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Edited Transcript of FRA.DE earnings conference call or presentation 6-Nov-19 1:00pm GMT

Q3 2019 Fraport AG Frankfurt Airport Services Worldwide Earnings Call

Frankfurt Nov 20, 2019 (Thomson StreetEvents) -- Edited Transcript of Fraport AG Frankfurt Airport Services Worldwide earnings conference call or presentation Wednesday, November 6, 2019 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Christoph Hans Nanke

Fraport AG - Senior VP, Head of Finance & IR

* Matthias Zieschang

Fraport AG - Executive Director of Finance & Controlling, CFO and Member of the Executive Board

* Stefan Schulte

Fraport AG - Chairman of the Executive Board & CEO

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Conference Call Participants

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* Andrew Lobbenberg

HSBC, Research Division - Head of the European Transport Team

* Arthur David Truslove

Crédit Suisse AG, Research Division - Research Analyst

* Charles Maynadier

Kempen & Co. N.V., Research Division - Analyst

* Chi Onn Chu

Deutsche Bank AG, Research Division - Research Analyst

* Elodie Rall

JP Morgan Chase & Co, Research Division - Research Analyst

* Johannes Braun

MainFirst Bank AG, Research Division - Director

* Marcin Karol Wojtal

BofA Merrill Lynch, Research Division - Analyst

* Nicolas J. Mora

Morgan Stanley, Research Division - Equity Analyst

* Ruxandra Haradau-Doser

Kepler Cheuvreux, Research Division - Equity Research Analyst

* Stephanie Fabienne D'Ath

RBC Capital Markets, Research Division - Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by. I'm Stuart, your Chorus Call operator. Welcome and thank you for joining the conference call of Fraport AG. (Operator Instructions)

May I now hand over to your host today, Christoph Nanke, Senior Vice President, Head of Finance and IR? Please go ahead.

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Christoph Hans Nanke, Fraport AG - Senior VP, Head of Finance & IR [2]

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Thank you, Stuart. Also, welcome from my side. With me at the table, I have Dr. Stefan Schulte, Fraport's CEO; and Dr. Matthias Zieschang, Fraport's CFO. As always, Stefan Schulte will guide you through the performance of the group in the first 9 months of 2019. And after that, Matthias Zieschang will dig more into the details of the numbers. Finally, there will be time for your questions.

I think we can start.

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Stefan Schulte, Fraport AG - Chairman of the Executive Board & CEO [3]

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Yes, we start. I'm Stefan Schulte. Good afternoon also from my side.

To sum up, first, we take the first 9 months. We are quite well underway, confirming, of course, our outlook, the range of our outlook as yet. And despite a more difficult general economic environment, or worldwide trade restrictions, campaigns against aviation, especially here in Germany on climate change, we see further growth. So we're staying on -- or some -- something with the windows over here. We would stay in our range with the passenger growth this year, but also we expect further growth for the next year in our stock.

Of course, we also benefit. If I take the group numbers, we benefit from our broader international activities. You know that we are active on 30 airports worldwide, was roughly 40% of our earnings [was] already out of the international business. And we expect it also in the future years, higher growth rates so better results, which is positive for the group in total.

Despite this, on the top projects like Terminal 3 in Frankfurt, and the expansion projects in Greece, in Brazil, in Lima, we're making good progress. Dollar's challenging but we are on a good progress. More difficult, especially here in Frankfurt, is still the issue with the security controls. We're at good development, early spring, spring and summer. So with the high numbers of passengers peaking of more than 240,000 passengers a day. We have been able to capture this one and drive some good customer satisfaction, really small queues, but that was also due to the new hall over there and the new technology.

We got into that new security hall. You know that we had to take the security hall out of operation in October to finish the -- this hall, and so we'll go into operations in another time after Easter next year. And you see immediately the effect because now we are still depending on the old technology with much longer queuing times, which is, at the moment, really a product which is not a current state-of-the-art. So that's a little bit a frustrating topic, to be quite honest, because we need the decisions on the federal level. And you know that we are prepared to take all of the responsibility, if necessary. But most important, we need changes. And whatever [governance] structure, but we need changes if we get new technology and more flexibility much quicker into the operation. And that takes too long in Germany because we discussed this for years already, and it looks a little bit -- it's another time postponed by the federal government. So it's not a top priority. And then some people are postponing this thing, so that's really making me a little bit angry, to be quite honest.

I'll go into the presentation. If we go into the presentation, I'm on Slide 4, you'll see that our group revenues were -- was up by around 5%, just under EUR 2.4 billion, EUR 2.5 billion. So without the accounting effects of IFRIC 12, group EBITDA performed fine, growing by some 8% to almost EUR 950 million, but again, impacting the accounting. The key driver for the EBITDA performance was our international business. Matthias will contribute to this and will explain a little bit more in detail later on. Much more in detail, for sure, later on.

The international business contributed some EUR 44 million to the EBITDA growth, so that's quite fine. But also Frankfurt contributed another EUR 24 million to this EBITDA growth of -- in total on group level, 8%.

As mentioned already, the international business now accounts for about 40% of our group EBITDA. And then we have, in addition, the positive effects on Antalya and the financial result, which also performed quite well this year. So that's also [very fine]. And if you go bottom line or group result and EPS showed clear growth, which was also impacted by our financial results because of Antalya, but not just because of Antalya, also because of much better [income rates] that we're profiting from the very low rates on the market. So group results, therefore, we record more than EUR 410 million already and earnings per share of EUR 4.10. And as mentioned, more details later on from Matthias.

Let's go to the business update. First, traffic. Also, the October numbers on there was plus 1%, roughly plus 1% here in Frankfurt, and year-to-date, now plus 2.2%. If we just go through the numbers on the different airports, we are now in Frankfurt on plus 2.2%, as mentioned, including October. Here on the slide, you find 2.3%. That's including September, the 9 months figures, of course. So we also are coming [somewhere] down. Why? Because of the general economic outlook because winter, in general, is weaker than summer. I think we mentioned this several times. We see, of course, also the effect that several airlines went bankrupt this year, not always affecting Frankfurt, but affecting the group in total, if you take WOW Airline, if you take flybmi, if you take now Adria Airways, Small Planet, Germania, Thomas Cook and then Brazil, Avianca Brazil. But nevertheless, if you go through the portfolio, you'll see most of the airports still have -- growth rates or even strong growth rates. So we've been able to work around this and to compensate this.

In Brazil, still a very strong growth rate of plus 4.6%. And despite the effect of Avianca Brazil, who went bankrupt, there was a market share in Fortaleza of 17% and totaling of 9%. Despite this, we still see a growth of accumulated 4.6%. That's really good with much higher growth rates in Fortaleza, where we have been able to establish some hub structures, especially also for KLM and Air France flying from Europe and to Fortaleza and North of Brazil. And then [taking all of] our international carrier to allocate the traffic to around [hub]. Slovenia, plus 9.1%. They will see over the next month the effects of the bankruptcy of Adria Airways because they had a market share of roughly 50% or above 50%. So there will -- there -- we would see negative effects over the next months.

But there's a big appetite of a lot of airlines to take up this traffic. Lufthansa's already taken all [long] destinations. Swiss is taking all long , Air France, BA and other airlines. We're in contact with some of the airlines there. So there, we are quite optimistic because of -- Slovenia is a quite attractive capital airport, where we don't believe that there's a [long dip] that will be compensated over the next 1 or 2 years, even with better [rates] in. So then we are quite optimistic on that side.

In Lima, also a positive plus 6.7%. We'll come to this a little bit later, cannot take it now. We are there on the -- we already get some capacity restrictions there, as you know, because we need urgently the new runway and the new terminal, [whichever] is very much crowded. And there's a lot of progress now. So the groundworks for preparing for the new runway is already tendered. The tender also of new runway itself will go out [in] days. So we'll start with new runway already this year. And end of next year, we plan and we believe that we can make it to tender then the new terminal. So over the next 2, 3 years, you will see also additional capacity over there and we are coming back to the [higher all sorts] we have seen in the past.

