Fraport AG (OTCPK:FPRUF) Third Quarter 2022 Results Conference Call November 8, 2022 8:00 AMm. ET
Participating companies
Christoph Nanke – IR
Stefan Schulte-CEO
Matthias Zieschang – Chief Financial Officer
Conference Call Participants
Stéphanie D’Ath – RBC Capital Markets
Ruxandra Haradau-Doser – Kepler Cheuvreux
Elodie Rall – JPMorgan
Marcin Wojtal – Bank of America
Dario Maglione – BNP Paribas Exane
Marco Limited – Barclays
Achal Kumar – HSBC
José Arroyas – Santander
Operator
Ladies and gentlemen, thank you for being here. Welcome and thank you for joining the Fraport AG convention call [Instructions for Operators]. Let me turn to today’s host, Christoph Nanke, Senior Vice President, Chief Financial and Investor Relations Officer. Keep going, sir.
Cristobal Nanke
Thank you, Emma, and a warm welcome from me as well. I have our CEO, Stefan Schulte, with me at the table; and our CFO, Matthias Zieschang. We have a lot of topics to communicate on today, so let’s wait and start the presentation.
Stefan Schulte
Yes. Good morning, ladies and gentlemen, also from me at the presentation of the 3rd quarter of this year. Let me start my presentation with a very positive message. First, we are proud, I must say, of the monetary achievements of the last quarter in terms of EBITDA. We have effectively returned to pre-COVID levels, and are on track to recover financially on a full year basis by FY2024 at the latest. Traffic-wise, Frankfurt is showing a good trend here. The third quarter also reached around 75% of our 2019 baseline. Also, the existing winter flight schedule looks very promising. As for our foreign portfolio, here a higher percentage of recreational or tourist traffic led to an even faster recovery on average. Financially, as previously reported, our third quarter EBITDA returned to pre-crisis levels. The main drivers of the currency functionality were our overseas business conducted through Fraport Greece. In addition, our operating cash flow has advanced significantly. As a result, we achieved positive free cash flow in the third quarter despite ongoing primary structure works in Frankfurt and also in Lima. Operationally, the last quarter was difficult in Frankfurt for many reasons. However, thanks to our close collaboration with our aviation partners, we were able to maintain strong operational activity during the key summer season.
For the future, we have implemented strong measures to repair our reputation as a leading European center. But before I go into too much detail here, let me take a closer look at our consistent monetary compliance. I’m on slide 4. Our third quarter money highlights. Total group currencies in, excluding IFRIC 12, rallied around €250 million and reached a point of over €900 million. Compared to the reference quarter, therefore, in the third quarter of 2019, this represented a strong recovery of 95%, therefore almost fully recovered. The main driving force behind the total currency accumulation in was our overseas assets, mainly Fraport Greece. Frankfurt, our home base, also recovered to a point close to 85%. As for EBITDA, due to a steady increase in fare load, Frankfurt was at a point of around 67% from 2019, while our foreign airports were already above pre-COVID grades by 130%, so it really is good. Overall, this led to an EBITDA of €420 million or, as mentioned, 96% of 2019. At the EPS point, we recorded a more powerful drop compared to 2019. Here, profit before tax was still comparable. with 2019. However, we are facing a tax rate consistent with this year due to the effects of the full write-off of our loan to Thalita Trading Ltd. , thus St. Petersburg. Applying the same tax rate as in 2019, our EPS would have been close to €2. Much more comparable to the point of 2019. Thanks to the strong recovery of our consistent money matrix, our loose money has turned positive again at 125 million euros. Our consistent pocket money with consistent percentage amounted to EUR 1. 35 and was only 10% lower than our reference year 2019.
Generally a falsified monetary result and Matthias will communicate more on that later. When a strong rally comes, I’m on slide 5, and I’ve discussed that before. Here you can see the impressive resumption of our international activities in 3 key points. First of all, the traffic functionality was just fantastic. 27 million passengers passed through our majority-owned airports, which was pretty close to the point in 2019 when we hit our all-time high of 29 million passengers. The functionality of the traffic, combined with higher costs and a greater retail offer, led to an even greater EBITDA recovery. At 130%, the international segment obviously outperformed the 2019 benchmark year as well as our expectations. The main driver of the strong EBITDA build was our investment in Greece, €179 million. Fraport Greece not only represented 69% of the EBITDA of the International Business segment, but also represented 42% of our Group’s EBITDA in the third quarter. It is really impressive. But Fraport USA and Fraport Brasil were also more or less at the 2019 EBITDA point, while the Lima airport was quite close. At the same time, our International Activities segment represented the majority of our group’s EBITDA at more than 60% this third quarter.
We move on to business development. I’m on slide 6. And starting other rounds of Fraport Greece. Fraport Greece has undergone another rebalancing due to the similar impact of COVID-19 on its business activities. This time we are discussing the negative effects on our business during the first part of 2021. As you may remember, even though the availability of Likes from 2021 was still greatly affected by COVID-19. The increased amortization now amounts to approximately €58 million and is split between the cancellation of the constant concession component, which represents approximately €24 million identified during this quarter or those first nine months, and a residual portion of approximately €34 million. And that residual amount will be implemented against our variable concession obligations in the next year or years. Also at Fraport Brasil, we have requested another rebalancing of effects similar to COVID-19. Here we are discussing the influence of the current year or fiscal year 2022. This year, the Omicorn variant had a negative influence on the last winter season globally. Our winter season in the north is more decisive for Fraport Brasil and like the summer season in Latin America. On this subject, we expect to hear from the government until the end of this year, so nothing is reserved until now. Simultaneously, Porto Alegre requested the reimbursement of all constant concession rights in accordance with the offer made through the local aviation authority, ANAC, since it is very favorable to do so. If approved, this will earn a net positive effect on our organization’s account. Good news, we also won the Fraport Twin Star in Bulgaria, the concessionaire approved our request to extend the duration of the concession for another five years until fiscal year 2041.
