Earnings call: Fraport AG highlights recovery and financial growth in FY 2024

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Earnings call: Fraport AG highlights recovery and financial growth in FY 2024
Credit: © Reuters.

Fraport AG, the operator of Frankfurt Airport (FRAG), reported a recovery rate of 84-85% in the first four months of fiscal year 2024, with group revenues increasing by 16% to €890 million. Despite challenges such as strikes, weather-related cancellations, and geopolitical tensions, the company's EBITDA reached an all-time high of over €210 million.

The international portfolio showed positive growth, and the outlook for Frankfurt Airport remains steady with passenger guidance ranging from 61 to 65 million. Fraport AG (FRA.DE) also discussed plans for capital expenditures, retail sector improvements, and negotiations regarding their stake in Delhi Airport.

Key Takeaways

  • Frankfurt Airport's recovery rate at 84-85%, affected by strikes and weather disruptions.
  • International portfolio, including Fraport Greece, Fraport Antalya, and Lima Airport, showed growth.
  • Group revenues increased to €890 million, with EBITDA surpassing €210 million.
  • Net debt rose to €8 billion, but leverage ratio improved to 6.4 times.
  • Guidance for Frankfurt Airport remains unchanged, with 61-65 million passengers expected.
  • Retail and advertisement revenue increased, with a €0.24 rise in spend per passenger in April.
  • Free cash flow in Q1 was negative, similar to the previous year.
  • Fraport AG plans to sell a 10% stake in Delhi Airport and is in discussions with GMR.

Company Outlook

  • Steady outlook for Frankfurt Airport with unchanged passenger and group net result guidance.
  • CapEx for 2024 and 2025 projected at €1.4 billion and €1.1 billion, respectively.
  • Breakeven expected in 2025, despite negative free cash flow in Q1.
  • Regulatory decisions to influence return on Fraport assets and aeronautical charges.

Bearish Highlights

  • Twin Star investment expected to decline due to flight bans and geopolitical tensions.
  • Fraport Brazil impacted by capacity reductions and flooding in Porto Alegre.
  • Ground handling remains negative in Q1 due to low traffic levels.
  • Retail segment facing higher maintenance costs and weaker sales in fashion and cosmetics.

Bullish Highlights

  • International segment's revenues, EBITDA, and EBIT outperforming previous years.
  • Increased retail spend per passenger and advertisement revenue in April.
  • Positive outlook for Lima Airport with new midfield terminal opening and expected growth rates.

Misses

  • Traffic underperformance in Q1 due to supply constraints and personnel issues.
  • Leisure traffic improving, but business traffic still below pre-COVID levels.
  • Retail sector experiencing weaker sales in certain categories.

Q&A Highlights

  • Discussions with Lufthansa regarding a contract with a 2.3% annual price escalation.
  • Negotiations with GMR for the potential sale of a 10% stake in Delhi Airport.
  • Personnel costs to increase by around 7%, with a complex tariff agreement in place.
  • 2030 EBITDA targets of €2 billion, with revenue driven by both traffic and price factors.

Fraport AG remains focused on recovery and growth despite various challenges. The company's strategic decisions, including capital expenditure plans and potential asset sales, are aimed at stabilizing operations and improving financial performance.

The earnings call provided a comprehensive overview of the company's current status and future outlook, with a particular emphasis on maintaining a steady course towards recovery and profitability.

Full transcript - Fraport AG (FRAG) Q1 2024:

Florian Fuchs: Warm welcome also from my side. All documents for this presentation were released this morning, 7:00 A.M. CST. Now, it's time for the management presentation. Presentation will be held by Matthias Zieschang, our CFO and afterwards, there is a Q&A session. We kindly ask you to limit your question to a maximum of three, so that everyone will have the opportunity to raise some questions. As always, do take note of all the cautionary language at the disclaimer. And with that, I'd like to hand over to Matthias to start with the presentation, please.

