Flughafen Zürich AG

Ladies and gentlemen, welcome to the presentation of our company's full 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.

My name is Stephan Widrig, I am the CEO, and I will host this presentation together with Lukas Brosi, the company's CFO. In order to structure the conference properly, we will go through the presentation first and take your questions at the end.

I will, as usual, 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.

Let's start with the business update. We look back on a successful financial year with stable flight operations and rising passenger volumes.

Although airberlin, for many years, the second-largest airline by passenger numbers, finally ceased flying at the end of the 2017 summer timetable, Zurich Airport did not suffer any negative impact. In particular, SWISS, Edelweiss, easyJet and Vueling further increased their presence, among others, at Zurich Airport during the year under review.

Our commercial centers performed impressively. Land and airside retail, duty-free and food and beverage turnover have increased in an overall challenging market.

Parking revenues showed also a robust growth. With THE CIRCLE and the targeted expansion for our international business, our plans for strategic growth are also on track.

Let's first have a closer look at the traffic figures. In 2017, the Zurich Airport catchment area proved to be a stable and reliable market.

[Foreign Language] Increasing competition, coupled with rising local demand for air travel, were the main drivers of growth over the past year, which was further boosted by an upswing in the transfer segment. The number of local passengers rose by 5.3% to 21 million.

And the number of transfer passengers increased by roughly 9% to 8.3 million. The share of transfer passengers thus rose slightly to 28.3% in the reporting period.

There were roughly 270,000 flight movements, up 0.5% compared with 2016. Airfreight volumes grew 13.1%, mainly due to the fleet changes of our home carrier, SWISS, providing more capacity for belly freight.

The growth in traffic volumes is based on a healthy mix between home carrier, European low-cost airlines and foreign network carriers. The exit of airberlin has motivated leading low-cost airlines to increase their presence in Zürich.

easyJet doubled its passenger volumes in the past year, and Vueling grew by 30%. Neither competition nor the network has suffered under the exit of airberlin.

This summer, Chinese carrier, Sichuan Airlines, will link Chengdu, the dynamic city in Midwest China, to Zürich via Prague. Edelweiss Air will increase its route network from 51 to 62 destinations.

The airline further expands its flight operations to new long-haul destinations, such as Orlando, Denver and the Seychelles with 2 additional A340 aircraft. Air Canada at Vancouver and United Airlines, San Francisco to our North American network.

And last but not least, top carrier, SWISS, is contributing to the capacity growth with its still ongoing fleet renewal. While the renewal of its long-haul fleet is almost completed, the 10 777 is expected in spring 2018.

Another 15 Bombardier C Series aircraft will be deployed on the short-haul and medium-haul routes during this year. On the commercial side, total sales for retail outlets and restaurant operators at Zurich Airport amounted to CHF 576 million, an increase of 5.5%, more than CHF 30 million in absolute terms.

Airside revenues developed above average both in restaurants and high-end retail stores. The remodeling of the duty-free outlets was completed on schedule by the end of last year with finishing touches being added during the first quarter of 2018.

The average concession rate stands unchanged at 20.8% but is likely to increase in 2018. Moreover, we see increasing importance of online shopping.

We feel well positioned to benefit from such transformation. We are convinced that our commercial centers, placed in a premium environment with growing frequencies and customers with above-average purchase power, will perfectly match the challenges of the future of retail.

Another important contributor of non-aviation revenues is our parking business. The expansion of car park 6 was completed in April 2017.

The car park now has around 7,500 parking spaces and is equipped with the latest technology. There are now over 20,000 parking spaces available at the airport accessible for passengers, shoppers and visitors, commuters and employees as well as for the future visitors and employees of THE CIRCLE project.

The new facility also enables better product differentiation, supported by online offerings with a flexible price structure. Thanks to active marketing, travelers now have the choice of additional booking options.

This also ensures a better utilization of parking spaces during off-peak times. You'll find some interesting aspects on the digital offering on the slide.

We have currently about 300 transactions per day with an average online -- with an average price of CHF 120 per booking. And we still believe there is substantial potential of online sales in the future and the important contributor to the revenue growth in the parking segment.

And finally, the refurbishment of the popular parking 1 is ongoing. The project will last until 2020 with the goal to extend the useful life for another 35 years.

Everything on track with regard to our large-scale project, THE CIRCLE. Construction visibly progresses well.

The timetable is unchanged with completion of the main construction end of 2018 and public opening scheduled in the first half year 2020. The exact opening date will be announced approximately 1 year prior.

The north wing, as last and final element, will be opened in the second half of 2020. Since we also bear some CapEx related to tenant fit-outs, including hotel and hospital, and due to a contested office market, the total investment forecast currently stands at CHF 1.2 billion, respectively, and CHF 600 million for our share, slightly higher than indicated so far.

Since rents have also been adjusted and given the long-term prospects of the project, the impact on the rate of return won't be relevant. Furthermore, I would like to highlight the importance of this new building for our overall non-aviation business.

