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Edited Transcript of ENAV.MI earnings conference call or presentation 13-Nov-19 3:00pm GMT

Nine Months 2019 Enav SpA Earnings Call

ROMA Nov 30, 2019 (Thomson StreetEvents) -- Edited Transcript of Enav SpA earnings conference call or presentation Wednesday, November 13, 2019 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 Communication and IR

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Conference Call Participants

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* Arthur David Truslove

Crédit Suisse AG, Research Division - Research Analyst

* Juri Zanieri

Kempen & Co. N.V., Research Division - Analyst

* 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 the Chorus Call conference operator. Welcome, and thank you for joining ENAV's 9 Months 2019 Results Conference Call. (Operator Instructions).

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

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

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Thank you, operator. Good afternoon, ladies and gentlemen, and good morning to those of you calling from U.S. and welcome to ENAV's 9 months results call. As always, we're joined here in Rome by Roberta Neri, our Chief Executive Officer; and Luca Colman, our CFO. They will walking you through the formal presentation. After that we will be happy to take any questions you have on the call. With that, I will hand the call over to Roberta. Roberta?

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

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Thank you, Stefano, good afternoon to everyone, and welcome to ENAV's 9 Months of 2018 -- 2019, sorry, results call. Our 9-month performance shows a further acceleration in traffic growth with en-route traffic up 7.6% year-on-year, which indicates the activeness, I can see of the Italian market, as well as airlines' reliance on ENAV's quality of services.

In line with recent periods, ENAV displays by far the best performance amongst the big 5 [PS] countries in terms of traffic growth despite the ongoing closure of the Libyan airspace.

With regard to the topline, our net revenues in the first 3 quarters of 2019 increased by 2.3% year-on-year, reaching EUR 691.3 million with a solid growth in revenues from operations, up 3.2% year-on-year.

Lightly offset by higher negative balance and lower order operating income. More in detail, en-route revenues came in at EUR 541.1 million, up 3.1%. And our terminal services reached EUR 178.6 million, increasing 4.8% over the first 9 months of 2018. As already mentioned, in the first 9 months of the year, we recorded a negative balance of EUR 75.9 million compared to [normal negative] balance of EUR 72.5 million recorded in the same period of 2018.

As we will explain in further detail, the negative balance is basically the sum of a large balance reversal in terms -- in the tariffs applied in 2018 as well a negative balance creation in the period related to actual inflation lower than forecasted inflation and growth in traffic that is higher than expected. Revenues from our nonregulated business amounted to EUR 9.1 million in the first 9 months, and this amount include IDS AirNav revenues for the period July, September 2019.

EBITDA increased by 0.8% to EUR 236.9 million with a margin of 34.3%. The increase was driven by topline growth and by the ongoing reduction in external cost, almost fully offset by an increase in personnel cost.

EBIT went up by 1.1% to EUR 142.5 million, mostly as a result of the dynamics affecting EBITDA and stable G&A.

On the bottom line, we recorded a net profit of EUR 98.8 million, stable over the first 9 months of 2018.

Our capital structure remains very solid, with current net cash position of about EUR 55 million. Furthermore, we recorded CapEx of EUR 53.9 million.

Finally, we confirm our 2019 full year guidance provided at the first half of 2019 results presentation. Its host was [not investor,] we plan to hire about 100 [young talents] over the coming months, both in our core business to maintain focus on providing excellent services to airlines and in our commercial activities.

On Slide 2, we can see the positive traffic trends recorded in our en-route and terminal business. As I previously [iterated] en-route traffic performance remained strong, driven by a significant increase in [our] flights, with service units up 10.4% and the flight up 7.9%.

Our flight growth was determinated by an increasing in traffic for medium and long distance with medium distance routes up 14%. In terms of geography, the most remarkable growth was seen for connections between Europe and America, up 21.1% in terms of service units, and between Europe and Asia, up 12.8% as well as for connection among European countries growing by 11.1%.

International flights also posted a strong growth, up 6.5% in terms of service units. Thanks to an increase in the number of flights, up 4.3% as well as to a greater average distance flown, especially for long-distance routes. Performance to and from all continents was positive, with Europe as a major destination, accounting for 79% of international service units, and growing by 5.7%. And with the -- a significant growth in connection with Africa, up 16.6% with a remarkable rebound of routes to and from Egypt in particular.

