U.S. Markets open in 1 hr 8 mins

Edited Transcript of ENAV.MI earnings conference call or presentation 13-Nov-18 3:00pm GMT

Nine Months 2018 Enav SpA Earnings Call

ROMA Dec 20, 2018 (Thomson StreetEvents) -- Edited Transcript of Enav SpA earnings conference call or presentation Tuesday, November 13, 2018 at 3:00:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Luca Colman

ENAV S.p.A. - CFO

* Roberta Neri

ENAV S.p.A. - CEO & Director

* Stefano Raffaello Songini

ENAV S.p.A. - Head of IR

================================================================================

Conference Call Participants

================================================================================

* Luigi De Bellis

Equita SIM S.p.A., Research Division - Analyst

* Nicolò Pessina

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Ladies and gentlemen, welcome to ENAV 9 Months 2018 Results and Conference Call. I am pleased to present Mr. Stefano Songini, head of Communication and IR. Please go ahead.

--------------------------------------------------------------------------------

Stefano Raffaello Songini, ENAV S.p.A. - Head of IR [2]

--------------------------------------------------------------------------------

Thank you, operator. Good afternoon, ladies and gentlemen, and good morning to those of you connecting from the U.S. and welcome to ENAV's 9 Months 2018 Results Call. We are here in our headquarters in Rome with Roberta Neri, our Chief Executive Officer; and Luca Colman, our Chief Financial Officer. With that, I will hand the call over to Roberta, and we will be happy to take your questions after the formal presentation. Roberta?

--------------------------------------------------------------------------------

Roberta Neri, ENAV S.p.A. - CEO & Director [3]

--------------------------------------------------------------------------------

Thank you, Stefano, and good afternoon, to everyone, and welcome everyone to ENAV's 9 months 2018 conference call. The 9 months performance (inaudible) with a strong acceleration in traffic growth with the route traffic up 9.2% year-on-year, which indicates a solid rebound of traffic in the Italian market. Indeed, ENAV showed, by far, the best performance amongst the big 5 peer countries in terms of traffic growth despite [undergoing the closure] of the (inaudible). With regard to the top line, our net revenue in the first 3 quarters of 2018 increased by 0.5% year-on-year, reaching EUR 675.6 million with strong growth in revenue from operations up 6.8% year-on-year, offset by negative balance in the period. More specifically, en-route revenue statement at EUR 524.7 million, up 9.7%. And our terminal services reached EUR 170.5 million, increasing 0.5% over the time -- the first 9 months of 2017. It's worth noting that the growth in revenue is mainly driven by the exceptionally strong increase of en-route traffic, up 9.2% year-on-year, with overflights and international flights going up by 15.1% and 7.4%, respectively.

As I have already implied, the first 9 months of the year, we recorded a negative balance of EUR 72.5 million compared to a small negative balance of EUR 21.8 million recorded in the same period of last year.

As we will explain in further detail, the negative balance is basically the result of higher balance reversal in the tariffs applied in 2018, driven by the 4% reduction of the regulated tariffs included in the performance plan as well as by growth in traffic higher-than-expected, which implies no new balance [accretion] over the period. Moreover, the balance recorded in the first 9 months of 2018 also includes a negative inflection adjustment as well as negative balance accretion for Terminal zone 2 and Terminal zone 3. Part of Terminal zone 3 balance will be recovered in the fourth quarter of this year. Revenues from our nonregulated business amounted to EUR 10 million in the first 9 months. EBITDA increased by 1.9% to EUR 264.9 million, with the margin at 34.8%. The increase was driven by top line growth and by the ongoing reduction in external costs and the growth in capitalization of internal work, mainly related to activities performed on the group (inaudible) and technologies. EBIT went up by 9.2% to EUR 140.9 million, mostly as a result of lower SG&A and positive impact of provisions and write-downs.

On the bottom line, we recorded a net profit of EUR 98.8 million, up 10.2% versus the first 9 months of 2017. Our capital structure remains very solid, with net debt to last 12 months EBITDA 0.2x, providing us with significant flexibility. Furthermore, we recorded CapEx of EUR 69.2 million. Finally, we raised the 2018 full year EBITDA margin guidance to approximately 53% and confirmed our guidance for revenue for CapEx and also for dividend.

