one on your telephone keypad. Please limit yourself to two questions per analyst. I will now enter the call to Cecilia Combo to please go ahead. Thank you.

Cecilia Combo Thank you and good morning everyone. Thank you for being with us this morning for our nine months revenue publication. I am here with Philippe Pascal, Group ADP CFO, and Antoine Crombet, Deputy CFO. Philippe Pascal will first go through some prepared remarks before taking your questions with Antoine. 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 28 of our presentation. And with that, I will hand it over to Philippe.

So thank you, Cécile, and good morning, everyone. Let's jump directly to slide three. You can see here the key figures for the first one month, with total revenue standing at 4.6 billion euros, up 11.6%. 7% compared to last year. Two key messages for this publication. First one is that the performance recorded so far fully supports our financial targets which are confirmed even if traffic in Paris this year is now expected in the lower part of the assumption range taken in February and which was 3.5 to 5% growth versus The second message for this publication is that we continue to develop the group as materialized by two Bolton acquisitions concluded recently and which extend extreme hospitality offering. Remember that we have also finalized the completion of the Guillengal merger end of July. Moving on to slide four with overall traffic evolution. Group traffic is 8% higher than last year, driven by continuing strong trends in our international asset. In Paris, traffic has been developing within our assumption range, up 3.8% in the first nine months. But, as you know, summer traffic was slightly less dynamic compared to growth rates recorded in the first part of the year. That was particularly true in July, and Olympic-related traffic did not offset the impact of travellers arriving in Paris. As commented in previous quarters, the comparison basis in the second half of the year is tougher, one notably because traffic with China increased from Q4 last year. Accordingly, we expect traffic growth in Paris this year to be the lower part of the 3.5% to 5% assumption range. Let's move on to slide six with a bit more granularity on Paris traffic. Traffic with mainland France show a decline of 5%, reflecting a structural decline, but with a better Q3. domestic traffic in August was just above that of last year due to the Olympics. International traffic is going by 7.2%. Traffic with the Middle East is down 5.4% due to the deterioration of geopolitical context. But on the opposite, traffic with North America continue to see a strong momentum, up 6.6% driven by both US and Canada Nevertheless, Q3 sees weaker growth compared to previous quarters. Traffic with Asia Pacific is 27.7% higher than last year. This is mostly driven by the recovery of traffic with China, which was still below 25% of pre-COVID level in the first nine months of 2023, and has been now around 60% recovery. Moving on to slide six, with traffic in international assets, which also a solid traffic growth of 9.5% driven by our two main international assets. As you can see on the left side of the slide, traffic growth of TAV airport was strong at 11.7% overall. TAV's international network of airports is the strongest growth with traffic up 19.3% and notably a solid contribution from Almaty where traffic is up 21.2%. TAV's airport in Turkey saw solid growth up 8.1% with international traffic growing 9.1% compared to the first nine months of 2023. On the right side, we can see Gemma Airport traffic. Gemma Airport traffic was solid, as well, up 9.8% compared to the first nine months of 2023. Here, as well, international traffic is seeing the strongest growth. Let's now move on to slide seven, with a focus on Eckstein Paris-Spain Pair Tax. It stands at 31.4%. plus 5.6% higher than in the first nine months of 2023. As expected, Q3 grew at a slower pace in the quarter, reflecting notably the rebasing effect driven by the reopening of Terminal 2A and 2C since May. Our premium terminals continue to deliver strong growth in FPP, sustained by growth in commercial traffic. Media and advertising have been performing particularly well. Revenue is held by close to 50%. This was given by increased advertising campaign ahead and during the Olympics. So, clearly, this outstanding performance will not repeat next year. And going forward, we expect lower revenue from advertising for next year. Travel assumptions also benefit from positive momentum thanks to Olympic merchandising and our expectation of slower roads in Q4 here as well. In terms of outlook, we keep an unchanged cautious tense linked to the internal headwinds which you are well aware of including the works in terminal 2E or K that are already ongoing and will intensify at the beginning of 2025, but also taking into consideration some signs of conjunctural softening. We nevertheless are in a position to confirm our guidance for 2025 of a spend-step-back 3% to 5% higher than in 2023 and continue the deployment and strengthening of the X-Time model to fuel future crowds. Indeed, you can see on slide eight that we are pursuing the development of X-Time with two Bolton acquisitions closed just a few days ago of Paris Experience Group, as was announced last July. And try that switch formally now. First, on Paris Experience Group, with this acquisition, X-Time's value proposition in hospitality is being extended to the entirety of the stay of tourists in Paris, with a strong belief that greater quality of service and greater experience