In August we also saw in Fraport-TAV Antalya here the painting of the structure of the terminal for the new concession began. At the same time, we have sought additional financing for CapEx in the amount of around €178 million. Moving on to the next slide, I’m at the Lima airport. This is very positive information. First of all, in the meantime, we have paintings of finished structures on a new track, hence the new tower. They will enter the service next year, supporting the operational increase of the Lima airport. In this slide number 7, you can also see the progress of our new terminal. As you know from our previous posts, we have made the decision to revert the temporary use of two terminals to a single terminal as soon as the operation of the new terminal begins. We have agreed with the contractor the terms and are in the process of finalizing the modification of the EPC contract for the existing terminal. As a component of the expanded EPC, terminal spaces will be expanded in the near term to accommodate the expected expansion in passenger numbers over several years. In addition, we can close the existing terminal and save on operation and maintenance CapEx costs. The monetary effect of the prolonged EPC, you can see in the graph why we have about $300 million of CapEx ready for you next year, the modification and other elements. So the extension will increase that diversity by another $50-100 million. The same is true for fiscal year 2024 and so on. The new terminal itself will enter service as planned in early fiscal year 2025.
Let’s go back to the existing development, shown on slide number 8 with our traffic numbers. As discussed above we saw a strong recovery in traffic at our foreign airports, Fraport Greece in components showed a very smart performance, however Antalya airport also performed very well and showed traffic effects close to the 2019 level. Our LatAm assets also saw an improving trend in the third quarter. Here, the next summer season will be more decisive. For the rest of our European portfolio, Slovenija and Twin Star, the scenario is different. Slovenia continues to be affected by the absence of Adria Airways. So, the former national flag carrier, which left the market in September 2019. And 2019 is also a top base for Varna and Burgas. Also, those two airports in Bulgaria, are suffering from the war in Ukraine, the Bulgarian Black Sea coast is one of the closest European tourist destinations to Ukraine, which makes it less horny for tourists this year. Also, unlike Turkey, Bulgaria has imposed a strict ban on flights to Russia. Therefore, we are experiencing a componential scenario in Varna and Bourgas. Move to Frankfurt, our home market. Here, the first nine months traffic was negatively affected through Omicron in the first quarter, especially with very low traffic this first quarter. Most recently, we saw an increase in traffic momentum in the third quarter, with Frankfurt reaching 74% of pre-pandemic levels. This number may have been better as well, but we missed a component of the recovery because of the operational messes in Frankfurt and Germany in general, because we’re very close to Eastern European territory with all the restrictions that we’ve had in aerospace with portions of NATO crossing from west to east and aerospace stagnation in Eastern Europe or a huge relief in capacity there. But in the end, we managed to get out of it without a big weight and stabilize the operation.
On staff, I’m on slide number 9. We’re giving you an update on that slide. As you know, we have reduced our workforce in Frankfurt compared to 2019 by more than 4,000 employees. However, a few things are important to highlight Ground Handling, we have started leasing back to other people since the end of 2021, already in the third or fourth quarter of 2021. And, in general, we are currently employing about 81% of our summer 2019 peak in floor support. The same rate as other people we recently employed at our security subsidiary, FraSec. So in view of the hard and tight job market and the desire to deal with the peak load situation we also had to hire transient staff or hire general staff around 800 to 900 employees rented from us in August and September Array this led to an overall recovery of the workforce in Ground Handling of up to 90%. And I commented that the traffic was around 75%, 76%. So it’s not a complicated query. It’s more of a rating issue, but it’s also a challenge in general about the aerospace industry, about delays, flights to destinations, etc. from other airports in Europe about the lack of staff with our aviation partners and then who was not aware. the challenge. So the staff is enough. This is not the topic. But the topic now is to qualify for the winter to bring it to the mandatory points. And to prepare for an even more powerful year, we take a look at today’s attitude for the coming year 2023.
If I can go into a little bit more detail, the direction of the security issues, I’m on slide 10. As you know, we will be managing the security procedure in Frankfurt next year. Pickup is a very important step for us, as in the past the security procedure was a main pain point for many travelers before COVID. So we’re very pleased to bring you some of our first steps today. Given our new role, we have already started to buy several CT scanners, which are gradually being rolled out in Frankfurt and that is actually a great achievement because if we talk about it with the federal government, it would possibly not reach the next cities before the year 2026. It is possible that we will get there, and we will: they are already on their way to Frankfurt airport and we will put them into service in the first quarter of next year. That’s very, very positive because it means more speed for our passengers, it means more comfort for our passengers because we don’t want to pass out any longer than liquids and notebooks and whatever, and you’ll have less time waiting at security, which means more time. to relax and retail, to do retail deals.
If we take a look at winter, winter time. So the long term short term looks very bright. I’m on slide 11, which was a winter flight schedule, which just started. On average, we expect up to 90% of our pre-COVID capacity to be restored in Frankfurt. The most powerful recanopyy we see on North Atlantic routes where traffic can even exceed 2019 degrees for Europe. Seating capacity also appears to be around 90% of the 2017 point, just behind the Far East at 77%. And also, if we take a look at the October numbers, we will publish them in the next few days. They were also very positive and the first days of November were also positive in Frankfurt, but also our foreign portfolio. So that’s all very well. Continue to slide number 12. In this graphic you can see the latest addition to Frankfurt Airport. We are highly committed to our ESG strategy and goals. You know that we need to be officially CO2-free until 2045 and with a very transparent relief in 2030. So, for Frankfurt, the year 2030 already has the objective of being at 75,000 tons of CO2. I’m pretty sure from today’s perspective we’re going to meet that legal responsibility even faster or let’s say that way 2030 would probably be waiting from today’s perspective we’ve already dropped to a point of 50,000 tons of CO2 here in Frankfurt with all the measures we are taking. Here on this slide you see the new plant now to cover a single digit percentage of our electrical power wants here in Frankfurt. So, with our new giant offshore wind farm allocation in 2026, the PV plan will cover most of our long-term electric power wants. Well, basically the wind power will serve us, and that is the vital thing to arrive and take all the mandatory measures.
