Fraport AG (OTCPK:FPRUF) Second Quarter 2022 Earnings Conference Call August 9, 2022 8:00 a. m. m. , Eastern Time
Participating companies
Christoph Nanke – Senior Vice President, Head of Finance and Investor Relations
Matthias Zieschang – Chief Financial Officer
Conference Call Participants
Cristian Nedelcu – UBS
Stéphanie D’Ath – RBC
Elodie Rall – JPMorgan
José Arroyas – Santander
Satish Sivakumar – Citi
Christian Cohrs – Warburg Research
Nicolas Mora – Morgan Stanley
Ruxandra Haradau-Doser – Kepler Cheuvreux
Christophe Nanké
Hello also from my side on the call from Fraport analysts today. I have our CFO, Matthias Zieschang, with me in the room and he is in a position to start the presentation now.
Matthias Zieschang
Yes. Thank you, Christophe. Welcome, ladies and gentlemen, also from me to our H1 presentation. Let me start my presentation today with a review of the last six months and a very positive message. After talking about COVID-19 for more than two years, we are putting the pandemic behind us. As a result, we experienced strong traffic and a possible recovery at Frankfurt and an even more powerful boost at the top of our foreign airports.
In addition to this very positive business development, we have optimized our foreign portfolio with the departure from Xi’an Airport in China. The divestment of our 24. 5% stake resulted in monetary expansion beyond our operating performance, while the outflow reduced our leverage. for the group
On the one hand, we have completely depreciated our loan factor to Thalita Limited, the parent company of St. Petersburg Airport, due to war-like sanctions against Russia. On the financial side, we have taken further steps to finance our expansion activities in Frankfurt and abroad.
Despite the adverse macroeconomic effects of higher inflation and higher bond yields, we continue to see strong debt capital markets at moderate prices. Therefore, we have summarized that the traffic and monetary functionality of the last quarter are very successful.
Let’s take a closer look at Frankfurt Airport’s traffic progression on slide number three. As you know from our previous posts, we had a tricky start to the year due to the Omicron variant. However, since March, we have noticed a growth in our passenger numbers. As a result, traffic dynamics accelerated and we achieved a passenger recovery of around 80% by the end of June.
However, with the onset of more powerful disruptions in the European aviation sector, we note that capacity was withdrawn from the market from July. These cancellations included domestic and high-frequency short-haul routes. Affected by those cancellations, we have noticed the slow recovery speed.
From now or no later than September, we expect operational disruptions to be minimized and business activity to be stronger in the future. Despite the aforementioned cancellations, we continue to expect a recovery rate of approximately 70% to 75% in the future.
As a result, we have improved our traffic direction for the total year. While we first expect the number of passengers to be around 39 to 46 million passengers, we now expect between forty-five and 50 million passengers this year. In addition, we expect the negative influence of the Omicron variant to serve as a less difficult basis for comparison for the coming year. This will help us continue our operational recovery in the coming year.
The most recent traffic progression at our foreign airports is shown on slide number four. As you know from our traffic reports, we are seeing a faster recovery of passengers at our foreign airports overall. Here in particular, the key European market for short-distance tourism, Greece, Turkey, but also Spain and Portugal, have more or less returned to pre-COVID record levels.
As far as Antalya is concerned, the void that must be filled completely is easily explained by the negative effect of the war in Ukraine that led to a shortage of Russian travelers. More recently, we are also seeing new momentum in Antalya. , with a recovery rate of around 93% for July, Antalya Airport has received about five million passengers, a maximum number of passengers that is comparable to the point we handle lately in Frankfurt.
In LATAM, Lima and Brazil also show intelligent passenger dynamics. Both assets still lack foreign traffic, but we are very pleased with the most recent traffic results. For the rest of our European portfolio, Ljubljana and Twin Star, the scenario is different. Ljubljana is still affected by the lack of commercial activities. As you know, Ljubljana is an airport in the capital of Slovenia. So we also had business in 2019.
In addition, Adria Airways, Slovenia’s former national airline, left the market in September 2019. Therefore, 2019 is a difficult basis of comparison for Ljubljana. 2019 is also a top base for Varna and Burgas. In addition, any of the airports are suffering from the war in Ukraine. The Bulgarian Black Sea coast is one of the closest European tourist destinations to Ukraine, making it less horny for families in those days.
In addition, Turkey, Bulgaria have imposed a strict ban on flights to and from Russia, so we are experiencing a very special scenario for Varna and Burgas.
What effect have traffic effects had on our monetary figures over the last six months? I am now on slide number 5. Thanks to the strong recovery in passengers, all major airports and revenue streams have shown positive underlying developments.
As a result, overall profit generation increased by approximately 28%, or nearly €300 million, to €1. 3 billion IFRIC 12. Adjusted for the higher number of special effects we recorded basically last year, the buildup was even higher, at around 75%.
Compared to the first part of 2019, this year’s overall earnings represented a recovery rate of just over 80%. On the operating expense side, you can see a buildup from last year. Here, about a third of the accumulation is attributable to the abandonment of short-time races in Frankfurt.
In addition, we basically recorded higher revenue-related concession fees in our overseas operations, as well as an accumulation in energy source prices and outlays for transience in Frankfurt.
Despite the build-up in OpEx, we are still very pleased to see That OpEx remained at around €150 million, down 15% from the 2019 level. Here is to remember that we have faced maximum inflation in the meantime and higher wages.
In terms of EBITDA, it sees significant construction through last year, on a published basis as well as on an underlying basis. Compared to 2019, we have reached approximately 80% of our pre-COVID EBITDA or 70% after adjusting for Xi’an’s divestment.
Given the very modest start to the year, thanks to Omicron, it’s a very smart result that even better in the current quarter, as you’ll see in my next slide. Finally, I have already discussed that we completely deteriorated the st. Petersburg loan in the neighborhood of the moment.
Here, to be precise, we are abandoning any of our demands or handing over cash to Russia. The depreciation of the loan is only an accounting effect caused by the penalties. Therefore, we pursue all our claims in their entirety and are willing to give anything. for free, so we still need our cash back.
After the decrease in value, the result of our organization has become negative. Despite this negative functionality in the early part of the year, we continue to expect a positive result from the organization for the full year, as we announced this morning with our updated forecasts.