THE CIRCLE will also have a positive impact on the existing landside shopping center and the parking infrastructure. The left wing side is also progressing.

Microsoft and IT company Abraxas will move their Swiss headquarters to THE CIRCLE, and the co-working provider, IWT, will open its well-known shared-office-concept spaces. Also we signed agreements with leading Zürich-based restaurant operators, among others, with the SABMiller family and with the Two Spice group.

The rental rates achieved in all those contracts are along our business plan expectation. We now stand at nearly 60% with the pre-letting quota.

Out of the 7 buildings, 4 are already totally rented out. On the slide, we also indicate the locations of the anchor tenants.

And 2017 was also an important year for our international activities. On one hand, we completed the deal to sell our remaining 5% stake in Bangalore International Airport Limited in India.

The disposal results in a one-off gain of CHF 31.4 million. On the other hand, we were awarded 2 operating licenses, 1 in Brazil and 1 in Chile.

Latin America will remain our core market. The total committed investments in Latin America amount to roughly CHF 200 million.

And the expected IRR in real terms related to these various projects is on a low double-digit level. Also we divested our remaining shareholding in Bangalore.

South and Southeast Asia remain the focus area for us. We are about to set up a regional office in Asia, which will help us to open up the huge market potential in this region.

Our ambition is still to grow the international portfolio to CHF 500 million to CHF 700 million, thus contributing roughly 10% to 15% to the company's profit. With this, I'm handing over to Lukas.

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

Welcome also from my side. I will now present the figures part of the presentation, starting with the key figures, including noise-related revenue and cost.

In 2016 as well as in 2017, different one-off effects impacted the financial key figures. For a better comparison, we show columns including and excluding one-off effects.

In the 2017 financial year, Flughafen Zürich AG revenue grew by CHF 24.3 million to CHF 1,037.1 million. Of the total revenue, approximately 60% was attributable to aviation and 40% to non-aviation business.

In particular, higher commercial and parking revenue contributed to this growth. After deducting operating expenses, the adjusted EBITDA came to CHF 578.8 million plus 1.9%.

The finance result amounted to CHF 18.3 million in the reporting period. The main reason for the negative change is related to the valuation of the noise provisions.

Profit for the financial year 2017 amounts to CHF 285.5 million, up CHF 37.5 million from the prior year period. The result was positively impacted in particular by the sale of the remaining 5% stake in Bangalore, which delivered the gain of CHF 31.4 million.

After adjusting for all one-off effects, profit increased by 4.5% to CHF 250.3 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 valuation of the noise provisions. On a like-for-like basis, profit excluding noise impact increased by CHF 12.2 million or 5.1% to CHF 249 million.

Let me continue with some additional top line information on the aviation segment. In the financial year 2017, aviation revenue grew from CHF 620.4 million to CHF 624.2 million.

Despite the decrease in flight operation charges in September 2016, thanks to the strong passenger growth, revenue slightly increased by CHF 3.8 million year-on-year. The slight decrease of 0.6% in passenger-related flight operation charges was attributable to lower passenger charges.

The new charging model also saw changes in parking and landing charges, which positively impacted the total flight operation charges, which in sum increased by 0.4% to CHF 551.1 million. The positive trend in aviation fees, which increased by CHF 1.8 million to CHF 69.6 million, is attributable to volume effects.

Movements between charge items are due to user fees being formally introduced and adopted together with the flight operations charges. I'm now moving on to the non-aviation business.

Overall, non-aviation revenue increased by 5.2% to CHF 412.9 million. The commercial and parking revenue grew CHF 234.2 million, an increase of 6.1%.

In particular, this was due to higher revenues achieved from retail tax and duty-free and food and beverage of CHF 6.5 million. In addition, parking revenue also rose by 5.4%, thanks in particular to the positive trend in public parking, which was successfully boosted by marketing campaigns targeting longer-stay parking.

The decline of CHF 3.6 million in revenue from facility management was attributable to rate adjustments for energy and utility costs, which are always cost-based, and lower revenue from services as fewer construction projects were carried out for third parties. Revenues from rental and lease agreement as the major part of revenue from facility management still saw a slight increase of 0.3%.

Revenue from international business is stated as a separate item for the first time in 2017. In addition to revenue from international consulting activities, it now also includes revenue from the company's consolidated subsidiaries in Chile and Brazil.

This amounts to a total of CHF 17.3 million for the 2017 financial year. Further, let me highlight the impact of the so-called concession accounting rules according to the International Accounting Standards.

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

For 2017, this effect amounts to CHF 3.1 million. The related revenues and costs essentially offset each other, resulting in a neutral impact on EBITDA.

Let's switch from revenue to the development of our cost base and other important key figures. As in the previous year, operating expenses were influenced by one-off effects.

