Flughafen Wien AG
VSE:FLU
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Good day, and welcome to the Vienna International Airport conference call. Today's conference is being recorded. And at this time, I'd like to turn the conference over to Judit Helenyi. Please go ahead, ma'am.
Thank you. Ladies and gentlemen, also a warm welcome from my side. Today's conference call for the third quarterly results of Vienna Airport. As mentioned, the presentation and the conference call is being recorded. The presentation slides are available at our homepage. The presentation will be held by our board members, and it will be followed after -- with the Q&A session. The recording of the presentation will be most probably available tomorrow afternoon. Now I would like to hand over to Mr. Ofner. Please go ahead.
Yes. Good afternoon. We will present and discuss with you today our results for the first 9 months of 2018. So starting with the passenger perspective, you see that we surpassed with a growth of 7.3% at Vienna Airport and 8.7% in the group, our initially given guidance. And we saw again a very strong performance, both in Vienna and also in Malta and Kosice. And if you look at October results, you see that we are in the process of substantially accelerating growth, which is due to the fact that what seemed to be uncertain 6 months ago, now really works that the plans of new entrants in the market here in Vienna are working and that they are feeling the planes that they are flying what they intended to fly. And so we should see a wave of growth on the passenger side that will not end on the 31st of December of 2018, and we can discuss the effects of that later on.
Revenue increased by 4.9%. And those who have been present in our last conference call for half year's result might remember and those who were not present, I want to point it out again that due to some reshuffling of positions, the revenue of '17 is not exactly comparable to '18 because especially in -- on the aviation side, communication expenses and other expenses have been changed how they are booked.
EBITDA improved by 6.6% to EUR 284 million, EBIT by 14.3%, and net profit for the period by 16.5%, which shows that the ability of the company to improve results is still ongoing. And this is especially also supported by better EBITDA margin in the first 9 months '18 compared to the first 9 months of '17 despite the new contracts with Lufthansa Group, which substantially weighed on our revenues and also on the results and despite other adverse effects that should be one-off effects this year, and these are overtime payments exceeding roughly EUR 5 million that have been caused by the mess of delays and cancellation of flights and all that stuff that has been the worst since decades and which has affected also our operation and which cannot be handed over to anybody else because if a plane comes 1 hour later, you cannot do anything else but let your people there and let do the work. And this is clearly a trigger for extra costs and cannot be passed on to the airlines or to somebody else.
As the environmental fund payment has not been liquidated so far, although we are now in the final phase of maybe getting it through. The net debt reduction was stronger than expected, but this will be outweighed once we pay the roughly EUR 60 million that should be due in the days to come.
In regard of our guidance, unfortunately, what I saw so far led to some misunderstanding. When I use the words more than, I normally think that it is clear that it is more than the amount that is there. Maybe we should have put another word to our guidance. So clearly, more passengers will contribute to better results. And if we give the guidance that the profit for the period and revenue should be more than EUR 770 million or EBITDA more than EUR 350 million, it's not by figure, clearly stated what it finally will be at the end of the year. But you can be sure that higher passenger numbers, higher revenue will also be passed through to EBITDA and net profit. So you should assume that more means more than and not less and not exactly this amount. And the same will be passed through in regard of our dividend policy, especially in regard of the fact that our net debt position is better than initially planned. But what exactly it means will have to be discussed in the board and with our shareholders and will be made public once the decision has been made.
I already addressed the improvement of our EBITDA margin. I think we are still on a very good path to improve productivity and remembering anybody that we digest a mid-2-digit million euro effect from the new contract with Lufthansa, I think is a really fine achievement but given also the fact that due to the incentive scheme and a new operation of an airline has an initial effect in regard of support that should be melting down further down the road, not totally, but to a certain extent. And from this -- from that perspective, at least things are relatively fine. If we look at the financial result, it's an ongoing improvement. And in regard of the EIB loan, we could reach some relief in regard of cost for collaterals. But in substance, the court procedure has not ended to our favor. So at least for the time being, we will repay EUR 25 million per year of our EIB loan. And you see some effects of the relief from the collateral costs this year and it will also be visible in the following years.
The higher costs are mainly driven by personnel expenses. Unfortunately, we saw a substantial overtime due to the flight delays. So if we would take out that, roughly EUR 5 million, the overall development of personnel expense is quite in line with our plans and shows that we still can harvest some productivity gains.