Now let’s take a closer look at our recent monetary progression high in the quarter at the time of this year, as I mentioned before, the quarter of the moment is the quarter that has been least affected by COVID-19 so far. On slide 6, we offer a comparison of our effects for the current quarter of this year with those for the quarter of 2019.
Excluding our divestment in China from Xi’an, overall revenue in the current quarter returned to nearly 90% of the 2019 level. The strong recovery was basically due to our overseas activities, as you will also see later in my presentation.
Frankfurt is still at around €100 million, about 20% below the point in the second quarter of 2019. On the other hand, Frankfurt has obviously eliminated the cargo elements. point.
The overall organization recovered more than 90% of pre-COVID EBITDA in the current quarter, a very forged result, given the continued decline in passenger numbers. As a result, our EBITDA margin particularly advanced compared to 2019.
At 38. 5%, the margin increased 1. 2 percentage points, a solid progression that we expect to increase in the third quarter. Therefore, despite the depreciation of the St. Petersburg loan, we are very satisfied with the latest monetary progressions.
Now let’s dig deeper and look at the monetary functionality of our segments with Aviation on slide number 7. The Aviation segment has evolved very well according to our expectations.
Compared to the first quarter of 2022, we recorded an accumulation of around €80 million in revenue, driven by the accumulation in passenger numbers. On the other hand, we were able to remain solid in terms of operating expenses compared to the first quarter of 2022 and even decrease some cargo items.
As a result, we were going to retain all of the higher revenues of the current quarter in EBITDA, which exceeded €80 million compared to the first quarter. As a result, the Aviation segment recorded a strong EBITDA margin in the current quarter. At 31%, the segment’s margin remained at the high point of the second quarter of 2019.
Looking ahead, we expect further improvement in the third quarter. As a result, we have raised the monetary outlook for the aviation segment due to higher passenger expectations.
Let’s move on to our retail and real estate segment on slide number 8. Compared to the aviation segment, our retail and real estate segment also achieved a higher conversion of profit into profit in the second quarter. With a top profit of €21 million in the In this quarter, EBITDA in our segment increased by approximately €18 million, indicating a solid additional EBITDA margin of approximately 85%.
Examining in detail the individual source of revenue streams. We continue to see smart effects on our real estate advancements and car parks. While real estate revenues are already higher compared to pre-COVID levels, parking revenue has continued to outpace natural passengers. On the other hand, retail revenues are affected by declining ad revenue and the absence of primary spenders. As a reminder, our five spending nations (China, Vietnam, Japan, Russia and Korea) accounted for around 30% of our retail revenue in 2019. These nations are still well below 2019.
In addition, the domestic-consistent disruptions we faced in the current quarter reduced passenger time and temperament and negatively impacted our retail sales. As a result, we see our retail sales consistent with passenger KPI normalizing compared to 2019.
Let’s move on to our Ground Handling segment page on slide number 9. Between the first quarter and the current one, Ground Handling recorded a strong profit expansion of approximately €40 million and was able to save around a portion of the earnings expansion in EBITDA. That said, in addition to the expansion of earnings of €40 million, we recorded a price build-up of approximately €20 million in floor management in the current quarter.
Here, given the tightness of the labour markets, we had to speed up our recruitment activities and we also had to hire temporary external staff. Temporary external staff are more expensive than internal staff, so we had to face prices beyond our overall operating prices.
I explain myself here. Lately we are facing traffic figures at the daily peaks of up to one hundred percent of 2019. For our staff, this means we want to have enough staff to handle this amount of traffic at peaks. That said, on the one hand, we are witnessing a very complicated operational situation, with significant imbalances day and week. And on the other hand, we have a very inefficient position structure, in which we have to employ staff for our entire operation, which you might not want during off-peak hours.
Thus, despite a moderate conversion of revenue into profit in the current quarter, the EBITDA we generated lately in ground handling is too low. As a result, we have had to revise our EBITDA guidance for the full year to a negative situation, which we want to oppose again.
On slide number 10 you will find our joint update on the charge scenario in Frankfurt. Very positive data first. We continue to manage a particularly reduced charge base in Frankfurt. Despite higher inflation in Germany and tight labour markets, we continue to save substantially compared to 2019. These savings are related to our restructuring measures and will help us achieve higher profit margins in the long term.
An update on the progression in Frankfurt or Germany, can also be found in the appfinishix of the presentation. Here you can see that we continue to manage a company with 4,500 fewer workers compared to the end of 2019. And despite the rehiring of Floor Management that also fits the view.
In table number 10 of the presentation, you will also see what I just mentioned. Higher prices in Q2 to Q1. This higher charge in Q2 is only attributable to the accumulation of €20 million in the Ground Handling segment charge.
The other Frankfurt segments are still operating very lightly and we were even going to reduce residual operating expenses compared to the first quarter. Since we expect monetary imbalances in land assistance to last until the end of the year, we now hope to reduce the overall burden. in Frankfurt through around €250 million compared to 2019. Despite the slight relief in our OpEx savings target, it is not mandatory to say that we continue to concentrate on load elements and load control.
Leaving Frankfurt and moving on to our foreign business segment on slide number 11, you already see a very positive message in the title of the chart. Our foreign business segment not only fully recovered until 2019. The foreign business recorded higher revenues in the second quarter, higher EBITDA in the second quarter and higher EBIT in the second quarter through 2019.
Before we get into the main points of the current quarter on my next slide, let me summarize our functionality in the first part of the year. First, despite the negative effects of revenue from the first part of the Omicron variant, IFRIC 12, they have almost reached pre-COVID levels. On the other hand, operating expenses in the first half of the year were definitively affected by the restructuring measures. EBITDA in the first half segment is therefore higher than in 2019 with or without additional revenue from the sale of our Xi’ an asset.
On an underlying basis, we recorded an increase in EBITDA of approximately €9 million or 5% compared to 2019. With a decrease in revenue, this represented a significant increase in the segment’s EBITDA margin from 39% in 2019 to 45% in this era. under review. The buildup was even more impressive in the second quarter from 45% to 52%. With any of the figures excluding Chinese divestments, we focus on the underlying business development.
The reasons for the ordinary evolution of T2 are presented on slide number 12. Here you will find the effects of the second quarter of this year compared to the second quarter of 2019. The main driving force of the positive earnings momentum in the foreign business was our investment in Fraport Greece. .
While the number of passengers in the current quarter has more or less absolutely recovered in Greece; revenue, EBITDA and EBIT exceeded the 2019 point through €24 million to €33 million. Here, higher airport fees have been the main explanation for the increase in profits.
