Aeroports de Paris SA (OTCPK:AEOXF) Q2 2022 Earnings Conference Call July 28, 2022 12:00 PM ET

Augustin de Romanet - President and Chief Executive Officer

Philippe Pascal - Executive Director, Finance, Strategy & Administration

Edward Arkwright - Deputy CEO

Dario Maglione - BNP Paribas

Hello, and welcome to the Groupe ADP 2022 Half Year Results Presentation. Please note, this conference is being recorded. [Operator Instructions]

I will hand over to your host, Ms. Augustin de Romanet, Chairman and CEO of Groupe ADP begin today's conference. Thank you.

So good evening, everybody. Thank you for joining us to talk about our first half results. So I am Augustin de Romanet, Chairman and CEO of the company. and I'm here with Edward Arkwright, Deputy CEO; and Philippe Pascal, our Group CFO.

I will start with the highlights of this half year, and Philippe Pascal will continue with the financial results. I will conclude with the outlook, and we will both -- three of us will be available to answer your questions.

So first slide, half year '22 highlights. Groupe ADP recorded a clear improvement of its performance during this semester. Our revenue doubled compared to the first half of 2021 to reach €2 billion. This is driven, in particular, by the rebound in traffic at Paris Aéroport which reached 71.6% of the level of the same period in 2019.

Traffic in our international assets also continues to be strong. Revenue growth have also benefited from the integration of Almaty Airport in Kazakhstan since May '21, which had contributed only 2 months last year. Excluding Almaty, our revenue growth would be 92%.

EBITDA reached €702 million which represents an EBITDA margin of 35% of our revenue, a level that is in line with the margin we delivered in the first half of 2019 and up 19 points compared to last year. This reflects the fact that our cost base is largely fixed or linked to opening of infrastructures.

Operating income is back into positive territory to €340 million as well as net income to €160 million. So in a nutshell, a solid financial performance, indeed.

The acceleration of the traffic recovery ahead of our initial expectations and these solid results lead us to improve our EBITDA margin guidance for 2022 and 2023 and also to upgrade our deleveraging target this year. But let me first come back on the recovery in Paris.

As I just remind, the first half was marked by a particularly strong rebound of the traffic in Paris. First, it was 61.4% of the level of 2019 in the first quarter and jumped back to 80.1% of the 2019 level in the second quarter. So after 2 years of restrictions, the need and desire to travel is extremely strong, and we expect a very solid summer. The traffic in Paris could in certain weeks get close or even exceed that of 2019. If I take the example of Orly, last week on Monday and Tuesday, traffic was well above 100% of the same day in 2019.

The trends are very positive for certain destinations this summer, Southern Europe or France. All French people are going in Greece, but also Spain, Italy. And United States and Canada have also very good scores. So clearly, in this context, and as always, our priority is to deliver the best level of service. Therefore, we made sure that we have taken all the necessary measures to reach these targets. That is why all our terminals in Paris are now open, except for Terminal 1 in CDG. As you know, this terminal will reopen around the end of the year introducing the new Extime environment. Terminal 2A, 2C junction will close at the same time to implement new security standards in baggage handling system.

In order to accompany the recovery of traffic, we launched in ADP, a hiring plan for 600 positions in Paris over 2022 and 2023. We currently are on a good pace of 50 to 60 recruitments each month, which means more than half of the positions have already been filled to date, 332 positions from the 1st of January filled as of June 30.

We also opened social negotiations mid-June regarding remunerations in order to submit a rebound contract to the trade unions. Two agreements were signed on July 8, which allow for the implementation of immediate measures to increase salaries.

The measures are twofold. First, a return to the 2019 salary level for employees affected by the employment contract adjustment plan pact, which was the nickname of the reduction of salaries.

Second, an additional general increase of 3% for all ADP SA employees. The impact of these measures in the second half of 2022 is estimated at €13 million. So we consider that the conditions are now in place to welcome all our passengers in the best possible conditions during the summer period, thanks to the commitment of all of us.

Moving to Slide 5. The commitment of our teams to improve the quality of service has been recognized and Paris-Charles de Gaulle was voted the best airport in Europe by passengers in the latest Skytrax rankings. Charles de Gaulle is now ranked sixth airport in the world. And Paris-Orly moved up 27 places to the 46th rank worldwide.