create more value. We see significant potential, driven by notably premiumization and enrichment of the offering, Also driven by the enhancement of clientele from other countries like China or the Emirates by mutualizing with the external networks. But also driven by marketing of VIP hospitality services. Regarding our acquisition of Private Suites, the company operates exclusive terminal for VVIP commercial passengers with a niche market but with a strong potential. Private Suites employs close to 300 people and is present in four airports in the U.S., including Los Angeles and Atlanta, which are in operation, and Dallas and Miami under development. After the opening of the time-exclusive reception lounge in Paris last June, EDP becomes now a key player in luxury airport hospitality. We now operate an international network of exclusive terminals, well-positioned to conquer future opportunities in new geographies. Private suites give us access to an air-large database of qualified clients for VVIP offering and has proven successfully in high-quality operating process. Our short-term priorities to successfully welcome and integrate the Paris Fly-On Group and PrivateStreet team with Group EDP and start together this new growth journey. Moving on to slide nine. Revenue reached 4.6 billion euros in the first nine months of 2024, up 11.7% versus last year. Aviation revenue is up 87 million euros. The segment is growing 6%, reflecting the combination of traffic growth in Paris and the regulated tariff increase of 4.5% on average applied since April this year. The retail and services revenue is growing 137 million euros, driven by both the traffic growth and the solid set-per-pile dynamic. Real estate revenue segment is of 3.7% due to new assets and rent indexation close. Abroad, Tad Airport is growing 252 million euros, bringing the biggest contribution to revenue growth in the first nine months, while Jordan Airport is still impacted by geopolitical conflict. Let's move to slide 10. Here, let's have a focus on the latest budget development in France with the finance bill for 2025. First, on the infrastructure tax. As you know, the tax has been enforced since the beginning of 24. We are now no change introduced in the bill of 25, so no change. The tax impacts are opaque for around 130 million per year. It was 64 million euros in the first half of this year. and this tax going in the same proportion of EDP SA revenue. The regulated part of this OPEX can be offset with the regulated tariff. We consider that the 2024 tariff increase implemented in April plus The proposed tariff increase for 25 will have fully offset regulated portion of the tax. The second item of this slide was the temporary income tax increase. According to the project, this additional contribution of the income tax will apply to 24 and 25 fiscal years only. We estimate the additional tax expense to range between 120 and 130 million euros in 2024, and between 45 and 55 million euros in 2025. I encourage you not to draw any conclusion of extrapolate this number on the group financial because the fiscal result is calculated in French gap and is subject to some accounting adjustments that can be very different from the operational results. So no extrapolation please. Offsetting this full regulated time is only partially possible because it is only a temporary measure and because the increase in the tax rate has a negative impact on the WAC. Therefore, limited the room for a tariff increase in spite of the decrease of the roadshed. So, we have at the same time a decrease in the roadshed and a decrease in the WAC, so the room of manoeuvre. to offset this increase is very light. The third item, the funding of security activities. As you know, the French state currently only cover 94% of the security costs borne by EDP. The finance bill provides that this coverage drops to 90%. It's just a project. It's a bill. The further 4% of costs borne by EDP would have an impact of around 25 million euros, and it's 25 million euros in the non-regulated scope, in the form of lesser revenue from security. So no direct offsetting is possible here. The fourth and last item in the proposed is the proposed increase of tax on plane tickets. This has no direct financial impact on EDP, but we will be sensitive to the potential negative impact on flight demand at the end of the day, and the negative impact on the competitiveness of Paris as an hub, and that our partner, all the airlines. So it is not possible for us to quantify this at this stage because it depends on price elasticity and only of price elasticity. So the finance bill is currently being discussed in the parliament and therefore still subject to modification until the adoption of the finance law at the end of December. And we are fully committed to try to decrease this impact. To conclude this presentation, a word on our outlook on slide 12. Our traffic assumption and financial guidance for 24 and 25 are confirmed. In particular, we expect traffic in Paris to grow this year in the lower part of the range, so very close to 3.5% hypothesis, and conclude to expect the group traffic to grow by more than 8%. Our target to deliver at least 4% growth in EBITDA in 2024 is also confirmed. Our CAPEX guidance is unchanged and confirmed. Investments are expected to ramp up slightly this year in price. We should spend around 900 million euros on average between 2024 and 2025, driven by infrastructure improvement as already outlined. All our other 23 and 25 targets are confirmed. And with that, let's open the line for the Q&A. Thank you.

