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Edited Transcript of ENAV.MI earnings conference call or presentation 12-Mar-20 3:00pm GMT

Full Year 2019 Enav SpA Earnings Call

ROMA Jun 8, 2020 (Thomson StreetEvents) -- Edited Transcript of Enav SpA earnings conference call or presentation Thursday, March 12, 2020 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* 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

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Conference Call Participants

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* Luigi De Bellis

Equita SIM S.p.A., Research Division - Co-Head of Research

* Nicolò Pessina

Mediobanca - Banca di credito finanziario S.p.A., Research Division - Analyst

* Rishika Dipak Savjani

Barclays Bank PLC, Research Division - Assistant VP

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Presentation

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Operator [1]

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Good afternoon. This is a Chorus Call conference operator. Welcome, and thank you for joining the ENAV's Full Year Results Conference Call. (Operator Instructions)

At this time, I would like to turn the conference over to Stefano Songini, Head of Communications and Investor Relations of ENAV. Please go ahead, sir.

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

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Thank you very much, operator. Good afternoon, ladies and gentlemen. Welcome to ENAV's 2019 results call. And good morning to those of you connecting from the U.S. I'm here in Rome with Roberta Neri, our Chief Executive Officer; and Luca Colman, CFO, who will be walking us through the formal presentation. As always, we will take your questions after the presentation.

With that, I will hand the call over to Roberta Neri.

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

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Thank you, Stefano. And good morning to everyone of you and welcome to ENAV's 2019 results call. This has been a positive year for ENAV, thanks to the strong traffic dynamics seen throughout the year with en-route traffic up 6.5% year-on-year on top of a 9.3% growth witnessed in 2018.

More in detail, ENAV showed by far the best performance among the big 5 European countries in terms of traffic growth despite the ongoing closure of the Libyan airspace as well as in terms of quality of services in most of 2019.

Our net revenue has increased by 1.5% year-on-year, reaching EUR 902.9 million, driven by increased revenues from operations, up 2.9%, reaching EUR 951.8 million, offset by lower other operating income, which declined to an amount of EUR 58.1 million and by higher negative balance. Now we will analyze in more detail the balance. Both en-route and terminal businesses delivered a solid growth, increasing 2.1% and 3.8%, respectively.

Both dynamics were the result of robust traffic trends, also as a result of ENAV's excellent performance in terms of quality and efficiency routes and of procedures such as Free Routes I mentioned again, which has helped us attract more flights to cross Italy airspace as demonstrated by the flights increasing 9.3% year-on-year. Also thanks to the rerouting of certain flights due to the Iran airspace limitation. As a recognition, in 2019, we recorded a negative balance of EUR 87 million compared to a smaller negative balance of EUR 80.7 million recorded in 2018. We will explain these items in further detail later on as I told before. Revenues from our nonregulated business amounted to EUR 19.2 million, up 42% year-on-year. This is mainly thanks to the revenues from the recently acquired IDS AirNav subsidiary. The growth in our top line and the ongoing efficiencies in external costs allowed us to deliver a 1.8% growth in EBITDA, reaching EUR 302.9 million with a slight increase in margin to 33.5% above the 2019 guidance on EBITDA margin.

As of December 31, 2019, we recorded a net profit of EUR 118.3 million with a 3.4% increase over 2018. It's worth noting that 2019 the net profit is double than net profit of EUR 66.1 million in 2015, the year prior to our IPO.

CapEx for the year was EUR 116.3 million, in line with the guidance provided for 2019. Our capital structure remains very solid and provide us with significant flexibility going forward. In line with our dividend policy to pay out not less than 80% of our equity free cash flow, we propose a dividend payment in 2020 of EUR 0.2094 per share, 4.8% higher than the EUR 0.1998 per share paid in 2019.

Moving on to Slide 2. Let's have a close look at the solid traffic trends recorded in 2019.