Matthias Zieschang: Yes. Thank you very much. Good afternoon ladies and gentlemen also from my side. Let me start my presentation today with a closer look at our traffic performance at the Frankfurt side in the first four months of fiscal year 2024. On Slide number 3, you see on the one side, the reported passenger development and on the other side, the underlying passenger development. As you know, we were meaningfully impacted by strike since the past quarter, which were carried out by Lufthansa Unions and the Verdi Union for the passenger screening business in Germany. As a result, we lost about 500,000 passengers due to strikes and another 100,000 passengers because of a one-day closure for bad weather in January. Please note that the before mentioned numbers are just the direct impact without any passengers that we lost due to the uncertainty around the strike situation and didn't book their flights from or via Frankfurt. Correspondingly, we reported a recovery rate of just 84% to 85% for Frankfurt Airport in the first four months. Adjusted for the strike and weather-related cancellations, the recovery rate would have been some 3 percentage points higher at 87% to 88%. As painful as the cancellations were, the good information is that most of the union disputes have been settled now, and we can look forward to a more or less straightforward summer season. On a full year basis, we have, meanwhile, exceeded the previous year by some 1.4 million passengers. When considering that last year, we ended about 59.4 million passengers, this means that we already achieved the lower end of our full year guidance without any further growth from here on, which is not our base assumption and also not realistic. Having said this, we are well on track to be at about the midpoint of our traffic guidance for this year. Moving on to my next Slide on number 4, you see the development of our international portfolio. Fraport Greece and Fraport Antalya continued a positive trend in the first four months of the year. While the recovery rate in Greece exceeded Q1 2019 by 9%, also April showed a good momentum at 14%. Antalya Airport showed a passenger growth of 17% in Q1 and 12% in April, respectively. It's equally encouraging to see that Lima Airport is joining Antalya and Greece when it comes to the outperformance against 2019. At 104% in Q1 and 102% in April, Lima Airport is showing a very solid development year-to-date and is catching up on the loss performance due to the political unrest situation in the last year. And more than 100% -- at more than 100%, our Twin Star investment also looks strong in Q1, but it's likely to come down over the summer season, as you can already see in the April figure. Here, the flight ban to Russia and the proximity to Ukraine continue to weigh on the traffic recovery. Brazil and Ljubljana are still below the 2019 level. While Ljubljana continues to miss a national flag carrier, Fraport Brazil suffers in Fortaleza from capacity reductions by GOL Airlines, which filed for Chapter 11 in the past quarter. At Porto Alegre Airport, you will have noticed that Southern Brazil is currently experiencing the worst flooding the region has ever seen in its history. Many people have lost their lives. Our thoughts are, therefore, with the victims, their friends, and relatives. Porto Alegre Airport has also been affected due to the rising waters, the airport operations have currently been suspended. Please note that at this point of time, we cannot provide a precise guidance about the damages incurred or the economic impact of the airport's closure. It is, however, clear to us, that the severe weather conditions will form a force majeure event under the concession contract and we have good coverage due to our insurance contract. We are currently assessing the situation with our colleagues in Brazil to see how we can provide support and restore operations as soon as possible. Moving on to our key financial highlights of the past quarter on Slide number 5. Ladies and gentlemen, the past quarter marked another turning point. It's the first time post-COVID that we recorded a positive group result in the starting quarter of the year. At €890 million, group revenues exceeded the previous year by 16% or 17% when adjusted for IFRIC 12. Key drivers for the increase in revenues were the traffic recovery in Frankfurt and internationally as well as higher airport charges, positively impacted by a €28 million compensation for COVID-related effects at our Fraport Greece investment. EBITDA achieved an all-time high result in the first quarter of the year and exceeded €210 million. Due to higher D&A, EBIT on the other side was slightly short of the 2019 value by €3 million. Still at €83 million, our Q1 EBIT almost doubled compared to the previous year value. Within our financial result, higher interest income compensated for the increase in interest expenses. Simultaneously, our Antalya investment recorded an improving result. Correspondingly, our group result turned positive again and reached €13 million in the past quarter. Turning the page to our cash flow and indebtedness situation on Slide number 6. Overall, the operating cash flow and capital expenditure developed in line with our expectations. Reflecting the positive traffic and financial result development, the operating cash flow was clearly up compared to the previous year and also exceeded the value of Q1 2019. At €162 million, the operating cash flow would have also been sufficient to achieve a free cash flow breakeven without considering the expansion CapEx in Frankfurt and at Lima Airport, a very strong result. Including for the expansion CapEx, free cash flow was negative at minus €226 million. As a result, our group net debt increased to €8 billion at the end of the first quarter. Despite the higher net debt, our net debt to last 12 months EBITDA leverage ratio improved due to the operational result from 6.6 times to 6.4 times. Moving on to our repayment profile at the end of Q1. I'm now on Slide number 7. Despite the negative free cash flow, our liquidity position remained at the high level of more than €4 billion or €5 billion, respectively, including for unused project finance and committed credit lines. Gross debt on the other side grew to slightly more than €12.1 billion. The increase in gross debt also reflects the project finance at Lima Airport, where we have meanwhile made use of close to €750 million. The unused project finance in Lima still amounts to more than €410 million. As a result of the continued refinance and Lima drawdowns, our average cost of debt increased slightly to 3.1% at the end of Q1. On the other side, our available funds also reflected an increased profitability. While we started last year with an average yield in Frankfurt of about 0.8%, we are now standing at an average yield of about 2.8%. Looking ahead, we expect the yield to steadily increase to about 3% by end of H1, which will help us to reduce our cost of carry. Coming to our developments starting, as always, with Aviation on Slide number 8. While we just handled 85% of our pre-COVID passenger number, the aviation charges exceeded the 2019 level by €20 million in the past quarter and reached €195 million. As a result, we dropped the 2019 comparison in our reporting, which also marks that we have left the pandemic behind. In addition to the traffic recovery, the increase in airport charges became visible, so plus 9.5% from January 1st onwards. Despite the absence of the positive one-off effect from the first time at equity accounting of our security business in the past year, EBITDA grew strongly by €16 million, mainly due to the higher airport charges. While D&A increased, segment EBIT remained clearly positive as well at €17 million. All-in-all, a very good start of our Aviation segment in the first quarter of the year. Moving on to our retail and real estate segment on Slide number 9. Revenues also in this segment exceeded the 2019 benchmark year. At €119 million, revenues were 10% higher compared to the previous year and 2% above the value of 2019. The revenue growth was mainly driven by the real estate division as well as by a continuous improvement in parking revenues per passenger. Regarding our retail activities, the picture remains mixed. While shopping and service revenues were higher than 2019 on a per passenger basis, advertising revenues continue to dilute the commercial revenues per passenger compared to 2019. We also show the relevant figures on Slide number 10. Regarding advertisement despite a negative performance compared to 2019, we are seeing an improving trend compared to the previous year. In absolute terms, advertising revenues grew by roughly €1 million compared to last year or by 15%. With the increasing share of Far East passengers, but also the European Football Championship, we are confident to see further progress in advertisement over the course of the year, which will help us in our retail revenue per passenger key performance indicator. Regarding the segment EBITDA, we still recorded temporary headwinds from elevated costs from maintenance during the Q1 winter season. Despite the higher OpEx, EBITDA showed a good improvement compared to last year at €83 million EBITDA grew by close to 5%. Moving on to our ground handling segment on Slide number 11. Despite increasing OpEx from a higher staff amount and collective labor agreement effects, ground handling showed a slight improvement in segment EBITDA. Net revenue of €160 million, the traffic volume, however, was still too low in the off-season quarter to cover the labor cost arising from permanent and temporary staff. Correspondingly, EBITDA remained negative at minus €20 million in Q1. Looking ahead, we expect better cost coverage from the increase in passenger numbers for the remainder of the year as well as from the reduction of temporary staff from external contractors. Our final segment, international activities and services is shown on Slide number 12. The international segment continued its outperformance; revenues, EBITDA, and EBIT stood well above the previous year and pre-crisis level. Regarding the EBITDA, you will have noticed that we recorded the €28 million COVID compensation at Fraport Greece entirely in Q1. Having said this, there is no further compensation effect in the upcoming quarters at Fraport Greece. Even when adjusting for the €28 million one-off item, the international segment stood above the previous year and pre-COVID levels. Key driver for the improvement in results was our Lima investment, which grew revenues by €12 million and EBITDA by €4 million. All-in-all, we are very satisfied with the performance of the segment at the beginning of the year. Coming to my last slide for today's presentation, our outlook, I'm on Slide 13. Following the development of the first three months, we left the guidance range is unchanged. For Frankfurt Airport, the midpoint of the expectations remains at 63 million passengers with a guidance range of 61 million to 65 million passengers. Equally, on the level of EBITDA here, the midpoint remains slightly above €1.3 billion in the range from €1.26 billion to €1.36 billion. Consequently, the group net result range also remained unchanged between €435 million and €530 million, while the net debt-to-EBITDA expectation stays at about 6.4 times. Having said this, ladies and gentlemen, I'd like to thank you for your attention, and we can now open the Q&A Session.