Depreciation and amortization was lower than last year and might stay at this level for 1 more year and then might start to go up again due to the investments made.
Net debt is at EUR 118 million, CapEx at EUR 112 million, equity ratio at 59.9%. And our net debt target is not met because, as I said, initially, the roughly EUR 60 million for the environmental fund is still on our side but should be liquidated relatively soon.
I already addressed the net debt situation. You see that the repayments of EIB loan is ongoing, and we should see interest relief from that side. So EUR 25 million a year equal to a relief in interest of roughly EUR 1.2 million. And on the other side, also, the amount covered by the collaterals is reduced.
I think we are very happy with the cash flow situation, and I think nothing really extraordinary to report on that. Clearly, there are some reshufflings on the financing side and the effects of additional investments will be visible further down the road.
In regard of share price development, nothing really new. What is new is that we already started the construction of our Office Park 4, which amounts to roughly [ EUR 50 million ] investments, and it should be operational not later than May 2020. And we are in the final phase of the search for a hotel operator at the airport, and this decision should be made somewhere at the end of the year. So 6 weeks maybe, and we think then that it will take maybe 2.5 years to construct and finalize the project. And it could be operational somewhere later '21.
We just recently started the operation of our health center. It's very huge compared to facilities you may be used to. It's 1,600 square meters. There are more than 20 medical specialists working already, and I think it's a very attractive facility that is very much supporting the overall quality of the airport for companies who are looking for settlement nearby the airport. It's directed to the employees that are working on the airport, currently roughly 22,500. And it's also open for the neighborhood. And I think we can expect that it will substantially improve in the years to come, the quality of our airport as a business location.
Only in 2018, roughly 2,500 new jobs have been created on the site by all the companies who are operational here. And one of the biggest investments currently is DHL, and they already started to build their logistic campus with all the necessary facilities.
So as you are aware, the outlook for the rest of the year is -- has to be understood in the way as it is written so that we will exceed revenue of EUR 770 million; EBITDA, EUR 350 million; group net profit of EUR 148 million; and debt, we will end up below the initial production of net debt of EUR 200 million. A CapEx of EUR 175 million should be, more or less, reached from today's perspective.
So that's from my side. May I add 2 questions that we got already in advance. The third runway has no CapEx effects neither in '19 or to be expected in '20 because the legal procedure is still ongoing, and therefore no substantial expenses have to be covered except the legal procedure. And to one-offs, the same has to be said as last quarter. We sold 1 piece of land in our business park. So in total, dispositive effects are around -- one-off effects are around plus EUR 3.0 million. The adverse effects, I already mentioned, it's overtime payments for roughly EUR 5 million, and there are some changes in regard of [ longevity ] and the tables we have to use for the calculation of future personnel expenses. So this amounts to EUR 1.4 million minus, and that's the amount of one-offs. So I hand over now to Julian Jäger.
Yes. Thank you, Günther. Good afternoon, ladies and gentlemen. Let me start with some details on the segment results. The Airport Segment had an excellent year, 2018, so far, with an EBIT growth by 30%; EBITDA, 12%; external revenue, plus 4.6%, obviously driven by passenger numbers up by 7.3% in the first 9 months of this year. The main drivers of this growth, Austrian Airlines, easyJet, Eurowings, but also Laudamotion, Wizz Air and Level, which contributed substantially. And obviously, we will see, in the months to come, significantly more positive effects from the new low-cost carrier in France.
What we saw so far in 2018 was an average revenue per passenger from airport charges by 13 -- no, EUR 14.6. This is the decrease of roughly 4%, 4.5% compared to 2017. This will not change significantly until the end of this year. So it might end around EUR 14.5 in -- for the full year 2018.
The second segment I would like to talk about is Handling & Security Services. This is an area where we were hit very hard. And obviously, overall, the company is in excellent shape. But the Handling Segment is definitely the one which needs a lot of attention in the next 12 to 18 months. We [ felt ] this year, and this is -- the revenue increase doesn't really show this. But as you know, we did a new contract with Austrian Airlines, Lufthansa, and SWISS last year and got an extension until 2025 with Austria and 2023 with Lufthansa and SWISS. We had to agree to get these extensions to reduce the cost by a very low double-digit million number. And the insignificant growth in external revenue came from traffic growth. But that obviously means that we had to do significantly more work to make the same amount of money. And on the other hand, as Günther already pointed out, we had an issue with punctuality like everybody in Europe. But those both factors led to a very significant increase in the overtime payment by around EUR 5 million, and this is what you see in our results with an EBIT of EUR 6.1 million.
