Aena SME SA
MAD:AENA
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Aena SME SA
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Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to today's Q1 2019 Results Presentation Conference Call. [Operator Instructions] I must advise you that this conference is being recorded today, Tuesday, the 30th of April 2019.I will now like to hand the conference over to your speaker today, Emilio Rotondo, Finance Director. Please go ahead, sir.
Thank you. Good afternoon, and welcome to Aena's First Quarter '19 Results Presentation. The presentation will be led by our Chairman, Mr. Maurici Lucena; and our CFO, Mr. José Leo.Now -- I will now hand the floor over to Mr. Lucena.
Hello, everybody. I will start with the main key highlights that are summarized in Slide 4 of the presentation. Regarding passenger traffic, during the first quarter of 2019, passenger traffic, which includes Spain and Luton, has reached 56.5 million passengers, which represents an increase of 6.2% compared to last year, to the first quarter of 2018. In the Spanish network airports, the increase amounts to 5.9%, and Luton airport grew by 12.1%. Logically, these figures have been affected by the calendar of Easter, which last year took place mostly in March, while in the current year, it has taken place entirely in April.Regarding the financial results, total consolidated revenues increased to EUR 903.5 million, which represents an increase of 7.3%. EBITDA for the period stood at EUR 392.9 million, which implies a growth of 7.9%. And this means that the EBITDA margin -- that the margin to EBITDA is 43.5%, impacted, of course, as you know, as it has been the case every year, by the accrual of the local taxes for the full financial year and the seasonality of the business. Therefore, consolidated net profit reached EUR 136.4 million, reflecting the positive trend in the business, I would say, and of course, taking into account the mentioned impact of the accrual of the local taxes for the full financial year.There was an increase in operating cash flow of 12.6% to EUR 583 million. Accounting net financial debt has increased to EUR 6,310.2 million compared with EUR 6,654.1 million at the close of 2018, reducing, therefore, the consolidated group's ratio of net financial debt to EBITDA from 2.5 in 2018 to 2.3 at the end of the first quarter of the current year.On the other hand, and within the scope of the strategic plan that we publicly presented last October 2018, on the 15th of March, Aena was declared, as you know, winner of the tender for the concession of the Northeast airport group of Brazil for a period of 30 years, with the possibility of an additional 5 years. And this represents the largest international operation of Aena in its history.Concerning regulations, I would like to highlight the following. Firstly, on the 1st of March 2019, came into force the tariff proposal for the current year, consisting of the freezing of the adjusted maximum annual revenue per passenger, the so-called IMAAJ. And secondly, on the 10th of April, a Royal Decree Law was published in which the updating rate of the airport fares of Aena, the so-called P Index, is developed. Finally, on the 25th of April 2018, Aena has published, as you know, the upward revision of the traffic estimation for the whole year for 2019, estimating an increase in the volume of passengers in the network of airports in Spain of 3.7%. This impact will impact at the same time on EBITDA, I would say, approximately EUR 75 million positive. Thank you very much.
Thank you. I will now talk you through the main business trends observed in the quarter. As usual, we start by discussing traffic data.As the Chairman said, we have experienced a growth of 5.9% quarter-on-quarter in the Spanish network and an extremely positive and healthy growth of 12.1% in the passenger numbers at Luton airport in Q1 2019, vis-à-vis Q1 2018. So in both cases, reflecting very positive performances. Actually, that performance over the quarter, together with the somehow delay in the black clouds that the Brexit could represent in the -- over the summer for the passenger flows, and some other, let's say, new pieces of information that took us to the -- to a view that potentially the capacity usage by the airlines over the summer would be better than we initially expected. Those are the reasons, the combination of reasons, that took us to the decision to review our estimate, to publish the new estimate for the 2019 traffic flows.As the Chairman said, we expect that to be now growth of 3.7%, and I will give you just a little bit more color by saying that inside the figure, domestic traffic is expected to grow 4.8% and international traffic, in our estimate, will grow by 3.2%.One very positive element there is that the estimate of growth for the traffic with the United Kingdom is 3.2%, which is consistent with the performance we have seen over the quarter. Probably you'll remember the -- during the winter season, the traffic with the U.K. recover from the decline experience in the summer period last year. And in the quarter, in the first quarter of 2019, that trend continued, with the traffic with origin and all destination in the United Kingdom growing 3.7% in the first quarter of 2019. That's just to give you a little bit more color on the traffic figure and the traffic estimates.Moving on to the next slide. Performance by business lines is positive across the board. I think the -- clearly, the aeronautical segment performance is very driven by traffic numbers and also by the fact that in the first quarter of 2019, we have a decline in the airport charges of 2.22% for 2 out of the 3 months. January and February airport charges in 2019 are 2.22% down on January and February 2018 charges. But other than that, the performance across the aeronautical segment has been good. Clearly, the cost has increased, but that's not at all a surprise. That has been pretty consistent with the guidance we have been giving to the market recently.Commercial activities are performing clearly well above the traffic growth, with revenues growing 13%. I have to say that inside those revenues, there is a minor, relatively minor, adjustment due to the IFRS 16 that we will comment very briefly later on. But other than that, the rest is the business performance, which I recognize is partly driven by the evolution of the minimum guarantee rent, but is still a very healthy performance.Real estate, also according to plan and growing, let's