Enav SpA

MIL:ENAV

Q1-2025 Earnings Call

[Operator]

Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the ENAV First Quarter 2025 Results Conference Call. [Operator Instructions].

At this time, I would like to turn the conference over to Mr. Fabrizio Ragnacci, Head of Investor Relations. Please go ahead, sir.

[Fabrizio Ragnacci, executive]

Thank you. Good afternoon, ladies and gentlemen, and welcome to the First Quarter 2025 results presentation, which will be hosted by our CFO, Luca Colman. In the presentation, we will provide some highlights of the period, and then we will walk you through the operational and financial performance for the group. Following the presentation, we will have the usual Q&A session. Before we start, let me remind you that media can be connected to both the presentation and the Q&A session. Thank you, again. And now I hand over to Luca.

[Luca Colman, executive]

Thank you, Fabrizio. I will start with the key highlights of the first quarter of 2025. The year started with a strong traffic trend with the service units for en-route higher than the planned expectations, by 1.2 percentage points. Financial results came in as expected. Operational delivery was solid. Revenues for both the regulated and non-regulated business recorded growth versus the previous year.

And then we had a positive operational trend has been also offset by the dynamics of the balances, which are typically of the first year of the new regulatory period, and are already taken into account in our planned forecast. Free cash flow increased by 25% versus the previous year. Considering the amount of balance to be cashed in during 2025 and the cash generation of the business, we expect free cash flow for 2025 to be around EUR 240 million.

The visibility we have so far on the operational and financial delivery ensures that our targets for 2025 are comfortably at reach with upside potential. Now we will deep dive on the operating and the financial performance of the quarter. As I have already mentioned, the traffic performance was solid in the first quarter. Service units for en-route were at EUR 2.2 million, up by 7.4% versus previous year.

And most importantly, higher by 1.2 percentage points versus the projected growth embedded in our business plan and tariff. Terminal is up as well marking a 5.6% growth versus 24 with international flights accounting for almost 70% of total and the positive performance of both charging zones.

Let me remind you that with the start of LP4 in 2025. Now we have only 2 terminals charging zone, both subject to performance mechanism. As a consequence of the regulatory change, en-route and terminal are now fully aligned under the performance scheme and also have the exact same exposure to the seasonality of the business with revenues peaking during the summer month, while operating costs remain relatively stable throughout the quarters.

The next 2 quarters will be fundamental to assess the overall trajectory for the year as they are historically contributing for around 60% of the total service units. Let's move to the economic results, starting with the revenues. Revenues reached EUR 181 million in the quarter down year-on-year by EUR 13 million as the solid operating performance is offset by dynamics on balances.

Core business was stronger driven mainly by en-route, which recorded a double-digit increase in revenues. Net of the negative balance and minus 2 reversal, which I remind you is neutral at the revenue level, the regulated business recorded an increase in revenues of EUR 5.4 million. The net regulated business continued on its growth trajectory with EUR 7.1 million in the quarter and an increase of 4.2% versus the previous year.

All of this was more than offset by the negative contribution of balances, with a total of around EUR 36 million -- minus EUR 36 million, which was driven by the balance reversal, mainly coming from the cash in of 2020 and '21 COVID traffic recovery for minus EUR 17.6 million and the balance for the period. Accounting for the remaining minus EUR 18.2 million is driven by the absence of balance that were accrued in 2024, namely inflation and cost recovery scheme for Terminal Zone 3.

The inflation balance represents the impact of the business of the regulatory -- on the business, sorry, of the regulatory business, as values like inflation are realigned with entering a new regulatory period. Instead, the effect associated with the Terminal Zone 3 balance is temporary and related to the switch some cost recovery under national law to the European performance scheme. This negative will be reabsorbed over the coming quarters as the seasonality of the business is set to generate positive returns in line with the Terminal Zone 1.

Moving to costs on Slide #5. Total operating costs reported an increase of 2.8% compared to Q1 '24, reaching EUR 182 million due to a 2.4% growth in personnel costs and 4.3% increase in other operating costs. Personnel costs grew by EUR [ 33.5 million ] primarily driven by contractual salary inflation adjustments effective from July 2024.

Variable salary component declined by EUR 1.7 million mainly as a consequence of the net effect of slightly higher over time, linked to the increased traffic, and the positive calendar phasing of public qualities. Other operating costs grew mainly due to increase in energy costs driven by higher prices.