And also 3 airports belonging to the group's international network also emerge among the world's top 100. I mean Delhi, which is up 8 places ranking in 37th position; Hyderabad is 63rd [up 1] point place; and Medinah in Saudi Arabia is 58th, up 10 places.

All these recognitions commences to the future in line with our 2025 Pioneers plan to keep Paris-Charles de Gaulle in the world's top 10 by 2025, and also getting 4 airports of our network in total of the top 50 and 8 in the top 100.

Now about ESG strategy. This semester was also reached in ESG initiatives. As you may remember, our ESG strategy, 2025 Pioneers for Trust lays on 4 pillars. First one, environmental issues. Groupe ADP is now formally committed to the SBTi. You know this science-based target initiative defined and validate our greenhouse gas emission reduction targets for both our internal emissions, Scope 1 and Scope 2, and our external emissions, Scope 3 with a near-term time horizon.

Our ambition is to be the pioneers in inventing the airport of tomorrow and be the leader to drive the environmental transition of the aviation sector.

Our collaboration with Air Liquide contributes to this objective, and we are working on the creation of an engineering joint venture dedicated to the integration of hydrogen in airports' infrastructures. The second pillar of our ESG actions is our role vis–à–vis territories and regarding employment.

In order to maintain passenger capacity at both Orly and CDG and at the same time, promote employment for local residents, Groupe ADP joined forces with public employment services, training organizations, temporary employment agencies and airport companies to organize emergency recruitment and training referral events. The provisional results of these events, which are excellent, show that the collective dynamic has allowed a high-quality of sourcing and the conversion rate towards employment is very, very good.

Third pillar, the social pillar. Regarding this social pillar, we signed the beginning of June, a profit-sharing agreement for the employees of ADP SA covering a 3-year period from 2022 to 2024. This agreement materializes our will to involve employees in achieving the company's strategic and transformation objectives and allow them to benefit directly and financially from the results obtained.

The payment of the profit-sharing bonus is conditional on the achievement of 5 objectives linked to our road map 2025 Pioneers including 3 ESG objectives, which are the reduction of CO2 emissions, first; the number of days of civic engagement carried out by employees; and third, the rate of completion of ethics and compliance training by employees.

First pillar of our ESG program, governance, we formalized this semester our ESG commitment with the 2025 Pioneers for Trust road map unveiled to the public on 29th of March.

Next slide presents a new step in our hospitality strategy. For sure, before giving the floor to Philippe Pascal, I'm very happy to come back on the progress of our new commercial strategy. As you know, as part of 2025 Pioneers, we will be deploying our retail and airport hospitality expertise under a single brand called Extime. Extime capitalizes on all the know-how deployed for several years in the Paris hubs and in the group. With Extime, we will grow this expertise in a single brand, and we make it an instrument of international conquest within and outside the Groupe ADP's airports.

The preferred deployment model is the model of franchise with a franchiser Aéroports de Paris, providing the Extime franchise and its know-how to franchisees.

Along with the implementation of this new brand, we are optimizing our business model. From the traditional model of a current concession, we are moving to a hybrid model in which ADP is strengthening its role in operations.

This model allows our partner to focus on the upstream operational functions. I mean logistics, IT purchasing centers. And ADP has a greater role on downstream operations, allowing to create more synergies between the value certified operators, drive sales up and reduce costs.

An important step was achieved this month with the result of 2 public consultations. First one, concerning on our duty free and retail activities for Paris-Charles de Gaulle and Paris-Orly airports. We have a result which is at Lagardère Travel Retail was chosen to become the co-shareholder of Extime Duty Free, first Extime certified operator -- I mean Extime Duty Free Paris.

The new JV will operate around 140 beauty, [gastronomic] technical and fashion outlets. It will be owned by 51% by the ADP Group and 49% by Lagardère Travel Retail.

Second, we just announced today that JC Decaux will become ADP's partner in the future joint venture Extime Media, which will operate the advertising activities at our 3 Parisian airports as well as in the second phase of the airports of Antalya and Milas-Bodrum in Turkey. I don't know if I must say Turkey or Türkiye because President Erdogan is not happy that the name of Turkey is similar to a kind of poultry. So understand what you prefer.

Extime Media will therefore have a multi-local dimension with the presence in 6 airports on 2 continents.