Regionals that have been especially affected by the one or the other bankruptcies this year of flybmi on the one side, Germania on the other side and also Thomas Cook. Nevertheless, we achieved a plus 1% growth rate. They have also been somewhat affected by the very strong recovery of Turkey because we see some traffic shift from traditional markets, Spain, where we are not in, or Portugal, where we are not in, to Turkey. But also somewhere from Greece to Turkey. But nonetheless, we have been able, after 3 very strong years of growth, this year more than 10%, to keep also this year's growth despite these bankruptcies. So we're optimistic also for the future on that side.

In Bulgaria, there -- well, we have seen the market consolidation this year because you know that over the recent 3 years, the year-by-year, we had [close rates] in between 10% to 15% in Bulgaria. And it's not just the bankruptcy of the one or the other airline, which is affecting Bulgaria this year, it's also the market consolidation. But with [this all] minus 12%, maybe on year-to-year, minus 10%, minus 11%. We believe that we now found some new ground somewhere on this level at least. And that we are still on a much higher level after entering low-cost companies into the Bulgarian market.

So we're on a much higher level than before. So we still have a very positive development in Bulgaria. Antalya, I mentioned this already, plus 10% after more than plus 30% last year. So we see all-time high numbers over there. We will see more than 30 million passengers over there, [or roughly] 35 million passengers is the expectations in this space. So it will be another all-time high [there is the potential] that we'll wait. And you would see that on -- also the positive financial results on that. I don't have to explain a lot of St. Petersburg and Xi'an, those are positive, plus 8%, plus 6%. And St. Petersburg, also very positive as the international business is growing even stronger now.

Coming to the winter season. I mentioned this already, and I'm on Slide 7, here in Frankfurt. Yes, the winter capacities in Frankfurt are down by 2.5% in terms of seats and 4% in terms of aircraft movements. And as mentioned, there are 2 reasons behind. So one is one or the other bankruptcy of airlines, which is not taking up these 3 slots and so in such a quick manner. But the other one is also the more general weak economic situation and the market where uncertainty combined with a general, more weak winter schedule. So there's just a [spinout] of flight plans you can see. If you take, for example, Frankfurt-Berlin, we have now 22 flights per day, which are scheduled. And if I compare this with some years ago, where we had the normal situation with 18 flights a day when Air Berlin was still alive. Then after that was easyJet and all the competition came in, which was very positive. We go to 23. And now we are back on 22. So that's still a positive development. But compared just to the 9 months last year, the winter schedule last year, it's something back to better than normal, but some market consolidation, which is taking place there and which is absolutely okay.

The positive thing is that the intercontinental market is still growing here, which is very important for us [for. So it supports both] functions, so it's also growing throughout the winter. The winter flat and scaling 2% [more system] movements, both, it's also very positive. And it shows also, if I compare this with other airports, [just in Berlin] or other ones in Germany that we are better [under the way] than the general market in Germany on that side.

Regarding next summer, I mentioned already, it's too early to give a detailed number. We never gave this at this time because we have to see how the development is and also the macroeconomic development and all the climate change discussions and so on. But we are still optimistic, and we believe that we will see further growth also next year.

Go on Slide 8, which provides you an overview on Terminal 3. I mentioned already that we are making progress there. So we are now soon to finish the exploration works and start the construction of the terminal building itself. So you can see where is the building growing, especially now on Pier G, where you'll see concrete slowly flowing or flow through it. So some of you see really the building coming out of the earth that we're a positive. So we are optimistic that we will bring Pier G to the market around winter 2021. So that's good.

The focus is now on tendering all the other works. So we tendered already more or less half of the volume, and we have to tender over the next 12 to 18 months the remaining half of the work. It's a difficult environment. That's nothing new for us. So we are experienced there because the construction industry, in general -- the construction works, in general, are very intense in Germany. So that's a very strong utilization of the capacities but we got it done up to now, so we'll also get it done over the next 2 to 18 months to tender the remaining half, which is likely ahead of us.

Pier G, as mentioned, construction is going ahead. So the interior construction would start very soon on that side. The other tenders are going ahead next year, especially on the technical construction site. So construction [of the technical] slots there. And we just have to get up now [with] the construction site. It's sort of -- kind of the peak, there will be more than 4,000 people from 800 different companies to coordinate all this, but I think there we are well positioned because we have a daughter company just focusing on this. So the project is separated and one daughter company just focusing on that, that's working.

On Slide 9, you'll see our reports regarding CO2 emissions, which is a big topic these days or these months in Germany. And so sometimes you have to [feed into] a little bit of hype. So Germany's running ahead, but not just Germany, this discussion we have in Europe, across Europe. And we are, as an airport industry, in general, in Europe, but also as Frankfurt Airport, we are committed on that side and we have to go that way. We committed ourselves in line with total industry of airports across Europe that we will achieve 2050 CO2 neutrality. You'll see on this slide that we peaked somewhere 20 years ago we're more than 300,000 tons of CO2, despite all the growth, we are now down to a level of 180,000, 188,000 tons of CO2. And we committed in near term to go down to 80,000 tons in the year 2030. There are a lot of projects how to do this. Most important, of course, modernizing the air conditioning in the terminals because that's a big savings we have, not just on CO2, but also on energy costs. But also changing the lights to LED in the parking areas, some -- and a lot of other topics there to modernize our car fleet to electrolyze -- going to electricity, e-cars and so on.

We decided on first photovoltaics on the roof of existing buildings, but also on the car parking area of the terminal in Sweden. And in addition, we are working on some projects, whether we should go to a power purchase agreement or whether we should invest ourselves in green wind energy because at the end, that's the only way to bring the CO2 emissions down to 0 in the long run. That's the responsibility we have because out of all discussions and out of all professional audits we see, professional studies we see, people would like to continue to travel. We see no effect out of flights [that came] or something like this. So people want to continue to travel. Also, young people know that they are living in a global world. They want to take the opportunities. They want to explore the -- those different cultures. So flying will stay attractive, but they are also claiming that we have to organize aviation in a more green manner, and that's our responsibility if we go this way. To say, it's also very clear, in our opinion, the decisions and all these [days] taken by the German government to increase the aviation tax another time, it's the wrong way. It's a wrong way we take because it takes another time financial capabilities out of the [boxes] of the airlines. So they have to take on, they have to have the financial capabilities to invest in more modern aircraft because they are less CO2 consuming.

And we need an additional clear commitment by the German government, but not just by the German government, we need a clear commitment by the EU how to get the world from classic kerosene to power to liquid and how to invest in those production plans and how to change the value chains there, logistic chain, which cannot just be done in Germany. It has to be done [due] to competition and competitive advantages, [as we've] done on a European level. There are some discussions on this, but it's not going as fast as we would expect this. And there's not up -- not enough commitment on that. But we will work on this together with the airlines because at the end, long run, it's our license to grow. So that's the reason that all, including the airlines, are committed to grow this way and to find the right way forward.

Going from Frankfurt, from climate change, having a short look on the international activities on Slide 10. You'll see already that construction is really progressing. You can see that meanwhile, we finished 5 out of 14 airports, which [we're aligning] in Greece. And we expect another 4 airports to be completed very soon at the beginning of next year. So as a result, we will then operate 9 modernized airports during the upcoming summer season, also with higher charges then because we will do the applications for this, of course. And the remaining 5 airports, we will finish construction latest by quarter 1, 2022. So that's really underway, and we are making good progress in Greece.

In Brazil, same there. You see the Slide #11, the traffic performance, I mentioned already, that's quite okay. It's a little bit weaker than originally expected, especially in Porto Alegre, but that's because of the bankruptcy of Brazilian airline...

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Matthias Zieschang, Fraport AG - Executive Director of Finance & Controlling, CFO and Member of the Executive Board [4]

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Avianca.

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Stefan Schulte, Fraport AG - Chairman of the Executive Board & CEO [5]

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Avianca, it was. Exactly. Thanks very much.

