Flughafen Zürich AG

Introduction, welcome also from my side to the presentation of our company's Full Year Results 2023. My name is Lukas Brosi, and I will host this presentation together with Kevin Fleck, our company's CFO.

I would like to remind you that the presentation is also available on our website. Today's agenda is as usual and as follows.

I will start with a short business update before our Group CFO will provide you with the information on our financial performance followed by the outlook. At the end, we will have enough time to answer your questions.

Please submit your questions, if possible, already during the presentation, which helps us to cluster them. Marcel Heinzer will moderate the Q&A session.

Let me start with our milestones for 2023. There were a lot of highlights last year.

On the slide shown, you see a picture of the 75th Anniversary of Zurich Airport, which was a great spectacle. Some of you may also remember our Investor Day that happened just one day after the anniversary weekend ended.

On the next slide, we'll go through some other highlights in more granularity. The past year saw not only increasing flight frequency, but also additional direct services resumed.

For instance, since the introduction of the 2023 summer timetable, our hub carrier SWISS has resumed services to Shanghai, Cathay Pacific now fly several times a week to Hong Kong, Korean Air offer seasonal direct flight to Seoul, and Edelweiss has introduced new flights from Zurich Airport to Bogota and Cartagena. The diversification of our company continued to prove fruitful in 2023.

For example, due to our expansion into the Circle and acquisition of the Priora portfolio, real estate revenues were significantly higher than pre-COVID levels, while our international subsidiaries also contributed higher revenues. The construction project for Noida Airport in India passed further milestones, whilst the creation of interest for operating routes from this airport were signed with IndiGo Airlines, Asia's largest airline and Akasa Air.

We also succeeded in further expanding our international presence over the past year being awarded the concession to operate Natal Airport in Northeastern Brazil. Following the 2023 decision by Zurich Cantonal Parliament in favor of extending two of our runways, Zurich voters likewise approved the safety-related project at the beginning of March 2024.

The citizens have once again confirmed the trust in Zurich Airport. As a result, we can now go ahead and submit the planning application to the federal government.

Zurich Airport operates with a very complex runway system and extending these runways will ensure greater safety, improved punctuality and less noise impact in the evening. The Zurich Airport Innovation Hub was created to strengthen the innovation power of Zurich Airport.

The task of the Innovation Hub is to examine and prioritize the potential of new technologies, processes and forms of cooperation for the airport system. It focuses on multi-partner improvements to the customer experience at Zurich Airport.

Following new legislation on nonfinancial reporting and the regulations on transparency and due diligence with respect to child labor that entered into force in Switzerland in 2023, we undertook extensive work during the reporting period to extend previous instruments to prevent child labor in order to meet the requirement standards. Lastly, our majority-owned subsidiaries in Brazil at Florianopolis, Vitoria and Macae succeeded in advancing one ACA Level and now have Level 2 accreditation.

This means they are continually reducing their greenhouse gas emissions every year. Zurich Airport continues to be accredited at ACA Level 4.

This puts Zurich Airport among the top 10% of airports worldwide that have received this accreditation for their efforts to tackle climate change. Let's have a brief outlook and some key figures.

The further growing traffic volumes drove revenue and EBITDA to new record levels in the reporting period. The consolidated profit came to CHF 304 million, almost matching the 2019 figure.

This is mainly due to investments in the real estate and the international business during this period. CapEx increased significantly compared to last year to more than CHF 400 million.

This is largely attributable to higher investments in Zurich as well as in India, of which I will talk later in depth. Distribution to shareholders is to be increased from CHF 3.50 per share to CHF 5.3 per share.

Let's go through our main business segment, starting with the Aviation business. Some highlights from the traffic developments in Zurich were as follows: Passenger volumes during the past year were a reflection of many people rediscovering the joy of travel and the high demand for international mobility.

The number of passengers who have traveled via Zurich Airport rose to 28.9 in 2023. This is equivalent to 91.7% of the level in 2019.

The 19% increase in the number of scheduled and charter flight movements was slightly less dynamic than the rise in passenger numbers. Owing to high demand, coupled with airline capacity constraints, the average annual seat load factor reached a record high of 80.4%.

The volume of freight handled fell by 10% year-on-year. In general, freight demand was lower in 2023 due to a weaker global trade.

As a result, the transport supply is greater than the demand. As long as there is no time pressure, cheaper means of transport, such as ships or trucks are preferred.

