Aeroports de Paris SA
PAR:ADP
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Aeroports de Paris SA
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Welcome to the Groupe ADP 2019 First Quarter Revenue Conference Call. Today's conference is being recorded. I now hand over to Mr. Philippe Pascal, Chief Financial Officer. Sir, please go ahead.
Good morning, ladies and gentlemen. Thank you for attending our First Quarter Revenue Conference Call. For introduction, just 4 points to highlight the -- this first quarter revenues. First point, we have a good performance in all the business segments, included aeronautical activities, retail activities, real estate and international activities. Second point, we had a strong increase in our performance in terms of profit in Paris, and we changed our assumption for the traffic for the full year 2019. Third point, we have a good performance and strong performance in retail activities, and we have a strong increase in our [indiscernible]. And the last point, the fourth point, is international activities with the effect of the full contribution of ISA, the -- our Amman airport and the good performance in terms of international traffic in TAV Airports.So if you go to the detail with the slide show, we can see Slide 1, our performance in terms of traffic with the Groupe ADP very slight increase with plus 0.4% due to the decrease of the domestic destination and domestic traffic in Turkish (sic) [ Turkey ] and with TAV with a decrease of minus 3.7%. When you look to figures for all our airport, for the main airport of Groupe ADP, we can see a very strong performance of Paris Charles de Gaulle with plus 5.7%; a good performance of Santiago de Chile, plus 9.7%; and for Antalya, with plus 13%. But at the same time, we can see that we have a very slight decrease or good -- strong decrease in Atatürk, minus 2.2%; in Ankara, minus 20.8%; and in Izmir, minus 9.8%. It's due to the crisis in Turkey, we've a huge impact in the domestic flights.Slide 2. We can see the figures for Paris and you can see then, for Paris, we have a strong increase in -- globally for Paris-Charles De Gaulle and Paris-Orly, plus 4.1%. And we can see that's a good performance if you compare with London Heathrow, with Amsterdam-Schiphol and with Frankfurt. Due to the good performance for the first quarter, we changed our assumption for the full year 2019 with a new assumption between 2.5% and 3% in 2019 compared to 2018.So when we look in the detail of performance, we can see that we have very good mixed traffic with new international traffic, plus 5.5% if you compare with the global increase at 4.1%. Very good dynamic for the local carriers with plus 4.8%. And this is a key point, a good increase in our connecting rate, plus 0.7 points. The connecting destination explained a large part of the increase in Paris-Charles De Gaulle.If you look in the details of the destination, Slide 3, we can see that we have very strong increase in North America, plus 10.2%; in Latin America, plus 5.9%; and in Asia, plus 5%. So a very good performance in Paris and explained a strong increase in our aeronautical activities but also in our retail activities.When you look at Slide 4, we you can see that we have a very strong growth in terms of revenue, plus 6%. And when you see our performance of the airside shop, we can see 11%. And with very, very strong performance due to the growth of international traffic, due to the good mix traffic, due also to the performance of luxury fashion and core business activity and due to our bar and restaurants, we have continued positive trend notably linked to the traffic and the development of our joint venture, EPIGO plus 7.2% in terms of volume.In terms of sales per pax, you can see a very good increase, our plus 3.7% to reach the first quarter sales per pax at EUR 19.3. We are in line with our trajectory, which we expect for the -- this year rebound, and you can see for the first quarter, a very good rebound just before the opening of the new shop in Paris-Orly but also in Paris-Charles De Gaulle. This rebound is due to the good traffic mix but also to the positive impact of the progressive reopening of the shops in Paris-Charles De Gaulle after refurbishment. And we have a significant revenue of the new shop opened during the second half of 2018, for example, the Louis Vuitton shop.Slide 5. We have the detail of the good increase in terms of revenue, plus 11.9% to reach EUR 1.08 billion. If you go to the detail, we can see the good performance of the aviation activity due to the airport fees with the traffic effect and the fees increase. Reminder that, in 2019, we have a slight increase in terms of fee plus 1% start to pertain. In terms of Airside shops and retail and the services, we can see a very good increase in term of shops and also food and beverage. We can add a specific point for the next months with the full consolidation of SDA and Relay. Be careful, we don't have the full consolidation in the first quarter of 2019. The full consolidations starts in April.In terms of international activities, we can see the effect -- the impact of the full consolidation of AIG. But be careful, we have, in the first quarter, the full consolidation of TAV, included TAV Istanbul Atatürk. We know that the commercial flight of Istanbul Atatürk airport were transferred to the new Istanbul airport on 6 April, so we are to change our accounting for the next half year and full year results. The full 2019 revenue and operating expenses of TAV Istanbul will be separately presented under income statement and net income from new and continuing operation. So clearly, we have now the -- in our revenue, for the first quarter, the revenue of TAV Istanbul Atatürk but in the half result, we offset this revenue and also for the other indicators.So finally, we can see that we have a very good performance for all our activities. And I am now available to answer a few questions. Thank you.