As I previously highlighted, en-route traffic performance was particularly strong, up 6.5% year-on-year, driven by a significant increase in both international flights, up 5.7%, and overflights up 9.3%, with -- we attribute in part to the positive effect of the Free Route services, which encourages airlines to use the Italian space for a longer distance as well as to ENAV's excellent performance in punctuality. We remain at a very top position in terms of punctuality.

The trend also reflects the increased flights from -- in 2 other European countries and countries of the Mediterranean region as well as traffic related to U.S., to Gulf regions and to Russia. It's worth saying that the growth in traffic was achieved in spite of the ongoing limitation of the Libyan airspace. The situation didn't change.

National en-route traffic also displayed positive trend with service units up 2.9% and the flights up 1.5% year-on-year. This trend mainly reflected the greater distance flown with 6.3% growth in service units related to flights connecting direct routes more than in Southern Italy as well as an overall increase in the number of flights up 6.1%.

The [deceleration] witnessed over the last months of the year is partially explained by the temporary closure of Milan Linate Airport for a 3-month period as well as by the seasonal decrease in traffic in winter. Terminal traffic trends in 2019 also accelerated with a 3.5% increase in service units, driven by traffic growth in all charging zones.

More specifically, the increase was mainly determinated by a 4.8% growth in international flights and with a growth of 1.4% in national flights.

As demonstrated by these traffic trends, Italy has a well-diversified business mix of routes and airlines that provide us also with favorable exposure to international traffic trends. About 82% of our en-route services were generated from international flights and overflights, while only 18% were related to domestic flights.

In next slide, Slide 3. We have indicated the en-route traffic volumes for 2019 from the 5 largest European countries, which confirm Italy as the fifth largest country by service units behind France, Germany, United Kingdom and Spain. Thanks to these traffic dynamics, 2019 ended with actual service units 1.5% above planned service units, thereby within the dead band range of plus/minus 2%, which allows us to benefit from 100% of the revenue from traffic higher than expected.

Moving on to our operational performance, I'm very delighted to say -- to highlight our results in average minutes of delay per assisted flights, which also in 2019, as you can see in the chart, so ENAV delivering the best performance amongst the big 5 compared to the largest set by the regulator -- to the target set by the regulator. We were, in fact, about 80% below the target with an average of 0.021 minutes of delay per flight versus a target of 0.11. These results justifies once again the ability of all our staff to deliver services in a significant way and with outstanding performance with either traffic evolving at 6.5% year-on-year with a peak of more than 9% growth in summer, in July and -- in June and July. It also enables us to achieve an economic bonus of about EUR 7 million as foreseen by the bonus mechanism set by the regulator, which we had achieved for every year since its introduction, and we remain fully focused on achieving this also going forward.

Looking at our revenues in more detail on Slide 4 of our presentation. As you can see, net revenue was up 1.5% versus 2018, mainly driven by increase in revenues from operations, up 2.9%, although slightly counterbalanced by lower other operating income and higher negative balance. More in detail, our en-route revenue grew 2.1% year-on-year to EUR 689.4 million, driven by the strong increase in traffic, up 6.5%, combined with a lower applied tariff of EUR 77.96. As you would recall, the regulated tariff decreased by 4% from EUR 74.4 in 2018 to EUR 71.1 in 2019 for en-route while the balance accounts for the difference with the applied tariff.

Terminal revenues growth in 2019 posted an increase of 3.8% year-on-year to EUR 251.1 million, as a combined effect of solid traffic trends, up 3.5% overall, coupled with the lower tariffs in traffic zone 2 and zone 3. The negative balance of EUR 87 million is the result of higher balance reversal applied in the 2019 tariffs for a negative amount of EUR 56.9 million compared with minus EUR 55.2 million in 2018 combined with higher negative balance from terminal zone 2 that was characterized by traffic higher than expected. Finally, we also recorded an increasing negative balance from inflation, given that the actual inflation was 0.6%, lower than the 1.6% forecast.

Revenues from our nonregulated business amounted to EUR 19.2 million, increasing by about 42%, versus the EUR 13.5 million of revenues in 2018, mainly as a consequence of the activities carried out by our new subsidiary, IDS AirNav, consolidated as of July 18, 2019, for a total value of EUR 10 million, more than compensating the slowdown determinated by the delayed project in Libya.