Following the final touch of the mandatory €400 million CapEx programme, airport charges increased by more than 40% in line with concession agreements. .
In the future, airport charges will be adjusted through 90% of the local Greek CPI, as we also discussed in our first quarter presentation. The driving force of earnings momentum in Greece was consistent with retail sales. As a component of the mandatory CapEx program, we have also invested in advertising space in Greece. Compared to 2019, we have now been able to double retail sales according to passengers. We are therefore very satisfied with the progression in Greece.
For the rest of our foreign portfolio, we recorded EBITDA of around 78% of the 2019 level, above the recovery rate in Frankfurt. While Fraport Twin Star and Ljubljana continue to suffer the negative effects of slow traffic increase, Fraport Brasil in particular posted strong earnings momentum. Here, the evolution is even greater in local currencies.
In Brazil, revenues are already exceeding pre-COVID levels thanks to higher aviation royalties and higher retail performance. Despite a devaluation of the Brazilian real of 19%, Fraport Brasil’s EBITDA in euros increased by 26%.
What was the effect of monetary developments on our group’s money and debt scenario?On slide 13, you can see how our money flow has been replaced over the past six months. the cash flow went from almost €400 million to €185 million.
On the CapEx side, we are also making smart progress in line with our expectations. And around 530 million, we are almost half of our CapEx expectation of 1. 1 to 1. 2 billion euros for the full year. As a result, our loose money also drove as expected and was negative at around €360 million or €730 million and taking into account Antalya’s initial equity contribution.
In the Others section, you will see, among other things, the positive effect of our divestment in Xi’an. On the other hand, the exchange effects led to an accumulation in the euro debt of our Latin American assets, that is, Frankfurt, Brazil and Lima.
On my next slide, take a deeper look at how our group’s money flows evolved in the current quarter on an individual basis. As I mentioned before, the first quarter was affected by Omicron, so it is also worth noting the exclusivity of the second quarter.
On the operating money of 185 million euros that we achieved in the first part of the year, we generated almost the total amount in the current quarter. Our operating money in the second quarter reached almost 80% of 2019.
On the other hand, we have reduced our CapEx until the second quarter of 2019 by approximately 20 million euros or 7%. Here, in particular, the outflows of money for Fraport Greece and Brazil have been reduced, while capital spending for the expansion of the Lima airport has increased.
In the graph you will also locate our existing loose capital excluding the expansion projects in Frankfurt and Lima. Excluding the two expansion programs, our loose capital would have been positive in the current quarter at approximately €122 million.
The progression is even more impressive, considering that the number of passengers is still 30% lower and some foreign airports have not yet fully recovered. Therefore, in addition to the strong recovery of passengers, we recorded a strong recovery of our money in the quarter at the moment. As we continue to invest in expansion in Frankfurt and Lima, we also continue our financing activities.
On slide 15, you will find the evolution of our available budget over the next two and a half years. While our monetary position in the first part of the year was adversely affected by Antalya’s loose money and initial equity contribution, our finance team controlled to maintain maximum liquidity at one point above €4. 2 billion.
In addition, you can see from the graph that we have added about 400 million euros of postal budget to the balance sheet date. This budget will also be used for long-term repayments and will be the monetary position of our group. Despite rising bond yields and increased macroeconomic uncertainty, we continue to see strong access to debt capital markets at moderate rates.
Based on our existing activities and monetary allocations, we now expect our available budget to be sufficient to allow us to make smart progress in fiscal year 2025 without contemplating additional funding. Here we continue to paint on the new financing of the Lima allocation that will cover the next CapEx for the new terminal. To summarize our liquidity scenario, we are very comfortable with our monetary and debt scenario at the end of the first part of the year.
On slide 16, you’ll also find our existing payment rates and our average interest rate. As I mentioned earlier, based on upcoming payments and existing advertising projections, we look well funded through fiscal year 2025. In addition, despite some new funding, so far we have not noticed any major adjustments to our organization’s average interest rate.
Let’s set aside the existing business progression and move on to our perspective segment on slide number 17. Thanks to the strong passenger demand, we are also more positive about our passenger customers in Frankfurt. While we expected up to 46 million passengers before the upper limit of the new orientation, it is now set at about 50 million passengers or 4 million more passengers.
As a result, we are raising the monetary outlook for the Aviation segment and also expect a retail revenue build-up. On the other hand, we have lowered our expectations for the floor assistance segment.
Also in activities abroad, Fraport Greece is performing better than expected. At the same time, we recorded an accumulation in EBITDA of around €45 million following the sale of Xi’an. The combination of all these effects will lead to an accumulation in EBITDA expectations of around €90 million.
In the end, we reflect the €160 million depreciation of the St. Petersburg loan. On the other hand, the sale of Xi’an will lead to a unique positive EBITDA of €74 million. As a result, we are now expecting a result from the organization of between 0 and 100 million euros. Taking into account the two main exceptional effects, which meant that the previous expected net profit of €50 to €150 million would still have been a valid diversity for the full year.
For our group’s debt, Xi’an’s positive money or money income will also reduce our net debt expectations by about 100 million euros. Here again, we are seeing the equilibrium effects of the devaluation of the euro against the genuine Brazilian and the US dollar.
Having said that, and gentlemen, I would like to conclude my presentation and take a look at your questions now.
Q&A session
Operator
Ladies and gentlemen, at that time we will begin the response session. [Operator Instructions] And our first is from the line of Ruxandra Haradau-Doser of Kepler Cheuvreux. Continue. Ruxandra, you are now live.
Christophe Nanké
we listen to you
Matthias Zieschang
The line is cut.
Christophe Nanké
Next question?
Matthias Zieschang
Then we will take the next question.
Operator
And the next one comes from the line of Christian Nedelcu of UBS. Continue.
Cristian Nedelcu
Hello, thank you very much for answering my questions. Perhaps the first one on passenger-consistent retail spending in Frankfurt, could you give us a little more color?Is the spending of German and European tourists on those days the same as in 2019 or so?And especially for the total number, how do you think package-consistent retail sales will grow in 2023, 24 as the combine approaches what it used to be?
