ENAV S.p.A. (ENAV) Earnings Call Transcript

Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the ENAV First half 2026 Results Conference Call. As a reminder, all participants are in listen-only mode. And after the presentation, there will be an opportunity to ask questions. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Stefano Gamberini, Head of Investor Relations of ENAV. Please go ahead, sir.

Thank you, and good afternoon, everybody. My name is Stefano Gamberini and I'm the new Head of Investor Relations. So welcome to ENAV's First half 2026 retracts presentation. which will be hosted by our new CCO, Igor Biasio; and our CFO, Luca Colman, they will walk you through the group's operational and financial performance for the first part of the year. Then following the presentation, we will have the usual Q&A session. Igor, over to you.

6 Thank you, Stefano, and good afternoon, everyone. Last May, the shareholders meeting appointed a new Board of Directors with Sandra Pappalardo Chairman and myself as the Chief Executive Officer; I am honored to take on this more challenge and pleased to be with you today for my first results presentation as another CEO. As you know, our group continues to be recognized as best-in-class among European are traffic control providers. Our unique ability to manage higher pace flexibility allows us to accommodate additional flights and support the European aviation system when needed. We consistently achieve industry-leading punctuality significantly exceeding the route target set by the European Commission, including in the first half of 2026. In this regard, I would like to share what I consider to be a strong indicator of our performance. As certified by the European Network Manager in the first half and have accounted for around 30% of the overall saving delays in en-route traffic across the whole European network. My priority as a CEO as to preserve and strengthen ENAV's leadership position in Europe while continuing accelerating growth in addition businesses. We will leverage our deep expertise in the air traffic sector as well as our robust capital structure to capitalize on the new opportunities and generate additional value for all stakeholders. Before we turn to our financial results, I would like to emphasize that I am supported by an outstanding management team in executing our strategy. This includes the group's most experienced operational executives, such as our COO, Maurice palette and our Chief Technology Officer, in sensor as well as our CFO, Luca Colman. In addition, we have recently strengthened our management team with several highly accomplished executives. Among them, I would like to mention Lucero, our new Head of Strategy and Business Development, who brings more than 30 years of experience in strategic leadership roles at Philips will work higher Europe and some private equity funds. Let's move now to the key highlights of the first half of the year. Traffic remained strong in the first 6 months with route service units up 6.3% year-on-year. At the same time, we delivered a route totality performance significantly better than the challenging targets assigned to us. Our financial performance was solid as well with EBITDA up 21% to EUR 83 million, and net profit nearly tripling to EUR 20 million. During the first half, we also completed the acquisition of IB Group, a leading company in the fast-growing drone services sector for critical infrastructure. Looking ahead, given the strong performance delivered so far and the positive traffic trends we are seeing during the peak season, we are confident in achieving EBITDA growth of 6% to 8% in 2026. The while continuing to generate solid free cash flow of around EUR 290 million. Moving to the next slide, I'd like to highlight the main achievements of the first half. In March, we completed the acquisition of an 85% stake in IB Group a highly innovative company that delivers advanced engineering services for the inspection and life cycle management of critical infrastructure, helping customers improve safety, efficiency and net liability. Although relatively small in size, we believe this acquisition brings significant strategic value. Across Europe, aging infrastructure and increasingly stringent safety and the regulatory requirements are driving demand for advanced inspection and monitoring services. The addressable market is broad and diversified, including bridges, highways, railways, ports, logistics facilities energy infrastructure and many other critical assets. Hydro integration is a clear example of our strategy to expand into addition to high-value markets where we can leverage our unique expertise in aerospace management operational safety and loan services. Combined with our strong presence in Italy and growing international footprint, we believe we are well positioned to accelerate IB's growth and unlock significant value over tax. Furthermore, shortly after the end of the reporting period, I am pleased to highlight another significant achievement on July, we successfully disposed of our 8.6% stake in Iran, generating proceeds of USD 60 million and further strengthening our capital structure. And now I hand over to our CFO for the operational and financial highlights. Please.