say, positively. Finally, international. The international business is driven by the Luton activity. It has been performing extremely well. We will discuss now in a minute in more detail. But as you can tell, we have seen growth in EBITDA of 34% in that particular segment, which we are very pleased with. That's a testimony to the fantastic growth that the Luton -- London Luton airport is experiencing.Going on to the next slide, commercial information. As customary, we are showing you the impact of the MAGs in one single figure. But other than that, you can see that the growth has been positive across the board. Duty Free growing 11.9%. I have to say, inside those, that growth, there is a EUR 3 million adjustment, positive adjustment, which is the result of the application of the IFRS 16. Excluding that, the increase, the like-for-like increase, would be something in the region of 6.6%. Other than that, significant growth across the board. Food and beverage revenues, car parks, as you can tell, all the different business lines are growing significantly.It's true as well that the weight of the minimum guaranteed rents has grown from 16% of the total revenue in Q1 2018 to 19.3% in Q1 2019. Later on, you will see that, as usual, that's the combination of businesses not performing according to plan, but also new contracts coming into place which are performing well, but still, their minimum guarantee rents are higher than initially or are higher than the former ones, because the new operators are bidding more aggressively.Next slide is international shareholding. As I said before, that's a -- it's a business line which has been performing really well. You can see there, the Luton numbers being presented in pounds. So excluding any foreign exchange influence or impact, and still the revenue is growing 16.3% year-on-year and EBITDA growing close to 34% in the case of, once again, in pounds. The rest of the ventures are also performing really well. The Mexican airports and both the Cali and Cartagena airports in Colombia are experiencing very positive trends in terms of traffic.The next 2 slides, that are fully dedicated to give you some color about the new venture that we have -- about to acquire formally in Brazil, the Aeroportuario del Nordeste, Grupo Aeroportuario del Nordeste, in Brazil. I have to say, all this information is public information, so you won't see there any specific information which somehow hasn't been disclosed before or is in the public domain. But this still is -- in our view, is a good collection of elements that will help the markets, the investors and the analysts to understand the nature of this particular project.I will highlight some of the main aspects of this new venture of Aena. First of all is the traffic volume. We are acquiring airports that together are managing 13.5 million passengers. So this is a sizable group of airports. And also in -- they are clearly airports where the touristic activities can play a significant part. So in a way, that's part of the -- of Aena's experience and skill set that we can put to work there in Brazil.Secondly, the average income per passenger, airport charges per passenger, I have to say, excluding commercial activities, is around -- is equivalent to around EUR 8 per passenger, which, I have to say, is a good starting point. We are not speaking about airports where the charges are extremely low or negligible. They have an average airport charge per passenger, which is, I would say, meaningful. On the other hand, there is clearly a commitment to -- in -- to develop the airports with the total size of the CapEx estimated by the authority there, north of BRL 2 billion, but only 26% of that is mandatory. So it's only 26% of that is an investment that we have to make over the first 3, 4 years. That is more or less in euros to something around EUR 120 million. So it's not huge like element of mandatory investment. That doesn't mean the rest of the CapEx is not relevant. It is, of course, but just to give you an idea.And I think on page -- on Slide 11, you can see that using some of the publicly available information, you can see that both in terms of the total, let's say, equity commitment as well as in terms of the bid price plus CapEx per passenger, this Northeast group of airports has been valued in our offer at a sensible and meaningful level, well below the rest of the rounds of privatizations of airports previously taken place in Brazil.And I will leave you here, and I will hand you over to Emilio Rotondo. Thank you very much.
Thank you, José. Now we'll move on to Slide #13, that -- well, most of these figures have been -- already been mentioned, just highlight, well, that the total revenue has increased by 7%, highlighting the growth in the commercial revenue up to 13% this quarter. Operating expenses grew by 7.1% lower -- on lower rate than revenue, which has led the EBITDA margin to increase from 43.3% last year to 43.5% this year. And net profit has increased by 22% up to EUR 136 million. The net debt to EBITDA ratio has lowered from 2.5x to 2.3x. And the CapEx has amounted EUR 168 million this quarter.In Slide #14, we try to go and to make some explanations on what is the main topics on the financial results. Just know that in the first quarter of 2019, as José already mentioned, that the revenue from the MAGs rose to EUR 30 million versus EUR 22 million last year, representing 19% of the revenue of the business versus 16% last year. This increase is mainly due to the conditions agreed in the new contracts by almost EUR 3 million, the sales evolution by EUR 2.4 million and to increase collected in the current contracts, EUR 0.5 million.In terms of the staff costs, they increased by 8.5%, roughly EUR 9 million. As a result of the salary revision last year, the increase in the workforce and by, more or less, 100 new hires in 2018. If we move into the IFRS 16 impact, although the impact in P&L has been -- is negligible, both in P&L and balance sheet is negligible, we -- the amount in balance sheet is roughly EUR 60 million in assets. And in terms of P&L, one of the effects has been the reclassifications of the financial effect of the advanced receipt from World Duty Free Group from a lower commercial income to a higher financial expense, amounting EUR 3 million. Excluding this effect, revenues from tax-free stores of the first quarter of this year amounted EUR 60 million, an increase of EUR 3.7 million, 6.6%.Also during the first quarter of 2019, the new advertising contract was awarded to 4 different