Lastly, national en-route traffic performance was also positive with service units and flights increasing by 4.6% and [2.8%], respectively. These were the results of greater distance flown driven by more flights connecting directly Northern and Southern Italy where I think the rail is less competitive.

The best performing routes are those departing from Milan airport, Malpensa, and landing in Catania, Palermo, Lamezia and Bari.

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 service, we delivered the best performance in terms of labor-assisted in spite of the significant traffic growth, mainly thanks to the performance of our personnel and the ongoing investment in innovative technologies.

Terminal traffic growth was also solid in these periods with a 4.4% increase in service unit, resulting from positive performance in all 3 charging zones with service units mainly driven by international traffic, up 5.4%. We posted by a positive trend in national traffic growing at a rate of 2.9%.

The strongest increase in traffic was witnessed by terminal zone 2 and terminals zone 3, up 4.9% and 4.7%; with terminal zone 1 growing at a slight lower rate of 3.1%.

It's worth noting that the (inaudible) performance in terminal Zone 2 was achieved despite the temporary closure of the Linate Airports in Milan, with most flights transferred to Malpensa Airport.

The strong traffic trends demonstrate our diversified business mix with several exposure to international traffic trends. Only 17% of our en-route services are related to the most domestic flights. About 41% of them are generated from international flights and almost 42% are generated from other flights.

Looking at our revenues in more detail and I refer to Slide #3 of our presentation. As you can see, en-route revenues grow 3.1% year-on-year, driven by the strong increase in traffic, up 7.4% in the first half, and 7.8% in the third quarter alone, combined with a marginally lower tariff of EUR 77.96 per service unit.

Terminal revenues growth in the first 3 quarters shows a solid increase of 4.8% year-on-year as a combined result of positive traffic trends, up 4.4% overall; coupled with the lower tariff on charging Zone 2 and also in charging Zone 3.

The increase of negative balance to EUR 75.9 million was most determinated by a large negative balance of reversal in 2019 tariffs, amounting to a total of EUR 44.2 million as well as by higher negative balance from inflation given that actual inflation of 0.8% was below forecast inflation of 1.6%. And also by a small amount of new negative balance created in the period as a consequence of actual traffic being above forecast traffic indicative for en-route and terminal Zone 2.

Revenues from our nonregulated business amount to EUR 9.1 million, decreasing versus EUR 10 million revenues in the same period of 2018.

With a positive contribution from flight suspensions and training activities. But it is offset by decline in revenues from contracts in Libya and the conclusion of the activities in Middle East.

The decline of revenues from contracts in Libya basically depend on the complicated situation that does not allow to speak the original timing of works planning, particularly in Mitiga and in Tripoli airport. We remain committed to growing our nonregulated business through the launch of new products and expansion into new markets. Also thanks to the integration of IDS AirNav. It's important to try to protect our nonregulated revenues for the first 9 months of the year, already include EUR 2.4 million revenues from the period from July, September 2019 by IDS AirNav. It's the contribution to the revenues.

The item other operating income is mainly related to revenues granted for safety and security and it is -- the amount is EUR 22.5 million, which were stable year-on-year as well as European financing for common projects for EUR 3 million lower than EUR 7 million recorded in the 9 months of 2018.

Moving to the costs on Slide 4, as you can see, we remain fully focused on our OpEx efficiency plan that partially counterbalances the increase in personal cost due to the significant growing traffic and due to the inclusion in the group perimeter of about 150 new employees from IDS AirNav. In the first 9 months of 2019, we achieved external OpEx reduction of EUR 4.2 million with a decrease of 4% year-on-year.

External operating cost also include operating cost related to IDS AirNav, without which the cost efficiency would have been of about 4.8%.

The main savings were related to several factors. First of all, a reduction of telecommunication cost to full IP network and fee renegotiation with our supplier telecom. Secondly, lower ATM equipment purchased for lower maintenance cost due to the different phasing of investment activities performance by our subsidiary, TechnoSky on ENAV's asset.

Third reasons is the fact that we also saw the effect of the first time adoption in IFRS 16 on our lease and cost -- the rental costs. So classified as an item of net invested capital and depreciated in the P&L.

Concerning the personnel cost, we saw an increase of EUR 15.9 million, up 4.4% and it is as a combination of several items. First, we recorded a marginal increase in fixed salary component as the net effect of 2018 labor contract renewal, the adoption of -- by TechnoSky of the ENAV contract as well as -- for EUR 1.1 million (sic)[EUR 1.4 million] for the inclusion of about 150 IDS AirNav employees. All these is partially offset by headcount reduction, mainly due to retirements of 129 employees, in average, retiring.

