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Edited Transcript of FRA.DE earnings conference call or presentation 7-Aug-19 12:00pm GMT

Half Year 2019 Fraport AG Frankfurt Airport Services Worldwide Earnings Call

Frankfurt Aug 15, 2019 (Thomson StreetEvents) -- Edited Transcript of Fraport AG Frankfurt Airport Services Worldwide earnings conference call or presentation Wednesday, August 7, 2019 at 12:00:00pm 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

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Conference Call Participants

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* Adrian Pehl

Commerzbank AG, Research Division - Head of TMT and Consumer

* 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

* Christian Cohrs

Warburg Research GmbH - Analyst

* Cristian Nedelcu

UBS Investment Bank, Research Division - Associate Director and Aerospace & Defence Analyst

* Elodie Rall

JP Morgan Chase & Co, Research Division - Research Analyst

* Johannes Braun

MainFirst Bank AG, Research Division - Director

* Michael Kuhn

Societe Generale Cross Asset Research - Equity analyst

* Ruxandra Haradau-Doser

Kepler Cheuvreux, Research Division - Equity Research Analyst

* Stephanie Fabienne D'Ath

RBC Capital Markets, LLC, 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. My name is Emma, your Chorus Call operator. Welcome, and thank you for joining the conference call of Fraport. (Operator Instructions) And I would now like to turn you over to your host today, Christoph Nanke, SVP, 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, Emma, and hello, everybody. Welcome also from my side to the presentation of the Second Quarter and First Half Year of 2019 Fraport Group Results. Our CFO, Matthias Zieschang, will guide you through the presentation. Having said that, of course, there will be time for questions thereafter. So let's start.

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Matthias Zieschang, Fraport AG - Executive Director of Finance & Controlling, CFO and Member of the Executive Board [3]

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Yes. Thank you. Good afternoon, ladies and gentlemen, and also warm welcome from my side. Let me start my -- today's presentation with an overview of our financial numbers that we released this morning. After a good start into the year, the underlying group revenue, excluding IFRIC 12, revenues grew by EUR 75 million to more than EUR 1.5 billion in the first half of 2019. The increase in revenue was driven by good traffic performances throughout the group and a very positive development in our retail activities in Frankfurt. Apart from Frankfurt, especially Lima and Fraport USA contributed to the revenue growth. I will provide you with further information on the international business in my presentation, but would like to focus on the group for the moment.

The EBITDA of EUR 512 million increased on the back of the operational performance in H1 2019, but also benefited from the first-time application of IFRS 16 as well as the disposal of our energy supply subsidiaries, which contributed around EUR 12 million of other income. After adjusting the EBITDA figure by IFRS 16 and one-off effects within Retail & Real Estate, we still see an improvement of around 4.6% or EUR 21 million compared to H1 2018.

Based on the positive EBITDA development, our group EBITDA margin reached 33.8%, which reflects an increase of more than 1.5 percentage points compared to the previous year. Of course, the first-time application of IFRS 16 and the shorter assumed useful lifetimes of individual assets in Frankfurt increased our D&A. But still, our group EBIT increased by 4% to EUR 279 million.

Higher net profit in Antalya and better interest results in Brazil and Lima led to an improvement of our group financial results by EUR 13 million to minus EUR 64 million. With a tax rate of around 24%, our group result reached EUR 165 million, which reflects an increase of plus 17%, well in line with our guidance for the full year.

You'll see we are on good track after the first half of the year, and we'll continue to work on the improvement of our processes to become even better in the future.

Let me now continue with some details about our group cash flow statement and net debt. As you can see from the chart, we recorded a clear double-digit growth in our operating cash flow and in the adjusted operating cash flow without working capital changes. With working capital changes on 2018 level, those figures increased by more than EUR 40 million. Our investment programs abroad, especially in Brazil and Greece, are further gathering pace and are well in time and in budget. In Lima, the team is starting all necessary works in preparation for the construction of the new runway and terminal, but I will give you more details about Lima in a moment. Also in Frankfurt, we are making progress with the construction of Terminal 3, which affected our cash flow this year.

As reported with our Q1 figures, one driver was the down payment we made for the construction of Pier G in the amount of more than EUR 110 million. Having in mind the down payment in Q1, the cash outflow in Frankfurt of around EUR 330 million in the first half year of 2019 is well in line with our guidance for the full year, which is also shown in the appendix. The dividend inflow you see on the chart has mainly been contributed by Antalya for the performance of 2018. Based on the higher CapEx, our free cash flow turned clearly negative in H1 as we had anticipated and communicated before.

One more thing to mention for H1. We paid dividends in the total amount of EUR 184 million in May 2019, which then finally led to a net debt of EUR 4.1 billion after the first 6 months of the year.

Let's move on to Page 7, our traffic figures. You know the development until June already, but I still want to mention some highlights before coming to an outlook also based on the preliminary July figures. Our high-performance in the first 6 months without doubt were Brazil, Antalya and St. Petersburg besides Lima, also bearing in mind the outstanding growth rates they achieved already in 2018. The only international subsidiary that suffered from various effects this year is Twin Star in Bulgaria, mainly on the back of decreasing offers from Ryanair and the shift of touristic traffic to other destinations, especially Turkey and North Africa. We do not expect growth rates to become positive anymore in 2019. We are now guiding for a decrease of up to minus 10% in Bulgaria for the full year. However, having in mind the strong traffic increase in the last years, we are still convinced that this is only a temporary drop and that next year growth rates will be positive again.

Speaking about Frankfurt. You see that after 6 months, we are reaching the top end of our guidance for the year, but we also see that the second half of '19 will have lower growth rates also because of the already very high utilization of slots in the summer season last year. This is what we see in the preliminary figures of Frankfurt in July, which were up 0.8%, and this is why we still feel comfortable with our guidance of 2% to 3% growth in 2019. We have not consolidated all traffic data for July from the international airports yet, but the preliminary data for Antalya shows growth at about 12% and increase we see a slight drop of around 1%, both on a very high basis. This development hints to a more balanced traffic spread over touristic destinations than we saw in the last year.

Moving on to our business update. And here, I would like to start with Lima Airport on Slide #9. Before coming to the construction program, let me highlight our acquisition of a further 10% stake to around 80% at a purchase price of EUR 40 million. We acquired the stake from our co-shareholder AC Capitales and the only co-shareholder left now is the IFC. By acquiring the additional shares, we took the opportunity to further strengthen our position at Lima Airport, which has a very important phase ahead looking at the planned investment program. On the construction itself, you can see on the chart, the construction of the runway will still commence this year, most likely in Q4, and the construction of the terminal will start next year, most likely end of 2020. Currently, design planning for the terminal is progressing and preparatory works as the airport sites are carried out.