That being said, freight volumes for January and February of this year are already roughly 10% above last year's figure. Passenger numbers in 2023 saw a year-on-year increase of 28% with several days peaking at over 100,000 passengers.

Volumes recovered gradually over the course of the reporting year close to pre-pandemic levels. The individual market regions all showed positive annual [ growth ].

At Zurich Airport's main market, European destination accounted for more or for around 25% more passengers than in 2022. This was primarily driven by leisure demand for flights to southern countries such as Spain, Portugal and Turkey.

International travel accounted for 1/4 of all -- intercontinental travel, sorry, intercontinental travel accounted for 1/4 of all passengers reaching 88% of 2019 levels. While passenger volumes flying to and from destination in North America recovered well, the Far East region reached only 72% of its pre-pandemic volume owing to a sluggish recovery of China and Hong Kong.

On the next slide, we will provide you with an overview of our commercial and real estate business. Some commercial figures have already been pre-published in January with a commercial turnover of CHF 609 million, our commercial partner set the new high.

As a result, we generated CHF 139 million of commercial revenue, which is also above 2019. Good news also from our Parking segment, which we operate and manage ourselves.

Revenue were also exceeding 2019 levels. Our Real Estate division has proved to be a strong and important revenue stream, and in 2023, recorded the highest ever revenues of our company's history.

The focus in 2023 was on portfolio management, restructuring contracts and the strategic development of the hanger area. At the Circle; offices, hotels, convention, health care services have become very well established.

New tenancies taken up during last year include a financial service company and IT businesses. On the food & beverage side, there were three additions and all the space earmarked for cafes and restaurants have now been let.

The letting rate of the Circle is now above 90% and the occupancy rate for office space is around 95%. As already indicated at our Investor Day in September, we plan to develop the Circle even more into a business and service hub.

A more granular communication in this regard is planned in the next month. Let's have a closer look at the commercial business.

The turnover generated on airside stood at already 96% of 2019 figures and hence, outperformed the passenger recovery compared to pre-COVID. In the publicly accessible area on landside, turnover even surpass pre-pandemic levels.

Renovations in the northern section of airport shopping will result in some passengers rerouting and store closures from 2024, although this will be offset by automation [ salesware ] as far as possible. The extensive remodeling plant includes a new food hall, creating more attractive space and providing better links to the Circle.

What has been driving real estate revenue last year in 2019, we purchased a portfolio of 33 properties from Priora Suisse AG here at Zurich Airport. The real estate portfolio on the southern part of the airport consists of a variety of subleases at the beginning -- and at the beginning of 2023, we were able to restructure them and those create a win-win situation for all parties involved.

Basically, we split one large contract into several smaller ones, and we're in a position to renegotiate long-term leases. On the other hand, since we have also entered into smaller investment commitments, we benefit from slightly higher rental income.

This new structure is a great example of how attractive portfolio management we are able to create value for our shareholders, but also for our tenants at the same time. Last but not least, let's look at our international businesses.

With a year-on-year increase of 17% passenger numbers at Florianopolis Airport surpassed the level of 2019. Among other things, this massive boost was driven by the strong growth in international travel.

Regular international flights to Lima, Santiago de Chile and Montevideo were successfully added. Traffic volumes at Vitoria and Macae Airport increased 20% year-on-year.

In 2023, the airports at Florianopolis and Vitoria were recognized as the best airports in their size category. The passenger survey was conducted by the Brazilian Ministry of Transport.

Also for the third time in a row, Florianopolis Airport was awarded a Green Airport by Airport Council International ACI. In Chile, Antofagasta Airport in particular, posted solid growth, which is attributable to the launch of new mining projects in the region with an increase of just under 17% compared with the previous year, the airport set new passenger record.

New destinations such as Cali and Lima were added to its international route network during the reporting year. Iquique Airport in Chile and likewise report record breaking year for passenger numbers.

In Macae, the runway is progressing well according to plan. As a reminder, we were awarded the portfolio consisting of 2 airports in Vitoria and Macae in 2019.

Of these 2 airports, Vitoria is clearly the main asset. This being said, the concession agreement includes an obligation to build a new runway in Macae, which is the smaller airport.

After we will have completed this new runway, there are no further expansion investment obligation for this concession. Hence, we expect to generate solid free cash flows from these concessions after 2025.

The portfolio grew last year with the airport in Natal in a public tendering process, we were awarded a 30-year concession for Natal Airport in Northeastern Brazil in May 2023. In February this year, we assumed control of the airport.

