Fraport AG (FRA) Earnings Call Transcript & Summary

Welcome, ladies and gentlemen, to our prerecorded 9 months analyst presentation. Matthias and I are looking back at a very eventful and at the same time, a very successful 9 months period. One of the key highlights certainly was the regulatory approval of our major construction site, Terminal 3 in Frankfurt. I'm on Slide #3. So completely approved, we are officially at least ready to start. It fills me and the entire Fraport team with pride that Frankfurt Airport is now ready for future growth. I will come back on the remaining steps until the opening of the terminal in a minute, but let's focus on the other key areas of the past period first. In combination with the progress in Frankfurt, we also completed and opened the first phase of the new Lima terminal in June and added new terminal capacities in Antalya in April. Besides the CapEx projects, we are also pleased with the last summer season. Frankfurt Airport showed a solid growth rate of around 3%, while our passengers and airline customers at the same time, perceived better operational quality compared to the previous year. During the summer season, key international group airports also achieved record levels in Q3 and on a year-to-year basis. As a result of the operational growth, we recorded an all-time high EBITDA in the third quarter and received record inflows. Consequently, free cash flow was the highest ever achieved by our company in the third quarter, despite continued outflows for Terminal 3 and the new Lima terminal in the amount of around EUR 150 million. Having said this, we are well on track to deliver on all our financial targets set for fiscal year 2025. Taking now a look at our key financial highlights for the third quarter on Slide #4. While headline revenues of EUR 1.35 billion were flat on the previous year's level, revenues, excluding for IFRIC 12 effects, moved up strongly by 8% compared to Q3 last year. Reasons for the positive revenue development was the before-mentioned traffic growth as well as increases in airport charges and other prices. From a segment perspective, our International division showed revenue growth of around 6%, while the 3 Frankfurt segments were up even stronger by about 10%. Moving on the EBITDA. Here, the increase was clearly higher compared to revenues at more than 20%. EBITDA, therefore, achieved an all-time high figure of EUR 590 million. Beyond the underlying strong business development, we also recorded a positive one-off effect of roughly EUR 50 million due to cash backs in connection with the supplementary pension plan. Here, additional payments to close an expected funding gap were calculated wrongly, which led to a reimbursement of contributions and supported our results. Adjusted for this onetime effect, EBITDA nonetheless was up strongly by around 12% to EUR 540 million. Bottom line, the group result of EUR 350 million also marked an all-time high, despite the higher interest expenses and a slightly more negative result from Antalya. Our traffic performance in the third quarter is shown on Slide #5. Frankfurt Airport showed a solid growth rate of just under 3%. In addition to the positive passenger development in the third quarter, we were also pleased to see an even better traffic performance in October, at a growth rate of just under 6%. All traffic regions, so North America, Africa, Asia and Europe, except for Latin America, recorded passenger growth. Frankfurt Airport, therefore, now stands at a year-to-date passenger growth of 2.3%. So we are on track to achieve our full year targets. Outside of Frankfurt, growth continued in all our group airports in the third quarter. Fraport Greece recorded a similar growth rate to Frankfurt and reached another passenger record. In particular, the airport of Thessaloniki showed strong momentum of more than 8%, while also the airports of Corfu and Chania showed growth -- good growth of more than 5% each. Lima Airport recorded a somewhat more modest growth rate at around 2% in Q3. The airport in Lima was negatively impacted by the refurbishment of the old runway, which started in September and strikes carried out in Cusco, which had a negative impact on the tourist inflows to Machu Picchu. Fraport Brazil, on the other side, was positively impacted by the reopening of Porto Alegre Airport and doubled its passengers number compared to the last year, a solid recovery to more than 90% of 2019. A very positive growth rate of 12% recorded in Ljubljana and numerous flights were added during the summer season, and we expect a continuation of this favorable trend for the upcoming winter season. Our 2 Bulgarian airports, in Varna & Burgas also saw passenger growth of combined 6% at a recovery rate of 68%. The 2 airports, however, still lack the 2019 levels due to missing passengers from Eastern Europe as a result of the war in Ukraine. After a weak start of the year, Antalya Airport came back into the growth mode. At plus 2%, the airport handled 5% more passengers compared to 2019, a solid result of our single biggest airport outside of Frankfurt. In total, the