Flughafen Zürich AG

[Foreign Language] Ladies and gentlemen, welcome to the presentation of our company's half year results 2017 at Zurich Airport. I also welcome the attendants who are connected via telephone conference and would like to remind these attendants that the analyst presentation is available on our web page, zurich-airport.com.

We had slight technical problems this morning in publishing all the documents. Sorry for this inconvenience that we got a little bit later than usual today.

But now everything should be in perfect shape on presentation again. My name is Stephan Widrig, the CEO of the company, and I will host this presentation together with Lukas Brosi, our CFO.

In order to structure the conference properly, we will go through the presentation first and then take your questions at the end. I will start with the business update and give you some insights on strategic topics before our CFO will provide you with detailed information on our financial performance followed by a brief outlook.

At the end, we will have enough time to answer your questions. Flughafen Zürich AG can look back on a very solid first half year 2017.

In the first 6 months, traffic in Zürich was very strong, with local and transfer volumes both on a positive trend and above the European average. During summer holiday season, we have seen peak days, with all-time record passenger figures well above 100,000 per day we had last year.

Outside of Switzerland, Flughafen Zürich AG was awarded 2 airport concessions in the first half of 2017. The first one is a 30-year concession for the expansion and operation of the international airport in the Southern Brazilian city of Florianópolis.

Flughafen Zürich AG will hold 100% of the airport, with a license to operate it until 2047. Airport Chile, in which Flughafen Zürich AG has increased its 49% stake to 100% stake in spring 2017, won the concession for the international airport in Iquique.

The concession gives the right to expand and operate the airport beyond the end of the current operating license. The new concession will have a variable traffic-dependent term from a minimum of 18 years up to a maximum of 25 years starting in 2018.

And in March 2017, we completed the transaction to sell our remaining 5% stake in Bangalore International Airport Ltd in India. This sale resulted in a one-off gain of CHF 31.4 million in the first half of 2017.

Lukas will elaborate on the international business later in the presentation. Thanks to our continuing solid financial position, Standard & Poor's confirmed its A+ rating at the end of April this year while at the same time underlying the favorable prospects by adjusting its outlook to positive.

In early May, we successfully obtained refinancing on the Swiss capital market after a bond for CHF 250 million with a coupon of 2.25% matured. The company issued a 12-year bond for CHF 350 million consequently benefiting from the low interest rates.

The new bond has a coupon of 0.625%. Refinancing will, therefore, have a positive impact on the financing cost of the company.

On August 23, the Swiss Federal Council has approved a revised aviation master plan for Zurich Airport called SAIP. This plan plays a crucial role in the long-term development of Zurich Airport and allows revised operating regulations.

We welcome these revisions as they include important improvements, which will reduce operational complexity, and therefore, also enhance in the long-term capacity increases. In particular, the revisions include the definition of new take off routes and the option to stabilize capacity and the difficult weather conditions as well as increase peak hour capacity on runway 28.

Let's now have a closer look at traffic figures between January and June. 13.7 million passengers use Zürich Airport as their departure, transfer or destination airport, an increase of 8.6%.

The number of local passengers rose by 6.1% and the number of transfer passengers by 15.7% compared with the same prior year period. The proportion of transfer passengers was up from 26.9% to 28.7% of total passenger volumes mainly due to larger aircraft of Swiss.

The number of flight movements climbed by 1.4% to 131,000 takeoffs and landings in the first half of 2017. The seat load factor per flight movement rose also from 73.4% to 75.4%, and the average number of passengers per flight movement from 112 to 120 passengers per flight.

The freight handled at Zürich airport also increased by 12.5% to a total of roughly 230,000 tons. On the commercial side, total sales for retail and gastronomy at Zurich Airport amounted to CHF 271.7 million, an increase of 5.9%.

On air side, the revenues increased by 10%, thanks to high passenger volumes, especially in the transfer segment. Restaurants and high-end retail outlets performed particularly well.

Despite generally difficult retail environment, we managed to maintain stable land side revenues. The food segment, including the supermarkets, performed better than the nonfood segment as the latter is increasingly impacted by online competition.

The average concession rate stands currently at 27 -- 20.7%. From mid-August until December this year, our duty-free partner, Dufry, will completely renew concept and look of its airside and arrival duty-free stores, further increasing the attractiveness of the airport shopping experience.

However, the total refurbishment of the duty-free shops will have an impact on sales and revenues of the airside commercial business in the second half of the year. Our large-scale project, THE CIRCLE, is progressing well.

The foundation stone-laying ceremony in March marked an important milestone in the realization of this major project. In some areas, the concrete for the second story has already been poured, while in others, the piles are in place.

Work on Phase 2 started also in July 2017 and will be completed around the same time as Phase 1. The pre-letting quote currently stands at 50% and marketing activities are encouraging.

Our stores for storage concepts react perfectly to the transformation in retail happening right now and is being well received against the backdrop of major changes in the retail industry overall. The partner selection for our 12 restaurants is also making good progress.

The letting of office space is continuous in the challenging market conditions; however, many conversations with potential tenants are showing that the combination of excellent location, attractive usage mix plus the quality of the flexible rental space does meet the demands of the market, and we do not expect to adjust prices. The cost projections are in line with the budget, and the completion of the construction of THE CIRCLE is scheduled for end 2019.