Thank you. As a reminder, if you would like to ask a question, please signal by pressing star 1 on your telephone keypad. We'll pause for a moment to allow everyone an opportunity to signal for questions. We will take the first question from line from JP Morgan. The line is open now. Please go ahead.

Oh, hi. Good morning. Thanks for taking my questions. The first question is with regard to winter capacity schedule. I was wondering if you have an update on that front from your different airlines. My second question is on the CEO succession. if also you have an update there now that we have a government in place. Well, I know it's a decision from the president, but I was wondering if there's any update. Third question is also on China, where we are today, what you expect recovery to look like in 25 and the impact on retail. And then... On the tax front, so thanks for all the details. That's really helpful. If the tax was, so the new corporate tax, if it was actually permanent, and what do you think about the likelihood of that, by the way, would it be actually possible to have said that through tariffs? I understand now you have a limited maneuver, but if it was to be permanent, would actually would you be able to actually offset that? Thank you.

Thank you, Elodie. So your first question, it's about the winter capacity and the level of traffic. So at this stage, the no flight schedule for the winter season are consistent with our traffic forecast and our assumption for 24, but also for 25. And we can confirm this assumption with this traffic growth, 25 traffic growth between 2.5 and third person compared to this year. Remember that we have a slight impact at the end of this year, at the beginning of next year about the four flight system. We expect some impact in Q4 indeed due to the deployment consistent with our expectation of traffic growth in Paris. the bottom part of our assumption. So that is for winter capacity, when you check with all the airlines, we can see that all airlines are traditionally optimistic. We are a little bit more cautious, but we can confirm our trajectory, our assumption. For the CEO succession, so as you know, as announced at the last AGM on May, Augustin Roumanet will step down as the chairman and CEO of the company on December, the end of December, last day, 31 December. The board of director will propose to the French president, president of the French Republic, a candidate, chosen among its member for nomination by decree, as new chairman and CEO. The candidate will undergo audition by the two relevant Parliament Commission, which is may oppose such designation. So for the moment, no, we don't have no news, particular news in this topic. For the Chinese traffickers, For Chinese traffic, currently we have around 48 weekly frequencies scheduled. This compared with 93 weekly frequencies during the summer schedule in 2019. So 48 now compared to 93 before COVID. So we are globally at 50 to 60% pre-COVID capacity. We wait for recovery. We don't have a strong visibility of that. Probably it's mainly in 25 and probably more in 26 to have a full recovery. But for the moment, in terms of retail, Chinese traffic is just an upside, but it's a good upside at the end of the day. And when you see our performance in terms of retail, it's possible to have a good upside for the next period of development. In terms of tax, Clearly, the tax now is just temporary. It's a traditional way in France to try to decrease the level of debt. All the governments the last 30 years used this methodology to increase for one or two years strongly the corporate tax. So it's a traditional way, and it's traditionally temporary. So we don't modelize the capacity for the moment to be a permanent increase. That is the first point of the answer. And clearly, it's difficult due to the fact that you have a decrease in terms of work, but also a decrease in terms of project to manage the capacity to offset. Obviously, if we have a permanent tax that is not the project, and we don't have any element about that, we have to check in the dynamic, the dynamic in terms of the labor for the wheelchair and the work. Perhaps create a slight room of maneuver, but it's not consistent for the moment. So thank you. Thank you very much, Elodie, for your question.