providers, divided into 8 lots with a duration of 7 years, which is expected to enter into force this 1st of June. The result has been a reduction of the minimum annual guarantees from EUR 32 million to roughly EUR 21 million in 2020, which is why the new contract is expected to operate in variable rents with the revenue estimated on the whole year of approximately EUR 27 million.In terms -- if we move to Slide 15, most of the income statement has already been explained, down to EBITDA. So I move into depreciation and amortization, that has gone down by 3.9%, minus EUR 7 million, basically due to certain assets being fully depreciated, and partly offset by the technical revision of some -- the useful life of the runway and some taxiway assets.In terms of financial expense, has gone up by EUR 0.3 million, 1.2%, due to the reduction of interest of the debt, due to the reduction of the volume of debt, okay? And also, this impact has been offset by the inclusion, as was mentioned before, of the financial cost -- of the financial effect of the upfront payment received from World Duty Free in application of the IFRS 16. Corporate income tax increased by EUR 9.5 million or 28%, due mainly to the increase of the profit of the period. In fact, the effective interest rate for the period is 24.3%, slightly higher than last year, 23.5%.All in all, led to a consolidated net profit of EUR 136 million with an increase of almost 23%. In terms of cash flow, I go directly to the net cash flow from investment activities. As the net -- this net cash flows in the first quarter amounted EUR 170 million compared with EUR 176 million of last year, and mainly consisted of payments related to airports infrastructure for an amount of EUR 168 million versus EUR 185 million last year. The cash flow from financing activities, the main correspond to the repayment of debt, up to EUR 250 million.And now that we have finished the presentation, we now move into the Q&A session. So thank you very much. And please, operator?
[Operator Instructions] Your first question comes from the line of Vittorio Carelli.
I have 3 questions on my side. The first one is related to these EUR 75 million EBITDA as a consequence of the improved guidance. And the -- my question is, which are the OpEx growth assumptions and the spend per pax or the revenues per pax assumption, behind these EUR 75 million? You can answer if you want.
The other 2 questions, Vittorio? Sorry.
Sorry, Vittorio, we thought you were about to make 2 more questions, maybe around...
No, no, no. One by one. One by one, so it's clear.
What I would rather say is make the 3 questions and I will -- I would answer, we will answer the 3 in a row, please if you don't mind. Thank you very much, I appreciate it.
I don't mind. The second question is related to the OpEx. It seems that the OpEx increase is increasingly affecting the nonregulated business that relies on the regulated one. So we have 11% growth in nonregulated and 6% in the regulated. So my question is, assuming that the business is flying, how much of these OpEx increase in the nonregulated business and the regulated business is devoted to an extra push on the top line? And the last question, I mean, unfortunately, maybe it's an unfair question, but assuming the recent political election, should we assume that Mr. Lucena is -- will continue to be on board of the company? I'm sorry if this is an unfair question, but just to clarify the situation.
Okay. This is Maurici Lucena speaking. I will start with the third question, Vittorio, and I will answer it to the extent possible. I have been recently appointed Chairman and CEO of Aena by the Annual General Meeting for a 4-year period of time. And I, therefore, expect to have plenty of time to develop our strategic plan presented last October 2018. That's all.
Okay, okay. So a continuation.
Well, I will try and answer the other 2 questions. With regard to the EUR 75 million estimate of positive impact on EBITDA, we -- you have to take into account that EUR 75 million better expectations is good news, but it is not a dramatic change. It's not a very material change. So we didn't want to enter into the detail and the nitty-gritty of that, as you can imagine. So I don't think it's worthwhile. But I would give you some indications about the rationale behind that number. First of all, at this level of change in our passenger flow estimate, any potential changes in costs are really meaningless or very limited. So frankly, I don't think they -- it makes any sense to discuss them in the context of the total expense bill of Aena. Secondly, that EUR 75 million is referred to the new passenger estimate, vis-à-vis the passenger estimate that we published in the market that was when we, let's say, indicated that we expected the traffic to grow by 2%. So that's the information we published when we released the strategic plan. If you -- that's the only available information to the general public in terms of our EBITDA and our performance. You may see that the traffic expected than was, in total, 5.5 million passengers less than you would expect now by applying the new traffic guidance. So in summary, EUR 75 million better EBITDA, for an improvement of roughly 5.5 million passengers is this -- can give you an idea that this is just mainly a push in revenues and a limited, really limited, impact on costs, but without getting into any more detail that I don't think would add any more color. Finally, OpEx. Actually, it's true that the OpEx in commercial is growing by 7.5%, 7.6%, while the growth in aeronautical expenses is 3.1%. But clearly, the 3.1% is calculated of a much higher figure. So I have to say, the main driver for the cost increases is still, as we have said in the past, the increase in the cost of the number of services, namely things like security, cleaning, et cetera. And that's the real driver for cost growth. But it's true that in the commercial side, we can see some costs growing. But they are not in any shape or form, dramatic changes. A number of them -- and I cannot give you now the specific breakdown, but a number of them, as we said, are revenue-enhancing, mainly the costs of the new VIP operation. And also, those costs associated with the development of the real estate proposition. They are costs that are being incurred now to allow the company to grow that business. So they are revenue-enhancing or strategically-driven, but I cannot give you the breakdown at this moment, sorry. Thank you.
The next question comes from the line of Nicolò Pessina.