[Operator Instructions] We will take our first question today from Melody Rall of JPMorgan.
Elodie Rall, actually. So I have 3 questions, if I may. The first one would be on your guidance. I was wondering why you didn't change the rest of the guidance given the better-than-expected traffic performance already in Q1 and your increased guidance on traffic? My second question is on Atatürk. I was wondering if you could give us an update on the negotiation going there now that it's closed and also how the depreciation of the lira, which is down -- I think depreciated 30% is going to impact that compensation? And lastly, I was wondering if you could give us an update on the ERA 4. Have you had any meetings or any sort of discussion with the airlines or regulator since you issued your proposal? And are you still comfortable with the proposed work?
Okay. Thank you, Elodie. So your first question about the consequences of our new guidance in term of -- new assumption in term of traffic figures. In fact, we don't change, and we can confirm the -- our guidance included the EBITDA guidance. We have [ fork ] for the EBITDA guidance between 1% and 2% increase for this year. We are very comfortable with this [ fork. ] Now we are very cautious because we have to wait -- the traffic figures in this summer. It's too early to change the guidance of EBITDA. But obviously, we have good news in our EBITDA performance. Probably, we can go to the upper range of the guidance -- of the EBITDA guidance. Second point, the composition. So, In fact, for the moment, so DHMI, the Turkish Civil Aviation, I mean, question, are very focused to the opening of the new airport. And we start now the discussion with the Turkish administration about the compensation. We have to finalize just a few figures like the forecast of the periodical increase of traffic in the Atatürk Airport, first point. And the effect, the consequences of the -- this increase in terms of traffic in the other segments like retail. As you see, we have a slight decrease at the beginning of the year in terms of traffic figures due to the impact of the economic situation in Turkish (sic) [ Turkey ], specific impact in terms of domestic flight. So we have to -- there's a ton of discussion with the Turkish administration, but we expect a good conclusion in June or July. Second point, in terms of the impact of Turkish lira and the exchange rate with the euros. We -- as you know, we don't have any impact in terms of EBITDA because we have a natural edge between revenues and OpEx revenue mainly in euros and OpEx mainly in Turkish lira. In terms of compensation, as the compensation will be paid in Euros, so no impact in terms of the depreciation of Turkish lira. Your third question about the negotiation of the Economic Regulation Agreement #4. So as you know, we discussed all the days of -- with all the airlines. Now we start a new round of discussion in the specific commission called CoCoRo. We started 4 meetings with the main clients in our airport in Paris. For the moment, we don't -- we speak a lot about traffic figures, capacity, investments with the new Terminal 4. We don't have a discussion about the balance of the Economic Regulation Agreement. We don't have, for the moment, discussion about the tariff increase and the level of work. When you -- when we negotiate the Economic Regulation Agreement, we start with the industrial project, and after, we speak about traffic figures. But the negotiation of the Economic Regulation Agreement is a long way. We have more than 1 year to speak with airlines to conclude the next Economic Regulation Agreement at the beginning of 2020 probably at the beginning of the spring of 2020. Thank you very much for your question.