While both a payment of CHF 3.5 million in connection with the liquidation of Swissair and the additional purchase price payment of CHF 7.3 million for land for THE CIRCLE influenced operating expenses in the prior year, a second payment of CHF 4.8 million from the bankruptcy assets of the former Swissair reduced operating expenses during the year under review. After adjusting for those one-off effects, operating expenses rose by 3% to CHF 458.3 million.

This increase includes CHF 7 million from the newly consolidated subsidiaries in Chile and Brazil. Personnel expenses rose by CHF 4.8 million to CHF 201.5 million as well as higher headcount and a general pay rise.

This is due to consolidating the personnel costs of the international holdings. Despite much higher passenger volumes, the cost for police and security rose by only 1.2%.

A jump of CHF 2.8 million in cost for maintenance and material is mainly due to the consolidation effect and to the revaluation of spare parts kept in stock. In addition, the newly consolidated holdings and various non-capitalized project costs contributed to the rise in administrative expenses of CHF 3.6 million.

After adjustment for one-off effects, capitalized expenditure and other income and expenses came to CHF 12.8 million. The next slide, you see a summary of the changes of both the income and the cost side.

Furthermore, the development of cost is split between Zürich and the international business. Excluding this and last year's one-off effects, the consolidated EBITDA increased by 1.9% from the CHF 568.1 million to CHF 578.8 million.

Please let me also remind you that we only start recognizing revenues from the operations of Florianópolis as of January 2018 by when we took over the operational responsibility according to concession rules. Nevertheless, the 2017 financial numbers are impacted by the concession accounting as well as operating costs related to the startup of Florianópolis.

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

The EBITDA margin slightly decreased from 55.9% to 55.7%. The reported savings in the finance result are mainly attributable to the refinancing of a bond in 2017 and lower leasing liabilities.

Excluding the divestment of Bangalore Airport, associated companies show a noncash flow of CHF 3.1 million, which is attributable to our holding in Belo Horizonte. Due to a higher balance of cash and cash equivalents, net finance -- net financial debt is down by CHF 51.2 million to CHF 515.2 million and net debt-to-EBITDA currently stands at approximately 0.9x.

The return on invested capital is at 8.3% whereas the equity ratio stands at solid 61.1%. And last but not least, the company has generated CHF 265.6 million of free cash flow.

Let me give you some information on CapEx. In the year under review, we invested CHF 239 million in ongoing projects.

On top, this included in particular the investment in THE CIRCLE of CHF 92.1 million, representing more than 1/3 of our total investments. Further significant investments included projects for expanding the aircraft stands on the western and southern side of the airport and the upgrade of the so-called Zone A, including the upgrade and extension of the baggage sorting system.

I'll talk about upcoming CapEx in a second. First, let's switch to the outlook.

I will start with the guidance for this year. For a better understanding, we have included the 2017 reference numbers as the base for the guidance.

For 2018, Flughafen Zürich AG is expecting a passenger growth of around 3.5% to 4% with local passenger growth outperforming the increase in transfer volumes. Aviation revenues will be increasing on the back of the passenger growth and non-aviation revenues will benefit from new commercial concepts and our international holdings.

The international business will be the main driver for OpEx as well. However, costs in Zürich are expected to be slightly higher, too.

Given the number of complex projects that need to be planned and executed in the upcoming years, personnel expenses will modestly increase. Please note that non-aviation revenues as well as OpEx will be impacted by the before-mentioned concession accounting, neutralizing each other on the EBITDA level.

Factoring out one-off effects in the financial year 2017 and one-off effects during the current year, EBITDA is expected to be 3% to 5% higher, whereas net profit is expected to be up between 5% and 10%. The company has earmarked around CHF 300 million for investment as well as various works to maintain the value of the airport's infrastructure.

The biggest investment volume of around CHF 140 million belongs to THE CIRCLE. To end my part of the presentation, I would like to give you a broader overview on CapEx planning here in Zürich.

Until the completion of THE CIRCLE, CapEx will predominately be spent in the nonregulated business segments. After 2020, meaningful projects are planned, driving in particular regulated investments after 2020.

Those investments will be refinanceable by our charges. There are not only passenger handling processes that are being continually optimized; significant optimization also goes on behind the scenes.

For instance, the baggage sorting system at the heart of our hub operation is gradually being upgraded and expanded in several phases. During the reporting year, the area was cleared and the structural work will commence in 2018.

The fully upgraded system is scheduled to open in 2023. Further aircraft stand capacity will be created on the April.

In total, 10 stands are being constructed on the southern side of the airport and are scheduled to go into operation at the end of 2018. On the western side, 2 stands were built and commissioned in October 2017.

Preparations are also underway for runway renovation. The construction of high-speed taxiways for 2 runways and new access taxiway for the departure runway to the south and also the taxiway around the east-west runway.

And finally, the Pier A will most likely be replaced within the next 5 to 10 years. All in all, our goal is to make the airport infrastructure ready to handle up to 50 million passengers in the future.

With this, we are at the end of the presentation. We now open the Q&A part first with questions of 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 microphone. And we start with Ms.

Haradau-Doser in the front row. Go ahead.