Secondly, foreign EBITDA, as you already pointed out in the current quarter, your EBITDA was higher than in 2019, how do you think the incremental expansion of EBITDA worldwide in 2023 will be?We also have headwinds in Greece due to the variable payment of the concession. So if you can give us a little more information, what kind of expansion can we expect next year?And the last one, if I may, Ground Handling, what are the benefits of owning Ground Handling internally compared to the option of separating the company or having a minority stake in that company. So does other odds make sense with this asset in the future?Thank you.
Matthias Zieschang
So, thank you for your inquiries. First, retail capital spending was obviously disappointing for us and we expected a higher figure. Therefore, it is a genuine fundamental question about what it is. Therefore, it is complicated to give you an exact answer. we interpret as an explanation of why: the temperament of passengers. So when you have to wait for hours, you’re not in the mood to spend a lot of money. So that’s an argument.
Secondly, we: the absence of business travelers, many domestic tourists, who have little willingness to spend cash on goods only for F
So we expect it to be a little bit higher now in the coming months and quarters. But at the end of today, we can’t give an exact answer as to why the numbers, especially in the current quarter. And in the current quarter, and then especially in June, so negative or so bad. We hope that with those arguments and explanations we can more or less cover the substance of your question.
The timing of the consultation considers the EBITDA forecasts for next year in the foreign business. So first of all, very positive. For what? Because we, in Bulgaria and Ljubljana, expect a full amount everywhere, that is, a minimum recovery of one hundred percent of the number of passengers. So, traffic is back, while in Bulgaria and Ljubljana they are not the big airports. . So that’s not the big negative impact of the problem.
Therefore, we are completely on the right track in terms of number of passengers. Obviously, we are focused on the situation of the charges. We have particularly high royalties driven by inflation rates or by the concession contract mechanism. and then a higher number of passengers on the volume side, combined with higher Array fares will lead to a very positive EBITDA figure next year.
So, so to speak, today’s forecast for 2023 for the overseas segment is especially higher than what we see for 2022 and 2022 will already be a very smart year, a very smart figure. And that’s why we’ve also adjusted our EBITDA forecast for 2022. So what we’re saying now is that we’re forecasting up to. . . yes, I mean, I go through the numbers. EBITDA, and a very positive contribution of up to €500 million in EBITDA from the foreign segment, Xi’an added. And as of today, I expect EBITDA for next year, also taking into account that Xi’an may not be repeated. next year. Very positive.
Third question, what are the benefits of having internal floor management?Clear answer, there are no benefits obtained to date. Therefore, the quality is low, the profitability is negative. Therefore, we are satisfied with both. And yet, before we reach strategic conclusions, we want to fix the company. So first of all, the most sensible priority is to bring quality to the point we had before.
Smart data is that when we now look at our KPIs, we can tell day after day or week after week that it’s improving. And it was also shown through Lufthansa that there was a press release, I think, a day or two. it does, because they also showed that the quality scenario is improving, because everyone is looking to bring more resources, so now we have learned the effects related to the process, business processes, etc. And so the quality is increasing. And as of today, in combination with the additional resources, which are provided through us and the airlines, I believe that no later than September, the challenge of total quality is solved again.
Financially we already have many elements of ordinary collection in the first part of the year. This will continue in the current part of the year, because we are mobilizing many external transitory workers, which is very expensive. We are paying additional premiums for further changes to fill the complicated scenario right now. This fades in the last quarter to the fourth quarter. So, we have an expectation that by the end of the third trimester, quality disorders will be resolved. And then in the fourth quarter, we can also start to focus again on productivity, which right now is irrelevant, but you have to do that: what I discussed at the beginning of my presentation, we have a completely unbalanced traffic recovery. We have certain peak times of the day. We rarely have more than one hundred percent of the 2019 passenger count.
And today we have about 80% of previous staff versus an average of 70%, 75% of passengers. So, we have more staff compared to passenger volumes. This is the explanation for the low productivity. However, at peak times we have very few staff. But now we take a look, when more traffic arrives at the market, to pass into the valley. This imbalance is gradually improving. And this has as a side effect that productivity figures also increase.
So, in short, quality will return in the fourth quarter. Productivity will return. And then we will have to see how to manage the company in 2023. And to this day, I am convinced that next year all quality disorders will be resolved. And we’re going back to focusing a lot on productivity numbers. being in a greater balance so that we have a combination of superior quality and higher productivity, which will lead to positive EBITDA figures in 2023, however, 2022 will be a complicated year for the ground handling segment. Here are the answers to your 3 questions.
Cristian Nedelcu
Thank you very much.
Matthias Zieschang
Welcome.
Operator
The next one comes from the lineage of Stephanie D’Ath of RBC. Continue.
Stephanie D’Ath
Oui. Bonjour. Ma first is: please give us an update on your appointments with Lufthansa, now that operational issues are being alleviated and your strategy is moving forward, such as which airline organization you expect to drive traffic expansion and where are local operators in that strategy?And I guess the broader thing is, if you keep expanding them, what’s smart for your position to win your capital charge?Simply, I guess, will it make it less competitive to attract cheap carriers again?This is a very broad pardon.
And my current query is about Antalya with 93% of 2019 passenger levels, it’s very encouraging. Could you give us a little more detail on what kind of passenger organisation had returned to pre-pandemic levels by this factor compared to European passengers?Guess? And my third query is about the dividend. When do you think you can start paying dividends again?And if I can upload a quarter, a follow up on their retail feedback right now. Could you tell us which categories are working best?I don’t know if food and drinks or convenience because some other airports have mentioned that longer wait times are positive for one’s times?Thanks a lot.
Matthias Zieschang
Your first inquiry about appointments with Lufthansa, the transparent answer is on the spot, it is excellent. We are pleased to have Lufthansa as our main airline. I think Lufthansa is also pleased to be here at Frankfurt Airport because when you look at the H1 figures, you see that they achieved brilliant effects on freight and that shipping was founded here in Frankfurt. Frankfurt is a position where Lufthansa makes money. when our visitor is satisfied, so are we, so it is a wonderful appointment.
So, as far as the long-term progression of traffic is concerned. Once again, we have Lufthansa. We are pleased to have such a strong flag bearer here at our airport. And we assume it will continue. So Lufthansa is the biggest will be the biggest. And whether or not cheap returns to Frankfurt, that’s not our resolution. So when cheap airlines come to Frankfurt, they come. And in a different way, they don’t come. So this is a query that we cannot answer, because it depended on the resolution of the cheap carriers.
