Flughafen Zürich AG (FHZN) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. Welcome to the presentation of Zurich Airport's Half year results for 2026. My name is Lukas Brosi, and I will be hosting this presentation together with Kevin Fleck, our CFO. I would like to remind you that the presentation is also available on our website. Today's agenda is as follows, I will begin with a brief business update. Following that, Kevin will provide insights into our financial performance and share our guidance for 2026 as well as an update on our long-term targets and goals. At the end of the presentation, we will address your questions. Please already submit your questions during the presentation. This helps us organize them more efficiently. Stefan Weber will moderate the Q&A session. Let me begin with the highlights of highlighting our milestone for the first half of 2026. The first half of the year was characterized by continued strong demand in Zurich and the positive development of our business activities in Brazil. At Zurich Airport, passenger volumes increased by 6% to 15.8 million passengers despite the challenging geopolitical environment and the temporary weakness in traffic to and from the Middle East. Operations remained stable and reliable throughout peak travel periods and despite ongoing construction work on several sites. On the commercial side, higher passenger volumes supported airside revenues, while landside activities continued to be affected by construction works associated with the development of the landside passenger zones. The real estate business continued its positive development, supported by higher rental income as well as energy and utility revenues. Internationally, we achieved an important milestone with the opening of Noida International Airport on the 15th of June. While operations commenced successfully the current geopolitical environment in the region, has resulted in a more gradual ramp-up than originally anticipated. Nevertheless, our long-term view remains unchanged for the Indian market and for the development of Noida in particular. In Latin America, our Brazilian airports delivered another strong performance with passenger growth of over 10% compared to the first half of 2025. Furthermore, we achieved important progress regarding the regulatory framework at the Zurich side. Political backing for Zurich Airport's existing operating hours was strengthened through decisions at both cantonal and federal level, further supporting planning certainty and the long-term connectivity of Switzerland. We also made progress on several strategic infrastructure projects, for example, with the start of construction works for the new general aviation infrastructure in the Western area of the airport. Based on our purpose business segments, core values and the defined strategic target dimensions. We further refined our 2040 targets for the international business and the group. At the same time, we continued to invest in innovation and sustainability through the rollout of new passenger technologies and progress in the implementation of our climate program 2040. Let's take a closer look at some key figures. The first half of 2026 delivered the strongest half year result in the company's history. Revenues increased by 5% to CHF 674 million, while EBITDA rose to CHF 374 million. Net profit increased slightly to CHF 164 million. Group CapEx amounted to CHF 269 million for the first half of 2026. Please note that CapEx in the prior year period included the acquisition of the Radisson Blu building in the amount of CHF 155 million. Let's review our main business segments, beginning with the Aviation business. The passenger volume in Zurich is up 6% for the first half of 2026 compared to the prior year period. During spring, several airlines temporarily reduced services to the Middle East following the escalation of geopolitical tensions in the region. Passenger numbers [ to ] and from the Middle East, therefore, declined by around 30% compared to the first half of 2025. However, this impact was more than compensated by continued strong demand from the Swiss local market as well as additional growth in Europe and Asia Pacific. As a result, the impact of the Middle East conflict was limited overall. The airlines showing the strongest growth rates were Edelweiss and Austrian Airlines with Condor, easyJet and Vueling also contributing strongly. The seat load factor increased by 2 percentage points to 79%, and flight movements also climbed by 4%. Freight volumes decreased slightly by 1% compared to the prior year period, primarily driven by a decline in imports. Despite the high volume of traffic, flight operations were managed in a stable and reliable manner, thanks to the close cooperation between all partner companies. The route network was expanded in the first half of 2026. 3 new airlines, Norwegian, Kuwait Airways and China Eastern Airlines are now flying to Zurich. At the same time, existing routes were expanded and new destinations were added to the route network. According to the current 2026, summer time flight timetable. 67 airlines are offering flights from Zurich to a total of 212 destinations. Our high service level was recognized externally with Zurich Airport having received the Airport Service Quality Award as the best airport in Europe in the 25 million to 40 million passenger category. Zurich Airport continued to make targeted investments in the digitalization and automation of passenger processes in the first half of the year. This can be seen, for example, in the modernization of the security checks which was advanced with the introduction of new CT scanners. Introduction of the European entry exit system was completed together with the Zurich [ Kantonspolizei ], Zurich Airport has met the infrastructural and operational requirements and continuously supports the authorities in implementing the new border clearance processes. The collection of biometric data of [ non-EUF ] citizens sometimes led to long waiting times at border control. In the following slides, we'll give you an overview of our commercial and real estate business. Commercial turnover developed positively overall despite the ongoing construction works on the landside. Airside turnover increased by 9%, driven by higher passenger volumes and the reopening of luxury stores. On the landside, turnover declined by 3% because of construction works and temporary closures required for the development of the landside passenger zones. Combined, airside and landside turnover increased by almost 4% and exceeded CHF 300 million. Let me provide you with an update on the 2 most important commercial projects currently