Fraport AG (FRA) Earnings Call Transcript & Summary

Yes. Welcome, ladies and gentlemen, to our full year 2025 Results Day. All the material got released this morning at 7:00 a.m. CET, including for the management speech. And right now, it's time for the management Q&A session. With me in the table, we got Dr. Stefan Schulte, our CEO; and Dr. Matthias Zieschang, our CFO. Today marks a very special event as we invited all the sell side to come to Frankfurt to see our brand-new Terminal 3 building. Correspondingly, the Q&A session will be held as a hybrid one. So we got questions inside the audience and questions coming from the analysts who join us remotely. If you want to raise a question remotely, please use the raise your hand sign in the Teams link that we sent to you, and we're gonna tell your name, and then you will be unmuted from our side so that you can raise a question. However, we want to be polite. We want to start with the questions here in the audience and we wanna process as following that you kindly limit your questions to the number of two, given so many of you are here on site, we'd appreciate everyone to have the opportunity to raise some question. Having said this, and yes, without further ado, we'd like to open up the Q&A session right now. Do we have a mic coming to you? And yes, maybe ladies first today, polite, Elodie. If you can say your name and the company you're working with, that will be good for the transcript.

Thank you very much, Florian. Thank you. And so I'm Elodie Rall from JPMorgan. So my first question will be potentially on dividends since you made this announcement on Friday. So we understand it's EUR 1 up until you are below 5x net-debt-to-EBITDA. First of all, when do you think that you'll reach that level? What is your internal base case? And if it's around 5x, does that mean that we are switching back to that payout? Or does it need to be meaningfully below 5x? And second, if there is an extraordinary impact on net income going forward after you switch to this payout policy, is there a minimum dividend payment that you would guarantee shareholders? So that's my first question. And maybe one question on traffic given the current events. So you've been reassuring on your presentation. Nevertheless, the guidance, I think, implies 3.7% at the midpoint. It's a bit lower than what I think you were thinking about maybe in January when we discussed. Did you already put some cushion in there from the Middle East impact from what you've seen already at least year-to-date or in March?

Elodie, thanks very much for your questions. On dividends, yes, we gave the guidance to the market on Friday, absolutely right. From our base case, we expect to be under the threshold on 5x net-debt-to-EBITDA in the year 2027. That's our best estimate from today's point of view. That would mean that for 2028, the new guideline on 60% to 80% would be first time applicable. A worst case regarding a minimum dividend has not been discussed. We are not a worst case. And I don't hope that a worst case will happen ever. You mean worst case if EPS is coming too much down? No. In principle, there are 2 factors for us relevant. So one is how do we see the business going forward? Second, what's the net free cash flow positive and how is that development. And this will be the 2 drivers on the dividend policy. On traffic, the traffic was done in connection with the annual results, setting up annual results and so on with the whole process, it was before the war. It's not influenced by the war. And with 65 million to 66 million passengers here in Frankfurt, that's the best guidance we have at the moment. There are no war effects included, but I mentioned already this morning. Up to now, we see a net effect of minus 1% because Middle East carriers have -- that's right, they have up to 5% of our traffic, but 73%, 75% are transfer passengers. And we see more and more that those transfer passengers are taking other routes or more direct traffic. Airlines coming in with additional frequencies. We also see that Emirates and others are also taking up their flights again. So at the moment, the net effect is these days by minus 1%. So minus 1% is not really affecting our guidance. But there's a big but. It depends very much what's going on forward. How long is the war going on? What does that mean for kerosene prices, for oil prices, for inflation and at the end, for the hunger, for the appetite to fly and to book flights for summer and so on. It's mainly leisure traffic. It could be that one or the other is booking other destinations, more staying in Europe or Western countries or U.S.A., Canada or whatever. That's too early at the moment. So we stay with our guidance. Everything else, we will see. Yes, we marked there is a war out. It could have effects. But we are not reducing our guidance or not taking the guidance away.

Thank you. Okay. Maybe Carlos here in front.

Carlos Caburrasi from Kepler. Two questions. A follow-up on the dividend. I just wanted to see if maybe once you are below the 5x net-debt-to-EBITDA, if that payout you think could be above 60% during the rest of the decade or maybe it's going to be at the low end? And second question, I was wondering if you could update us on the passenger handling contract. And also sticking to ground handling, if maybe you could provide some visibility on EBITDA margin by the end of the decade.