And in relation to Antalya, yes, it is also a wonder for us. It’s a very strong recovery. At the beginning of the year, we had a plan of around 30 million passengers by 2022, adding 11 million from Russia and Ukraine. Then we had the war. We are at war. So, in the worst-case scenario, we would end up with 20 million, but that’s not the case. So we have a very strong increase. And proportionally we have more incoming traffic from Central European countries.
If I look at my numbers here, also compared to the 2020 numbers compared to 2019. So, for example, we have, from the UK, that’s 50% more than in 2019; from Poland 50% more; Kazakhstan 44% more; the Dutch with 16% more; Israelis 26%, give 60%; Switzerland plus 50%. So those are 2022 figures versus 2019 where Germans are here, Germany is more than 7%.
And in the other aspect, of course, we have the significant relief of the Russians, but it is only less than 46%. So, at the beginning, there was a negative situation that would possibly be that 80% of Russians would not return. But now we have minus 46 million. And what, we hear that there are discussions between the government of Turkey and Russia to pay in rubles. So, the Russians, the Turks pay in rubles. And therefore, when tourists also come to pay in rubles, it is possible that this minus 46% can even in the next two months.
We have to see. But with a 93% recovery in July, this is a very positive figure and we have to see how it continues. But now we are very convinced that until the end of 2022 the number will be close to what we have planned. And again, we will see fewer Russians but more or less complete repayment with more traffic from other European destinations.
And last question, when are we moving to pay dividends?We have a net debt to EBITDA ratio, which is 8. 6 times and we have to go back to five times. When we are at or near that level, there is room to pay dividends. So I can say with certainty that next year we will not pay dividends. Whether or not there is margin in 2024, we have to look at the monetary effects and the records we show in 2023, whether there is margin in 2024.
Stephanie D’Ath
Merci. Et just a follow-up in retail, which categories are performing best. . .
Matthias Zieschang
In retail, we had a strong month in the first month, June, because June was a very bad month, so to speak. it was a prevention in the luxury aspect because it has to do with the thousands of Germans who go to holiday destinations, but it is a very early interpretation.
And back, we expect that at the moment June has been very negative. I already told you that in July there is one – we are already seeing a recovery in retail sales figures. And we hope this in luxury items like watches, etc. continúe. de back in the coming months. Then F
Stephanie D’Ath
Thank-you
Operator
Next is from the line of JPMorgan’s Elodie Rall. Continue.
Elodie Rall
Hello, good afternoon. Thank you for answering my questions. I’ll have three, please. Firstly, in cargo savings, it had first planned between €350 million and €400 million in sustainable cargo savings, and then reduced them to around €300 million at the beginning of the year. relief in operating expenses compared to the first part of 2019. So, in a full year, that’s about 250 million euros. I mean, can you give us an update on where you expect to land this year compared to 2019 in comparison?to the three hundred million euros revised at the beginning of the year?
Secondly, most sensiblely, where do you see the prices of all workers given the desire to rehire them?And how much will this weigh on charge savings in the future?And finally, could you give us an update on the rates if there are any. You were still confident enough of yourself to succeed in a superior building in 2023. So, wondering if you have an update? Thank you.
Matthias Zieschang
First consultation on the load savings that you were talking about precisely in the first quarter, we have set the target for 2022 compared to less than three hundred million euros. We have now reduced this target to EUR 250 million. We showed precisely EUR 125 million in the first part of the year and we are expecting the same at the moment. The explanation for why this relief is simple, is this quality challenge in floor assistance, where we now pump a lot of resources, which are incredibly expensive.
We have, right now we have about 700 employees, service providers, who are in the operation to stabilize the operation and are paid temporarily, incredibly expensively. We are also filling the situation, with additional shifts with our inner boys. therefore, we have to pay a lot of cash for those extra shifts to create the motivation to come and show extra work.
And so, this combination of bonuses of 700 additional transient employees from service providers, plus a normal salary that is accumulating now, which is higher than expected, created this additional charge of almost 40 million euros in the first part of the year and also some additional additional costs. in the current part of the year. And that’s the explanation for why this adjustment from T1 to T2. So, in short, for the whole year, the new target, so to speak, even compared to 2019, is now minus 250 million. Euros
Personnel costs, you also see that we have inflation in the market. So, in short, the average wage accumulation will be more consistent than in the past. In the past, we have also calculated a weighted average cumulative of 2. 5% consistent with the year. We now calculate for 2023 with a weighted salary increase of at least 5% for all staff here on the Frankfurt site. I guess they discussed the fares, the fares here for Frankfurt Airport. We have increased the rates. On January 1 of next year it was 4. 9%. So here are the answers.
Operator
Our next one is from the line of José Arroyas de Santander. Please continue.
Jose Arroyas
Good morning, good afternoon, gentlemen. I also have 3 questions. The first considerations about floor management I recently read that Frankfurt gives a salary increase of around 14% and registration bonuses of around €1,400. And I wonder when these new career situations began to be implemented and to whom they were addressed?in all workers or only in new employees of this unit?And also following Elodie’s question, could you later help us build the €250 million savings target for Frankfurt by 2023, reconciling the 5% increase in labour prices that you mentioned?
And my last query considerations about the airport of Lima. On page 18, of the publication of the results, you take stock of the new agreement with the Government of Peru and communicate about a 3-digit deposit. I sought to understand, when will this be?deposit to be?And also what is the scale of the total investment you expect for the new terminal?Thank you.
Matthias Zieschang
First question, salary increase of 14%. First of all, to re-explain the design of floor managementArrayIn floor management, to date, you can see in the appendix of our presentation the numbers, it is on slide 25. And you can see that as of June 30, we have about 7,400 workers in floor management. And you can see that almost 50% of that works, at Fraport AG.
So the parent company, they have, so to speak, the old tariff agreements, which are on average 30% or 40% higher compared to all the other workers, who are in a one hundred percent subsidiary called FraGround. And we have this model, that for years, all new workers are now hired at FraGround. So, over time, or in 10 years, we have maybe 5000 to 6000 workers at FraGround and maybe another 1500 at AG.
So, and back to those guys at FraGround, they’ve had new tariff agreements for five years and more, so to speak, which is 30% to 40% lower. And this 14% increase is valid for those guys to close the gap between well-paid rates and low-paid rates, so to speak. Therefore, it is not for one hundred percent of all Ground Handling employees.
Invoices, of course, bonuses for additional shifts are valid for everyone in the total Ground Handling.