Initially, in next year, we have to reduce our staff cost in ground handling by as high as possible single-digit million number. I -- we already had a change in the management in our ground handling division effective on 1st of October. And until April or summer schedule next year, we want to change a lot of processes and structure of this business segment to be in a position to reduce cost. Again, next year, we will feel a further reduction in the ground handling prices we charge to Austrian Airlines. This will be again a reduction of around EUR 5 million, EUR 6 million. So for next year, what I can see from today, we won't have a decrease in revenues in this segment, but we won't have an increase as well. And therefore, it's very important to change the process and to reduce our staff costs. There was a question regarding market share. We had last year, in terms of ramp handling, a market share of 87%. This year, we expect the market share to be around 84%. Next year, we expect the market share to go down to 80%. And in terms of check-in, so passenger handling, we had, this year, market share of 21% and we think it will go up to roughly 23% next year.
Retail & Properties. As you know, there are 3 different business units: parking, rental, and shopping and F&B. More or less, all of them had an increase around 3.2% to 3.4% increase in revenues. Shopping and F&B had the biggest share of around 38%; parking, 35%; and rental at 27%.
Our PRR went down to EUR 1.83. And I mean, there were some questions regarding the reason, this really hasn't changed significantly. It's low-cost and it's exchange rates. If you -- I mean, just giving you some country highlights, the average spend per passenger from passengers traveling to Russia minus 15%; Switzerland, minus 12%; U.K., minus 6%; Italy, Spain, Israel, minus 14% to minus 16%; Iran, minus 20%; U.S.A., minus 10%. Essentially, the only country which went up was China with plus 5%. And if you have a look at the airlines and their spend in the Duty Free shop, I mean, our average is 6%; Austrian is pretty much our average. But then Wizz Air, 280; Eurowings, 320; easyJet, 320; Level, 250; Laudamotion, 217. On the other hand, the long haul, Aeroflot, EUR 25; Saudia, EUR 20; Korean, EUR 60; Air China, EUR 23; Thai, EUR 13. So essentially, the main growth from low-cost obviously reduces our PRR.
To give you a bit of good news as well. I think October was, to a certain extent, a change in the trend in terms of Duty Free, we saw a more than 10% increase in revenues for us from Duty Free in the backdrop of 18% passenger growth. Overall, I think revenues will be up between 12% and 13% in October. So I think '18, 2/3 of the growth and translated into revenue growth from retail is, I think, okay and should be our goal for next year to have at least 50% to 2/3 passenger growth from the revenue growth from passenger growth. So until the end of this year, we think that our PRR should be around EUR 1.85. And next year, obviously depending on the growth, but it should be about EUR 1.80, and my best guess would be that it would be around EUR [ 1.80. ]
Yes, that's -- EBIT was up EUR 5 million, plus 9.8%. Parking, increasing slightly. Rentals, I mean, no major increases as well. We are more or less rented out and as Günther pointed out the next peak, a major step in this area will be the opening of Office Park 4.
Malta, still doing very, very well. Passenger volume up 14.2% in the first 9 months. I think October was the first month in years where Vienna had a higher passenger volume growth than Malta. And our policy in Malta is managed very well to translate this passenger growth into EBITDA and EBIT growth. So EBIT was up by 15%; EBITDA, 13%; and external revenue by 12%.
We are going to invest in the terminal, and we are preparing now the second phase of the terminal extension. The increase of the -- the major increase in the Duty Free shop has already been executed. Security -- space of security has significantly increased. But we need more check-in facilities there. We need more space for specialty retail and F&B. And this is something we're going to do in the next few years. And on the other hand, after the approval of the master plan in February this year, we'll do a landside expansion with our Malta Airport City.
Kosice is doing well. Plus 12% in the first 9 months of this year. And now traffic is going down a bit. Now we are feeling the effect that Wizz Air closed the base in Kosice. But overall, we are still in positive territories, so there won't be major changes in the result.