Operator: Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] And the first question comes from Carlos Caburrasi Ortega from Kepler Cheuvreux. Please go ahead.

Carlos Caburrasi Ortega: Hi Matthias, hi Florian. Thank you for the presentation and for taking my questions. I will limit to three, as you mentioned. The first one is on Porto Alegre. As Matthias just mentioned, the airport has been closed for a few days now, and it's difficult to provide a precise guidance. But could you explain a bit more about the situation? How is the airport and the area as of today? And additionally, could we see a one-off coming from here? And if so, up to how much? The second question is on the regulated activities. Basically, could you provide your views in terms of the regulator -- the return on Fraport assets for 2024 and 2025? And what are your expectations in terms of aeronautical charges for the second half of the decade? And my last question is on Fraport USA, while sales have increased, the rest of the P&L has performed worse. What explains that performance? And what should we expect for full year 2024 for the future? thank you.

Matthias Zieschang: Yes. Coming to your first question, Porto Alegre, so the situation is that everything is flooded. So, in the terminals and also on the runway, the water has a height of about 50 centimeter. So, all the operations has been stopped. And now we are waiting that the water is going out again from the area as well as from the city and then to see what are the damages and to reopen the airport. Regarding the damages, again, as of today, it's too early to have an assessment, but I assume your question is what could be the financial output of this damage. And here we have to say, first of all, we have an insurance covering all these damages. And second, we declared force majeure to the government based on the clause in our concession agreement and this is accepted. So, with other words, then we have, in addition to the insurance coverage, we have the so-called economic equilibrium element or clause in the contract. And this means if we have unexpected effects like this flood there that this will be compensated by economic mechanisms by the government, for example, higher fees in the following years or another compensation. So, to -- at the end of the day, our expectation is that, of course, there will be damages in the form that we have to do something on the infrastructure side. Also, there is a lack of revenues, but our today's assumption is that all these damages are covered by the insurance/by these economic equilibrium clause in the concession agreement. Second question, regulatory activities, I assume you mentioned the fees for Frankfurt. Is it correct?

Carlos Caburrasi Ortega: Yes, correct.

Matthias Zieschang: For 2020 -- for this year, everything has gone, so up from the 1st of January, we have this increase of 9.5% wallet [ph] until the end of the year. And we are now in the middle of the phase for the regulatory period 2025. And based -- we always address that inflation is there. And inflation means primarily also the high wage agreements, which hit us in our P&L. And therefore, it's absolutely clear and necessary that we must have a compensation on the fee side for this inflationary elements. And this means there is no final number in the market. But there will be, again, a single-digit relatively high fee increase, which come as a proposal from us to the regulator in the next couple of weeks.

Carlos Caburrasi Ortega: Okay. But for the second half of the decade, would you expect to keep increasing tariffs sequentially?

Matthias Zieschang: Yes. But again, this is -- this proposal is valid for the full year 2025, beginning from the 1st of January 2025 ending on the 31st of December 2025 for one year. Third question, USA. So, this is in line with our expectation plans. We won the new concession for Washington. And of course, there are some start-up costs, so that you cannot see -- it's not fully reflected now in the P&L, let me say, the final and sustainable effect from this new concession. But all-in-all. everything is running in line with our plan and our expectation and you will see some better numbers in the following quarters.

Carlos Caburrasi Ortega: Okay. Thank you.

Matthias Zieschang: Welcome.

Operator: And the next question comes from Elodie Rall from JPMorgan (NYSE: JPM ). Please go ahead.

Elodie Rall: Yes.

Matthias Zieschang: We can hear you, Elodie.

Operator: It seems like Elodie just got disconnected by accident. We will continue with the next question, which comes from Sathish Sivakumar from Citi. Please go ahead.