group airport, therefore, handled about 6% more passengers in the third quarter compared to last year and are now fully recovered to the pre-pandemic level. Looking ahead, we just released the traffic outlook on the Frankfurt winter season. I'm on Slide #6. For the current winter season, we expect aircraft movements to grow by around 3% and seat capacities, likewise, to grow at roughly 3% Growth will be mainly driven by capacity additions of Condor and easyJet. The 2 carriers clearly increased services and started new routes last summer. This growth will now continue for the winter, but also Lufthansa is back on growth with the deliveries of the new B787. Following the winter season, we very much look forward to a new chapter for Frankfurt Airport, the reopening of Terminal 3. As we discussed before, Terminal 3 will open after the Easter holidays next year. In the meantime, we set a date for the first inaugural flight of our Terminal 3. April 23 will be the first operational day. Until this day, we still have further tasks to do. The trials to test the infrastructure started already with our own employees. In January, the test runs will commence with people from outside of the Fraport group. By the time of the opening, several thousands of people will have tested the new terminal processes. Simultaneously, commercial operators will work on the completion of the new shop concepts and lounges. The security checks are set up as well as all installations for the police, customs and all airlines. In addition to the terminal infrastructure, we also made significant progress in terms of climate protection. Since October 22, our photovoltaic plant, next to the take-off Runway West, has been operational in Frankfurt. 37,000 vertical solar panels generate substantial green electricity, especially in the mornings and afternoons. The new plant is an ideal addition to the photovoltaic system installed on airport rooftops, which reached their peak output at midday. From mid-2026 onwards, another substantial amount of green electricity will be supplied from our wind park power purchase agreement with EnBW in the North Sea. This means that 100% of the electricity demand in Frankfurt will be covered by renewable resources from mid next year onwards, so 10% local photovoltaics and 90% wind energy. In absolute terms, this will be more than 300 gigawatts per hour from wind energy and close to 30 gigawatts per hour from solar energy. Moving on to the development outside of Frankfurt on Slide #9. The slide shows you the progress of the second terminal construction phase in Lima. As you can see, the second phase or Phase 1b is well advanced. The long swing pier, which can be used for domestic and international services is already fully completed. The other extensions of the terminal infrastructure are close to completion. With the second phase, we will increase the terminal capacity from 30 million passengers to 40 million passengers over the next few weeks. Also, the refurbishment of the old runway is well underway and will be done by end of this year. So Lima is well underway. Antalya Airport, as you know, from previous discussions, is also completed. The new capacities have been taken up well by the market. Following the settlement of the dispute with the former duty-free operator, we are also seeing further progress from the retail activities in Antalya. Further growth, we also expect from the addition of Kalamata, our airport #15 in Greece. Here, the team is working closely with the Greek authorities on the concession commencement, which will probably happen during the first quarter of 2026. Coming now to my last slide of the presentation, our group outlook on Slide #10. The outlook shows that we are well on track for the full year. While we narrowed the guidance in terms of Frankfurt passengers to about 63 million, we continue to expect moderate growth in EBITDA in the single-digit percentage range. Due to the onetime effect, which we recorded in the past quarter, it is now increasingly likely that we will end up rather in the high single-digit percentage area. On an underlying base, however, this shall be more in the mid-single-digit percentage area. As we guided before, our group result will develop at a more subdued pace. The main reasons are the absence of the positive one-off effect from the sale of St. Petersburg last year and rising interest costs. For the free cash flow, we continue to expect the free cash flow to be close to breakeven this year. The near to breakeven free cash flow is expected to have a slightly positive impact on the net financial debt-to-EBITDA ratio, thanks to a growing EBITDA. Regarding the dividend, there's no official decision taken. But as we have communicated this often times before, we see a very high likelihood to resume dividend payments as early as this year to be distributed next year. Last, latest next year in connection with our full year results, so in March, we will provide you the final outcome of these discussions. Having said this, I would like to hand over to Matthias now for more details on our financial development.