(inaudible) counts as of September 1, including also IDS AirNav new employees, is of about 4,231 employees.

Secondly, we posted the material increase in variable pay and software securities cost as a consequence of the agreement signed for the 2019 summer season and overtime paid due to the high increase in traffic. These effects were partially offset by reduction in voluntary redundancy costs.

Finally, we also experienced a slight decrease of EUR 2 million in capitalized internal works, mainly related to activities performance by TechnoSky. I will now hand the call over to Luca to go in more details.

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

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Thank you, Roberta. Moving to Slide 6, you can see that our net revenue in the first 9 months of 2019 increases by 2.3% year-on-year, driven by strong performance in our revenue from operations, up 3.2% thanks to a EUR 16.3 million increase in en-route revenues and EUR 8.1 million increase in terminal revenues.

We also saw a slight reduction in revenues from not regulated business of EUR 1 million as well as EUR 3.6 million decrease in other operating income, due to lower contribution of our European financing. The EUR 3.4 million higher negative balance compared to last year was the result of various factors.

The main driver was the increase in negative balance from inflation. The actual inflation of 0.8% was below the forecast inflation of 1.6%, which led to an increase in negative balance by EUR 4.6 million for en-route and EUR 2.6 million for terminals. Furthermore, as a consequence of a strong increase in traffic seen in the first 9 months of the year, actual en-route service units were higher than forecast service units by 2.5%, which is above the debt band of minus plus [3%]. This led to the creation of small negative balance for the period of about EUR 2.7 million, of which EUR 1.6 million related to ENAV. EBITDA increases by 0.8% to EUR 236.9 million, reflecting the dynamics of our topline. Coupled with our ongoing focus on external cost reduction, almost fully offset by higher personnel cost.

The EBITDA margin declined slightly to 34.3% corresponding to a 0.5 percentage points decrease as of the same period in 2018. Moving as to the P&L on Slide 7, you can see depreciation and amortization, net of CapEx contributions, reached EUR 94.8 million, growing marginally by 0.3% of the amount recorded last year, and reflecting higher G&A linked to the first time adoption of IFRS 16. Sorry. On the provisions and write-downs line, we recorded a gain of EUR 0.54 million versus a slightly higher gain of EUR 0.5 million in the first 9 months of the previous year. The provisions and write-downs in the first 9 months of 2019 are related to the cash in our receivables previously written down as well as to certain positive legal settlements.

The net effect was a 1.1% increase in EBIT to EUR 142.5 million with a margin of 20.6%. Net financial expenses of EUR 3.1 million were higher than the previous year. The difference is mainly explained by some positive elements recorded in 2018 that were absent in the first 3 quarters of 2019, such as the positive outcome of a certain dispute on the financial income, and from receivable [actualization] posted in 2018.

The slightly higher income taxes in the first nine months of 2019 were due an increase in taxable income. Our consolidated net profit was EUR 98.8 million, stable versus the first 9 months of 2018. The net profit pertaining to the group without considering minority interest related to D-flight was EUR 98.9 million, up 0.1%.

Moving on to Slide 8. Let's have a look at the main movements of our cash flow and financial position. Our cash balance in the first 9 months of the year improved by EUR 58.8 million as a combined effect of CapEx of EUR 53.9 million with cash CapEx of 44 -- [EUR 48 million], sorry, and the cash out for the acquisition of IDS AirNav for EUR 37.4 million, more than compensated by EUR 101.5 million G&A.

Net profit of EUR 98.8 million, offset by EUR 108 million dividends paid. Debt repayments of EUR 6.7 million compensated by the EUR 6.6 million capital increase related to D-flight. And finally, a positive contribution by changes in the assets and liabilities and net working capital reflecting the dynamics of trades and balance receivables and payables.

The result of increasing cash and no material changes in gross debt, we have net cash as of September 30, 2019, which leads -- lead to a net cash-to-EBITDA ratio of 0.2x. 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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Before opening the floor to your questions, let me recap our key achievements in these first 9 months of 2019. I spoke about traffic. Traffic trend has been strong over the summer season, pointing towards a [steady] grow in traffic for the full year, although data for October shows a slight deceleration in air traffic.

ENAV remains at the top of new technologies development and quality of services as confirmed by the ongoing increase in traffic and the excellent performance in terms of punctuality, and is firmly committed to pushing socially and environmentally sustainable business model.