I'm really glad to be quite honest that we had the discussion also with our Supervisory Board and that there was a very, very clear support on the 60% to 80%. And we haven't discussed that would be too early. Is it 60% or is it 80%? The proposal will be done by the management, and that depends very much how the further development is and how Matthias is able to get up the free cash flow to EUR 1 billion and so on and so on. So I'm optimistic it will be somewhere in the range. Otherwise, we would have given the guidance at 60%. No, we gave the guidance 60% to 80%. So that's the that's the option we have. And it will go from 60% to 80%, whatever, it depends a little bit how free cash flow then is. On ground handling, we reached an agreement with Lufthansa Cargo. We are quite fine with that agreement to put a neutral wording on that. And we are in the discussion, in the negotiations with Lufthansa on the passenger handling contract. And I think we gave you already the clear guidance. We have to make money out of that. Otherwise, we will reduce. And that's our clear guidance we can give you today on that side. What could it mean if we would lose some volume? Could be because for us, it's more important on that way than we would have some one-off payments because then we would have to reduce maybe on the one or the other side, the staff numbers. But that's the better thing. But going forward, we would have a clear contract, which is making money. In ground handling in general, we have a market share of more than 90% now, clearly above. That was not our target, but it's a problem with our second operator over here. So we got with a very favorable pricing contracts we didn't want to get. Pricing is fine. Over the time, the market share will come down somewhere because it's not our target to stay on what we have now, 95%, 93%, something like this. That's clearly too high, but it was the market.

Okay. Very good. Maybe Christian and then Andrew.

Cristian Nedelcu from UBS. Could I ask you on the free cash flow bridge from 2025 to '26. The CapEx reduction and the EBITDA growth are clear drivers, clear positive drivers, but I think there are also some headwinds. Working capital, I think, was a EUR 95 million cash in, in 2025 that will not repeat. I think the cash and tax outflows were around EUR 340 million in 2025. You're guiding for EUR 400 million. I'm just trying conceptually, when you put all these things together, what's a realistic free cash flow range? Is it EUR 100 million to EUR 200 million or clearly it's going to be at EUR 200 million or above EUR 200 million? Any more color there? And the second one, in Greece, you have the dividends that are paid to minorities. And I believe the last couple of years, there's been the shareholder loan being paid back. We have a net-debt-to-EBITDA in Greece of around 2 turns, so relatively low leverage. Are you seeing any pressure from the minority shareholders to increase the leverage or pay larger dividends in '27, '28? Or you believe this run rate of EUR 30 million, EUR 35 million you're paying is sustainable going forward?

First question regarding free cash flow. So it's relatively simple. We have to look on the parameters on one side. As a cash in, you have the EBITDA where we are looking for a number close to EUR 1.5 billion as a proxy for the operational cash flow on one side. On the other side, we have our clear CapEx guidance for '26, EUR 900 million. And then we have, as always, a box of EUR 400 million, consisting out of taxes on one side and cash out for interest expenses on the other side. So this is a stable number also looking forward about EUR 400 million. And then we have noncash items in the EBITDA, which we have to adjust. And on the other side, we have dividends from minorities, primarily Antalya on the other side. So with other words, and then, of course, we have all these elements we can control relatively precisely. The only thing which is always a little bit white noise or random walk is working capital. But if and when you look in the past, how the fluctuation has been sometimes a little bit positive, sometimes negative. So we assume for '26, this as a neutral position. So with other words, if you are doing the math, it should be an outcome of EUR 200 million, perhaps even a little bit more. This is our ambition and the direction in which we are going to run.

On the minorities, and maybe you can give more clearance on that. I can just tell you on Greece, there's no pressure these days. For us, it's focus to have a good operation, of course, and growth in the business. We have a clear look on extension programs, CapEx, no question at all and a focus on dividends. And we will not refinance these days, at least. What's in 5 years, I don't know, but at the moment, not.

Okay. Thank you. Then I think, Andrew, you're still in the line?

Yes, sure. It's Andrew Lobbenberg from Barclays. Can I ask a question about the discussions in the press from Lufthansa about their desire to have a joint venture here for Terminal 1 and Terminal 2 and how they are pitching this as a driver for their decision whether to dedicate their future growth to Frankfurt or to Munich. How do you think about the attractions of a joint venture, the pros and cons? And how much do you care about securing their midterm growth? My second question would take us over to Lima, where I know there have been interruptions with runway resurfacing and stuff like that, but the growth has been somewhat quiet so far. And also, the airlines remain very unhappy about the international connecting fee and the implementation of that looks very difficult, messy. How do you think traffic can develop from here? And how do you think you can move to a more normal relationship with airlines and a more normal transfer process for consumers?