Thank you. Thank you. We will take the next question from line Eric Lemary from CSE Market Solutions. The line is open now. Please go ahead.

Yes, thanks for taking my question. Regarding the possible next regulation contract, you mentioned it in the recent past, and I was wondering if you continue to – Or you looked at least more optimistic regarding your potential new regulating contract. Could you confirm you can, I don't know, start negotiations sometimes in 2025, 2026, maybe 2025? That's my first question. I got a second question regarding this exceptional corporate tax in France. So you mentioned this figures 120, 130 for 2024. I was a bit surprised because I thought The level expected in 2024 was basically the double of what would be expected in 2025. And I was wondering if you can explain the difference, but maybe it's just my own calculation. And the last question in terms of self-spare packs, I understand the Chinese are not fully back. And I was wondering which type of travelers are responsible for the current level of self-spare packs, which is not bad at all, actually. Thank you.

So thank you for your question. So for your first question about the economic regulation agreement. An economic regulation agreement, it's a long way. We have two years to prepare and to negotiate to implement this contract for five years. Two years, the first step, it's an internal step, and we have to start with works. It's a long way to stabilize a good installed project in terms of CAPEX plan. It's a long way to try to manage the dynamic in terms of regulated OPEX, but also to stabilize the cost allocation system. The structure of tariff is not just a level, it's also a balance between landing fees, parking fees, and passenger fees. So we have a lot of elements to prepare. After that, so we start the work and we have to wait the next CEO to define the strategy. After that we have to propose formally an economic regulation agreement balance and for that we have to publish a specific document probably at the end of 25 to negotiate In 26, the negotiation, it's not just commercial negotiation. It's a very formal process with a specific condition, with all the stakeholders and the airlines, with the French government, and at the end of the day, with the French regulator. So it's a long process. Now we prepare that. but for the moment we don't have a decision internally. We wait for the new CEO to start the formal process. Your second question about the exceptional corporate tax, clearly it's hard for you to modelize due to the fact that it's calculated in French GAAP. with a fiscal result, not the IFRS system. And in this specific fiscal result in France, it's subject to some accounting adjustment due to the exceptional operation that we don't have any impact in IFRS methodology, but a strong and positive impact in the fiscal results. So we give you some color about that because we know exactly that it's difficult for you to modelize. But at the end of the day, in fact, we can confirm the figures for 24 between 120 and 130, and for 25 between 45 and 55 million euros. Your first question about the geography for SPP, clearly, with a strong growing geography. First, the main contribution, it's the three main geography. It's Asia, North America, and Middle East. For the moment, we have a strong momentum with North America, but also good performance with Middle East. And Asia, it's an upside. We have a good performance with the current client, but if you have more passenger and more weekly frequency, mechanically, we can... improve our performance in terms of SPP. So thank you for your question.

Thank you. Thank you. We will take the next question from line Dario from BNB. Please go ahead.

Good morning. I have four questions. The first one on the tariff proposal, if I understand correctly, 4.5% year-on-year increase. What roles are you targeting for 2025? Second question on the spent passenger in Q3. Could you maybe quantify the impact of the Olympics? And third question around the acquisitions. which makes sense to me. I read that it costs around €360 million. Could you maybe tell us more about the contribution to EBIT that you would expect on net income? And the final question on the security activities, this proposal basically to reduce the cost coverage from the state. Is that a permanent change proposed or a temporary one? Thank you.