And that somewhere else because of the grounding of the 737 MAX because some airlines had [the plans behind] to fly with the 737 MAX to North America, and this traffic is now missing.

But construction, as mentioned, is going well. It's progressing. We will now celebrate the opening of the terminal expansion in 2 weeks. And afterwards, we will complete the terminal in Porto Alegre, most likely in the first quarter next year. We will then continue the works on the 2 runways because there we have to lengthen the 2 runways, but that's also on track. So in Brazil, everything is fine.

Lima, I mentioned already. That's also well under the way.

And we got to my last slide, our group outlook on Page 13, I just [can] confirm it. So following the first 9 months of the year, there's no need to change the outlook. Regarding traffic, I mentioned already, we will be a little bit more on the lower side of the range of 2.3% -- 2.2% -- no, 2% to 3%, but in that range or on that range. And financial results also had no impact. So we can confirm also the range this year on EBITDA, EBIT in group result.

Thanks very much.

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Matthias Zieschang, Fraport AG - Executive Director of Finance & Controlling, CFO and Member of the Executive Board [6]

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Yes. Thank you, Stefan, and a good afternoon also from my side. Let me start my presentation today with a focus on our group cash flow and net debt situation.

As you can see on Chart 15, we recorded a clear double-digit growth in our operating cash flow as well as the operating cash flow without working capital changes. The main drivers for the good performance, [where] our operational growth in the period under review as well as the improved cash interest result. Within the CapEx line, you can see that our investment programs in Frankfurt and Brazil and Greece further get up pace were the decisive factors to turn our free cash flow negative as planned and as expected. Despite the high dividend inflows we received from our investment in Antalya, free cash flow in the period under review was negative at minus EUR 167 million. Taking account of the dividend outflows and the 10% stake acquisition in Lima, our group indebtedness was up and reached EUR 3.95 billion. This figure is well in line with internal projections and the guidance we gave you at the start of the year.

Taking a closer look at our group segment, starting with Aviation on Slide 16. Revenue growth of the segment of 2.5% was well in line with the traffic performance we recorded in Frankfurt. This [disproportionately] high revenue increase, however, came from security services. As you know, from our last publications. These revenues are balanced with cost in the amount -- the same amount and generally remained without positive impact on the EBITDA. This year, there was, again, a negative impact from costs for security personnel, which could not be reimbursed. Aviation charges, the sole driver for financial upside in the segment, remained impacted by incentives and did not grow in line with traffic figures. While the operating result of the segment still was up by EUR 3 million in the second quarter, the performance of the third quarter was adversely impacted by a high provision we released in the past year. Without consideration of the EUR 10 million provision reversal in the third quarter of '18 the performance of Q3 2019 [in line with] expectations and grew by some EUR 2.5 million. From the past interim results, you also know the effect from shorter assumed lifetimes of some Frankfurt assets on D&A. As a result of the higher depreciation, EBIT was down by EUR 21 million ending the period under review at EUR 106 million.

Moving now on to our retail and real estate segment on Slide #17. As in the past quarters, we are very pleased with the performance of our retail business. Meanwhile, for the fourth consecutive quarter we are seeing our retail revenue per passenger increasing at a time of continued passenger growth. In total, retail revenue, thus, was up by about [EUR 13 million] or almost 9%. I will go into further details here in a minute. Also, the parking revenues were up again due to a traffic increases and the higher utilization of our parking lots by EUR 4 million, or 5%, compared to the previous year.

As you know, from the publication of our Q1 figures, the disposal of our energy supply subsidiary had a negative impact on our real estate revenues. Here, we recorded some EUR 60 million lower revenue in the first 9 months of '19. Of course, on the other hand, OpEx decreased by more or less the same amount because of businesses without any margins or was without any margins. Despite slightly lower other income, which was positively impacted by the reversal of provisions in 2018, EBITDA and EBIT performed well, growing by EUR 14 million and EUR 30 million, respectively. The key drivers for the good financial performance of the segment were the before-mentioned positive developments of our retail and parking businesses.

On the next slide, #18, I want to give you some more details on the year-to-date retail performance. You see the positive trend of the first 2 quarters continued that in Q3, we were -- we are also able to realize an increase in the retail spend per passenger over 2018. In Q3, the retail revenues were mainly driven by shopping as a result of our measures taken throughout the year and advertising due to the international automotive exhibition.

Revenue from services was going down, driven by a weakness in banking services, including currency exchange and lower revenue from car rental services. In total, over the first 9 months, retail revenue per passenger increased by EUR 0.18 to [EUR 3.14].

On the right side of the chart, you can see that the trends from H1 among the higher-spending countries continue. And therefore, China and Vietnam contributed to the positive development in terms of retail revenue per passenger. The same as well as for the high-volume countries in Frankfurt. The U.S., Turkey and India showed a significant growth rate on an already high basis.

Coming to our ground handling segment on Slide 19. We are also happy to see that the positive trend, as reported in H1, continues. Revenue increased by almost EUR 13 million , which is, on the one hand, driven by the ongoing traffic growth in Frankfurt and the gain of additional market share on the other hand. Positive impact from other revenues was again driven by the lease of personnel and a higher demand for additional services in combination with better contract conditions and also higher prices. Staff costs increased due to higher wages and a higher number of employees. However, we were able to realize an EBITDA growth of more than 50% over 2018 and a positive EBIT development, especially in comparison to the previous year.

Last, but not least, our final segment, international activities and services on Slide #20. The revenue increase of around EUR 70 million, or almost 10%, excluding IFRIC 12 revenues, mainly results from strong operational performance in Lima, increase in tariffs at 3 of the 14 Greek regional airports as well as from our U.S. business that accounted for operations now in New York JFK T5 and Nashville for the first time. On top of that, the U.S. and Lima operations benefited from a favorable U.S. dollar-euro conversion rate. These developments and the positive impact from the new accounting standard, IFRS 16, drove the segment's EBITDA growth of EUR 44 million, or 13.5%.

Fraport Brazil still suffered from the devaluation of the real. Also, the impact has softened in Q3 and was only plus 1.2% year-to-date over plus 4.8% in H1.

[The airport took charge offs] resulting from construction works at both airports. So already mentioned bankruptcy of Avianca Brazil as well as a construction-related temporary closure of some retail areas. Fraport Brazil was able to realize an EBITDA increase of plus 4% in local currency in the first 9 months of '19.

As we already reported in H1, the only clear negative development that we see is in Bulgaria, we have a decrease in traffic numbers continued in Q3, which will also negatively impact the revenues and the EBITDA on a full year basis.

Looking at our financials and the recent developments in the airline and aviation industry, and we are satisfied with the performance of our international portfolio. We are very satisfied over the summer season, and are absolutely confident that in – all in all, our [group] airports will also meet our expectations on a full year basis.

Having said this, I'd like to thank you for your attention, and now we can go over to the Q&A session.

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Questions and Answers

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Operator [1]

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(Operator Instructions) First question is from the line of Ruxandra Haradau-Doser from Kepler Cheuvreux.

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Ruxandra Haradau-Doser, Kepler Cheuvreux, Research Division - Equity Research Analyst [2]

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Three questions, please. First, could you please help understand the extent to which payment of less incentives could counteract the potential softening in passenger trends at Frankfurt airport next year? It would be helpful if you could give some indications on EBITDA sensitivity in the Aviation segment next year under the assumption of flat traffic, 1% passenger growth and 2% passenger growth. Second, both Ryanair and the easyJet will decrease capacities during the winter flight schedule in Frankfurt. Under the assumption that you will not be able to increase low-cost traffic over the next years, do you see potential to utilize Pier G for other passenger segments? And third, could you please give us an update on retail performance at Greek airports in Q3?

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Stefan Schulte, Fraport AG - Chairman of the Executive Board & CEO [3]

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Let me start with the second question. It was on traffic reduction in winter, if I got your question correct. It's not just the Lufthansa or easyJet. If I go through the numbers, it's across -- right, it's just on European traffic, that's positive. It's not on intercontinental traffic. And as mentioned, it's [sending out] the traffic trends by a lot of airlines. In addition, some bankruptcies. But there's no special easyJet effect or something like this.