Looking now at Greece. Less than 2 years after we took over operations, we completed construction works at 3 out of the 14 airports, namely Chania on Crete, Kavala and Zakynthos. According to the concession contract, we raised the regulated airport charges from now EUR 13 to EUR 18.50 per departing passenger. The 3 airports contributed around 5 million passengers of the 30 million [handled] increase in the year 2018. In Q2, the airports handled about 1.5 million passengers, out of which some 50% can be attributed to departing passengers. Doing the math, we came to around EUR 4 million higher revenue from the tariff adjustment in Q2. As the next step, we expect to have another 6 airports completed this year, while the remaining airports will be done in 2020 and '21 at the latest. Please keep in mind here that following the completion of the airports fulfillment must be approved thereafter. This is why we expect the next charges to increase in 2020 there for 6 airports and then in 2021 for 5 airports, respectively, prior to the summer season.

On Slide 11 of my presentation, you see the interior of our new security hall, which has been opened last month. From the first weeks of operation, we can say that these additional security lanes are a relief to the security check situation in Hall A or Terminal 1. And now we are sure that we will handle the summer peak without any major disruptions caused by long waiting times at the security checks. It's really a great step forward for us. Nevertheless, we still elect personnel to deploy all of the increased number of security lanes, and we think we will be fully staffed in the beginning of 2020. Of course, we are constantly training and recruiting personnel to close the gap. In addition, we will also shift security personnel from Terminal 1A level 4 to the new security hall in Terminal A as the security checks in this level 4 will be done by a third-party provider as of January 2020. The new lanes can also accommodate for computer tomography, which is currently being tested for approval in Germany. With this new technology, iPads, laptops and liquids do not have to be put on the belt separately anymore, allowing for an even quicker security process. After the highest summer season, we will close the hall to make it ready for permanent use and will open it again for the summer next year. With regards to the rest of the terminal facilities, the assessment of possible replacements of old security technology is still ongoing. Terminal 3 will be equipped with its newer lanes completely.

My next slide shows you the tariff regulation process in Frankfurt. First of all, I would like to emphasize that we are obliged to consult with airlines every year. This year, we had the consultation with the airlines in early June and applied for the new tariff charges in the first week of July to become effective as of January 1, 2020. In line with the official process, we are now in the Q&A phase, in which airlines can approach the regulator with feedback and questions regarding our proposal. We expect the regulator to take its decision as usual in Q4 this year and are firmly convinced that the tariffs will be approved. For [EU], we applied for flat tariffs, which with only minor changes to the noise component, which means that louder aircraft will be more expensive and newer aircraft which are less noisy will be a bit cheaper than before. In addition, we aim to continue the incentive scheme.

Coming now to the financial performance of our segments in the first half of the year. Starting with Aviation. You see a revenue growth of 3.4%, which is in line with our traffic performance at Frankfurt Airport. However, a disproportionate increase comes from security services, which incur cost in the same amount. Airport charges do not grow as much as traffic figures, which is mainly driven by incentives. In Q1, the operating results showed a negative development over 2018, but caught up in Q2, which outperformed the second quarter of '18 and led to a slight EBITDA increase in the first 6 months of the year.

From the last quarter, you already know that the D&A increase reflects the shorter assumed lifetimes of some assets in Frankfurt, which led to an EBIT of EUR 43 million in the first half year, which is a decrease of EUR 12 million over 2018.

Our Retail & Real Estate segment is shown on Slide 15. We are happy to see that the measures we take in our Retail business are bearing fruits. For the third consecutive quarter, the retail spend per passenger increase, which led to an increase in Retail revenues of 10% in H1 2019. I will go into further details in a minute. Also higher parking revenues due to traffic increase and higher utilization improved revenues by additional EUR 2 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 of some EUR 11 million in H1 '19. On the other hand, OpEx decreased in more or less the same amount. Net revenues, a onetime book gain of EUR 12 million and decreasing operational costs, led to an EBITDA of almost EUR 200 million. This reflects an increase of around 8% over 2018 or 4.5% if adjusted for one-offs in '19 and '18. Slightly higher D&A results in a segment EBIT of EUR 152 million, an increase of EUR 30 million or 9%.

As promised, some more insight on our retail development on Slide #16. Overall, we are very satisfied with the retail performance in the first half of 2019. As a result of our measures taken throughout the year so far, like new shop openings, a weakening of the euro and the more or less evenly spread increase in continental and intercontinental traffic, retail revenue per passenger was up by EUR 0.20 to EUR 3.26. You can see that among the high spending countries, especially China and Vietnam contributed to the positive development in terms of retail revenue per passenger. In this regard, it is worth mentioning that the currency fluctuation to China in H1 was marginal at 0.5%, so without a major impact. On top of that, Turkey and India realized significant growth rates in terms of volume on already high basis, which certainly also helped our retail sales. Having a final look on the left side of the slide, you see that retail revenue growth was especially driven by shopping revenue going up by almost 10% in H1 and advertising revenue even increasing by more than 30% year-on-year.

Revenue from services was going down, marginally driven by weakness in banking services, including currency exchange and increasing pressure on margins for car rental services.

Coming to our Ground Handling segment on Slide 17. In the first half of the year, we saw an increase in revenue of about EUR 20 million, which is driven by the positive traffic development at Frankfurt and the gain of additional market share. Other revenues are also going up due to the lease of personnel and a higher demand for additional services in combination with better contract conditions. Despite higher staff costs driven by regular tariff increases and additional staff, we were able to realize an EBITDA of EUR 24 million and a positive EBIT, which is a real improvement compared to the first half of 2018. Based on this development, we want to improve our performance further in the second half of 2019. Last, but not least, our final segment, International Activities & Services on Slide 18. The revenue increase of around EUR 40 million or 10%, excluding IFRIC 12, revenue was mainly a result from strong performances in the U.S. that accounts for revenues from its operations in New York, JFK, T5 and Nashville for the first time, and Lima which realized dynamic growth rates. Those operations also benefited from a favorable U.S. dollar-euro conversion rate. As I highlighted before, in Greece, we realized the tariff increase at 3 airports as of April, which mainly drives a positive EBITDA development besides a moderate traffic increase.

As already reported in Q1, Fraport Brazil suffered from the devaluation of the real, but also has to cope with operational challenges due to construction works at the airport sites that limit retail space temporarily and significantly. Still, Brazil was able to realize a slight EBITDA increase in local currency in the first half of 2019. The only negative development that we see is in Bulgaria, where the decrease in traffic numbers will negatively impact the EBITDA on a full year basis.

Nevertheless, all in all, we are satisfied with the performance of our international portfolio and are looking forward to further observe the developments over the summer season.

Coming now to my final slide, our group outlook on Page #20. Following the first half of 2019, we don't see any need to adjust our outlook. Frankfurt, as you saw, trades within the guided range at 2.6%, including for July. And also, the financials we published this morning are well in line with our expectations at the start of the year. Certainly, one or the other revenue stream turned out to be better, like retail but there are also compensating effects as Twin Star or the Brazilian real is doing a bit worse than expected. Net-net, we are confident with the guidance we gave out at the start of the year. Having said this, I'd like to thank you for your attention, and I'll hand over to the Q&A session now.

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Questions and Answers

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Operator [1]

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(Operator Instructions)

First question comes from the line of Ruxandra Haradau-Doser with 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, according to [deal], Ryanair will reduce capacities during the winter flight schedule at Frankfurt Airport. I know that visibility on the winter flight schedule is limited and figures are not fully reliable. But based on your discussions with Ryanair, how do you expect Ryanair's capacities to develop in Frankfurt during the winter flight schedule in medium-term?