Thank you for your questions. About the first question, the tariff proposal of 4.5, we don't disclose exactly the regulated voucher that we want to target. It's part of the game, not for the investors and our shareholders, but it's part of the game with the French regulator. Obviously, in this way, it's very important for us to obtain the maximum possible, but to secure the capacity to have a formal approval. The second question about the SPP Q3. It's difficult for us to identify clearly the impact of Olympics. In terms of SPT, clearly we have a very important and favorable impact in media and advertising with a strong figure, as I mentioned. But we have also a very good momentum in travel essentially due to the goodies and some specific goods in these shops. And in terms of pure retail and F&B, globally it's neutral. for this year, globally. Quite neutral. Neutral means that no good news and no bad news. It's no specific impact. So in the security activities, your fourth question, clearly it's a bill, it's just a bill, a project, and this project, try to be permanent, but that is very important to know the fact that the funding of security activities is questionable to us and we are petitioning for change in the framework. The partial refunding of security costs is a figure when the security costs per pack are nine euros per pack. If security costs were below that level, Then we have be found with a fee covering 100% of our security costs. These nine euros threshold was set back in 29 as an incentive to cost control, but due to the inflation, due to the other elements linked by the precession of the French state, it is now unrealistic. We are petitioning for a re-evaluation of this level to be adjusted and be indexed with this future inflation. If we obtain just this element, we have the capacity to, with a good and strong cost control, to be below the new threshold and mechanically not to have this ticket to pay, but to be fully by the tax. So globally we work hard to have the capacity at the end of the day to offset this impact. For the consequence of, in terms of EBIT with Paris-Stein-Germany Group and private streets. Combined revenue for the two companies was in the range of €150 million in 2023, with only one terminal, Los Angeles, operated by private suites at the time, versus two now, including Atlanta, open at the end of 2023. This acquisition brings additional revenues and additional EBITDA and will be relative at the EPS level in the mid-term. Not now, but in the mid-term, and we are very comfortable with that. The profile of private suite implies possible future capital injection in the future. not to be disclosed clearly all the figures but we have to work about that.

Thank you.

Thank you. We kindly remind you to limit the number of questions to two per person. We will take the next question from line Augustine Sandre from Stifel. The line is open now. Please go ahead.

Yes. Good morning and thank you for taking my question. I've got two. The first one is on GMR, which published its results last night with a quite strong increase on the debt year-on-year. It seems that further investments are on the way with the signing of the NACPRO concession. There's also the acquisition of an additional stake at Delhi. So I know we discussed this previously, but could you please remind us how you intend to address the leverage and cash generation of the company and what horizon do you see this being addressed? Should we expect improvements in the next year or... or is it more a medium to longer-term improvement? And my second question is a follow-up on the CEO change. I was wondering if an internal candidate is an option at this stage, or if you expect an external candidate similar to the previous change? Thank you.

So thank you for your question. For the first question, perhaps Antoine, the former deputy CEO of Gemma, can answer.

Thank you, Philippe. Thank you for the question. So regarding GMR leverage, as we already highlighted and discussed in the past, for sure, It's a top priority for both the partners ADT and GMR to reduce the leverage of the company at asset level as well as the holding level. What are the levels to do this deleveraging? First one is of course to increase the cash generation from the asset on that front. I think with a very positive trend in the traffic in both airports, we can foresee, not only in Hyderabad, a possible dividend of streaming in the very short term. Regarding Delhi, we are waiting, as you know, for the CP4 tariffs when they come, hopefully in the first semester of next year, the profile and the cash situation of Didi will materially improve and that will for sure be a good support in terms of deleveraging. I think we can also add in terms of deleveraging strategy of GMR, the increase in non-aero revenues and particularly the retail duty-free revenue. GMR Airport has won the concession of duty-free of Delhi Airport, and that will also create a significant room of cash generation and a delivery opportunity for GMR. So that's the main focus of both partners at the moment.

Thank you, Antoine. And for your second question, so the process of selection of the future chairman and CEO is underway. led by the Board of Nations and Governance Committee. So as I say, the final decision is the decision of the French president. So now it's difficult to know exactly, and we have to wait. Thank you for your questions.