on the way at Zurich Airport. The first is the development of the land side passenger zones. This project will significantly enhance the retail and food beverage offerings. It will add approximately 6,000 square meters of new commercial space on the landside. Construction is already well advanced, and first openings are expected from autumn 2027 onwards in a phased approach. The second major project is the replacement of dock A, while the project will require the temporary closure of commercial space within the airside center from 2029 onwards. Relocation measures are being pursued in order to mitigate the impact wherever possible. Up in completion, the project will provide substantial additional lounges and commercial space and significantly strengthened the commercial attractiveness of Zurich Airport. The real estate business remained stable and important contributor to group earnings. Rental income continued to grow, while energy and utility cost allocation also increased. Several strategic infrastructure project made good progress. For example, the request for planning permission was submitted for the new Dock A Construction also started for the new general aviation infrastructure, while the first phase of the Skymetro modernization was also successfully completed. Last but not least, let's turn our attention to our international business. Let's take a closer look at the passenger numbers at our airports in Latin America first. Passenger traffic grew by 10% across our majority-owned airports in Latin America compared to the first half of 2025. In Brazil, Florianópolis increased passenger numbers by around 10%, and Vitória and Macaé by approximately 12% and Natal by approximately 19%. At our airport in Iquique in Chile, passenger volumes declined by 9% compared to the same period last year. Demand was impacted by macroeconomic factors, notably adverse foreign exchange movements and higher oil prices. Let me share some more highlights from our majority owned airports in Latin America. Overall, our Brazilian airports continued to perform very strongly, combining solid traffic growth with continued investments into quality commercial development and sustainability. In Florianópolis, work has started on the expansion of commercial space in the international terminal area. A new fully covered premium parking facility opened earlier this year and construction of additional launches is underway. The Airport also was named Brazil's based airport the sixth consecutive year. The construction of an additional launch is also underway in Vitória, which was recognized as Brazil's second best airport for the fourth consecutive year. In Macaé, the inauguration of the new solar power plant marks an important sustainability milestone, making the airport Brazil's first energy self-sufficient airport powered by clean energy. Natal achieved the second highest passenger grow among Brazilian airports during the first half of the year. International traffic more than doubled compared to last year. In addition, the redesign of the commercial concept was completed. In Chile, the concession for Antofagasta Airport ended in February 2026 and operations were successfully handed over to the new concession area. Zurich Airport remains active in Chile through its participation in Iquique Airport, but the construction of the Northern Apron restarted in June. A few days ago, Zurich Airport has entered into an agreement to divest its indirectly held 12.75% minority stake in Belo Horizonte International Airport in Brazil. The buyer is ASUR, an international airport operator headquartered in Mexico. The sale of the shareholding is expected to result in a nonrecurring net gain of approximately CHF 17 million before taxes at group level up on closing. The transaction remains subject to customary closing conditions, including the required regulatory approvals and is expected to complete it within the next few months. Zurich Airport initially joined the project as a minority investor in 2013 as part of Brazil's third round of airport privatization. The divestment is fully aligned with our international strategy to focus on majority shareholdings with operational responsibility. I would also like to provide an update on Noida International Airport. On June 15, the airport successfully started commercial operations, establishing a new aviation gateway to the National Capital Region of Daily and North India. The operational launch follows a construction period of approximately 4 years and represents a major milestone for the international business of Zurich Airport. The airport started operations smoothly with IndiGo and Akasa Air currently serving 17 domestic destinations. Looking ahead, the route network will continue to expand, and international services are expected to be added. However, the end innovation market is more affected by the conflict in the Middle East than other markets. Air base closures, elevated fuel costs and capacity adjustments have resulted in a more volatile operating environment for Indian Airlines and a slower ramp-up in Noida than originally anticipated. The short-term outlook remains subject to increased uncertainties Nevertheless, our assessment of the mid- to long-term opportunities remains unchanged. Noida serves one of the fastest-growing aviation markets globally, benefit from a strong catchment area in the national capital region. And represents a strategically important growth platform for Zurich Airport over the coming decades. The opening of Noida marks a key milestone in the development of our international business at the same time, we continue to see attractive opportunities to further develop and strengthen our portfolio. We have therefore defined a clear vision how we want to develop our international business until 2040. Our ambition is today to develop the international business into a financially self-sufficient business unit that can fund the capital requirements of new airport concession from its own resources. We will maintain a disciplined approach to capital allocation, focusing on investments that generate excess returns compared to Zurich. Our focus is on maturity holdings, where we can assume operational responsibility and actively shape the development of the airport. At the same time, we aim to build a balanced portfolio across selected focus markets. Wherever we operate, our ambition is to be among the best airports in terms of quality, customer satisfaction and sustainability. By 2040, the international business should make a significant contribution to group's revenue and EBITDA as well as to attractive dividend payments of Zurich Airport. I'm now handing over to Kevin.