Over the coming months, we will hire approximately 100 young talents, of which half are new controllers. It's worth noting that on July '18, we [realized] the acquisition of Air Navigation Division of IDS for EUR 41 million.

As we highlighted during the presentation, this brand new company has already been consolidated in our 9-month results, and its business is fully integrated within our group activities. Indeed, I'm proud to recall the 3 contracts won by IDS AirNav over the last months: a contract in Argentina worth $ 0.8 million; another contract in Brazil for EUR 0.6 million; and that the last one in Zambia for $1.9 million.

As for Aireon, we are confident it will generate the expected returns over the coming years since it successfully manages to establish strategic partnership and signed agreements with several players all over the world. As proved by the agreement that they signed with India in last July and the more recent one signed with Cocesna for the deployment of [space-based] Automatic Dependent Surveillance-Broadcast. And it is in Belize and Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua. Our cost-efficiency plan remains one of our major areas of focus, and in the first 9 months of the year, we delivered further saving on external OpEx. With regards to personnel costs, we saw increase of 4.4%, mainly as a consequence of the contract renewal and increasing in orders time due to the intensive traffic in the summer season as well as due to the [indiscernible] for the 150 new IDS employees that are joining the group.

Given our 9-month results, we have decided to maintain our 2019 full-year guidance of slight low single-digit net revenues growth and of EBITDA margin at approximately 32% as well as CapEx for about EUR 115 million, EUR 120 million. And that target to deliver a 4% increase in dividend per share available in 2020, for the 2019 financial year. And it is in line with our dividend policy.

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 comes from Nicolò Pessina of Mediobanca.

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

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I will have 3 questions. The first one is on the regulatory review. I wonder if you could give us any update on the talks with the regulatory body, about the timing for having more visibility and maybe if you can give any disclosure on the details of a new performance plan in terms of efficiency target or traffic estimates? So any information would be helpful. Second question. On the 32% EBITDA margin you expect for the full year 2019, you've said in the last call that you find this target to be fairly prudent. I wonder if today, it's at least as prudent as it was during the last call? And the last question is on the labor force evolution. You announced today the hiring of 100 new junior employees. I would like to know more about the timing, and if you can remind us about the timing and numbers of the retirement expected for 2021 and 2022.

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

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Okay.

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

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Okay, Nicolò. I will get the first on the regulatory. We have sent in time to the European commission our business plan, performance plan. So within the 1st week of October of this year. And the commission has started to review our business plan and asked us some information -- some more information, this and that, just a communication last week, asking us more detail. This means that they are already analyzing concerning our P -- sorry, our business plan, and this is good for us for the timing of both.

We are going to answer within a week, at least. After that, the commission will give some, I would say, technical answer, more deep on the performance plan. So at the moment, we don't have any update on the timing that we have already given last time. So we believe -- we hope to close the process within December, but this is just something that we are working for, but it is not in our hands.

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

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Okay, Nicolo, about the -- your second questions, EBITDA margin. I can confirm that we remain prudent, and it is mainly due to the potential traffic trend for the last part of the year. So it's our approach, and also October shows that the strong increase in traffic that we reported over the last 9 months of the year is not confirmed in terms of extraordinary growth for the October month.

So the reason why, we remain prudent. About personnel cost, I have to say that apart the difference of people that are coming from the acquisition of IDS, sure, 2019 represents for us a peak in terms of increase of labor costs. Our approach and our strategy is in the medium, long term to contain the growth of personnel, and within our strategy we have to consider that 2019 represents the relevant year for the regulator considering the -- for the consideration of a [base of] cost for the new regulatory period.

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Nicolò Pessina, Mediobanca - Banca di credito finanziario S.p.A., Research Division - Analyst [6]

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Okay. Very clear. Just a quick follow up on the labor cost -- sorry, on the timing of the 100 new hirings and eventually if you can tell us your view on the business, why the traffic growth in October was much lower than in the previous period?

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

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Obviously, we are reporting a generalized decrease of the increase in traffic for October compared to the -- over last 12 months and it is Italia level but also the European level because we have to consider that some countries reported a growth lower than the Italian one and for Germany and France, a decrease in traffic. We have to consider that obviously, the summer season has a strong impact in the October, November, December has a lower impact in the -- for the seasonability of our business. For Italy, we can consider that we had one national strike in the sector for transportation, and potential effect coming from the dynamics of the domestic flight, in particularly for October regarding the closure of [Napoli] airport could have certain effect also compared with August and July, August and September, when business travel in natural ways slower than in October.