On the next slide, Slide 2. You can see the positive traffic trends recorded in our en-route and terminal businesses. And I believe as I mentioned, en-route traffic performance was particularly strong, driven by a significant increase in overflights with service units up 15.1%, which we attribute in part to the positive effect of the Free Route services, which encourages airlines to use Italian space for a longer distance, as well as to the increased interconnection with other European countries on -- and then the first signs of normalization of traffic from countries like Turkey, Egypt, Israel, Malta, Greece and Tunisia. It's worth saying that the growth in traffic was achieved in spite of the ongoing limitation of the Libyan airspace.

A slight growth of 15.1% was -- it was terminated by increasing traffic for distance with long-distance routes up 19.7%. So in terms of geography, the most impressive growth was in for connection between Europe and Africa. That's up 22.1% in terms of the service units as well as for connections among European countries, growing by 15.4%.

International flights also posted strong growth, up 7.4% in terms of service units. Thanks to an increase in the number of flights as well as to a greater average of distance flown. The performance of to and from host countries was positive, with Europe as major destination accounting for 80% of international service units and growing by 6.1% in terms of service units. And also with a significant growth in connection with America, that's up 19.9%.

Lastly, national en-route traffic performance was also positive with service units increasing by 2.7% despite the 0.8% decline in flights as a result of greater distance flown driven by more flights connecting directly northern and southern Italy, where high-speed rail is less competitive. The best-performing routes are those departing from Milan airport to Malpensa in Linate and landing in Palermo and (inaudible) as well as in Brindisi and the other airport such as Catania. Overall, our performance in en-route in the first 3 quarters of this year has been the strongest among the big 5 European countries. Indeed, for the quality of services, we delivered the best performance in terms of delays per assisted flights in spite of the significant traffic growth, and it is mainly thanks to the performance of our personnel and the ongoing investments in innovative technologies. And terminal traffic growth was also solid in the first 9 months of 2018 with 4.2% growth in service units, driven by positive performance in all 3 [charging] zones with service units increasing both in national and in international traffic. With regard to terminal 1, in the third quarter, we saw an inversion of the negative international traffic trend seen in the first and in the second quarter of 2018. The strong traffic trends confirmed the rebound of the Italian market and clearly demonstrate our diversified business mix with favorable exposure to international traffic trends. Only 18% of our group services are related to domestic flights, about 42% of them are generated from international flights and almost 41% are generated from overflight.

Next slide, looking at our revenues in more detail. We can see that our en-route revenue grew 9.7% year-on-year, driven by the strong increase in traffic, up 8.7% for the first half, and 9.8% in the third quarter alone, combined with a marginally lower tariff of EUR 79.98. Terminal revenue grew in the first 3 quarters and shows a modest increase of 0.5% year-on-year. And it is a combined result of solid traffic trends up 4.2% overall coupled with lower tariffs on all 3 charging zones.

The negative balance of EUR 72.5 million is the result of higher balance reversal applied in 2018 tariff for a negative amount of EUR 43 million. And it is compared to the minus EUR 18.1 million in the first 9 months of 2017. Combined with the absence of the route traffic balance revenue following the closing of the gap between actual and planned service units in the first 9 months of 2018 within the dead band range of +/-2%.

In addition, we recorded further negative adjustment in balance due to EUR 4.6 million related to error control costs as well as a negative balance from inflection and from Terminal Zone 2 and Zone 3. Part of Terminal Zone 3 balance will be recovered in the fourth quarter of the current year.

In a nutshell, the 3.8% reduction in the route of regulated tariffs seen by the performance plan were in fact almost full effect of the positive impact of the increase in traffic unfortunately.

Revenues from our nonregulated business amounted to EUR 10 million. That is slightly decreasing versus the EUR 10.6 million revenues in the same period of 2017 and driven by the building of the control tower in Mitiga airport in Libya and the constructing services for Kuala Lumpur traffic control center in Malaysia more than offset by the lower contribution of the single (inaudible) kind of, I think, the signed contract that is in termination and also by the termination of the commercial contracts in Morocco.