Turning to page 13. On the last slide of today’s presentation, our perspective, thanks to the strong passenger functionality since the beginning of the year, i. e. also on the overseas side, we hope to succeed in the top finish of all key functions. signs of our improvement in the first part of the year. As a result, passengers in Frankfurt are expected to reach 50 million passengers, our group’s EBITDA is expected to reach 970 million euros, and we are almost confident that we will achieve success at the next point there. For the group’s EBIT up to 520 million euros and the group’s effects up to one hundred million euros to finish, Matthias will cover this a little more, even a little more than these hundred million euros, but it depends on many factors. Only the end of the division remains undistributed for the time being. And having said that, I would like to thank you for your attention and now, Matthias, with finances.
Matthias Zieschang
Thank you, Stefan, and also good evening and a warm welcome from me. Before we take a closer look at the currency functionality of our segments, I’d like to start today with a brief review of our old coins and where we’re at lately relative to them. Here, on slide 15, you locate the evolution of our EBITDA in the most sensitive part and our EBIT in the lower part since 2017. As you can see, we have obviously achieved the recovery from the blackout in 2020. We have rebuilt very temporarily . our operating effects. now that we are seeing a recovery in traffic volumes in our airport portfolio. So we are very well on our way to regaining our former strength. Already this year we expect to be more or less at the point of 2017 in terms of EBITDA. Now that the momentum is strong enough and the number of passengers is expected to increase the winter flight schedule, we are surely sure to achieve the operational effects of 2019, at the latest in 2024. And this even with a decrease in the number of passengers than in 2019 and despite the high points. inflation figures.
Let’s now turn to the monetary breakdown by segment beginning on page 16 with Aviation. In this segment, we are quite satisfied with the recent progressions. First, with revenue development of around 85% of 2019 figures in the third quarter with a 75% increase in passenger numbers. Based on the progression we have seen in the first part of this year, this translates to revenues of over €600m, reflecting approximately 80% of the nine months of 2019. We expect this positive trend to continue in the fourth. quarter thanks to a further increase in the number of passengers. Despite the buildup in traffic, we experienced only a slight buildup in operating expenses compared to the current quarter. Overall, we stock over €100 million or 18% of overall operating expenses compared to nine months of 2019. Regarding EBITDA functionality in aviation, please note that the strong functionality in 2021 was based on special pieces for a total amount of 218 euros. million. Focusing on the standalone Q3, it becomes transparent just how forged the functionality is. At 79 million euros, the EBITDA for the third quarter reached around 80% of the figure for 2019 and was 2. 5 times higher than the EBITDA for 2021. As a result and as expected, the segment margin increased more and more 32% in the third quarter.
Moving now to our retail and real estate segment on slide 17, I’d like to start with some smart news here. After seeing our consistent retail spend with passengers under pressure in the second quarter, we were able to stabilize it in the third quarter at 3 EUR and thus achieved a slight improvement compared to the third quarter of 2019. This is very positive knowing that we are still around 50% of our ad profit. Initially, the recovery in traffic to and from Asia is certainly helping retail functionality, but it is still limited and developing slowly. Looking at the remaining earnings streams, we feel very comfortable with overall functionality knowing that parking has recovered to around 85% and actual status is up 2019 grades up to 11%. On the other hand, peak energy costs of around €8 million in Q3 resulted in a point-consistent increase in OpEx of more than 10% in Q3 2019. Adjusting for the build-up of price, the underlying OpEx would have been a 17% decrease compared to nine months of 2019, which is very positive. All this translates into an EBITDA for the 3rd quarter of 91 million euros, which represents around 85% of that of 2019 and places the figure for nine months at around 75% of the point prior to the crisis. The EBITDA margin remains strong at 75% in the third quarter and 73% year to date.
Turning now to our last Frankfurt Ground Handling segment on slide 18. A strong continuing profit point of around 80% compared to Q3 2019 pushed the 9-month profit to around 75% of the point prior to the crisis. However, a busy summer season with excessive traffic spikes increases the need for track staff, so we have had to hire additional external staff to cope with the demanding operational situations we face. we were facing This, of course, strongly affected non-workforce pricing in the third quarter, which is why the segment’s general operating expenses in the third quarter were similar to operating expenses in 2019. Looking at the 9-month performance, It still achieved savings of around 11% thanks to a relief of around 20% in worker prices. Today, despite a smart recovery in profits, the evolution of operating expenses put strong pressure on the EBITDA of the segment, so that it was obviously negative by minus 10 million euros in the third quarter. As Stefan has already pointed out, we are working to expand the productivity of existing employees and also want to set higher fees to offset the higher prices incurred. The objective we are pursuing is surely clear: to boost profitability and, despite everything, return to generating positive EBITDA.
Having looked at the individual functionality of the Frankfurt segments, let me now turn to our load saving update. Where are we today? On the most sensitive left part of slide 19, you can see the evolution of the general prices incurred in Frankfurt on a quarterly basis compared to last year and compared to 2019. Everyone is aware that we are currently in a complicated market scenario with energy prices, inflation and, in the most sensible way, an immediate increase in operations. So I think it’s fair to say that in light of this environment, we’re very successful in our load-relieving initiatives. In figures, this means that we have stored almost 160 million euros this year compared to 2019. A significant part, that is, more than 80%, comes from savings on the prices of painting bodies. And it is not surprising because we continue to manage the company with 4,200 fewer painters than at the end of 2019. The remaining 20% come from other OpEx, which are penalized by the extensive deployment of external personnel. Let’s look at some replacements here. Yes, we are hiring in our ground handling segment and adapting more independent external staff. Once again, in the hunt for the end of the year and the prospect of remaining cost savings, we have to be realistic and believe that our target of saving up to €250 million will not be achieved. However, this is basically due to existing macroeconomic progress, that is, runaway inflation rather than failed efforts. However, we will of course strive to save where imaginable and reasonable, so we still aim for savings of up to €200 million by 2022 compared to 2019.