And you point the [EBIT.] I'd like also potential effect coming by the timing of the (inaudible) compared with -- we are -- we have planned to hire about 50 controllers within the end of the current year.

So we will have the impact in terms of the new employees for -- at regime in 2020, but you have to consider that in 2020 we will add the total impact coming from the exit of the more than 100 employees over last 9 months. For the last part of this hire program, we are -- we had planned to hire about 50 people in 3, 4 months, starting from the beginning of the next year.

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Operator [8]

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The next question is from Rishika Savjani of Barclays.

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Rishika Dipak Savjani, Barclays Bank PLC, Research Division - Assistant VP [9]

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I have 3 questions also, please. My first one is on CapEx. CapEx in the 9 months, you've reported so far seems very low compared to your full year guidance. So can you maybe just explain what's happening there? And is there anything unusual in terms of the timing, in terms of kind of fourth quarter spends? And my second question, any update on how you are thinking about the balance sheet and the capital allocation policy for AirNav going forward? And then finally, my third question, the level of attention at the aviation industry has been receiving in terms of the environmental impact and has been quite dramatic in terms of the conversations in recent months. Could you maybe talk about what you think the air traffic control industry and also what ENAV are doing to help reduce the environmental footprint of aviation?

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

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Okay, Rishika, about CapEx, always our CapEx are not linear. We gain a (inaudible) and it is considered in our planning for CapEx. We have to consider that effectively by the end of September 2019, the total amount of CapEx is about EUR 56 million, and on the basis of a very detailed program of deployment of the project that we are deploying, we are confirmed with solid analysis, EUR 115 million, EUR 120 million. That is the guidance that we are confirming now. Considering that the vast majority of our investment are related to a program of deployment in software system, or some other kind of equipment that depend on the timing of the purchasing of our provider.

So we are sure. We are confident of the amount. As you remember, our guidance of EUR 115 million, EUR 120 million was renewed in the 6 months results. And this is mainly due to the more efficient pricing that we are obtaining in the purchasing of our equipment. Capital structure. Capital structure, we remain very solid. The situation of our net financial position has changed, and [we part] from about EUR 3 million of net debt by the end of 2019 to '18 -- sorry, to EUR 56 million of net cash. And as you know, we are continuing working on defining the new target, the new -- the [first] targets of our capital structure and that what you should expect in that time, but we are remaining focused in defining the new performance plan because we have to wait back the regulator approved the final new regulatory period. And after that moment, we will ready to show you and to speak about our target in terms of capital structure and how to achieve that. In the meantime, we confirm an increase of dividend of 4% in [actual way,] so it's our strategy. Last, your question is a very sensitive one. We are very, very focused on projects with strong impact in terms of sustainability. Our investment plan, each project of our investment plan is evaluated not only on the technical basis, but combining technical needs with environment effect. (inaudible) an example, but I have mentioned many others. And just to give you news, Stefano can tell you better than me, just tomorrow, we received a premium in terms of sustainability report.

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Luca Colman, ENAV S.p.A. - CFO [11]

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Amongst the medium-sized Italian corporates, we won the first prize for most sustainability report for 2018. So we're very proud of that.

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

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Thank you, Stefano. Thank you, Stefano (inaudible).

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Operator [13]

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The next question comes from Juri Zanieri of Kempen.

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Juri Zanieri, Kempen & Co. N.V., Research Division - Analyst [14]

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Three on my side. Consideration of the strong traffic, I was wondering if you can have or if you can guide us a bit on your full year expectation for the balance? Second question, considering the contract that you have proposed by IDS, has been pretty impressive in the end. I was wondering, if you can just enlighten us whether you will close couple of more contract by year-end or early next year? And last question, I was wondering if you will -- do you need to present and new strategic plan during the full year results?

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Roberta Neri, ENAV S.p.A. - CEO & Director [15]

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Luca, take the first one.

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Luca Colman, ENAV S.p.A. - CFO [16]

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For the balance, and that's roughly for -- we're concerned that the traffic -- we are now just -- sorry, October 2019 just came out yesterday. So we just made our first internal analysis and forecast, but what concerns the balance, let me see, we don't expect to have any particular impact on the balance. As you probably remember, we are within the debt band -- just [07] up the debt band at the moment. So the point we believe to see around that area. So at least, what we will lose would be a part of the balance that we are giving back to the line for to the tariff that now is around EUR 1.6 million. So that is what is, I would say, the fact that we may have in terms of balance if the traffic reduction will impact our number, but I don't think -- I mean from our forecast, we don't believe to be out of this area.