Second, could you please give us a breakdown of the incentives you expect to pay this year to major airlines at Frankfurt Airport? If Ryanair was not to qualify for new incentives next year, how much less incentives should Ryanair receive next year versus this year?

And third, could you please give us some first indications on how retail revenues per passenger are developing at those 3 airports in Greece where modernization works were finalized in Q1?

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Matthias Zieschang, Fraport AG - Executive Director of Finance & Controlling, CFO and Member of the Executive Board [3]

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Mrs. Haradau-Doser, thank you for the questions. Starting with Ryanair, it's true that they are reducing a little bit the frequencies during the winter schedule. This has to do with problems with aircraft, 737 MAX availability of capacities. So they are doing some reallocation of their aircraft in Europe. So that's the reason why on a like-for-like basis it's less than the previous year, but this is a temporary phenomenon. We know that the medium-term plan or outlook of Ryanair is linked to the opening of Pier G. This will be one of the launching customers. They will take most of the capacity of the new pier, and their aggressive or ambitious growth plan is exactly linked to the opening of Pier G. So at that point of time, end of 2021, when we are going to open this Pier G, then Ryanair will be in and will start the second step of their growth plan. With regards to the incentives, you can see that when you look on the H1 and this year we received about EUR 6.50 in average per passenger, which is a little bit more than previous year. So this is going in the right direction. And with regards to Ryanair, of course, the incentives based on a no-growth scenario, 1 year compared with the previous year, led to the situation that the total amount of incentives paid -- to be paid is going down. But this is a minor effect of 1 -- [odd] 1-million euro, and so it's not a big, huge amount. But on the other side, of course, we would be happy to see growth. That's the reason why we launched this incentive program. With regards to Greece. We see -- you know we already fixed 3 airports, so we see an uplift of the retail spend per passenger, but this is just 3 airports. So it's too early to have the full transparency what the total refurbishment of all airports at the end of the day will bring us. But we see whenever new shops are, let me say, on the market that was [pent-up] taxes going up, we came from an average number from less than EUR 1. And with regards to the first 3 airports, we see that the number is going above EUR 1, but we have to see whether this is representative for all of the airports. We are working on this issue, but it's going in the right direction. So it's positively working and it's in favor of us so far [we can observe]

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Ruxandra Haradau-Doser, Kepler Cheuvreux, Research Division - Equity Research Analyst [4]

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Can I please ask one more question. What cash inflow do you expect from Antalya in H2 and until the end of the concession period?

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Matthias Zieschang, Fraport AG - Executive Director of Finance & Controlling, CFO and Member of the Executive Board [5]

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You can see on the chart on the Slide #5 what we already received in H1. So we collected in total, but most of it comes from Antalya, EUR 57 million. For the full year, we expect about EUR 100 million. So another EUR 40 million which will come in H2.

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Operator [6]

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Your next question comes from the line of Michael Kuhn with Societe Generale.

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Michael Kuhn, Societe Generale Cross Asset Research - Equity analyst [7]

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I would like to follow-up on the capacity question, 0.8% passenger growth, 0.8% in July. Is that something that we can assume maybe also for the rest of the summer season? And again knowing that visibility is not yet perfect, but on your other key customers, Lufthansa, including Eurowings and Condor, what do you see on their growth plans at the moment? Then one on Brazil. There was some recent news that due to the runway extension some compensation claims have come up. Can you quantify those claims? And is there a potential timeline for court proceedings or however you want to settle that conflict? And then last not least, the usual question. Obviously, there is ongoing talks with your key customer Lufthansa on the strategic corporation. Is there anything new you can tell us today and any time line you have in mind there until you would like to conclude that conversation?

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Matthias Zieschang, Fraport AG - Executive Director of Finance & Controlling, CFO and Member of the Executive Board [8]

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Thank you for the questions, Mr. Kuhn. First of all, traffic in Frankfurt, the 0.8%. When you look on it, looks poor, but it's not poor because it's absolutely this what we expected and what was put in our guidance. You have to see that in July it's an absolutely peak months. And we had already in last year full utilization of the slots. We offered 104 slots per hour to the market and in these peak summer months, it's 100% utilized. So there is no room for additional movements in these peak months. And second, already in July last year, the seaport sector was extremely high. So with other words, it was more or less impossible for the airlines to bring us more traffic than this.

With regards to Brazil, in the newspapers you could read about this issue with the reallocation of [Fortaleza] This is a very old issue. It was decided to -- first of all, the decision to extend the runway was done in 2010, so long before Fraport won the airport concessions in 2017. When we signed the concession agreement, we also took over the application to coordinate the relocation of the families. So the houses itself, they are already built from the government and the people have to go into these houses. So -- and this is already paid and financed from the government. And for this relocation process itself, we have in our books and in our business case an amount of about more -- a little bit more than EUR 10 million, which is part of our business case and which we are going to pay to the people for the -- can say, hardship and so on, and this is absolutely what we have in plan. So it's no surprise for us, it's not an additional challenge or risk. So this is what we took over and what we included in our business case. So last question with regards to Lufthansa and the strategic cooperation, you can say same issue, same status like in Q1. So we are in good talks with Lufthansa, you can say it's since 2 years, a lot of proposals are on the table. The working groups of both houses, I think, did a good job. We know where we can have some win-win situation. We also know where it doesn't make sense to cooperate. But the things -- the proposals are on the table. We are willing to come together. The last signals from Lufthansa are also very positive or we interpret the signals as positive signals. And now we have to see whether they are willing to sign it or not. But in the moment, I think the mood is good, and we are optimistic that in -- now in H2, we finally come together with Lufthansa. And you can say perhaps it's coincidence, 30 minutes before this conference call now I got here a press release, absolutely new information for us that Lufthansa Group now is going to expand its touristic route networks via Frankfurt in the summer schedule 2020. I don't know whether you have also already received this information. But there are a lot of new international destinations, especially in the U.S. market like -- when I read here the press release, Las Vegas, Phoenix, Anchorage, Orlando, Seattle, Detroit and also Barbados, Mauritius, Windhoek. And so I think this will be offered by Eurowings. It's not 100% clear unclear whether everything is now offered from Eurowings or it's a combination between Lufthansa Classic and Eurowings. But when you go through this brand-new press release, this looks very nice and is a clear signal that Lufthansa is continuing with their growth intention with also new destinations out of Frankfurt. So we feel comfortable.

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Michael Kuhn, Societe Generale Cross Asset Research - Equity analyst [9]

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Okay. That sounds like good. Maybe just one additional question. On your stake increase in Lima. The price looks relatively low compared to the earnings that Lima Airport generates. Can you elaborate a bit more on that? And then maybe also on the indebtedness implied to the EBITDA multiple on that transaction maybe?