Our next question comes from Stephanie D'Ath of Royal Bank of Canada.
Philippe and then for answering my questions. The first one is on the guidance update. Just wanted to understand to which -- I think, you factored in the potential impact from the Yellow Jackets, especially, as they announced yesterday they were planning a French airport located on 4th and 5th of May. And what your summer outlook is for traffic in Paris? And my second question is regarding retail and the strong performance, in particular, in sales per pax. Could you please give us an idea of by how much sales has increased and, therefore, contributed to that performance? And then, my third question is on aviation fees which were up 5.5%. So just to understand a bit better, the traffic was up 4.1% and Paris up 2%, and the mix was better with more international flights. But is it because of the connection rate that you're actually not growing 6% plus?
So your first question about the impact of Yellow Jacket. For the moment, we don't see clearly an impact of Yellow Jacket. It's -- we have a lot of issue when you look at the traffic figures. The opening of new airlines, the impact of the global economy effect. But now we -- when you see the summer, the next summer, we can -- we are very comfortable with the traffic figures in terms of international traffic, in terms of connecting traffic. So we are very comfortable with our new guidance. First point. Second point, in terms of retail and sales per pax, I am not very clear -- understanding of your question. If it's in terms of the...
The retail traffic. The retail traffic increase. Retail traffic.
The retail? Now we don't have any new surfaces, but [ that’s just ] smaller, but we have just refurbishments, so it's not linked by a new square meter. It's linked by a good performance in our fashion shops, in -- good performance in terms of mix traffic. But now we don't have new shops. We have to wait the effect in -- of new shops in April and May and in the summer with new shop in the [ separate ] fleet in Terminal 3 and new shops in the junction in Orly. But now it's -- when you see the figures for the first quarter, it's for the last half in organic growth due to the quality of offer, due to the quality of traffic. In airport fees, your third question. We have -- in fact, we have traffic increase of plus 4.1%. We have also a tariff increase, if you compare with last year, of 2.1%. And when you see the figures, we can see that with this figures, we have a good mix effect due to the connecting ratio. It's a negative mix effect. Not a good effect, a negative mix effect. And we can explain globally a 1% decrease to reach 5.5%. So your -- I think you -- it's the main explanation. Okay. Thank you.
[Operator Instructions] Our next question comes from Vittorio Carelli of Santander.
Three questions on my side. And I will do them one by one. The first one is related to the EBITDA impact coming from the traffic loss. So can you -- do you have an idea about the incremental EBITDA could reduce by a 1% increase in traffic and how it will be changed, assuming the new space level to the retail business?
So we are -- obviously, we have a good impact in terms of EBITDA when we have a 1% increase in terms of traffic. It's not in absolute rules, but we can have around EUR 10 million impact for 1%. It's not absolute figures because it depends on the traffic mix. It depends on the quality of impact in terms of retail. But in fact, when you increase our assumption, we can see a small impact, around EUR 5 million and EUR 6 million for this year. But probably, I also -- the performance will be better. But if you have any questions, and it's the main reasons that we -- for the moment, we confirm our EBITDA. [ It might be what you call rules ]. So 1% of 10 million.
10 million. And with increase in the retail business stays then -- sorry, do we have any -- I mean, a much better impact on EBITDA I mentioned, right? Because it's the retail is a bigger margin. Correct?
Yes. In fact, in terms of number of square meter, the number of square meter is the main driver of the retail activities. But now we don't have, for this first quarter, a huge change in our number of square meter. Obviously, we should develop. Okay.
Okay. Second question. Sorry, second question is the spend per pax does not still include the food and beverage. Because I remember that in investor plan you are starting to include food and beverage. Is that correct? And -- Or...