Thank you, Lukas. Good morning, ladies and gentlemen. Welcome, and thank you for joining us. I will now provide an overview of the company's financial performance. Let me start with a financial overview. Our revenues increased by 5% compared to the previous half year. This was driven by continued passenger growth at Zurich Airport and the positive development of our international business in Brazil. Aviation revenue increased broadly in line with passenger volume growth, rising by 5% from CHF 327 million to CHF 345 million. Non-aviation revenue increased by 5% in the first half of the year to CHF 328 million. Adjusted for concession accounting, this reflects a growth of 4% to CHF 324 million. EBITDA rose by 4% year-on-year to CHF 374 million. The EBITDA margin remains largely unchanged at 56%. Overall, the consolidated result for the first half of the year grew by 1% to EUR 164 million . So let's take a closer look at the nonaviation figures. Despite the reduced land side retail offering due to construction activity, total commercial and parking revenue increased to CHF 134 million. Higher passenger volumes and higher revenues from food and beverage contributed to this positive development. Within real estate, both revenue from rental and leasing agreements as well as energy and utility cost allocations increased. This resulted in an overall real estate revenue of CHF 100 million, an increase of 2% compared to last year. Revenue from services amounted to CHF 27 million in the reporting period, primarily due to higher traffic volumes at Zurich Airport. The international business benefited from the continued positive momentum in Brazil, both in terms of passenger volumes and non-aviation activities. Total revenue from the international business rose from CHF 58 million to CHF 67 million. Factoring out the income statement neutral revenue from construction projects Revenue in international business grew by 11% or CHF 6 million. Operating expenses increased by 6% to CHF 299 million, partly due to the commissioning of Noida International Airport. Adjusted for concession accounting, OpEx were 5% up compared to the first half of the previous year. Personnel expenses grew by 5% in the reporting period, to CHF 138 million, mainly due to the opening of Noida International Airport, some volume-based adjustments in Zurich and salary adjustments in line with inflation. With staffing requirements at Zurich Airport largely fulfilled. We expect growth in personnel expenses in Zurich to noticeably slowdown in the second half of 2026. The cost for police and security rose by 2% to CHF 67 million, growing at a slower rate than passenger volumes. Energy and waste costs remained broadly stable and stood at CHF 19 million. In summary, we continue to manage our OpEx development effectively balancing investments in future growth with a disciplined approach to cost management. I will now outline some key financial ratios. Net financial debt saw a slight increase to the dividend -- due to the dividend payments in the second quarter of 2026. The leverage ratio now stands at approximately 2.1x. Our return on invested capital remains broadly unchanged at near 8% primarily due to changes in working capital, operating cash flow increased to CHF 324 million. Free cash flow for the first half of the year amounted to CHF 56 million. The increase should be assessed in the context of the acquisition of the Radisson Blu building during the corresponding period of the previous year. This next slide shows the largest projects we have been working on in the first half of 2026. Zurich Airport invested a total of CHF 269 million, of which CHF 202 million were invested at the Zurich side. Please note that the prior year CapEx at the Zurich side included the purchase of the Radisson Blu building in the amount of CHF 155 million. The single biggest project at the Zurich side was the development of the main airport complex, including the new Dock A, tower and base. Other key projects included the development of the landside passenger zones and the refurbishment and expansion of the baggage sorting system. Our most significant international project in the first half of the year was the completion and commissioning of Noida International Airport. So let's proceed to the outlook. Before looking at our guidance for '26, I would like to highlight that the current geopolitical environment still remains a source of uncertainty. Given the situation in the Middle East, there is limited visibility regarding how events may