The item other operating income is mainly related to revenue grants for safety and security of EUR 22.5 million, which were stable year-on-year as well as the increase in European financing for common projects, such as the connecting European facility for 2014 and 2015, for EUR 7 million.

In addition, other operating income also includes capital gain of EUR 0.7 million on the disposal of a building in Forlì which previously was (inaudible) following our relocation to the new building in the same area.

Moving on to costs on Slide 4. As you can see, we remain fully focused on our OpEx efficiency plan. In the first 9 months of 2018, we achieved external OpEx savings of EUR 3.2 million, with a reduction of 2.9% year-on-year. The main savings were related to our utilities and telecommunication expenses, down by EUR 3.2 million as a result of the negotiation of contract as well the route of our new E-NET fiber network. In line with our strategy, we also increased in-sourcing of facility services such as reception services and reduced our use of external consultancies by almost 18% year-on-year. During the first 3 quarters, we also saw a benefit of lower lease costs following the closure of the office rental contract replaced by a more favorable contract as well as the relocation of certain employees to our premises in Ciampino. These cost reduction activities were partially offset by higher equipment which is due to the increased activities performed by TechnoSky on ENAV's assets. So the internalization of some activities for our investment plan. Concerning the personnel costs, we saw increase by 1.1% to EUR 358 million, actually due to the effects of the labor contract renewal. The increase was mainly driven by the growth in variable remuneration, which also included the provision for employees' productivity bonus and management incentive plan as well as by the overtime related to high traffic volume recorded in the period.

Finally, the increase is also explained by the voluntary redundancy costs related to 19 employees. During the first 9 months of the year, the total group head count was reduced by 59 people versus the same period in 2017. On the other hand, our total cost benefit from EUR 2.5 million gross in capitalized internal work up 12% versus the first 9 months of 2017, and driven by investment projects carried out by our subsidiary TechnoSky with various impact on actual costs mainly related to systems development of our flight data processor, the so-called 4-Flight project and other activities related to the structure of Olbia and gate approach to the Ciampino control center as well as 2 technological upgrades on (inaudible) . I will now hand the call over to Luca for a more detailed look of our financials.

--------------------------------------------------------------------------------

Luca Colman, ENAV S.p.A. - CFO [4]

--------------------------------------------------------------------------------

Thank you, Roberta. Moving to Slide 6. You can see that our net revenue in the first 9 months of 2018 increased by 0.4% year-on-year, driven by strong performance in our revenue from operations, up 6.8%. And the other operation income up 30%, almost fully offset by material negative balance. The contribution to the growth in revenue from operations mainly came from revenue increase in en-route activities, which grew by approximately EUR 46.2 million, as well as an increase in revenue from terminal activities, up EUR 0.8 million. We also saw slight reduction in revenues from not-related business of EUR 0.6 million. EUR 60.7 million higher negative balance compared to the last year was the result of various factors. The -- some increase in traffic weakness in the first 9 months of the year led to the reduction to the gap between actual and planned service units to minus 1.3%, which is within the dead band of -/+2%. This led to no generation of any good traffic balance in the period. In addition, we saw a significantly higher balance reversal of minus EUR 43 million as well as negative balance from inflation and from Terminal Zone 2 and Terminal Zone 3. Part of Terminal Zone 3 balance will be recovered in the fourth quarter of this year -- as that happened last year actually (inaudible). Finally, an increase in the revenue by EUR 7.6 million came from other operating mainly related to the increase in European financing for common projects such as the Connecting European Facility (inaudible) of 2014 and 2015 for EUR 7 million. And from a capital gain of EUR 0.7 million on the disposal of a building in Forlì as mentioned as previously by Roberta. EBITDA increased by 1.9% to EUR 234.9 million, reflecting the dynamics of our top line, coupled with our ongoing focus on external cost reduction, only partly offset by higher cost -- personnel costs. We also saw a growth of EUR 2.5 million in capitalized internal work, driven by investment projects carried out by TechnoSky. EBITDA margin reached 34.8%, corresponding to a 0.6 percentage points increase versus the same period in 2017.