Revenues will become visible as of 2020. With this, I'm handing over to Lukas for an update on the international business and the financial part of the presentation.

Thank you, Stephan. Good morning, ladies and gentlemen.

Welcome, also, from my side. Let me share some thoughts on the international business first.

The latest transactions underpin our international strategy. We are targeting airports where we can combine investments with a strong operational and commercial roll to generate superior returns with either minority or majority investments.

Along with the 2 regional airports in Chile and the Brazilian airports in Belo Horizonte and Florianópolis, we are also actively involved in 2 further airports in Bogotá and Curaçao. Latin America will remain our core market.

The total committed investments in LatAm amounts to roughly CHF 200 million, and the expected IRR related to these various project business is on a low double-digit level from a Swiss franc perspective in real terms. Our second focus market is Europe, where the company is interested in Belgrade airport, for which we might submit an offer in October, given a positive outcome of the due diligence, obviously.

Although we divested our remaining shareholding in Bangalore Airport, South and Southeast Asia remain a focus area for us as well. As international business is gaining in importance, let me summarize our motivation for this strategic pillar.

First, we have to secure long-term growth prospects. The airport's layout in Zürich is given with 3 runways.

Although we have no short- or medium-term capacity constraint, in the very long term we have defined growth limitation in our core business. Second, the international business maintains the profitability of the company.

General pressure on tariffs have to be addressed with value-creating activities in all the businesses. And last, but not least, international business provides further diversification of the revenues generated here in Zürich.

And now switching to the figures part of the presentation, starting with the key figures, including noise components. Revenue increased by 1.7% year-over-year to CHF 488.8 million.

The growth is mainly attributable to the non-aviation business. Earnings before interest, tax, depreciation and amortization, the EBITDA, was up on the prior year figures to CHF 271.6 million.

The EBITDA margin improved to 55.6%. The finance result of Flughafen Zürich AG amounted to CHF 7.3 million in the reporting period.

The main reason for the positive change is related to the valuation of noise provisions. Whereas an expense of CHF 5.6 million was incurred in the previous year, a noncash income of CHF 1.1 million was generated in the reporting period.

Profit remaining for the first half of 2017 amounted to CHF 143.2 million, a result of positively impacted, in particular, by the sale of the remaining 5% interest in Bangalore Airport, which contributed to post-tax gain of CHF 31.4 million. Excluding this one-off gain, profit is up by 7.7% to CHF 111.8 million.

The financial key figures, excluding all noise-related line items, provide you a more accurate view on the operational performance of our company. The figures look broadly the same except for the before-mentioned differences in the financial result related to the valuation of the noise provisions.

On a like-for-like basis, profit, excluding noise impact, increased by CHF 1.2 million, or 1.1%, to CHF 109.5 million. Let me continue with some additional top line information on the aviation segment.

Due to the lower airport charges in force in September 2016 on the higher -- and the higher proportion of transfer passengers, aviation revenue in total rose by just CHF 200,000 to CHF 292.4 million despite a strong passenger growth in the first half of the year. Revenue from passenger-related airport charges declined from CHF 198 million to CHF 193.4 million.

The lower charges were partly offset by the passenger growth. The new charging model also saw changes in parking and landing charges, which positively impacted the total flight operation charges, which in some decrease by 0.6% to CHF 256.9 million.

The positive trend in aviation fees, which increased by CHF 1.8 million to CHF 33.9 million, is attributable to volume effects. Movements between charge items are due to the user fees being formally introduced and adopted together with flight operation charges last year.

I'm now moving on to the non-aviation business. Non-aviation revenue increased by CHF 7.9 million to CHF 196.4 million.

In particular, commercial revenue climbed by 8.2% to CHF 56.3 million. The passenger growth in the first half of 2017 had a particularly positive impact on airside commercial revenue.

The growth in local passenger numbers also resulted in higher parking revenue, which rose by 5.5% to CHF 38.1 million. In the facility management segment, revenue totaled CHF 60 million.

Cleaning and service revenue was down mainly because of less services provided to third parties. Because of the increasing importance of the international business, the related revenue will be reported separately going forward.

I will come back to this later in the presentation. Let's switch from revenue to the development of our cost base and other important key figures.

Operating expenses rose by 1.1% year-on-year to CHF 217.2 million. The personnel expenses were up by 2.1% to CHF 97.6 million due to higher average headcount and higher contributions to the pension fund.

Expenses for police and security increased by 1.2%, and therefore, disproportionately lower compared to the growth in passenger numbers. First half of 2017 saw costs for energy and waste rising by an above average 19.7% to CHF 10.4 million due to higher procurement prices and higher consumption in the reporting period.

I expect those costs to normalize on a full year basis. Sales, marketing and administration expenses, on the other hand, fell by 5%, thanks to cost discipline.

Please let me now outline some key figures focusing mainly on the right-hand part of the slide the numbers excluding the noise components. To allow a better comparison of the operating performance, the numbers are excluding one-off effects.

The EBITDA margin increased from 55.1% to 55.4%. At CHF 117.7 million, depreciation and amortization increased by CHF 5.2 million.

This is mainly due to the completion of Terminal 2 and the commissioning of the Parking 6 extension. The reported savings in the finance result are mainly attributable to the before-mentioned bond transaction and lower leasing liabilities.