There are some frequencies taken out by Lufthansa, there are other frequencies taken out by Ryanair or by other airlines but no special effects. So most of these are those destinations where we have a lot of frequencies over the day. And we'll go -- just take out the one or the other destinations there because -- to bring out profitability, of course, because of the lower utilization in winter. That's the main topic.

On your first question, payment of less incentives. That I can't give you a clear number or clear indication because it differs very much from airline to airline, where they are in their incentive scheme because there are also some late payments in their incentive scheme. Depending on what time you had, which growth rates and so on, there are some payments for the second and for the third year. But as mentioned, we are expecting growth for next year. It's too early now to say we're on 1% or on 2% because that depends very much -- not so much on the incentive payments, depending very much more on the internal economic outlook on that side. We've got some positive signals today that the scope of the 5 -- [thus far tending] the 5 experts, let's call them experts, that they mentioned they are more optimistic for next year to not to see a deeper recession, but [bank] on Germany coming back on growth, but it's too early. We have to see which way it's going. And that's the more important thing behind.

The second more important thing is, of course, on aviation tax. What is the effect of the increase of the aviation tax? What are the final decisions there? And how the general mood on aviation is going ahead regarding aviation, regarding clients on the population? Up to now, we don't see any negative effect there. As mentioned, we don't see any flight [change], but we have to follow-up a little bit the discussion on how it goes ahead and whether we see over the next 6 months effect, yes or no. Up to now, we don't see any effects.

Your third question was on?

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Matthias Zieschang, Fraport AG - Executive Director of Finance & Controlling, CFO and Member of the Executive Board [4]

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Greece retail spend per pax. Yes, we -- in the moment, we have a spend per pax in the 2 clusters of about EUR 0.70 per passenger. And this summer season, we saw an increase compared to previous year, about EUR 0.05 per passenger based on the new terminals since we brought to the market in Chania, Zakynthos and Kavala. So we can see a positive impact from the refurbishment on one side and the, let me say, passenger spending behavior on the other side.

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Ruxandra Haradau-Doser, Kepler Cheuvreux, Research Division - Equity Research Analyst [5]

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Could you maybe give us an update on current trends at Condor? And my understanding is that during the winter flight schedule, Ryanair will decrease capacities by 20% to 30%. So if low-cost traffic was not to increase over the next year, do you see potential to utilize Pier G for other passenger segments and low cost?

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Stefan Schulte, Fraport AG - Chairman of the Executive Board & CEO [6]

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Yes. We're in discussions there with airlines and not just on low cost regarding Pier G. That's too early to publish with which companies we are discussing Pier G. It will be, for sure, lesser traffic, but not just low cost. Our numbers, if I'm correct, [on] minus 20%, [also not on Ryanair] but utilizing for the future more low cost. As you know, we don't have a specific low-cost target out, but we're discussing, of course, with all airlines, including our main airline, but also with low-cost airlines, what are destinations they could take up. But it's not because of Pier G or it's not because we want to reach a specific target, but we are looking more on connectivity and where we see further potential for growth. So first important thing is that the market in general is growing. And second thing, of course, is to look at which markets on detail and where we have under-coverage.

So I'm still optimistic also for the next years on low cost, if you ask this question, but there's no specific task on that.

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Matthias Zieschang, Fraport AG - Executive Director of Finance & Controlling, CFO and Member of the Executive Board [7]

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And perhaps, in addition to this, what Stefan said on the last press conference, Michael O'Leary gave a clear statement that whenever Pier G -- whenever means end of 2021 -- Pier G will be opened, Ryanair will go into Pier G. So I think a clear confirmation of the strategic move.

And also, some additional remarks to Condor. We are closely monitoring also the performance of Condor. And we look on the seat load factor, it's 86-and-more percent. So as in the past, a very high seat load factor. And this is a strong indication that this carrier is moving on successfully.

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Operator [8]

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Next question is from the line of Elodie Rall from JPMorgan.

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Elodie Rall, JP Morgan Chase & Co, Research Division - Research Analyst [9]

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I have 3 questions, if I may. The first one on traffic. So I understand you confirmed your guidance of 2% to [3%], but it's likely that -- it's likely to come at the lower end. So, say, 2%, that implies here that you see traffic growing at 1% for the rest of the year, which is basically what we've seen in October. But then at the same time, we have the airlines' winter capacity, which suggests more pressure than that, as you described, like 2.5% decrease. So I was just trying to try to reconcile what we hear from the winter capacity and the 1% that is implied, 1% growth that is implied for your guidance for the rest of the year.

And same question for next year, on 2020, you're talking about still traffic growth? Does it mean you would expect higher traffic in the summer versus the winter? If you could give us a little bit of view on that.

Second, just quickly on tariffs. Do you have an update on the 2020 tariff decision and the talks that you're having with Lufthansa and the regulator? I thought the decision was supposed to be released in October, November. So just trying to find -- to see if there's an update.

And lastly, on Antalya, I think the results were quite strong in Q3. So I was trying to understand if you could give us a bit more color and if you expect that to continue from here?

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Stefan Schulte, Fraport AG - Chairman of the Executive Board & CEO [10]

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Yes, thanks for those questions. On traffic, as mentioned, we are more on the lower range of the 2%. That's absolutely correct. The remaining two months, November and December, are always weaker months, so they don't have a big implication. Although we are coming out at the end of -- on a [52% or] 1.9% or something like this, (inaudible) whatever the result is, even if it would be 1.8% or 1.9%, we confirm our financial results or financial outlook, and we will stay in that one, for sure. It depends, of course, also a little bit -- and I can't give you a clear answer on that. What's happening now, [it says twice of] Lufthansa because we have seen today that on the first quarter level, Lufthansa lost. There were no (inaudible) or revision on the second quarter level, but they have taken out already for tomorrow and the day after 30% of their traffic. So yes, it has, of course, an impact. And we have to see what's coming up. Is there more stronger strike starting? Or is it just the 1 or 2 or 3 days? So that's too early. But what we can say from today's point of view, that we can confirm our financial outlook on that side.

Regarding next year, despite a weak winter schedule, yes, we are expecting more growth in summer, that a little bit in brackets because it depends, of course, a little bit how's the general economic outlook. But there, we're optimistic. And all the indications we have is that we would see a stronger summer than the winter.

Regarding the tariffs. Yes, we did our application on that level. So unchanged to the year 2019 in principle. It's with the regulator, and the process is [waning]. So I would expect somewhere over the next weeks to get the answer. And it would be okay if we don't have it up to now because there have been further questions and we answer this one. This is a point that is unchanged. It's not so much important to get it exactly to the 1st of January because there's no big change behind. So there are no negative indications, no positive indications, just a lot of questions. There's a lot of questions that are also probably due because there's a lawsuit on the EU level, which will be decided somewhere end of November questioning the topic whether the airlines can go directly against airports in general across Europe on those issues like tariffs or whether they have to go against -- like now, against the regulator, and the regulator then is asking us to support him. We have to see how this suit case -- this lawsuit case will be decided end of November. One -- well, my estimate would be that the regulator is waiting for this, and that's the reason that she's asking such a lot of question to be best prepared, if something like this will happen.

Regarding Lufthansa, you have seen over the recent years, it's a -- showed a very strong growth also in Frankfurt. They have also clear growth targets in Frankfurt. And we have a lot of discussions with them, a lot of concrete projects already, where we are working together. To give you one example, there's one project together with Lufthansa to change the security controls, security control lines more from the -- in the pier level to the hall level, so more to the north because then we'd get -- but it would take some years, but then we'd get a much better process for transferring passengers in between Pier B and Pier A. And we have a common interest there to get this done because then we have less controls on the one side, we have a better process for the passengers. And third, we have more retail or food and beverage area on the [air side]. So we are already working on those topics. We are working on topics like innovations, to make a test pilot on test recognition, for example, is one of the [DSL,] which is not approved up to now as a standard in Germany, but to be prepared for those things. And a lot of other topics, punctuality and so on, where we're working together. So that's okay. Regarding Antalya, you'll take up that point?

