The business outlook is based on the assumption that the inter- national economy and air traffic will not be impaired by external shocks such as terrorist attacks, wars, epidemics, natural catastro- phes, or additional turbulence on the financial markets. Moreover, statements concerning the anticipated net assets, financial and earnings position reflect the accounting standards applied in the EU at the present time.
Increasing uncertainties surround the development of the economic environment
Banks and leading economic institutes forecast that the global economy will grow between 2.4 % and 3.5 % in 2013. There will be continued risks from the European financial crisis, which can strongly influence the banks’ refinancing capability and have rami- fications for the real economy. For the Asian emerging countries, the Middle East, Africa and parts of Latin America, disproportionate growth continues to be expected, even if at a slower pace than in the previous years in some cases. For the countries of the Euro zone, stagnation to further shrinkage of the economy (around 0.3 % to – 0.9 %) is assumed. The German GDP, with growth between 0.3 % and 1 %, should show better development, with a slight acceleration of growth being expected in the course of the year. The US economic performance is generally expected to increase by around 2 %.
Growth in global trade in 2013 of around 4 % is assumed. The average global market price per barrel of crude oil in 2012 as well as in 2011 was around US-$107. Due to the continuing weak- ened economic growth and thus falling demand for crude oil, an almost unchanged development of the oil price is assumed for 2013. Sources: Tecson (January 2013), IMF (January 2013), OECD (November 2012), DekaBank (February 2013).
Changes in the general legal environment for German aviation
Since the start of 2012, all flights which begin or land in an EU airport have been included in the EU emissions trading system. However, in November 2012, the EU Commission recommended that the obligation of airlines to purchase certificates for non- member-state flights be delayed until autumn 2013. The reason for this was stated to be the resolutions of the International Civil Aviation Organization (ICAO) under which a global convention for the lowering of CO2 emissions in air traffic is to be developed by the next ICAO Assembly in September 2013. Generally, the inclu- sion of air traffic in the greenhouse gas emissions trading system will first and foremost affect airlines. Airports, however, will also be indirectly affected since additional costs of air traffic could result in a limited growth dynamic. If individual countries or airlines do not participate in emissions trading, the relative competitiveness of European airlines (and as an indirect consequence, European airports) could also be impacted.
With respect to the aviation tax on passenger flights that originate from German airports introduced in 2011, the Deutsche Bundesrat passed a motion on November 23, 2012 under which the German Federal Government is to present an act for elimination of the avia- tion tax still in the current legislative period. At the present time, however, no such activities of the German Federal Government are known. If the Federal Government should retain the nationally levied tax, this would lead to a continued burden on the German aviation market – due to its competition-distorting character. At the beginning of December 2011, the EU Commission pub- lished a draft with regard to the so-called “Airport Package.” It includes various liberalization elements, including regulations about market access for ground handling services at EU airports, a revision of the existing Slot Regulation and a draft for a regula- tion concerning the noise-related restrictions on operations. On December 12, 2012, the Plenum of the European Parliament voted on the Airport Package on the first reading. The legislation pro- posed for the revision of the Slot Regulation and for revision of the directive on noise-related restrictions on operations was accepted by the majority of the Parliament with few changes. The proposed legislation to revise the directive concerning ground handling services was sent back to the respective committee and will have to be addressed again in the current year. If the EU regulation is adopted as planned by the European Commission, there could be significant negative economic consequences for Fraport.
Directive 2009/12/EC came into effect in March 2009 due to a legislative initiative by the EU Commission concerning a uniform legal framework for airport charges. The directive was implemented into national law on May 12, 2012, with the repeal of Section 43a of the German Air Traffic Licensing Act (LuftVZO) and the coming into effect of Section 19b of the Air Traffic Act (LuftVG). Fraport has already made the resulting changes in the legal environment the basis for discussions of airport charges until 2015. For future negotiations of airport charges, Fraport does not expect any sig- nificant effects on Group results from operations due to the new legal situation.
In September 2009, the EU Commission adopted a resolution expanding its influence on airports and aircraft movements/air traffic control. Based on this resolution, the European Aviation Safety Agency (EASA), as the highest European aviation authority, assumed responsibility for security oversight for all European air- ports in the past year. In order to guarantee uniformly high security standards in all EU member states and thus realize a partial aspect of the Single European Sky (SES) Program, national legislation and regulations with regard to the licensing and operation of airports, air traffic management and air traffic controlling services shall be replaced by unified EU legislation. To ensure that general legal conditions build on one another and a functioning European air traffic system can be created, the EU Commission plans to create new principles for the harmonization and better meshing of the legislative projects with the SES II+ Program. Since the legislative process has not yet been concluded, the specific effects on airports cannot yet be definitively estimated.
Overall, the emerging changes in the Fraport Group’s legal envi- ronment could strongly impact the German aviation industry in general and therefore Fraport as well in the future.