Yes. Thank you, Stefan, and a warm welcome also from my side. On my first slide today, slide #12, I would like to guide you through the cash flow development in the third quarter and our indebtedness at the end of September '25. Starting on the left side of the bar chart, you see a strong operating cash flow increasing by 27% year-on-year, which was driven by a good operational performance, working capital changes and by the one-off effect in connection with the supplementary pension plan that Stefan has already talked about. However, even if adjusted for this one-off item, the operational cash flow increased by some EUR 90 million or around 17%. Focusing on the main CapEx programs in the group, you see a clear trend in Lima, where the new terminal has been opened and the investments are coming down quickly, only reaching EUR 38 million in the third quarter. As a comparison, last year in Q3, we still spend some EUR 114 million. At the same time, as you heard from Stefan before, we were able to complete construction on our Terminal 3 in Frankfurt, where CapEx in the last quarter amounted to some EUR 119 million. Also, this is still an elevated number. We already reduced CapEx for T3 by almost EUR 60 million if compared to last year's Q3. This shows the reduction in investments also in Frankfurt as we are now coming to the end of the CapEx program. While the remaining investments were only slightly higher than last year, brick-and-mortar CapEx decreased significantly by 29%. Additionally, dividends from at equity consolidated companies, mainly from Antalya, in the amount of EUR 30 million were supportive. Like this, we generated a record quarterly free cash flow of EUR 373 million. This reduced our net financial debt to less than EUR 8.2 billion. Correspondingly, we reached a leverage ratio of 5.8x net debt to last 12 months EBITDA and also our gearing ratio improved by 14 percentage points to 159%. On my next slide, #13, I would like to give you further details on our indebtedness situation. As mentioned before, our net debt today stands at less than EUR 8.2 billion, which is a net of our EUR 12.1 billion gross debt and a cash balance of more than EUR 3.9 billion. If we add any residual unused project finance and committed credit lines, we even end up at a cash reserve of close to EUR 4.6 billion. At 3.3%, the average cost of debt remained unchanged to the second quarter despite regular refinancing activities and drawdowns from the Lima project financing. As you can see from the chart, around EUR 200 million are still reaching maturity this year in Frankfurt. In the meantime, so since end of September to date, the refinancing of the majority of this has already been agreed on. Now coming from the group to our segment reporting, starting with the Q3 numbers in Aviation on Slide #14. After a good first half of the year, the positive trend in revenue generation continued in our operationally and financially most important third quarter, driven by pricing and volume effects at Frankfurt Airport. Therefore, total revenues increased by some 11% or EUR 38 million, while aviation charges went up 9%, which corresponds to EUR 25 million. The residual increase in revenues came from security charges, which grew strongly by more than 20% due to the new reimbursement system based on cost coverage on a full year basis and not on a monthly basis like in the past years. As we mentioned before, we received an unscheduled onetime refund in relation to our supplementary pension plan, which reduced the staff cost in all of our 4 reporting segments. This refund was based on a new assessment by an insurance actuary, which meant that we overpaid the pension plan in the past couple of years. Having said this, around EUR 14 million positively impacted the staff cost in aviation. Therefore, personnel expenses decreased by EUR 9 million in the third quarter. If adjusted for the one-off item, expenses increased by some 7%. As a result of the good operational growth and the one-off item, EBITDA increased to EUR 162 million or 25% and EBIT amounted to EUR 125 million, an increase of 37%. Adjusted for the one-off and staff costs, underlying growth rates still stood at 14% and 22%, respectively. Now jumping from aviation to non-aviation on my next slide, our Retail & Real Estate segment. In the