Three questions, please. First, to better understand the passenger growth this year, could you please give us some indications on the frequencies in 2018, how you expect frequencies to develop?

Second, dividends, does capital result still allow you to pay a special dividend in the future? And how shall we think about your dividend policy medium to long term?

And finally, 2 of your main competitors, Frankfurt and Vienna, have at least temporarily updated their incentive scheme. Maybe could you give us some indications, adjusting for the incentives, how your tariff is compared to Frankfurt and Vienna currently and if you see some -- the need to adjust your incentive scheme in the future as well?

So I'll start with dividend. We currently, for the third time in a row, paid this extraordinary dividend in the amount of CHF 100 million.

And as you see, within our balance sheet, the capital contribution reserve allow us to maintain this for another 2 years. It's simply too early today to decide about dividend policy after 2020.

I think we are now in the range of our ordinary dividend, which is a payout of 35% to 45% of the annual net profit excluding one-off effects and do see also the potential after the completion of the extraordinary dividend that we might think about an increase of the ordinary dividend in a moderate way but definitely not in a way that one can expect an ongoing payout of roughly 80%, which we currently have. For the time being, that's what I can tell you about dividend.

We will obviously have a closer look into future dividend policy after 2020 once the extraordinary dividend has been paid out. And also there is a close link to the tariff scheme of the 2020 impacting also this decision.

And incentive scheme, for the time being, we have now set the tariffs in 2016 for a period of 4 years. We currently do not think about adopting the current tariffs within that period, starting the negotiations about the future periods in 2019.

So at least on short or medium term, there cannot be expected any changes on the tariff scheme, where we currently are in for this 4-year period. And in terms of frequency 2018, is my understanding correct that you want to have a closer look into how local and transfer passenger mix...

How the number of movements will develop this year.

Well, definitely disproportionately lower to the passenger volumes. Don't have the number in mind, but I think in an area of 1.5% to 2%.

Maybe just a follow-up on the passenger traffic, I'm a little bit confused by the capacities of airberlin last year, what will be still operated by Niki this year. So from the slot that were operated by airberlin last year, what share of the slots do you expect to be still operated by Niki in 2018?

That's not yet fully clear. But from an overall perspective, when you look at the markets that airberlin served out of Zürich, you can say that Swiss International Air Lines increased their network to European cities.

Edelweiss increased their network to destinations at the Mediterranean, which was also part share of the Niki. And then it was mainly easyJet again for European cities.

It grew by 100% last year in Zürich. So it shows they strategically will position the Zurich Airport more importantly than in the past.

And Vueling again grew by 30%. So Vueling again grew mainly on the Mediterranean destinations.

So our perception is the market balance has more or less remained the same between Lufthansa-owned carriers and third-party carriers. We see a strong growth of Edelweiss and Vueling on the Mediterranean.

And easyJet and SWISS on the European cities more or less taking the whole traffic. And Niki, of course, has declared -- has announced the plan to remain in Zürich.

But which destinations and which volume for us is not yet fully visible. It would increase the competition on the route which more or less have already been taken by others.

Maybe add some details in -- historically, airberlin accounted for roughly 5% to 6% of volume. And out of this 5% to 6%, roughly 1/3 was flown by Niki.

This is Pascal Furger from Bank Vontobel. I have three questions from my side.

The first question, with regards to your guidance, and related to this, the impact of the international business, if you could just give a little bit more kind of granularity on the impact of Florianópolis and Chile. So you mentioned additional OpEx of CHF 25 million to CHF 30 million.

So if I take the CHF 26 million revenues of Florianópolis last year, assume 50% EBITDA margin, so this gives me an impact of like CHF 13 million. So where is the rest coming from?

Is this attributable to Chile? And then with regards to the impact on 2017 numbers, could you just tell us what was the impact on cash flow statement related to Florianópolis?

And what will it be in 2018? Will it be more investments?

Then the second question, it's on retail. The duty-free stores were under renovation in the second half.

So could you tell us what would have been the underlying concession margin when we would exclude basically this impact and where would we stand then? And then last, maybe on THE CIRCLE, so here, for the contracts you disclosed in the past couple of weeks, have you already implemented this interior fit-out cost?

I mean, did you offer your tenants this additional support? And was it basically -- my question is was it a swing factor in order for the tenants to sign the contracts?

So your question is about more details on the international revenues in 2018. We do not disclose that in detail, but I can at least confirm the -- your thoughts regarding the numbers based on the historic indications on EBITDA.

So we will have -- we will see 3 incomes in the international business going forward as we have seen this year, which is revenue from consulting fee -- from consulting activities, revenues from the full consolidation of Florianópolis and the 2 airports in Chile. And also, bear in mind that we have the concession accounting neutralizing on EBITDA.

For Florianópolis, to give you here a precise answer is that I expect a revenues in an area of CHF 30 million to CHF 35 million. The difference or the delta will then come from Chile, as you have correctly assumed.