Second question. So, again, the savings targets compared to the 2019 figures for this year 250 million euros and those savings targets in charge, we have to date now, we have 4500 fewer people and that will replace so much that we are now increasing.
At Ground Handling, net construction can be said to be about 50 workers consistent with the month. So, at the end of this year, we have a net base of 300, maximum 400 more workers in floor management. But on the other hand, we still see discounts on other discounts on administrative services, so that the net effect is less than 400, we will end up with 4,200. I don’t know exactly.
But the right data is all the time. We continue with around 4000 fewer workers compared to 2019. So, on the volume side, we continue with this base of decrease also because it is more or less, or the maximum is performed in administrative and semi-administrative functions.
So, however, of course, we have – in the volume aspect, we are constant. But of course, each and every wage increase has our back. So, to date, although this is surely preliminary, I would say that in 2023 the position deserves to return founded on 4,000 fewer employees, possibly it would be around two hundred million euros, but it is too early because we have to see what will be the definitive salary increases for next year that will occur with the charges in the aspect of curtains expenses.
So inflation numbers and so on. It is the unknowns that are ultimately applicable for the ultimate purpose of saving and then for 2023. But again, the smart thing is that we’re also running the year 2023 with 4,000 fewer employees.
And the last question was yes, what is the scenario in Lima?So we have, we also have a lot of intelligent information. The track is in a timely position in the budget, so it is less than 500 million euros. We said: some years ago we said that we were going to spend EUR 500 million, now it is less than EUR 500 million. The track is in condition, it is going to be inaugurated, now tests are being done, etc. lighting, etc. The air traffic control tower is also in one position.
And we started the construction of the new midfield terminal. And here there was a dispute, so to speak, with the government. For what? Because for years we have shown the so-called two-terminal system. This means that in 2025 our plan was to start with the midfield terminal, but also use the old terminal. So, to have a dual terminal solution, an operation division. And here we did not get the final approval of the government because of a replacement of the government, etc. , a very complicated scenario and for short.
Now we have made the decision to go back to the previous plan. So, this means that in 2025, we are like opening the new terminal. We close the previous one. And so, to also carry out the traffic of the opening of the new terminal, we began without delay to build a momentary phase of extension that was already planned. But in our old two-terminal plan, we plan to start expansion only in 2030.
Now we start five six years earlier. So, we brought capex forward, so it’s now a higher amount of CapEx and then a reduced amount of CapEx. Another advantage, so to speak, is the Maintenance CapEx, which we had to invest in the old Terminal.
From now on, it is no longer valid because the old terminal will be closed. Therefore, it is the long-term nominal CapEx that is lower than before because it is less maintenance CapEx. And also when you invest in 10 years, the structure prices due Inflation rates are higher than when you invest now, but this is temporarily a previous CapEx.
So, to move now to the numbers for the. . . we are still excavating and building the new terminal. From 2023, we will spend around €700 million on the new Midfield terminal. Now we want to calculate what the additional charge will be to move the expansion moment phase forward. It will be one hundred million euros, 150 million euros, but we are here in the first initial phase of drawing up plans. So, from the stage in Lima.
Jose Arroyas
Thank-you
Matthias Zieschang
Welcome.
Operator
The next one comes from the lineage of Sathish Sivakumar of Citi. Continúe. Sr. Sivakumar, is now live.
Satish Sivakumar
Thank you. Thank you for accepting my question. I have two questions here. How do you deserve us to think about retail consistently with it, because it is the composition of traffic that is more of a high-end segment, because if you pay attention to Lufthansa, they communicate about expanding their exposure to premium speed next year, that is, turning some of the seats into the economy cabin. Obviously, this will reduce the number of passengers, but what does it deserve for us to see in terms of the combined’s effect on retail spending?
And the moment is the increase in staff, what flexibility do you have if you start to see a slowdown in hiring in airlines that reduce their capacity in winter?Thank you.
Matthias Zieschang
The answer to the first question is, again, it is difficult, because it depends, as you mentioned, depends on the design of passengers in the future. So, starting today, everyone expects more tourists and more recreational traffic, but less business. traffic, but we have to see if this will take place or not.
And we also know that those guys, let me say, use, let’s say, the recreational segment that they have, for the general population, they have a higher average income. So, there is a spending perspective and we have to see if the spending outlook is also the willingness to spend. And it also has to do now with inflation or the final results of inflation in 2023.
Today, in saying what the spending will be consistent with the capita in 2023 or 2024, I think it’s surely too early. Also, what we want to see is whether the – our biggest spenders in my presentation, I discussed the absence of the Chinese, the Koreans, the Vietnamese, the Japanese, will they come back next year?Yes or no. If not, let me say that the existing scenario will continue more or less. If there will be a comeback and I discussed the number of those 4 nations, they are guilty or in the afterlife they were guilty of 30% of the total income. .
Today, we have more or less a general absence of those groups of visitors. If they come back and when they come back, it’s a boost or it will be a boost for our company, but no one can respond or give transparent data when that happens. So, a lot of question marks.
But I think the more brands show upside potential, so if the Chinese and Vietnamese keep coming back, we have an advantage. Otherwise, we continue at this low level. So all of those things show upside potential, but not disadvantages. This is, so to speak, the clever story of this unclear scenario of the moment. I hope I have answered all your questions.
Satish Sivakumar
Yes. Thank you. Perfect.
Matthias Zieschang
Thank-you
Operator
The next one is in the vein of Christian Cohrs of Warburg Research. Continue.
Christian Cohr
Yes. Good afternoon. Thank you for responding to my inquiries. First, perhaps returning to the savings potential, he said giant wage increases and wage increases pass in contrast to his savings. So, so far understood. Now move on to the question of whether you can transfer those value increases to your customers, to airlines over time and it will be fast enough, or there will be a retention and a transient reduction of margins or potential margin.
The moment consults attention floor. In his response to the afterlife inquiry, he said that before taking strategic attention, do you want to fix the business?A strategic attention means that you would be willing to sell the company, because in the afterlife I have understood, I also believe, your claims that having a floor title is a prerequisite for the proper functioning and also for the quality of frankfurt as a center.
Third, thinking about your monetary leverage with the sale of Xi’an Airport, are you satisfied with your existing airport portfolio and the assets you actually own, or are there non-essential items or something you are less interested in, that you would be willing to sell in order at the monetary level?