Other operating income mainly included the grants for safety and security of EUR 30 million and other revenue components that Luca will explain further on. In a nutshell, the lower amount of other operating income is mainly due to a lower level of financing for common European projects in 2019 compared with 2018.

Moving on to costs on Slide 5. In 2019, we continued to deliver on our OpEx efficiency plan partially offsetting the effect of higher personnel costs due to strong traffic. As you can see on the top graph, we recorded external cost of saving of EUR 7.9 million, a 5.6% reduction year-on-year. We were able to reduce the cost of several services, such as the utilities and telecommunication costs, declined by 8.4% through full IP network and fee renegotiation with the supplier, so we had a strong impact.

We also saw the reduction of some expenses related to the activities performed abroad by our subsidiary, TechnoSky, as well as the settlement of a dispute bringing a positive effect of EUR 1.3 million.

Finally, we recorded the lower leases and rental costs as a result of adoption of IFRS 16.

Personnel costs in 2019 increased to EUR 497.1 million, up 3.3% year-on-year. This result is the combination of several factors. First of all, a marginal increase in fixed pay as a net effect of 2018 labor contract renewal, the adoption by TechnoSky of the ENAV contract and the inclusion of new employees from IDS AirNav, which accounted for a total cost of EUR 3.7 million. These effects were partially offset by head count reduction of 102 employees on average, excluding the effect of IDS acquisition, obviously.

Secondly, we experienced, I can say, a material increase in variable pay and in social securities costs as a consequence of 2019 Summer Season agreement and overtime due to the high traffic growth, only partially affected by a reduction in voluntary redundancy costs.

At the end of 2019, our organization reached an account of 4,195 people as a net effect of head count reduction of 65 employees and 146 new employees from IDS AirNav. So lastly, capitalized internal work was stable year-on-year of about EUR 31 million.

Thanks to our top line growth and an increased efficiency, we have been able to steadily grow our EBITDA. And as you can see on the slide -- at Page 6, this has grown over the 3 last years at an average annual rate of 6.8%, delivering a material improvement also in terms of margin we got from 52.2% in 2017 to 53.5% in 2019.

At the same time, while continuing to invest around EUR 115 million -- EUR 120 million year-over-year, we have been able to consistently improve our operating cash flow, defined as EBITDA minus CapEx, which in 2019 reached EUR 187 million with a cash conversion of 62%. The strength and the resilience of ENAV's cash generation is also confirmed by our free cash flow to equity, which stands at EUR 141 million at the end of 2019. This has enabled us to distribute an attractive and growing dividend over recent years and to propose a dividend payment for 2020 of EUR 115.2 million, EUR 0.2094 per share for the 2019 financial year. This amount represents a 4.8% increase related to the dividend distributed last year, and it is in line -- and the amount of dividend is in line with our dividend policy to pay out no less than 80% of the normalized equity free cash flow.

Now I'll leave the floor to Luca to go in more detail about our economics and the financial figures.

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

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Thank you, Roberta. As you can see on Slide 8, our net revenue in 2019 grew by solid 1.5% year-on-year, driven by a strong performance in our revenue from operations, both in en-route and terminal business, which was partially offset by a negative balance and lower other operating income.

The growth in revenue from operations came from EUR 14 million revenue increase in en-route and a EUR 8.5 million revenue increase in our terminal activities, mainly thanks to the strong traffic growth over the year, slightly counterbalanced by lower tariffs. On the other hand, we saw a significant negative balance in 2019, increasing by EUR 6.3 million versus 2018. The difference is explained by a combination of several elements. First, in a higher negative balance of EUR 2 million created in the period that was terminal zone 2, given that actual traffic was much higher than the forecast. Secondly, a higher negative balance from inflation related to bulk en-route and terminal as a result of actual inflation being 1 percentage point lower than forecast for 2019. Last, but not least, higher balance utilization in 2019, which amounts to a difference of EUR 1.7 million versus 2018.