The cash flow impact of Florianópolis in 2017 will be in an area of CHF 50 million, which is roughly half of our investment -- contribution in terms of equity that we provide for the asset.

So with regard to the question of the tenant fit-out in THE CIRCLE, there are various, of course, I mentioned of it, it was always part of the CapEx that we do the fit-outs for all the hotels and convention, that's -- has always been reflected. We now do also the fit-out for the university hospital, of course, fully covered through rent.

And then on the office segment, the trend in the market is currently for shorter contracts. And this then has the effect that the tenant fit-out becomes less viable for the tenant.

So in that segment, it's again twofold. On the one hand, we decided to do certain fit-outs for all tenants.

That's, for example, the toilets or the floors, which then is cheaper for all together. And it allows us to justify higher rents there.

And then we have the option. Some tenants want the fit-outs to themselves, especially, of course, the longer-thinking tenants, tenants that do their head office also here and other tenants prefer to take that options of doing the full fit-out on our half.

So overall, it gives an additional element to be flexible to the need of the tenant, and we also having slightly shorter tenant contracts, let's say 10 years, is also fully in our interest not to be under pressure to give too many options on extensions because in the office market cycle, we believe that in 5, 10 years, the rates in Zürich for top locations and top buildings will substantially increase again. And this allows also an upside potential in the long-term.

So it makes us more flexible. On the one hand, that helps certainly, that has helped also.

On the other hand, it helps us also to go for a slightly shorter contract, which I believe also is an asset of the project. [Foreign Language]

You have 1 remaining question regarding duty free. Can you repeat it, please?

I'm just interested, there was obviously some negative impact in the second half due to renovation works on the duty-free stores. So what was the impact basically on the concession margin?

It remains flat at 20.8%. So what would it have been if you would exclude for this renovation impact in the second half?

Well, there we are -- to deepen the details that we disclosed on the particular contract -- or on the particular impact, but let me say that the impact that we have assumed at the beginning of the year was lower because of pop-ups we made to compensate the negative impact of the construction work in the duty-frees, what we have seen improving in the commercial numbers 2017.

And the concession rate is expected to increase in this year.

Armin Rechberger from ZKB. Usually, I experience that you're very prudent regarding your views or guidance regarding passenger growth.

But this year, I was surprised that you expected passenger growth of 3.5% to 4% after a very strong year. And now SWISS almost finished its increasing -- its fleet expansion.

So how do you get to this, in my view, high numbers?

Well, basically, we are planning the demand, obviously, on the supply, meaning, on the capacity that we expect to come to the market. There is SWISS mainly driving, we did fleet replacement.

We have heard that there is 1 777 and 15 C Series are expected to go into operation in 2018. We see -- we have a high visibility on summer fly table, which I consider as well-balanced between third-party airlines, between Edelweiss adding significant more capacities to the market, for example, 2 additional A340s, 2 -- and some additional short-term aircraft.

And also, the third element one can say is also from the low-cost carriers that what we see already in the summertime schedule is based on this 3-pillar, I would say, well-balanced capacity coming to the market, and that's what we based the passenger, to act according on the demand side.

You also have quite a few third-party long-distance carriers, Canada was mentioned, Vancouver, United was mentioned. We have now exiting our long-distance carriers.

So this is on the one hand will increase competition on certain routes, San Francisco, Vancouver, for example, and it adds capacity to the system.

Then I saw a sharp increase in personnel number if -- but not the costs. They didn't increase.

So is that due to Florianópolis or why?

That's coming from the full consolidation in Florianópolis.

And Chile.

Next one? Mr.

Braun?

It's just 2 short ones left. Return on invested capital was 8.1% for the full year, but it was 8.4% for H1 only.

So that implies that we saw a declining number in H2, which is odd because profitability is higher in H2. And also I think that the capital base has not changed that much, given G&A is more or less in line with CapEx.

That's the first one. The second one, just can you give us some comments on the M&A pipeline, what you are looking at currently?

Let me start with the M&A pipeline as heard from Stephan Widrig is that we, after having sold Bangalore and therefore, we are not present in the aviation market anymore, we're currently accessing markets entrance in Asia as we consider this market to have a very interesting pipeline for us. There are state-owned infrastructure going into privatization processes, new greenfield projects are in planning.

So we see an interesting pipeline upcoming, in particular, in Indonesia. Still in India, in Vietnam, where we are currently assessing how to -- what would be the best way to get back to the Asian market.

In addition to this, I think that's also kind of a balancing of the focus that we currently have in Latin America. Nevertheless, Latin America provides other opportunities upcoming for around privatization of airports in Brazil, for example.

Focus remains on Latin America on a strategic level and then in Asia. In concrete to your question on the deal pipeline, we are currently more focusing on the start-up of the concessions that we have won last year in Florianópolis and in Iquique in Chile, fourth round of privatization in Brazil and the market entrance in Asia, which is more a medium-term topic than a concrete project pipeline.