Excluding the divestment of Bangalore Airport, associated companies show a noncash loss of CHF 1.3 million, which is mainly due to the accounting policy for concession fees in Brazil. During the first 6 years of the 30-year concession, the airport in Belo Horizonte will negatively impact our financial results before this accounting effect will be reversed.

Due to higher burns of cash and cash equivalents in combination with lower leasing liabilities, net financial debt is down by CHF 115.9 million to CHF 661.7 million. Net debt-to-EBITDA currently stands to 1.15x.

The return on invested capital is at 8.8%, whereas the equity ratio stands at solid 60.4%. And last, but not least, the company has generated CHF 90.6 million of free cash flow.

I will give you now some information on the segment reporting according to IFRS. The decline in return in the regulated business segment is mainly attributable to the lower charges introduced.

In addition, depreciation expenses in the regulated business segment slightly increased. The decrease in return on invested capital from 14.3% to 13.5% in the nonregulated business is mainly attributable to the higher nonregulated asset base, which is a result of the investments in the THE CIRCLE.

Let me give you some information on CapEx. In the first half of 2017, Flughafen Zürich AG invested a total of CHF 76.1 million in projects in progress.

The proportional share of investments in THE CIRCLE, reflecting our holding of 51%, amounted to CHF 47.7 million. Furthermore, the largest investment comprised in preparation work for the project called Zone A, which includes the replacement of the baggage sorting system with CHF 7.3 million, additional aircraft stands with CHF 6.6 million and the refurbishment of Parking 1 with CHF 2.9 million.

The other low investments in the first 6 months of the year are mainly due to the seasonality as civil engineering works tend to be during the warmer summer months. On top, investments for THE CIRCLE are now increasing given that the construction of the buildings has started.

With this, I hand back to Stephan for the outlook.

So let's look at what is ahead of us. First of all, I would like to point out what to do as we do not expect a significant impact from the current situation of airberlin for Zurich, mainly as we expect that capacities on routes currently served by airberlin will be taken over from other carriers in the next months.

Otherwise, the relaunch of the Zurich Beijing route operated by Air China marks a particularly important achievement in attracting new carriers to the airport. The Chinese flight carrier ended its operation in 2000 and is now returning with a nonstop service, offering 4 weekly flights on A330 aircraft, with the target increase to a weekly -- to a daily capacity.

This summer, Edelweiss started direct flights to Cancún, San Jose and San Diego. The destinations will be operated as year-round services, except for San Diego.

Edelweiss has also already announced new routes to Denver, Orlando and Varadero for summer 2018 and will add one more wide-body aircraft by autumn 2018, with additional intercontinental destinations to be announced. Furthermore, several carriers strengthened our European network by adding new destinations or additional flights.

Worth to mention, it's a steady growing network of easyJet that is currently serving Zürich from 8 cities as well as Germania and is mostly operating flights to leisure destinations. Finally, capacity growth at Zürich will be impacted by the still ongoing fleet renewal of our home carrier, SWISS.

All aircraft are scheduled to be delivered until the end of 2018, with substantially more seats per aircraft. Lukas will now elaborate on the financial outlook.

Before presenting an update of the 2017 full year guidance, please let me first point out the impact of the consolidation of Airport Chile and Florianópolis. For both entities, we will consolidate the revenues in the line item international activities as part of the non-aviation segment going forward.

To have an idea of the magnitude, you can see the 2016 figures on the slide. Please note that for Florianópolis, we will consolidate the revenues only as of 2018, but already this year, we have to bear startup costs in a mid-single-digit million range.

These costs have been anticipated in the business plan of the project. Further, let me highlight the impact of the concession accounting rules according to the international standards for the CapEx spent in the airports abroad.

The airport operators in our concessions recognize CapEx for construction costs as an intangible asset on project level. Consequently, CapEx has to be reflected in the P&L as operating cost and increase in the intangible asset as revenue at the same time.

The related revenues and costs of the concession accounting essentially offset each other, resulting in a neutral impact on EBITDA. With this, let me finish my part of the presentation with the full year guidance 2017.

Flughafen Zürich AG is expecting passenger growth of around 6% for 2017 based on, in particular, by the positive trend in transfer passengers. Aviation revenues tend to be only slightly higher.

The reason is on one side, the lower passenger-related charges, and on the other hand, the increased transfer share. Non-aviation revenues are expected to be higher, in particular, due to the concession accounting related to the international business.

OpEx will be higher, impacted as well by the international business. EBITDA and net profit are expected on previous year's level.

Investments for 2017 will be in the region of CHF 250 million to CHF 300 million. The guidance is factoring out any one-off effects.

An overview of the one-off effects is on the slide. On top of the Bangalore divestment, we are expecting another liquidation dividend from the former Swiss Air Group in the second half of this year.

So we have reached the end of the presentation. We now open the Q&A part.

First is the questions from the attendants here in the meeting room. After that, participants on the phone will have the opportunity to bring up their questions.

May I ask you to introduce yourself with your name and your company before asking your questions. Participants in the room, please use the hand micro.

Floor is yours.

[indiscernible] on the commercial business margin. So you have 20 bps improvement.

Is that all related to the airside performing better than the landside? And could you please give us a bit more visibility on the impact from the Dufry refurbishments.

So in terms of how long does it take them to refurbish the store and what kind of impact should be assume on the margin? Second question on THE CIRCLE.