Let me start with Lima. The information we get from Lima and we are in a frequent exchange with Lima is that passengers are getting more and more used to this. There's on the international side, not a big mess with this from passengers. Airlines are not really a friend of this transfer charge. That's absolutely right. It's not because of Lima itself. It's more they don't like it as a showcase for South America in general. We have a clear regulatory approval on this. It's -- we are open if you want to restructure it in a different way. But for the time being, it will stay this way. And of course, we also would enjoy if we could collect it via the ticket price directly. We are in discussions with the airlines, but up to now, they are taking up a position not to involve it into the ticket price. I think that will be the better solution, but we will go ahead this way because passengers are getting more and more used to this. And we don't see any big queues. We don't see big protests on that side. And yes, it's approved. Regarding Lufthansa, regarding the joint venture discussion, to be very clear on that, there are no discussions on a joint venture between us and Lufthansa. We are always in discussions. That's no question because it's the major customer. We explored also ideas 1 year ago or something like this, we also offered them the opportunity to go into a joint venture regarding Terminal 2. That has not been taken up. It's too far out for them. And probably they didn't want to go into a joint venture like plain vanilla as you go into a joint venture, but we are in a joint venture. So we have to go such a way like we would do on arm's length basis with everybody else. if they want to go in Munich, they have to go for the next satellite because Munich is coming in Terminal 2 to some limitations. And that's clear that they do this if they have to go, they want to go and it's clear they want to grow with the market, they have to do it in a joint venture together with Munich Airport because they are already in Terminal 2 in a joint venture. I take some of these discussions publicly also a little bit to make more pressure on Munich for more favorable condition. That's their responsibility, Munich and Lufthansa. I have seen over the recent 10 years that we are also going with the market also together with Lufthansa, at least if they have the aircraft and they get all the aircraft independent from the question of a joint venture or not. And also the signals I get from Lufthansa are, yes, I want to continue to grow in Frankfurt. Whether a little bit over proportional or under proportion, that depends more on the aircraft, it depends more on the market. And we will go ahead with Terminal 2, as mentioned, but we are flexible how we do it on the time line. So at the moment, we have the planning jobs out that will take at least 2 years because we need really a very, very good planning without any conflicts in between the planning so down really to the details before we can start with construction on that side. So the construction will not before the year 2029 or 2030. And also if you go regarding a new satellite in Munich, will also take at least, in my opinion, 10 years. So it's also long term, and they have a lot of opportunities also here in Frankfurt, even without Terminal 2 at the beginning, but later on, they would need it because we move Condor into the south. So there's enough capacity in the Terminal 1, and we can even brand Terminal 1 more Star Alliance focused or Lufthansa focused and they have more gate positions. They have more better quality on airplane positions and so on because the ways are much shorter, punctuality is higher, customer satisfactory is better. So I'm not very much concerned on this.

Okay. Thank you. Maybe Graham and then Dario afterwards.

Graham Hunt from Jefferies. Just 2 questions from me. First, actually on Terminal 3. Thanks very much for the tour this morning. Are you happy with the retail offering that you have and that you're starting with here? I think maybe we were noticing a lack of very high-end luxury brands in the terminal. Was that a conscious decision because of the mix of traffic? Or is that somewhere that maybe there's a little bit of upside on format and spend as we go forward with the terminal? And then second question, just on capital structure. You mentioned that below 5x leverage to hit your payout ratio. But is that where you're comfortable keeping the balance sheet? Or if we think about 2030, where would you expect leverage to land at that point?

I'll start with retail on Terminal 3, there's a mix on fire protection rules and so on. I would say it's the starting point due to the knowledge 2 or 3 years ago, 3 years ago, which kind of aircraft will be the first -- kind of airlines will be the first going down there. And then you test the market. And I'm absolutely sure that the retail components and the way finding will be different in 3 years from now and 5 years from now. So if you go, for example, out of the central marketplace, it's too open at the moment. They will have to find ways to put eye breaker in, let's call it this way. But nevertheless, that you can walk through because of fire protection rules. So steel...

Pillars.

Pillars or something like this as a break to shift the people more in the duty-free. And yes, and the other thing is what's probably very positive over there in the marketplace that there are big areas of food and beverage, which is the main topic these days with the main growth rates with direct view on the airplane to the city and so on. That's very positive. On the shop side, we have to see how it developed over the time. On capital structure.