Let me now turn to the monetary functionality of our foreign airports in Figure 20. Looking at the EBITDA contribution of assets, it is clear that Greece, with an EBITDA of more than €250 million, of which around 70% came from the third quarter. It is the maximum vital driving force of the segment as well as the Group’s finances. But also, all other investments generated a positive EBITDA, with Lima, Fraport USA being and Peru. The US and Brazil are the main participants after Greece. Together, the majority foreign business and Frankfurt Services contributed almost €500 million to the group’s nine-month EBITDA, representing a percentage of around 60%. Digging a little deeper into the P
On my next slide, I’d like to give you an update on our monetary position in the first nine months of 2022 and the resulting leverage. Starting from the left side of the chart, you will immediately see a very positive development. The green bar gives you our existing operating money for the year of €628m, so that’s 3x higher than 2021, which was basically pushed through strong functionality in Q3. back to that in a minuteArray Of course, as everyone knows, our existing exposure to CapEx, especially expansion projects, weighs heavily on the pocket money functionality. So far, the total capital investment of physical stores amounted to 795 million euros. This year, which was very much in line with our expectations. As for our maximum vital expansion projects, Frankfurt T3 and Lima, they generated disbursements of 605 million euros. In addition, the new concession in Antalya generated disbursements of 375 million euros. The sum of all the applicable effects results in a negative loose money of minus 609 million euros. However, subtracting the one-off effect of the equity contribution for the new Antalya project, we end up at minus €234 million. Taking all of this into account shows the strong outlook for our loose money arrangement, excluding our expansion CapEx. To wrap up this slide, let me take a quick look at the right side of the chart where you see our net debt has increased over the year to $7 billion. This reflects a Trailing 12 Months Net Debt EBITDA of 7. 3, a marked improvement over 2021.
On my next slide, as mentioned above, I’d like to take a closer look at how our money has performed in the third quarter. About 70% of the overall OCF, or more than €440 million, comes from the third quarter, which even exceeded the OCF from the third quarter of 2019. I don’t need to go into each and every detail on this slide now because in the There are individual rowsArrays without primary adjustments in steps Q2. However, what is important for me to bring to your attention is the outlook that we are moving to see when traffic picks up. Already supported by the acceleration of the summer season, we generated €351 million in free cash in a single quarter, excluding in-transit expansion allocations. Now, even if we come with those allocations, our loose money in the third quarter was obviously positive by €100 million to €125 million. So coming from CapEx exposure to our monetary position, which of course is correlated. On slide 24, you will find the evolution of our liquidity since the end of 2019 on a quarterly basis supported by the positive free money and additional financing activities in the third quarter, we were able to further build our available budget by more than four euros. five billion. This strengthening provides us with enough comfort to succeed in fiscal year 2025, given our terms and refinancing measures for the next few years. However, we still have access to the smart market and will use other investment opportunities where reasonable. As you know, we are currently executing the financing of the new allocation of Lima to cover the CapEx of the new terminal. Overall, in terms of liquidity, we feel very well placed in the existing market environment.
Let’s move on to my last slide today, which shows an update to our refund table. For this year, in blue, we see the refinancing of the Lima allocation bridge loan, which matures at the end of the year. Other than that, there are no more primary pieces on agfinisha for the next few years. On the more sensible right, you’ll see that our average interest rate for the organization of 2. 2% remained unchanged despite some new financial activities we undertook in the third quarter. , I would like to conclude today’s presentation and open the Q&A session.
Q&A session
Operator
[Operator Instructions] The first is from Stephanie D’Ath’s line with RBC.
Stephanie D’Ath
The first is retained effects, sorry, the effects of investments retained on the basis of capital. For the third quarter, it exceeded 50 million euros, thanks to Antalya, which was around one hundred million euros and Thalita on average at 10. million euros. I was wondering what made the difference in the delta of minus 58 million euros?My question at the moment has to do with taxes. I was wondering if maybe you could tell us what to expect for the whole year and especially the third quarter was €136 million with a profit of €287 million, implying that tax rates of €47 million seem to highlight this. And so my third query, please, has to do with traffic. So, we saw 78% of pre-pandemic traffic in October, representing a 4% improvement month-over-month. Were you curious to know if those grades would continue to improve during the course of the year and especially in the new year or if you expect the rate of improvement to decrease?
Matthias Zieschang
First consultation on actions. So when I look at the numbers, in the 3. er quarter, we had. . . In the 3. er quarter of 2022, we had earnings of €51. 2 million from corporations accounted for using the equity method. This basically comes from Antalya, and Antalya generated one hundred million euros. Therefore, we possess 50% and the fair remedy is 50%. Therefore, it is 50 million euros of the hundred million euros generated in Antalya. My moment consults imposed considerations. His. . .
Stefan Schulte
Is that yours or not?
Stephanie D’Ath
Yes, that answers me for the first one.
Matthias Zieschang
So, secondly, taxes. It’s special. We typically have an organization-level tax rate of up to 30%. At this time, it is much higher. It is a single element. This is a remedy for the cancellation of the percentage loan of EUR 160 million. Thus, the percentage loan is presented through our Maltese subsidiary to the Cypriot holding company, which owns one hundred percent of the percentages. in St. Petersburg. We have therefore cancelled the EUR 160 million. And, of course, it is tax deductible, but in Malta the net tax is only 3%. In other words, with the cancellation of the €160 million percentage loan, our tax shield is only 3% or 4% of €160 million. And that has led to and led to the scenario that messes up our tax rate that you now see at a 50% tax rate. But this is only due to this one-time cancellation of loans to St. Petersburg. We return to the normal tax rate of the organization of a maximum of 30%. And the third question?
Stefan Schulte
The 3rd was. . .
Stephanie D’Ath
And does this apply to Q4 then?
Matthias Zieschang
Getting back to normal, yes.
Stefan Schulte
His third question was whether I perceive. . . I understood the traffic. What is our expectation for October, November and December?So, for the year that remains. And I have already commented that we have noticed a really strong October. We will publish the figures either the day after or Friday, I don’t know exactly. The only thing we hope is that we stay like this. As discussed, we see more points at minus 20% compared to the pre-COVID period, minus 23%, therefore 10% more than what we saw in the third quarter. Of course, the absolute numbers are decreasing. This is normal, but demand is very high and links are also quite strong on all airlines. So yes, we expect a positive fourth quarter.
Stephanie D’Ath
And by the beginning of next year, you. . . Don’t you see any indication that trends are going to change?