So you mentioned you were very happy with the marketing so far. Could you please give us a bit more insight on the percentage that is already committed and if the rents are higher than should be expected?

And you did mention earlier that the rent was very interesting from a flexible point of view, if you could elaborate a little bit on what specifically that is. And on third question, last one please, on M&A, so if I remember what is your target, 3x, 3.5x net debt-to-EBITDA, you had about CHF 1.1 billion divided between extraordinary dividends of between CHF 500 million and CHF 700 million of M&A headroom.

So you have about a few hundreds that is spent for Brazil. How much would then Belgrade be?

And are you looking at any other projects?

So I'll start with the commercial questions. The margin, obviously, is positively impacted by the disproportionately higher share of commercial business on airside, but also tend to increase because of ongoing, let's say, portfolio management of existing contracts.

The Dufry construction duty-free impact has started after the summer vacation, obviously, because of the peak situation during the summer vacation months. Construction has now started.

We tend on a full year base that commercial revenues will be slightly above previous year's numbers. So this means that from the relatively positive result in first half 2017, we expect a visible deceleration in the second half of the year, mainly driven by the impact of duty free, but turnovers and revenues of commercial are still overall positive for 2017.

With regard to your question to THE CIRCLE. Since we decided to also construct Phase 2 at the same time as Phase 1 based on the good sales, now we are back on overall percentage of rent [indiscernible] of 50% roughly, 2.5 years to go till the opening.

We are quite comfortable with this. At the end, it's a mix of fixed rent, for example, with the hospital, with the university hospital, with a fixed space and upside potential, for example, with [indiscernible], with Dufry, with the hotels, and then of course, it the midterm also with an evaluation potential upside with the rents once the destination as such is established.

We see especially also in the retail segment a large transformation happening, which goes exactly in the direction how we positioned THE CIRCLE from a very early stage that this is not another shopping center for Switzerland. Shopping sales will happen more online, but the physical presence will more focus on branding, on showrooming, and we see that lot of brands, not just in the classical, let's say, fashion retail, but also how you sell cars, how you position yourselves as a technology provider, that part is looked for such presence that we have here.

That's more a commercial front. Then in the office rent part of the project, we definitely do not want to discount the rents that we have.

And therefore, we do not go for the bargain hunters, and we wait till we have the right tenant for the right rent. But the discussions we have given us a clear sign that the product of THE CIRCLE is clearly above the standard of this product.

And the prices that we ask are not much above these other prices. So I think the market receives it quite okay, and we do not intend to adjust the prices of the rents in the office market.

And I think also lot of international firms with not this large number of employees, they do not decide that off 2.5 years ahead, especially not if you have an oversupply. And therefore, lot of these tenants will decide 1 or 2 years prior.

So I think we are -- we feel comfortable on the marketing side of THE CIRCLE.

On M&A and the potential leveraging on the balance sheet, if I understand you correctly. Well, please let me make clear that the 3x net-debt-to-EBITDA is not the given target that has to be achieved within the next year.

It's more the other way around in sense that will be maximum leverage that we feel comfortable, achieved by success in the international business. And I think it's important to distinguish because that we have not changed our strategy in the international business being more risky on the investment approach.

We remained cautious and opportunistic as we've been before, focusing on our focus regions. If we do see projects where we can secure the value-creating aspect as set in our strategy, then we are more than happy to announce further success in the international business.

But there is no investment pressure in a way that we do have to achieve a certain leverage ratio on the balance sheet. On the payout, we have paid now for the second time an extraordinary dividend out of the capital contribution reserve in the amount of CHF 100 million per annum.

We still have firepower to do so for the next years. And unless we have not depleted the capital contribution reserve, we will not change the dividend policy in short or medium term.

Good. Next one.

Mr. Furger?

Is it okay for you?

[indiscernible]

Wait, wait, wait. Take the micro first.

How much would Belgrade represent?

In terms of investment, it would be a low 3-digit million amount, depending on the shareholding, obviously.

Good. So we change to Mr.

Furger from Vontobel.

Just -- sorry, a follow-up question on the whole retail situation. So you mentioned that commercial revenues will be slightly up this year, including the Dufry renovation.

This would imply substantial deceleration in the second half. Could you please mention on which number you're referring this to?

And then also with regard to the concession margin, if I'm not mistaken, last year there was a timing impact in the first half year. So the improvement -- what is really the underlying improvement now?

Then in the second half, which is typically stronger, what will be the impact from the Dufry renovation on the concession margin? Or put my question differently, in terms of square meter maybe, how much of the space will be impacted by renovation and when does this end?

And then my second question with regards to airport charges. Here, if you could just give us maybe a bit more detailed impact on different segments, such as passenger landing and parking.

What do you think is the net impact of the lower airport charges as it's tough to derive this impact from your numbers? Also, with this regards, the ongoing discussions on the start towards south, so called huge starts, what would be the impact on your CapEx in this regard?

Thanks for your question, Pascal. Obviously, we do not comment all of them in full detail.

But the deceleration in commercial revenues in the second half purely comes from duty free. All of the duty-free shops will be affected by the construction.

So all of the departure shops, all the shops in the gate and also the arrival shops. There was a base effect last year, which negatively impacted half year result, which was because of deferrals we had to take at the half year 2016.