Furthermore, net revenue saw a marginal decline in exempted flights. With regards to nonregulated activities, revenues were EUR 5.7 million higher versus 2018, reaching EUR 19.2 million. The increase was mainly related to IDS AirNav, consolidated from July 2019, which contributed with a total net revenue of EUR 10 million. The highest revenue generating product accounting for EUR 7.4 million sales to [world clients] was the so called FPDAM software that provided Aeronautical Information Management Services.

IDS AirNav contribution to nonregulated revenues more than compensated the slowdown determinated by the delayed projects in Mitiga and Tripoli in Libya. Other operating income mainly includes the grants for safety and security of EUR 30 million, which were stable year-on-year. The decline of EUR 7.7 million is mostly explained by a lower level of common European financed projects secured in 2019 for a total amount of EUR 4.9 million with respect to a higher amount of EUR 9.7 million related to the P&L in 2018.

Our EBITDA in 2019 grew by 1.8% to EUR 302.9 million, driven by our top line growth and the continuous focus on efficiency, also partially offset by higher personnel costs. EBITDA margin increased by 12 basis points to 33.5%.

Looking at the P&L on Slide 9, you can see the increase in net income is mainly driven by the positive contribution of the top line growth and OpEx efficiencies and in part by below EBITDA movements. Depreciation and amortization net of CapEx contributions reached EUR 130.5 million, growing by 1.3% over the amount recorded last year. The increase was mainly related to the amortization of intangible assets resulting from the purchase price allocation of the IDS AirNav acquisition.

On the provisions and write-downs line, we recorded a loss of EUR 1.8 million versus a loss of EUR 4.3 million in the previous year. This was mainly the result of lower loss provisions for credit receivables in 2019 compared to a higher amount reported in 2018 for the impairment loss of Alitalia, amounting to EUR 3.5 million related to terminal services. Given this combinated effect of D&A and provisions, EBIT increased by 3.8% year-on-year to EUR 170.6 million.

Net financial expenses in 2019 were higher than the previous year, mainly due to lower financial income from balance receivables actualization in 2019 versus 2018 and lower interest income received in 2019. The higher income taxes in 2019 were due to an increase in taxable income as well as the factor on the P&L related to certain deferred tax items.

Our net income grew over last year, reaching EUR 118.3 million with an increase of 3.4%.

Moving on to Slide 10, let's have a look at the main movements of our cash flow and financial position. Our cash balance in 2019 improved by EUR 133 million, as a combined effect of many factors.

First of all, net profit of EUR 118.3 million, almost fully offset by EUR 108 million dividend paid. Secondly, we have CapEx of EUR 116.3 million with a cash CapEx of EUR 64.8 million and the acquisition of IDS AirNav for EUR 41.1 million, compensated by EUR 139.5 million of gross D&A.

Then we can see debt repayments and a minor variation in long-term liabilities accounting for EUR 15.5 million, partially compensated by the EUR 6.6 million of capital increase related to these lines.

Finally, we have a positive contribution from net working capital and other assets and liabilities, mainly driven by the dynamics of trade receivables and payables. As a result of the increase in cash and no material changes in gross debt, we have net cash as of December 31, 2019, which leads to a net cash to EBITDA ratio of 0.4x.

With that, I will hand the call back to Roberta for her closing remarks.

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

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Okay. Thank you, Luca, and okay, let me now give you our view on the main variables that can impact on 2020. Obviously, I cannot speak about the virus and in light with a significant impact of COVID-19 on air travel over the last 2, 3 weeks and is currently affecting the potential implication on the traffic performance for the full year 2020. Due to the very recent and short period of impact of the coronavirus on the Italian air traffic sector, the data points available and the uncertainties on the potential development are insufficient at this point to determining the potential impact of the full year results. Our preliminary estimates on en-route traffic in Italy from January 1, 2020, until February 2019 show -- sorry, obviously, February 29 of the current year show a growth in flight movement of about 3% over the same period of the previous year, although there is visible shutdown in the last 2 weeks of February, which however remained positive, mainly thanks to the growth of overflight. We managed, obviously, also a slight decrease in part -- relevant part in terms of components of traffic managed by ENAV.