Looking at the P&L on Slide 7. As you can see, the increasing net income is mainly explained by below EBITDA movements, coupled with the positive contribution of top line growth and OpEx efficiencies. The depreciation and amortization, less of CapEx contributions, reached EUR 94.5 million, declining by 2.1% of the amounts recorded last year and reflecting the fact that investments over the past 3 years has reached a normalized level. On the provisions and the write-downs line, we recorded a gain of EUR 0.5 million versus a negative amount of EUR 4.9 million in the first 9 months of the previous year. This was the result of the positive outcome of certain disputes in the first 9 months of this year. While the negative amounts recorded in the previous year was affected by the impairment loss booked on the second unpaid invoice by Alitalia before the court initiative process begun. As you probably remember we have discussed this point deeply last year in this period. Given this further positive effect of the D&A and provisions, EBITDA increased by 9.2% year-on-year to EUR 140.9 million.

Financial expenses in the first 9 months of 2018 were slightly higher than the previous year, mainly due to higher financial expenses linked to the utilization of the second tranche of the EIE law as well as a higher financial income recorded in the first 9 months of 2017, driven by balance receivables actualization on Terminal Zone 3. The higher income taxes in the first 9 months of 2018 were due to an increase in taxable income and due to the effect of a deferred tax. Our net profit grew significantly over last year, reaching EUR 98.8 million with increase of 10.2%.

Moving on to Slide 8. Let's have a look at the main movements of our cash flow and the capitalization. Our cash balance in the first 9 months of the year increased by EUR 42 million as a combined effect of EUR 101.7 million of D&A, more than compensating CapEx of EUR 69.2 million where the cash CapEx are EUR 64.2 million. Net profit of EUR 98.8 million, offset in dividends paid and the share buyback. And finally, networking capital absorption, much lower than the same period in 2017. It is worth saying that the amount to working capital absorption in the first 9 months of 2018 was lower by EUR 65 million than in the same period of 2019 -- '17, sorry. Mainly due to higher cash gains for en-route and terminal services, including also the cash in of the en-route portion due from Alitalia, and outstanding amounts due from the airport. This was coupled with lower cash out for payments due to suppliers as well as due to the absence of new balance receivables related to the traffic protection mechanism as we are now in dead band. As a result of the increase in cash and the above-mentioned dynamics and receivables and payables, our net debt as of September 30, 2018 decreased by EUR 62 million to EUR 55.3 million, leading to a net debt-to-EBITDA ratio of 0.2x. The reduction in the net financial position, as explained, is largely driven by a number of seasonal factors concerning the timing of payments and the cash received. As such, we expect the net financial position at year-end to be below the current level. With that, I will hand the call back to Roberta for her closing remarks.

--------------------------------------------------------------------------------

Roberta Neri, ENAV S.p.A. - CEO & Director [5]

--------------------------------------------------------------------------------

Okay. So before opening the floor to your questions, let me recap our key achievements in these first 9 months of 2018. Traffic trends in these 3 quarters of the year has been very strong pointing to an acceleration of traffic for the full year. Also, preliminary data for October seems to confirm this positive evolution, although showing margin generation of traffic growth with respect to the summer period. As you know, these traffic trends included the negative effect of the ongoing utilization of the (inaudible) and the remains from the effect from the new technology and development. The new services we rolled out such as transfer from route are delivering exceptional results and part of the route to traffic increase and weakness in the period as a result of this innovative service. Regarding Aireon, in July, a further batch of payments of (inaudible) was switched into our (inaudible) bringing the current satellite count to 65. By the beginning of 2019, Aireon plans to complete the deployment of each satellite in orbit, and our partners supply these systems to clients worldwide in 2019.

Our cost efficiency plan remains one of our major areas of focus, and in the first 9 months of the year, we delivered the savings on external OpEx of 2.9% over last year. As you know, in July, we reached an agreement with trade union on the economic terms of the labor contract renewal. This agreement allows us to look forward with implementation of other business plan that will assure a profitable and seasonable growth in the future.