And on the impact, your second question on tariff was, to give a magnitude, the impact -- the financial impact of the lower charges result in roughly CHF 20 million negative impact on tariffs in the first half 2017.

Maybe just one addition to clarify on the duty-free sales. We do not expect them to be -- on a full year period to be lower than last year.

But definitely, the second half will be lower than the first half of the year. That's more or less the impact.

And of course, the growth will come only next year, with new shops and new contract. On SAIP2, on the long-term aviation master plan, you asked what is the impact on CapEx.

First, we have to see that this is just the foundation, and we still have a few years of regulatory and legal procedures ahead of us. So we expect to implement the noninfrastructure-related measures roughly in 5 years that will be the straight, that will be the increased capacity we start to divest.

And all these aspects will not need any CapEx, because these are just new routes on the existing infrastructure. So that's from an investor perspective, a very good thing.

What will need CapEx will be than the extension of the runway, which also has its foundation here in the SAIP2. The extension of the runway will not increase capacity that much because it's only a stabilization that all aircraft can land on the same runways and all aircraft can start on the same runway.

So it has more a stabilization effect on certain weather conditions. So the second part of the runway extension will have a CapEx impact, but this is in 10 years roughly.

So this is still very long way ahead. So the good thing on the one hand is that the capacity-related aspect will come first and will not need CapEx, while the more stabilization effect in the evening will need a CapEx only in about 10 years when all the procedures and legal proceedings will be completed on their part.

Is that okay for you, Mr. Furger?

So to who can we change now?

Jannick Dousse from Crédit Suisse. I have 2 questions.

We have seen some kind of a switch from more -- to more transfer passengers. Can you maybe tell us whether there is some certain targets that you have in terms of share of transit passengers?

And also, what is the commercial impact, basically of having more commercial passengers? And then on the second question is on THE CIRCLE.

I seem to recall that the renting, the pre-letting of the retail spaces are -- is going very well and the office is a bit less active. Do you have any moving -- do have any space in -- in basically, going for another usage or is this very fixed at the moment?

Your question in terms of transfer passenger, transfer is purely driven by SWISS switch, reflects more than 90% of transfer passengers in Zürich and the driver behind the current development is obviously the rollout of the long-haul aircrafts, the 777 and the C Series. Please bear in mind that the C Series which is in the rollout is in progress have rather a higher impact on transfer because they are doing 3 to 5 rotation a day, whereas, the long-haul aircraft only do 1 rotation a day.

So this -- that current ratio year-to-date, we are roughly 28% transfer passenger. And I think, the magnitude of being around 30% is what we expect to be the transfer share going forward on a normalized basis without this current rollout impact.

The impact, obviously, of transfer passenger of -- for the commercial business is visible already in the half year numbers, driving, especially, retail business and food and beverage on airside, leading to this roughly 10% growth we saw on turnover of the commercial business on airside in the first half year 2017.

And obviously, the impact of transfer passengers to retail, also, it's -- very much depends on the destinations, probably more than on the transfer share. So for example, you can see the Chinese are back.

You see this clearly in the first half year result. If you have more transfer segments from Asia, Russia, traditionally, also markets which have a high luxury tax, then you profit over-proportionally then on the classical Northern American routes, for example.

So probably the bigger impact on retail is from where does the traffic comes and what is the exact transfer versus local share. But definitely, it has rather a positive impact than a negative one.

On THE CIRCLE, if I understood right, the question was whether we intend to change the concept slightly to respond to the office market cycle. There is a clear no on that question.

For us, THE CIRCLE has 7 different modules. It's not just an office project.

We always have our 25% is hotels and convention. We have this 10%, 15% with the health segment, hospital segment.

We have then the commercial part with the Brands & Dialogue and the gastronomy. And then we have the headquarters segment.

And there is a certain logic of usages that we intend -- we need to establish Zürich Airport also as a strong urban city location with address quality and ambience. And we also definitely are convinced that this is the right place for headquarters, for international headquarters, not so price-sensitive on the rent to have them also in the system, but at the end, has also the additional positive impact on the overall, be it parking, be it retail revenues.

And the office side because usually have 5-, 10-year cycle, while we build here something for 30, 40 years, and while we change also the landside phase of the airport. So there's definitely need at all to change the concept.

Because we believe it's the right one for the future because the business plan also foresees a certain flexibility in year 1 or 2, in terms of occupancy rates, and it would not make sense to change something because of a short term cycle. Next question?

Mr. Rechberger from the Zürcher Kantonalbank.

Just regarding rental and leasing agreements, you had a negative trend of 0.6%. Why was that?

And then usually, you gave us sometimes -- or sometimes you give us a vacancy rate on your portfolio. Can you give us this number again?

Well, the slight decrease is coming from mainly as we also recognize services we're providing for third parties in that business segment under this P&L line item. And the services provided for third-party has decreased as the main reason for the decrease in revenues for rental and leases.

That's because the experts working in that department are currently used for our larger projects we are constructing ourselves and therefore not being available to provide service or less service to third-party. That's the reason.

Vacancy rates still low between 1% and 2%, nothing has particularly changed.

So on the one hand, that's a very positive message that our vacancy rate is probably lower than any other real estate company. But we have, for example, with THE CIRCLE, quite a few companies that say, "We need something in 1 or 2 years.