The newly acquired airport complements our existing portfolio in Brazil and enable us to benefit even more from the growth of the Brazilian aviation market. In India, we are currently the largest Swiss investor with our Noida project.

The construction work for the greenfield airport is proceeding rapidly. The structure of the terminal is already in place and building work on the control tower has reached the top level.

We are aiming for completion by end of the year. Construction of the runway is well advanced.

The new airport aims to meet high standards not only in terms of quality, but also in sustainability. For instance, power will be supplied mostly from photovoltaic solar panels and wind turbines, rainwater will be collected, grey water is to be recycled, and vehicle fleet will be equipped with electric vehicles.

Shortly before the end of 2023, declaration of intent was signed with India's largest airline, IndiGo Airlines, for a station in part of their fleet at Noida International Airport. IndiGo is one of the fastest-growing airlines in the world and will offer an extensive route network from Noida, focusing on domestic flights at the beginning.

A further declaration of intent was recently also signed with Akasa Air. Discussions with further airlines operating in India, Southeast Asia and Middle East are ongoing.

The majority of subconcessions such as food & beverage, ground handling have also been awarded. With this, I'm handing over to Kevin for the financial part of the presentation.

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

A warm welcome to the presentation of our full year results. I will now give you an overview of the financial performance of the company.

Total revenue increased by 21% year-on-year marking figures, which are above pre-COVID levels. Aviation revenue grew at a slightly slower pace than passenger numbers compared with 2019, aviation revenue stood at 92%.

Non-aviation revenue climbed by 18% to CHF 626 million in the reporting period, around 14% higher than the non-aviation revenue achieved in 2019. EBITDA increased to CHF 677 million, a plus of 22%, setting a new record with 5% above the 2019 levels.

The EBITDA margin was at the high 55%. The consolidated result for the past year rose to CHF 304 million, which was almost as high as the record profit achieved in 2019.

All in all, we are happy to present to you a successful financial year. Let's have a closer look at the non-aviation figures.

Total commercial and parking revenue increased by 10% with parking revenue showing the highest growth, mainly due to a better product differentiation. Real estate revenue reached a new all-time high, rising by 17% to CHF 196 million in the reporting period.

This rise is because of, among other factors, the restructuring of agreements from the real estate portfolio purchased from Priora in 2019, higher energy and utility cost allocations as well as inflation adjustments. Primarily as a result of higher passenger volumes, revenue from services rose by 9%.

The sharp rise in revenue from International Airport business to CHF 118 million is mainly attributable to higher revenues from construction projects to so-called concession accounting. Factoring out the income statement neutral revenue from construction projects, the International Airport business climbed by 24% or CHF 15 million.

Despite cost pressures, operating expenses rose at a slower pace than revenue. Personnel expenses were up by 12% to CHF 220 million and reflect the increase in headcount and inflation adjustment.

Costs for police and security rose by 11% year-on-year to CHF 117 million due to higher passenger volumes as well as inflation adjustments. As expected, at the beginning of the reporting period, energy and waste costs once again showed a sharp rise of CHF 15 million to CHF 49 million, mainly due to higher electricity prices.

Overall, operating expenses increased by 20% year-on-year to CHF 560 million. Adjusted operating expenses, meaning excluding the expenses from construction projects were around 7% up compared to 2019.

I will now outline some key financial ratios. Net financial debt decreased, and net debt-to-EBITDA came down to a ratio of 1.6.

The higher earnings also had a positive impact on our return on invested capital, which increased to 7%. The solid business performance also affected our cash generation positively with operating cash flow up to pre-COVID levels.

Likewise, we experienced a decent positive free cash flow generation last year. Our cash position, excluding noise-related funds amounted to CHF 483 million with the Zurich side accounting for the majority.

Among other things, the liquidity will be used to repay the CHF 300 million bond maturing in May 2024 and to distribute the dividend. As shown in earlier presentations, we have definitely entered the phase where the leverage in Zurich will be on the lower end, while leverage for our international holdings, mainly due to loans in Noida is increasing.

This slide shows the largest projects we have been working on in the last year. The biggest building project at Zurich Airport, the new baggage sorting system is currently underway.

Following extensive trials and ongoing adjustments, integration of the new system and the phased transition from the old baggage sorting system to the new one began in 2023. Equipped with state-of-the-art technology, costing approximately CHF 450 million, this new infrastructure at Zurich Airport is significantly more energy efficient than the existing systems.