It's worth noting that the European regulation applicable to air navigation service providers includes traffic risk mitigation mechanism in the

Cases where traffic is below, significantly below the traffic planned for the 5 years regulatory period. Thanks to this mechanism, the company expected to be able to offset a significant part of the impact on revenues resulting from the decrease in traffic. And we are planning additional efficiency measures to mitigate the impact on margins.

With regard to the regulations, I note that you are interested to know and -- the RP3 developments, we confirm that the negotiation process is still underway. Based on the formal submission by Italy, the applied tariff -- 2020 tariffs are the following: EUR 66.02 per service unit for en-route, 177-point -- EUR 167.33 per terminal zone 1, EUR 167.56 for terminal zone 2 and EUR 298.93 for terminal zone 3. We are applying -- currently, we are applying these tariffs.

Given the above described situation, we will provide our guidance for 2020 in the first -- our first quarter results are released on May 14, 2020.

Obviously, last but not the least, we confirm our commitment to our medium-term investment plan, focus on technological innovation and quality of service.

Before opening the floor to your questions, let me recap our key achievements in 2018. Traffic trends have been strong over this year, especially over the summer season and for the overflight segment, growing 9.2% year-on-year.

ENAV remains at the forefront of the new technologies development and quality of services as confirmed by our best-in-class performance in terms of punctuality as well as by our ongoing investments in both maintenance and upgrading the CapEx.

We also remain firm and committed to pursuing a socially and environmentally sustainable business model. We are very focused on it. Over the past months, we hired about 70 new employees, among which several young controllers and engineers. As for the other activities of our businesses, we are positive on the integration between nonregulated products offered by IDS AirNav and the rest of ENAV Group, which will enable us to further increase the share of revenues from nonregulated business.

On top of that, also our subsidiary, D-Flight started to generate its first revenue at the beginning of the current year. Furthermore, Aireon has confirmed to enlarge its customer base proven by important contracts signed over the year, such as the one signed with the Dutch Caribbean and the one with India. Moreover, Aireon recently signed a new agreement with Eurocontrol. It is important to enhance air traffic flow management in Europe. Apart from its positive effect on Aireon revenue,

the agreement with such a meaningfully player as Eurocontrol is an important signal of Aireon potentially because in Europe it's very important to get such a kind of contract.

As you may note, at the beginning of February, we also submitted our bid for the provision of terminal services in 12 Spanish control towers. The outcome of this competitive bid will be disclosed within the summer by AENA, which is the auctioneer -- the operator that launched the bid and the owner of the 12 control towers. Last but not the least, we remind our decision to propose a dividend of EUR 0.2094 per share, up 4.8%, versus EUR 0.1998 per share in 2018.

So with that, we are now ready to answer any questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions)

The first question is from Nicolò Pessina from Mediobanca.

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Nicolò Pessina, Mediobanca - Banca di credito finanziario S.p.A., Research Division - Analyst [2]

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First question is obviously on the virus. I would like to ask if you can give us a sense or maybe just to call it, a little bit comment on how overflights are performing in March?

Second question on the regulation for RP3. I wonder if it's possible that Eurocontrol revises the traffic (inaudible). Well, first of all, we don't really have much details about the regulation for the new period. I wonder if the traffic agreement have already been agreed. And if there is a possibility that it can be revised. Also in consideration that ENAV is applying a preliminary tariff based on a certain estimate that could be reduced given the context and the impact of the virus. I would like also to ask if you find possible that Eurocontrol may decide to revise the traffic balance mechanism given the sharp decline of traffic volumes we are seeing in these weeks? And the final question on the Spanish control towers. If you may comment on the competition that you believe that there is for this business opportunity, do you see strong interest also from other players? Or do you think it will be just a matter for few specialized players?

