Interim report of Copenhagen Airports A/S (CPH) for the period 1 January - 30 September 2019

The Board of Directors has today approved the interim report for the period 1 January - 30 September 2019.

SUMMARY OF THE FIRST NINE MONTHS OF 2019

In the first nine months of the year, 23.3 million passengers travelled through Copenhagen Airports. This was a minor decline of 0.1% from the record year of 2018. The trend in passenger numbers was adversely affected by the bankruptcies of Primera Air and WOW Air, the impact of the SAS pilot strike as well as Norwegian's strategic adjustments of its traffic programme. During the same period, the number of passengers using Copenhagen Airport as a hub on their way to other destinations increased by 2.3%.

Lower airport charges for the airlines decreased revenues from the aeronautical part of the business. On the other hand, non-aeronautical revenues increased, benefiting from the new restaurant and shopping areas in the terminals. CPH continued the efforts to pave the way for a sustainable transition of the aviation industry, aiming to significantly reduce the sector's climate impact.

Copenhagen Airports recorded a profit before tax, excluding one-off items, of DKK 1,074.1 million for the first nine months of 2019, down 10.0% on the same period of 2018. The performance was based on revenue of DKK 3,298.9 million - 2.9% less than for the same period of 2018. The decline in revenue and profit before tax mainly resulted from the reduction in airport charges introduced gradually since 1 April 2018.

Sound underlying growth in passenger numbers

Excluding extraordinary items such as bankruptcies and the SAS strike, CPH recorded underlying growth in departing passenger numbers of approx. 2%. This was driven mainly by growth in transfer passenger numbers, which serves to underline CPH's position as a European hub. There were slightly fewer locally departing passengers, and domestic traffic also showed a declining trend.

In total, the number of locally departing passengers declined by 0.6%, whereas the proportion of transfer passengers grew by 2.3%. Measured by the number of operations, traffic on intercontinental routes grew by 8.2% over the period compared to the same period of last year. Conversely, the number of operations on short-haul routes within Europe fell by 1.0%, also driven by the extraordinary flight cancellations.

Shopping and new food court area increase non-aeronautical revenue
Last year, Copenhagen Airports opened a new area of 4,000 sqm between Pier A and Pier B in Terminal 2. Located after the security checkpoint, the area accommodates more than 20 new shops and restaurants as well as extra seating for passengers and a new children's play area.

Together with an improved shopping and brand mix, the expansion contributed to growth in non-aeronautical revenue for the first nine months of 2019 - a total rise of 2.0% on the same period last year.

Opening of Pier E and new Airport Square

Earlier this year, the 36,000 sqm Pier E opened with passenger areas, aircraft gates and a new passport control facility. The terminal areas were expanded in response to the growing passenger numbers, and Pier E helps reduce waiting times and address future capacity challenges. The next stage of Pier E is scheduled for completion in 2020. In addition, construction has commenced on a new baggage factory and expansion of Terminal 3 after the security checkpoint.

In September, Copenhagen Airports opened a brand new outdoor area between Terminals 2 and 3 - the Airport Square, dedicated both to travellers and neighbours of the airport. It is therefore designed as an open space with seating and café areas for the grown-ups and a playground for the kids.

CPH is currently investing billions of kroner in developing the airport of the future - to be in tune with passenger demand for a good travel experience and airlines' space requirements for their new and more energy-efficient aircraft. In 2019 alone, CPH expects to invest more than DKK 2 billion, which will help ensure that CPH remains one of the world's most efficient and attractive airports in every respect.

Sustainable transition of the aviation industry

March saw the launch of a new and ambitious climate strategy for Copenhagen Airports. The strategy aims to make the airport carbon neutral already this year through compensatory measures, and the ambition is for the airport to become completely emission free by 2050. In 2030, this is to be achieved in respect of airport activities, including its surface access modes, while emissions from air traffic must be eliminated by 2050. Delivering the strategy will require concrete solutions that can facilitate a sustainable transition of the aviation industry. These are being worked on with details to be announced as they become available.

CPH therefore supports a new initiative by the Danish aviation industry to establish a new climate foundation for Danish aviation. Funding of the foundation will be provided by charging passengers a mandatory climate contribution. The aim is for the climate foundation to generate annual proceeds of up to DKK 300 million, which will be used to invest in tangible green solutions that make a real difference to the climate.