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Matthias Zieschang, Fraport AG - Executive Director of Finance & Controlling, CFO and Member of the Executive Board [11]

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Yes. First of all, Antalya is running very well. And the moment you see plus 10% passenger increase for the full year, we expect up to 35 million passengers. This would be an all-time or will be an all-time high. Also with regards to the EBITDA and net income numbers, we are well on track. When you look at the now published Q3 numbers and you add on the contributions from Q4 last year plus 10%. You will see how we will end up for the full year 2019. So based on EBITDA level range, for 100% of the shares, 330, 340 million. And based on the net income range between EUR 140 million and EUR 150 million and then divide it by 2, you will see the equity contribution, we will see in our financial results. So looking ahead, it's absolutely sure that in next year, we will not continue with the 10%. This cannot be because this was really a fantastic run this year. So assuming the end of this year, we will have 35 million passengers then as of today, subject to all these things which could occur. We expect 36 million or a little bit more next year. And then bringing the link to the financial numbers. Our metric there, it's one additional international passengers and we are talking about international passengers contributes by about EUR 10 on the EBITDA level. And so it's very easy to calculate, what will be the add-on on EBITDA and net income next year based on 1 million and 1.5 million additional passengers.

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Operator [12]

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The next question comes from the line of Andy Chu from Deutsche Bank.

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Chi Onn Chu, Deutsche Bank AG, Research Division - Research Analyst [13]

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Just 2 questions from me, please. Just in terms of the retail revenue per pax. Just looking into Q4, obviously, the comp gets a bit tougher, you -- the one-off effect of the auto show will not repeat. So maybe just some flavor around sort of retail revs per pass for Q4, you're up EUR 0.18 for the 9 months. And obviously, I think you've been talking in the past about $0.10 for the full year. So where do you think you'll land there? And secondly, sort of a bit more boring, but probably quite important, just in terms of your refinancing that EUR 800 million bond that expired a few weeks ago. So how should we think about the expiry of that 5.25%, 10 year bonds, please?

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Stefan Schulte, Fraport AG - Chairman of the Executive Board & CEO [14]

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First of all, starting with your second question, we have already now refinanced this bond 10 years ago, where, as you mentioned, we have had to pay 5.25%. So now everything -- there was not just a new bond. We made a lot of very granular new refinancing, all of them have a duration between 7 and 10 years. And the all-in interest expenses are clearly below 1% per annum. So in average is about [60.06%]. So this brought down significantly our interest burden on the indebtedness. Now you can see also in the appendix of the chart, that for the whole group now the interest burden is 2.4%, including the relatively expensive project financings, for -- especially Greece and also Brazil. So again, coming back for the additional indebtedness, also which we have to refinance in the upcoming years. If the current interest scenario will continue, and we assume that will be the case, given the existing ECB policy you can expect with substituting interest expenses of between 0.5% [or] 0.7% per annum. So also in the next couple of years, we are able to bring down [to] 2.4% for the whole group. So this is very fine.

So first question was regarding retail -- yes retail. Of course, now we ended up with EUR 0.18 more spend per passengers. That we gave in the beginning of the year, the guidance, EUR 0.10 or reality will be in between this range because it's clearly that we will end up with more than EUR 0.10, but it's also clear that we will end up below EUR 0.18 because now in Q4, we are going to compare these numbers, which we've seen now with the already recovered numbers from Q4 2018. That's the reason why you cannot expect a continuation of this EUR 0.18 discrepancy to last year. Again, it will be in the middle between EUR 0.18 and EUR 0.10.

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Chi Onn Chu, Deutsche Bank AG, Research Division - Research Analyst [15]

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Do you think that you'll actually get that into growth, or it will be quite tough? And actually, most likely, it'll be down year-on-year?

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Stefan Schulte, Fraport AG - Chairman of the Executive Board & CEO [16]

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Next year or what?

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Matthias Zieschang, Fraport AG - Executive Director of Finance & Controlling, CFO and Member of the Executive Board [17]

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No...

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Chi Onn Chu, Deutsche Bank AG, Research Division - Research Analyst [18]

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In case of...

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Stefan Schulte, Fraport AG - Chairman of the Executive Board & CEO [19]

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Also in Q4 further growth on the spend per pax.

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Matthias Zieschang, Fraport AG - Executive Director of Finance & Controlling, CFO and Member of the Executive Board [20]

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Yes. But of course, lower because we have now -- we are, so to say, we are suffering from the basis effect because Q4 '18 was already -- we saw a strong recovery.

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Operator [21]

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Next question is from the line of Stephanie D'Ath from RBC.

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Stephanie Fabienne D'Ath, RBC Capital Markets, Research Division - Analyst [22]

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The first one is a clarification. You said earlier you expect growth for next year, between 1% and 2%, was that passenger growth? Or were you discussing the economic outlook? And second question, I believe there were quite a few luggage issues at Frankfurt Airport. Could you maybe clarify why this happened? And who is bearing the cost, if it's airline or ground handling, and if it was your ground handling or not? And then my third question is regarding tax and Aviation. Could you just recap, please, what the tax is about and to which extent you believe it could impact your -- I mean, obviously, would be the airlines. I believe [bidding] it, but to which extent could impact profit going forward.

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Matthias Zieschang, Fraport AG - Executive Director of Finance & Controlling, CFO and Member of the Executive Board [23]

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Good afternoon. Yes, thanks very much for those questions. First, on those. The numbers I gave you have been just examples. It's much too early to give now, at this stage, a number because it's too early. We will do this with the full year result press conference in March, maybe a little bit earlier, giving an indication already. So this was not a range of guidance or something like this. So it was just an example. And at the end, confirm that we are expecting further growth also next year on passenger level because passenger level is the most important thing for us. Regarding luggage issue. Yes, [that] was really angry, but can happen, was a breakdown on some smaller items or some items in the central baggage system, on electric motors and in a combination with the software topic. That was the reason and that at a beginning of the autumn holidays, the first day of the autumn holiday. That was really angry, no question at all. We have to bear the cost. There is an agreement with the airlines. You can expect there that's already booked in the numbers here. You can expect a high...

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Stefan Schulte, Fraport AG - Chairman of the Executive Board & CEO [24]

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It's 1 million, which already reflected in Q3 numbers.

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Matthias Zieschang, Fraport AG - Executive Director of Finance & Controlling, CFO and Member of the Executive Board [25]

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On climate tax, the -- I have to look at the numbers another time, or I have some here. We nowadays on the shorter distance, that's up to (inaudible). So we have now this already to pay or the passenger has to pay, the airline has to charge it EUR 7.38 and that should be really increased to EUR 13, so plus 77%. That's on the short distance, the mid-range up to 6,000 kilometers that should go from EUR 23 to EUR 33 and long distance or beyond 6,000 kilometers would go from EUR 41 to EUR 59. This is what's actually discussed. Transfer passengers are not paid -- not charged double. They are just paying the higher amounts of the long-term -- the long distance or the midrange amount whatever they use, but not double payments on that side.

What is the effect? We are first to see what the government is really deciding at the end. There are still some discussions on what expected [way] in that range. And then the big question is, is an add-on able to charge this in addition and to put this on the ticket price, yes or no. And that we -- the [angry] point behind at the end because of the domestic airlines, every flight is charged at the [end but for] an intercontinental airline. They, of course, have other options on cost subsidizing and so on because for them, it's not every flight, which has to be charged is just one flight a day or whatever. So it has not the same cost impact than for Germany airline. And that's the reason why we are saying it's the wrong way to do this, if you don't have a European approach on that. And by that, a wrong way to do this because on long distance flight, we have no alternative, going by train or something like this. And it's not saving any money and saving any climates on that side. So then you have to invest as a government and to support power to liquid plants or something like this, that will sell much more.