Project planning for replacing the existing Dock A, dock base and tower commenced during the year under review. Despite having a larger volume, the new building will also require much less heat and thanks to solar panels consumption of grid electricity will be cut around 60%.

Retail and hospitality offerings will also be optimized. Building work for the tower is planned to start in 2027 and for Dock A from 2030 onwards.

Following a 2-year pandemic-related suspension, construction work for Zone West has been resumed. A total of 14 stands for scheduled and charter aircraft plus the parking area for business jets will be built on the western side of the airport.

We have already outlined the progress made at our largest international project, the development of Noida Airport in India. Noida will remain a project, also a major project also for the current year.

If you are looking for more details regarding CapEx accounting, this can be found in the annex of our presentation. So let's turn to the outlook.

Let me start with our midterm traffic guidance. Historically, we have guided to be back at 2019 traffic levels in 2025.

We are still expecting to have full traffic recovery by then. In 2024, we still see some issues that will make it difficult to handle pre-COVID traffic.

Some of the airlines, for example, Swiss also using A220 with engine problems. As compensation, Swiss is using the wet-lease market.

We hope these issues will be solved in due course. In the long-term, we expect similar growth rates as in the past, which were typically around 2% to 3% per year.

So let's now focus on our expectation for the current year. Traffic volumes at the Zurich side are predicted to rise to approximately 40 million passengers.

That's roughly 95% of the number reached in 2019. Aviation revenue will slightly outperform traffic volumes.

This is primarily due to the increase in user fees introduced at the beginning of the year in connection with the refurbishment of the baggage sorting system. Non-aviation revenue is also expected to be higher.

At the Zurich side, rising passenger numbers will have a positive impact on parking revenue, whereas the remaining commercial revenue will grow at a slower pace, also due to accounting effects such as IFRS 16. Real estate revenue will be roughly in line with prior year figure.

Revenue from international business will show above average growth, thanks to the integration of the newly acquired airport in Natal, Brazil as well as the general growth momentum in the international business. Despite lower entry prices, operating expenses, in particular, personal and security-related costs, are expected to be driven by inflation and higher volumes in the current financial year.

Overall, we expect to realize both a higher EBITDA and consolidated profit for full year 2024 than in the past financial year. Investment at the Zurich side will amount to CHF 250 million to CHF 300 million.

Investments abroad will likely be around CHF 400 million with the construction of the new airport in Noida making up the majority. I'm also happy to share some guidance for our pathway to net zero by 2040.

One promising project could be the use of a subglacial aquifer, 300 meters below the airport surface. This channel filled with water bearing gravel would serve as a heat and cold storage to heat and cool a significant proportion of the airport buildings without emitting any CO2.

Heating and cooling the airports infrastructure accounts for by far the largest proportion of our own CO2 emissions. The next step is to construct a test well and among other things, it will show what quantities of water can be pumped and what the flow rate and chemical composition of the water are.

We are positive to realize this project and the results of the exploration to date are promising. Thank you very much, and I will now hand over to Lukas again.

Thank you, Kevin. So my summary would be there are no breaking news today, but they're very solid result that we are presenting mainly driven by record numbers in commercial business, real estate and international business.

You've also see our guidance, which you may consider a little bit conservative. But as Kevin has explained, there is somehow limited visibility on the engine issue, how this will affect the summer period.

Nevertheless, you are all aware that our culture is rather too underpromise and overperform rather this way than the other way around. With this, we are at the end of our results presentation, and I'll start the Q&A session, and I'm happy to hand over to Marcel Heinzer, who will moderate the Q&A.

Thank you, Lukas. There have been quite a few questions coming in, and I've tried to put them a bit together.

And the first one is regarding the aviation or the regulated business and is coming from Andrew Lobbenberg from Barclays. He's asking why is the CHF 30 million traffic guide so low in the context of strong general traffic and high-capacity growth filings?

Okay. It's regarding the -- sorry, the fees?

Or could you please repeat the question?

The traffic in general, why is the CHF 30 million traffic guidance so low in the context of a strong January guidance?

I mean, regarding the traffic, there are two things which we need to take into consideration. It's on the supply side, so the engine problems we mentioned.

And also, we see some limitations on demand side. For instance, flight to Israel to Lebanon, which have been significantly lower over the past couple of months, unfortunately.

So that's what we have taken into account in doing those forecasts for our passenger growth for the year 2024. We will be lucky if things would turn out better, but that's the latest forecast we can confirm.