I have 3 questions on the new Brazilian venture. First of all, can you give us an idea of the return that you expect from this new investment opportunity? And in particular, where do you see spaces for outperforming the numbers proposed by the Brazilian authorities in terms of traffic growth, OpEx, CapEx and so on? Second question is, do we understand correctly that you plan to finance this new venture with all equity, 100% equity, so without raising any debt? And the third question is, do you plan to maintain full control of this new venture? Or do you -- would you consider opening up the capital to other investors with minority stakes?
Okay. First of all, in terms of the return, we are expecting -- I'm afraid, we are not going to share that in public at this moment. Suffice to say that it is attractive enough, and we see Brazil as really meaningful and let's say, sensible and strategically consistent opportunity for Aena. Obviously, I'm not also in a position to share with you what are the main drivers for value in detail. But clearly, it's a combination of things. We think there is potential to grow traffic in that part of the world, over that period of time, very, very significantly. We also believe that the commercial revenues are clearly well below the potential that, that airports can deliver. So -- and also, the way those airports are run today in terms of costs has nothing to say -- has nothing to do with what you would say is the right standard, for a number of reasons. Some think historical, some think the way staff is moved around between airports in the public-owned airports in Brazil. So it's a combination. It's a whole host of drivers that, in summary, took us to believe that this is a good opportunity. But you would be -- you would understand we are not planning to share the specific return we are expecting from that. Secondly, with regard to the equity -- 100% equity, let's say, funding. No, the answer is no. What we are doing is just writing a check now, and we will be writing a check in the coming weeks and months, but we are planning to work on finding the right leverage structure there, both in terms of funding the CapEx projects, which is something pretty useful in Brazil to be funded by financial institutions. And secondly, to see whether we can leverage somehow the equity and getting part of that back. But it's early days. We were, frankly, very focused on winning the auction, and then to move on and work on the rest of the elements. And finally, full control. Well, for the time being, we are very comfortable with 100% of the ownership. But you can never say never. What I can tell you is that we are in no hurry, and we have no real concern about being full owners of that project.
Next question comes from the line of Guillermo Fernández.
A number of them actually has been already answered. But I still have 1 regarding the OpEx increase we've seen in the quarter, it's 7% versus last year. When you guided in your Capital Markets Day to a 10% growth for the full year, would you say that we -- I mean, the OpEx increase should be backloaded? And the coming quarters, the OpEx increase should be higher? And with that, the question would be, will you still stick to the EUR 1,767 million of total costs you guided for the 2019? And second one would be, sorry, on the commercial side and the growth we have seen, it's mainly to ask if you think it's sustainable, the kind of growth we've seen in Q1, when we are seeing food and beverage and car parks growing above 15%, with the total income per pax growing by 7%, when you guided us to an around 3% growth for income per pax in commercial. So the -- cutting the rest of [ them ] short would be whether you think this is sustainable through the whole of the year?
Well, with regard to the OpEx evolution, I would say that we still stick to our guidance. We expect to be, clearly, experiencing increasing increases over the year. So we still believe that the original guidance was good. I can share with you 1 very good example, because it's in the public domain -- it would be in the public domain. We have just agreed to a new contract, a cleaning contract in Barcelona with different standards, different level of quality, obviously, more resources, better managed, aligned with our KPIs. And there is a meaningful -- I'm not going to say how much, but a very meaningful increase in cost, which is totally consistent with our plan. So it's not coming as a surprise. As we speak, there are a number of contracts being closed. So still our expectation is to grow by the percentage we indicated there or thereabouts. Obviously, it's never easy to get it 100% right, because sometimes, some contracts, people are bidding more aggressively, some others they don't. But I think it's still meaningful to stick to the guidance. And that's consistent with my response to Vittorio Carelli minutes ago about not making any meaningful change to our cost element expectations for the year. With regard to the commercial revenue, I think, once again, we'll stick to the guidance. The -- normally the -- clearly, the growth this quarter has been healthy, positive. As you probably know, as we enter into the summer, normally there, if you have observed previous years, the revenue per passenger on quarter 2 and quarter 3 are more challenging than in quarter 1 and quarter 4. Don't ask me why, but that's the reality. So we still stick to the guidance. It's also true that it depends very much on the -- on how aggressively any new contract is bid by third parties, by operators. When they bid very aggressively, and as soon as the contract is in place and they start normally paying minimum guarantee rents, we experience that lift. And so it's not 100% speaking -- it's not strictly speaking 100% linked to the sales or the passenger spend, sometimes the evolution is linked to the level of minimum guarantee rents committed by the newcomers. So it's sometimes difficult to predict. But let's say the guidance originally given is still valid.
Next question comes from the line of Stephanie D'Ath.
The first one is on full year traffic. Could you please let us know where consensus is for 2019? And comment on the recent evolution of summer capacity that has been added, and maybe in particular in the U.K. since Brexit was postponed. My second question is on FX inflation. I think the last big headwind was coming from maintenance contracts, could you please let us know when those will start impacting the P&L? And then finally, on your EBITDA saving of EUR 75 million, should we look at the 2018 actual number as an impact on it or on the 2018 initial number that you guided for to get to your 2019 expected EBITDA number?