Structure. First of all, question regarding net-debt-to-EBITDA. So we both are very ambitious. So you can believe that we are going to do all that already in 2027. to achieve a number which is slightly below 5x to open the fantasy box for dividend payment. Second, when you look forward into 2030, so where we have clear targets, EUR 2 billion/ EUR 1 billion. So if you take the EUR 2 billion, and we are doing all to achieve this number. If you take the EUR 2 billion and on the other side, look on net-debt-to-EBITDA and 3x as an absolutely minimum. So then our floor regarding the indebtedness is EUR 6 billion. So we are coming down from EUR 8.2 billion. And let me say the road map is going down to in the near of EUR 6 million, not million, billion. And this is defining, but we are coming from EBITDA, EUR 2 billion indebtedness and then we can -- via increasing dividend payment, we can control the path to our targets in 2030.

Okay. Thank you. Dario, yes, you were.

Dario Maglione from BNP Paribas. First of all, congratulations for this important milestone of reaching free cash flow positive in 2025. I have 2 questions. One is on the CapEx guidance. You provided a good slide where you show CapEx until 2031 for Frankfurt. So my question, I'd like to understand how you baked in inflation, inflation risk also in the context that here in Germany, there is an infrastructure fund from the government, and there might be more projects in the future, maybe less labor availability, construction costs might go up. So I just wanted to understand how you factor in this in your projections? And then the second question is that is always a debate about M&A potential, so -- and the M&A appetite. So when do you think Fraport may start to look again at international opportunities to grow?

I'll start with the second one on M&A. I would say I would exclude it, to be quite honest, for the next 2 years, at least no big tickets, something like Kalamata or something like Jeddah could always be or one or the other smaller thing, but nothing big. And I would more expect if there is something coming around more regarding end of the decade. So it's not affecting any discussion on dividends or whatever or capital structure or something like this. So we have been very clear below 5x, we will go to 60% to 80%, and we will also continue that way. And it's also, as Matthias just mentioned, it's not a target to go to 3 was just as a minimum. So we will go up with the dividend then. On capital structure.

CapEx guidance.

On CapEx guidance, inflation.

CapEx guidance, whether inflation is embedded or not, perhaps can we show this slide. from the presentation. Is it possible where we show you -- the guidance for the next couple of years for maintenance CapEx. So we have -- you can see that these are increasing numbers and the increase is equivalent to anticipated inflation rates and price increases in the construction area. You can see, for example, maintenance, the box, gray box is going up as well as maintenance for international assets. So this is, of course, on a normalized basis, we have the inflation included in our forecast.

Okay. Maybe Christian and then afterwards, Marcin, I think that was and we can continue with Nicolo.

Christian Cohrs, Warburg Research. Two questions from my side. You confirm the EUR 2 billion and EUR 1 billion target for 2030. The 2030 targets, but also include that ROFRA is going to exceed the WACC. Does this apply for all divisions? Because this would actually mean a massive improvement, EBITDA or EBIT improvement in ground handling? And do you think that's realistic? And secondly, now with all the capacity in place, do you expect that low-cost carriers will come back to Frankfurt?

I can start with the question on low-cost carriers. No, if you mean with low-cost carriers, Ryanair, I would not expect it. whoever else because there's not any longer this clear distinction between low cost and not low cost, there are more hybrid models out and so on. Also on the intercontinental side, I would not exclude anything. That depends on market, that depends on airline strategy. But if you are so clear on Ryanair, if this is the question, I would not expect it. If they are willing to come back, if they see a market, they are highly welcome, but as a normal airline as all other airlines with normal tariffs and so on.

Question regarding how to achieve the EUR 2 billion target in 2030. So first of all, based on our internal planning, all 4 segments must go up. This is part of our planning. And if you look on the several units, first of all, starting with ground handling, where we have negative numbers or had negative numbers. And we are far away from any cost coverage also regarding cost of capital. And so the first big step you will see in 2027 in combination with a new contract with Lufthansa and all along also cost of capital must be covered. And this means there's a significant relative as well as absolute increase in this segment. The International segment is unconstrained from -- so there's also a huge headroom based on natural growth at all assets in our portfolio combination of volume times prices. Retail, we are looking forward, we are relatively optimistic on a conservative basis that all numbers will improve. And last but not least, in aviation itself with, for example, in ROFRA of 4.6% in '25, we are far away from the regulated one. And so this is a headroom. So it's a growth at all 4 segments, of course, overproportionately in ground handling relatively seen and absolutely unconstrained in retail as well as in the International segment.