With that, I will now hand over to CFO, Philippe Pascal who will comment in detail how H1 results. So Philippe, you have the floor.

So thank you, Augustin, and good evening, ladies and gentlemen. Slide 9 was the traffic recovery. So we can see that traffic recovery has been strong this semester, both at the group level but also in Paris with an acceleration in the second quarter. So this is particularly true for Paris, where the recovery against 2019 is now close to that recording in international.

You can see on the graph on the left, the rebound compared to the H1 2021 to 37.5 million passenger with this semester versus 10.7 million passenger last year, reaching 71.6% of the level of traffic in 2019. All in all, we expect traffic in Paris to reach this year, 72% to 82% of 2019 level. This is an upgrade of 7 points compared to our previous assumption for 2022.

For our foreign airports, the recovery is still slightly ahead of that recorded in Paris, reaching 72% on the 2019 level. At group level, traffic stands at 71.9% of the 2019 level with 118 million passenger in this first half year.

Given the solid trends recorded, we also lifted our 2022 traffic assumption at group level to 74% to 84% of 2019 level. So it's an upgrade of 4 points, reflecting the acceleration in traffic recovery. So good news for both Paris Aéroport but also our foreign airport for the global group.

Slide 10, we have a specific focus about Paris performance in terms of traffic with 4 main points. First, the traffic with European destination is recovering faster. It is 74.4% of the traffic of 2019.

The second point, it's about the international traffic, which is the most contributive for regulated but also nonregulated revenue, as you know. This international traffic is recovering very good. It represents 38.6% of 2022 traffic.

The third point is the expectation for the traffic in Asia. As you can see, traffic with Asia is still weak, representing 22.3% of the level of H1 in 2019.

The fourth point, it's the local traffic with a strong performance and a good recovery compared to the pre-COVID situation. With this in mind, we can appreciate the strong performance of our retail activities in Paris.

As I said, we have a very low traffic from Asia with a 22.3% recovery. And we can see that is no impact in our retail performance. The sales per PAX reached €25.4 in the H1 compared to €22.5 in 2019. This is reflecting the strong performance of our retail business in our airport. And we can see that the traffic of Asia, the weak traffic of Asia is for the moment globally an upside for the next year.

Moving to Slide 11. We can see the performance of TAV in terms of traffic. At the end of June, we can see that TAV Airport traffic is standing at 72.8% compared to 2019. The dynamic in touristic airports have remained solid. Antalya traffic reached 76% in terms of recovery. Milas-Bodrum, 84.6%. This is notably due to a particularly strong profit coming from Germany and U.K. And as you can see, the U.K. traffic was up 41% compared to 2019. And the traffic with Germany up 6.2% compared to the three years ago. So a good performance, and we can see that it's a partial compensation of the erosion of Russian traffic. So a good resilient traffic in TAV included for the touristic airport included with the Ukraine crisis.

We can also see that Almaty have a good performance. It's the best performance in terms of recovery for the group. Passenger traffic was 9% above 2019 level and cargo flights doubled compared to 2019. This is mainly due to the fact that -- to the Russia airspace overflight ban, the flights avoiding the Russia airspace and stopping in Almaty.

Slide 12, you can see a specific focus about inflation. As you know, in the difficult context of the macroeconomic situation of geopolitical events, we wanted to provide some color about the potential impacts of this contractual evolution and our financial presentation. In terms of revenue first, we have the possibility to increase regulated tariff in Paris but with a time line. Historically, higher aeronautical fees for ADP in Paris involved with the CPI. This is updated annually.

For our Turkish subsidiaries, TAV, most revenues are indexed to inflation and for AIG, [Dublin] Airport, airport fees partially adjustable to inflation while retail and rental revenues are indexed to inflation.

In terms of costs, after the revenue. We can see for the cost for ADP, we expected modest impact of inflation on our OpEx base in the next 18 months given the structure of our portfolio of purchasing contracts which is quite protective. For example, around 15% of our contracts for external services are with fixed price and around 70% has closed with annual tariff increase but are uncorrelated with inflation. Overall, our policy is to negotiate long-term contracts and their duration is 4 years on average. Because of this, about 40% of contracts with suppliers must be renewed in January 2024. Therefore, we expected the effect of inflation to be modest in '22 and '23 but will be felt in '24.