Yes, let's talk a bit about traffic. I don't want to go into the details of Q1 to 3. Overall, 8.7% growth in the group. Vienna, 7.3%. I think you saw with our October results that there is a major change going on now from October onwards. We expect that our seat capacity during the winter flight plan grows by something between 25% and 30%. But you have to watch out, there's 1 -- the winter flight plan this year is 1 week longer than it used be last year. So if you remove this 1 week, you're down to 20%, 22%, 23%. In terms of seat capacity, obviously, it's not clear yet how many of these seats will be taken up. We see mixed performances from -- in terms of load factor from our low-cost carrier here in Vienna. But definitely, we will have a very strong winter schedule and now even November, improved a bit on October. And December should be benefited on November. So overall, we will see very significant growth in the months until end of March. And that's why we improved our guidance, and we expect traffic in Vienna to be above 10%, and the same applies for the group.
But it's very positive. Cargo was up 7.5% in October. Flight movements plus 12%, so we will be significantly above 5% in terms of the aircraft movement in 2018. And one positive thing as well is that seat load factor is still growing. So despite the many new entrants, despite a lot of new routes, on average, the seat load factor is growing, and I think it's a very good time.
Yes, I think you know the new entrants from 2018. Just recently, Hainan opened Shenzhen route in China. We managed to secure ANA starting February, on a daily service to Tokyo Haneda. Air Canada will take over Toronto with more seat capacity than Austrian. Austrian, on the other hand, will open Montréal. So I think the long-haul development for next year looks very good. I am optimistic as well that we will get 1 or other additional route to China 2019. So the good development we saw this year in terms of long haul, and I think we've got a growth of close to 40% toward East Asia, should continue to a certain extent next year.
I think the big question mark is traffic for 2019. Our best guess for next summer schedule today with all the uncertainties we have there is that we will have more than 5% seat capacity growth in summer 2019 over summer 2018. I think this is pretty much in line with OAG as well. Although OAG is always a bit more optimistic than we are because I think they are not necessarily reducing flights which are in the system but probably will not actually materialize. But overall, as far as I'm informed OAG is not far off these numbers. And the big question mark will be how the big battle will turn out in next summer with -- Laudamotion having 7 or 8 aircraft stationed in Vienna, Wizz Air going up to 5. Level should go up to 7. So Austrian adding a few fleet -- a few smaller aircraft to their fleet mainly to stabilize their performance in terms of punctuality and cancellations. So overall, we're looking at an excellent 2019. It should be definitely a new record over there, roughly 27 million passengers we are going to have in 2018. But how much, this is still a big question mark and there, we will, yes, put our heads together and trying to come up with something which makes sense in January 2019.
Yes, that's it from my end. And now we are happy to take your questions.
[Operator Instructions] We'll go first to Bernd Maurer with RCB.
Two questions. Looking at passenger transit revenue trends. Of course, we are all aware of the influence of the change of the discount team. Do you see that [ might essentially ] be that the effect in '19 should even be stronger than in '18 meaning the delta between passenger growth and revenue growth in the aviation system or in the aviation segment should be bigger next year than this year? Is this correct? Point 1. And question #2 refers to your FTE plans in light of the strong traffic seat development. How -- is there a rule of thumb on passenger growth? How much you need to increase the personnel on the airport or what are your staffing plans going forward?
I mean it depends a lot on how much we will be growing our passenger numbers next year. So if you take this year, roughly 10% or a bit more passenger growth translates into a reduction of 4.3%, 4.5% in terms of airport charges. If we are significantly above 10%, yes, you might be right that the reduction in the average charge per passengers will be more. If we are below the 10%, it will be less. Then if we are around 10%, it will be somewhere there. I mean, this is -- in detail, this is really difficult to forecast because it depends a lot. If airlines reach certain thresholds, if they reach -- the come into the volume discount or not, so this makes a difference of a few million. But I will guess that we would be pretty similar, it would be a pretty similar development as in 2018. But you must not forget that we've got the reduction of I think EUR 7 million or EUR 8 million in terms of marketing, which used to be on the cost side, which is now on a reduction of revenue and because it was put into the incentives. So I think the picture here -- it looks worse than it actually is. Regarding the...