Last week, we also communicated the resignation of the Chairman Roberto Scaramella who decided to leave ENAV to take a new professional opportunity. On November [6,] the board appointed Nicola Maione as the Chairman (inaudible). Our 9-month results have confirmed my guidance for 2018 of flat to low single-digit net revenue growth and CapEx in the region of EUR 125 million. With regard to the EBITDA margin, we have raised our guidance from approximately 32% to approximately 33%. Given the combination of positive operational performance and the ongoing OpEx efficiency. Finally, we confirm our target to deliver a 4% increase in dividends per share payable in 2019 for the 2018 financial year. EBITDA is in line with our dividend policy. So with that, we are now ready to answer any questions.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) And we have a first question from Nicolò Pessina from Mediobanca.

--------------------------------------------------------------------------------

Nicolò Pessina, [2]

--------------------------------------------------------------------------------

I would have a few questions about the balance first to all. First question is on the EUR 43 million of balance reversal reported in the ninth month. I wonder if it refers exclusively to the en-route business or include any contribution from a terminal business and your estimate for the full year. Second question on the balance generation that was negative for EUR 25 million. Is it correct to assume that it refers exclusively to inflation? Or is there any other component? And how much of it is from the en-route business? Third question on the stock balance. My feeling is that nearly all the accumulated balance from the past will be utilized by the end of next year. So is it correct to assume that in 2020 there will be a sharp step-down of the tariff to its natural level, having no further balance to offset the decline of the tariffs? And the last question on traffic. I would be curious to know your estimates for the full year and the reason why traffic in Italian airspace is so much stronger than the other countries.

--------------------------------------------------------------------------------

Luca Colman, ENAV S.p.A. - CFO [3]

--------------------------------------------------------------------------------

Okay. I will try to answer your first question, the one that was related to the balance. I just maybe need some deliberation. It was the balance reversal, okay. The balance reversal is mainly related to the en-route. So the main amount that you have is the en-route amount. And I can confirm that to you. Let me also check one thing. Yes. I confirm that the reversal is mainly related to the en-route. Some small is also related to the other terminal zone, but it's really not -- it doesn't really make sense. The balance, okay. Sorry. You asked also what would be the value of the balance at the end of the year for the traffic. Sorry. I just missed -- I'm not sure that it was the right question. Just balance?

--------------------------------------------------------------------------------

Nicolò Pessina, [4]

--------------------------------------------------------------------------------

Well, actually, both.

--------------------------------------------------------------------------------

Luca Colman, ENAV S.p.A. - CFO [5]

--------------------------------------------------------------------------------

Both. Okay, okay, okay. Talking about the balance, as we see it, we will reduce the balance that we are giving back to the -- so the positive balance -- with the negative balance that we're giving back to the line and to the tariff for Terminal Zone 3. So the main impact would be related to that level. That should recover around probably EUR 6 million of balance back. And the reason why is because Terminal Zone 3 works on a cost recovery system. So -- but now after 9 months, what happens is that the level of traffic recorded is higher than the cost because the cost is more or less I would say stable to provide the service while the revenues are seasonal. So that's the reason why the balance for the third area is so high in this period. And that would be readjusted by the end of the year. So the balance of -- sorry, just a second. I'm checking the question. Okay. The balance of the year -- so the balance up year-to-date now and the EUR 25 million are mainly related to the inflation. It is around EUR 10 million. And then we have another more or less EUR 11 million as last year for the balance of Terminal Zone 3, the one that I was explaining before. And then we have about EUR 4 million of balance related to the Terminal Zone 2. And this was actually mainly traffic because as you remember Terminal Zone 2 works in a constant recovery system for the revenue for the traffic. So there is not that dead band as en-route to Terminal Zone 1. So within Terminal Zone 2, we have almost EUR 3 million of balance that we're giving back because it's higher than, and the EUR 1 million that's related to inflation. So this is the EUR 25 million for the balance. For what concerned the balance -- the balance that is left. So receivable actually is -- you need to recover. Yes, we will recover all the remaining balance in 2019 tariffs. The amount is more or less, I would say will be higher than the one which were recovered now in 2018. Other months is very -- seem a little bit higher. And there, we will finish to [trickle] over balance also because 2020 all the other actually, say, main balance will be reset because we're thinking about inflation. Inflation will be reset. As in 2020, we will start the new regulatory period. So more or less, that are the main point. What concern the traffic may be that you asked, as Roberta said, October more or less confirming the level of traffic that we -- until now. Even if we expect that October and November kind of month that are at the lower level of traffic than in the summer season, that's for seasonal reason. But this is quite good because early in the month we had 7.6% only October internal increase of en-route and that was quite good. So with that, we still believe that the forecast for the end of the year will be in line, very much in line of the turnover traffic group, very much in line of the level that we recorded back in the third quarter. So the number that you have I think is (inaudible).