For energy, we are well protected until the end of '23, thanks to fixed price contracts. Beyond these dates and depending on the evolution of market price, we will implement a purchasing strategy limiting as much as possible potential [upper] impact.

Finally, in terms of CapEx, the main impact to be noted is the increase in the cost of material and construction costs. The sensitivity is notable for materials such as steel, wood and cement.

At this stage, the review of our project portfolio shows, but the effect of inflation, our CapEx program in Paris remain limited in '22 and '23, and our view on our investment trajectory remain unchanged. Even if at this stage, we don't expect any negative impact on our guidance, we are working on the monitoring of our CapEx plan and decision process in order to increase flexibility and mitigate the potential risk included to choose good material construction to avoid this risk.

Slide 13, we can see the key figures, but I think we can go directly to Slide 14 in terms of revenue. As Augustin said, we recorded €2 billion in the first half '22, more than the double of the first half, of '21 with this €1 billion revenue growth, we can -- we have €122 million growth in linked to the integration of Almaty. It contributed only 2 months last year versus the full semester this year. Excluding Almaty, revenue growth would have been 92%. This solid revenue growth has been driven by the recovery of traffic, obviously, in Paris, but also in TAVs, with a specific contribution with Almaty, as I say.

Slide 15, we can see the strong increase in EBITDA. We are posting a strong EBITDA at €704 million. The increase in EBITDA is driven by the traffic, impacting positively our revenue, but also, we have a good cost control, our cost being largely fixed -- are linked to open infrastructure, but our cost base is less sensitive to traffic itself.

Consumable expenses are up €170 million, included €65 million related to the integration of Almaty as well as €73 million related to [SDA], Orly in Paris with higher cost of goods in line with higher revenues.

Staff expenses are up €40 million included €34 million at TAV Airport related to the integration of Almaty and the increase of sellers with less recourse to partial activities and obvious -- excluding TAV, the group staff expenses are only up by 2%. So we can see a good cost control in the ADP mother company and for TAVs the impact of the inflation in Turkey. This EBITDA reached 35% of revenue, in line with the precrisis EBITDA margin on first half of '19.

Slide 16, we can see the return and a good recovery in terms of -- to a positive net result. Amortization and impairment are quite stable while profit from associates and JV is up €59 million, mainly due to accounting changes as well as to the increase in the result of equity and continued subsidiaries. Financial results is down €100 million with the negative bad effect of the debt restructuring of TAV Tunisia in the first half of '21 for €110 million.

We also recorded a tax expense of €59 million due to the return of a positive net impact. Overall, Groupe ADP recurrent income is net income, I guess. Thank you. Overall, Groupe ADP recorded its first return to profitability since 2019 with a net result of €160 million. That is a good performance.

Slide 17. The net debt of the group stands at around €8.3 billion at the end of June, up by €282 million compared to the beginning of the year. This increase is mainly linked to the financing of new Antalya concession for €375 million by TAV Airport during the first half. When excluded these financing, the net debt of the group is quite stable over the first half. At the end of the day, thanks to the strong recovery in EBITDA, we can improve our '22 guidance for net debt, now expected between 5.5x and 6.5x the EBITDA.

Slide 18. We have a specific point for regulation. We are currently involved in two separate process. The first process, it's the elaboration of our tariff proposal for '23. We start the consultation with all the airlines. First meeting in June and the second meeting in July, the discussion involving the airport user will continue in September. As always, ADP will feel its tariff proposal by fall '22, and the French regulator will make its decision public by the beginning of '23. Please remember that in the case of two refusal by the French regulator of our proposal, the airport fees will be frozen for one year.

The second process is the revenue of allocation key, the cost allocation system. Following the decision of the regulator in April, we start our discussion with the airlines regarding the allocation fee in May. This fall followed by work group in June and July to set the method and the timing and start the allocation key review. Such meeting will be held regularly during the coming year as long as the revenue process is undergoing. So it's a long process, and we are very comfortable to this new method with the airlines and with that a good discussion.

I will hand over to the Chairman and CEO, Augustin de Romanet for comments on the outlook of the group and closing remarks. Thank you.

So thank you, Philippe. So a very short conclusion to tell you that our traffic grew strongly in Q2, and we expect this dynamic to continue in the coming months. This has led us to revise upward our 2022 traffic assumptions.