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Roberta Neri, ENAV S.p.A. - CEO & Director [17]

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Okay, IDS. IDS, we are strongly continuing in presenting new offers in the market worldwide. I have to say that many offers are out, and we are waiting for the results of these offers so we are optimistic on expecting the results within the end of the current year. About the strategic plan, we have to wait the results of the work of the regulatory experts of approval of new performance plan. And we would be ready after the approval to update -- to have an update or to share the new strategic plan.

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Operator [18]

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The next question is from Arthur Truslove of Crédit Suisse.

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Arthur David Truslove, Crédit Suisse AG, Research Division - Research Analyst [19]

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Arthur Truslove from Crédit Suisse. Three for me, if that is okay. So you obviously, mentioned that one of the key reasons why your variable labor costs were up was the result of the agreement to sustain standards within the third quarter. Is it reasonable to expect a similar level of increase in the cost based in the following year? Or are the costs associated with that likely to be similar to what we've seen this year?

Second, you've obviously mentioned you're going to hire the 100 new young air traffic controllers. 50 of them back end of this year and then 50 of them next year. You obviously mentioned when you introduced your business plan nearly 2 years ago that you were planning to have around 300 less headcount in 2022 by that time obviously, notwithstanding acquisitions, but were these 100 new air traffic controllers envisaged at that time? And the final point for me is, obviously you've mentioned that the nonregulated revenue has fallen. How confident are you that you're going to get to the EUR 35 million of nonregulated revenue that you talked about in your business plan in 2022?

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Roberta Neri, ENAV S.p.A. - CEO & Director [20]

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Okay. Okay. Starting from your question -- first question, labor cost. And I would like to tell that effectively 2019 represented for us the peak in terms of growth of personnel cost. And it is mainly due to partial effect of the contract, the new contract of TechnoSky, the subsidiary of ENAV is mainly due to the extraordinary activities to support a strong increase in traffic.

We -- our strategies for the future, for 2020 to contain the growth on traffic -- sorry, not the growth of traffic, the growth of personnel labor cost. And it is true the -- a different mix of salary of the employees in terms of new controllers, in terms of the level of salary of the employees that are leaving the company.

About Visa, you mentioned in your second question is related to the number of hiring and the number of controllers. I have to clear that 100 new hires is our target. And that includes about 50 -- 52 to be [perfectly], controllers. The others employees are engineering, that in part are related to the substitution of some engineer of IDS so for -- or of people that has retired. So it is the effect in terms of mix that we will report over the next years 2020.

And I have to say that these new employees are included in the target that we defined when we presented our current business plan, and the correct -- correctively you mentioned a target over 300 employees are less compare to with the situation at the beginning of 2018. So in the end of 2017, and we are going towards this achievement because over the current year, we reported about 130 employees less than the same period of the -- 2018 and also 2018 compared with the end of 2017, if I don't remember why we had about 40 less than -- in terms of the employees. So it is -- we can confirm -- we confirm the target. Obviously, we have to consider in a supportive way, IDS services difference in terms of [payment.] About that, I can confirm our target for nonregulated revenues in 2022. Our strategic plan that we will present to you after the approval of the new performance plan, we'll have longer visibility also after 2022, but again confirming our guidance in 2022 in terms of revenues from our nonregulated business.

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Arthur David Truslove, Crédit Suisse AG, Research Division - Research Analyst [21]

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Great. And just one follow-up if I may, obviously, the increase in staff cost you see in summer of this year. Is -- would that have featured in the performance plan you submitted to the European commission? So obviously, would that have been considered when looking to achieve a higher cost base?

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Luca Colman, ENAV S.p.A. - CFO [22]

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In general terms, as you can imagine, we -- when we have sent -- when we have planned our next regulatory period that we have taken in consideration what could be the cost of personnel forecast for 2019. So you can imagine that the there are some consideration also within that business plan.