Stefan Schulte
It depends. We are in quite positive precept. We’re talking to other airlines, to the community, in general, everyone is very, very optimistic, even though we’re entering a recession. No one knows for sure despite some power messes and such. But the bonds of the precept were positive. So we will also be prepared for a higher volume of traffic, a higher number of passengers next year. You may of course ask how that can be. If you take a look at the German mode, it’s a German discussion, on the one hand, yes, we are probably in the upper segment of other people who consume anything. The timing is probably that any survey we get, such as customer preferences, holidays, and flights to southern European regions, is far, far superior to the population. If they have to save money, they go to a hotel, a less expensive hotel or one day less or something like that. But you have to see. In addition, positive passes that we are waiting for especially in the commercial aspect and then in the intercontinental aspect, extra recoveries, which we have not had until now. So there are positive factors. From today’s point of view, this is not a direction, however, what we will see from today’s point of view, additional construction next year.
Operator
The following is from the Ruxandra Haradau-Doser lineage with Kepler Cheuvreux.
Ruxandra Haradau-Doser
Congratulations on the functionality. Three questions please. First, a bit difficult to perceive the capacity increases this winter to 90% of the 2019 point in the context of Lufthansa indicating that they will only work at 80% of their winter capacity before the crisis. And some cheap airlines no longer operate in Frankfurt. So which airlines are driving this strong recovery in capacity and is Lufthansa operating more capacity at Frankfurt than at other airports? Second, congratulations on the EBITDA recovery to 96% of the pre-crisis point in the 3rd quarter. Given the nine-month functionality and your goal to be at the high end of full-year EBITDA guidance, this implies that you will expect fourth quarter EBITDA to be about 40% lower than 2019. Although, as you mentioned , capacity in Frankfurt is running at 90% of the pre-crisis point in the winter flight schedule. So will you expect any negative single events in the fourth quarter? And third, capacities to 90% of pre-crisis degrees this winter. In 2019 you operated around 10% above the nominal capacity of the terminal. So do you see any chance of opening Terminal 3 or Pier G earlier than planned?
Stefan Schulte
Let me start with the first query and the third query. And I guess Matthias will take moment one. In winter time we have given you the official figures regarding the coordinated time slots, that is, 90%. I just finished discussing if I look at October and estimate November, December, it’s more at 80%, 80% or 82%, something like that, or 78% or more at the 80% level. So it’s probably online with Lufthansa. I would expect us to win the winter layover through around 80% effective flights or effective passenger numbers, even though the coordinated number of slots is already 90%. But it will end a lot at the end of the application. And the call is strong. So it’s a siege thing at the end and so on. But as discussed, overall we are a little over 80%. As for Terminal 3, no, that is transparent. We will open Terminal 3 in early 2026, and possibly no more. It’s the summer season [2006], and yes, you know we’re flexible at G Pier. But from today’s perspective, it’s also transparent that we might not open pier G next year because by next year, if I take it in general, we don’t want it, we have enough terminal capacity and it will work in terminal 1 and terminal . two.
Matthias Zieschang
Second question, will you expect negative one-time results? The answer is no, to date, we see no single negative cases. being far superior. But this is compatible with our perspectives. So we thought we would finish on top, which means we face €1 billion of EBITDA for this year. And whether it’s €20 million less or €20 million more, anything is possible. We want to see how volatility related to energy prices, wages, etc. , additional changes, but also remaining traffic. So, there is, again, a lot of volatility. We do not expect unique negative elements. Very positive and I expect the numbers at the end of the day to be very positive.
Operator
[Operator Instructions] The following is in line with Elodie Rall with JPMorgan.
Elodie Rall
The first considers his outlook for OpEx next year based on the rate hike he got, right, 4. 9% for ’23. Is that enough to raise rates or do you expect to have to raise rates? And I guess that would be for 24 and what kind of rate do you think you want at this point for 24 after that? My query at the moment has to do with. . . just going back to your charge reduction advice. I think you said this time that you are looking at €200 million in sustainable freight savings, compared to €250 million previously, and yet I think you told us that you were consistent with a rate of €157 million. . So I only looked for congruence to conceive how to reconcile those two hundred million euros of sustainable savings? Is it because they see energy prices go down from here? And my last question is about the refinance fee. So I appreciate that you have high levels of liquidity, however you have about 35% of the debt due in the next 3 years. So what kind of accumulation in investment prices deserve the style or do we expect in your base case over the next few years, consistently with the year?
Stefan Schulte
I will answer the first question. Yes, we are in an inflationary environment, if I may say so, that means we are moving to see higher charges, and we want to make sure that we see higher revenues on that as well. The positive is, and you have noticed in the third quarter, but also sometimes with the 9-month numbers, we already have a very high percentage of foreign business and with all the concession agreements there, most of them have a clause of inflation. So it’s not more or less a hundred percent adjustment, but more importantly, 90 percent of inflation, we can go back and forth with higher aviation fees on that front. The moment is that we are doing very well in the retail aspect and in the real estate aspect because in real estate we also usually have inflation clauses in the maximum contracts. And on the retail side, of course, it depends somewhere on how the renter’s charges are higher through inflation due to inflation at the airport as well, and we get our variable charges from that matrix. Regarding aviation fees in Frankfurt, yes, this agreement was made. earlier. It was, at the time, a pretty smart deal that was set for next year, however we will take into account those inflation scenarios for the next few years as well with respect to aviation charges, and that depends on somewhere, the negotiations They will start somewhere. . It’s too early now for the traffic increase, but certainly for the rate increases, there is no other solution if you remove the rate increases.
As far as core infrastructure is concerned, if I take ground handling as a remaining segment in Frankfurt, of course we have to open up everything you want to open as airline contracts to increase the value there for management because we also have much higher costs. Sometimes it is imaginable to pass the inflation clause. Sometimes it’s a big building. But there are several hundred contracts. So, it’s too early to say what the average access result is, however, we’re already running it, and we’re still taking contracts of 50 package duration contracts now, 50 contracts in 1 month and so on because we have a lot of inflation. , a lot of negotiation there. As for the core infrastructure of Ground Handling’s baggage system, we have ordered 10% construction for next year. It is now – the consultation is ongoing. So, all I can give you is a glimpse that we’re actually working on those things, and I’m pretty sure we’re going to do the maximum of things.