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Matthias Zieschang, Fraport AG - Executive Director of Finance & Controlling, CFO and Member of the Executive Board [10]

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Yes. First of all, we -- this was our partner AC Capitales. This wasn't so far a special situation. This is a fund and the fund is closed and based on their constitutional requirements now they had to close the fund and so they had to go into the market. We -- when we have been asked whether this is the right timing, our answer was clearly no. It makes no sense to sell a stake before the CapEx program. But again, they were forced to put it on the market. And so this was, we think, an opportunity for us to increase our stakeholding based on a fair price. And let me say, to elaborate this on an EBITDA margin, it doesn't make sense because now the indebtedness, of course, will go up based on the CapEx program for the construction of the terminal and the second runway. So the question is, do you take -- if you take the -- today's EBITDA, this would be a fantastic deal, but we have to say that in the next couple of years, indebtedness of the company will go up because we are investing about USD 1.5 billion for these 2 assets. And -- but nevertheless, then this changes, of course, in the EBITDA margin. So in this case work with EBITDA multiples on these very volatile times, it doesn't make sense. But believe me, this was an option for us which we utilized. And the reason why we acquired this 10% stake was; first of all, the opportunity based on, we think, a good price; and second, also now when we go for the higher indebtedness, we are also willing to bring in a little bit more equity. And when you have in total, 3 stakeholders, and you have to discuss what is the right level of equity, it's much more easier to have the discussion in the group out of 2 shareholders than you have 3. So this is also, let me say, relaxing a little bit the discussion, what is the right size of the equity. But all in all, we think it's a good acquisition.

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Operator [11]

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Your next question comes from the line of Stephanie D'Ath with RBC.

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Stephanie Fabienne D'Ath, RBC Capital Markets, LLC, Research Division - Analyst [12]

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Could you please firstly confirm your CapEx guidance for the full year. You said in the past, up to EUR 1.2 billion and about EUR 600 million when it's just in Frankfurt and the rest international, in light of the EUR 700 million [sets] in the first half. My second question is on your long-term tariff strategy. Obviously, you applied for no tariff growth for 2020. When would you expect to start raising tariffs again? And finally, for the [revenue] passenger in the first half you grew 6%. Could you may this -- maybe share with us, please outlook for the full year?

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Matthias Zieschang, Fraport AG - Executive Director of Finance & Controlling, CFO and Member of the Executive Board [13]

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CapEx, you see on Slide #5, that we spend a lot of money in H1, about EUR 700 million. Please have in mind that a lot of things have been front-loaded. So we did an upfront payment of EUR 110 million for Pier G. We also made some upfront payments in the case of Brazil and Greece. So don't make the mistake, so to say -- to take the EUR 700 million x2 and assume this as a full year CapEx. So we -- in the beginning of the year, we gave the guidance of EUR 1.2 billion. We stick to this EUR 1.2 billion. So we expect now EUR 500 million CapEx for the rest of the year. And if you drill down to the 4 projects in Brazil, we expect in H2 about EUR 60 million. CapEx in Greece just EUR 10 million, maximum EUR 20 million for the second half of the year. In Lima, significantly less than EUR 100 million. And the rest about EUR 300 million for Frankfurt. And if you now add all these 4 numbers, so it sums up to a maximum EUR 500 million. So at the end of the year, we expect about EUR 1 2 billion as we indicated this at the beginning of the year. So second question was a little bit difficult because the line was not so transparent. I think was about tariffs in Frankfurt. When are we going to change tariffs, was it correct?

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Stephanie Fabienne D'Ath, RBC Capital Markets, LLC, Research Division - Analyst [14]

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Yes, that's right. What is your long-term strategy?

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Matthias Zieschang, Fraport AG - Executive Director of Finance & Controlling, CFO and Member of the Executive Board [15]

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Yes, our long-term strategy is -- to keep the long story short, let me say, up to the opening of Terminal 3 more or less a flat development of the tariffs. But in combination with the opening of Terminal 3, then significant fee increases, reflecting the huge CapEx.

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Stephanie Fabienne D'Ath, RBC Capital Markets, LLC, Research Division - Analyst [16]

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And why not increase them before that?

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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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Let me say, it's a little bit psychological issue. We -- on one side, you see our EBITDA numbers are going up. We have still growth numbers. And now in this, let me say, difficult situation, also sometimes difficult relationship to airlines saying that -- on one side you can't see any new assets because first [thing] applies in 2021. Then the big step ahead will be the opening of T3 in end of 2023. And the first new asset you see at Frankfurt Airport will be Pier G. And then saying to all the, so to say, established airlines -- by higher fees for a pier which is used by aggressive competitors, I think this is not a very smart signal. When we have T3, which is open for everybody, then you can say it's a new step ahead. With the infrastructure in Frankfurt, it's a new level of comfort and functionality. Then I think everybody understood and will understand that we have to increase the fees in the moment, having in mind that EBITDA is going up year by year. We think this is not a final decision. But you asked me what is the strategy. But as of today, this is what we assume as our strategy. But again, if there would be some significant changes, of course, overnight, we can also come to other decisions.

So -- and then last issue was retail outlook. Yes, first of all, I think the numbers in H1 are good. We made EUR 0.20 more per passengers. Our guidance is EUR 0.10. You can say it's too conservative, yes, perhaps it could be a little bit too conservative. So if it would be a little bit more than 10%, we are happy. But you have also to see that our recovery started already in Q4 last year. So when we then compare Q4 '19 with Q4 '18, we also, in this case then have the basis effect, already relatively high numbers in Q4. This you have to have in mind and that's the reason why we are not going to change our guidance from EUR 0.10 to EUR 0.20 per passengers. And if and when, at the end of the year, it would be EUR 0.14 or EUR 0.15 per passenger we feel fine and happy.

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Stephanie Fabienne D'Ath, RBC Capital Markets, LLC, Research Division - Analyst [18]

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And maybe just a follow-up on Retail & Real Estate, please. Could you clarify if there will be any one-offs in the second half? And my understanding was the disposal of the energy supply had a EUR 12 million impact on the EBITDA in the first quarter and EUR 15 million EBITDA impact in the second quarter. Is that going to -- I thought it was just a 1 quarter impact. Maybe I got the numbers wrong.

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Matthias Zieschang, Fraport AG - Executive Director of Finance & Controlling, CFO and Member of the Executive Board [19]

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Let me say, the energy subsidiary that we just confirm once in our life so we cannot continue with this. But I think your question is, are we able to sell another piece of land which created a one-off effect in last year. So in our, let me say, planning, we don't have a sale in H2. And as of today, I can't see again a one-off in the second half of this year. Also to create total transparency of what will happen in this year, in this year we have let me say, the positive one-off. This is the sale of energy with an amount of EUR 12 million. And on the other side, in H1 2018, we sold a piece of land where we made an additional EBITDA of EUR 5 million. So the net effect of the one-offs in H1 is plus EUR 7 million in favor of 2019.

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Operator [20]

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Your next question comes from the line of Elodie Rall with JPMorgan.