We are now expecting traffic in Paris between 72% to 82% of the 2019 traffic. At group level, we expect to see traffic reaching 74% to 84% of the level of 2019. This acceleration of the recovery of traffic in 2022 leads -- and also in the light of our solid H1 results, leads us to upgrade our EBITDA margin guidance in the short term, and we now expect between 32% and 37% of revenue for 2022 and for 2023 as well.

This acceleration at EBITDA level is supportive to our deleveraging. And we, therefore, expect, as Philippe has just said, our net-debt-to-EBITDA ratio to stand between 5.5 and 6.5x as at end of 2022. It's an improvement of 1 EBITDA step. All our other assumptions and objectives of the 2022-2025 financial road map remain unchanged.

So now I think it's time to open the line for the questions. And together with all the people in the room and especially Edward Arkwright Philippe Pascal, but perhaps also [Christel Jackman], if she wants to speak. We're at your disposal to answer the questions.

[Operator Instructions]. The first question comes from the line of Cristian Nedelcu from UBS.

The first one, could you talk a bit about the building blocks of your higher EBITDA margin guidance for this year and next year? How much of that is coming from international? How much of that is coming from Paris operation?

Secondly, looking at the tariff for 2023 in Paris, do you believe you can pass through the 5% or whatever the French inflation level will be next year? Is this your target in that proposal? Or can you do more than that?

And the last one, looking at the retail business in France, we are seeing a lot of luxury companies lifting their prices by 10% or more. Do you believe your sales per passenger in the second half of the year will start illustrating the fact that more and more of the retailers are lifting prices to pass through inflation? So do you expect to see a meaningful increase in sales per passenger versus what you delivered in the first half?

So thank you for this first question, perhaps to start with EBITDA. So in fact, we increased our guidance for EBITDA margin globally for the group. We can see that the main effect is linked by traffic in Paris but also in JVs. And as you can see, we can, we have -- with this dynamic in terms of traffic, a good impact in terms of regulated revenue, but also nonregulated revenue. So globally, the contribution of the increase in terms of EBITDA is aligned with the contribution of traffic.

In terms of margin, we can see that it's more difficult to disclose some elements due to the fact that we have fixed costs, but we have also a step in term of recovery due to the new -- the reopening of infrastructure due to the salaries. When you see our figures, we can see that globally in Paris, we have a cost control, but the fact we have the fixed OpEx despite the reopening. And in TAV, we have more OpEx due to the inflation with salaries, but also with some materials, and good to -- for the retail. So globally, we can see with the dynamic of traffic and with the dynamic of cost what is the contribution for '22 and '23 in terms of margin.

So your second question is about the tariff in Paris, and the question to our target to increase this tariff. The main question for us, it's not to exactly this question. The question is the dynamic in terms of regulated ROCE due to the fact that you have more traffic with a good recovery in terms of margin, first.

The second point is the question of the level of our cap. As you know, we have free cap, the first cap it's a level of regulated WACC. And for the moment, you know that we have some difference between the methodology of the French regulator and the methodology of ADP. The second cap is the moderation way to increase the tariff. We can increase but in -- with moderation. And the first cap, it's the question of balance between the regulated cost and the regulated fees. So we -- it's possible to increase if we have -- if the cost, regulated costs are less than the [remunerated] fee.

So all in all, we can adjust and take account the inflation if the regulated ROCE for '23 is less than the regulated WACC, so because if we have a strong recovery in ratability, we reach the cap. And so if we have a good model and very resilient model, we can see that perhaps what is the main target for ADP.

Your third question, it's a question of retail and luxury. That is a key point for us is that, is the fact that first of all, we have a good dynamic in terms of SPP due to our retail performance with a good model with fashion, especially. But we have also, for the moment, we don't see any impact in terms of inflation with the power to [buy further] our passenger. Clearly, we have a specific atmosphere, a specific way. And for the luxury policy, we don't see for the moment an impact. But yes, that is good.

The next question comes from the line of Elodie Rall of JPMorgan.

Just to come back on tariffs, I understand the math and thanks for explaining. But just if we take a step back, you had told us earlier this year that you wanted to keep the tariff increase under control, I think, the next year or so or 2 years ahead of negotiating maybe the [ARFO]. So what kind of level are we thinking, like ballpark? Is it still like low single digit? Or would that go higher given the increased inflation? That's my first question.