Continued positive development of air traffic forecast despite short-term uncertainty
The restrictive supply behavior of the airlines, begun already in 2011/2012 and geared toward consolidation – which at the Frank- furt Airport applies in particular to its major customer Deutsche Lufthansa in domestic and continental traffic – will continue in 2013 and will negatively impact passenger development as well as forecast accuracy. Over and beyond this, the European debt crisis, the German aviation tax and the currently suspended emissions trade in the EU will continue to have negative effects for European air traffic. The positive supply-side effects resulting from the new Northwest Runway and Pier A-Plus thus will initially be offset in Frankfurt. Despite these short-term uncertainties, leading aviation
Group Management Report
Based on the short-term negative general conditions, the Execu- tive Board expects passenger volume for the Frankfurt Airport in 2013 as a whole to be at about the level of the previous year. For the following years, a positive passenger development continues to be expected.
Based on the expected economic developments, stagnation to also a slight rise is expected for cargo volume in 2013. If economic production should prove to be poorer than expected, the 2013 figure can also turn out to be below the 2012 level. In the inter- mediate term, significant growth rates for cargo volume at the market level are again expected.
On the basis of positive economic assumptions and a sustained optimistic outlook for tourism, an increase in passenger figures over the coming years is expected for the Group airports with a Fraport share of at least 50 %: Antalya, Lima, Varna and Burgas. As in past fiscal years, the political situation in North Africa and the Gulf Region can affect Antalya, Varna and Burgas over and beyond their organic growth. In Lima, in addition to the international traf- fic, the increase in domestic traffic will also have an impact on the increase in volume.
Revenue and earnings outlook of the Fraport Group for 2013
Despite the uncertain traffic estimate for the fiscal year 2013, Fraport expects an increase in Group revenue of up to 5 %. The reasons for this at the Frankfurt site are particularly the increase in airport and infrastructure charges as well as additional revenue in the Retail and Real Estate divisions as a result of the full-year utiliza- tion of Pier A-Plus. In external business, a positive development in business based on traffic is expected in Antalya, Lima and Twin Star. Moreover, rising capacitive investments in the Group companies Lima and Twin Star will increase the reported segment revenue as a result of application of IFRIC 12. As a result of corresponding items in non-staff costs, however, this effect will overall be EBITDA neutral.
In connection with the positive revenue development, Fraport expects – despite additional expenses resulting from the full-year operation of Pier A-Plus and the collective wage agreement in the public sector – Group EBITDA that will be above that of 2012 and is expected to be in a range from € 870 million to € 890 mil- lion. Depreciation and amortization for 2013 will significantly exceed that of 2012 in particular due to the full-year utilization of Pier A-Plus. In the event the upper expectation for Group EBITDA is attained, Group EBIT of up to around € 520 million is forecast for 2013. If the growth of Group EBITDA should be at the lower end of the range, it is also possible that Group EBIT will be at about the level of the previous year.
The Group financial result will develop negatively in 2013 pri- marily as a result of the declining other financial result, which in 2012 was essentially influenced by additional proceeds resulting from the disposal of assets as part of financial asset management as well as foreign currency effects, and higher interest expense. The latter effect will particularly be the result of lower capitalized interest expense related to construction work. As a result of the inauguration of Pier A-Plus in 2012, the possibility of capitalizing interest on borrowings during the construction phase of the asset is gone, which will increase the reported interest expense for 2013. A decrease in the Group result for 2013 is expected. In view of the long-term positive outlook for earnings, the Executive Board intends to hold the dividend per share stable for the fiscal year 2013 at € 1.25. The 2013 Group value added will be below that of 2012.
Revenue and earnings outlook of the Fraport segments for 2013
In spite of the uncertain traffic forecast, a slight increase in revenue is expected for the Aviation segment in the fiscal year 2013. This will be due in particular to the increase in airport charges by an average of 2.9 % as of January 1, 2013. The positive development of revenue will also positively impact the EBITDA and EBIT of the segment, for which a slight growth in 2013 is also forecast. The value contribution of the segment will still be negative in 2013. The Retail & Real Estate segment in the current fiscal year will achieve in particular higher retail revenue as a result of the full-year operation of Pier A-Plus. Operation of the pier will also result in increased revenue from energy supply services and rents. Revenue in 2013 therefore will be significantly above the level of 2012. A significant increase is also expected for the segment EBITDA and EBIT. The value contribution of the segment will continue to be positive in the current fiscal year.