Could we have something at the airport in the meantime and then change to THE CIRCLE at the opening?" And we simply don't have large vacancy space so far.

But that shows us also that there is a certain pressure to increase space here which also will work for THE CIRCLE and makes us comfortable at least 100,000 square meter of office space we already now have at Zürich Airport, that will absorb the 40,000 square meters that will be added by THE CIRCLE. Any more questions in the room?

No? Then we change to the questions by phone.

I have 2 small questions. The most important one is with regards to airberlin.

What could be the potential impact of the bankruptcy of airberlin? And then more specifically, if you expect traffic to be replaced by other airlines, how long could this take?

And then second, on the same topic. Would it be correct to say that contrary to what Vienna Airport indicated, that you will not face a dilutive effect on aviation revenues.

Because if I remember correctly, you do not give incentives to any airline, but only quantity discounts. Is that correct?

I'll take that. So the second question is simple.

That's just, that is correct, yes. For the first question with regard to airberlin, these routes airberlin serves has a very robust demand.

On the one hand, it's to, I would say, German cities. On the other hand, it's to lesser destinations in Southern Europe.

And it's not network traffic that we generate here with airberlin. It's point-to-point traffic, where there is a high demand on slots that are very wanted.

Also, we outlined a little bit, for example, easyJet, [ Germania ], also Veuling, has increased its presence in Zürich over the last 1 or 2 years. And so besides a certain part of this share that probably will go to Lufthansa Group, and thereby, also to companies closely associated with our home carrier, SWISS.

There are also other carriers ready to take routes to the airberlin destinations and these slots are very wanted. So we do not really expect an impact on the traffic figures due to Berlin.

Maybe a little bit on a more strategic observation, airberlin, Alitalia also are clear signs that consolidation of airlines within Europe happens, will probably, if you compare it to the North American market, there is still consolidation ahead in Europe. And that at the end also will increase probably a little bit the competition among the network carriers hubs.

And here also we are -- we think, we are quite good position for such increased consolidation of European airlines because we have good geographical location in the heart of Europe. We have a very, I would say, financially sound home carrier with SWISS, who is I think, also contributing substantially to the success of Lufthansa.

And if you look at our cost structures, at our tariffs, we are substantially lower than a Frankfurt or a Heathrow, we are -- despite the higher costs and the higher revenues in Switzerland, we are on same cost levels as Munich or Vienna, for example. So I think, this also helps us to be well-positioned in this consolidation.

This shows also what happened this year with the reduced tariffs, compensated by the growth, but that we can still maintain a very sustainable business case. And that needs also that we continually also try to reduce costs to be competitive, and that sometimes needs also a tariff reduction to remain competitive and we still can -- compensated on the P&L as you can see.

And then I have another question with regards to CapEx. Because at full year, you guided for a total amount of roughly CHF 300 million.

Now that guidance has been lowered slightly to CHF 250 million to CHF 300 million. THE CIRCLE was CHF 130 million with the publication of full year '16.

Can you please explain what kind of moves we see in CapEx spending, and how will this evolve during the second half of the year? Because also for the additional stands, you lowered CHF 5 million in CapEx spending.

So I'm just curious, is this because of delays in projects or are things becoming cheaper or is the process becoming more effective? Could you please share your thoughts on that?

Well, when we do our, let's say, medium term outlook on CapEx, this is always based on, let's say, master planning pipeline of projects which during planning phases and during construction, can see slight changes in terms of the timing, et cetera. And you're absolutely correct that the reduction in CapEx is a combination of, let's say, seasonality driven or shift from this year's CapEx to next year's CapEx and also combination of having success in the construction work we are tendering out.

I wouldn't say that, in general, we do see a delay of projects. But as you can imagine, we want to give to the Capital Market Day, rough guidance on medium term on getting more and more precise when it comes to concrete year-end project that develops and this under construction.

There is also, say, within the year certain seasonality involved, especially, visible this year, as we do see a majority of investments now in the second half of the year with the total we have mentioned to CHF 250 million to CHF 300 million in total.

I have first 2 follow-up questions. First, what share of slots of airberlin does Zürich have during peak hours?

And then a follow up on the different modules of THE CIRCLE. Well, you have been looking for quite some years for tenants for the office space without success.

So if this doesn't change over the next 1, 1.5 years, would you prefer discounts for potential office tenants or would you have the flexibility to allocate office space to other modules, where there might be more potential tenants? And then also on THE CIRCLE, what is the share of people that work today at the airport and that drive to the airport?

And what share of the employees that drive to the airport, work in shifts? And then at full occupancy level of THE CIRCLE, what share of the employees in THE CIRCLE do you expect to drive to the airport?

And from the 950 parking places I understand you have allocated to THE CIRCLE, how many have been rented already to the tenants that you have? I suppose that in such a building many companies and the hospital will need parking places for visitors.

So with regard to your first question, the slots of airberlin, that depends on the one hand, who buys airberlin and in what kind of -- do they take over all of Berlin, do they take over parts of Berlin, the slot is usually linked to an AOC to a company, for example, Niki would be a different company than Belair than airberlin. So it's not a simple answer possible to your question.

And then, usually, the incumbent has an historical right on the slot and for the slot that no -- whether the new buyer would not be interested, then it will be distributed to, simplify, half to the airlines present in Zürich and half to airlines not present in Zürich. That is a very -- there is a European regulation on how these slots can be given.