Okay. Sorry, I was checking what consensus was, so. I think -- I'm being told that it's 3% for 2019. Okay. Second, on OpEx. When OpEx will start -- OpEx inflation will start impacting our P&L? It is already impacting our P&L, I think, over the last year in EBIT. We have seen...
Sorry, I'm speaking about the maintenance contract, which is the last part of the...
Sorry, sorry. I'm very sorry. I'm very sorry. Well, I think it's probably not in 2019 or very, very slightly in 2019. Probably this is more for 2020 and beyond. Still, the combination of everything altogether, as we have said a number of times, will imply that in 2019, we are expecting the costs to grow -- operating cost to grow by 10%, then we are not giving any particular figure for 2020, but we said a number of times, still there will be a tail in 2020, mainly driven by maintenance and obviously of a different scale, of course, smaller. And then 2021, we will see somehow that's getting back to normal. That's our expectation. But definitely, 2019 is still early days for the maintenance contracts to be revamped, to put it that way. Also, you asked about the EUR 75 million. Those EUR 75 million are on top of the EBITDA we published when we released the strategic plan. So what -- that was the EBITDA for 2019 we estimated back in October 2018. So you will need to add those EUR 75 million.
Okay. Because in 2018, I think EBITDA was EUR 40 million better than anticipated.
You're absolutely right. You're absolutely right. The 2018 figures were better than the 2019 initially published figure. So that was -- it was a little bit paradoxical. But 2019 -- sorry, 2018 was also affected by a number of exceptional situations, namely a significant chunk of government grants or European Union grants being received totally unexpectedly. So it's true that in a way, the 2019 figures back in October 2018 were not -- didn't represent a very massive growth on 2018, and probably that was the reason why many of you said to us your growth expectations are diminishing. And we -- obviously, our counterargument is that we are still doing extremely well and generating a lot of cash, so.
Next question comes from the line of Arthur Truslove.
Arthur Truslove from Crédit Suisse. So clearly, very strong set of results from a commercial perspective. Do you think that the rate of increase in the food and beverages side and also the parking side are likely to be sustainable through the rest of 2019? And it will be useful if you could just sort of talk around the moving parts that would drive the sustainability or otherwise there. And secondly, you mentioned around, well, the strategic plan, that you had trials with Dufry at 5 airports in Spain to try to improve the underlying Duty Free performance. Are you able to just talk a little bit about how that's going, give some idea of whether there's been a meaningful improvement in the performance of those stores or not? And finally, just in terms of the Brazilian airports, again, what sort of level of EBITDA should we be thinking about in respect of 2020, in respect of that asset?
Okay. Starting by the -- your last question. I'm afraid we cannot give you any indication of EBITDA. That would be -- that will involve giving you guidance. But I have to say, the EBITDA multiples, that our bid, represents our, in no shape or form, out of kilter with the normal, regular, standard, attractive EBITDA, let's say, enterprise value to EBITDA ratios. With regard to Duty Free, definitely, we have been running those 5 airports trials. I have to say, we have found a number of ways of improving performance. When those measures have been put in place, really, the Duty Free performance has improved. And significantly in some cases, significantly, I mean in terms of improvements of 10%, 15%, 20%, let's say, revenues on the particular, let's say, category or the particular range of products, they were, let's say, acting on. In general, all the measures taken in terms of pricing, range of products, staff incentives, staff training, which is mainly the range of changes introduced by Duty Free -- by Dufry, sorry, as well as the increases in surface provided by Aena, obviously, never significant ones, or changes in the layouts, all of them has proven to be positive. What is true as well is those changes are not going to involve a massive revolution because the contract is coming to an end. So there will be no time to really extend those trials across the network. But they are very good lessons learned, very interesting findings that will make both Aena to shape the new contract or the new bidding or the new tender process in the right way and Dufry, in our view, to take those lessons onboard for the -- obviously, their approach to the new tender. So definitely, they are delivering good results, and they are providing very good insights into what is right and what is wrong currently in the Dufry operation. Sorry, I'm afraid I forgot your first question.
It was around the sustainability of the growth that you were seeing on -- in some of the commercial businesses that you operate, so in particular, around the food and beverages, how sustainable is the growth that you're seeing there, more on a passenger basis and likewise on the parking side, very, very strong growth and how sustainable is that likely to be through 2019? And what you see are the key moving parts in either direction?
Clearly, well, the food and beverage growth, I cannot tell you right now whether this is exactly or as close or thereabouts the percentage of growth that we expect for the rest of the year. So I'm not really -- simply, I, from the top of my mind, I cannot tell you. But what is clear is the food and beverage growth is being driven by a number of new tenders, a number of new contracts as well as a good performance of others. So in those, which are new contracts, what we can see is people bidding more aggressively in terms of minimum guarantees. And that means that, to the extent that those contracts, there are new contracts coming into place. And I'm trying to find some more detail about the specific contracts. This is sustainable. With regard to car parks, I think that all the actions we are taking are delivering good results, but we shouldn't forget as well that one reason for the car park business to flourish is the increase in the domestic traffic. So to the extent that the domestic traffic keeps growing at the current rate, the car parking business will be favored by that. To the extent that the commercial business is not growing at that rate, there will be an element of the commercial or the car parking performance that will simply disappear, and all the rest will be down to our own management and pricing activities. But let me tell you, in -- I'm afraid that I'm not finding what I'm -- yes, in 2018, there were a number of new contracts in Barcelona, in -- I mean food and beverage. Barcelona, 49 different premises; Málaga, 25 new premises; La Palma, 11 new premises. So those are contracts where the level are -- clearly, Barcelona and Málaga are very meaningful for the whole network. In those contracts, the MAGs, for instance, in Barcelona, grew by 85% vis-à-vis the former contract in place on an annual basis. In Málaga, 15%. In La Palma -- I think it's La Palma?