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

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Okay, Nicolò. Starting from your first question overflight traffic in March. Unfortunately, we're not ready to -- we have not available -- availability of data considering that obviously traffic is reducing. The component of overflight is the component that is -- I can say important in our traffic components. But unfortunately, we have no data in terms of traffic and in terms of unit services until the end of February. Also -- and we have to consider that in the second half of February the effect of virus was already a little bit more. We reported an increase in traffic of 3%.

We moved some days a bit before, but obviously we expect that also the flight is not moving.

About the second point, Luca can explain better than me considering that he is dialoguing -- speaking with the regulator also during the phase so the process is in place.

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

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Okay, talking about -- so the second question was related to the traffic forecast of Eurocontrol.

We just had an internal communication some days ago from Eurocontrol (inaudible) that say that as they were supposed to publish -- you know that not taking into consideration with the regulation at the moment, but from what they do is every 3, 4 months, every quarter actually they published a new forecast. This could be used or not depending on which period you are in the regulation for updating the plan or the business plan -- the performance plan. I will come back to the answer to this -- sorry, to this point. I think it is important to see that effort will update traffic, so the internal communications say that they are not going to publish this week. They were supposed to publish this week the new forecast because they want to take in consideration also what could be the impact of the coronavirus effect. So saying that, this doesn't mean that automatically you have to update the performance plan and the forecast that we have in the performance plan, because by regulation the one we're supposed to use is the forecast of October -- sorry, February 2019. And that is the one we mainly use. So this doesn't mean that automatically will change the plan. So that, I guess, answers partially your question.

Talking about the -- sorry, I think it's okay to answer?

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Nicolò Pessina, Mediobanca - Banca di credito finanziario S.p.A., Research Division - Analyst [5]

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Yes, absolutely.

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Luca Colman, ENAV S.p.A. - CFO [6]

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Okay. And, therefore, what concerns the mechanism, the risk-sharing mechanism in general term as is a regulation mean we cannot really change other than changing the law. And in changing the law, you have to change the -- you have to acquire in some way the agreement of all the states. In this moment, we don't -- I mean, we don't think that this could change. Otherwise, you just -- you have another scenario, another regulation framework, and this probably will not end. And talking about the third point, maybe Roberta, you can give some...

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Roberta Neri, ENAV S.p.A. - CEO & Director [7]

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About the bid in Spain, we know that the process is going on. We expect that around -- before the summer day, we will complete the process to choose 2 operators for the management of the 12 airports. It's a competitive bid considering that the other -- some other ANSP -- European ANSP are participating. It's a requirement to be a nice navigation service provider to offer for the bid. So the effects is in place. German FerroNATS, this is the current operator. And FerroNATS is a joint venture between Ferrovial and NATS. Obviously, also the other operator, which is Saerco, is a Spanish operator in place in the management of the smaller -- lots of the airports. And Avinor also is participating to the bid, the -- based on air navigation service provider. This is the situation.

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Operator [8]

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The next question is from Luigi De Bellis from Equita SIM.

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Luigi De Bellis, Equita SIM S.p.A., Research Division - Co-Head of Research [9]

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One question for me. On the cost. How much flexibility do you have on costs for 2020 in case of a strong reduction of traffic? Could you give us more color on this? And so in a scenario where do you touch the lowest part of the dead band, what impact do you expect on EBITDA -- at EBITDA level?

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Roberta Neri, ENAV S.p.A. - CEO & Director [10]

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We have to consider that the large part of our costs are related to personnel costs. And large component of our personnel costs, obviously, is fixed, considering the salary and the components related to the people that work in our group. There are some components that are variable, and it is very evident in the figure of 2019 because we reported -- we showed that the large part of the increase of personnel costs in 2019 compared with 2018 were related to overtime and a specific agreement for the management of highest level of traffic in summer. So what we have elaborated in the worst of scenario is the leverage that we can use to reduce personnel costs, in particularly. And in particular, the variable component of personnel costs. Maybe overtime, productivity part of cost, the variable cost of personnel linked with productivity and some other components of costs such as national mission or maybe this kind of cost.