And please give me a second to go a little bit closer into the documentation regarding your question about the ROIC on first half year, second half year. I'll come back on that.

Any other questions in the room? Then we switch to the questions on the telephone.

I have 4 very quick questions. The first one is that I am missing the usual slide on the regulatory returns.

And so if you can highlight which has been the regulatory return this year, assuming what happened to the revenues, aviation revenues a part of decline? The second is if you can update us on the performance of the landside retail business, if you can give us more light on what could happen in 2018 if we have gotten too close to the inflection point?

The third one is related to the dividend policy, I apologize for coming back to this. At the moment, should we expect by 2020 a dividend drop, a DPS drop compared to 2019?

And the last one is just on quality. I'm not an expert of real estate, but I assume that this CHF 100 million more of investments are required to match your expected targets of these investments.

So you are making -- you are putting more equity just to get to the same targets where you were expecting to be at the beginning of this project. Is that the right way to look at it or not?

Let me start to answer, I guess, I didn't get the second one. But on the segment reporting, it's actually not on the slide but you see a very detailed segment reporting in the annual report, if I'm not wrong, on Page 87.

The regulated return -- or the return in the regulated segment was 5.9% last year. And on dividend policy, what I have mentioned before is that it's too early to discuss about an extension of the relatively high payout we currently have of 80% after we have paid out the extraordinary dividend of the capital contribution reserve.

I think, honestly, one cannot expect us to maintain this 80%. The truth will be between the today's ordinary dividend, which I also have mentioned before that one can imagine to have a closer look at this.

And there I see some potential for slight upward adoption in the ordinary dividend. But definitely, too early as there are still 2 remaining years of extraordinary dividend firepower.

On the tenant fit-outs, I think you didn't got it fully right. We clearly refinanced these fit-outs with higher rents and in the contracts reflected so far -- in the contract signed so far, this has also been achievable and to be believed also in the future.

So on the long-term of the project, it does not have a relevant impact on the IRR, but it -- it puts us a little bit more in the investment on the fit-out side with the advantages as outlined before on flexibility and contract duration. And on the second question with regard to the landside retail business, we have the situation at Zurich Airport that we don't just have the growing figures in travelers, in passengers, but we also have a growth in the public transport platform.

A lot of people, about 20,000 a day, commuting and switching here at Zürich Airport from the train to the bus up to the tram, and this public transport platform is also developing on a good level. So we, of course, thanks to the 3 [ countries ] can offset overall shrinking revenues in domestic retail, we also -- which has been proven also last year, we believe a similar effect this year.

And with the opening of THE CIRCLE, we have then about 4,000, 5,000 people more working here. And we believe this will have an additional impact also on the retail business landside.

And let me add the open question from Johannes Braun. The question was basically why was the return on invested capital lower in the second half than in the first half.

And there are 3 main reasons for this. First of all, we had investments into non-revenue-generating assets such as THE CIRCLE and Florianópolis, where revenues only start in 2018, and we had higher financial liabilities, consolidating partly from Florianópolis already and the new bond.

Thank you for this education.

I have a number of questions. The first one would be on THE CIRCLE.

Previously, you indicated the opening of THE CIRCLE would be in 2019 after discussions with more view. This would be the third quarter in 2019.

And now Slide 9 of the presentation reads that the opening of the main area will be around first half 2020. Can you please indicate me what has caused the delay?

And when the first handovers to tenants are scheduled?

The figures you mentioned are more than 1 year ago. The current timetable is fully online of the timetable that we indicated 1 year ago, with completion of construction at the end of 2019.

Then we will have a phase of a few months where also in 2019, we will hand over the space to the tenants. And then in the phase of a few months, tenants will do their fit-outs, we have the approvals from the regulatory bodies, and we have also some preparation of operation, which, for example, the hotels and tech convention will take time.

We will define a coordinated opening day with the large tenants on the public side. They all want to open, of course, as soon as possible.

And this will happen in the first half of 2020, and we will define the coordinated opening date in coordination with the tenants somewhere 1 year prior to the opening. What you mentioned that the date, that was 2 years ago.

We then had some problems that is with the statics over the tunnel of the train. This has all been fully solved.

In the meantime, you will see also on the construction that construction is over the tunnel. This resulted then in our scheduling that we decided we do phase 2 at the same time with phase 1.

So the phase 2 that was earlier foreseen for, I think, 2022. Now, we'll also open together with phase 1 in first half of 2020.

And the only final and last element that opens a slight delay is that this building above the [Metro] tunnel, which is also fully rented out. And opening dates are in line with the contracts we signed with the tenants.

So this will open in the second half 2022 due to these delays that we had originally over the [Metro] tunnel. But again, it's -- there was a Swiss business newspaper that mentioned there is a delay.

But in the last 12 months, we are still on the exact same timetable, and we also visibly see that the progress is along the project plans.

Okay. Great.

Clear. Then, more strategically on your capital structure, because I can't help but wonder because after you pay out your elevated dividends, you still continued to de-lever your balance sheet.