Yes. Yes, for the moment, we don't include the food and beverage, but we'll probably, in the next result, I don't know if you -- if [ in ] the half year or the full year, we have a proforma with food and beverage. But for this moment, we don't include the impact of food and beverage [indiscernible] in the figures.
I see. Last question is related the compensation of Atatürk. I think you mentioned that compensation will be paid in euros. So you are assuming cash compensation, is that correct? Because in the past, we had some dodgy news about different kind of compensations. So now the base case is cash, is that correct?
Yes. Our base case is cash in Euros. And after, if we have to change this base case, we are to negotiate with the Turkish administration. But now we ask for cash and we ask cash in euros. And -- but it is too early to confirm all this at this point.
[Operator Instructions] Our next question comes from Andrew Lobbenberg of HSBC.
Can I ask just about -- on the retail side, on the car parking revenue, they still remain quite weak. Is that [indiscernible] talk? Because people are traveling more by public transport? Or is it an issue of mix or competition in car parking? In terms of the traffic, to what extent do you think you -- [ thought if it isn't ] mathematical from the nonrecurrence of the Air France strikes that start to become significant in the second quarter? And then the third question, back on the Istanbul compensation. You said it's your base case that you get cash in euros. But is that the Turkish government's base case? Or is it your negotiating position? Because a base case and a negotiating position is rather different.
So thank you for the question. First question about carpark. So when you see the increase of revenue income of carpark, we can see that we have a slight increase, plus 1.1%. But for us, it's a good performance because we have a huge impact. And we can see this impact the last year in 2016 and 2017 due to the development of VTC like Uber. So now we have a good -- for us, we had a good performance, and because we can start a new story with a new strategy in terms of carpark, due to the development of yield management, due to the development of a specific action to hand for a long time a specific park for global company. We -- for the moment, we have ongoing process to develop our action in carpark, and it's beginning of a new increase at this stage. Second question about the impact of Air France strike. When you look the figures, plus 4.1%, if you offset the effect of the Air France strike in 2018, you can see that we have an organic increase, around 3.3%. So the impact of strike, if -- you have a business effect, unfavorable business effect due to the strike last year. But when you offset this base effect, we can see that we have the strong organic entries -- deep entry. And your last question, for the moment...
Can I just comment? I mean -- sorry, can I just comment? I mean doesn't that impact get really materially stronger into the coming quarter? Shouldn't that be a nice big effect because the strike was [indiscernible] in the second quarter now? Or would that underpin your traffic guidance, particularly conservative?
Globally, the impact last year was around 800,000 of passenger for all the 2018. For the first quarter, the impact was around 180,000 passengers only. So in our new assumption, obviously, we take account the impact of strike, the rebound, after the -- that effect, but we've included also a few days of strike this year. So we are very cautious. In terms of Istanbul Atatürk, when you discuss with the Turkish government, we discuss in -- with the cash [ of course ], and we discussed with cash in euros. So it's a common base case. It's not just the position of the negotiation of TAV and ADP. So for the moment, we discuss cash in euros, and we don't have a new -- we don't have, for the moment, other discussion.
Our next question comes from Olivia Peters of Macquarie.
It's Olivia from Macquarie. Just one question, please. Sorry to get back to it but just on the Istanbul compensation, do you still expect to be paid for completion agreement within the next 2 months? Previously, you said you expected to compensate this 2 months after the airport closed? So I'm just wondering if that trend will remain at the end of...
So thank you for your question. So in the agreement between the advisers of the Turkish government, PWC; the DHMI, the Civil Aviation in Turkey; the PWC have 2 months to give the figures at DHMI. After DHMI, we have to make a proposal probably in June, so 2 months, starting April so probably beginning of June, DHMI has good figures, and in June and July, DHMI proposed a specific amount to compensate the early closing of Atatürk. So this is a process. It's possible to go -- firstly, it's possible to have a strong discussion in June and July and to have a decision in September. It's difficult to say now.
