Stock Exchange Announcement
Copenhagen, 12 November 2020
The Board of Directors has today approved the interim report for the period 1 January – 30 September 2020.
Summary of first nine months of 2020
Some 6.7 million passengers passed through the terminals at Copenhagen Airports (CPH) in the first nine months of 2020, a decline of 71.3% from the year-earlier period. CPH continues to be hard hit by the knock-on effects of the coronavirus pandemic that took hold in March and locked down most of the world. Travel activity began to pick up over the summer period, but as the COVID-19 flared up again and travel restrictions were significantly tightened, the recovery in travel demand evaporated. In an effort to mitigate the decline in passenger revenue, CPH has taken measures to cut both investments and operating costs and in late August unfortunately had to let go of more than 600 positions in response to the significantly lower level of activity.
The dramatic drop in passenger numbers took a toll on CPH’s results for the first nine months of the year. CPH derives most of its earnings from two main sources. One is traffic, which is driven by the number of departing passengers. The other is the shopping centre and the commercial activities, which have been severely reduced due to the low passenger numbers. This is severely impacting earnings, and CPH has used its bank facilities to keep the airport in operation since the COVID-19 outbreak, although CPH did make use of the government’s support packages.
CPH generated a loss before tax of DKK 453.6 million for the first three quarters of 2020, compared with a profit before tax of DKK 1,065.3 million for the same period of 2019. The loss should be seen in light of the sharp decline in revenue from both the aeronautical and the non-aeronautical parts of CPH’s business. Overall revenue came to DKK 1,325.0 million – a 59.8% decline from DKK 3,298.9 million for the first three quarters of 2019.
In May 2020, CPH entered a two-year facilities agreement totalling DKK 6.0 billion with a club of banks. Simultaneously, CPH entered into waiver agreements with existing lenders, providing CPH relief from certain loan covenants until and including Q1 2021. The new facility, the strong support from CPH’s shareholders and the waiver agreements ensure that CPH will continue to be able to meet its financial and investment commitments in a foreseeable period.
Summer optimism was short-lived
CPH’s financial performance is a reflection of the fact that large parts of the airport’s activities were virtually at a standstill in March and the following months. Rows of parked aircraft, closed shops and deserted terminals were the new reality during the spring months. In mid-June, the European aviation authorities introduced new protective equipment, hygiene and social distancing guidelines for airport travellers and staff. At the same time, a number of European countries successfully contained the spread of COVID-19, prompting many countries to allow travel again.
While this led to increasing passenger numbers over the summer period, travel demand was still materially below normal levels. In the first week of June, there were scheduled flights to and from 18 destinations. By August, the number of destinations had gradually increased to around 100. The many destinations notwithstanding, passenger numbers during the three summer months were still down by 80-85% from the summer of 2019 due to significantly reduced frequencies within the routes offered. For the period January to September 2020, passenger numbers were down by 16.6 million – or 71.3% – from the year-earlier period.
In the third quarter, in response to COVID-19 flare-ups across the European continent, travel guidelines were tightened anew, triggering another sharp drop in passenger numbers. The hope shared across the industry of a gradual recovery of air traffic in the course of the second half of the year was extinguished as travel guidelines were tightened week after week. This affected not just CPH's core business at the airport, but the entire Danish tourism industry and had far-reaching implications for many people, who lost their jobs and income base. CPH has also had to let go of many highly skilled colleagues as a result of the crisis. At the end of August, CPH had to make the very difficult decision of initiating large redundancies. 625 full-time positions were cut through dismissals, elimination of vacant positions and voluntary resignations.
These job cuts in August reduced annual operating costs at the airport by about DKK 325 million, but due to notices of termination, only a limited proportion of these savings will feed through to 2020 results.
Additional cost measures due to dramatic drop in passenger traffic
In addition to the above-mentioned measures and as a result of the significant decline in passenger traffic in recent months, CPH has decided to launch further cost-saving initiatives. Among other things, this will be done by using the government’s scheme for distribution of work as well as increasing supplementary training and upskilling of employees. In addition, it is expected that it will be necessary to do further redundancies. Together, the initiatives will provide an additional annual saving corresponding to approximately 325 full-time positions. However, the major part of these savings is expected to be found through the distribution of work scheme and education initiatives, and not redundancies.