My second question is on OpEx. Should we expect -- I mean you've increased your guidance on margins. So I guess that answers my question. But I was just surprised about that margin guidance increase given the need to rehire staff as you mentioned, to pace traffic recovery.

And my last question is on the Schiphol stake and the unwind of the participation between Schiphol and ADP. Is there any news? I mean you need to complete that, I think, by November. So if there's any news on that.

So perhaps we will begin with Schiphol because Edward has, in fact, has been recently a member of the Supervisory Board. So he's especially qualified to tell you a few things because we are in discussion. So at the end of the day, we are in discussion with Schiphol, but [while choosing] can be disclosed because the discretion is going away. So I give the floor to Edward Arkwright, allowing him to be quite silent if he has no other possibility. Edward?

Good evening, Elodie, and good evening, everyone. So given the ongoing discussions, very difficult to make any precise answer. So I can just -- to repeat that we are an ongoing discussion. There is a process with being published and described to everyone. So nothing new, and the discussions are continuing.

In a good spirit, as usual. [So just keep pace with Schiphol]. So the question about the need for new persons, which will diminish our margin. I don't think we will have a shot about that because our plan is for ADP to hire 600 persons.

On the guidance we gave, take in consideration the assumption that we recruit all these persons. So you don't have to expect a net deterioration of your margin with this full completion of hiring for growth. And the third question...

About the tariffs. So to be clear, our first -- we have to check what is our expectation in terms of regulated ROCE. Second, we have to [modelize] the regulated WACC for us. what is the 2 steps. And the third step, we have to take account the inflation. As you know, the definition of inflation for the regulation, it's not the full year inflation, it's another figure with a specific calculation to August. So it's not really the same figure than we have in mind.

And after that, we tried to find a good balance, and we try to manage the recovery of our regulated ROCE to reach the cap in a secure manner to obtain a good approval for the French regulator.

So if the -- when we reach the cap, mechanically, it's not possible to increase the tariff.

Globally, the inflation, we have a modest impact in our cost, as I said, in Paris. We have a slight impact in terms of inflation for the calculation of WACC, but it's very slight because we have a specific methodology. And all in all, we don't give for the moment our strategy in this conference call.

The next question comes from the line of Andrew Lobbenberg from HSBC.

Sorry, it's a bit repetitive. I'm just curious on Schiphol. I mean recently, there've been dramatic and surprising moves by the Dutch government to reduce the capacity of Schiphol. So I mean, surely, doesn't that factor into the value of the business? Is that being taken into account with the people doing the work the value of the business?

On regulation, you spoke of, I think there being a disagreement between yourselves and the regulator about how to calculate WACC. Just wondered if you could give us a little bit of color as to where the disagreement is. And perhaps the scale of the gaps, what your numbers are and what their numbers are for WACC?

And then a third question would be just around the strike that you suffered. Are there any economic consequences on your P&L beyond losing some traffic? Are you vulnerable for compensation from airline customers? Or are there any other adverse consequences?

So I will take the third question. About the consequences of the strike, they are very tiny. As you say, as you know, we increased salaries. But anyway, we should have increased salaries without any strike, so it doesn't have a lot of incidents. And perhaps we should make some -- we should some have discussions with our customers, but it is not material for 2022 at all. That is the third question.

About the two first parts of your question, Philippe.

So as you know, the Dutch government decided to limit flights from Schiphol to 11% below '19 level for environmental reason. In the short term, this decision could be potential upside for Paris Aéroport as it may reinforce the positioning of CDG as a European hub. In the longer term, we are convinced that commercial aviation can have its place in a low-carbon world. And to do so, our infrastructure must transform to offer a diversified range of products and services adapted to the environmental context and to the behavior of travelers throughout the world. So this is exactly what we are doing with our strategic road map that is called 2025 Pioneers. We try to adapt our infrastructure to avoid this kind of limit and to make the proof that it's possible to develop the aviation activities in a good manner and to have a place in the low-carbon world.

Your last question, it's about the WACC. So you know that we don't have the same calculation. The French regulator is looking at the past 5 years to determine the risk-free rate versus our methodology when we take account 10 years for the risk-free rate, we have also impact in terms of the interest rate and the remuneration of our cash. That is a second huge pillar in terms of methodology.

For the moment, we don't have this kind of debate because our regulated ROCE is lower than regulated WACC in the French regulatory definition and obviously, in the ADP definition. When we reach the cap, we have a specific view about the calculation of [IFP], but for the moment, it's not the case.