Our next question comes from Cristian Nedelcu of UBS.
Just 2 technical ones from my side. First of all, in terms of retail and services, you have good level of growth in industrial services revenue than in other income. Could you elaborate a bit of -- on what is driving that growth? And if you expect similar growth rates going forward for the year? And secondly, on your international business, on AIG, could you please remind us what is the actual growth in revenue year-on-year for Q1? That's -- those are my questions.
So in terms of industrial services, in fact, we have growth due mainly to the price effect. It's not, for the moment, new agreement, new market, but just the price effect. Price effects endemic activities for a large part and electricity for a small part. For Amman, we wanted to have -- we have good traffic with plus of 5.5%. It's the main explanation. And we have probably other small effect in terms of retail and other services.
Again, sorry, the other income within the retail and services, the EUR 6 million incremental revenue of other income, what is that exactly?
In Jordan activities or in Paris-Charles De Gaulle?
In Paris, yes, in -- it's on Slide 10 at the bottom. I see there's a EUR 6 million higher revenue in other income.
Yes. The main part of the explanation, it's linked by our [ WACC ] project Société du Grand Paris. As you know, we built a new station and other infrastructure for the new subway in Paris. And we have a specific amenity, specific composition with Société du Grand Paris. And we count this part in the -- this amenity in other revenues. So we can see a stronger increase due to the works of the projects of Société du Grand Paris.
Understood. And I'm sorry, just a follow-up, does this flow through to the bottom line at a high margin? Or this is revenue that is flagged?
No. We have 2 kinds of projects for Société du Grand Paris. The first project, it's just to have services for Société de Grand Paris and second point, it's to build, for example, a carpark in Orly for ADP by ADP but paid by Société de Grand Paris due to the fact that we have a station, remove the carpark. So globally, in terms of EBITDA, it's positive or neutral, but for this month -- for this first quarter, it's neutral.
Our next question today comes from Charles Maynadier of Kempen.
Just coming back on the Atatürk compensation. So base case is cash in Euros. Could you maybe comment on the other scenarios? And a follow-up on that one. So assuming you do get cash in euros, do you have any short-term targets on how to use that cash?
So first question, the other scenario possibility is to have a prolongation of a part of airport concession in Turkish (sic) [ Turkey ], in Ankara, in Izmir, in [indiscernible]. For the moment, It's not a base-case scenario. Second question, if we have cash but we have to develop the TAV company and we have a lot of project to trade value with our subsidiaries in term of services, in term of launch, first point. And second point, we have a new international project support by TAV Airport. So we have to develop the company, and we have enough cash to do that.
Okay. And just coming back on the base case. So what makes you prefer cash over extending concession?
Cash, for the moment. At the moment?
Yes. I mean, why -- what makes you the prefer the cash option over extending concessions?
Yes. Just because cash is key. And when you have cash, we have room of maneuver (sic) [ room to maneuver ] to trade value with this cash. And it's not a new project with risk and also opportunity, but cash is key, and it's a very secure position.
We have received a follow-up question from Elodie Rall of JPMorgan.
Well, since no one is asking the question now, I was wondering if you could give us your view about what's going on at the [ concessionaire ] with Chanel and the dual pact at the moment?
So for the moment, we have to wait -- the decision of [indiscernible] in France, decision about the constitutionality of the [ backflow ] and included the privatization of ADP. And the second decision of the referendum, if the referendum about the privatization of ADP is honored, constitutional, conditional. So for the moment, it's in the hands of the Constitutional Court. We don't have to speak now. It's too early to speak about this decision, and we have to wait globally 1 month.
It appears we have no further questions at this time. Mr. Philippe Pascal, I would now like to turn the conference back to you for any additional or closing remarks.
So thank you very much. And see you in -- for our half results in June -- in July, excuse me. Bye-bye.
This concludes today's conference call. Thank you for your participation. You may now disconnect.