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Operator [23]

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

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Luigi De Bellis, Equita SIM S.p.A., Research Division - Co-Head of Research [24]

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Two quick questions for me. The first one on the net financial position. We have seen a stronger free cash flow in Q3, with respect to close and that cash position also by year-end to despite the higher CapEx in Q4. And the second question on the external opportunities. We have read about potential tender of Spanish Towers. Are you potentially interested to participate to in the tender, and you have any idea in terms of profitability of these assets?

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Roberta Neri, ENAV S.p.A. - CEO & Director [25]

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Okay, Luigi, about your first question. Yes, I can confirm that by the end of the year, the net financial position will be positive net cash. And it includes the CapEx that we have planned. About the bid of Spain, it's a very interesting one. We are evaluating on it. So it's an interesting opportunity in terms of core business activities as a broad Italy. A very competitive bid we suppose so -- our -- it's on our table.

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Operator [26]

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(Operator Instructions) We have a follow-up question from Mr. Nicolò Pessina of Mediobanca.

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Nicolò Pessina, Mediobanca - Banca di credito finanziario S.p.A., Research Division - Analyst [27]

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Just a couple of clarifications. The first one, you mentioned before -- do you expect to close the year with 130 employees less than last year. I wonder if it includes the 50 hiring's or not?

Second, the EUR 35 million in revenues expected from the nonregulated business for 2022 was also confirmed as the target. I assume it's excluding IDS, if it was acquired after [belief of] the target. And maybe if you can give us an idea of what you expect from the nonregulated business for this last quarter of 2019?

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Luca Colman, ENAV S.p.A. - CFO [28]

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Nicolò, sorry, we could hear you barely on the second question, could you repeat it please?

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Nicolò Pessina, Mediobanca - Banca di credito finanziario S.p.A., Research Division - Analyst [29]

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The second question on the EUR 35 million target in revenues for -- from the nonregulated business in 2022. I assume it excludes IDS if was acquired after the announcement of the target. Is that correct?

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Roberta Neri, ENAV S.p.A. - CEO & Director [30]

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Alright, about the number of employees, I have to say that 150 and [30] is the amount, the number of employees -- lower level of employees in average terms of the 9 months of the current year compared with the same period of the previous year. Obviously, these -- that are -- do not consider the 52 controllers that we will hire within the end of the current year, just to clarify.

Our target in terms of nonregulated business, though -- we are combining the commercial proposal of IDS with the commercial proposition of the others activities of another group over vis-à-vis the market, I mean, in particular construction activities and activities of TechnoSky in terms of installment of equipment.

So we are really -- I can see really sighting our commercial offering to integrate and of -- IDS. Obviously, our lower floor is the target in 2022. So the EUR 35 million represents for us the floor and after the integration of IDS and others services into ENAV, we will give an update of the target. And it would be with a strategic plan that we will present after the approval of the performance plan.

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Nicolò Pessina, Mediobanca - Banca di credito finanziario S.p.A., Research Division - Analyst [31]

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Okay, and maybe a comment on the performance of the nonregulated business this quarter, this last quarter of 2019?

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

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Last quarter, we cannot anticipate.

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

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(inaudible)

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Roberta Neri, ENAV S.p.A. - CEO & Director [34]

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Sorry. Sorry. The current. Okay. Over last 9 months of 2019?

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Nicolò Pessina, Mediobanca - Banca di credito finanziario S.p.A., Research Division - Analyst [35]

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No. I was wondering maybe the month of October, I mean, should we expect a figure close to the number we have seen in the third quarter? Or that should be -- we should expect ...

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Roberta Neri, ENAV S.p.A. - CEO & Director [36]

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What I can say is that you can consider that the consolidation of IDS for 3 months -- lesser than 3 months because of the acquisition based and it was 18 of July is not linear. It's very small, EUR 2.4 million. And we expect higher impact for the last quarter of the current year.

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Operator [37]

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(Operator Instructions) Songini, gentlemen, there are no questions registered at this time.

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Stefano Raffaello Songini, ENAV S.p.A. - Head of Communication and IR [38]

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Thank you very much, operator. Thank you, ladies and gentlemen, for attending this call. If you have any follow-up questions, please reach out to me and Alexandra, we'll be more than happy to answer any further questions. Thank you, Roberta and thank you, Luca and thank you...

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Roberta Neri, ENAV S.p.A. - CEO & Director [39]

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Thank you to...

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Luca Colman, ENAV S.p.A. - CFO [40]

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Thank you.

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Roberta Neri, ENAV S.p.A. - CEO & Director [41]

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Thank you to everyone. And good -- bye-bye.

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Operator [42]

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