The only exception is U.K. In U.K., you can auction the slots in the rest of the European Union and Switzerland applies to this regulation and auction of slots is not allowed.

But I think, it's a very, very minor issue for us. Because also on the competitive set, you have to compare airberlin not in total -- you have to compare the overall share of the Lufthansa Group at Zürich Airport, not in terms of total passengers, but in terms of the O&D traffic.

And if you look at the O&D traffic, it's about 50% that the Lufthansa Group would somehow have here in Zürich. So there is still 50% other carriers, not related at all to Lufthansa Group.

So we think, also, on the overall comparative strategy, only have a minor impact on these slots, that even allows to increase a little bit the peak capacity by the home carrier, which helps the system. With regard to THE CIRCLE, you were asking a little bit on the strategy if we do not have sold all the office space.

Here again, to say it again, the total occupancy rate also has remained stable a little bit because we added phase 2. Secondly, THE CIRCLE consists of a public part.

If you take a mixed-use development, a large one of this size, CHF 1 billion. You have certain area, you see this also in other developments, where you have consumer businesses, be it commercial, be it restaurants, be it hotels.

And then you have parts of the development in the higher floors, which are kind of private, the offices, the health part. So we definitely want to have everything in the public, fully rented out at the times of the opening.

We have big units have already been sold to Swatch Group, Jelmoli, Dufry. So we only speak of smaller units and we certainly will fill all of them till opening to ensure that it's public.

One important thing there is the gastronomy. These units -- we intend that every -- all units will be rented out already by the end of this year.

So this will also contribute to this public part. And then we have the private part, not visible for the general public.

And there, we generally, if you ask from a strategy perspective, we prefer to have part of it, 1 year empty rather than going on a discount for a 10-year contract. Because once THE CIRCLE is open, people will understand that it's different from a classical office building because it has this very attractive ambience and the public platform character.

And then we rather prefer to wait than to give it too early for a discount for something that has a 10, 15 year contract period. But as of now, I would even not -- I would even be quite convinced that at the time of the opening, we will have rented out even all the office space to the prices that we have now public in the cockpits.

And sure, maybe -- and I continue shortly with the question on the parking. At the airport -- Zürich Airport, now you have about 25,000 employees working here directly.

And of them, few would have maybe in part of public transport of roughly 30%, 40%, then the rest coming with their cars. Now with THE CIRCLE, we expect to have, just to use very rough figures, to have about 5,000 people more.

So that would mean about 20% increase of the employee space. We intend there to have substantially higher percentage of people coming with public transport because the location is so good.

You have long-term trains, short-term trains, you have all the public transport you can have. So we targeted about 70% share of public transport, maybe 30% of private transport.

We have the carparks in THE CIRCLE. We could rent them 2x.

So it's not really the question how many we want to rent out already now. It's more the question how many we will have for public usage on these carparks and how much we will have on fixed rental contracts.

But we tried to have as many public as possible. Because there, you earn more.

And in the contract negotiation with office tenants, there is a certain share of carparks that you have to allocate to the office tenants, that's for them, it's okay to use it. So I don't think your question asking how much will be rented out is the right thing.

But you can be assured that the carparks of THE CIRCLE are definitely not problem to rent out at this location and this development. Overall, maybe to summarize the carparks.

Historically, we had 17,000. We have added now with the Carpark 6, another 3,000.

And we will, from now, roughly 20,000 carparks increased it to about 24,000 carparks. Once we open THE CIRCLE and off-airport carpark building, we intend to build as soon as we get the approval from the authorities.

So we still will increase the share of number of carparks we will be able to do a better product differentiation with having 1 carpark, 1 tramway station away from the airport and having 1 underground parking in THE CIRCLE. It's a very premium carpark.

So it will also allow even further differentiate these carparks. And then we see there also quite a substantial potential with revenue, flexible pricing, the same that happens in the airline ticketing market that you have capacity all year round the same, but you don't have the same demand all year round.

So then you try to have discounts on off-peak times and to have a little bit of higher pricing in peak times. We have also the infrastructure more or less ready now with carpark 6 to do a flexible pricing that you buy your carpark online prior to coming to the airport.

And this will also further, I think, increase as the model and allows us also to use the infrastructure for carparks even better.

Maybe just a follow-up. What is your occupancy level of your car parking places today during peak hours?

And from the 950 parking places that you have allocated today for THE CIRCLE, what share has been already rented?

Well, I mean, this also depends on the season, being it during summer vacation or [ channel ] during vacations. We have to distinguish between the central parkings P1 to P3, which comes to a certain capacity limit that during [ intense ] day.

But I think, we made now a big step in terms of capacity with the opening of parking 6. And those dedicated parkings for THE CIRCLE are within the parking 6, where we do have the capacity to kind of [ car-file ] these dedicated parkings for THE CIRCLE.

Next one?

So we have more question within the room. Mr.

Rechberger?

Yes. Parking 6, I don't know when it was finished.

And if [ there ] influence a positive one now for second half or 2018?

[indiscernible] The opening was at the end of last year. So no base effect between first half and second half of the year.

Okay. And then other question, noise reevaluation.

Why, what's happened there? You said there was a positive effect.

And when, just to remind me, when will this noise topic disappear completely? It might be in a few years, 2, 3 years [indiscernible]?