So we see a positive base effect for next year?
Depending -- I mean, it always depends on the traffic. But what I can tell you is that in January, when we are coming up with the traffic forecast, you will get a number for our expectation based on that traffic forecast or in terms of revenue per passenger from airport charges. In terms of staffing, there are very few areas where there's a direct connection between additional staff and passenger growth. So the only area where we will add a significant number of additional staff is security. So we will add roughly 50, 60, 70 people in our security subsidiary to care for the additional passenger numbers. The rest of the company essentially -- yes, there should not be any impact on staffing. And on the other hand, in terms of ground handling, staff costs should significantly be reduced. As I told you, with as high as possible single-digit million euro amount, not necessarily because of the significant reduction in headcount, but mainly due to the intended reduction in overtime payments or probably a mix of both.
I mean in general, I would assume without giving you any concrete projection for next year because it's too early to do that. But that in -- on a percentage perspective, there should not be a substantial deviation between the percentage of passenger growth and our net profit development next year. There might be some deviation but not a very substantial one.
[Operator Instructions] We'll go next to Stephanie D'Ath of Royal Bank of Canada.
My first one is on EBITDA guidance growth, I understand you say...
It's very difficult to understand you.
Sorry. Can you hear me better now?
Yes, better.
Can you hear me better?
Go on. Yes, yes. Go on.
So when you say the EBITDA guidance is bigger than and therefore you expect that, obviously, the increase in passenger heads will increase the EBITDA, why did you not increase the threshold over which you expect? That's my first question. Regarding...
Which financials are you meaning?
The above 350.
Well, the answer is very simple. More means more. And to what extent, more maybe it would have been better to put also a figure there. But at least in German, more means more and not the same.
Yes, I understand that. More. But I knew you did increase -- did increase the percentage for the traffic. So you said more for traffic, too. But you did increase the numbers which you would predict. But I was a bit surprised I think this number, for traffic and not for [indiscernible]. But your answer is just more [ services] [indiscernible]. In terms of the capacity plans in particular, security lines, are you experiencing any bottleneck issues or in terms of infrastructure, the increase in passenger, so it's not manageable for you? And could you maybe, also in terms of the passenger growth for next year, remind us what Laudamotion and Wizz Air have planned to increase number of millions of passengers and whether the weighting between this year and next year has slightly changed? Because initially at least I had more positive impact for next year. In fact, some of it may be brought forward.
I didn't understand your last question.
So Wizz Air and Laudamotion, the new flight production, that are basically boosting your passenger growth, they have, I think, announced a number of flights or a number of seats. And if the number of seats -- if you look at the addition in 2018 versus '19, has this been in line with what you're forecasting or has it been maybe brought forward a little bit? I just had the impression, at least in my numbers, that some of next year's tailwinds was basically coming in earlier in 2018.
I mean, starting with your question regarding bottlenecks. We don't foresee any bottlenecks in 2019. Obviously, security in the old part of the terminal will be a bit tighter so probably queuing would increase a bit. But I mean, we're going to extend the security area there. So there should be no substantial changes in 2019. In terms of our passenger forecast. I mean, I can't give you detailed figures on our customers. We've got projections. But essentially, we won't comment and we don't want to give out to the public our perception of how our customers will be doing. But what I can repeat is that we expect to have a seat capacity growth next year of a bit more than 5% for the summer schedule 2019 and more than 20% in the winter schedule 2018/'19. So I think this gives you already a bit of a picture how we look at seat capacity for 2019. How this translates into passenger growth? This is something that we are still trying to broke out, where we can give you more detail in January. As I said, Laudamotion confirmed that they want to have 7 aircraft based in Vienna, Wizz Air will go up to 5 aircraft next year starting from March, I think. And Level, I think, are still working a bit on the summer schedule. But we should see more aircraft next summer here in Vienna as well. But I think all these figures are still a bit fluid. So even the 5%, 6% growth in terms of seat capacity for summer next year, this is based on what we know today. Probably with a bit of caution, OAG expects 7.5% growth next summer. But I would not rule out that there's already consultation of -- coming in next summer. So overall, it should be a very significant growth in 2019 for Vienna Airport.
Because I heard that Wizz Air was adding 460,000 seats in '18 and 1.5 [ in 2019 ]. And Laudamotion was looking at 8 aircraft from October.