evolve over the coming months. We currently expect passenger growth in Zurich of approximately 3%. A slowdown in growth is anticipated compared to the first half of the year which is mainly due to the stronger comparison base. A new charge period will start at Zurich Airport on the first of October '26. Despite the total reduction in airport charges of around 10%, Aviation revenue is expected to remain stable in the current year due to the expected passenger growth. At the Zurich side, commercial revenue is likely to move sideways due to the ongoing closure of commercial spaces as part of the project to develop the landside passenger zones. Real estate revenue is expected to rise slightly. A further increase in revenue is expected for the international business with the opening of Noida contributing to this. Overall, non-aviation revenue is expected to be higher. The opening of Noida will lead to an increase in operating costs. In contrast, only a very moderate increase in costs is expected at the Zurich side. All in all, Zurich Airport expects earnings before interest, taxes, depreciation and amortization for 2026 to be roughly on the same level as the previous year. Consolidated profit is expected to be lower than in 2025. Besides the reduction in airport charges in Zurich, depreciation and interest expenses will have an impact on the income statement with the opening of Noida. Investments at the Zurich side are expected to amount to around CHF 400 million in '26. Investments of an estimated CHF 100 million are expected at subsidiaries abroad with the completion of construction of the new airport in Noida accounting for the majority of this. Looking beyond '26, there are several factors that will influence the group's financial development. First, the full year impact of the new airport charges in Zurich will be reflected in; 27. Second, Noida International Airport has now started commercial operations and will lead to additional depreciation and financing expenses of approximately CHF 80 million on an annual basis. Furthermore, given the current geopolitical environment, a slower ramp-up in Noida than originally anticipated is expected. Taken together, these factors may place greater pressure on the group's profitability also in '27. Nevertheless, we remain confident that the strong fundamentals of our Zurich business and the mid- to long-term potential of Noida will continue to support sustainable value creation. Beyond this near-term outlook, we would like to conclude today's presentation by outlining our long-term strategic path. In '24, we refined our guiding strategic principles based on our purpose, the business segments and our core values. This process allowed us to reaffirm our business model and to define 5 key target dimensions with corresponding performance indicators. With this sharpened strategic focus, we were able to enhance our company's governance and set clear midterm targets that are partly reflected within the variable compensation of the Management Board and on management level. Our focus and success are firmly rooted in long-term value creation. Accordingly, we have developed an outlook for Zurich Airport Group that sets out our desired development and strategic orientation through to 2040. These ambitions are aligned with our 5 key target dimensions. While our core financial targets, including a consistently strong EBITDA margin, are expected to remain at a high level. We have further refined our long-term goals. By 2040, we aim to generate revenues of more than CHF 3 billion corresponding to a compound annual growth rate of over 5%. This growth is expected to be driven primarily by our international business. supported by the continued development of our existing portfolio as well as further additions, as we have outlined earlier in the presentation. Going forward, the growth rates in Zurich are expected to continue on a solid trajectory, in line with the historical trends. a group-wide return on invested capital of more than 8%, which is higher than today's target of more than 7.5% underlines our continued focus on creating sustainable value for our shareholders. We remain committed to our ambition of ranking among the leading airports across all our concessions in terms of quality and customer experience. Finally, Sustainability remains a fundamental pillar of our long-term strategy. Our ambition is to achieve net zero greenhouse gas emissions in scope 1 and 2 with out of setting by 2040 at the latest. With this, I'm handing back to Lukas.