--------------------------------------------------------------------------------

Operator [6]

--------------------------------------------------------------------------------

So we have another question from Mr. Mark [Medpica] from Barclays.

--------------------------------------------------------------------------------

Unidentified Analyst, [7]

--------------------------------------------------------------------------------

I have 2 questions. First of all, can you just remind us what the planned service unit growth as set by Eurocontrol is meant to be for the current period? And the follow-on question to that is obviously if it continues to exceed the plan, does that put particular pressure on the business? And how can you deal with that?

--------------------------------------------------------------------------------

Luca Colman, ENAV S.p.A. - CFO [8]

--------------------------------------------------------------------------------

We're concerned -- the service unit we are now 1.3% below the level agreed with the regulators for 2018 level traffic in the tariff in the performance plan. So in term of service unit, a really, really small amount. If you also -- and only if you compare it to the other European countries. We have -- also 20%, 18% difference of this. We are 1.3% less. That means that we are very close -- in 2018, very close to the service rate that we agreed with the regulator. And in terms of percentage -- I think -- do you think it's okay for the answer? Or you need more detail for that point?

--------------------------------------------------------------------------------

Unidentified Analyst, [9]

--------------------------------------------------------------------------------

No, I think that was fine. So cumulatively, you're still slightly below the 5-year plan.

--------------------------------------------------------------------------------

Luca Colman, ENAV S.p.A. - CFO [10]

--------------------------------------------------------------------------------

Really slightly, 1.3% less (inaudible)

--------------------------------------------------------------------------------

Unidentified Analyst, [11]

--------------------------------------------------------------------------------

And then the second part of my question was very much, if...

--------------------------------------------------------------------------------

Roberta Neri, ENAV S.p.A. - CEO & Director [12]

--------------------------------------------------------------------------------

Yes. Regarding our ability to manage the so strong increase in traffic, I can say that thanks to the -- also thanks to our infrastructure, our investment plan and to the ability of our employees to be flexible in the volatility of traffic. And we are demonstrating to be strongly able to support so strong increase in traffic. In behalf of it over this, over the last summer we maintain a very good result in terms of delay. Also compared with other countries, Europe is the evidence of a good operative organization. Obviously, these abilities reflect in -- a part of our labor costs because part of our labor costs include also those overtime components. And I could say that we are able to contain growing personnel costs within 1.1%. That is a good result considering also that extraordinary component.

--------------------------------------------------------------------------------

Unidentified Analyst, [13]

--------------------------------------------------------------------------------

Okay. That's great. And then my other real question was all across Europe we're seeing the airlines complaining about higher and higher air traffic control related complaints. I understand not in Italy but elsewhere. And essentially the planes are moving between the different airspaces on a regular basis. Do you agree with the criticism that a lot of the poor performance is coming from planned kind of lower investments as set by Eurocontrol a few years ago? And does Eurocontrol have a mechanism in between the 5-year periods that it sets, to intervene and force the ATCs to invest more in people and equipment, and therefore, increase the capacity in the system? I'm not sure I totally understand what Eurocontrol can do once it has set the program for the 5-year period if that's clear.

--------------------------------------------------------------------------------

Roberta Neri, ENAV S.p.A. - CEO & Director [14]

--------------------------------------------------------------------------------

We have to say that obviously, the growing traffic is extraordinary one, in the sense that that is strongly higher expectation. So the records of the regulator is aware of this fact. The delay in the capacity is an important issue that we keep discussing with the regulator. Also in the perspective of the less regulatory period I have to say in this environment pressure on the capacity is higher than pressure on costs. So we can consider this framework also in the perspective of the new tariff for the next regulatory period.