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Elodie Rall, JP Morgan Chase & Co, Research Division - Research Analyst [21]

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Can I just have a follow-up, first of all, on tariffs. So I understand you're asking for flat tariff this year most likely until the Terminal 3 opens. And that's a strategy vis-à-vis the airlines. But can you give us a little bit of color on your relationship with the regulator and where you think the regulator stands at the moment in Frankfurt because we hear a lot of bad news coming from the regulator side -- the regulatory side in elsewhere in Europe on the airport sector. So if you can give us a bit of color on that? Second, just 2 housekeeping questions. One on tax, the tax rate was lower in H1 versus last year. That's something that we should extrapolate for this year, like what's your guidance on tax rate? And lastly, on retail spend CapEx following the previous question. So I understand you keep your guidance of EUR 0.10, maybe EUR 0.20 improvement in retail spend CapEx, but don't you expect the positive impact this summer with the inauguration of the new security hall?

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Matthias Zieschang, Fraport AG - Executive Director of Finance & Controlling, CFO and Member of the Executive Board [22]

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Well, thanks for the question. Starting with the very easy question with regard to the tax rate. So in this year, you can see a very low tax rate, 24% for the group. This has to do with the overproportionately increase of the equity results, especially Antalya was a driver of this. And this automatically because it's after tax, whenever our equity goes up, this automatically brings down the tax rate. And to make also the long story short, you can see that we now are realizing overproportionately EBITDA and net income increase at such size which has a lower tax rate. So that's the reason why we are coming down, yet some years ago we had always 32% corporate tax rate for the group and now 24%. And to your question, will this continue? Can you extrapolate? Yes, you can do it. For the full year of the group, we exactly calculate with the group tax rate of 24%, again driven by the equity results. And first question, relationship to the regulator. As always, I would say it's excellent, fair constructive relationship to the regulator. It's the same procedure as every year. We are creating a full transparencies of all our numbers. Everything is approved from the auditors. So it's double-checked, and we forwarded all the requested material to the regulator. We don't see any problem, any inconsistency, any issues which we cannot discuss. So it's a very smart process. And of course, at the end of the day, it's not the relationship between us and the regulator. The airlines can, of course, go against this. But this is -- again, this is always open. But on the other side, we are modest, with flat fee, so why should they [meddle us?] And so we expect not difficult situation with regards to the regulatory process in this year. But again, the relationship itself, it's fair, it's constructive. It's positive. So then third questions spend per passenger?

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Unidentified Company Representative, [23]

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The effect of the new hall.

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Matthias Zieschang, Fraport AG - Executive Director of Finance & Controlling, CFO and Member of the Executive Board [24]

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Yes, the new hall. That, of course, this will -- Brazil, but (inaudible) must have a positive impact. We have to see, but it's on the Schengen level. But nevertheless, it will be positive, and that's the reason why for the full year we expect a further increase of the absolute retail numbers, but also the spend per PAX, but again not a continuation of the 20% which we saw in H1.

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Operator [25]

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(Operator Instructions) The next question comes from the line of Christian Cohrs with Warburg Research.

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Christian Cohrs, Warburg Research GmbH - Analyst [26]

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Couple left from me. First, if I'm not mistaken, you have to have to refinance roughly EUR 1 billion this year. Have you done this already or when will you exactly do it? And what is the expected relief on your group interest rate? Secondly, in Greece, they are looking actually for a buyer for a 30% stake in the Essen Airport. Is this something where you are interested in? And do you have any other potential M&A deals in the pipeline? And thirdly, more of a general question. We have some sort of stronger urgency towards climate protection and in the political discussions and there are ideas like a ban of inner flights, additional environmental taxes on inner flights. Does -- do you think that this is going to jeopardize your business model operating Frankfurt Airport as a hub? And what are you -- what is your view on this? And what are your ideas about potentially to reposition yourself?

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Matthias Zieschang, Fraport AG - Executive Director of Finance & Controlling, CFO and Member of the Executive Board [27]

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Thank you for the questions. First, the refinancing of the EUR 1 billion amount. When you go on Slide #31 of our presentation, you can see the outstanding amount, exactly more or less EUR 1.1 billion. So we can say that more or less, everything is locked in, I would say 80% is already locked in. The rest is now under construction, so to say. And the good thing is the -- with this repayment of this outstanding debt, we are going to reduce the average debt condition significantly. You can see on the chart that in the moment the average burden or average interest rate is 3.3%. And based on this, what we have already locked in and what we are doing, we expect then based on the new debt structure total average debt condition of about 2.5%. So with other words, whenever we are going to replace an old financing so the new conditions depending, of course, when the duration of about 1%. So this is very attractive at the moment. So significant reduction also of the interest burden. Greece, Essen's discussion about the privatization of the outstanding shares, we are not interested in Essen, is the answer. Also with regards to your third question, do we have some targets in the moment in our M&A pipeline. No, we went for the regional airports in Brazil and for Sofia and Bulgaria, we lost both, that's okay, because the prices are extremely high and we think aggressive. So in the moment, the pipeline is empty, but this is not a problem because we feel comfortable with the existing portfolio and try, as always, to increase the EBITDA on a group level. So then the very interesting question or issue ban of inner flights. I don't think that this will come. Because, for example, if you take the -- where inner flights, for example, from Hamburg to Munich or from Munich to Berlin, we are not so much benefiting from inner-German flights because we are in the middle of Germany. Our catchment area of about 200 kilometers covers about 50% of the German population. We have a perfect connection with the Autobahn system in Germany and also with the ICE train, the high-speed link. So our feeder system is already the train system. So this is a big advantage of Frankfurt compared to other hubs in Germany or to the other hub. And that's the reason that if this would come, I do not believe that this will come, but even in this case it would not be nice, but not a really serious financial problem for us. But I do not believe that this will come because what is the alternative to go from Hamburg to Munich? For example, you can take the train, but it takes you 6.5 hours. This is not really an alternative. And also with the train, you have a CO2 emission, which is comparable to the aircraft. And so the whole discussion, you know the industry has done some proposals how to bring down the CO2 emission, power to liquid, et cetera. I think we have ambitious targets. We mean the airports on one side and the airlines on the other side. But when you look on the inner German flights, their share of the CO2 emission in Germany is about 0.3%. So about what we are talking here is really a [political] discussion. And I think this is not leading to the target to bring down really the CO2 emissions in Germany so far.

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Operator [28]

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Next question comes from the line of Cristian Nedelcu with UBS.

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Cristian Nedelcu, UBS Investment Bank, Research Division - Associate Director and Aerospace & Defence Analyst [29]

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Three of them, if I may. First of all, in ground handling, can you give us some color in terms of the EBIT margin -- the EBITDA margin that you expect to generate there? What's the sustainable EBITDA margin going forward? Secondly, in terms of second half traffic, looking at the forward-looking airline capacity data for Brazil or Greece for Q3 and Q4, the data doesn't look fantastic. I see in some cases, some declines or very slow growth in capacity. What are you seeing internally? And what are your expectations for Q3, Q4 in Greece and Brazil? And lastly, a bit more technical question, but when we -- could you help us with a bit of color when modeling the EBITDA generation in Bulgaria, in Slovenia as well as in the internal services that you report within the international activities and services? Can you give us a bit of indication in Bulgaria, should we take the same percentage decline in EBITDA we've seen in H1? Should we assume something similar for the second half and also for the others, please?