third quarter, we incurred a revenue increase of 3.4% or EUR 5 million. Out of that, the retail business contributed about half of the growth, which corresponds to an increase of 4.2% over last year's third quarter. The positive development is based on the volume growth in Frankfurt on the one side and the increasing spend per passenger from EUR 3.02 to EUR 3.06 on the other side. This development was primarily driven by higher advertising revenues in the quarter, which grew from EUR 0.58 to EUR 0.74 on a per passenger basis, an increase of 28%. Details about the retail split can be found on my next slide. Also, parking showed a strong revenue increase again over the summer season, growing by more than 5%. The one-off item from the supplementary pension plan reduced staff costs in retail and real estate by some EUR 4 million, which led to decreasing personnel expenses. Adjusted for the effect, staff costs increased by around 7%. In addition to that, other OpEx benefited from a reimbursement of utilities, which is why also this line item decreased compared to the previous year's quarter. Based on those effects, EBITDA and EBIT ended up strongly at EUR 113 million and EUR 89 million, respectively. Moving on to our Ground Handling segment on Slide #17 and starting with a positive message here. As you can see on the slide, we changed our guidance for the Ground Handling segment and now expect to reach a positive EBITDA in '25 after a good Q2 and an even stronger Q3. But now looking at the main drivers of this development. As mentioned with our Q2 publication, there are several factors influencing the positive revenue development. Besides growing traffic volumes and higher prices, we continue to record a higher market share due to the continued slow ramp-up of Swissport. On the other side, of course, the Ground Handling benefited significantly from the reimbursement of the pension fund. Staff costs amounted to EUR 128 million and therefore, stayed on the previous year's level, despite an increase in FTE numbers and wage increases. If adjusted for the EUR 16 million one-off effect, personnel expenses increased by some 14% over last year's third quarter. As that compared to last year, our financials are still influenced by higher FTE numbers. However, if we compare Q3 with the second quarter '25, you see that our staff number decreased further. In the meantime, over the last 2 quarters, we reduced our Ground Handling personnel by more than 100 people. At the same time, we are becoming less dependent on third-party providers by decreasing the amount of external personnel, which is reflected in other OpEx that remained on previous year's level despite inflation. All in all, this led to a positive EBITDA of EUR 37 million in Q3. If adjusted for the personnel one-off, we generated an underlying EBITDA of some EUR 21 million, so we more than doubled the result of Q3 2024. Now, coming to the last slide of today's presentation, Slide #18, concluding with our International Activities & Services segment. Looking at the top line effects, you see that the revenues overall decreased due to the fact that the IFRIC 12 related revenues came down by more than EUR 100 million again in Q3 due to the completion of the terminal in Lima. So more relevant, of course, is to consider the underlying revenues, which performed nicely with an increase by around EUR 30 million or 6%, bearing in mind the headwinds from exchange rate developments, especially in Lima, Brazil and the U.S. On the cost side, the segment's performance was influenced by the Frankfurt Services, which benefited from the premium refund and decreased the staff cost to EUR 83 million from EUR 90 million last year. Adjusting for the EUR 15 million one-off effect, personnel expenses increased by around 9% overall. As a result, the segment's EBITDA increased by some 15% to EUR 281 million or by 9% if adjusted for the cost saving one-off item. The increase in D&A to EUR 72 million was especially driven by the terminal opening in Lima and led to an EBIT of EUR 209 million. This translates into an increase of 9% or 2% if adjusted for positive one-offs. With this, I would like to conclude today's presentation, and thank you for your attention. We look forward to the Q&A session this afternoon. Have a nice day, and goodbye for now.