Maybe if I may add, when we look back into 2023, we also have seen during the peaks in summer -- during the summer break that were very close already to the historic peaks of 2019. So this is also something that we considered.

It might be not that well balanced as in the high-volume months. We already have seen numbers close to the peaks.

And once we have more visibility of the progress during the year, we are certainly updating the guidance if there is a need for.

Okay. So let's turn to the next question regarding regulation.

Cristian Nedelcu from UBS is asking in financial year 2024, is there any update you're rating from the regulator regarding the WACC or any other updates? And in this sense, is there any chance to pull forward the negotiations with the airlines about the midterm tariff?

Actually, I don't see a need for the mechanism is that we are now within the tariff period with the situation that we are allowed to overearn the agreed returns, which are 5% for this tariff period. We have to start negotiations latest by April 2025.

That's the start point of the negotiation, not an implementation of new tariffs. And therefore, you could not expect much in 2024.

Obviously, we are preparing ourselves with the necessary materials such as WACC, traffic outlook, et cetera. But the negotiation from today's point of view will start in 2025 with the major airlines and partners here in Zurich.

Maybe to add, there is no update expected regarding the WACC from the regulator this year. And when we start negotiation in 2025, we do not expect new tariffs before 2026, depending on negotiation might be even later in 2027.

Okay. Next question is from Carlos from Kepler regarding the baggage handling.

He's asking, could you walk us through the increase in baggage sorting and handling system fees? How has the negotiation process with the airlines?

And what should we expect in terms of aviation revenue per passenger in 2024?

Yes, as we mentioned, we heavily invested in the infrastructure of the baggage sorting system, and there is a different kind of procedure for those charges, so-called [Foreign Language] in German. And there is a simple mechanism, which allows us to adjust those tariffs on a yearly basis.

And since we invested over the last 2 years, we reached a point where we had a negative return on it. And therefore, we could increase the tariffs as per 1st of January 2024.

Okay. Then again from Carlos regarding the EVA.

So he's saying that he's calculated regulated EVA of around CHF 45 million for 2023, but it is that to close the gap, we'll need significant increases in 2024, 2025 and 2026 in the regulated business. Is it clear that the increase in baggage handling fees is going to have a positive impact on this year's EVA, but should we expect more increases in fees for 2025 and 2026?

Yes. That depends on the baggage sorting system.

All the works have not been finished yet. So over the next 18 months, we are still working on a baggage sorting system, maybe even a bit more.

And that could also lead to higher fees for the baggage sorting system, which would then also affect the EVA.

But the baggage sorting is somehow independent from the overall tariff regime. As this is really a dedicated fee for a dedicated infrastructure.

Since this is the largest project under construction right now, we decide not to wait until the end of the completion of the baggage sorting, but have like an interim adoption of this tariff, which is kind of unique. You could not expect that we are doing this on 3, 4 other line items of the tariff income altogether comes into the negotiations starting in a year from now, roughly.

I can probably add on the accumulated EVA, there, we made decent progress now in 2023 by approximately CHF 50 million. Now we have this fee increase on top and traffic is obviously further recovering and also time will help as indicated before, we will unlikely see charges changing before 2026 or even 2027.

So we're still optimistic to really compensate for the losses made during the crisis.

Another question related to the regulated business is from Sathish from Citi. So he's asking, does the performance in real estate impacts the tariff proposal for the next regulatory period?

No.

NO. Short answer will be no.

We have a hybrid component in the tariff regulation, which includes car parking and airside retail activities, but not real estate. It's completely unregulated.

Okay. Then we turn to some OpEx related questions.

The first one from Daniel Burki, Dario. So Daniel Burki is asking which cost increase do you expect for 2024.

And he's mentioning personal, security, energy as a percentage to 2023. And also Dario from BNP is asking OpEx seems to be a bit higher than what was expected.

Were there any significant one-offs in 2023?

There were no significant one-offs. We had volumes effect.

Obviously, we had 3 million -- almost 3 million more passengers in Zurich. We had to staff our organization in 2023, welcomed a lot of new people at Zurich Airport.

Although Switzerland, inflation doesn't seem to be a hard topic. We do have inflation.

So prices are increasing at our partners, but also within our organization with respect to the salaries. So we also expect this year to have increasing costs.

And maybe if I can add here, I don't see that so dramatic, honestly. I mean when we look back then we -- very early in the crisis, we guided for a full recovery of passengers assumably by 2025.

This is now -- it looks like now that we may have -- we had a little bit more passenger last year than what we have anticipated. But overall, we are -- remain within that picture of a full recovery in 2025.