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Matthias Zieschang, Fraport AG - Executive Director of Finance & Controlling, CFO and Member of the Executive Board [30]

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Yes, a bundle of questions. Let's start with Ground Handling. First of all, when you look on the H1 numbers you can see that we delivered what we promised. We promised to improve the H1 results compared to previous year. So this is what we realized. And for the second half of the year, we continue to have a strong pressure and focus on the productivity side. And we think that there are still upside potential, so we could even become better than in H1. So with other words, the absolute EBITDA improvement for the full year will be, I think, very positive. Not just the increase will be positive, also the EBIT itself, not just EBITDA. We see here a clear positive EBIT. For the full year, we reached breakeven in H1 '19, which is a success compared to first half of 2018. And we do not have an EBITDA margin. So it's clear we want to earn the cost of capital, we have to bring the EBIT in a sustainable positive level. And we think that after the year 2019 Ground Handling is on the EBITDA as well as on the EBIT level in the clear positive numbers. And we think this is positive. With regards to the traffic data in H2, you would like to have a little bit more transparency. Let's start with the -- just the only airport, which delivered negative number, this is Bulgaria. We have to understand what is going in Bulgaria, you have to go back in the history. You have to see that in the last 3 years, Bulgaria clearly outperformed and also year-by-year delivered higher growth rates compared to just what we had in our budget. So to say, it's a little bit a technical reaction after the stormy growth in the last 3 years. And now the situation that in Turkey, the mass tourism industry offered a lot of value for money, prices are extremely low in this year. And you can see the tremendous success of the policy in Antalya, again 12% increase on a very high absolute basis in July. These are fantastic numbers. And some of these passenger growth now happening in Turkey, of course, comes from Bulgaria. So to say, a technical reaction, but with regards this year has gone. So in H2, we expect a continuation of this negative trend. And for the full year, we assume a negative growth up to minus 10% in Bulgaria. But then on this new lower base, when we look forward into 2020, we again assume that then we come back on the growth path, of course, low single-digit growth rate, but again a positive growth scenario again. When we look on Greece, a little bit the same situation that in the last 3 years we had nearly 10% growth every year. So for everybody, it was clear this cannot continue for eternity. So we had in the first 6 months increased -- nearly 3% increase. Now it's a little bit going down in July. This has also to do with Antalya, but it's also a normal reaction after the stormy growth in the last 3 years. For the full year, in opposite to Bulgaria, we assume nevertheless positive growth rates, 2% to 3% for Greece. And also looking forward in 2020, a continuation of this growth rate scenario for the next year. In Slovenia, it's -- we can say it's always single-digit growth rates, which we had in the past and which we also assume for the future. And in Brazil, we are far ahead of our original business case with regards to the traffic numbers. Fortaleza is doing well -- extremely positive. You see year-to-date 17%. Porto Alegre is a little bit lagging behind with just 2% growth. This has to do with the bankruptcy of Avianca, Brazil. So some structural impact while in Fortaleza you see the positive outcome of the foundation of a hub of Air France at Fortaleza. And for next year, when -- then the new terminals at these both airports will be ready, opened and will have fantastic design and also functionality, we expect a continuation of this positive trend in Fortaleza and a stronger growth rate at Porto Alegre again. So did I miss something in this scenario? No, I think I covered all the parts with regard to the growth scenarios and -- yes, services. When you look on the results of our segments, international activities, Slide 18. When we go through Brazil, minus 1. This is a great success because you have to have in mind 2 things run against us. First of all, this was a deprecation of the real. Here, you can say this can happen every year, yes, it can do. But on the other side, the main impact for this minus 1 was that we had to close most of the retail space in the 2 airports due to the refurbishment. So the retail proceeds went down significantly. This ends at the end of the year because then we are in time and in budget we are ready with the 2 terminals so that in 2020 we have the full capacity, we have the modernized capacity at the 2 airports, we have a huge retail marketplaces at 2 sites and in combination with the ongoing growth rate so that we expect for 2020 then again a significant EBITDA increase in Brazil, and significant means more than EUR 10 million EBITDA increase for both. Twin Star, again will be on the positive side; Slovenia is the same. And when you look on the position [others,] you can see minus EUR 5 million. This has 2 reasons. First of all, we went for the 2 targets, the regional airports in Brazil on one side; Bulgaria, Sofia on the other side. We paid some money, of course, for consultants. This is a million amount -- EUR 2 million or EUR 3 million for the consultants. And the rest, the other 50% of this negative impact comes from facility management or internal services which we offered. And here, we didn't get the full -- let me say, we didn't have a full compensation of the cost items. This will be also changed in the next year because we are working on productivity issues so that then the market prices will fit to the internal production cost, so that's with regards to the next year. As of today, we don't see a minus impact of the item -- other income.

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Cristian Nedelcu, UBS Investment Bank, Research Division - Associate Director and Aerospace & Defence Analyst [31]

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Understood. Understood. So frankly, in the second half in these other activities, the EBITDA generation should be broadly aligned year-over-year. There's no other meaningful moving parts there?

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Matthias Zieschang, Fraport AG - Executive Director of Finance & Controlling, CFO and Member of the Executive Board [32]

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No, no.

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Operator [33]

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Next question comes from the line of Andrew Lobbenberg with HSBC.

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Andrew Lobbenberg, HSBC, Research Division - Head of the European Transport Team [34]

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I just wanted to come back on the matter of regulation and your tariff structure because you said quite a lot about the psychology and that all makes perfect sense. And yet nowhere in any of that discussion was delivering a return on capital equal to WACC of the aviation business. So I mean, how are we meant to think about your status as a regulated dual-till regulated airport when there doesn't appear to be any focus in terms of defining ROCE equals WACC within aviation? And then my second question, my second question would be around disposals. You spoke about not having anything live on M&A. But you sold Hanover, you sold [at St. Pete]. Is there anything else that might be coming up in terms of disposals to the portfolio?

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Matthias Zieschang, Fraport AG - Executive Director of Finance & Controlling, CFO and Member of the Executive Board [35]

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Question, regulation. Yes, we have dual-till. We feel very comfortable with the system. I understood your question, insofar that you asked why we are underperforming in a way that we do not deliver the allowed WACC. The allowed WACC in this Aviation segment is one thing. We have also competition on the other side. And in the moment, you see a consolidation in the airline sector. We have to see where will be the focus on [half] activities. And it's a little bit -- you mentioned it's psychological effects. And I think we are offering a good product. We are offering a functionality on a very high scale, very high-volume numbers. And -- but on the other side, in the moment to come in this market where you see, let me say, for example, in Zurich, the airport forced to bring down the charges where there's a lot of pressure to make the opposite against the general stream. So it's a little bit difficult. And you know exactly our discussions with Lufthansa. I think now I think it's a clear target to come together with Lufthansa to bring the relationship back on a very friendly level. And I think in this moment now to come without having new infrastructure, let me say, at Frankfurt Airport, it's not the right -- it wouldn't be the right move. And again, as long as we are able to increase the EBITDA by year, I feel and we feel comfortable with the situation. It would be different, let me -- if for example, growth rates would be negative in this scenario, we should go in the other direction. But again everything -- retail is fine, volumes go up, our EBITDA is in line with this, what we expect and have planned. And we think, in the moment, it's not the right timing to go for higher fees. But on the other side, a clear indication that when T3 comes and this will be a brilliant product, we are going up with our fees, but then it's value for money. We are offering a brand-new infrastructure, which is state-of-the-art, and therefore, we can also collect more money.