Gran Canaria.
Gran Canaria, sorry, 100%. So that's what I meant when I said that, clearly, there are new contracts that are starting from a completely different basis in terms of minimum guarantees.
Next question comes from the line of Cristian Nedelcu.
Three of them, please. Firstly on Brazil. So we have some numbers that ANAC has disclosed for 2020. I think they talked about BRL 360 million of revenues and BRL 120 million of EBITDA. I guess my question is, I understand if you do not disclose your returns there, but could you give us some color on the traffic expectations going forward? I think ANAC talks about the 3.9% average traffic throughout the years, the 30 years of the concession. And equally so, in their model, they talk of EBITDA margins growing from 34% to 46% by the end of the concession. Could you give us some color, sort of a range of outcomes that you would target in both traffic and EBITDA over the life of the concession?
Sorry, I thought that was the only question. Go ahead, please.
Yes, I have 2 more, please. On the real estate side, are you in a position to give us a bit more granularity in the progress on the way you are thinking about the JVs on the real estate? And in particular, what I'm interested in is if you can give us a bit of color on how do you think about your contributions to these joint ventures. Would you -- do you intend to contribute only with the land? Or do you also intend to contribute some CapEx or further equity beyond the land within the joint ventures? So that would be my second question. And the last one, please, I believe you did speak in the past about the fact that you are increasing the surface, the retail surface, within the airports over the next years. And if I remember correctly, I think I saw, furthermore 20% increasing in -- or 20% incremental surface. Could you remind us a bit in terms of the timing over the next several years how that incremental space will be added?
Okay. Maurici Lucena again. I will just answer question #2, and I kindly ask you to be patient, because at the end of the year, I hope that we will be in a position to share with you the information that you asked for. But at the present time, we are studying with external experts the details in terms of financial details, legal aspects and also valuations. So after these experts finish their activity, we will still need a little bit of time to digest all the information to discuss it internally, to discuss it with our counsel, to our board. And I think, as I said before, that at the end of the year, we will be in a position to share it with you. So at the present time, we cannot. Okay. With regard to the Brazilian figures, once again, I'm afraid we wouldn't like to share specific data about the -- our, obviously, business plan and our expectations. And finally, with regard to the retail surface, we are planning to add 19,000 square meters, that's part of the information disclosed in the strategic plan, over the period between now and the beginning of 2022. A significant part of that is going to focus on the commercial space and layouts in Madrid, both in Terminal 4 and Terminal 1, 2 and 3. And of course, part of that will be linked to the re-tendering of the Duty Free contract. But also, we are expecting to add a significant amount of space in Palma de Mallorca, 4,000 additional square meters, as part of the significant, really, really significant redevelopment and extension of the terminal that we are going to address over the coming years. So there are a number of airports, Tenerife Sur as well, Barcelona. So those -- the details are provided in the strategic plan, but those are the main actions. And definitely, the additional space is part of the plan. Although it's not always the solution, but in this particular case, we believe it's a significant part of the plan.
Next question comes from the line of Jenny Ping.
Jenny from Citi. Two questions. Firstly, just following up on one of your answers to an earlier question about the commercial impact as a result of the pilot project. You mentioned 10% to 15% revenue uplift in some of the cases. Can you give us a sense of the overall impact? Because clearly, the 10% to 15% is in some aspects. I'm just trying to get a sense of the potential impact of the pilot projects and how -- and when it rolls out into the rest of the business, how it could impact future biddings from Dufry. And then just secondly, I understand that you have dropped out of the Sofia Airport bidding process. I just wondered whether you're able to give us a sense as to why that has been the case and what else you have got on in terms of international growth opportunities.
Okay. In terms of the pilots of Duty Free, without getting into a specific number, but clearly, as I said before, between now and the re-tendering of the new project -- of the contract, I think there will be no material impact, without getting into specific numbers, but we'll never be in the region of the tens of millions, definitely not. So I don't think that we'll, overall, deliver a very significant amount of additional revenues between now and the new tender. Different thing is to what extent those lessons, those learnings can be applied to the rest of the portfolio. And as a result of that, both sides of the process will take that into account. Because frankly, there has been a number of really significant improvements in specific places, specific airports, specific range of products, which are very, very useful to apply to the rest of the portfolio. But once again, nothing -- don't expect that to be, I don't know, tens of millions of euros, okay? Secondly, with regard to the Sofia Airport, frankly, the decision to pull from Sofia was because we didn't find the right conditions, particularly in terms of ring-fencing the responsibility and the liabilities. So that was -- we thought it was not totally ring-fenced and we thought that was not for Aena.We are looking at a number of opportunities, but nothing to be shared now as an immediate opportunity. We keep looking at the geographies we discussed a number of times, Europe, South America, from time to time, and in keeping in mind other places. But there is nothing in the pipeline that can be like delivering a new project shortly.
Next question comes from the line of Johannes Braun.