Yes, 7 to 8 aircraft. I can't...
But did they actually start operating in October some of those aircraft already?
Wizz Air will [ base ], I think, tomorrow or the day after some additional aircraft. So all of them are so far flying on plan. As I said, I would not rule out that there's already a bit of consultation going on next summer, but this is something which is pure guesswork from today's point of view. I can't 100% confirm the numbers from Wizz Air you just said. But my knowledge from March on next year there will be 5 aircraft from Wizz Air. Next summer, we expect 7, 8 aircraft from Laudamotion. And we are looking at an increase in terms of Level. Probably, they will go up to 7 aircraft as of summer flight plan 2019. But as I said, I think the summer flight plan is still in the working to my knowledge.
We'll take our next question from Andrew Lobbenberg with HSBC.
I know you've been speaking about the differential between unit revenues and passengers. How -- is that just focusing on the incentives? I mean, how are we meant to think about the tariffs and the tariff structure or in this day and age with all the growth coming from low-cost carriers is it just negotiated and the tariff structure becomes less relevant? And then second question which is really general. How do you guys try and run your business when you've got such a sudden acceleration in growth which really may not be sustainable and could potentially reverse because the scale of competition does not to me look in any way sustainable. And I don't -- I suspect you recognize the risk to its sustainability. But you're trying to maximize the profits for your airport and try and make a sustainable business out of yours. How do you manage the business with sort of crazy erratic traffic trends?
Let me start with your second question. I don't necessarily think that this is erratic. Essentially, I think what we are experiencing now in Vienna is a very sudden growth. And I think we are experiencing now the growth in peak months which other airports had over the last 3 or 4 years. So you should compare our traffic results over the last 4, 5 years, where most of the years we were below the European average. So I think yes, I mean, there was a -- it all happened very quickly after the airberlin and NIKI went bust, but I don't necessarily agree that this is completely erratic and that this is not sustainable. I think I had a close look at what happened in Brussels. And if you look at Brussels, when Vueling went into the market then Ryanair followed and then Brussels increased their capacity as well, apart from the terrible terror attack in Brussels, they never went down back to the levels they had prior the big increase in the low-cost capacity. So I think there will be significant shift amongst the low-cost carriers. Yes, there will be some carriers which will drop out of certain routes. There might be some I guess which closed down their Vienna base at all. This might happen but I think the big strategic advantage for us not being dependent on 1 low-cost carrier, I think it's good that we have a very significant presence of easyJet, Laudamotion, Ryanair, Eurowings, Vueling, Level. And therefore, I think the growth fits into our airport. I mean, when we did not have Terminal 3 in operation, we had roughly 20 million passengers going through the old part of the airport, so there's enough capacity. And I think the value of slots goes up as well. So next summer, obviously, the peaks will be pretty, pretty full. But what does that mean? If somebody drops out, there's a high incentive for somebody else to take up the slot to improve the strategic position of their respective airline. So I -- yes, there will be consolidation. Yes, I would not bet that 2020 we will see another increase on top of 2019. We might see certain decrease in passenger numbers although this is now really looking through a crystal ball. So this is -- nobody will knows what is going to happen in '19, not talking about 2020. So I think strategically, it's good for us becoming a bit less dependent on Lufthansa Group, not being dependent on any individual low-cost carrier. And therefore, I don't think that we would go down to the passenger number level of 2017 again. So we might not sustain the 2019 levels, but I'm sure we will be on the 2018 or above the 2018 level for quite a number of years. Okay, regarding your first question, in terms of the airport charges, we will increase our airport charges roughly by a 0.6%, 0.7%, 0.8% which generate -- [ yes, but we have point, of course, a point ] 0.6%, 0.7% in 2019. The effect on 2020 and the following years depend obviously a lot on what's happening until then with traffic development. Does that answer your question?
Yes, yes.
You sound a little bit skeptical but be optimistic.
And at this time, there are no further questions in the phone queue.
Fine. Thank you.
Thank you.
In this case, ladies and gentlemen, thank you very much for your interest. And if you have any further questions, please get back to me later either by e-mail or by call. Thank you very much. Buh-bye.
Ladies and gentlemen, this does conclude today's conference. We thank you for your participation. You may now disconnect.