Sathish Sivakumar: Yes, I got three questions. Thanks again for the presentation here. So, first on the strike resolution, obviously, Lufthansa had settled wages still till with both pilots and faculty ground handlining and what are you actually seeing into quarter two? Have you managed to like get those lost from customers who eventually not ending booking at Frankfurt in Q1? So, are you seeing this lower impact carrying over into quarter two as well? Or is it kind of back to normal in terms of your expectation on traffic as you going to May? And then the second one is around the retail spend. Can you share, obviously, Easter was in March and that it had actually an impact. But where are we on April retail spend per pax? How does it compare versus say Q1 as such? Have you seen the Easter impact unwind and you actually benefited better in April? So, that's my second one. And the third one is around the -- you got €2 billion of debt, like up in the next two years, what's the [Indiscernible] financing those debt? Thank you.

Matthias Zieschang: Starting with your first question, the strike effect. First of all, we -- regarding the passenger numbers, we addressed in our presentation a number of 600,000 in the first quarter. But as I mentioned, this is a direct impact. So, what we could measuredly direct on these days where the strikes have been. You know that in reality, these strike threats or discussions about a potential strike they started some days before. And you can always see this phenomenon when there's a discussion about a potential strike that already at that point of time, the booking numbers as well as the realized passenger numbers are going down. So, this is very difficult to measure what is the outcome of these indirect effects. But I would say that the indirect effects are minimum have the same volume like the direct impact. So, just to get a feeling what strike costs also as measured in passenger numbers. So, now looking forward, we -- this is also what I mentioned. So, most of these contracts are now closed. So, we do not expect new hustling [ph] in the next couple of -- not days, but in the next quarter for the rest of the year. So, we think everything is through now. So, that looking forward, we don't expect any significant impact from new and unexpected strikes here for Frankfurt Airport. Regarding the retail number. So we -- not just retail, but also parking, et cetera. On a first view, the numbers are not surprisingly positive, so to say. But you have to see that there wasn't so far a change or structural change when you compare the current numbers with the previous year. Why? Because in the previous year, the Easter holidays have been in April and now in March and Easter holidays have a significant impact on all the numbers. Why? Because in -- during the Easter holidays, you have strong outbound traffic flying out of Frankfurt, flying to Greece, to other destinations. And then you have the phenomenon that from the outbound perspective, this is always good and you could see good numbers in the aviation segment. But for the incoming traffic, for example, in Greece, you see a lot of passengers, but you just receive the fees when they are restarting and flying back to home and this happened then in April. So, there is now in a comparison to the previous months, you see a relatively weak March outside Frankfurt, and you will see a relatively strong positive effect in March. This is related to Greece to all these companies in our international portfolio. On the parking side, you have a different phenomenon. So, parking is paid when you come back and take your car and then to pay for the days when your car's in the car park. And now you have the phenomenon end of March, a lot of people came with the cars and the parking houses are full and then they are going to leave the parking houses in April. So, the revenues, the strong impact from parking revenues, you see then in April. It's just to explain the numbers, March, which you see in April, which will come in Q2. So, now looking on the retail numbers in April, which today are available for us. And here, we have, let me say, a good signal for us and also for you in a way that when we just look on April, we are €0.24 in the spend per pax higher than previous year. And this is -- if you look in the single items like shopping, like advertisement, like services, you also can see that now up from April, the item advertisement is picking up. So, for example, in April, we had -- in the previous April month in 2023, we had €1.9 million revenues and in this month now, we have €1 million more. So, it's more than a 30% increase. This gives us the confidence that now the numbers are going up. And in April itself, we have a good outperformance of the previous year and also accumulated. It's an increase so that what we already said that during the course of the year, now we expect even better spend per passenger number, driven by an increase on the retail side as well as on the advertisement side. And third question 2025, yes, we -- when you look on our liquidity with €4.1 billion, this is a huge liquidity. But in the moment, it's good to have it. And also, as I mentioned, we -- as of today, the interest rate on our liquidity side is 3%. And this is absolutely matching the cost of debt which we have, and it can be that end of Q2, it's even a little bit above 3%. So, with other words, we don't have any cost of carry at the moment and we have the protection from the liquidity. Nevertheless, looking forward, we are going to bring it down a little bit over the time, not in a significant step down. It doesn't make sense because we are -- given the inverse interest curve, we are benefiting from our liquidity, which is deposited on three, six-month, 12 months duration, while our indebtedness has a much longer duration. So, we -- so to say, we are benefiting from the inverse interest rate curve. That's the reason why our ambition to bring it down is there, but we will do it in soft steps. And we are not going to your question is there will be not a full refinancing of the payback situation.

Sathish Sivakumar: Got it. Thanks Matthias. That's quite helpful. Thank you.

Operator: And the next question comes from Elodie Rall from JPMorgan. Please go ahead.

Elodie Rall: Hi, sorry about earlier. Thanks for taking me again. I hope it wasn't asked. But first of all, on free cash flow, we delivered a negative minus €226 million in Q1. It's in line with what you see, I think, more or less from Q1 last year. So, does that mean that for 2024, you expect to be rather towards the bottom end of your guidance of the range, so towards more like minus €660 million for 2024? And do you still expect to be breakeven in 2025? That's my first question. My second question is related to that would be an update on CapEx for 2024 and 2025 million. I think you had said €1.4 billion and €1.1 billion at the full year call, but it would be good if you could confirm that or if there's any change? And lastly, on ground handling, like okay, still negative in Q1 because of the low traffic level and you're still guiding for breakeven for the year. But what kind of traffic level do you actually need to see to get there? Do you get there with the bottom end of your traffic guidance, do you think? Thank you.