Now I'm aware of the fact that you indicated that you feel comfortable with a leverage ratio of around 2.5x to maybe even 3x net debt to EBITDA, but that it's not an absolute target. So that I know.

However, if you continue in this way, it seems to me that you're closer to becoming net cash rather than creating a more effective balance sheet. If we then link that to the CHF 1 billion you earmarked for external growth, then -- which if that wouldn't happen in the relatively mid-term, you would potentially seek a return to shareholders.

To date, the investments internationally have been relatively immaterial. And that brings me to the following couple of questions.

What is the actual amount of investments you have invested today? And what is still committed?

And then on top of that, as you are very strict on M&A, can you please explain us how we should expect you to be able to invest the remainder of that CHF 1 billion and in what timeframe?

Okay. So I'll start with answering the question and maybe Stephan can add afterwards.

We have currently invested about CHF 45 million in Belo Horizonte and about CHF 35 million in Chile. And as mentioned before, about 15 -- 50, sorry -- 50, 5-0, million in Florianópolis.

So that's out of the CHF 200 million, and the difference obviously is that what we have committed for going forward. But again, I will not comment more on the payout topic.

I think in respect to the international business development, this is something that we have clearly addressed to not have to materialize on short-term. We gave this business time to grow in the medium term and -- but that is all coming to an area of 2020, 2021 where we have to take or throw the balance to see whether we were successful in the international business, to see what the outcome of new tariff negotiation is, and this all leads then to an adoption in the -- in the potential adoption to the payout policy going forward.

For the time being, again, no changes or no additional information on that. And I'm convinced that from the opportunities in the focused market we are currently in, there will be potential or opportunities to invest.

We remain carefully, no one forces us to invest aggressively. But if we are not successful this side, on that point, I agree that this obviously raises even more the question of the payout topic going forward.

Greta. Then 1 last question on CapEx.

I just briefly checked the numbers you guided and what you spent. And structurally, there is a big -- or a relatively big gap between your guidance at full year result presentations and the actual amount spent during the year.

Can you maybe help us in how we should understand the guidance of this year? Did you change, let's say, the mechanism of coming up with this particular guidance?

Well, there was a difference between the initial guidance 2017 for CapEx and the actual result of roughly CHF 240 million CapEx spend. There were different reasons for this one.

We learned that, from Stephan, that there was a topic regarding the construction around this SBB railway tunnel leading to a shift of CapEx in THE CIRCLE project towards 2018. There was another project in regards to a parking that is currently blocked in terms of the construction.

But there was also success in the negotiation of the different other projects leading to lower CapEx spend that we have initially anticipated for different projects. Therefore, the -- let's say, the mechanics of the CapEx guidance has not changed.

In regard to THE CIRCLE, one can clearly say the closer we are coming to the end of the construction, the higher is the visibility on CapEx to spend. We expect CHF 140 million for 2018, which I consider as very likely.

And that's already 50% of the CapEx of this year.

My first question is on retail piece. Could you be a bit more specific in how you expect the concession rates to increase, especially after 2 years of close to flat?

Should we expect the catch up closer to the 20, 30 bps we have seen of annual increase in the past? And if you could also indicate how you see retail spend have improved, especially on the airside as a result of the refurbishments.

My second question is regarding THE CIRCLE. So you mentioned shorter-term contracts.

Could you please give us an indication of how the rent compares with the longer-term contracts? And in the past, you have been mentioning that for prime real estate, the average rent per square meter was around 400 to 450 square meters.

Is the rent befitting higher than the higher ratio of this indication? And then finally, on the operating leverage, for 2018, given you don't have a drag from negative tariffs anymore, aviation benefiting also from the volume guidance or the traffic guidance you have been giving.

And on the non-aviation side, given the refurbishment of retail, I was a little bit surprised that the 3.5%, 4% traffic growth didn't translate into a higher EBITDA growth. So could you please help us understand why the operating leverage is not stronger?

Shall I start with the last question? And [indiscernible] -- well, from the operating leverage, just one remark on that 3.5% -- 3.5% to 4% passenger growth.

It does not lead to 3.5% to 4% more revenues. Obviously, there has to be taken into consideration the mix of passengers, being it local or transfer, but also there are tariffs related to movements, which are not then, therefore, linked to the volume growth we expect for passengers.

This might be the clue why the operating leverage is not as high given the 3.5% to 4% volume growth in passengers.

So the first question was on the duty-free concession rate, which is not public, and the we can't communicated as such. But as you know, with the refurbishment of the shop and new contract has been signed, which we'll be starting January this year.

So this is, again, a model between guarantees and the revenue share. And we expect then a slight jump in the concession rate on the duty-free starting this year, which is on the revenue side, which is not necessarily fully reflected on the spend per passenger side than in the monthly figures we publicize.

And the second question was on THE CIRCLE, on the contract duration. I mean, from a broad perspective, 5, 10 years ago, when the company was building its head office, it went there for 30 years and did a fit-out in a very grand way for 30 years.