Let me say, our general strategy is to grow, to invest, to acquire additional assets, not to sell, but this is not a kind of addiction. So we sold Hanover because we -- there was a fair price offer to us. And it is -- let me say, it's a minority. So we -- our general approach is to manage and to run airports based on a majority situation and per definition you can say whenever we have a minority asset in our portfolio, theoretically we are -- we would be willing to sell if the price is attractive. And when you go through the portfolio, what do we have as minority? We have [Dili], we have [Caen], and St. Petersburg, and these are the theoretical, let me say, targets, which where we would be willing to sell if somebody is coming around the corner and offering fair price.

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Operator [36]

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Next question comes from the line of Arthur Truslove with Crédit Suisse.

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Arthur David Truslove, Crédit Suisse AG, Research Division - Research Analyst [37]

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Arthur Truslove from Crédit Suisse. Three from me, if I may. I mean, firstly, you clearly beat expectations at Antalya. I guess, to what extent did this benefit from the fact that tariffs are in euros and costs are in Turkish lira, and therefore, was there margin expansion on the back of that? Question two, in Ground Handling, clearly, a much better result this year even though volume growth was considerably lower than what you saw in the prior year. Was there any sort of price uplift on what you were able to charge? And if you could just talk a little bit more detail about how you have managed to increase the volume of work completed and not seeing staff cost go up equivalently? And finally, just on the retail side. I know it's sort of early days since the emerging market currencies have fallen off since sort of end of July, but have you noticed any initial signs of that having an impact on retail spend per passenger in Frankfurt?

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Matthias Zieschang, Fraport AG - Executive Director of Finance & Controlling, CFO and Member of the Executive Board [38]

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Starting with Antalya. So you can say in Antalya it's in the moment a perfect world for us for our assets. Having in mind the ingredients of the concession agreement, so we are collecting the money from international airlines denominated in euro. So on the cost side, we have, first of all, a business model, which is a pure asset management. So all -- most of all the activities are outsourced. So we are managing service contracts in Turkish lira and you know there's significant depreciation of the currency. So everything is working in line with us and the touristic industry is very price flexible in a way that having in mind the depreciation on one side and also the willingness of the owners of these hotels to bring down the prices in the moment is the best place in Europe to spend your holidays for very little budget. And we see the price elasticity is working. We expect for this year, an increase up to 35 million passengers. Remember, some years ago we were down by 18 million after they shut down this aircraft from the Russians. And so this is a huge recovery. And the good thing is that also for the next years, of course, not in this extent, but we also expect a continuation on a much lower level, but a positive increase again in Antalya. So now it's a pure cash machine where you can see in our numbers, that for this year, we expect dividends up to EUR 100 million. And more or less you see the ticket number for the rest of the lifetime of concession in Antalya. So really, a cash cow in the sense of the word. In Ground Tending itself, you see 2 effects. With regards to the recovery on one side, we -- the volume itself went up. We regained market share in Frankfurt. So a double effect on the volume side. And on the other side, last year, as explained in the last quarter discussions, we suffered on the productivity side to survive peaks in the last summer. Now we are working again on the productivity level. We made first progress in Q2, but this is not, let me say, the rest of the story. We see much further upside on the productivity, and that's the reason why for the second half of '19 we are optimistic to bring another good step ahead with regards to the EBITDA in Ground Handling. In retail, it's a combination. So let me say, the main driver for the recovery is a new balance between continental and intercontinental growth. In the first 6 months, you could see even a little bit higher growth rates on the continental side, while in the last 2 years before we had a stormy growth on the continent, especially in the Schengen area, so 80% of the growth came in this area and everybody knows that the spending behavior of these passengers is extremely low. So this is over now. A stable mix between cont and intercont traffic. Second, also, the currency effect was out in a negative sense. And also our retail measures, which we explained to you last quarter, you can see the first impact. So we have, in the first half of 2019, we realized already about 20 shop openings in phases, 20. So the biggest ones are new Saint Laurent shop, [Chris] jewelry, a new BOSS shop, a much larger RMS shop, Gucci was now there, these are just the biggest ones. Also in food and beverage, we have Best Worscht in Town now, a [curry] sausage chain. We have minibar revamp. A lot of things step-by-step as promised, which we are now going to roll out. For H2, we expect another 20 initiatives, which will be realized so that in total we have 40 things which we did in 2019. And also, this generated a positive impact. So again, a combination of stable structure between cont and intercont, plus these short-term retail measures which we rolled out this combination process, this recovery. But this is just we have a 3-year program which we fleshed out and now we are developing.

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Operator [39]

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(Operator Instructions) The next question comes from the line of Johannes Braun with MainFirst.

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Johannes Braun, MainFirst Bank AG, Research Division - Director [40]

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Yes, two, I guess, technical questions left for me. Firstly, in your cash flow statement, there are some, I think, EUR 33 million negative impact from provisioning in H1 and this is some EUR 13 million more than last year. Just wondering to what extent that comes down to provisions being released or reversed to support the EBITDA growth? And then secondly, back to Antalya, in Q2 the revenue increase was significantly above the passenger growth. So revenues increased by 23% versus only 8% passenger growth. So what was the underlying top line driver there please?

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Matthias Zieschang, Fraport AG - Executive Director of Finance & Controlling, CFO and Member of the Executive Board [41]

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With regards to your second question, can you please repeat it?

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Johannes Braun, MainFirst Bank AG, Research Division - Director [42]

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Sure. In Q2, the revenue increase for Antalya was significantly above the passenger growth. So I was wondering what the additional top line driver was, over and above the passenger growth?

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Matthias Zieschang, Fraport AG - Executive Director of Finance & Controlling, CFO and Member of the Executive Board [43]

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First of all, it was the volume impact, we have also some retail impact because if you look on the traffic structure in Antalya, most of the additional growth came from Russians and they have an over proportionately spending behavior in the shops, so a double effect. Because we have the right passengers and not the wrong ones. I'm looking to my team for a third reason. No, these are the 2 things that are driving the improvement in Antalya. Then the other question was provisions, yes?

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Johannes Braun, MainFirst Bank AG, Research Division - Director [44]

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Yes.

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Matthias Zieschang, Fraport AG - Executive Director of Finance & Controlling, CFO and Member of the Executive Board [45]

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So there's -- what was -- let me say, the difference between this year and last year, what was...

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Johannes Braun, MainFirst Bank AG, Research Division - Director [46]

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In this year, there was some EUR 13 million more provisioning this year in H1.

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Matthias Zieschang, Fraport AG - Executive Director of Finance & Controlling, CFO and Member of the Executive Board [47]

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Did you look at the cash flow statement?