Matthias Zieschang: Yes. Thank you for your questions. First topic was free cash flow. In our presentation, on Slide number 19, we gave the guidance for this year. And when you look on the parameters, I think some parameters are more or less given and some have more flexibility. And I think on the EBITDA side, you will not see any surprise. So, this will be a good number. And as always, we try to be on the upper end of the range. On the other side, when you look on the CapEx range, €1.4 billion to €1.5 billion, we -- first of all, we think that this is exactly our range, but it is very difficult today to -- even in November, it will be difficult to define whether it will be the lower or the upper end because you always have the phenomenon that in December, you have always a situation that the construction companies try to send as many as possible builds to you, and then we have to look whether it's valid or not. And so it's really in the last days of December, then we really can identify whether it's €1.5 billion or €1.4 billion. So, this is very difficult to predict exactly, but no surprise regarding the range. Regarding the interest numbers also, you don't see any variance or high volatility because even if the interest rate curve is shifting or changing, this has no significant impact on the financial result. So, with other words, the -- at the end of the day, the final level of CapEx defines where we end up regarding our free cash flow range. And we will stay in this range and again, end of December, we know whether it will be the higher or the lower end of the free cash flow ratio. And then your question regarding CapEx guidance for 2024. So, again, there's a reconfirmation of the guidance for 2024 as well as for 2025. So, the €1.1 billion next year and this means that we stick to the free cash flow breakeven in next year, which is our absolute targets, and we are convinced to achieve this. Ground handling. Yes, ground handling is negative. It's -- looking forward, it must be better and it will be better. And here, we have two drivers, which will bring us in the right direction. One thing is, of course, that in Q2 and especially in Q3, we have a given cost structure. But on the other side, we have much higher revenues in the central infrastructure as well regarding the ramp and passenger services to more revenue, traffic-driven. And second, we have to stabilize the operation. We have our own staff. And we also have in the moment about 800, even a little bit more than 800 persons from service contractors, so-called helping hands with a relatively low productivity, but high cost. So, this is a problem on our cost side. But we still use these guys to stabilize the operation. But with a clear target to bring this number down and to give you some feeling. So, we always in the future, even before COVID, we work with such guys, but we had in 2017, 2018, 2019, we had always a base level of about 150 persons from contracting firms. And now we are at a level of more than 800. And we have to bring it down because it costs us a lot of money. And this is the second lever now step-by-step to bring down these third-party personnel. And this will help us on the cost side. So, we have two levers. Again, this is the traffic which comes automatically on the revenue side and on the other side, reduction of these personnel from contracting companies.

Elodie Rall: Okay. Thanks very much.

Matthias Zieschang: Welcome.

Operator: And the next question comes from Ruxandra Haradau-Doser from HSBC. Please go ahead.

Ruxandra Haradau-Doser: Good afternoon. Thank you for taking my questions. First, could you please help understand the medium-term potential of Lima Airport? How should we think about tariffs given the significant investments over recent years and about the traffic once capacities are expanded? And what will happen with the old terminal will it be closed? And second, I understand that some airlines like Aeroméxico would like to fly to Frankfurt, but they do not receive convenient slots. Could you please remind us how many slots per hour are currently open? And what will happen once T3 will be finalized in terms of available slots? Thank you very much.

Matthias Zieschang: Yes, Mrs. Haradau-Doser, thank you much for your questions. First of all, Lima, starting with the terminal. So, the plan is that we are going to inaugurate the new midfield terminal on the 18th of December with a big celebration with the President and all the politicians there. And we are convinced that this will happen. And so at the same day and the same, we are going to close the old terminal. So, we concentrate the operation on these large and new midfield terminal. And then we have to see what -- as of today, there is no plan what to do with the old one. There are different plans, which are now assessed. And one thing is to have a commercial use for a shopping center. This could be one alternative, but also for other for cargo things. So, with other words, we are elaborating what alternatives will bring us the highest financial contribution. One thing could be to start with the shopping center. But again, this is an open topic. And regarding the operational performance or also the -- regarding your question regarding the fees. So, first of all, when you look now on the traffic numbers, they are very positive. So, this political difficult situation in the last two years, they could be overcome. And now we are back to normality, the numbers are above 2019. And we expect now a continuous growth like in the past, very solid single-digit growth rates in Lima. And this will be combined with significantly higher fees. So, the first step is planned after -- and this is linked to the inauguration. So, that's also one reason why we have been so speedy, so to say, with the opening on the 18th because based on these assumptions, we can realize a good fee step-up in 2025. And in principle, there will be a big one due to the CapEx. And in principle, the fee increase is linked to the inflation rate minus x and minus x stands for so-called productivity factor. So, for example, inflation would be 5% or 6%, then we are taking -- or the regulator takes a 5% or 6% and deduct 1%, 1.5% for a requested productivity factor. This is a normal adjustment mechanism for Lima. Regarding this -- now switching over to Frankfurt here with the slots. We have currently in the peaks, about 100 movements per hour, but just in the peaks. So, the traffic is still relatively or very unbalanced in Frankfurt. We have deep peaks, but we have also deep valleys. And of course, it's better to fill up the valleys. That's the reason why we are relatively reluctant to open our artificial constraint regarding the movement. What does it mean artificial constraints? This means that theoretically, we have an available capacity of 126 movements per hour. But we are not going to open this because, first of all, the traffic is far away from the maximum given capacity. And again, we are relatively slowly opening these constraints to avoid over-peaking and given an incentive, so to say, for airlines to fly into the valleys because this is much better for productivity and equal and balanced use of our infrastructure. And regarding the -- was it Aeroméxico, I don't know the example, but I assume this has to do that they requested a slot in a peak time, where we say peak time is full, but we offer you a lot of available slots in the valleys. And perhaps there's a discussion between us and -- but I don't know the case in the moment. But in principle, we have enough available slots, but not in these three, four peaks during the day. We one to open this -- to these constraints were in the peak times to achieve a more balanced utilization of our infrastructure.