To give you a traffic impact on Frankfurt, that's really too early. And we are first to see what are the final decisions there. I would not expect a too big impact. And the other question is, the question from which time onwards, this will be due is it also for bookings taking place now. Is it just for bookings taking place after the new taxes [this] June, we have to see at what time it will be and the discussions at the moment from [Eastern] onwards [or] next year, but we have to see what they really do.

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Operator [26]

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Next question is from the line of Arthur Truslove from Crédit Suisse.

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Arthur David Truslove, Crédit Suisse AG, Research Division - Research Analyst [27]

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So firstly, I think you mentioned in your initial stage that the security hall would be closed through the winter. I know that's the one that's reduced the queues. And so just wondering how the queues that you're seeing to get through security compare with what you saw 12 months ago. And kind of following on from that, whether those queues that you may be seeing now are having any impact on [another] number of passengers making it into the shops. And secondly, on the ground handling. Obviously, you've done extremely well this year through a combination of traffic growth, which obviously is -- appears to be slowing and taking share from others. Are you able to just elaborate a little bit as to who you might have taken share from? And how much more share there is to take for you over the next sort of 12 months or so. And finally, just following on from Andy's question. In terms of what you're seeing in the fourth quarter on the retail spend per passenger. Are you actually saying that you think that retail spend per passenger is going to be down in the fourth quarter? Or did I misunderstand you?

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Matthias Zieschang, Fraport AG - Executive Director of Finance & Controlling, CFO and Member of the Executive Board [28]

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So thanks for the questions. Retail spend per passenger, now we wanted to say, we still see growth per passenger, but the growth of retail spend per passenger will be lower than the one we have seen up to now because we had already very positive growth in the fourth quarter last year. So the base effect is much higher. That's the reason that we see stellar growth in the retail spend per passenger, but not on the same level as EUR 0.18 or EUR 0.10 on average, [we have to see somewhere in between 10 to 18,] that was the message we gave.

On the new security hall, we had to take it out of operation for the winter season because final jobs have to be done there on fire protection, electric and so on. It will come back into operation beginning of May next year, if possible earlier. But as estimated at the moment, it's beginning of May next year. The queuings have been really angry, the queuing over the recent 4 weeks, especially. But now we are coming in a more low season. If you take second half of November. If you take December, January, February, [these are] really low season traffic numbers. So they would not expect big queuings because the total number of passengers are much more down as normal in winter compared to summer. So there should not be a big effect on retail because of that. And that's most important. That's the reason we now took the new hall out of operation. For us, it's really important to have a long summer season that there is no queuing can -- that should work because the new hall will be from beginning of May in operation.

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Stefan Schulte, Fraport AG - Chairman of the Executive Board & CEO [29]

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Yes. With regards ground handling, we had in the first 3 quarters, a lot of elements which gave us a tailwind. First of all, as we already mentioned, a number of movements went up, the maximum takeoff [weights] went up and also the number of passengers. So all 3 traffic elements supported us. Second, we gained market share, which we did not expect in the beginning of the year because at the beginning of the year, we already had 88% of the Frankfurt market. So it was more or less impossible to gain or to increase the market share. Nevertheless, we did it. And now we ended up in September with about 90% market share. So we could increase the market share by 2%. Further level was a productivity issue. You know that in 2018, we had some problems with quality, which we compensated by bringing in a lot of workforce. And this brought down and spoiled the productivity level. So we promised in the beginning of the year to do better, and we did it. We could also increase productivity. And you can see this also in the numbers, when you look on the personnel expenses in ground handling, there was an increase of 1.9%. The same time, we increased the number of employees in the segment by 2.3%, and we had a wage increase by 3%. So normally, these variables the whole cost expense items should go up by 5%, but it did just 1.9%. The difference is this what we could influence by management activities. So that's the reason why now you see a huge increase year-by-year.

But when we look forward to 2020, please do not make the mistake to extrapolate this increase for the next year because, again, in this year, we had a perfect positive storm. Next year, the number of MTOE's and movements and passengers will be reduced, positive but still reduced. We do not expect to gain another increase in market share. This is more or less impossible. So even it could be that we are going to lose something from this extremely high market share. So we are working on this issue. We see further potential, but please do not extrapolate the increase in this year for the next year.

And our competitor, I think the question was also who it is. It's Visa, so we have just 2 licenses at Frankfurt Airport to do the ground handling, it's our company FraGround on one side and Visa on the other side, and Visa now has exactly 10% market share.

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Operator [30]

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Next question is from the line of Andrew Lobbenberg from HSBC.

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Andrew Lobbenberg, HSBC, Research Division - Head of the European Transport Team [31]

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Can I ask 3 questions? One, on the security issue. You've got the shiny new brilliant machines from the new hall. Have you been able to redeploy these to the old facilities? Or are they sitting there in multiples at the moment. And can we not get things better that way. Second question, on the set of airline failures that have impacted you, sort of Thomas Cook, Adria, Avianca, I think Small Planet for Bulgaria. Did you have any write-offs around your portfolio? And equally, how quickly do you think we should expect the gaps to fill? Is it a 1-year, 2-year effect. And then can I ask on the contracts for Terminal 3. You said that 50% have been done, 50% remain to be done. The 50% that have been done, are they on budget in terms of the planning? And you spoke of a very tough contracting market [in] a hot competitive construction market, I'm slightly at a loss to understand, obviously I'm not a construction analyst, and I'd love to understand why that market is quite so hot when the economy is so cool.

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Stefan Schulte, Fraport AG - Chairman of the Executive Board & CEO [32]

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Good question. I'll start with the first one. Security, new hall, also new technologies, those new lines, yes, they are relocated to the PSC, to be quite honest. It's good that they are over there, but it's not the same effect then on PIA, where we have all those European and some are also a lot of intercontinental traffic, especially with Lufthansa and Star Alliance. So that's a positive. So we're seeing over there, but we need it as urgently as soon as possible. Then with the new haul going into operation in beginning of May, also in PIA in other time. Thomas Cook and so on, we had somewhat also, of course, you asked also, what are the guests to fill? There we have to go through airport by airport. We have seen in Greece was -- there have been 2 effects. One effect was on the one side, some shift of traffic to Turkey. On the other side, some effects by the 1 or the other airline, Thomas Cook on that side are relatively late, they have been more -- those effects which drive BME and out of the U.K. and so on also because of Brexit discussions, also a strong pound [and of the] weakened pound and so on. All those things.

So it's not directly a gap over there. That's more question of the general environment next year that we are more optimistic, but it depends a little bit on the general tourist development, probably Brexit another time. Yes, U.K., what's going on there. U.K. is an important market always. Scandinavia -- so the Northern European countries, also Norway and so on. There we also have to see how this develops. In Bulgaria, that's absolutely right, there is not a gap because -- or there is a gap because of the bankruptcy of one of the other airlines, but it was more a market consolidation after the very, very strong growth over the recent 3 years. So with the entering of all the low-cost carriers. [But] one or the other has to step out of the market. So there, I would say it's more the new base. And from that base, we can continue to develop to go and so on. In Ljubljana that's really a topic. In Ljubljana, we would expect that we see already next year, best estimate, 80% of the traffic. And the year after then, we are back on 100%. And as I mentioned, not giving more details on this. But as I mentioned, on revenues and on earnings, it will be even better compared to the 80%, and you can probably imagine why. So there we are now on a positive way. Further growth, we expect, of course, also in Brazil. We closed the gap already, so that's positive.