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Johannes Braun, MainFirst Bank AG, Research Division - Director [48]

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Cash flow statement, cash flow statement.

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Unidentified Company Representative, [49]

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Yes, Johannes, in the previous year, we booked more provisions for incentives granted to the airlines to grow in Frankfurt. Those are now being cashed out in H1. That's the impact.

Not impacting EBITDA this year. It's just a pure cash-out. And it's not a reversal, it's cashed out.

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Operator [50]

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Your next question comes from the line of Charles Maynadier with Kempen.

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Charles Maynadier, Kempen & Co. N.V., Research Division - Analyst [51]

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Just one follow-up for me on the regulation. So the ROFRA or return on Fraport assets, in the [addition segment] which was just below 5% in 2018, your [WACC] was at 6.7%. So I understand the gap should be closed towards the 3 opening when you'll get the new tariff increase. But in the meantime, could you comment on your expectations on where the figure will be on average over the next 3, 4 years compared to the 5% in '18?

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Matthias Zieschang, Fraport AG - Executive Director of Finance & Controlling, CFO and Member of the Executive Board [52]

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First of all, the allowed return on assets in Aviation will go down. We had last year 6.7% now on the material, which we forwarded to the regulator. The WACC went down to 6.4%. This has to do, on one side, with the increase of indebtedness on one side. So the ratio between equity and indebtedness is not going in favor of us. And second, of course, as I mentioned, and whenever we are doing the refinancing, the interest rates are going down. So we have a natural pressure on the WACC. It's now for this regulatory period 6.4%. So the trend is downward as long as the interest rates continue to be on this 0 level, more or less a 1% level for 10-year money for us. And we are -- when you look on the realized return on assets, as you mentioned, we are below the allowed WACC, that's for sure. And so this will continue as long as we do not have opened Terminal 3, because on one side, the EBITDA and the EBIT will go up in Aviation; but on the other side, now the work in progress, what we are now investing in Terminal 3 is increasing the regulated asset base. And so there is still an ongoing pressure on the return on assets in this segment. So the big step up what you can expect in combination, then, of course, with more volumes, which is an ongoing positive issue in combination with higher fees and with the opening of Terminal 3.

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Charles Maynadier, Kempen & Co. N.V., Research Division - Analyst [53]

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Okay. So net-net, we should expect the figure to stay around 5%, is that correct?

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Matthias Zieschang, Fraport AG - Executive Director of Finance & Controlling, CFO and Member of the Executive Board [54]

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Yes. Last year, I think it was 4.5%. So let me say, close to 5%, but not going to 6% as long as we do not ramp up with the fees.

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

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So the lower WACC we will then...

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Matthias Zieschang, Fraport AG - Executive Director of Finance & Controlling, CFO and Member of the Executive Board [56]

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Despite the fact that the EBITDA numbers will go up, but this has to do with now with the increase of the regulated asset base.

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Operator [57]

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Your next question comes from the line of Adrian Pehl with Commerzbank.

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Adrian Pehl, Commerzbank AG, Research Division - Head of TMT and Consumer [58]

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Just a quick follow-up as you've thankfully provided some indications, in particular, on the airports in your external activities, also a little bit for 2020. And I was just wondering on what GDP growth you based this forecast on? And having said this, could you please remind us of the business versus leisure share that you currently have in Frankfurt? And how is the elasticity on that kind of business travelers in past downturns. That would be helpful?

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Matthias Zieschang, Fraport AG - Executive Director of Finance & Controlling, CFO and Member of the Executive Board [59]

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This is a very interesting issue which you have mentioned, because always in the past there was a strong statistical correlation between GDP growth and passenger growth. I said in the past, because now it seems to be that sometimes this correlation is not any longer so well it like in the past. Explanations are difficult to give. But when you look at the current situation, a scenario in which the income of people in Europe is relatively good. On the other side, you have the situation that interest rates are 0. So to save your money to bring it to the bank doesn't make sense. You know share prices are extremely high. Real estate is some people say it's already a bubble, nobody knows, but it's very expensive. So a lot of -- in the past, and people spend their money for new cars is also due to the CO2 discussion is not any longer an issue. So the people are so far a little bit desperate what to do with their money. And you see the phenomenon that the people are willing in the moment to spend a lot of money for restaurant, for F&B on one side, for fun with your life or in your life; and on the other side, the trend and the tendency for, especially for short-term trips is [unproven] is easily going up. When you talk to the tourism industry, you see the old traditional to go for 2 weeks and spend your holidays, it's over on now. People are using the weekend or 3 or 4 days in combination with cheap ticket prices that you have an unproven positive trend to travel. So tourism is a mega issue. And on the other side by the waves of migration you have a lot of ethnical traffic. You have a lot of workers from Eastern Europe working in Germany. In the past, they use long-distance or long-haul bus drove from Ukraine at 20, 30 hours to Germany to work here for 6, 8 weeks. Now they take with air and fly for EUR 50 one trip from, I don't know where to Germany. So the whole pattern of how to travel in Europe is changing, and it's changing in favor of air travel despite CO2 discussions. So in the moment, when you look on the growth rates, they are relatively good. And despite, let me say, a possible recession scenario for Europe, everybody is relatively optimistic with regards to the growth numbers of passengers. And we are, let me say, in an industry which is benefiting from such situation, and that's the reason why we see yes, a little bit lower growth rates in the future because we are -- we saw this extraordinary growth rates in the past. This cannot continue. But we don't see a structural change or, let me say, the break of a trend. We are still optimistic with regards to all our airports which we have in our portfolio. And coming back to Frankfurt, and you asked what is the ratio between business and leisure share, you can say that the absolute number of businessmen in Frankfurt is relatively constant. So it's not going down, but it's also not really going up. But on the other side, the technical traffic, leisure traffic, touristic traffic is going up. And this is bringing, let me say, the growth rates not just in Frankfurt, but you can see everywhere. (inaudible) sensitivity. Yes, of course, there is a price sensitivity, but especially the catchment area of Frankfurt Airport is relatively -- yes, it's characterized by a relatively high income or even income above the average in Germany. So you can see that the price elasticity in Frankfurt compared to other airports is given, but it's lower than the average.

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Adrian Pehl, Commerzbank AG, Research Division - Head of TMT and Consumer [60]

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Can you remind me of the business versus leisure [meet] in Frankfurt, do you have a figure in mind now?

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Matthias Zieschang, Fraport AG - Executive Director of Finance & Controlling, CFO and Member of the Executive Board [61]

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We have about 40% business and a little bit or less than 40% -- close to 40% business, a little bit more than 60% leisure. Again, the absolute number is constant of business. So in the next couple of years, the share of leisure traffic will go up without reducing the absolute number of business trips.

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Operator [62]

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(Operator Instructions)

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Christoph Hans Nanke, Fraport AG - Senior VP, Head of Finance & IR [63]

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Okay. It looks like there are no further questions. So thanks, everybody, for the questions for attending. If anything comes to your mind later, please give us a call in the Investor Relations team. Yes. Goodbye for now, and talk to you later.

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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.