Moving on Slide #6. EBITDA came in at EUR 0.8 million for the quarter, meeting expectation and in line with the projected progression embedded in the 2025 EBITDA target for 2025. As said, delivery of the operating activities was solid, resulting in a growth of net regulatory revenue of EUR 5.4 million. Let me highlight that the balance and minus 2 reversal is not a cash -- a noncash item at EBITDA level.

Business delivery mitigated impact stemming from the change in terminal zones whereby the last year of Zone 3 was still under cost recovery scheme and generated a positive balance worth EUR 8.7 million. As said before, this negative effect will rebalance over the coming quarters as the seasonality of the business will highlight the positive regulatory impact associated with having all charging zones under performance scheme.

The absence of balance generation in Q1 '25 widely expected as we are in the first year in the new regulatory period LP4. These dynamics were clearly expected and bode well for the achievement of the fiscal year guidance, which is comfortably at reach.

Moving now to Slide #7 on the profit and loss statement. Dynamics below the line reported a negative EBITDA of EUR 26 million, impacted by EUR 25 million of depreciation and EUR 0.3 million negative effect from provisions. Net financial expenses were EUR 2.2 million, mainly due to the foreign exchange losses, partially offset by lower interest costs, with an average annual interest rate of 3.71%, down from 4.1% in 2024. Taxes amounted to EUR 0.9 million, down by EUR 0.5 million. And as a result, the group reported a consolidated net loss of EUR 29.3 million, in line with the typical seasonality of the business.

Let's move to cash flow and net debt on Slide #8. Net debt for the period is equal to EUR 223 million, down by 13% or EUR 35 million versus December 31, 2024. The reduction is mainly associated with operating cash flow of EUR 53.1 million, up by EUR 3.2 million and a cash CapEx of EUR 25.1 million and a positive change for around EUR 7 million in noncurrent commercial debt, mainly related to the gross negative balance to be returned in debt to airlines.

Free cash flow was equal to EUR 28 million, up by 25.5% proving the cash generation capabilities of the company. And now some closing remarks. Results for the quarter are perfectly aligned with our expectations and business plan projections. The only deviations are positive, like traffic that has shown a strong trend. The supportive operating environment and the regulatory stability offer us a great visibility. And as a consequence, our targets for the year are comfortably at reach.

Such enhanced visibility give us a confidence on the potential upside compared to the planned targets, starting already from 2025. As you have seen in the presentation, cash generation has been stronger and is expected to remain solid also in the coming years, which underpins our commitment to shareholder remuneration for the full plan period.

And now let's open the Q&A session.

[Fabrizio Ragnacci, executive]

Thank you. Thank you, Luca. We can now start with the Q&A session for those which are connected. Operator, if you could please open up the line to the analysts that want to ask questions. Thank you.

[Operator]

[Operator Instructions]. The first question is from Carlos Caburrasi, Kepler.

[Carlos Caburrasi, analyst]

I just have a quick question on traffic. Q1 should have been somewhat hotter in terms of comps, given the leap year impact in February and the seasonality and Easter holidays in March. Nevertheless, traffic has grown 7.4% year-on-year and stands 1.2% ahead of EUROCONTROL estimates considering that the aviation sector is pointing towards another solid summer season. Could you please share your views on traffic for the rest of 2025? And if you see further outperformance versus the plan?

[Luca Colman, executive]

Yes, Carlos. This is a really good question because we just had also April, just a couple of hours ago from EUROCONTROL. So the actual April is set -- only the April demand is 7.1%. So still continue the strong increase of traffic also in the second quarter, I would say. We also had some meeting in the last days with our colleague, German, French, Spain and we expect a huge increase of traffic, a huge amount of traffic to manage during the summer season and EUROCONTROL is already asking us help to manage this important flow as some of our colleague neighbors have some capacity problem. So we will expect that also during the summer, the traffic that we will manage would be quite important, yes.

So I think it is -- to have a final view for the year we need to wait for the summer. I mean the -- I mean at least to start the summer, but this increase that we are having now is 1.2 percentage difference from minus 1 increase of traffic. We believe this is -- it could be easily considered also by the end of the year at the moment.

[Operator]

Next question is from Amal Patel, UBS.

[Amal Patel, analyst]

Three questions from my side. So number one, on the wage negotiations, do we have any update you can provide here? Secondly, just looking at your OpEx performance for the quarter, I believe OpEx grew around 3% year-over-year. And I guess in the context of the 9% year-over-year, you showed a the FY '24 results and strategic update, how should we think about the evolution for the rest of the year? And then finally, maybe any comment on the bonus miles and whether you believe you're on track for that.