Welcome also from my side. First, I would like to apologize that the webcast this morning was offboarding 1 hour late, so reducing our punctuality rate. But anyway, I do hope that you meanwhile had the chance to hear it, the presentation of our CEO, Stefan Schulte; and our CFO, Matthias Zieschang. They are both with me here at the table, and we can now directly jump into Q&A.

[Operator Instructions] The first question comes from the line of Elodie Rall from JPMorgan.

So my first question is on CapEx. If you could remind us your latest expectation for '26 and '27. I think at the call at H1, you said that CapEx in '26 could be maybe around EUR 800 million, max EUR 900 million. And then for '27, we have in mind like EUR 650 million. So it would be interesting and helpful if you could fine-tune then your expectation? And are you still expecting a step down to EUR 500 million of maintenance CapEx from '27? And what is the envelope and time frame for the refurbishment of Terminal 2? So that's my first question. And my second question is on dividend. You said on your presentation on the webcast that there's a chance that it comes back as soon as this year. So what needs to happen? What kind of size are we looking at? You previously had a payout ratio of 40% to 60%. Would it be a similar policy?

Let's start with the CapEx.

Yes. CapEx, first of all, there is no final indication for next year for '26 and '27, just an indication, and this is not new. So we -- in this year, we are going to realize about EUR 1.1 billion and we reconfirm this number. In '26, it's about EUR 900 million. And in '27, it's about EUR 700 million as a first indication. Maintenance CapEx, EUR 500 million, yes, also a confirmation that this is more or less a sustainable number for the future. And regarding the phasing of T2, again, this is a lever depending from the growth number of passengers here at Frankfurt Airport, so we can speed up, we can delay it. But based on our base case scenario, so the CapEx regarding T2 goes up in '29/2030.

Regarding your second or third question, whatever it is on dividends, I think Matthias as well as I gave you throughout the year whenever we met, always and also on the annual meeting, the expectation that we are optimistic to start with dividend payments or to restart with dividend payments in 2026 for 2025, if -- and the big if was, if the year 2025 turns on a positive way regarding our EBITDA results and regarding that we have CapEx under control, so that we are getting net debt very close or free cash flow very close to 0. I think we are on that move. So I'm optimistic that we can get back on restarting dividend payments in 2026 for 2025. But we still have to wait on the final quarter, whether especially the CapEx is so far under control that we are coming close to breakeven on free cash flow, slightly negative and that we have a positive outlook for 2026, of course. From today's point of view, I'm quite optimistic that this will work, but let's please wait for the final quarter. And then the official decisions and the decision on this will be taken latest by the Supervisory Board in March. Payout ratio will be, for sure, less than 40% to 60% in the first year or the first 2 years. But long term, midterm, long term, we want to get back to 40% to 60%.

Can I just ask on CapEx, just a precision. You said Terminal 2 goes until '29, '30. So should we expect a level of EUR 700 million of CapEx between '27 and 2030 more or less on average?

It can be -- so I would -- from today's perspective, the EUR 700 million are more the maximum, could be even a little bit less than EUR 700 million before we ramp up with Terminal 2.

The next question comes from the line of Carlos Caburrasi from Kepler Cheuvreux.

Just 2 on my side. First, on free cash flow and following up on what Stefan has just commented. You've always mentioned close to breakeven in 2025, but can you maybe provide a range for your full year expectation? If I go back to 2018, the 9-month figure was EUR 80 million free cash flow and then the full year number stood at EUR 7 million. Should we expect something similar in 2025? And second, can you comment your expectations for Antalya during the rest of the decade? I mean, this year's performance has been weaker than what some analysts were expecting. And I was wondering if you could provide some visibility on EBITDA net profit by 2030. And additionally, could you also provide some visibility on the dividend payments coming from Antalya, especially considering the start of the second concession and the higher concession payments?

The first question regarding free cash flow, you could see our positive number in Q3, which was strong, but it must be strong, otherwise, we cannot end up close to breakeven. And we still are convinced that we will end up close to breakeven. And regarding then the indebtedness, this would lead to a situation that coming from EUR 8.38 billion last year, we will end up in a range which is from today's perspective between EUR 8.3 billion up to EUR 8.4 billion for '25. And then looking forward into the year 2026, free cash flow will be clearly positive. And we are using this in the case of dividends to pay some dividends if the decision will be made. And second, to use the other proceeds to bring down the indebtedness of the group.

Regarding Antalya, and thanks for your questions. Antalya is now in a difficult phase between Antalya old concession and Antalya new concession with some of the negotiations and we see DHMI over there. So in principle, yes, this year was a little bit disappointing regarding traffic flows, but in all that a lot of activity started in Turkey, in Antalya, and we have seen already a very, very good October. It's just 1 month, but with a growth in October of 9% that was very positive. November, December are not any longer so important because the traffic numbers are still okay, but they are coming down. The high season is over. So we will have to see what really the final number is on EBITDA. But roughly something around EUR 40 million, EUR 50 million could be on an EBITDA level for this year 2025. And then it should go up, but the real step-up will be from 2027 onwards, not earlier because it's in between time, between the 2 concessions there. Dividend payments, we are not expecting for the next years as far as I'm informed, but maybe Matthias, you have better numbers than I.