Thank you, Jo, and good afternoon from my side as well. The first half of the year reported a positive traffic volume performance, confirming Italy as the best performer on the paper go with a 6.3% increase year-on-year, members pay was plus 3.6% French plus 3.3% U.K. 2.9% in Germany [indiscernible]. We maintain outstanding trajectory of traffic growth, improving the structural strength and attractiveness of Italian routes even with a challenging geopolitical scenario, and route trend was largely driven by overflight and international traffic, up, respectively, by 7.8% and 6.5% year-on-year, which offset the softer performance of initial profit. Terminal traffic grew by 3.5% year-on-year, showing positive results across both charging zones, strongly driven by international of lines. Let's move now to the economic results, starting with revenues. Consolidated revenues grew by 7.4% year-on-year, underpinned by the strength of our regulated business and the positive performance of nonregulated activities. Looking at the regulated business, net regulated revenues increased by EUR 27 million, primarily driven by the solid growth of and route and the positive contribution from terminal, balance and minus 2 impacted positively for almost EUR 7 million as a result of a negative balance and minus 2 for EUR 93.6 million in H1, EUR 25 million and a negative EUR 86.6 million in H1 '26. Not regulated business reported an increase of almost EUR 6 million mainly driven by new commercial activities and also the positive contribution of EUR 1.4 million from IV company. The balance for the period remained broadly stable, and was negative for around EUR 3 million. Moving to costs on Slide 6. In the first half, 26 total operating costs were EUR 397 million reporting 5% increase, primarily driven by personnel costs that reached around EUR 329 million, up by 6.2% year-on-year. Personnel cost dynamics was driven by 2 main components. First 1 is the growth in the fixed component, around EUR 11 million due to the contractual wage adjustment mainly linked with inflation and agreement signed with trade unions and higher variable comp as another EUR 2 million, mainly driven by higher operation over time that was required to support the increased traffic model. tress tax. Regarding other operating costs, we recorded an increase of 4.2% and mainly due to expenses for the development of not regulated business, EUR 1.8 million, which are fully supported by the more than proportional increase of related revenues. Then we have a higher euro control contribution that you remember, it is passed through our P&L and our tariff and other personnel expenses linked to the increase of traffic. These were partially offset by lower utilities expenses. Moving on Slide 7 on the EBITDA dynamics. We delivered a strong EBITDA pro forma of EUR 83.2 million, up approximately by 21% year-on-year. That was driven by the positive performance of the core business, which factually leverage the higher traffic volume we discussed earlier and the impact from not regulated less boosted by the execution of ongoing international projects. And the new contract secured in the first half, I remember India and Malaysia Bowl as well as the AD contribution, there was more or less EUR 1.4 million. Margin expansion was successfully driven by high traffic growth, combined with effective cost control, including a staff contract renewal in the last month, substantially in line with the budget expectations, reinforcing our confidence in achieving the 2026 financial targets. Moving now to Slide 8 on the profit and loss statement. G&A and provisions increased by 2.7% year-on-year, mainly due to higher amortization in the period. Net financial expenses improved year-on-year decreasing by EUR 3.5 million. It was mainly due to less debt and lower interest rates. Group net income reached EUR 20.1 million, almost 3x versus the first half of 2025. Let's move to cash flow and net debt on Slide 9. Operating cash flow remained strong at EUR 112 million, up more than 15% from first quarter -- for 25%. Capital expenditures remained broadly stable at EUR 44 million. As a result, net debt increased by just over EUR 100 million at the end of June, mainly reflecting the EUR 153 million dividend payment to our shareholders. Importantly, free cash flow improved by 22% year-on-year to EUR 65 million confirming the solid underlying cash generation of our business. Let's now move to the full year guidance. Robust H1 traffic performance and positive summer and demand trends underpinning confidence in the full year outlook, notwithstanding external market and sentences. So we expect full year and new traffic growth to be slightly below 6%. OpEx increased by in H1 and reflecting the seasonal impact of the managing higher traffic volumes during the peak summer period are expected to remain well controlled growing by around 6% for the full year. As a result, we expect full year EBITDA growth in the range of 68% increase supported by resilient traffic performance and continued operational discipline. Cash flow generation is expected to remain very strong throughout the year. We, in fact, are upgrading our previous guidance to EUR 290 million to reflect the strong business trend and the disposal of the real state of our EUR 27 million cash in 2026, 50% of the disposal price, partially offset by the strategic investment in IDUs. And now hand over to our CEO for the closing remarks.