And finally, could you perhaps provide us with passenger distribution, recreation rather than business in Frankfurt, prospective distribution for 2022?And, because I think it’s turning more toward recreation now, what do you think?Do you have any consideration for the slowdown in customer sentiment in terms of resuming in the future?Thank you.
Matthias Zieschang
Yes. Thank you for your questions. First, the effect of inflation on our business. Yes, first of all, of course, we have an effect on inflation. On the Frankfurt side, 70% of our fundamental prices are workers’ prices. , there is a direct effect of inflation on wages and vice versa. Then, we will see an additional burden due to inflation/rising wages. That is the negative information.
On the positive side, we have the strength of the market to pass those higher degrees of charges to the higher rates of the profit aspect and we are willing to do so. And we have already reflected this in the market. Therefore, our clients know that this is a fair deal, because right now everyone is doing this, that this. . . what we’re going through on the charges aspect, we have to move on to the earnings aspect. So, in short, we convey all the effects of inflation on charging higher appearance fees.
And when we take a look at regulatory mechanisms, i. e. concession agreements, as well as general regulatory systems, it is possible. We have a mechanism, like in Greece, where we take Greece’s CPI multiplied by 0. 9. This is a very mechanism and then reflects the accumulation of fees for next year. And just to give an example. And to date, I think the inflation rate is accumulating between 8% and 9%.
If this continues for the rest of the year, then multiplied by 0. 9, we will start next year with an 8% payout increase. And it’s pretty much the same thing we do at all our airports, of course, adding Frankfurt. And for next year it is already set at 4. 9%. But of course we look at the point and we have an effect on inflation and we have to see what we do in 2024. Yes, of course, there is an annual delay, but we can live with this delay because in the following year, then we pass it.
In floor management, if they tell us a story, we have to fix the deal. We want to return quality to our old levels of intelligence. And at the moment, surely there is no goal of selling the company. We wanted a smart operation here at Frankfurt Airport, again, without the goal of promoting business.
Financial leverage, portfolio balance or portfolio diversification. We sold Xi’an. I think it’s worth it. And it is a minority asset and we have made it clear that also with respect to our 10% stake in Delhi Airport, we have a transparent intention to sell it on the market. And we have to see if in the next 12 months we can carry out this transaction, but it is transparent on our list.
As for the rest of the portfolio, we are surely satisfied. You see the strong contribution of the foreign business in terms of EBITDA and also the net source of revenue figures. So, we feel well positioned, especially because when you look at our assets overseas, it’s obviously a recreational portfolio with greater exposure to recess. And it is precisely these assets that, at the moment, very intelligent and forged recovery figures are appearing.
Greece is number one. That’s for sure. But also, in relation to the other assets, we see an intelligent dynamic. So, we are satisfied and our shareholders can also be satisfied in the next two years when this contribution increases year after year.
And as far as division is concerned, it is a query that considers Frankfurt Airport, because outside of Frankfurt, business does not play any role. So, in 2019, it was relatively similar, not in 2019, it can be said that in the last we have had 40 years: more than a third of our passengers were businessmen, two thirds were vacationers. And that has been replaced by COVID-19.
And also looking to the future, we know that this is now a sustainable structural change, that we have to settle now that there is a strong recovery in the recreational aspect and a modest recovery in the commercial aspect and we do not expect a full recovery in the corporate aspect. This means that we will have to expect that from today the distribution of the long-term equilibrium will be perhaps 20% of entrepreneurs and 80% of recreational traffic, compared to a third, two thirds in the past.
Christian Cohr
Reflections of Merci. Et, given the emphasis on leisure, reflections on the slowdown in customer trust?Do you see the threat that, yes, the smart summer of 2022 may be alone, and the recovery may be short-lived?
Matthias Zieschang
This is a general question: what will be the – we face a recession next year?How deep will the recession be?What will happen in the customer’s aspect? The feeling is low. When you look at the numbers everything is going down. But please also keep in mind that the other people who may see that there is significant relief in the goods of customers, but not in the luxury aspect nor in holiday travel either.
So, right now, it’s the other people who use the cash for fun. There is also a repressed call to COVID-19. La question is, will this also take place in 2023?I think on the recreational side, it will continue. So, I’m not optimistic, but about 2023 on the recreational side.
I’m pretty sure we’re also going on to see a strong summer or even a more potent summer in 2023 and maybe that’s also a mental reaction. So when everyone passes in the direction, everything goes low. So you have to go higher on the vacation aspect, so to speak, to compensate for your frustration with other things. And I think recreational traffic will continue, on a solid foundation in 2023.
Christian Cohr
Very useful. Thank you.
Matthias Zieschang
Welcome.
Operator
Next is in the vein of Morgan Stanley’s Nicolas Mora. Continue.
Nicolas Mora
Yes. Good morning, gentlemen. Just a few follow-ups. On its indication of the EBITDA of foreign airports until next year, more than 500 million euros. I am not sure that he has answered Christian whether or not he has come with the EUR 60 million from Greece. this does not come with the restart of the concession fee. This is number one.
And number two, I perceive that you expected the accumulation of wages of the corps of aviation workers until August of this year. Could you tell us why we deserve to be sure that the same won’t require a large wage backlog in January of next year?That would be it.
Matthias Zieschang
First of all, what he said was that we brought forward the mechanism, which usually happened next year because we had this restructuring contract with the unions and it faded and expired next year. So we use this mechanism to also move forward by motivating other people to work additional shifts, etc. , and observe the overall trend, adding a better perspective for faster hiring of additional staff.
And that means we have what we’ve come forward, that would have been the overall burden next year. It doesn’t come to mind. And also what I said, we now have an ordinary burden for additional shifts. We assume that with respect to a greater number of employees, we have in floor management from January next year, in combination with a much more balanced traffic. The day.
So, we — the explanation of why the extra prices are no longer given because if everything is balanced and the floor is much bigger, there is no need to have more equipment. And then we can also reduce the 700 guys we have now to use it with third parties: service providers.
So, in other words, it’s not that we continue with this higher rank base and other things will come next year. So, and in terms of wages, we have a special pricing agreement for FraGround for this subsidiary for all the other workers we deploy or employ at Fraport AG.