--------------------------------------------------------------------------------

Unidentified Analyst, [15]

--------------------------------------------------------------------------------

Okay. I guess the second part -- what I was trying to get at was, given the growing problem, which hasn't affected you yet, but as a knock on from the problems in France and Germany, could do at some point, do you have -- can Eurocontrol step in halfway through a regulated period, if you'd like, and say to the ATCs, we're revising upward the service unit budgets and we won't need to spend more money?

--------------------------------------------------------------------------------

Roberta Neri, ENAV S.p.A. - CEO & Director [16]

--------------------------------------------------------------------------------

Our investment plan is perfectly coherent with the constraint set by the regulator. So I have to say it really better on our side we have no problem in defense from accelerated investment or something else. Our average of EUR 150 million for the next year is perfectly in line with this kind of a requirement. Obviously not all the countries in [Europe] are in the same condition, so I have to say that there is -- there are some countries that are receiving the pressure from the regulator to align or to review their investment plan to be focused on the performance of the [service].

--------------------------------------------------------------------------------

Luca Colman, ENAV S.p.A. - CFO [17]

--------------------------------------------------------------------------------

Yes. If I may add, it's just 1 point, that this is ruling discussion with Eurocontrol with the European Commission for the next regulatory period. Because the point is now that the [position] actually by the investment plans are in the performance are part of their calculation, meaning the performance that is asked also in the tariff. And so the point is, from one side, they ask to perform even in their investment, but from the other side, the ask for capacity, so for investment. And that's one point we are starting now with Eurocontrol that it could be also a good idea. We're trying to explain them -- it's the kind of discussion at this moment. If -- which approach you use for the next regulatory period. If I have less pressure on the general -- on the tariff in the book, or to keep some part of some -- for example, the investments, some costs out of the performance, that's the proposal that actually was said and done, just to have not this problem in place.

--------------------------------------------------------------------------------

Unidentified Analyst, [18]

--------------------------------------------------------------------------------

Yes. And I suppose it's -- the balance is always between creating efficiency within the ATCs and creating the capacity to absorb the growth that the airlines want to put in, yes? I mean, I'm sure you would agree. But we're seeing a number of airlines scaling back their growth plans, particularly for 2019, a little bit for winter 2018 because they're worried about ATC, and, in some cases, airport capacity constraints, which can't really be a good thing, yes?

--------------------------------------------------------------------------------

Luca Colman, ENAV S.p.A. - CFO [19]

--------------------------------------------------------------------------------

It is exactly what we are discussing now and one we are defining with the regulator. The European -- also (inaudible) European together with other countries at this point. The point is the good balance between investment, cost efficiency, capacity because when you need debt capacity and so this means not delay but also means costs because you keep capacity (inaudible) wIth people and investment. And that's our 2 points. So -- it's really the point of the discussion at the moment at the regulatory level.

--------------------------------------------------------------------------------

Unidentified Analyst, [20]

--------------------------------------------------------------------------------

Okay. That's fine. And my final question. Can you just remind us at what point will the Eurocontrol plan, the service unit growth plan for the next regulatory period, at what point does that become finalized? Is that in 2019 or not until 2020?

--------------------------------------------------------------------------------

Luca Colman, ENAV S.p.A. - CFO [21]

--------------------------------------------------------------------------------

No. At the moment, we have the last forecast given by Eurocontrol just a couple of weeks ago. And this is -- this should be -- I mean, at the moment it is -- the forecast would be used for the country to plan [2020 -- 2023 actually]. That would be the main -- I would say the main forecast that will be used. We don't need -- we don't have to follow exactly that number, but this is the main, I would say, forecast that each country will use. And as you probably know, it's a little bit better than the one that we have -- still now, but that's by definition. To that, I would say '18 is more or less the one we believe to reach for the year after more or less -- maybe 2019 will be too aggressive, but for the other years are quite in line with our expectation, too.

--------------------------------------------------------------------------------

Operator [22]

--------------------------------------------------------------------------------

So we have no further question. (Operator Instructions) And we have a question from Luigi De Bellis from Equita SIM.

--------------------------------------------------------------------------------

Luigi De Bellis, Equita SIM S.p.A., Research Division - Analyst [23]

--------------------------------------------------------------------------------

Just 3 clarification. On LP3 regulation if you could just update on the ongoing negotiation and the next step ahead, the timing in particular. On the net financial position, I didn't catch your indication. Do you expect net debt by year-end below the EUR 55 million of 9 months? And the last question on 2019, if you could elaborate on the trend expected for tariffs for terminal tariffs and costs.