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

Thank you for the questions. Just two from me, thanks. First, the clarification, apologies, I think you did say this, but with the price increase you proposed next year, you see the infrastructure tax is fully compensated as much as you can from 2025, is that correct? And then second question, just an update on the X time strategy. It would be helpful doing a little bit of M&A in this space. The international portfolio is going very well, but I don't think we've got to the point where we're rolling out X-Time globally, but I know that was an objective historically. So I just wanted to understand what the next strategic steps for X-Time were in your mind at the moment and what we could expect from that business in the next couple of years. Thank you.

So thank you, thank you for the first question. So with a tariff increase of 4.5% again this year, in addition of the tariff increase of 4.5% last year, the regulated portion, the regulated portion of the infrastructure tax will be fully offset. So your second question about the expanding strategies. So, just to have more color about the rationale of Private Street, for example, and the Paris-Eckstein group also. EDP puts itself in a position to create the first international networks of exclusive terminals and get a springboard for further development. So, clearly, for us, Private Street and Eckstein have complementary know-how. with potential for operational and commercial synergy. For example, we have an additional program, open private suite to international clients, attract US travelers to expand offering. We have also operation with IT system with efficiency in operation that we can have synergy. We have experience with a specific approach with an atmosphere for the clients and the relationship. And finally, we have the commercial capacity. That is very important for us to merge all the capacity to have a strong experience for the VVIP people. For my experience group, The rationale is also very clear. The acquisition allows to extend value proposition to these tourists for their entire stay in Paris and not just their stay at the airport. So it is not really a diversification, but just a capacity to have a new growth lever to deploy of the lever that made the success of X-Time Paris, operational excellency through premiumization, but also getting a direct and ongoing relationship with customer and expand as well towards additional customer. It's a key point for us to have these elements. It provides new distribution channels for X-Time service and creates synergy at this time. Rollout of X-Time in airport, still very much in the strategy, but number of targets are limited and we are rollout dedicated service launch recently in Almaty or media and advertising in Japan. So we continue the story. Thank you.

Thank you.

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

Yes. Good morning. Thank you so much for taking my question. I will just have one. I wanted to ask you about the outlook for operating expenses for 2025. Could you maybe just give us an update? Where are you in terms of negotiations with your trade unions, what do you expect in terms of potential increase in labor costs, and also perhaps some commentary on cost of external services, subcontractors, and perhaps energy costs. I mean, what sort of cost inflation should we incorporate for 2025? Or at least some high-level comments, if that's okay. Thank you.

So, thank you for this important question. So, in fact, we work a lot about cost control. For the moment, we manage quite well with the inflation, with capacity for us to execute the Olympics game without strong increase. And we have also a challenge due to the fact that we have a new contract and contracts that renew on an ongoing basis according to their expiry date. So this led to an increase in our subcontracting costs this year and probably the next year. In 2025, the increase in subcontracting costs is expected to be solely driven by traffic growth and price effect at the EDP level. For your question about the staff cost and for the negotiation with the unions, for the moment we try to manage the recruitment. We have in fact to negotiate with the unions about the level of wages and remuneration. For the moment it's not the time to do that. We have to finalize the job and to wait a new strategy, but we work internally to be ready and obviously when we speak about a new economic regulation agreement, we speak mechanically about the performance plan and the cost cutting plan to create savings and just to justify the tariff increase linked by the new infrastructure, by new CAPEX plan, but not linked by the bad impact in terms of performance and in terms of cost. It's a vital element for us to negotiate in a good condition and economic regulation agreement. In the next few months, if we launch an economic regulation agreement, mechanically we work about this cost control. Thank you.

Thank you. There's no further questions at this time. I'll hand it back over to your host for closing remarks.

Thank you, everybody. Thank you for having logged on to our conference this morning. So next financial communication will be for the annual regions on the 19th of February next year. In the meantime, we will be seeking to meet you in roadshows and also we'll be attending some conferences and we're looking very much forward to it. And, of course, if you have any questions, feel free to get in touch with me or Elliot within the IR team. And with that, have a good day, everybody. Bye-bye.

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