Quick testing is key to restarting air traffic
However, cost reductions are not enough to turn the current red figures into black. A genuine restoration of air travel requires more fundamental measures, when the current COVID-19 flare-up is under control. For this reason, under the auspices of the government’s restart teams, CPH has worked to establish a testing solution requiring passengers arriving in Denmark from countries categorised as red or orange to have a test that less than 30 minutes will provide them with an answer as to whether they have COVID-19. Such quick tests are currently being trialed at other European airports. It is the view of the CPH Board and management that implementation of a quick testing solution across the various countries that our airlines fly to and from, is key to the recovery of connectivity at CPH and the economic benefit that the wider aviation industry brings to global trade.
Sustainable transition has not lost momentum despite COVID-19
Despite the plummeting passenger numbers and the work to restore air traffic in the wake of the coronavirus pandemic, CPH has maintained its strong focus on the sustainable transition of aviation and CPH.
In the second quarter, under the auspices of the Climate Partnerships, CPH and the rest of the aviation industry presented the industry’s recommendations for its sustainable transition. Shortly after, CPH and a number of other major Danish companies teamed up with the City of Copenhagen to launch the idea of establishing new facilities for the production of sustainable fuel in the Greater Copenhagen Area. The plan is for these facilities to produce sustainable fuel for lorries, ships and aircraft within a foreseeable future.
The partnership continued working on the project in the third quarter, applying for financial support from Innovation Fund Denmark which – in combination with a triple-digit amount in millions of Danish kroner from the participating companies – will lay the groundwork for the launch of the first stage of the project, which may be ready in 2023.
Furthermore, in the beginning of October a consortium led by CPH in collaboration with 14 other European partners and the Danish Technological Institute won an EU tender to create the sustainable airport of the future.
The number of passengers at Copenhagen Airport was 6.7 million in the first nine months of 2020, a 71.3% drop from the same period last year that was due to COVID-19. The number of locally departing passengers was 2.7 million (71.4% fewer than last year), while transfer and transit passengers numbered 0.6 million (73.1% fewer than last year).
Revenue amounted to DKK 1,325.0 million (2019: DKK 3,298.9 million), a 59.8% decline from last year primarily due to the COVID-19.
EBITDA was similarly affected and amounted to DKK 285.0 million (2019: DKK 1,847.0 million), corresponding to an 84.6% decline from last year.
EBIT was a loss of DKK 366.4 million (2019: DKK 1,163.7 million profit), corresponding to a decrease of DKK 1,530.1 million.
Net financing costs were DKK 11.2 million lower than last year primarily due to lower average interest rates.
Profit before tax fell by DKK 1,518.9 million to a loss of DKK 453.6 million (2019: DKK 1,065.3 million profit).
Capital investments were DKK 1,229.0 million in the first nine months of 2020 (2019: DKK 1,601.4 million). Investments in the first nine months of the year included the expansion of Terminal 3, the completion of Pier E, construction of a multi-storey car park, new baggage facilities, various IT systems as well as miscellaneous improvement and maintenance work.
Outlook for 2020
The loss for the first nine months of 2020 should be seen in light of the sharp decline in revenue from both aeronautical and the non-aeronautical parts of CPH’s business as a consequence of COVID-19. The small increase in traffic during the summer was short-lived and during the third quarter travel guidelines were tightened anew, triggering another sharp drop in passenger numbers. This was followed by further restrictions post the balance sheet date.
Based on year-to-date financial developments in 2020 and the prospects of very limited passenger traffic for the rest of the year, CPH expects a significant revenue drop relative to 2019. Given the cost of keeping the airport operational, CPH narrows the expectations and expects an overall loss after tax of DKK 550-700 million for 2020.
Continued focus on maintaining liquidity and organising operations more efficiently
Significant actions with positive effect on performance have been taken by the management in CPH including substantial cost reductions. In 2020, this has amounted to more than DKK 200 million related solely to external costs, excluding the effects of various government support packages. In addition, there are reductions in investments of somewhat DKK 700 million.
Furthermore, CPH has initiated adjustments in the organisation to the activity level expected for the foreseeable future, as described in the company announcement of 5 August 2020 as well as page four of this Q3 report. The right sizing of the organisation will have limited effect in 2020, but together the two adjustments will contribute to reduce the yearly operational costs for CPH by approximately DKK 500 million.
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