And the next thing we also guided early in the crisis is that once we have fully recovered passenger volumes, we will be able to contribute about the CHF 100 million more of EBITDA. And this goal was achieved already, despite having 8% lower passengers compared to 2019.

What we said is also that this CHF 100 million more of EBITDA is a mix of more real estate, more international returns and cost savings. And this has slightly shifted as we honestly have not assumed the inflation impact to be that heavy.

Nevertheless, the overall picture in terms of recovery of passenger volumes, in terms of value contribution linked to this CHF 100 million EBITDA is, in my view, very intact, and we have rather reached this value contribution, this CHF 100 million EBITDA earlier than what we have expected when we guided for this number.

Probably to add on the last part of the question regarding energy costs. There, we clearly see that those costs have now peaked in 2023 and we expect slightly lower cost now for this year.

So mainly electricity, which we typically buy in advance, there we do see lower prices at the moment.

Turning to some commercial questions. First one being from Manish from Societe General.

He's asking on the commercial division, i.e., all non-aviation activities in Zurich, the IFRS-related amortization, I think, was CHF 11 million for the full year. Do you have a split of this amortization in H1 and H2 of 2023?

And it seems like that this division has been a bit of a soft margin in the second half of this year. And then how do you see this amortization expenses panning out in 2024 and 2025?

That's for the CFO. Happy that you're taking the complicated questions now.

Thanks. If I understood it correctly, what was negative effects of those amortizations due to the concessions we made for our commercial partners, right?

Those have a negative effect. That's what we mentioned as well during the presentation.

That's why the growth in 2024 won't be as heavy as we might could expect. So there is a negative effect.

Still, we expect growing commercial numbers also this year. One thing which we also need to take into consideration, we are building the landside food hall and this will also affect some of our commercial customers, and that's also taken into account in our forecast of 2024.

I can probably add on the IFRS 16 topic, there are other questions related to this as well. So IFRS 16, led to a negative revenue or a minus revenue of approximately CHF 11 million, and this will continue until the last contract has matured.

So presumably for the next 4 to 5 years, it will be hovering somewhere around CHF 10 million for those special amortizations. And regarding the weaker performance of the Commercial division in H2, I guess that's mainly because of the -- how the costs are split between H1 and H2.

So a good part of cost increase mainly related to staff actually happened in the second half of the year, due to hiring additional employees and also last year's salary increase kicked in as of May and is therefore more in H2 than in H1.

Thank you. This already answered some further questions that were in the pipeline.

So we can now turn to the international business, where we have a question also from Daniel Burki from [ Zürcher]. Will Noida be completed on time?

And when do we expect a reply from the government regarding your tariff proposal?

Yes, the work on Noida International Airport is running very intensively. We currently have more than 8,000 specialists on site, trying to finish the airport on time.

We still aim for completion by the end of this year.

And on the tariff, we expect the outcome of our tariff proposal within the next months, summer, I would say.

Then there's another question from Manuel Lang from Vontobel. You mentioned that the CMD last year that international CapEx will probably be higher than in Zurich.

Now I'm wondering why they came in lower than anticipated?

We had maybe some delays in capital expenditures last year and that doesn't need to have a direct in linkage with the progress on site. So therefore, we expect to have a bit higher CapEx this year with a total of CHF 400 million in the international business.

And we do also expect some expenditures on CapEx in 2025, which is not unusual for such a large approach that the [ all ] money spent until the airport is finished.

Another CapEx-related question coming from Luca from Intesa regarding Noida. So the financial year 2024, CapEx guidance looks a bit high.

Is there any inflation-driven impact? Or is it an acceleration of construction works in Noida or elsewhere abroad?

It's primarily due to Noida. There we have an inflation protection in our contract for the construction of the airport.

We're also spending money in Brazil for the runway in Macae. So it's not only Noida, but the majority of the investments will be in India.

Okay. Next question is from Sathish from Citi.

He's asking what triggers the CapEx for the second phase in Noida? Do you have to reach a certain percentage of capacity utilization?

The phase 1 is 12 million passengers. And at the moment, we reached 80%, we need to start with the planning.

And as we already mentioned at the Capital Markets Day, there is a high demand, higher than we actually planned in our business plan initially. So there is the positive potential that we will reach that point earlier than initially planned and then also will start to invest further, but this has not yet been decided in which way we are going to do that.

Next one is from Jose from Santander. In Noida Airport traffic outlook, do you still maintain the outlook for the first year of operations that you provided in September last year?