Thank you, Kevin. We have now reached the end of our results presentation, and I will begin with the Q&A session. I will now hand over to Stefan, who will moderate the Q&A. Stefan Weber, I assume we have some questions.

Thank you very much, Lukas. Good morning also from my side. Before going to the Q&A session, we did get some feedback that some of you might have trouble seeing the slides clearly on the webcast. In this case, we recommend going to our web page, where you can download all the slides and hopefully see them clearly. Now let's start with the Q&A. We have a first question on Noida, where people are asking to get some more sense on how 2026 traffic might look? What do we expect in terms of EBITDA and probably also a first outlook into 2027?

I might start with answering, and Kevin can add his thoughts on that. Currently, we are also in the progress of airlines requesting for the slots of the winter time table has not being completed. We expect that further growth will on the winter timetable. One has also to consider that we have opened the airport in between of the changes of summer and winter time table. We also expect that we will see a gradual ramp up from that point. The number this year is still with a high level of uncertainty, we've expect around 1 million passenger in the financial year 2026.

Maybe to add there, what it means for our P&L. With 1 million passenger, we expect a negative contribution this year. and then a breakeven is expected next year in 2027.

Then we also received a number of questions regarding the traffic in Zurich. We are now guiding for the full year through 3% growth, which is at the upper end of the previous guidance, whereas year-to-date, we are still above this target. So can you help us understand the growth in more detail for H2?

Yes, if you're following our monthly numbers, you see that the growth is decelerating over the last couple of weeks and months, and that's the effect we expect for the full year as well. given stronger comparison base of last year and still the uncertainties of the situation in the Middle East that can change on a daily base. And if you're following our company for a longer period, you know that we are rather conservative guidance.

Next question is on the investments at the Zurich side. We are now guiding at the upper end of the previous guidance, around about CHF 400 million. what's the reason to be at the higher end?

We are right now in a quite investment, heavy cycle and -- in general, the projects, specifically the Dock A project is moving on track. So that also leads to investments, which come at the right time. And at the end, we believe to end up somewhere around CHF 400 million in this year. That hasn't changed the forecast of the projects we are working on. But it's primarily a timing issue. It's usually quite difficult to time when the exact investments for a long project like the Dock A or an [ ELP ] or [ Zone West ] when this happens within a year. But overall, the guidance we gave is still unchanged over the midterm.

Going back to India. We have a question on the fee structure. Are we happy with the framework we received a few months back?

I mean, we talked about this quite a lot. We ended up at the lower end of the range we guided from a regulation standpoint, it needs to be positively mentioned that there is a yield increase of approximately 10% in those tariffs. And we do have a true-up mechanism. So the potential under earning in the first control period will then be taken forward to the next control period.

And the next question is on the targets set for 2040, especially about the revenue target of CHF 3 billion. What is the revenue forecast on the current portfolio versus revenue from new assets acquired?

If we solely stick to the portfolio we have today, and that means specifically to India, if we keep the 100% majority earnings, it would roughly end up at CHF 2.4 billion in 2040. So there are an additional of CHF 600 million of new international assets we will need to add over time in terms of revenue generation.

Well, with this, you actually already answered the next question, whether it will be just based on the existing portfolio or whether it's based on growing the portfolio. So I think that's now answered. Then we have another question on India. Given that the ramp-up is softer than initially expected and the rupee is currently weaker against the Swiss franc. Do we still believe to reach the EBITDA target set out for the early 2030s, so to reach already a 3-digit million contribution to EBITDA.