We have a tariff agreement called TVöD. Il is a tariff agreement for all officials in Germany because the negotiation is between the Minister of the Interior on one aspect on behalf of. . . I think 3 million civil servants in Germany. We will therefore have to settle for what you are going to negotiate. And the smart thing is that government budgets are in deficit. Therefore, there is no scope for rate increases above the maximums. Therefore, it will be greater than in the past. That’s for sure, but we don’t expect incredibly high pay raises. That’s why I said that for next year we calculate that 5%. This is more than 2% more than in the past. But those are not double-digit numbers, which can occur in other sectors of the industry. But even if that happened, which we don’t expect, again, we would use a tariff-aspect movement mechanism to cover additional prices on higher revenues with higher rates.
Nicolas Mora
So, a new transparent surprise, we think, for example, of the Lufthansa staff who get a fee of 15% to 18%. Isn’t there a threat of an 8-10% pay raise in January?
Matthias Zieschang
No. La difference is that Lufthansa has other teams of employees. And for the group, they have a so-called domestic rate agreement. We only have a pricing agreement for homes on the FraGround side. The rest, we are under the canopy of this tariff agreement of the official, so for us it is a kind of coverage because there is no special force of blackmail, contrary to a single airport. If they strike, they have to strike with 3 million of those officials.
Nicolas Mora
Excelente. Ouais. Et in Greece because it is: we are talking about a prospect of EUR 60 million or so. So just in terms of the timing of this reboot, is it included in your $500 million indication for next year?
Matthias Zieschang
Let me say that lately we are in talks with the Greek government to get more compensation for COVID. This is still under discussion. To this day, I can’t tell you what the final results will be, because it has or will have influence for 2023. But that initial address is not included.
Nicolas Mora
It is ok. Heard. Thank you so much.
Matthias Zieschang
Not at all.
Operator
[Operator Instructions] We have a consultation of Ruxandra Haradau-Doser from Kepler Cheuvreux. Continue.
Ruxandra Haradau-Doser
Yes. Good afternoon. I apologize for the technical disorders now. I disconnect the call. I therefore apologize if I make a query that has already been answered. First of all, about Greece, congratulations on the functionality here. year. Given the functionality of the traffic in July and the capacity announced for the 3rd quarter through the airlines, the traffic forecast for the total of the year is very conservative. A drop in traffic of more than 20% would be needed between August and December. in a full year with a recovery of only 90% compared to 2019. And how is the group’s EBITDA affected by a 10% replenishment in the accumulation of passenger traffic?
And he discussed that the functionality of the retail industry in Greece has evolved positively. Could you provide the main points on the accumulation of retail profits consistent with passengers in the summer?Then, at Frankfurt Airport, have you proposed an incentive program for next year?? And if so, please explain a few main points. On slide 7, he discussed that, in this year’s incentive program, guidance consistent with restricting new passengers will involve EUR 30 million recovery incentives for airlines. consistent with the right concept, some of them have already affected H1 functionality. Does this mean that your baseline situation in Frankfurt is that you will be on the rise with the traffic guidance part this year?
And then I have a technical consultation about the G spring. Construction is complete. Capital expenditure ended but the pier will not be commissioned until 2026. Does this mean that the capital expenditure for Pier G will be included one hundred percent in the RAB until commissioning and will be reduced to 50% thereafter. Thanks a lot.
Matthias Zieschang
Yes, Ms. Haradau-Doser. Thank you for your inquiries. We were expecting the consultation in the first pass, but he told us that he had technical problems. Frankly, we were surely surprised by the July figures. Therefore, no one expected to have much more traffic than in 2019. So it’s surely a positive wonder for us. And with other words founded on this wonder, yes, our perspectives are conservative. I can fully verify it. So whether in the fourth quarter there will be 20% less or not, I don’t know. Starting today, I would say that the trend is possibly my friend and the positive trend will continue, but I can’t say for sure.
So, it’s more important than your query 1b, what’s the effect of 10% more passengers?So we have. . . it’s relatively simple, we. . . the passenger who leaves, lately we are charging € 18,50 more.
What we have in detail is 1 €, just one minute, to give you the exact number again. That’s €1. 20 according to the passenger. Then 18,50 € divided into two, nine €. So we have about €10 of EBITDA contribution consistent with the passenger. So, 10% more is only about 3 million euros. EUR 3 million for EUR 10, we are talking about EUR 30 million.
Christophe Nanké
Minus the variable component.
Matthias Zieschang
Yes. Of course, minus the variable percentage of 28%, so at €10 per passenger minus a variable component which is about €3, so the net effect is €7. Therefore, it is an undeniable calculation. And again, retail in Greece. The exact figure was €1. 18. This is therefore double compared to last year.
And it has to do with yes, restaurants and F
And back, bending is good. And we think there are even more possibilities in the next two years. We will not be back next year. That’s for sure. But let me say that the double-digit percentage increases in retail are, in our view, realistic.
So we had the incentive system. We return to the Frankfurt incentive program for this year. We, the incentive program operates from 44. 5 million passengers. So why? As we expected this as a maximum before, we said, if there is a positive price, we are willing to percentage with the airline.
So the threshold, for this year, is 44. 5 million and every time the number of passengers is higher, percentage 50% of the additional profit with the airlines. And now it’s simple.
We have for the full year: we expect a profit split of 30 million euros. That is a total product of 60 million euros. And we estimate five million euros more. So about 49, 49, five million passengers, five million euros above the threshold, 12 euros.
It’s 60 million euros divided into two, 30 million euros that we have to return to the airlines. And of the EUR 30 million, we have already set aside EUR 15 million for the first part of the year. Another €15 million will be released in the current part of the year. And then, we have to see if it’s too positive or not. If this is too positive, of course there will be a release of provisions.
For next year 2023, along with a 4. 9% payout increase, we also have a new incentive program for 2023 again. And here, the threshold is EUR 59 million. So if we end up with more than 59 million euros of passengers, then the same story. For example, it would be 62 million euros, and then we will have 3 million euros more multiplied by two, and that would be returned to the airlines. .
And your fourth question, Muelle G. Yes, the CapEx is already included in the representative. It remains one hundred percent in the representative, until the day we open Pier G. And as of today, it is in combination with the entire summer season. of the terminal or daylight saving time in 2026. And then of course there is a 50% discount.
Ruxandra Haradau-Doser
Super. Thank you so much.
Matthias Zieschang
Welcome.
Operator
There are no more questions at this time. And I turn again to Christoph Nanke, for the final comments.
Christophe Nanké
So, thank you all for your interest in our call today. Thank you all for the smart questions and discussions. We will continue to be available on IRR. I wish you a good end to the day. And not fly. Thank you.