Can you offer any color as to how big the gap is on your WACC and their WACC?

No. For the moment, when you see in the French regulatory decision, we can see a range between 2.6 and 5.2, but this decision of last year before the impact of -- the huge impact of crisis. In our methodology, the level of WACC last year was 6.3%. So we have a gap around 1.1 point. But remember that we don't have the same methodology and mechanically for the moment, we have to wait the new decision of the French regulator.

And also the new Chairman, because as you know, the Chairman of the French regulator whose name was Bernard Roman, finishes his mandate the 1st of August, and the government has to appoint a new Chairman. And we recognize the chances to have a good new Chairman.

The next question comes from the end of [indiscernible] of Bank of America.

Three questions. The first one is on your guidance of €16 to €18 operating expense per passenger in 2024, '25. When you made that guidance in February this year, it was before the inflationary hikes. So I was just curious to understand how comfortable you are to maintain this guidance. And if you had already factored in inflation hikes back then.

My second question is regarding -- you expect -- your traffic guidance, which you expect to return to 2019 levels between 2023, '24. Could you please let us know what needs to happen for it to be in 2023, so I guess you assume China to reopen. And what your domestic assumptions are? Would you expect them to be ahead of 2019 and offset maybe some of the international traffic not back yet?

And then finally, on your Extime partnership. We've -- could you maybe explain what that 49% stake means in terms of are they going to make a payment to get that stake? And should we expect the cash inflow early 2023? And in terms of when exactly will it broken out for the consumer? So why will the consumer be able to shop on your Extime website to collect at the airport? And when is the kind of personal shopper service going to be rolled out?

So thank you for these three questions. The first question about the guidance in terms of OpEx, CapEx, we can confirm our guidance. We are confident with this guidance despite the evolution in some part of our cost, but all in all, it's manageable, and we are -- we can confirm it.

The second question about the traffic, obviously, we expect a good recovery in terms of user traffic in '23. We can confirm our assumption in terms of recovery for '23, for '24 and '25 at the same level than before. And the fact that this recovery is linked by the reopening of destination due to the acceleration of the demand and due to the capacity for the airlines to operate.

For your third question, so I am very sorry, but it's difficult to disclose for us more color. But it's key that ADP is strengthening its role in downstream operation with our partner focusing on the upstream operational function, logistics, IT, purchasing organization.

Looking at operation of the shop floor, Extime Duty Free Paris will work in synergy with all the other Extime certified operator, so like Extime Media, Extime [Duty Free Paris]. And all in all, under the global supervision of Extime Parisian management. So that is the ADP staff.

So Extime Duty Free Paris will become franchisees of Extime, but is [adipose] company. And as part of the franchise agreement benefit from a digital ecosystem that is Extime Reward, and specific brand book. So we expect synergies obviously, with the link between all this strategy and the link between the operators, strategy like common clienteling and VIP service, synergies like Extime Media will be the advertising agency for Extime Duty Free Paris for all the advertising device inside the Extime Duty Free Paris.

So globally, Extime will mostly start its operator at Paris on January '23, apart from the Terminal 1, which will start its operation next December '22 when the terminal reopens. And in this new terminal, Terminal 1 will be the first Extime boutique terminal going live. That is a huge step for the Extime strategy. The impact of Extime is expected to materialize progressively in our account with an increase of SPP.

All in all, we consolidate all the -- these franchise effect. This will have no apparent financial impact. The revenue at the franchisee level being operating expenses at the franchisee level.

So for consolidation operators, such as an unconsolidated airport of the group -- our airport outside the group, the franchise fee will create additional revenue, so it's just in this case that we have additional revenues. In the other case, we have synergies.

Next question comes from Dario Maglione of BNP Paribas.

Congratulations for the strong results. I wanted to follow up on the Extime JV. So basically, the JV will continue to pay rent to Groupe ADP. Will the rent increase or decrease compared to the existing arrangement?

Second question on the inflation, on the commercial side. Have those in the airport already [thought to] rising prices and by how much? Maybe if you can comment on June and July.

And final question in terms of the OpEx. What's the run rate for cost in June compared to 2019 levels? Are you seeing crossing going up or flat, especially I'm talking about Paris?