I might start with answering this question. From today's perspective, I mean, we have now an operation of a little bit more than 2 months. We stick to the to the numbers that we have provided at the Capital Market Day with all the uncertainty that is involved right now. One of the main question is also, is this only a delayed ramp up? Or do we catch up over time, I believe, rather the second. So there are a lot of uncertainties. But if you take the overall medium- to long-term picture, nothing fundamentally has changed. So we have still the largest population in the world, one of the fastest-growing global aviation market. We have more than 1,000 open aircraft orders coming into the country. And those are the main drivers from a medium to long term. And this, from today's perspective is unchanged despite the ramp-up situation right now.

Then we have a quick one on The Circle. In the half year reporting, we have announced that we called a few new tenants. What is the current vacancy rate?

Well, the current vacancy rate, I would say, is closing to like a full rent number of 95%, which is normal in a larger environment -- or in a large real estate development, you will always have like we have 50 tenants. There will always be like tenants moving out, new tenants moving in, but that's like daily business. And we have also stopped announcing every single tenant change as The Circle is now in operation. It's almost fully rented. We don't have any large space available. There are some space left smaller pieces of space that is still available, but The Circle is fully up and running. And with all the adoptions we made also on the ground level, is also a vibrant place, which has been especially seen over the last couple of weeks in summer, I'm fully happy. And to be honest, and this reminds me a little bit of the situation in Noida, where we also had with The Circle tough environment for the ramp-up at the breakout of COVID, everything was difficult. And now later on, it proved to be a success story in a way that we have now not only fully rented out, we have a high quality of tenants, we had to make certain adoptions, which is our duty if we see that something is not going as planned. But today, we really -- we really can say that The Circle is success. You have to stick to your principles and investment assumptions and that has been turned out for the CIRCLE and will also turn out for Noida.

Then the next one, again on traffic in Zurich. In the release earlier this week, Swiss said that their traffic has been lower in July. So traffic for Zurich overall has grown. What are the main growth contributors, especially for July.

I can't answer it on especially for July, but mainly the airlines that were growing are the ones I mentioned. It's -- it's Edelweiss, it's Austria, it's Vueling. And in July, the growth is also done by Chair, which is also a Swiss airline, it's a blend of different airlines.

Then the next question is on the costs. Could you please elaborate on OpEx trends in H1 and expectations for H2?

We had, as I mentioned before, an increase of 5%. So part of it was obviously thanks to Noida where we started operation in June. We had some increases also in our personnel expenses in Zurich that was, on one hand, volume-based adjustments in the front staff field like bus service or PRM business. In addition, the comparison base in the first half of 2025 was favorable. So that means overall that we expect noticeably slowdown in cost growth in Zurich. And over the full year, just a moderate increase. When we look at the security costs. There, we had an increase of approximately 2%, which is just a third compared to the passenger numbers we had. Energy costs were broadly in line with what we have seen last year. So we expect the moderate increase by the end of the year out of Zurich. And obviously, from the international business, we do see some further costs out of Noida International Airport.

Next, we have a political question around the opening hours. How big is this threat that Zurich might see shortened opening hours?

It's much less of a threat than 12 months before because of the 2 topics in the political environment that has changed. We had like the initiative of the nighttime curve view and the initiative claim for 30 minutes less operating hour. It went the parliament and the [ Cantonal Council, the Parliament ] over welcomingly rejected this initiative. And the second, in a longer-term perspective, even more important changes that the today is operating hour, as a minimum will be will be write-down in the federal aviation law. That was not the case so far. So there's basically a risk that every court can decide against today's operating hours. And this law is now in revision and now the -- today's operating hour as a minimum, so the status quo will be implemented on the highest level on the federal level in the aviation law. So this gives us much more planning certainty and legal certainty going forward. These are 2 very important and to successfully managed topics that has been materialized also in the first half of this year.

Going back to the targets [ 2040 ]. International business aims for significant contribution to revenue and EBITDA. Could you help understand what significant might mean?

That significant means in our routes up to 50%.

Next one is on the commercial revenues. We do have ongoing construction sites for the time being, mainly on the landside related to the expansion of the landside area. So for the next 12 months, do we expect that the disruptions remain stable, increasing or reducing?