Ruxandra Haradau-Doser: Thank you.

Matthias Zieschang: Welcome.

Operator: And the next question comes from Patrick Creuset from Goldman Sachs (NYSE: GS ). Please go ahead.

Patrick Creuset: Hi, Matthias, hi Florian. Just coming back to your earlier comments on the 2025 fee increases and your early expectations there, I think you mentioned on the call you saw that in the single digits but relatively high. Does that mean high single digit?

Matthias Zieschang: What do you mean with, let me say, last year we came with 9.5%. So it will not again be 9.5%, but it will not far away from this number. Perhaps this gives you more confidence about the potential range of fee increases in 2025.

Patrick Creuset: Second question, you're around above €8 billion of net debt. In March, you're guiding €8.2 billion to €8.4 billion for the year. And if we then think about second half cash flow, which naturally tends to be a little bit better in your business, would it be fair to expect peak net debt somewhere around the half year?

Matthias Zieschang: No, because we when you look on the indebtedness curve during the year in the last previous years, you always see that of course this is driven by CapEx but regardless of this when you look on the free cash flow in Q1, Q2, Q3, Q4 you see always that Q2 is always better than Q1. In Q3 we have an overflow, but in Q4 we have in most cases a negative number driven by the CapEx. And the CapEx is still strong in this year because as I mentioned on the 18th of December LIMA opening, so all the, as much huge outflow for LIMA as well as for T3 to open in the beginning of the summer, like scheduled in 2026. So this is what I can reconfirm is we have this range, 8.2, 8.4. It will be, as of today, I would say that in Q3, the indebtedness is lower than in Q4. This must be the normal curve, so to say, regarding indebtedness. But then, of course, you will see in Q1 2025 another peak because Q1 is always the weakest quarter in the year, but then in normally in Q2 break even or even a positive free cash flow because then CapEx will go down on one side and we have further EBITDA increase on the other side.

Patrick Creuset: Thanks very much.

Operator: The next question comes from Andrew Lomberg from Barclays (LON: BARC ). Please go ahead.

Andrew Lomberg: Hi there. Can I come back to ground handling? I think in the past you used to speak of an opportunity to improve the profitability by increasing the rates of handling contracts and walking away from contracts where you're not able to put the pricing up. Has that happened? Has that played out? Or is that no longer the strategy? And then staying on handling, can you please remind us when the Lufthansa contract comes to an end and what your thinking is, what the potential pricing might be as that gets renegotiated? And then just a final last question, perhaps a bit simple or basic, you spoke of high maintenance costs impacting the retail sector, but you didn't call it out in the context of the aviation sector. I'm just wondering why maintenance was such a burden on one part of the terminal and not the other? Thanks.

Matthias Zieschang: Yeah, starting with your first question regarding ground handling, so on the price side. We have in ground handling, we have the two sub-segments. On one side, the passenger and ramp services, and on the other side, the central infrastructure. When we talk about problems, we always talk about ramp and passenger services because the central infrastructure is semi-regulated and you can also see and read in our presentation that parallel to the aviation fees, we also increase the prices for the central infrastructure with 9.5% up from the 1st of January. So this is fine, and here we are covering our cost as well as our cost of capital. So the problem comes from ramp and passenger services, where we have a higher personnel intensity on one side and wage contracts, which are at the end of the day, double-digit. And on the other side, we have other airlines as customers, and we have the Lufthansa. Regarding the contracts with other customers, these contracts have a short duration. So whenever a contract ends, we have the chance to renegotiate. And here we follow our principle that this, what we see on the wage side, must be passed through on the price side. And this works well. So with other words, all in the meantime, all the contracts with other allowance have been renegotiated, and we have significantly higher prices. Our problem is our biggest customer. This is Lufthansa with a market share of two-thirds. And here we signed a contract in 2019 with a period till 2026. And at that point of time, we thought it's a good contract. Why? Because it's a long-lasting contract. And in this contract, there is an annual price escalation of 2.3%. At that point of time, this equaled the price increase as well as the anticipated and expected inflation rate. And now we have the situation that the wages are going up and we have this contract. We are in ongoing negotiations with Lufthansa to open the contract, ongoing negotiations with Lufthansa to open the contract, but you know the sentence, so it needs two to tango and there's in the moment an unwillingness of Lufthansa to talk about the prices in this contract. This is our problem, to open this contract before 2026. So we have two scenarios. One is reopening of the contract with a lower probability. The second is that we have to stick to the contract as signed. This means that we have just 2.3% price increase per annum, but then of course a significant price increase in 2026. And in the meantime, all the homework on the cost side and productivity side has to be realized. Yeah, so refurbishment maintenance. Yeah, this is what we have, in Terminal 1, Concourse B, since years we have closed the food court on the second floor, which was a huge food court, and we had to close it to bring up the fire protection on the latest technology level, and this is very time-intensive as well as cost-intensive, and especially refurbishment for this is driving the maintenance cost in retail and also the things what we are now doing to reallocate the security lines in Terminal 1, Concourse A, this shift or reallocation to the north to gain more retail space. And the price, therefore, is higher maintenance and cost for this segment.

Andrew Lomberg: Super. Thank you.

Matthias Zieschang: Welcome.

Operator: And the next question comes from Jose Arroyas. Please go ahead.

Jose Arroyas: Yes, good afternoon. First one on LIMA. Terminal and runway will be handed over very soon. Can you please update us on the duration of the concession? Will the concession expire in 2041 or in 2051? The second question is on the private security employees in Frankfurt. And there is a new labor agreement that has been agreed, and these are in the region of 13% to 15% in terms of salaries. I'm aware that this is a pass-through for Frankfurt Airport, but I was wondering if there is any cohort of your employees that may be impacted by this salary agreement. I just want to double check that. And lastly, on strategy, is there any non-corruption that Frankfurt may consider selling? And is there any plan that we may expect?