To answer the last question, first, we expect all noise-related payments to be completed by 2025 for this part of the minor values to house owners and the noise protection measures. And the impact in the finance result of the noise provisions or noise liabilities basically comes from a discount effect.

We are discounting the expected cash for the next years. We had last year discounted on a lower discount rate, which increased the liability this year in the first 6 months.

It was the other way around. Discount rates slightly increased, and therefore, the positive effect for the liabilities on the balance sheet reflected in the finance result.

Then personal expenses. You had an influence on IFRS 19, but you didn't mentioned how big it was.

So disclose in detail?

It was a positive effect. We expect, on the full year level, at least, a positive effect for the same reason as part of the pension liability in the balance sheet, has also a kind of a discounting component.

And therefore, is sensitive to interest-rate development on a full year base. From today's perspective, with a certain uncertainty involved, we expect a rather positive impact just coming from the discounting effect there.

What you may mean, what I said is that we had higher contributions to the pension plan affecting half year result, which has simply to do with our pension plan requires more contribution from the employer and from the employees as a payment into the pension plan. And that started in January this year.

And that's recognized in the personal expenses.

Okay. And my last question.

Belo Horizonte, 6 years negative. And how many of years negative we have already?

And then will it be fading into positive or will it be from one year to the other, just the opposite?

Now, if you look back into the historic numbers, you see that is impact was even higher in previous year. We have now CHF 1.3 million impact in first half of 2017.

This is kind of fading, as we've mentioned, into positive numbers. The -- we started with the concession in 2013.

So you should expect a positive impact, let's say, in the next 2, at least 3 years. These are also kind of valuation driven and noncash impacts into the P&L.

But expect that, that's part of the business plan.

And if you look globally at every new major airport construction or expansion with 30-year concessions, this is a very normal cycle, and is mainly not attributed to the Brazilian situation. Belo is -- they are not one of these overbuilt airports.

But it's mainly due to just a normal investment cycle at the beginning, and then having the infrastructure ready and profiting from the increase in traffic. So it's not something -- it's something quite normal, I think for...

Also, influenced by the devaluation of the Brazilian currency. Note that the negative impact and the associated company comes from the accounting affect mentioned before.

And my really last question, A-port, you had a partner there before. What was the reason that he didn't want to work together with you anymore?

Why did you separate?

These airport partners all in the age between 70 and 75 years old. And there's no next entrepreneurial generation coming up.

So it's more a personal retirement plan than any other business logic. And for us, also, we did not -- for us, it was also perfectly strategic to be able to now go into 100% consolidation, that allows us also to use -- [ cheat ] a little bit as to base for the regional airports in Latin America, for these smaller sized airports, CHF 2 million to CHF 5 million.

They have a very good established knowledge. And at the same time, we can do larger airports in direct transaction.

So we have a kind of mix between larger airports, where we do a lot of Zürich, while we have, for the smaller airports, a good base there for a -- and that makes it much simpler if you own 100% of the company, and the asset, of course. Stephanie?

I have a few follow-ups. Could you remind us how much Dufry represents of your airside retail space?

And on M&A, what are the KPIs you mentioned, obviously, interest rate returns and value creating projects. But do you ever disclose the thresholds you would -- for projects you would consider?

And then finally, on procurement. You were mentioning a normalization.

Is that on a full year basis? Will you expect the first half energy and waste percentage increase of the cost to remain level for the full year as a percentage of sales or when you mentioned normalization, do you mean you will get back to historical levels?

Let me start with the last question first. We had some extraordinary effect in the energy and waste cost in the first 6 months which has to do with the revision of oil tanks.

So we need more oil than gas, and this has an impact. I expect, on the full year base, that the energy and waste cost to slightly increase obviously in a single-digit percentage number.

And that's what I mean to normalize on the historic comparable level. And could you, again, ask your second question in terms threshold for [indiscernible].

Is there like [indiscernible] for investing? Is there like a minimum IRR or...

I think it's a combination of governance-related threshold in terms of what really is our role in such an investment. We are not just investing money abroad.

That's also to be combined with our, let's say, entrepreneurial role, to be in charge of operations or commercial activities. We're not considering ourselves as purely financial investors abroad.

And the minimum returns are mainly driven by what I explained in terms of why we're doing international business. International business has to kind of compensating general pressure on returns in the existing core business in Zürich.

Therefore, just to give you a rough number, and as we currently expect low-double digit IRR for the Latin American investments, this is more or less the baseline for any future investments in the international business.

With regard to the share of Dufry on airside sales. It's not really the space that is relevant, it's not really the sales that is relevant.

It would be the return to the airport that is relevant. And there certainly the duty-free part of the segment is the single most important contributor to our airside sales, but we do not disclose them, exact percentage or revenue share on it.

But certainly, it plays a major role in total return to the airport from airside retail. Any more questions in the room?

Any more questions on the phone?

From the last slide of the presentation, you see also our presence. We will be at the transport conference in London on September 12.

We will have a presence in Madrid also on October 2 with Santander. We will publish our full year results on March 2, 2018.

And of course, in between, always available on the phone by Investor Relations or the CFO. So do not hesitate to be in dialogue with us.

So hereby I close this presentation. Thank you very much for coming and attending on the phone.

And have good travel via Zürich Airport. Thank you.