Matthias Zieschang
The query of the moment was about our exhibition of interest. And here, the answer or the mechanisms of the answer are simple. We have a gross debt of almost 11,000 million euros. In total, the weighted rate, the interest rate is currently 2. 2%. And you see on slide 25 of our presentation, what the payment schedule looks like for the next two years. So it’s a very balanced program. So, in other words, we have to refinance around €1 billion a year and that characterizes the interest rate exposure. So every time we come to the market from today, we have to pay about 4. 5%, which is obviously more than what we have paid in the hereafter. But then again, it’s just a building that still costs a billion euros. So depending on whether the new financing has interest rates of 4% or 5%, you can calculate what that means for interest. Results on the other hand, we have liquidity. Total liquidity is 4,500 million euros, adding 700 million euros of credit line. So we have 3. 7 billion euros in cash, 3. 8 billion euros. And also theoretically, we can use that budget to fund the repayment amount in the next 3-4 years. So, in other words, if it goes to zero, which we’re not going to do, there would be no more interest rates for us. And we have the options of a few. We can play with the existing liquidity point. But even if we continue to manage this €4. 5bn and the theoretical exposure consistent with the year is €1bn multiplied by X and X is the difference between the 2. 2% refinancing beyond and the new charge for the next few years .
Operator
Next is from Marcin Wojtal’s line with Bank of America.
Marcin Wojtal
Firstly, on incentives for airlines. He disputed that there was a dilution of revenue of €23 million over the nine months due to those incentives. Do you plan to continue with a similar incentive program in 2023? That’s my first question. Secondly, can we have an update on the structure of Terminal 3 please?Do you still expect CapEx to be around four billion euros, is it all within budget?And what is the completion rate, if you can update us?Finally, if I can go back to refinancing, please. What is your policy on volatility?funding?What features are available?
Stefan Schulte
Thank you for those questions. Let’s start with the commitment and the order of Terminal 3, which is therefore tendered and then committed, because contracts constitute around 80% of the budget execution, our estimate is probably 60%, 65%. So, whatever structure is made, the roof is made. All glasses are already in progress. So, now we’re in the strategy, if it’s cleaner, if it’s heating, if it’s all you want to bring as a strategy to the terminal. So, we are completely online, on time and on budget. We don’t see a major threat there. We’re even making some very smart progress on the horizon. We had the first exercise there, but there was also structural work. So yes. You may find it surprising, though, we’re within budget and on time, and I’m pretty sure of that. I think we have a very, very smart team there.
And the team, who also paint ahead because they see that the chain of origin is difficult, and we take the things that they have reported on the floor here that we can move things forward as planned and fix it as planned. Incentive program, there is also a small incentive program for the year 2023, which is similar to growth, but it is not a big program. Yes, Matthias can give you more important points on that side. It has to do with the number of passengers That’s the point. So in the end, we did for this year and for the next, an incentive program for passengers, the more they grow above a safe threshold to a maximum, they get discounts and it is positive because we have one hundred percent of the revenue. , give anything in return. If we continue with this in the long term, I do not know, we have to see that it is not negotiated and that nothing is done. But I think it’s actually in our best interest to do that.
Matthias Zieschang
Yes, money balance, first of all, you asked what the instrument can be or will be. So it is absolutely open. At the moment we have a clear preference for the so-called German Schuldscheindarlehen notes and not for Eurobonds, why? Because there is a gap between the point of interest of the promissory notes on the one hand and that of the Eurobonds on the other. And right now the spread is very high in favor of the notes. Therefore, for the coming months or quarters we have a clear preference for promissory notes. So, and then I also discussed the option of using our money pools. But at the moment, at the moment it means, I would say, for the next two months, there is no objective of transferring a liquidity reserve of 4,500 million euros. But looking further ahead, that means starting at 24, so I think we could check down with maximum liquidity. But right now we’re very comfortable having full access to any market, any equity market or any debt market. This is the explanation why also due to the maximum volatility offered in the market, we feel very comfortable with a maximum point of liquidity.
Operator
[Operator Instructions] The following is from Dario Maglione’s lineage with BNP Paribas Exane.
Dario Maglione
Three queries from me. The first in OpEx in Frankfurt. What kind of savings can we expect for 2023 compared to 2019?And will this imply the regrouping of some of the temporary workers?Similar query about OpEx again. You discussed using a clearer transience for floor management. I think you said 660 people. How much more does it cost?Is it some kind of transient effect?And the third consultation is about the point of indebtedness. In what kind of traffic situation do you think your current debt point is unsustainable?
Matthias Zieschang
First question, OpEx in Frankfurt. So the backbone of our business has been the relief of over 4,000 FTEs here at the Frankfurt site. And if you look at the existing numbers now, we had: at the beginning of the year we had minus 4400, now we’re at minus 4200. Yes, there will be some increase in floor support, while on the other hand we still have pressure on the functions of constraint management. There will be a partial amortization through extra discounts in the other aspect. To summarize, also in the next 12 months we will go down to around minus 4,000. So multiplied by the average salary, we also have a prospective saving for the next 2 years of around – not around, more than two hundred million euros. But on the other hand, what is, and this is more or less sustainable, what is opposing us now is rampant inflation, inflation in the aspect of the value of energy and higher rates for workers. And we have to see now what the new rate numbers will be for our workers in ’23, in ’24. It is, so to speak, connected to inflation.
This is, of course, to offset the savings generated through the volume effect, i. e. less than 4000 times X as the average male wage. And FraSec of course it has nothing of course it has something to do because We still have the body of workers prices for FraSec however as of January 1, 2023 we have a deep consolidation of FraSec or component of FraSec, which deals with security in the so-called paragraph 5. Thus exploiting the internal security lines of Frankfurt terminals, as well as outdoors in Frankfurt. This means that we consolidate approximately 2,000 FTEs. So, overnight, the total number will be no less than 4,000, but less than 6,000 in January 2023. So, of course, we also have at this time a logical relief in the prices of the body of workers for those other 2,000 FraSec people. But on the other hand, because then we are guilty of security activity, we rate the airlines for the service, and we get the ones from I-SEC and Securitas, as well as FraSec, and we have to pay for it. And then this is accounted for as drapery expenses.