CPH sees the foundation as a key tool in creating truly sustainable, alternative aircraft fuel. The technology is already available, but CPH has yet to invest in solutions that can broaden its use on a larger scale. This is one area where the foundation can contribute.

HIGHLIGHTS OF RESULTS

• Passenger numbers at Copenhagen Airport remained almost unchanged, with a slight decline of 0.1% in the first nine months of 2019 relative to the same period last year. The number of locally departing passengers fell by 0.6%, and the number of transfer and transit passengers increased by 2.3%.
  
• Revenue fell by 2.9% to DKK 3,298.9 million (2018: DKK 3,397.7 million), primarily driven by the reduction in airport charges implemented at 1 April 2018 and the new charges agreement, effective as of 1 April 2019. This was partly offset by an increase in concession revenue.
  
• EBITDA, excluding one-off items, decreased by 6.4% to DKK 1,855.8 million (2018: DKK 1,983.1 million). EBITDA fell by 5.8% to DKK 1,847.0 million (2018: DKK 1,959.9 million).
  
• EBIT, excluding one-off items, decreased by 11.4% to DKK 1,172.5 million (2018: DKK 1,323.0 million). EBIT fell by 10.5% to DKK 1,163.7 million (2018: DKK 1,299.8 million). EBIT was affected by the above-mentioned reduction in airport charges, a 3.6% increase in staff costs and a 3.5% increase in depreciation charges because of the large investments in expanding the airport.
  
• Net financing costs decreased by DKK 30.9 million compared to 2018, which was due to a lower average interest rate.
  
• Profit before tax, excluding one-off items, decreased by 10.0% to DKK 1,074.1 million (2018: DKK 1,193.7 million). Profit before tax decreased by 9.0% to DKK 1,065.3 million (2018: DKK 1,170.5 million).
  
• Capital investments were DKK 1,601.4 million in the first nine months of 2019 (2018: DKK 1,540.9 million). Investments in the first nine months were affected by the expansion of Terminal 3 airside, the establishment of Pier E, new baggage facilities, the expansion of cooling capacity and miscellaneous improvement and maintenance work.

Outlook for 2019

CPH retains the full-year outlook for revenue growth, profit before tax excluding one-off items, given in the announcement of 8 August 2019. CPH has adapted the range of capital investments to DKK 2.0-2.1 billion.

Outlook for revenue growth

Based on the expected traffic programme for 2019, the total number of passengers is expected to be in line with 2018. The trend in passenger numbers is a dynamic factor that is subject to both positive and negative influence from general economic developments, decisions on routes and capacity changes made by airlines, and isolated events in the aviation industry. Although the passenger numbers are expected to be in line with 2018, a decrease in revenue is expected. This is due to a 10% reduction in airport charges implemented at 1 April 2018 and the new charges agreement, effective as of April 2019. The new charges agreement resulted in restructured take-off and passenger-related charges. With the new agreement, the prices will initially be further approx. 5% lower in 2019 compared to 2018.

Revenue performance is expected to be negative in the range of 2-3%, primarily due to the reduction of charges in 2018 and the new charges agreement with the airlines that became effective on 1 April 2019 together with the SAS pilot strike and adjustments in airlines' traffic programmes.

Outlook for profit before tax

Operating costs are expected to be higher than in 2018, primarily due to an increase in the number of employees because of capacity expansions, additional regulatory requirements for security, and cost inflation. This will be partly offset by a continuing focus on operating cost efficiencies. Depreciation is expected to be at the 2018 level and financing costs are expected to be lower than in 2018.

Profit before tax in 2019 is expected to be in the range of DKK 1,250-1,350 million, excluding one-off items. EBITDA is expected to be lower in 2019 than in 2018, excluding one-off items. Results are affected by the reduction of charges in 2018 and the new charges agreement concluded with the airlines as well as the SAS pilot strike and the adjustments in airlines' traffic programmes.

Outlook for investments

CPH expects to continue to invest for the benefit of passengers and airlines and is maintaining its growth plan, Expanding CPH, through which CPH will develop and expand the airport as passenger numbers increase.

CPH expects to maintain the investment level in 2019, at an estimated DKK 2.0 - 2.1 billion, in order to accommodate the growth plan. Investments include the expansion of Terminal 3 airside, the expansion of cooling capacity, wide-body capacity expansion, the expansion of Pier E, the establishment of Baggage Factory West and new aircraft stands. CPH will also be investing in non-aeronautical projects.