Matthias Zieschang: Thank you. First of all, it's difficult to understand you. This has not to do with you, but with the quality of the line. So I try to interpret what have been your questions. So the first question was, I think -- LIMA, duration of the contract. It's till 2041 plus a 10-year option without any financial contribution from our side. So at the end of the day, it will run till 2051.

Florian Fuchs: The security contract, the higher wages.

Matthias Zieschang: Yeah, security contract, I assume you mentioned the security contract for Frankfurt, is it correct?

Jose Arroyas: Yes, it is, yes. Thank you.

Matthias Zieschang: Yeah, this is a 100% pass-through. So at the end of the day, we have to see what are the costs for doing the security business, and 100% of this cost is charged to the allies. So there is no margin, but also no deficit or loss for us. It's neutral. It's just blowing up the P&L. It's neutral. It's just blowing up the P&L. And strategy regarding our portfolio, I assume this was your third question or my interpretation of this question. Here in our existing portfolio, we just have one asset, which you can define as a non-core asset. This is the 10% participation in New Daily. And here we have a clear intention to sell it. And we are in long-lasting discussions with GMR. And let me say, there is some chance and some probability that we can realize the sale in this year. But this is not part of our guide. So if this would come, there's some probability that it could happen in 2024. Then this would come on top of all numbers which you know from us. I hope I have covered all your questions.

Operator: And the next question comes from Harishankar Ramamoti from Deutsche Bank (ETR: DBKGn ). Please go ahead.

Harishankar Ramamoti: Hi, good afternoon, everyone. Thanks for taking my questions. This is Hari from Deutsche Bank. Three from my side. If we look at the traffic for the first quarter against 2019, we did have, so to speak, a favorable base effect, right? You went down close to 23% last year. So that hopefully has helped with year-on-year performance for this Q1 2024. But would it be fair to assume that going forward, the growth on a Y-o-Y basis tapers off. Secondly, when we look at the aviation segment and look at the personnel costs, on a per-employee basis, they seem to be coming off on a Y-o-Y basis. Am I missing something there in terms of any timing impact? And lastly, if we take a step back and look at the 2030 EBITDA targets that you've set for yourself, around €2 billion, of which around 55% to 60% comes from Frankfurt operations, that implies around 8% compounding. And if I remember right, you said it was going to be mostly linear. So just wanted to see if you had any further clarity on the building blocks, in terms of how much we could expect from retail and so on and so forth. But even if not to that granularity, maybe your thoughts around how much would be passenger-driven and how much would be profitability per pack that would be very helpful? Thanks.

Matthias Zieschang: Yeah, thanks for your question. Traffic performance in Frankfurt. So, it's not very strong, what we saw in Q1, but this is not a surprise because this has to do with the constraints on the supply side coming primarily from Lufthansa, given the problems with personnel given the problems with the delivery of the Dreamliner as well as the 777 and on top, then you have the problems with the engines for the A320. So this will constrain us from the supply side in 2024 as well as in 2025. And that's the reason why we are underperforming compared to other pickups in the world. So it comes from the supply side. But nevertheless, it's okay because we follow our financial targets. And second also thing which I would like to bring in the discussion, of course, is a mix between leisure traffic on one side and business traffic on the other side. So here, we have now a situation that business traffic is between 60%, 65%. This is what we forecast it last two, three years saying that the new normal regarding business traffic is lower than on the -- compared to the pre-COVID level, and that's exactly how we saw the situation in opposite to the much more optimistic view of the airline. So it's exactly this what we saw in our conservative plans. But on the other side, therefore, you see a very -- while the flying behavior of leisure passengers, where we, in the meantime, are above 100%, but the mix is so that we now have 84%, 85% and a further improvement in next year, but still a limitation from the supply side in Frankfurt. In Aviation segment, the personnel cost. This is the -- let me say, it's determined by the tariff agreement and the so-called TVÖD, which is valid for all civil servants in Germany, so more than 3 million people here, and we have to follow this contract, which is a very complex one and having a lot of one-off payments starting in the last year with the inflation payment and then what was it €320 per month. Help me, Mr. Fuchs.

Florian Fuchs: Yes, yes, inflation adjustment

Matthias Zieschang: Inflation adjustment, all one-offs until also running into this year and up from March, then we have these percentage increase of, I think, 5.5% plus some elements. So it's a very difficult complex. And with other words, in the first quarter, but not just in aviation, everywhere, it's characterized by two months with fixed installments, and in March, it's a €200 step-up plus 5.5%. So with other words, up from Q2, the personnel cost will be higher because then it kicks in the 5.5% tariff increase, but not just in aviation. And regarding the 2030 target, so the €2 billion EBITDA as well as the €1 billion free cash flow. So we gave a rough guess how the allocation could be, more or less 50-50. Then your question is, what is traffic-driven and what is price-driven? My clear answer is, I don't know what is price-driven. We said it's a mechanism that if and when the traffic is higher than this, what we anticipated and have in our financial plans, then of course there will be a compensating effect on the price side, which we have to do because otherwise we would realize excess returns, which is not allowed. So the adjustment mechanism is always the price. So when the traffic is better, price escalation will be lower and vice versa. So when if and when the traffic ramp-up would be lower than what we have in our long-term planning to 2030, then we are more aggressive, so to say, on the price side to compensate the traffic. So the good thing for you, it doesn't matter whether it comes more from traffic or more from prices. It's a combination of both because revenue is driven by price times volume. And last question, Ja [ph], again, it will be a more linear ramp up from now to 2030.