Thank you, Luca. Thanks to our unique positioning Traffic remains strong in H1 2026, growing by more than 6%, significantly outperforming in the European average, which is more or less Furthermore, in July, the record for daily flight movements was broken 4x, reaching a new all-time high of 8,555 prices on August 1. The strong traffic performance, coupled with the cost trend broadly in line with budget, drove a high double-digit growth in H1 2026 EBITDA. Despite the ongoing uncertainty caused by the confidence in the Middle East and the potential impact of jet oil price volatility, the resilience of traffic in the first half of the year together with the encouraging trends seen during the peak summer season, gives us confidence to remain cautiously optimistic about the full year traffic outlook. So we expect to achieve EBITDA growth of 6%, 8% and generated strong free cash flow of around EUR 290 million this year. Finally, let me announce that we will start working on our new industrial plan in the coming weeks and expect to present our new business plan in the first half of 2027. Thank you. And now let's open to Q&A session.

[Operator Instructions] First question is from Nicolo Pessina

I would have 2 on OpEx. The first 1 is on the 2026 OpEx outlook, with a 6% growth rate that implies an acceleration in the second half of the year from an already high base in 2025. Moreover, the 2% sale increase implemented in July 2025, will no longer impact. So I'm wondering if you can give us some visibility on the details behind this 6% increase in the the full year guidance. Second question on the 2029 OpEx target that was indicated in the latest business plan at EUR 838 million. Is this number still valid considering that we will be already above EUR 800 million by the end of 2026. And maybe can you remind us what is the impact of an additional 1% of profit on OpEx? And what is your assumption in terms of savings from the remote control towers and maybe I had a question on the dividend outlook. Do you see any potential upside to the official guidance of $0.29 given the cash in from Iran.

Okay. No, I will take the first -- for what concerns cost trend in 2026 and -- this is a -- the expected 3% increase in OpEx in 2016 is probably in line with the planning assumptions that was underpinned at the end 2029 strategic plan.

It is important to I guess to be outlined on the core elution a -- so as you remember, we said also in the first quarter, the plan did not envisage align our cost growth trajectory. I did anticipate a higher increase in the initial year that was followed by the flatter trend towards the end of the period, driven above from the benefit from the implementation operational project as we said also in the fourth quarter, we are right now in line with the costs in 2026 that we are planning in our budget and our plan -- actual plan. . We foresee to see the trend -- a flatter trend by the end of the plan of 2020 and 2029 thanks to the implementation of remote tower consolidation ACC. And the impact will be on the OpEx exactly in the last few years in the plan. So we are going to -- right now, we are in line.

Coming to the second part of the question. So thank you for precise dividend policy. Just 2 elements into messages. The first 1 -- so first of all, considering the strong result reporting in this half of the year, our solid cash flow generation reflected in the full year '26 guidance for free cash flow up to EUR 290 million. I believe that the existing dividend policy through 2029 remain firmly in place. So first message is this one. Then coming to the second part of the second question, so we be higher on disposal I continue to see the existing dividend policy through 2029 as an important pillar of our shareholder remuneration framework. But I want to add also that any final decisions regarding the use of our financial flexibility will be taken in the context of the new business plan, which we are going to learn people in the next weeks and months.

Okay. Many thanks. As a quick follow-up, can you remind us what is the impact of any additional 1% traffic on OpEx and the savings from the remote control towers that you expect with -- by 2029. Nicolas, what concerned the OpEx increase is not automatically associated to increase our traffic. Remember that an increase of 1% of traffic, more or less is in the year is around EUR 6 million, EUR 6.5 million if we are in a 2% band. For what concern costs, it depends when this increase is done. It is during the summer, we normally manage and cover this with a higher, I mean, extra time and flexibility, asking accessibility to our control also ask not to go on vacation actually to use the vacation. This is the cost we believe, is more or less the delta between the 5% that we closed in terms of in H1 in terms of cost, OpEx cost and the 6% foreseen by the end of the year. That's what we believe is we need to cover the increase of traffic. So you should put this on top, not only the 1% increase now in our forecast, in terms of traffic and in traffic, we almost have 2 percentage points higher -- the traffic that we have planned is 2% points higher than the planned 1 in the tariff that I remember is 4.1% increase versus 2025. Benign for you -- there was another question to remote tower -- just to give you 2 messages on this point. The first 1 is that we are in line with the industrial plan. So brine are running 2 remote tower. So Bringas well in Gotalaswell as 2 airports are managed by with remote controlling tower in rand related to the FX and the cost in the future, let me just tell you that we are working now on the new strategic plan as soon as we are going to see we will be able to provide visibility on the expected tractors not only for this pillar, but for all the pillars, the old 1 and the new 1 of the new plan. So we are just wait some use the clearer picture for the future about these effects of the new and the Next.