So thank you for this question. Can you repeat the second question?

Yes. Whether the prices in stores in Paris are already higher because of inflation and by how much compared maybe to, let's say, the start of the year?

So thank you. To start for the second question, as you know, retail activities are nonregulated, meaning that we can adjust our price freely to pass down inflation or cost of goods to customers, for example. We came at remaining competitive against downtown Paris, where we monitor retail prices closely. So should we increase prices? This will be in line with the market practice downtown Paris. So clearly, we try to adapt our strategy in terms of price compared to our main competitor.

In terms of fees, we can see that for the retail -- we can see that we expect a stable fees globally. And we can see that with these fees, it's -- for us, it's very good news because after the crisis with a huge impact in our retail activities, the fact that we can confirm the performance of the retail model. The fact that we can finalize all our brands we can maintain our rent in a good way and in the same level compared to the pre-crisis situation.

And your last question in terms of cost. So in fact, costs globally are fixed, but we expect to reopen the Terminal 1 with a huge number of square meters. That is a driver of our cost in Paris. But all in all, we -- when you see, we can accompany the recovery of traffic without a huge step, we accompany with OpEx, and we try to preserve our margin at the -- globally for that when you open the Terminal 1 in December, we tried in January '23 to close the Terminal 3 and 2C. But we try to balance our situation to manage our margin. [If and when] we can confirm our margin, and we can change our margin for '22 and '23.

Next question comes from Mani Subash of Citigroup.

Congrats on a good set of results. I have 3 questions, if I may. Could you remind us on the latest evolution on the winter capacity schedule from airlines? Because we've heard airlines saying they might scale back capacity this winter. So what are you hearing from, say, Air France and like other carriers?

And second question, like you had disclosed that because of the hyperinflation in Turkey, you had a positive €6 million impact on the net income level. So what was the impact at the EBITDA level?

And coming back to traffic, despite increasing your traffic guidance prior to the results, like why have you not increased your guidance for, like, let's say, '23? You've still confirmed your previous guidance? Don't you think that the recovery could be much sooner than what you have expected?

And last is on like what is the currency impact on your, let's say, revenues or like net income because of the appreciation of U.S. dollar?

So thank you for this question. So your first question about the winter season and the airlines. For the [proportion] it's a little bit little to give you some color about that. We -- as you know, we have -- we changed our guidance and our assumption in terms of traffic from '22. So we are confident to preserve a good dynamic in terms of traffic. But we have also, and you know historically, we are cautious because we don't know exactly what is the macroeconomic situation in the end of this year and the consequences in terms of traffic. So at this stage, it's too early to take into account the proportion of impact, negative or positive impact for the macroeconomic environment and the demand. We don't have a clear vision about the program of the airline, but we are still, and we remain prudent, very cautious, but we are also confident and enough confidence to increase our guidance.

In terms of traffic guidance, to your third question. As you know, we expected -- we were expected a significant step between '22 and '23 when you see our former guidance. Given the acceleration in '22, the evolution in '23 will be less of a big step. We -- it's a question of a range between '22, '23 and '24. We have an acceleration now, but at the end of the day, it's not an acceleration for all the years. We have the step probably we are in the high part of [indiscernible] and now we changed our guidance to have guidance more realistic higher than the previous guidance. But it's not a key point to change the full year effect.

In terms of inflation, so difficult to take in account the inflation in TAV. For the moment, with this required -- we have -- we try to manage the situation. Given the cumulative inflation in Turkey, we have an impaired inflation accounting work to do in line with specific rules in terms of accounting.

For TAV and for the group, the impact is globally limited for the moment. The nonmonetary assets restatement and the [operational] accounting had a positive impact in our view for moment -- for the moment.

There are no further questions on the line. I'll hand over to your host.

So dear friends, it's getting late. We are all in an extremely busy period for you, for always all these results publications at the same time. So thank you to everyone for having logged to our conference.

So ADP's next financial communication event will be the release of our 9-month revenue on October 28. And in the meantime, we are planning some more shows starting in September, and we will be attending various thematic conferences to meet you, and we are looking forward with that. So feel free as well to get in touch with our Investor Relations team should you have any further questions.

Enjoy the rest of your day, the rest of you, busy week, and I wish you a beautiful summer. If you go in Greece, be aware, you will have a lot of French people. Have a good night. Thank you.

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