Yes, we stick to the guidance we gave during the Capital Market Day, also with respect to the financials.

Then a question from Marcin from Bank of America. Where do you expect International CapEx to be in 2025 once the Noida Airport is opened to traffic?

Will it be at very low levels?

Yes. CapEx in international business will definitely be lower compared to this year and the majority will then for the next couple of years being invested here in Zurich.

Another question for Marcin is, are you exploring any further international growth opportunities, i.e., acquisitions?

Honestly, in -- given the strategy and focusing on these 2 regions in Latin America, mainly Brazil and India, the focus clearly is on the completion of the project in India, which I strongly believe that the highest potential of value creating for you as shareholders rather than going into other projects in India within the next month. So there's a clear focus on completion and the inauguration of that airport in India.

In Brazil, we have Natal as an addition to the portfolio. The strategy there is also that if we see in the primary market or secondary market transaction that will be a add -- good add-on to our portfolio that fits into our strategy, we certainly will have a look at.

But from, let's say, a conservative point of view, there is no need to invest. If we find a good asset such as Natal, we will have a look at it.

Another set of questions is coming from Ruxandra from HSBC. First one being, when do you expect slots at Noida Airport to be allocated?

I don't know when this will exactly happen. Do you know that Kevin?

I don't know precisely, but that will happen closer to the opening. So we are not yet there at the moment.

Then another question from Ruxandra is, are you concerned by the current delivery delays of airplanes, which are impacting also the Indian market?

It's actually an issue to IndiGo, for example, if I'm not mistaken, I think they have about 70, 80 aircraft grounded. What we see that there is now this problem getting solved step by step.

These spare parts are now available. Now you need to slot with the emerald facilities to change the aircraft parts, et cetera.

This is something that step-by-step going to be resolved. I don't see, honestly, a material impact for Noida.

Okay. Then return to some other questions.

One is from Johannes Braun from Stifel about Priora. He's asking, can you explain the restructuring of the Priora real rental agreements and the financial impact, does it, for example, involve an increase of rents?

Yes. That's the answer to the last part of the question.

It's basically something that we just want to show you as an example of how portfolio optimization can be done in the existing layout of the airport. The area we are talking about the home base of SR Technics, which is a major tenant here at Zurich.

And for us, this restructuring of the contract is basically something that we have agreed to further invest in this area, given a new long-term contract with SR Technics, but also -- which is also a strong sign for SR Technics to Zurich Airport, which also creates quite interesting jobs at the airport. And this -- at the end, a win-win situation in a way that we have now SR Technics as a major tenant in this area.

We are going to invest and at the end, this results also in optimization, i.e., higher returns for that area.

Okay. Staying in the Real Estate business, Jose from Santander is asking the real estate in Zurich, is there potential for further revenue optimization of the portfolio?

Well, that's our job. Actually, yes, step-by-step, once contracts are maturing, then we always have analysis of who will be like the best tenants can we adopt the portfolio, can we adopt this region where we have vacancies, et cetera.

But it's a clear strategy, realistic to the airport footprint. We are not going to be like a real estate owner or operator downtown Zurich.

So the strategy is clearly on optimization, optimizing the portfolio step by step. And what we have done now in the southern part of the airport, what I have explained to be like a good example.

The next question is from Dario from BNP. He's asking the transfer payment from commercial side to the aviation business was CHF 23 million, almost double versus 2019.

Why such an increase? Will this be rediscussed for the next regulatory period?

The main driver was the Parking business, which was running higher and produce us good results. And as Lukas also mentioned, the second one is the commercial activities on the airside, which also contributed to the transfer payment we had there.

And in the negotiation, this might be a topic, not from our side, but this might also be discussed. But...

It's actually a good thing if the transfer payment increases, which means that the value contribution of those segments is higher.

Next one is from Manish from Societe General regarding the dividend. So is your prospective dividend policy or what's your prospective dividend policy in financial year 2025?

What would be the basis of the dividend? Will the cash generation at home or really look at cash generated at consolidated levels.

So kind of do we split Zurich with international or put it all together. And this asset -- this distinction seems to be important mainly because of the Noida project.

So basically, what is the future dividend policy after 2025?

As we said also in the Capital Market Day, we have not yet decided. For next year will be, again, the 40% of net profit adjusted plus the rest of the capital contribution reserve.

And then this will be discussed in due course what changes we might make at the dividend policy going forward.