So, there’s a movement or change that lowers worker prices on one side and higher hardware prices because we’re now buying it from a company that’s on our side. And on the other hand, we have higher incomes. Because we sell the additional prices, so to speak, to do the service to the airline. Then it will be a confusing operation, so to speak, in our P
Stefan Schulte
Sustainable level of indebtedness.
Matthias Zieschang
Sustainable debt point, so first of all, the net debt to date or at the end of the third quarter is precisely 7 billion euros due to the fact that the flow of loose money is negative until we reach the break-even point, we will let almost 8,000 million euros pass. It will therefore be the maximum debt of the group. But on the other hand, we focus on the key figure, net debt versus EBITDA. We have made intelligent progress here. You’ll see in the numbers, we ended up at 7. 4x, which represents a transparent improvement over last year when we were above 8x. Our target number is 5, a maximum net debt of 5x in EBITDA. And from today we will achieve it in 2025. Then we move to the long-term sustainable point of 5x. And improvement will occur year after year.
Dario Maglione
General assistance.
Stefan Schulte
Temporary staff, I had a question. The question of the moment, yes, we had temporary staff and some are scaled. I think the number I spoke to was about 800 to 900. The contracts are different depending on whether we assume that we paint together, which I would say on average, probably about 20% more than if you hired them directly. In the future, we probably still have transitional staff, if we compare the next summer peak with this summer peak, it will be reduced because we have more in our own company, less transitory staff, but we will also have transient staff and it is logical up to more than 20% on average because if you do not use them all year round, but more for the peak summer months, and then it is greater to have them three, four, five months instead of paying them in the full year.
Operator
Next is from Marco Limit’s lineage with Barclays.
Marco Limited
I have a question regarding your cash flow projection. So, if I’m not mistaken, your goal in the current quarter was to break even in free cash flow in 2024. Today you announced a CapEx frontload rate for Lima. So you ask yourself when you think the organization will now break even. The question of the moment on loose cash flow and CapEx in the medium term is back. So in the second quarter, you guided CapEx grades back to maintenance grades in 2028. So if you can, if you draw a little more color for your CapEx expectations for 2026 and 2027, given that of course Terminal 3 and Lima CapEx will be finished until then. So you’ll have more CapEx on 26 and 27. If you could remind us what we could do for Terminal 2? And the third query, if you can remember us and it is about Lima CapEx. How does the CapEx front loading that was announced this morning work? With the quarterly conference at the moment, you said there was a net accumulation in CapEx of around €100 million, €150 million. If I did the math on the chart, the additional CapEx announced today is around €300 million, €350 million. So you’re essentially saying you’re expanding net CapEx to €200 million. So yes, if you can that, please.
Stefan Schulte
You start with the flow of loose money.
Matthias Zieschang
So, as you discussed, our outlook is today and we hope to break even in 2024. That is before the CapEx design in Lima is replaced. You discussed it. So the front loader we’re going to build now is anything you planned to build much later, at the end of this decade. And, in general, it is more or less neutral, but it is loaded at the front. And we have to look now at the new front, any new medium-term planning, what it means if we can stick to the 24 target or if there is a replacement in 2025. We are now in the final calculation of the new plan. , and we have to see what the outcome will be. And in the other big programs, then there is nothing new. So we already said that at the beginning of 2025 Lima will be ready. Thus, the inauguration of the new midfield terminal is also mixed with the moment of the runway. So surely you are on the right track and T3 is also on the right track. And here the schedule is to open those terminals with daylight saving time in 2026.
So, in other words, either system is finished. And you can also see our track record shown with Brazil and Greece, where we’ve shown that when we’re done with expansion systems, we move to a very low point of maintenance CapEx. It will be the same then for Lima and Peru, as well as here for the Frankfurt site. We move on to maintenance CapEx points, which will total the organization of a maximum of 400 million euros consistent in the year. Last issue with respect to T2, what we are doing in ’26 and ’26, we open T3 and then temporarily, we are moving to close T2 because it does not make sense to operate 3 terminals at the same time, while traffic calls for or increases the number of passengers. It is a backup terminal and whenever the need arises to reopen, we will open T2. This means that in the next two years there is nothing in the plan because we have it as it is and only in the very long term would we possibly invest cash in Terminal 2.
Stefan Schulte
So in relation to Lima, I think the other query. You are right with the expansion in a single terminal that we can pass up to 37 million passengers. So that is the capacity that we are going to expand and that we need to inaugurate, as Matthias said, in early 2025. So we are doing it in two steps. But 2025, early 2025, full capacity will be there. This incorporation already represents three hundred million euros of gross CapEx. And I think also on the only slide spread over 3 years. But you have to calculate in relation to that, all the savings in operation but also in maintenance and so on, in Terminal 1 or in the existing terminal and the old terminal which, of course, is older. So it costs a lot of cash on that side. And that’s why we talk about the net amount of 150 million euros, if they are precisely the same years, you have to be a little careful. So you still have an initial charge on CapEx, but the savings come a little later after the closure of existing terminals in the next few years. But those are already savings because we are already starting with a single terminal operation in 2023 because there we already have a capacity in position of 24 million, 25 million passengers. And then the extension reaches the point of 37 million. So the first savings at least in 2024. But 2023, there is a question mark on that, it depends on how accurate the transition from one terminal to another is.
Operator
Next is from Achal Kumar’s lineage with HSBC.
Achal Kumar
I am very sorry if those questions have already been answered. They left me between the two. Then I have a pair. I have 3 questions, if it is consistent with me. So first of all, I just need to consistently conceive what kind of flexibility you would have in terms of CapEx in the event of a significant drop in demand. So, could you retain some of the CapEx or. . . That’s my first question?If you can help me please. Second, their consistent retail profit with passengers is already consistent with that of 2019, while the Chinese, however, those who spend the most in China have not yet returned. So what do you think? How do you see retail earnings consistent with the passenger in 2024 when you’re likely to see China’s opening?And finally, on the balance sheet, you have a giant debt. So how. . . What. . . I mean, they’re –I mean, are we expecting some kind of balance sheet restructuring, capitalist restructuring or how do you see your balance sheet right now?And how comfortable are you with that?