Next question is from Alexandra Arsova Equity.

Three questions from my end. The first 1 is a follow-up on the OpEx side. So can you remind us what is the level of salary increase determined by the label contract in place due to inflation, not only in 2026, but also in the coming years. and when the labor contract is going to be renegotiated or renewed. And again, on personnel cost, at the end of 2029, given the current assumption you have do you expect the net head count to be lower or higher vis-a-vis 2026. Then the second 1 is on the capacity bonds. So what is the level of bonus you are including in your full year 2016 guidance? And the third one, if you can just provide us the level of balance at the end of -- you expect at the end of 2026 that will remain to be recovered in the tariff in 2027 and beyond.

Okay. In a long list. I'll try to -- we try to go through these -- for what concern, okay. The staff cost, we recognize inflation, as you know -- I mean, it's a negotiation of the of the recognition of the inflation at the end of the period after the 3 years when we check what is the real inflation and the 1 that was the planned 1 in the contract. And so what's happened in the first of January, the effect is around 2.5% the part related to the inflation adjustment related to the last 3 years of inflation that was not recognized to the personal cost. On top of this, so talking about the future, that every July, we plan to give to our controller to our staff. What is the so-called agreed inflation, the estimate inflation for the next 3 years that we assume is a 1.5% increase each year. And so the next increase would be in -- yes, actually, it was in July, this July. The next 1 will be and the last one, 2028 is 1.5%. Then by the end of 3 years, we check what is real inflation versus the contracted one, the plan on, and then we negotiate eventually the delta. This for will concern inflation. For what concerns the trough in the FDA in terms of controller for the traffic, we had I mean, actually, as Igor said, we are reviewing the business plan, also taking into account what will be the traffic that we are going to manage. So actually, we are now analyzing what could be the effect in term of this increase of traffic that we're having now, and we expect also in the future years that could be higher than the ones in Apple business plan. And so we are reanalyzing the number of people that we may need or not. So we will give you more information right after the presentation, I mean, during the presentation of the business plan. For what concerns the bonus, right now, we are considering also the result in the first half and first half, we believe that if the things remain stable, we are able to reach the maximum level of the bonus, the punctuality bonus. So right now are EUR 13 million. were concerned, the fourth one, just let me check. I'm not sure that I remember the question.

The balance .

Okay. That was the balance. So the balance this year, how much is around EUR 190 million. So it's EUR 150 million for good and the rest is the other the terminal. So the next year 2027 tariff between the 3 tariffs, so Terminal on 1Q and [indiscernible], we are talking about EUR 150 million, more or less EUR 146 million, actually. . And then the rest is over -- I mean, we are talking right now more than EUR 40 million. That is -- then it depends on what will be the generation part now in 2026, that at that we will guess in 2 years. I guess we give the answer to all your questions.

Next question is from Francesco Sala, Banca Akros. .

The first 1 is on the robot revenues. I wonder whether you can give us an outlook for the second half of the year, whether we should keep on an acceleration? And secondly, if you can give us a basis indication for 2027 also on the regulated revenues. And finally, I wonder whether you can give us an update on the latest available data you have, you can share with us about traffic in the last few weeks. Thank you.

Okay. So thank you for the question, we start answering the last part of the press is traffic in July, and then I leave the floor to Luca for the first part of the question. So as I already told you in July, the record for the lift movement was broken or times and then we reached the August first, the new record, the rural time record with a peak of 8,555 flights. The latest ligate showed traffic up by around 6.7% year-on-year in terms of that movement. So July is higher than the last months of the first half. So we see a continued increasing trend. And then I leave to look at the floor.

Thank you, Igor. Talking about the revenue in 2026, our guidance. As said by Igor, we expect to have an increase of traffic by the end of the year, around just a little lower than 6%. In terms of not regulated business, we confirm our target it is around EUR 62 million, as we have already said. So we confirm it. If this all together, you can get -- looking what is the guidance we have given, we are talking about total revenues of roughly 100 and 8,890,000,000 more or less of the revenue, considering also the bonus contains, or looking to spare the 2027 revenue, we haven't disclosed any information because right now, we need to check, first of all, what will be the traffic that we will consider, as you know, even the euro controls waiting for to update the forecast, and they will be probably in October. . So after that and together with our budget, 2027 budget, we will also disclose some more information about what is the traffic? I just remember that the traffic that is now bundled in the tariff is a 3% increase in 2027 versus 202026 planned traffic, no autorack, is it okay?