Cristian from UBS is asking what are you seeing in terms of summer capacity, so April until October versus 2019?

Well, I would say that what I said before is that within the months of high-volume summer vacation, we will be broadly achieving 2019 levels as we closely did already last year.

Then the next one is coming from Nicolas Mora. Regarding CapEx guidance, what are the building blocks again and is there room to revise lower CapEx on Noida?

Yes. I mean in Zurich, we guided that we will approximately invest CHF 300 million over the next couple of years.

We also highlighted some of the projects ahead of us. And Noida, it's the CHF 400 million this year, that should be sufficient to finish the project.

And then we also have some investments in the international business, but on a much lower scale, at least as of today.

And the guidance -- the CapEx guidance for Noida is unchanged, CHF 750 million. That's important to mention.

And again, there is a total turnkey contract, which includes no inflation risk to us. Therefore, the CapEx for phase 1 is unchanged.

The next question is from Luca again touching on the OpEx. So you mentioned inflation on staff cost and security.

Could you please elaborate a little bit more on that, is the increase related to more hiring, contract renewals or both? And then should we expect those cost line moving with the inflation from 2026 onward?

I mean, it's -- both is correct. We staffed, we also increased our salaries or the staff salaries this year.

Security costs are linked to volume, but also tariff adjustments we have from the police. On the long-term, we expect that those will flow with the inflation we see in Switzerland, which will be rather on the lower end, at least in our perspective as of today.

But as mentioned also in the beginning, costs will be increasing also this year.

And especially as you are asking for a longer-term development of those cost items, whatever belongs to volume-driven increase in OpEx in terms of more passenger and whatever belongs to inflation component for the regulated businesses all goes into calculation of the new tariff period. So there's, I would say, a rather perfect inflation and volume compensation within the next tariff period.

Maybe to add, the same goes for commercial. Most of our contracts are linked to the revenue.

So if prices are increasing, we will also have a higher rental income. And same goes for the rental agreements we have with our tenants.

They are also linked to an index, which is increasing if we do have inflation. So there is an inflation protection on the revenue side as well.

Turning back again to the baggage handling system. So Andy Jones is asking what has been the total investment in the baggage system you made until adjusting the fees, i.e., not just 2023 CapEx, but across the whole project.

Like until the end of 2023, we invested approximately CHF 330 million so far in the baggage sorting system. And we do expect to invest over the next 2 years, the remaining CHF 120 million to be up to the approximately CHF 450 million we mentioned during the presentation.

I think this question is also aiming towards the financial impact of this change in the fees. So we will increase the baggage sorting fees by approximately 40%, which translate into additional revenues of approximately CHF 20 million a year.

Next question is from Reto Portmann. Can you please give us an update on air traffic to China also compared to 2019?

China is maybe one of the reasons. So definitely, the market that is lagging behind in terms of the overall recovery, let's say, it's about 70% of 2019 numbers.

Next question is from Manuel Lang regarding inventory. So he's saying that they have doubled the inventories, where do they come from and what can be expected for the future development?

And also on free cash flow, what was the main driver to keep it stable despite increased CapEx?

The increase of inventory is mainly due to higher oil inventory in the reporting period compared to the previous years in quantity, but also in higher average prices. And the second one was, excuse me, could you please repeat?

Free cash flow.

Free cash flow. Yes, the free cash flow was steady because we did have some lower CapEx as we initially planned for the year 2023.

So that had a positive impact on our free cash flow generation last year.

So we are coming already to the last question from Sathish. He's asking where are we on corporate travel recovery?

Tricky one as the last question. I would say it really depends on market.

So in the Intercontinental segment, I would rather say we are close to recovery especially in the North American market, U.S., Canada, Asia, same is true what I mentioned before, I would say probably 70% and Europe has not fully recovered, especially what belongs to like daily trips to London, et cetera, which probably never will fully recover as there is like the most structural change in the travel behavior. I would say it's probably overall 80% to 90%.

That would confirm the data that we have from the surveys we're on with our passengers. So for the full year 2023, the share of business travelers was estimated at 22%, which compares to approximately 26%, which we had pre-COVID.

Okay. With this, we are at the end of the Q&A sessions.

If a question shouldn't have to be answered to the satisfaction, please reach out and we'll follow-up. And with this, I will hand back to Lukas.

Thank you. Nothing more to add from my side.

Thank you very much for the interest in our company. We are here for any further questions.

Please reach out if there were questions, we have not answered during the call. Thank you very much.