Just one question left for me, I think. In addition to the real estate projects in Madrid and Barcelona, you have also recently tendered consultancy to develop land at other airports, including Palma, Málaga, Valencia and also Sevilla, I think. So I was just wondering if you could shed some light on those and what the potential is there and what exactly you intend to do there.
Well, the fact that we are now tendering that assistance, that advisory role, means that we haven't yet concluded what we have to do there, no? So that is too early to say. Otherwise, we wouldn't need that help.
Okay. But just in terms of how big the land is, how large the land is, that you could potentially develop?
Well, the land there, obviously, there is a potential in any of those cities, because all of them are cities that's attractive from a number of points of view. And definitely, all of them are -- they have land that could be very useful to develop logistic activities, that's for sure. But other than that, the nitty gritty will need to be developed by the -- through the work that we will be doing with the help of the participants to identify the specific uses and square meters, square meters available for every use and so on and so forth.
Next question comes from the line of Andrew Lobbenberg.
I was curious to see to what extent the structure of the re-tendering in advertising, where you and multiple providers in different talks earlier, how strongly that reads across to the planned re-tendering of Duty Free? And otherwise, if you could just remind us where we are on the steps towards that process, that would be good. And then the other point I wondered about was, looking at Brazil, we've got a couple of really small airports in your package there in addition to the main one in Recife. And I recall back from the IPO, the one I think you guys did quite impressively was it you managed to clamp down the losses from the very small airports, which are actually loss-making by doing part-time opening and stuff. Do you have the aspiration to deliver that same sort of optimization in Brazil?
Okay. Well, first of all, with regard to the advertising contract, clearly, the new contract has been awarded in different conditions from the previous one, with a significantly or meaningful reduction in the minimum guarantee rents. But at the same time, we have managed to create the conditions for that contract to deliver better outcome in terms of, let's say, the variable element, to the extent that we expect to deliver in the first year on an annualized basis something in the region of EUR 27 million. Why is that? Because clearly, we needed to attract a different kind of animal, so to speak, people with a local footprint, people with an appetite and a knowledge of the local advertising market, that can make the most out of those markets and can extract revenues and returns from places and corners where the former large international operator probably didn't -- wasn't interested or wasn't like equipped to get to. So all in all, that's a positive outcome for a difficult market. The advertising operations at airports is not a walk in the park type of business. Having said that, there is no read across whatsoever to any other sort of activity, and definitely not to Duty Free. And I will tell you why, a number of reasons. First of all, the total -- the amount of minimum guarantees in the advertising contract, in the former advertising contract, represented a huge percentage of the revenues obtained by the operator. Huge meaning sometimes more than 100%, to be honest. And that's not tenable. That's not sustainable. That has nothing to do at all with the situation of the Duty Free contract by -- well, by country. Hugely different situation. Secondly, the advertising market in the airports is dominated -- when you deal with global operators, it's dominated by one. I don't know if there is another one. So you need to get into the local market to really find the right structure. In the Duty Free world, that's a completely different story. There are a good number of players. For instance, in Europe, you have 3 players fighting really hard. And just to give you an indication of how important a contract like Aena is for those players, the awarding of the new Aena contract to any of them will automatically put them in a leadership position. So the one winning will be the European leader. The one losing will lose the European leadership. On top of that, there are some more, 3, 4 more relevant players worldwide. So obviously, that's just a couple of comments on that. But I have to say, the advertising contract has been, finally, let's say, revamped in a way that we make the most out of a difficult situation, and there is no read-across whatsoever in terms of the Duty Free contract. Thank you. Sorry, you mentioned -- sorry, I forgot you mentioned Brazil. Obviously, there is no intention at all to close or to do something of that kind with the smaller airports in Brazil. Different story, different story, is that for sure, we will manage those airports in a completely different way with the right level of resources, with the right level of, I don't know, technology and with the right -- well, with the right cost structure.
Next question comes from the line of Vittorio Carelli.
José, sorry for the follow-up. EBITDA in your own work, on the P factor calculation, since the approval of that? And secondly, if I'm not wrong, the 10% OpEx increase was included in the maintenance contract renewal. So without this renewal, obviously, 10% is -- should not be valid anymore. Is that correct?
Well, with regard to the P index, we are not yet in a position to share the figures because we are putting together a number of data and discussing that with the CNMC. So I'm afraid we are not in the position to share any figure. The 10% originally is contemplated only in, let's say, just a slight impact from the maintenance contracts. We have been always thinking that the bulk of the maintenance contracts renewal would take place in 2020.
Next question comes from the line of [ Stephan Ahn ].
I had a similar question to the advertising one. You answered it super well, and you -- it's very clear that you perceived it to be very different. I guess when you think about the new Duty Free contract, is it fair to think that it will be more likely divided up, as you possibly could see there as well a benefit to having more than just one player and perhaps different players have different sort of competitive advantages? And maybe some of them can have some local -- better ideas for certain airports, et cetera? Obviously, you mentioned that you will -- this is a very significant contract, and this makes whoever wins the biggest in Europe, but not from a profit standpoint, since Madrid is loss-making and Barcelona, we know, is almost breakeven for Dufry. So in a sense, how can anyone pay more than Dufry does already? And won't this to go, in terms of revenues, just like advertising if you divide it up?