Stefan Schulte
We have already talked about the third, but possibly we would have gotten some other answer in the balance sheet. In the first, in CapEx, we have shown, I think also during the crisis, that we have some flexibility, if necessary, but we have also already reduced it a lot. One thing is clear, if you have paintings in Terminal 3 or a terminal like in Lima. We have to complete it because in other words, it quotes more and more as they save. Additional prices would therefore be too proportional, but to be clear, we don’t see a slowdown in demand. The signals we receive from the market is exactly the opposite. The question is whether we can capture with all the additional demand and slowdown, we don’t see at all. And there are no worst-case scenarios that way, although we would have many of the worst. Case scenarios, but not about a slowdown in demand.
Matthias Zieschang
On the retail side, as you mentioned, the push is smart. The first two quarters were weak at Frankfurt Airport. Now the 3rd quarter is stabilizing, and now we are a little bit, even a little bit more than the 3rd quarter of 2019, 1. 7%, almost 2% and today they gave us the initial numbers for October of this year, and it is very, very promising. . Thus, in October, the expenditure according to the user in Frankfurt was 3. 40 euros. Such a clever recovery since the beginning of the year, we are now at 3. 05 euros. And given the momentum, we see the full year figure at EUR 3. 20 from today. That is, I think, very, very promising. So it’s going in the right direction, and we think the back line or the rear has been successful and we’re looking at a smart recovery. Balance transparent response, we feel smart with the balance. There will be no restructuring. And we have decreased over time to, again, 5x net debt to EBITDA. There is nothing to fix. It is temporarily, yes, too high, but that is due to the corona. And now we are improving, EBITDA is increasing, and we will achieve the leverage point of around 8 billion euros, and that’s it. And then EBITDA goes up and up. And on the other hand, when the generation of free money is there, we will use that budget to also reduce the absolute indebtedness of the group.
Achal Kumar
Excuse me, in terms of net debt to EBITDA, he said it was at 5x. So what’s your point in terms of net debt to EBITDA?And at what point would you think about a capital restructuring?
Zieschang Matthias Again, our purpose has been 5x, and of course there was overtaking because of the crown where we climbed, I don’t know what, and now we are at 7x. So we’re just running towards the target and the target is 5x again, and that won’t be replaced over time. So, around 2025, we’ll be back in this, let me say, an acceptable range. And again, there is no need for restructuring.
Operator
The following is from the lineage of José Arroyas with Santander.
Jose Arroyas
Just two inquiries for me, please. In the current quarter, you commented that you had carried out an initial investigation of overseas activities until 2023 and believe that the portfolio could initially generate around €500 million in EBITDA. Has it replaced this assessment as of today, or is it better, equal or worse than that?That will be my first consultation. And my query at the moment is on slide 7 on CapEx at Lima airport. It turns out that there is a reference situation and a higher situation for CapEx. range, if that’s a possibility?
Matthias Zieschang
Yes, as you mentioned, we said at the beginning of the year that we expected a contribution of around 500 million euros from foreign companies. To date, we have already achieved this. Therefore, it will be more in the fourth trimester in the most sensitive. Therefore, it is greater than what we saw at the beginning. This is also why we adjusted our outlook for the full year a few months ago and remain optimistic. I think on Friday we will publish the new traffic number, right, on Friday. And I can say that Friday will be smart for us and for you. So the momentum is strong. And that means we can also translate higher passenger numbers in the foreign industry into higher EBITDA figures. That is why we are sure to run against the 1,000 million euros of EBITDA.
Stefan Schulte
And in relation to Lima, it is not the worst case and the maximum productive case. Sorry, we probably deserve to have made that a little clearer. The separation here between the additional EPC scope and the diversity of additional EPC scope, means that in the end I verify this a little bit in my speech. It has a direct EPC scope, which is contracted with an EPC contractor at the terminal itself. And then we have some modifications, which can also happen with the EPC contractor, but it can also happen with other corporations that are not negotiated at the moment, a baggage transport system, something like that for the extension Array other elements, which can also just delve into what we do there in detail because it wasn’t the concentrate until now, it can also be in the range of 50 to 100 million euros, but those are additions at the end where we have to go through the detailed phase of making plans and so on. , which is not done. Possibly we would be a bit conservative, possibly we would be, that’s what we call improvements. But the most important thing for us was to get the EPC contract even with the addition to the point of 37 million passengers, 37. 5 million passengers because now we can enter into transactions with the financial banks of the assignment and the changes are not necessary. for this. And there, we have enough time to go through there and focus on that for the next phase.
Matthias Zieschang
Perhaps the most sensible thing about that, when we talk about CapEx for Lima, is that you should see our structure based on an EPC contract, which is denominated in US dollars. And we report on our balance sheet on the euro, and that can be if the dollar goes up, if you have €1bn of CapEx denominated in dollars and the dollar goes up or down 10%. And we still have a volatility of one hundred million euros. That’s not the problem. But what is still seen as a variable, so to speak, in CapEx that depends on the existing rate of the dollar and the dollar at the moment is strong. So it costs us anything in the euro translation, but that too can be replaced overnight. But that is why we cannot arrange it precisely like in Frankfurt, where we say it is four billion euros, but it is denominated in euros and the structure is in euros. Lima, again, is in US dollars. And so far it is a herbal hedge because also in the profit aspect we collect the fares for foreign passengers in US dollars. Therefore, it is a better herb hedge. But we have this translation effect between the exchange rate of the dollar against the euro.
Operator
There are no more questions on the line. I would like to speak with Christoph Nanke for closing remarks.
Cristobal Nanke
Thank you Emma. Yes, thank you for participating. Thank you for all your appeals and questions. If you come up with something, call us at IR and wish everyone a day. Thank you.
Stefan Schulte
Ok, thanks.
Operator
Ladies and gentlemen, this concludes today’s convening of the Fraport AG convention. Thank you very much for participating. You can now log out.