Regarding terminal 3, I think we took you with us over the recent 2 or 3 years because we increased somewhere the numbers 1 year ago, where we already mentioned at that time that the market is difficult, that the prices are -- construction prices are really going up in the general market, and that we see exactly the same trend here with all the tenders we are doing. And on that level, we are. So you will see in the contract in our publications that we are expecting roughly EUR 4 billion, that's the upper range. That's why not that we gave EUR 3.5 billion to EUR 4 billion. That's because of the market. What is the reason behind the hot market, weak economy, yes. But hot market on the full market share [Weimar] , a lot of people are locating more and more in the [Weimar building, Weimar] region. So you have a lot of building construction, you have a lot of high-rise buildings which are constructed. You have a lot of logistics buildings which are constructed, all much easier than a new terminal. Puts good profits on no question. And to this, a lot of construction companies went into bankruptcy over the recent -- or stepped out of that market over the recent 10, 15 years. So the capacity is down on the [although the outside] demand is still on a very high level. And we could now guess and say, "Oh, wait with the Terminal 3, and let's stop it for the next 5 years. You cannot do this. If you do something like this, if you stop a building, which is already on a constructing -- construction will be much more expensive in the long run, that's not possible. So you have to go through now, and we have to work together with all the suppliers in the best way. And up to now, we've got it done. So I'm quite optimistic. We will also continue this way. We have very close contacts to the market because we have been always on the market, they know us, we'll prepare the market for this. We are also now in contact with those suppliers. And all the concrete sales are already done. It's now getting next level to the [testing] side, which is always -- which was always a difficult market also 10 years ago. That's not new. And where we got to know the market players and where we have to prepare in the best way the tenders and to [reign] in as much as possible competition. So on that latest estimate, will stay. We can confirm this is nothing new on that, also on end of winter of 2021, Pier G and then end of 2023. The main hall and the other 2 peers.

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Operator [33]

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(Operator Instructions) Next question is from the line of Nicolas Mora from Morgan Stanley.

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Nicolas J. Mora, Morgan Stanley, Research Division - Equity Analyst [34]

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So couple of questions from me. First one on Aviation. In light of the softer traffic backdrop, is there anything you can do on the cost side? Or will be stuck with relatively sticky wage increases and so on into the near future. Second one, on retail, putting aside the tough comps looking into next year, you did have some -- quite a fair amount of openings both on luxury shops, food and beverage in 2019 and expected in 2020. Isn't this enough to continue to drive growth? Or you're basically facing some headwinds as well. And last point on to some numbers. Boring question on the tax rate. Was particularly low in Q3. Is this something we can extrapolate for the full year?

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Stefan Schulte, Fraport AG - Chairman of the Executive Board & CEO [35]

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I'll take the first question, and Matthias will take the other 2 questions. On the cost side, yes, of course, we are always working on the cost side. Matthias explained very much what we have done on ground handling. Last year, we had -- because of the very difficult punctuality and all the difficult market situation we had to bring in a lot of additional people. So we look very much to [see] on productivity. I think we have seen the positive effect there. But also despite this, we're also working on general administration cost, but we're also working on processes of building across the company. So we set up a new project, it's very early stage on future [far] focusing really on Frankfurt, where we have to get costs out. At the end, it will be of the less people or less increase of people in line with some of the [3 on Pier G,] but also on the [all of them] to focus on processes, to make processes more lean, to make decision-making processes more lean, to be less complex on that side. They are the main targets there, and then we will also go through the 1 or the other expenditure, which will also go up, we have to get [savings] done. So it will be a project over the next 3 to 5 years, I would expect from today's point of view and with a target of around EUR 50 million, which is necessary to set up those projects because staff costs increased. Matthias mentioned several times we will be year-over-year around EUR 20 million to EUR 30 million, something around that type of number, I think. So we have to set up those things because we have to compensate those things as much as possible, despite growth, of course.

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Matthias Zieschang, Fraport AG - Executive Director of Finance & Controlling, CFO and Member of the Executive Board [36]

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Further questions. First of all, regarding retail growth, yes, we also expect for next year an increase. But of course, on a lower level, because the tailwind from currencies, et cetera. We do not expect. We also have now a higher base on which we are comparing. But based -- you already mentioned this, based on our measures, investing in new shops, fancy shops, expansion of luxury brands, et cetera, which will continue for the next 2 and 3 years. So this is always up -- is positively impacting the market, creating higher demand, and that's the reason why we expect a continuation of the growth rate, but on a lower level. Third question, tax rate. Yes, that is true, we came in the past from more than 30% tax rate. Now we are going down to about 24%, 23%. Here, you can expect the continuation of this low level, and this has to do, first of all, from the over proportionately growth of our equity investments, especially Antalya contributes very much for this in favor of this low tax level, but also the over proportionately growth outside Germany, where we in most countries see lower tax rates compared to Germany's other reasons why this will continue. So take the 24% for the next couple of years, and you have a very solid indicator for the tax rate.

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Nicolas J. Mora, Morgan Stanley, Research Division - Equity Analyst [37]

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Okay. If I may just come back on the cost side because what we see this year is, I mean, traffic slowing down, but you continue to increase? And I'm talking specifically aviation, you're continuing to increase the step levels, you're still suffering 3% plus wage increases. I mean, you've got ahead of you a potentially meaningful seasonal effect in 2020. I mean I understand the future plan, which is a 3-, 5-year plan mostly to deal with the opening of new infra. On the existing one, is there more to be done to mitigate potentially that effect, which could hurt you next year, considering the returns are already very low on your regulated base? So there's no charging offsets because you got the freeze.

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Stefan Schulte, Fraport AG - Chairman of the Executive Board & CEO [38]

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There are two points. We are not expecting further staff numbers in aviation in the core aviation business. So we are also [using fluctuation] over there. Second, we had a specific effect Matthias mentioned this already with the cost burden this year on security business, where we brought in additional people to keep the quality somewhere not paid by the government. And there were -- we are quite optimistic that we [can only use this] number next year. So we will have a positive effect on that side and we will have a normal positive effect, plus some growth on that side.

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Operator [39]

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Next question is from the line of Marcin Wojtal from Bank of America.

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Marcin Karol Wojtal, BofA Merrill Lynch, Research Division - Analyst [40]

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Just a question on the retail, if I may. So obviously, you're positive on 2020, you expect further improvement, but still your retail spending per passenger is still below the peak level of 2015. So I'm just wondering, are you considering any further strategic initiatives over the next, let's say, 3 to 5 years to try to improve your retail spending. And number two, just on CO2. Can you give us a few specific examples of what are you specifically doing over the next 3 to 5 years to reduce CO2 emissions.

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Stefan Schulte, Fraport AG - Chairman of the Executive Board & CEO [41]

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I will start with the second question, CO2 emissions. To give you some specific examples. Yes, we decided to bring the portable tarp on roof of the cargo building. We decided to bring another portable [type] plant on top of the parking area of Thomas, which will be constructed over the next 2 years because we needed in the first phase already regarding the Pier G, which will go into operation in the end of 2021. We will tender, but we're in a final discussion. We will tender probably wind energy somewhere in the first quarter next year. And that has not decided to say in which way we do this because we're still in discussions whether we should do it in a contracting model, which way we will do this. And then there are smaller issues like LED in the parking areas, an ongoing project with air conditioning change to -- changing to much more, modern machines and then plans throughout the building, there's a plan behind. So that's going year-by-year. And the biggest effect would, of course, be with wind energy plant. If we successfully can bring such a tender to the market, but then also then it will take another 5 years to be realized.

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Matthias Zieschang, Fraport AG - Executive Director of Finance & Controlling, CFO and Member of the Executive Board [42]

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Yes. With regards to retail, first of all, you have to see there is a significant change compared to the past. And in the last decades, which we added Frankfurt Air, but we always had a stable balance between cont and intercont traffic of 60% cont and 40% intercont traffic and then whenever we had growth rates, this was more or less proportionately realized between these 2 segments. Then in the years '17 and '18, we had these fantastic growth rates, where we, in total, gained 10 million additional passengers. This was great. This brought up absolutely [seen also] purchasing power in our retail shops. But on the other side, it was for sure that 80% of this 10 million passengers were realized on continental traffic, and everybody knows that with regards to these destinations, the spend behavior is significantly, especially in the Schengen area, significantly lower. So with other words, these all stable equilibrium, 60-40, like a tectonic shift changed to 64% now continental traffic and 36% intercontinental traffic. And now it seems to be that this is a new equilibrium. We are starting from this new balance. And you can see the recovery rates, which we realized in the last 4 quarters.