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Operator [11]

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(Operator Instructions) The next question is from Rishika Savjani from Barclays.

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Rishika Dipak Savjani, Barclays Bank PLC, Research Division - Assistant VP [12]

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Few questions from me. First one is just around the traffic assumption that the regulator has used the 2020 tariffs that you're currently applying. Can you please confirm what that number is?

And then secondly, again, around traffic in the protection mechanism, I understand that this provides you with a degree of P&L and revenue protection, can you just remind us on how we should think about the cash implications? Am I right in thinking that any lost traffic will be felt on the cash flow statement and will impact the free cash flow number? And then maybe just one more question on the virus situation. If this had not happened and you were budgeting for a normal year under the new regulation, what would have been the margin guidance that you would have been giving us today had the situation not happened?

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Roberta Neri, ENAV S.p.A. - CEO & Director [13]

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Okay. For the first question, Luca will give you more detail about the balance mechanism and the traffic assumption at the base of the RP3.

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Luca Colman, ENAV S.p.A. - CFO [14]

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Okay. Talking about '20, I guess, you asked me a goal for 2020. So the forecast that's been used was the one I told you before is of February 2019.

There were controlled stuff for the forecast. So using that number, but if you take in consideration the actual figure for 2019, you probably -- you don't find the same increase of some of service units you have now in the report. And the reason why it is because the actual is higher -- 2019 is higher than the one forecasting. We are consolidating that report.

This is just to say that the increase that more or less is considered now is 3.5% versus the actual data 2019, while in the report, probably you find 4.5% -- 4.3% I guess, versus the forecast of 2019 service unit. So in that, going to the traffic risk mechanism, as you probably can imagine, we have analyzed a little bit more in detail what could be the impact. As we know the -- theoretically talking the impact -- the maximum impact that we may have is around 10% of traffic decline. Within the 2% all the loss is on our shoulder, then we have a 30% and the 70% is -- we are able to charge to the airline that tariff with a balance mechanism.

If we take into consideration -- yes, so saying that what we can see is, for sure, we will have a less income and less cash within 2020 for the reason I told you before. And more or less, if we take in consideration en-route, this is the main, let's say, the main contribution -- contributor. We are talking about EUR 30 million. It's a EUR 30 million that we'll ask. If the traffic will decrease by 10% so at the end of the year, we will have for that en-route EUR 30 million more or less that we'll recover with the balance mechanism. And impact for what concerned are the 2 terminal zone, so terminal zone 1 and 2 more or less we are talking about together around EUR 5.5 million.

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Rishika Dipak Savjani, Barclays Bank PLC, Research Division - Assistant VP [15]

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Okay. That's very clear. And maybe just a final question around the margin that you would have been targeting under the first year of the new regulation. If we had not had the impact from the virus, would it have still been a very similar margin under the new regime to the previous regime?

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

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Obviously, without considering the negative impacts coming from the virus situation, we forecasted an increase in margin for 2020 on the basis of the tariffs that we are applying and the basis of a normalized increase of traffic. Obviously, this is the point, the critical point to confirm or to define the guidance for the current year.

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

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Just to complete also my answer, the impact that we are seeing around EUR 35 million, EUR 36 million or less revenue in 2019 -- sorry, less cash 2019 will impact our net result. Taking into consideration what could be the action that we can put in place, above all related to the variable part of cost of personnel of around EUR 10 million at the bottom line, so the net revenue more or less that could be the impact.

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Operator [18]

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(Operator Instructions) There are no more questions at this time.

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Stefano Raffaello Songini, ENAV S.p.A. - Head of IR [19]

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Thank you very much, operator. Thank you, ladies and gentlemen, for joining us on this call. Obviously, please reach out to myself and Alexander in the IR team for any further follow-up questions. Thank you very much once again. Thank you, Roberta. Thank you, Luca. Bye-bye.

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Luca Colman, ENAV S.p.A. - CFO [20]

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Bye, thank you.

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Roberta Neri, ENAV S.p.A. - CEO & Director [21]

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Bye-bye. Thank you.

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Operator [22]

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