Well, I think the idea of dividing up in different lots is -- it is already in place. We have 3 different lots in the current contract or structure, contractual structure. What happened is that the 3 of them were won by Dufry or someone associated to Dufry. So that's the reason why you have now one operator, but that's not new. And so whether or not we will keep in place 3 or we will open that and we will divide that up into more lots, that remains to be decided as part of the analysis. But one thing is important. The -- what I mentioned before about attracting local players to the advertising process, I don't think that really applies to the Dufry or the Duty Free activities. As I said before, there is no read-across in this context. It is simply different, completely different. The players in the Duty Free arena are different, and there is no such a thing as small, local operators that can make a living. And finally, I don't agree that Madrid is loss-making for Dufry. I might be wrong. Different thing is that both Madrid and Barcelona are underperforming vis-à-vis their original plans. So they are paying minimum guarantees because they don't reach the revenue level they expected. But that doesn't mean they are loss-making. So -- but I might be wrong, but that's my understanding.
Can I have a follow-up on that? I guess in 2011 or 2012, when the contracts were awarded to Aldeasa, the precursor to World Duty Free, there was clearly a special situation, plus a Spaniard running Aldeasa, and there was a very attractive contract that you got. But given that Dufry has the biggest economies of scale, and they can't seem to make money on your contract for, again, Madrid, for sure, Barcelona has a very low profitability, how can it be a positive, an increase versus before? And are you willing to accept no minimum guarantee, which is basically what Dufry has been saying for a while now, that basically they will not accept the same contract terms as you have in place now?
Obviously, we are conscious that this is not an easy situation, and we need to shape the new tender in the right way with the right strategy. But you would understand me if I say -- if I tell you that we are not in a position and definitely not -- we are not [ on time ] to take any views, let alone to share those views. I think Dufry, of course, is complaining. That's absolutely true. The new tender will need to take into account a number of lessons learned. But we don't surrender. We believe this is a -- still a very attractive proposition, and we believe we will attract competition. What the outcome of that will be? Time will tell, but we are confident so far.
The next question comes from the line of Nicolas Mora.
Just a couple more for José, if I may. Just -- I mean first one, on retail, maybe taking from another angle, is do you think you've closed some of the gaps between the underlying contract performance in Duty Free and the MAG in the first quarter? And would you expect some of the [ tied-outs ] benefits and some of your initiatives to help you close some of the gap in the rest of the year? That will be the first one. And second one, I know you say you will not give us any revenues or EBITDA for Brazil, but can you at least try to help us in terms of providing a, I'll call it, a ballpark figure in terms of revenue and EBITDA so that we avoid looking stupid on 2020 numbers?And very last one, just on the car park, I mean in your retail, the performance was positively strong. I mean is that all down to domestic? Or are you pushing up prices, you're doing initiatives that actually provide you enough momentum to keep growing basically at least low teens in the rest of the year?
Okay. With regard to the whether or not the gap in Duty Free is closing, obviously, the answer is not, as you can tell by looking at the percentage of minimum guarantees of the total revenues, which is clear that there is a significant component there coming from the Duty Free activities. But that doesn't mean that it is not growing at the rate that it could grow and if the initiatives, the new initiatives wouldn't be in place. Having said that, once again, the initiatives and the changes and the learnings are not at all extremely material. They are just trials and pilots. It would be, let's say, completely disingenuous to tell you that those are going to change the dial or move the dial or close the gap. Secondly, with regard to the Brazilian figures. I think at some point in time, when we start providing data for 2020, which will be the case as it was in 2018 for 2019, we will start discussing and showing some data on Brazil. But please, allow us to remain silent on those figures for the time being, because it's a still work in progress.
Okay. If I may cut you here. So at least, can you provide us an idea of the upfront costs to set up the structure in -- for 2019, because that should be brought in the year and not in 2020?
Well, the -- frankly, I cannot answer this question now. What I can tell you is that with the total contribution we are going to make, that BRL 2.4 billion, we will pay for all of that. We would pay for the bid. We will pay for the redundancies, which are mandatory as part of the Brazilian auction -- sorry, privatization process, plus all the different cost of setting the structure, and let's say, kicking off with the activities. But frankly, I cannot tell you how much that figure is right now from top of my mind. And then there was a third question, Nicolas?
Yes, it was on car park. And actually, if I can add one on just on the IFRS 16, the EUR 3 million, is that something that will be also repeated for Duty Free every quarter, so a EUR 12 million for the full year?
Yes, yes.
Okay.
No, no. Sorry, not EUR 3 million for the full year, EUR 3 million per quarter.
EUR 3 million in -- EUR 3 million per quarter is it?
But that's a pure reclassification. That is under the IFRS 16, those EUR 3 million are taken out of the -- they increased the commercial revenue, and they increased the financial expenses. That's all. So bottom line, there is no change at all, but clearly, the EBITDA is improving, okay?
That's true, but that's -- are we -- with EUR 3 million, are we settled for the year? Or is this going to be repeated every quarter? Sorry, that was...
That's what I said, EUR 3 million is the amount for a quarter. So 3 times 4, EUR 12 million for the year.
Okay. Thank you very much, gentlemen. And I think...
There are no more questions at this time. Please continue.
Okay, then, thank you, everybody, for attending the call, and speak to you next quarter. Bye.
That does conclude our conference for today. Thank you for participating. You may all disconnect.