Nowadays -- and I understand it, people don't plan such long cycles. So they want flexible office space at a good location.

And that's also on the tenant side, the willingness to maybe have shorter periods. And that's, for us, also a good element because we are rather on the lower end of the office cycle here in Zürich.

So shorter durations allow us also and -- especially also since THE CIRCLE is a building with expected top location with a very great visibility, people will fully understand the building once you can see the façade. So that helps us also to have an upside potential on the rents.

What you mentioned with the fit-outs, yes, of course, the -- if we invest more in the fit-outs, like, for example, at the university hospital, the has to have an effect on the rental side also, which it does.

And do you still confirm the CHF 400 to -- CHF 400 per square meter rent or is that figure not?

Well, first, you have to see THE CIRCLE is -- has totally different modules. So there is a hotel segment.

There is a retail or, we call it, brand house segment. There is a segment of offices.

The offices itself have a price and product differentiation. So it's always a combination of many things.

So if you just compare the rents to the office market, what you indicate as a rent is rather high from -- for some spaces. If you take the average overall, then it works.

But you can't link it just to the office market then if you take these figures. But overall, in the -- all the contracts we signed now in the last 6 months, we achieved what we have in the business planned, and which shows us also that the project is robust.

As you know, there is Swiss Life with 49% co-investor. Swiss Life, being the largest real estate -- private real estate investor in Switzerland.

And also, the prices are set together with them, and we are quite happy with what we can achieve in the current office cycle.

There is 1 question from Mr. Rechberger and 1 from Mr.

Braun.

Okay. Let's first conclude the questions on the phone and then we do have a last round in the...

[Foreign Language]

Ah, no more questions on the phone. Okay, so we switch to the room.

Armin Rechberger again. There -- in your CapEx plan, there is nothing provided for runway 2018 over expansion so -- and that connected to the relationship to Germany as far as I understand.

So how about this topic, your relation with Germany and extension of runways or this 1 runway? And then you mentioned noise-related provision; there was a change and your financial results were influenced by that.

What happens there? Is it just the usual up and down?

And then -- yes, the investment costs for THE CIRCLE, the CHF 100 million-plus then to your original plan, you said it's about tenant fit-outs. Is it only about tenant fit-out or other reasons as well?

Well, let's start with the shortest answer related to the valuation of noise provisions. That's the -- basically, there are 2 drivers behind them, which is the cash payout and the interest or the discount rates and changes on the discount rate and then on the payout streams, resulting in mainly into devaluation of the provision.

There was nothing material change, but it's just the annual, let's say, annual adoption of those provisions. And runway 28 is -- belongs to the period after 2021 to that block that we have seen on the slide.

When we talk about the extension, it's not only linked to the discussions or the situation with Germany. But also to do with some safety measures we can improve on the operation to stabilize the operation here in Zürich.

As for those people that are not that close to our runway layout, the east-west approaches on runway 28 means that the aircraft approach on the shortest of the 3 runways, meaning, that all -- not all aircraft under all weather condition can approach, and then they have to approach from different regions. And therefore, this means that we have crossings either in the air or on the ground and that reduces also the capacity.

So an extension of runway 28 independent from the discussions with Germany in the long-term is also from a safety point of view something that we consider. And the last question, [indiscernible].

Maybe 1 addition to the runways. There are 2 projects, 1 is the runway extension, the other is the new taxiway system around runway 28.

One is -- both projects are roughly CHF 250 million. One needs a public quotation.

So it has a higher risk of not being done. The other can be done without the public quotation.

Both projects will come at the earliest in the second half of the '20s. The taxiway system will come very probable, and the runway extension depends on a public quotation but still is the likeliness for us more than 50% that we can start to build it at the end of the '20s, I would say, in about 10 years or so.

And question on THE CIRCLE.

About CHF 100 million, CHF 130 million.

It's not just the tenant fit-out from the office. It has also to do with the fit-out of the university hospital.

There is, of course, also -- we are a few percent above the forecast, which is included in this new forecast that there are various effects but the main effects are the ones that we mentioned with the fit-outs.

The final question from Mr. Braun so far.

Forgive me to ask yet another question on THE CIRCLE. But the overall project is now CHF 200 million more expensive, 1.2 together with Swiss Life?

Have you ever modeled to what extent percentage-wise the rents have to be increased to recoup the additional CHF 200 million as you're outlining?

Well, as we have heard of the major part of it comes from tenant fit-out, and therefore, it's also reflected in the revenues we expect from those investments.

So, of course, we remodel it all the time, and you have to see it across a 30-year business plan. It is reflected in the rents.

We are still convinced we will be able to achieve a profitability above a standard real estate investment because we have the synergies of the whole development. And therefore, I think we -- on the rate of return on the business plan, we do not see a negative development from our side.

Any more questions in the room? It seems no.

That be the case, so thank you very much. We remain at your disposal for further questions on the usual ways of contacting us.

Thank you very much.