[Luca Colman, executive]

Yes. For what can serve the negotiation with the new contract -- staff contract, it hasn't still beginning I mean it's not yet started. So we probably opened the platform, the discussion in June, July -- sorry, yes, June, July this year. But we started the discussion and now the feeling is good, is positive, but we don't have any other particular information to give to you as the token has not already started. Official token has not already started.

For what concern the cost OpEx related to OpEx, you should consider -- I mean, we are quite in line with what we expected in terms of cost increase. More or less, this could be the increase that we may also have by the end of the year at this moment. So the trajectory could be more or less this one. We should look at -- we should wait and see what's happened in the summer with this very important increase of traffic that we are going to manage and try to understand to better manage it. We are also in the discussion with staff.

So coming back to the first question. We are trying to remodulate some part of the contract, above the one related to the -- sorry, I'm looking for the English team for the MBO, the variable part of incentive, right? And incentive to our controllers where we try to push on the flexibility and on having more time from them to -- so this is something that we are working on it and the feeling is good. They're talking quite good at the moment. We will give you more update in the next -- so what concerns bonus miles at the moment with this traffic that we have managed, the target is -- the target that is given to ENAV of conservative bonus is 100% taken.

So we are -- now the delay that we have is around 0. So actually, as the target by the end of the year is 0.14 we are quite at the moment confident. Also, I think it's important to underline is the increase in traffic is important, but as we said also in our presentation, the seasonality in the first quarter is quite important. So most of the traffic and most of an impact of the traffic on the punctuality will come in the second and third quarter and this will be the most important quarter to look at -- to see how good we are to get the punctuality bonus. But at the moment, the management foreseen to get the bonus at the most.

[Operator]

The next question is from Marco Limite, Barclays.

[Marco Limite, analyst]

Actually, I have got just one question. So we've seen over the last week's headline about Mr. Trump in the U.S., talking about need for new software for their own ATC system. So just wondering to what extent you have been involved in discussion in selling some of your software to the U.S.

[Luca Colman, executive]

Okay. If you look at what's happening from one side, we see it's an opportunity also for ENAV they have to update their technology, you know that we sell part of our technology also. We may sell part of our technology also to them. So in terms of not regular business for us it would be an opportunity. In terms of traffic, I would say that we will not really impact -- our forecast is something really internal -- U.S. internal problem in terms of how to manage all this volume and traffic during the summer, not to Europe I would say. Did I answer you, Marco?

[Marco Limite, analyst]

Yes, of course, I was referring to the nonregulated business. Yes. Just was wondering if -- like there is a proper process in place yet? Or we're still at very, very early stage.

[Luca Colman, executive]

I would see the something's moving, but yes, that's what I can do at the moment.

[Operator]

[Operator Instructions]. The next question is from Luca Bacoccoli, Intesa Sanpaolo.

[Luca Bacoccoli, analyst]

Can you hear me?

[Luca Colman, executive]

Yes. Yes.

[Luca Bacoccoli, analyst]

Okay. Good. So a few questions from my side. The first one regards the free cash flow generation that you guide for this year at EUR 240 million. So I was wondering if you can split this guidance between the, let's say, normalized cash flow and what is coming from the reversal of the balance?

The second question regards the M&A during the strategic update plan. You mentioned that there are advanced stage negotiation on a few deals. So if there's any update on this, it would be helpful. And also a clarification on the traffic growth in April. You said 7.1% if I got it right, which is basically in line with the first quarter trend.

But in April, the comparison was much easier. So I was wondering why is not well above the growth in the first quarter. And finally, the other question is on the guidance for this year, you were repeating during the presentation that the results, the guidance comfortably at reach. So should we expect that if traffic growth remains at this level, you may increase the target for 2025 at EBITDA level?

[Luca Colman, executive]

Okay. Luca, I guess it's more than 3 questions. See if I remember all otherwise, I will ask you back. But I'll start with the last one, maybe when we said that we are comfortable at the reach, we think not only thinking about the traffic, but also taking into consideration the cost efficiency that we can put in place also some the bonus -- punctuality bonus. So there are several leverage that we are looking at when we said that we are comfortable that the plan at EUR 225 million EBITDA could, -- I would say, could be beaten let's say. So that's the three leverage that we have in our mind when we said we are comfortable at the moment.

For more concerned free cash flow, EUR 240 million is our forecast by the end of this year. You should consider that the balance reversal so the 2021 COVID and also the inflation the balance that we have in the tariff in 2025 tariff that will cover around EUR 200 million of cash flow actually. And the rest would be based on EUR 225 million EBITDA. So just consider this EUR 40 million is related to the target that we have given in terms of EBITDA. If the EBITDA will increase, probably also this part would increase.