And now looking ahead, our strategy is what we can influence is to refurbish all of the existing shops to make a refurbishment to bring in new brands to make the shops more fancy and more attractive to increase especially the space for the high premium brands like [Hermes], Gucci, et cetera, and all this stuff. On the other side, also to have a strong focus on F&B with new concepts super food, especially for young women, et cetera, what all they are now eating. And so this also brings up the revenues. And you can see the first, let me say, positive impact in 2019. This program now runs for the next 2 to 3 years. So with other words in end of '22, all these old shops are totally refurbished. Also, then you will see a new food costs. And on top of this, you will see also these 2, let me say, strategic moves. First of all, the opening of Pier G end of 2021. With additional huge space on the air side with new concepts with regards to F&B, also with a more fashion included in the terminals so more towards, let me say, the young people with fancy stuff. And then later on, end of '23, when we are going to open the Terminal 3 with the peers H&G, we see in total 12,000 square meter more space. Today, we have 40,000. So it's a huge increase on top of this, and then the total difference of Pier G, strong focus on luxury products. And so we have first time ever in the history of Fraport airport, where we have also a product differentiation in the different parts of the terminal. And we think with this whole package of measures we are well prepared, and we are going to do all to have then, again, a state-of-the-art retail scenario trend for the airport. And this gives us confidence that we are now able to coming from this to [EUR 14], which we now have -- based on the Q3 numbers to bring it up step-by-step, but please remember on a new equilibrium between continental, intercontinental traffic.

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Operator [43]

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We have a follow-up question from the line of Arthur Truslove from Crédit Suisse.

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Arthur David Truslove, Crédit Suisse AG, Research Division - Research Analyst [44]

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Just one follow-up from me. On the -- you mentioned on the security that's -- it was a profit headwind for you as a result of having to pick up some of the costs. Is that likely to be the case typically going forward? Or is it a one-off that's been a headwind for you? And are you able to give us some idea of how big of a headwind it's actually going to be? And actually, just on your -- on the response to the previous question, you mentioned the additional 12,000 square meters of retail space. Is the vast majority of that in the main Terminal 3? Or is some of that in Pier G as well?

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Stefan Schulte, Fraport AG - Chairman of the Executive Board & CEO [45]

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On the additional security costs, I would see it more as a one-off. We added the recent 2 years, but it's not normal for the future. And it should not be normal in general terms, it's somewhere mid-range, 1-digit million number.

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Matthias Zieschang, Fraport AG - Executive Director of Finance & Controlling, CFO and Member of the Executive Board [46]

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Okay, second question was?

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Stefan Schulte, Fraport AG - Chairman of the Executive Board & CEO [47]

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On retail, another one. Which one was it?

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Matthias Zieschang, Fraport AG - Executive Director of Finance & Controlling, CFO and Member of the Executive Board [48]

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Okay. We got it. 12,000 square meter are with regards to both. So we're including in Pier G. In Pier G as far as if I remember, it's about 3,000, 3,000 to 4,000. And the rest...

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Stefan Schulte, Fraport AG - Chairman of the Executive Board & CEO [49]

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2 ,000 to 3,000.

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Matthias Zieschang, Fraport AG - Executive Director of Finance & Controlling, CFO and Member of the Executive Board [50]

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2,000 to 3,000 in Pier G and the rest then in, let me say, in this market haul, which is connected to Pier H [and] J.

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Operator [51]

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Next question is from the line of Johannes Braun from MainFirst.

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Johannes Braun, MainFirst Bank AG, Research Division - Director [52]

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I have 2 questions still. And firstly, could you explain why the performance and security was -- I think still below expectations this summer despite the new haul and the additional security equipment. I think there were still on queue, and I don't think that was initially the plan? And secondly, back on passenger growth in 2020. I understand it's early days to talk about next year. But I think you said you have some positive indication for summer 2020 traffic. Could you explain on what that is based on? Because clearly the capacity plans of the airlines are not yet in place. So just curious, if you had some early discussions with airlines already for next summer? Or where this optimism comes from.

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Stefan Schulte, Fraport AG - Chairman of the Executive Board & CEO [53]

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Thanks, Johannes. On your first question, I think it was always planned and also always communicated that we are coming with the new security hall, with the new technology. Just as an interim this year for 4, 5 months to get a much better performance for the peak season, and that worked, but it was always clear that we had to take it out of order operation in another time. And we're beginning of October to get the hall finalized. And I think that we did and nothing else. And this hall will now come in operation beginning of next year and at the beginning of May, another time, beginning of next year with the new technology and maybe hopefully, even a better technology, we will see. So that we have additional people in there, that would be not normal. That was just because the system was so inefficient that we try to stabilize the system on that inefficient base with additional people, which is not necessary. If you have the better technology because the throughput of the better technologies per line in between plus 50% to plus 100%. And that's the reason that we are saying the one -- it's more a one-off effect, and that should not accrue in the long run. Passenger growth, of course, we have some discussions with airlines, but we also have some new destinations. And we know that they are -- with the discussions also 1 of the other airlines like Eurowings and lots of others. It's not a fixed flight plan from today's point of view, that's clear, but some indications where we know how their plans are and that we would like to continue to [go] also in Frankfurt. But as said, it depends a little bit on the general situation of the market, both ways. If the general market is growing, then we also continue to grow. There are the signals we get from the airlines. If the general market will be down due to a big recession or something like this, but we don't expect this. Then of course, we would see somewhat the same effect in Frankfurt.

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Operator [54]

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Next question is from the line of Charles Maynadier from Kempen.

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Charles Maynadier, Kempen & Co. N.V., Research Division - Analyst [55]

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Just one question on my side on the leverage. So given initial amount of CapEx in Frankfurt and abroad, net debt to EBITDA should peak to around 4x, maybe slightly higher over the next 2, 3 years. So taking that into account, are you still comfortable going for potential M&A?

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Stefan Schulte, Fraport AG - Chairman of the Executive Board & CEO [56]

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I think we gave -- thanks very much for that question. We always gave an indication that it could peak somewhere in the range between 4 to 5. So we expect to peak somewhere around 2024, probably with the late payment of Terminal 3 because most of the other things [that are soon] if you do those calculations, it's clear that you will also expect [us to achieve] growth of EBITDA. And of course, also on [result up to that] time. On M&A, there are no big projects out there these days. So one or the other, we will have a close look. But there are no big projects on the market. You will know, if I look at the actual [concessions]. They are all long-term warnings, the only one 2024 would end is Antalya, and then we have to see how they want to go ahead, at what time they are coming to the market. And what are-- in terms of conditions there. But we gave already to the market, there's a general indication that we are interested to stay in Turkey. And if it would come next year, the year after or in 2 or 3 years, we will have a very, very close look at that one. This would not affect the net debt EBITDA ratio because it's not consolidated and we will also be financed on the asset itself, we have to see that's too early. But other big projects on full consolidation. They are not at the moment on the market, there's no target.

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Charles Maynadier, Kempen & Co. N.V., Research Division - Analyst [57]

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Okay. And so if there would be -- you would still be comfortable going for this? Assuming any...

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Stefan Schulte, Fraport AG - Chairman of the Executive Board & CEO [58]

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Regarding Antalya, which one do you mean?

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Charles Maynadier, Kempen & Co. N.V., Research Division - Analyst [59]

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No, in general, just any potential deal.

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Stefan Schulte, Fraport AG - Chairman of the Executive Board & CEO [60]

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Generally, we will be a little bit more -- what you want to say conservative, a little bit more. That's because we go through a very intense investment cycle. But nevertheless, we will have -- we'll look at one of the other [charts], which also could structure in a different way with a call option or something like this, but no big acquisitions. That's not on our agenda.

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Operator [61]

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(Operator Instructions)

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Stefan Schulte, Fraport AG - Chairman of the Executive Board & CEO [62]

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And we say, thank you very much. Have a good day. And that's it.

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Matthias Zieschang, Fraport AG - Executive Director of Finance & Controlling, CFO and Member of the Executive Board [63]

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Thank you.

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Operator [64]

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Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you for joining, and have a pleasant day. Goodbye.