: : Understood. That's helpful. Thanks a lot.

Matthias Zieschang: Thank you.

Operator: And the next question comes from Graham Hunt from Jefferies. Please go ahead.

Operator: Graham, can you hear us?

Graham Hunt: Yes. Now, I'm on line, so. I'm sorry. Now you can hear me?

Matthias Zieschang: Yes.

Graham Hunt: Okay. Perfect. Just two quick questions from me. One on the free cash flow bridge. If you could give any color on the €93 million of other CapEx in Frankfurt, sort of if there are any one-offs or if that's a normalized rate for the year, just trying to understand what that could be for 2024 as part of the broader CapEx spend? And then second question on retail, would you be able to comment on how the mix has changed within the retail segment between lower value sort of food and bev operators and higher value retail operators? Has that changed materially over the past few quarters or years and where we stand today? And do you think that's going to change or do we really just have to wait for Terminal 3 to open for that to change going forward? Thanks.

Matthias Zieschang: Yes, First question, CapEx driven. So what we have in the full year guidance for Frankfurt is up to €350 million. This is an indication for the following year. So some years could be lower, could even be a little bit higher, but this is the best indication for the following years. So, in one quarter, it could be higher or lower, but CapEx is never a topic which you can exactly plan in a quarter. Even in one year, it's difficult to make a precise prediction, but over the long run, even if you're looking back about our CapEx numbers in the past, then you see clear trends and levels. So to bring it together, €350 million per annum is always the best indication also for now and for this year and for the future. In retail, we -- let me say we have, of course you have the different categories and some are running better and some are running weaker. So we have relatively a little bit weaker sales in fashion. This has to do with supply shortages regarding top brands like Hermes, also like Rolex, also Gucci. Also cosmetics are a little bit lower as well as banking services. So these are the underperforming items better here better is as always food and beverage also above our plans. Car rentals is running very good and also the classical duty-free stuff, cigarettes, et cetera, is also running very nice.

Graham Hunt: Thank you. That's very helpful. Thanks.

Matthias Zieschang: Welcome.

Operator: [Operator Instructions] And the next question comes from Dario Maglione from BNP Paribas (OTC: BNPQY ) Exane. Please go ahead.

Dario Maglione: Hi. Good afternoon. Three questions for me. The first one, if you can come back to slide 33, where you discussed the wage agreement. What kind of impact shall we expect in Q2 in terms of increase in year-on-year? Is it 5.5% year-on-year or is it more? Second question is on tariff, looking longer-term, Frankfurt has almost always under-earned its allowed WACC over the past 15 years. Why do you think the future will be different? Has anything significant changed in your relationship with Lufthansa? And final question, just going back to your point that you might be selling the 10% stake in the Delhi airport. Some of your peers, of course, are investing in India, whereas you are looking to sell. What is your view of the Indian airport market?

Matthias Zieschang: First question, tariff impact. So you make a reference to Slide 33. And it's more -- first of all, it's always very difficult now on the tariff agreement side. But as a rough number, take 5.5% up from Q1 as a step up. So this is the best guidance, so to say, for the personnel cost increase. It's even a little bit more than 5%. Yes, take 7%, maximum 7%. So then the tariff, the fee increase is absolutely correct. We under-earned and we never reached this, what is possible in the market. And that's the reason why if you look back now, you see, I think, relatively good fee increases with 9.5% in this year. Also with the increases in the previous two years before the 9.5%, this was a good step up. And we know our guidance for 2025, a relatively high single-digit increase. I think this reflects our intention and ambition to go up with the fees, to go up with the return on assets, and to come very close to this, what is allowed based on the regulated asset base. So this is our clear target coming from the past where we didn't cover our cost of capital. And India, it's difficult. So on one side, it's a fantastic market with a growing population, with a lot of potentials and opportunities. But we had, since years, we have and we had this 10% stake. And let me say, when you run an airport and you have strong partners and you have just 10%, the degree of your influence, your potential influence is very limited. And we have a good partner, we have a strong partner, he's dominating, this is fair because he has a majority of the shares. So with other words, we cannot bring in additional value in these assets, and that's the reason why we say, hey, we want to leave it with a good return and a good probability related to this, what we have invested. And this will be the exit, and you will see when the exit is on the table that this will show a good return. This is number one. Number two, our initial plan was to start with 10% at New Delhi and to show good performance. I think this we did together with our partners, and then trying to find new opportunities, investment opportunities in the Indian market. And here we have to say we have not been successful in identifying and realizing such opportunities. We tried it to do it, but we can say we failed. We have not been successful. That's the reason now we are in there since years. And we said, okay, we stick to the opinion that this is a good market, but we were not able to make something out of this good market. And that's the reason why we decided to leave the market.

Dario Maglione: Okay.

Matthias Zieschang: It’s a lot story, May chart.

Dario Maglione: Yes. Thank you. And sorry, can I just have a quick follow-up on the first question on Slide 33. Just to clarify whether I understood correctly, you mentioned a maximum 7% increase in wages relative to Q1 2024. Is my understand correcting.

Matthias Zieschang: I didn't hear you a number. What would...

Dario Maglione: Maximum 7%?

Matthias Zieschang: Yes, yes.

Dario Maglione: Relative to Q1 2024.

Matthias Zieschang: Yes.

Dario Maglione: Okay. Thank you.

Operator: Ladies and gentlemen, this concludes today's Q&A session. And I would now like to turn the conference back over to Florian Fuchs for any closing remarks.

Florian Fuchs: Yes. Thank you, everyone, for the good questions. Any follow-up, do reach out to us in the IR department or meet us on the road. And with that, yes, have a good rest of the day and speak to you in a bit. Bye.

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