M&A, we don't have any other update other than say that we are working on the opportunity that we, in some way, anticipating in our Capital Market Day. Things are going quite well, and we may wait some more months to have some more information but it's exactly in line with what we said a month ago. Traffic, I guess it was 7.1% in April confirm that we are actually -- I mean, the results that we had in the first quarter. So this 1.2 percentage point higher than planned and tariff traffic in terms of service unit make us think that this could be the target that we can still have in -- by the end of the year.

We should wait for the summer because in summer we really move a lot. In this moment, having this 1.2%, this means that in the summer, you still have this increase with volume that is much higher. At the moment, we believe this will happen. But just to be sure, we need to wait for -- just to be more confident there, we need to at least start with the summer season. Actually, the summer season is just starting now. So having a couple of months going and see if this is confirmed. But by April, this is confirm. Did I answer to your question, Luca?

[Luca Bacoccoli, analyst]

Yes. But just on traffic, I was wondering why it's only 7% up year-over-year despite EV comps.

[Luca Colman, executive]

Sorry, Luca, we couldn't understand the last part of your question. So April being 7% higher year-on-year despite -- sorry, the line broke down.

[Luca Bacoccoli, analyst]

Yes, the EV comps because is there the -- this year fully in April, while last year was in March. So I was expecting a higher growth of the service unit in April vis-a-vis the average reported in the first 3 months of the year.

[Luca Colman, executive]

Okay. I don't remember when we was last year actually, but 7 percentage point still very -- 7.1% are still quite good result also because the volume is higher. April volume is much higher than January and February. In general terms, I don't have any particular answer to this question because we had just the number, the value a couple of hours ago from EUROCONTROL. Now we will go deep on this and check what's the internal dynamics. So what we see over flight is going very well. International is going well.

I think we are seeing a lot of tourism going around. So in general terms, we don't have any complaint on this actually. The complain of our operative structure is really to how to manage all this traffic that they expect to have. I mean, the forecast, we saw that -- we call the operative forecast every 3 weeks, the operative mix, the new Euro contract, a very operative forecast of the traffic for the next 3 weeks.

So every 3 weeks, we have this really deep -- just to give the ACC in Europe, the right volume and the right with what they should expect in the next 3 weeks. And for what we saw, the last one is really, really important volume of traffic management all over Europe actually. But in Italy because as we don't give delay, as you know, as we actually are quite efficient, the tariff is good, so we are attractive traffic.

And when there is a congestion around I mean there is some country I cannot tell you the name, very close to us that has announced for the summer, 2 minutes of delay per average flight 2 minutes -- 2 minutes is really -- we are talking about 0-point something. We are talking about a planned delay of 2 minutes already now. So you can imagine how -- I mean, what we should expect in the next month in terms of traffic that will continue to come over Italy, probably this forecast could be even too small to -- sorry, too conservative, right, to consider.

[Operator]

The next question is from Francesco Sala, Banca Akros.

[Francesco Sala, analyst]

Sorry, if I go back to the operating costs, adjusted clarification. I wonder whether your present assumption for the rest of the year is that costs will keep on going up at the same growth as the one we saw in Q1. Thank you.

[Luca Colman, executive]

At the moment, this is just the first quarter, but at the moment in the first quarter, this is our best forecast. We believe that the increase that we had in the first quarter could be forecasted also by the end of the year. A lot will depend not for what concern the other operating costs, but for the staff cost. How much traffic we will have to manage because within the 7%, 7.2%, 7.5%, the increase of traffic versus the previous year, the company is putting on the table all the leverage and all the things that can -- I mean, all the action that can contain because manage the traffic in the right way, having the bonus and -- but if the traffic will increase by 10%, for example, we have to put some other actions on place.

So in general terms, I would say, at the moment, we have this increase of traffic look this increase of cost and forecast by the end of the year. If the traffic will increase more probably we'll have to look at some percentage point different at least for what concern the personnel -- only for what concern the personnel cost.

[Operator]

[Operator Instructions] Mr. Ragnacci, there are no more questions registered at this time. I turn the conference back to you for any closing remarks.

[Fabrizio Ragnacci, executive]

Thank you. Thank you, operator. So thank you, Luca. Thanks to everybody that has joined the earnings call. Of course, for whatever follow-up or additional questions you might have, the IR team is available. So again, thank you, Luca, and thank you, everybody. Have a great day.

[Luca Colman, executive]

Thank you. Bye.

[Operator]

Ladies and gentlemen, thank you for joining. The conference is now over, and you may disconnect your telephones.