No, this is correct.

That's correct. Okay.

Carlos, to be precise, that was referring to the new Antalya concession.

So we need to add the current Antalya concession too.

Antalya II. The numbers I mentioned on the Antalya I numbers, do you have some? I don't know at the moment.

Yes. Dividends, we guide for this year, high double digit, and we also expect more of the same next year. Up to EUR 100 million.

Yes, sorry. It was not a consolidated number.

The next question comes from the line of Tobias Fromme from Bernstein.

I have just one question on Ground Handling. The EBITDA margin was 16% in Q3. Adjusted, this is around 9%. When I compare this to the 13-plus percent in Q3 2019, there's still sort of significant room for improvement. And now considering the reversal of the higher market share, which should go down to 19%, as you said earlier, where do you see the annual EBITDA margin for Ground Handling settling? Is this around the 2019 level of 8.5%? And when would you expect to actually get there?

Whether it's 8.5%, I don't know at the moment. It will be a little bit less, I think, but we expect a big increase on the EBITDA side in 2027 and 2028 due to contract negotiations with our main customers or main customer. This contract negotiation started already. I think we will update you over the term of the next 6, 9, 12 months because that's the duration of the actual contract and will not be an early easy solution. So there are tough negotiations.

The next question comes from the line of Dario Maglione from BNP Paribas.

Just one question, following up on what Elodie was asking about the CapEx. Just to make sure I understand. So the maintenance CapEx, it's EUR 500 million. But then you mentioned the EUR 700 million kind of long term. So yes, I just want to clearly understand what is the EUR 700 million, how long for, whether it's brick-and-mortar CapEx or you also include fixed concession payments and so on? Just to be very clear.

Just when we talk about CapEx, we are focusing on brick-and-mortar CapEx. Concessions are -- would be -- concession payments would be on top of it. So first of all, we have now a ramp down, again, EUR 1.1 billion this year, about EUR 900 million next year and EUR 700 million in the following year. And this includes still payments for Terminal 3. So we are -- from a technical perspective, the construction is ready, but nevertheless, there are residual works which have to be done. And then you have always a lot of discussions between the construction companies on one side regarding the final builds. This takes time. In some cases, there's a settlement immediately after the finalization of the work. Sometimes it takes 12, even 18 months, and you always have some residual works which have to be realized. And let me say, in the case of such a huge project, you have between -- there's always a delay between the last payment on one side and the last construction works in a range of 12, up to 18 months. And this means looking forward, again, the terminal is through, but there are still payments in '26, it can be up to EUR 200 million. This is always part of our total consideration of maximum EUR 4.2 billion, EUR 4.3 billion, which we already said, including reserves, et cetera, and there will be no overrun of this number. So looking forward, if there would be a EUR 200 million further CapEx in next year. This is part of the EUR 4.2 billion, EUR 4.3 billion total budget for T3. And also looking into '27 in the EUR 700 million, there are still in our financial plan, some final payments -- delayed payments for Terminal 3. So with other words, the discrepancy between EUR 700 million and EUR 500 million are on top elements. The EUR 500 million is from today's perspective, the maximum of maintenance CapEx for all group assets in our portfolio, including Frankfurt, including all other assets.

The next question comes from the line of Andrew Lobbenberg from Barclays.

Can you tell us a little bit about Terminal 3 and the airlines? There was some talk, I think, at the last quarter's presentation that Condor and Turkish might move. But I think when the opening date was announced for T3, they were not included. So do you think you're going to get those over to T3 or not? Or when will we know? And the second question would be around Lima. And I think at the time of the deep dive, you told us that there were plans to introduce a connecting passenger fee that should be supportive to the airport charges, notwithstanding the existing regulatory structure of RPI minus 3, I think, from memory, U.S. RPI, I think. I think the airlines are building up quite a big campaign against that connection fee. So how confident are you that it can come to pass? And then also, if we look at the -- I think the retail revenue in this last quarter didn't seem to move a great deal in Lima. Is this a timing matter? Or have we just not got enough space open yet in the new terminal?