--------------------------------------------------------------------------------

Luca Colman, ENAV S.p.A. - CFO [24]

--------------------------------------------------------------------------------

Okay. For the second one, yes. For the first one, LP3, there is a new draft given by the commission -- issued by the commission just a couple of days ago. On this draft are starting some analysis and some discussion with the commission. We're going to have some meeting within our country and with other countries with the regulator within this and next week. This probably will finalize probably -- I would say the final draft of regulation that will probably (inaudible) it will be discussed in the next meeting -- the European Single Sky (sic)[Single European Sky] meeting. The target for the commission is November. It's still November. They'll try to close the regulation framework and the target within December. That's still the target. But probably the next weeks are the one that really will show us if it's possible or not. For what concerns 2019 tariff, I would say the main important one that we have is en-route. That will be -- the tariff applies will be a little bit lower a couple of euros, but not big actually because for the reason that we know actually, but it will be like a couple of euros lower than the one we are applying now in 2018.

--------------------------------------------------------------------------------

Luigi De Bellis, Equita SIM S.p.A., Research Division - Analyst [25]

--------------------------------------------------------------------------------

Okay. And on the terminal tariff and costs?

--------------------------------------------------------------------------------

Luca Colman, ENAV S.p.A. - CFO [26]

--------------------------------------------------------------------------------

Yes. Terminal tariffs for Terminal Zone 2 and 3 we will decrease. The tariff Terminal Zone 1 for technical reason will be a little bit higher than -- and really a little bit higher than the one we are applying now. But they will be published -- are actually published in just a couple of weeks, I would say. En-route, very shortly. For -- and for Terminal Zone 3 probably we need to wait to December. But for that Terminal Zone 1, 2 and the en-route that would be at the end of November that would be more or less defined. But -- actually because they are already defined it.

--------------------------------------------------------------------------------

Operator [27]

--------------------------------------------------------------------------------

So we have another question from Nicolò Pessina from Mediobanca.

--------------------------------------------------------------------------------

Nicolò Pessina, [28]

--------------------------------------------------------------------------------

Just a couple of further questions. The first one is on the new hiring. You agreed with the labor unions back in July. If you could remind us the timing if we will see anything in the last quarter of this year or if it's all in 2019. And second question. On the nonregulated revenues, if you could give us an outlook on what you expect in 2019? If there's any new project you are working on or anything new happening in this business line?

--------------------------------------------------------------------------------

Roberta Neri, ENAV S.p.A. - CEO & Director [29]

--------------------------------------------------------------------------------

Okay. Regarding the hiring, we are going to plan for the end of 2019. It is our target and it is in line with our industrial plan. And regarding the second question, no regulated business. We have actually confirmed the targets by -- in 2022. So we are planning in detail revenues from nonregulated business, 40,000 in '19. Now by the end of -- by the end of the 1st quarter of December when we have a plan in detail, also on the data of the portfolio that we have in place and of the new order that we are going to acquire.

--------------------------------------------------------------------------------

Operator [30]

--------------------------------------------------------------------------------

So we have no further questions.

--------------------------------------------------------------------------------

Stefano Raffaello Songini, ENAV S.p.A. - Head of IR [31]

--------------------------------------------------------------------------------

Thank you very much, operator. Thank you very much, ladies and gentlemen, for attending this call. If you have any other follow-up questions, please reach out to be or Alexandria or the IR team here in Rome. Thank you very much, Roberta. Thank you, Luca.

--------------------------------------------------------------------------------

Roberta Neri, ENAV S.p.A. - CEO & Director [32]

--------------------------------------------------------------------------------

Thank you. Thank you Bye-bye.

--------------------------------------------------------------------------------

Luca Colman, ENAV S.p.A. - CFO [33]

--------------------------------------------------------------------------------

Thank you. Bye.

--------------------------------------------------------------------------------

Operator [34]

--------------------------------------------------------------------------------

Ladies and gentlemen, this concludes today's conference call. Thank you for attending. You may now disconnect.