In the Ground Handling segment, there will be a minor increase in revenue in 2013 as a result of price increases for ground handling as well as for infrastructure charges. Despite the revenue growth, the EBITDA and EBIT in the current fiscal year will be at about the level of 2012. The reason for this will be in particular the provision in the personnel area released in 2012 which will result in a negative base-year effect for the EBITDA and EBIT in the fiscal year 2013. The value contribution of the segment will again be negative in 2013. If there should be another decline in maximum take-off weights, despite nearly constant passenger figures, in 2013, the revenue, EBITDA and EBIT development of the segment could also turn out below the before-mentioned forecast.
The continuing positive expected business development in Antalya, Lima and Twin Star will lead to an increase in the fiscal year 2013 organic revenue in the segment External Activities & Services. Moreover, increased capacitative investments in the Group companies Lima and Twin Star will increase the reported segment revenue as a result of application of IFRIC 12. Correspond- ingly, increasing expenses from investment expenses will result in the additional revenue having a neutral effect on results due to the application of IFRIC 12. EBITDA and EBIT are forecast at about the level of 2012. The value contribution will continue to be positive. Expected net assets and financial position for 2013 The net assets and financial position of the Fraport Group will be characterized in fiscal year 2013 by additional capital expenditure at the Frankfurt site which, however, will be significantly lower as a result of the completion of Pier A-Plus in 2012. The focus of investment will continue to be on modernization and maintenance projects. Investments in property, plant and equipment of around € 450 million are expected. Investments in airport operating pro- jects will be between € 100 million and € 150 million.
The lower capital expenditure activity will have a positive effect on the statement of cash flows and on free cash flow of the Fraport Group in the fiscal year 2013. Free cash flow will improve in com- parison with 2012, but will continue to be in the negative range. Total assets will increase as a result of the positive Group result as well as the planned investment activity in 2013 and will increase up to € 9,800 million. While shareholders’ equity will increase slightly in fiscal year 2013 as a result of additions to revenue reserves, the equity ratio will be at about the level of the previous year as a result of the rise in total assets.
Net financial debt will increase further as of the 2013 balance sheet date as a result of the negative free cash flow and the payment of dividends. Due to a slightly disproportionately high increase in net debt in relationship to shareholders’ equity, the gearing ratio is expected at around 110 % to be slightly above that of 2012. If, in the course of its efforts, Fraport should expand external business in fiscal year 2013 and carry out relatively large acquisi- tions, the actual development of net assets, financial and earnings position could deviate significantly from the mentioned forecast.
Preview of revenue and earnings development of the Fraport Group for 2014
In fiscal year 2014, the Fraport Group expects a continuing positive organic development. Alongside the forecasted growth in traffic in Frankfurt and the Group airports in which an interest of more than 50 % is held, at the Frankfurt site in particular the renewed increase in airport charges as of January 1, 2014 and the other price increases for ground handling and infrastructure charges will have a revenue-increasing effect. In addition, extra revenue is expected in the retail sector. As a result of the application of IFRS 11, the proportionate consolidation of, among others, the Group company Antalya as of January 1, 2014 will cease, so that the company will be accounted for using the equity method and will be included in the Group financial result. Accordingly, a drop is expected for planned Group revenue, Group EBITDA and Group EBIT in 2014 in comparison with 2013.
As a result of the application of IFRS 11 and the resulting inclusion of the Group company Antalya in the results from associated compa- nies, the financial result will improve significantly in comparison with 2013. On the basis of the forecasted organic growth, a slight increase in Group result is expected in 2014 in comparison with 2013. For fiscal year 2014, the Executive Board intends to keep the dividend per share at least at the level of 2013. The 2014 Group value added will be at approximately the level of 2013.
Group Management Report
Preview of revenue and earnings development of the Fraport segments for 2014
In the fiscal year 2014, Fraport Group expects a further increase in revenue in the Aviation segment. In addition to the renewed increase in airport charges as of January 1, 2014 of an average of 2.9 %, the expected positive development of traffic will have a revenue-increasing effect. The revenue increase will positively impact EBITDA and EBIT of the segment for which growth in 2014 is also forecast. The value contribution of the segment will improve in 2014, but will continue to be negative.
Expected for the segment Retail & Real Estate in the fiscal year 2014 is a continued positive development which above all is attributable to the higher expected passenger volume and the accompanying increasing retail revenue. Segment revenue, EBITDA and EBIT will be above the values of 2013. The value contribution of the segment will further improve in 2014.
The expected growth in traffic as well as price increases for ground handling and infrastructure charges will have a positive effect on the development of result of the segment Ground Handling in the fiscal year 2014. For revenue, EBITDA and EBIT, higher values are expected in comparison with the fiscal year 2013. The value contribution of the segment will increase in 2014, but will continue to be negative.
For the segment External Activities & Services, a positive organic development is also expected in 2014. As a result of the applica- tion of IFRS 11, the proportionate consolidation of, among others, the Group company Antalya as of January 1, 2014 will cease, so that the company will be accounted for using the equity method. Accordingly, a drop is expected for reported segment revenue, segment EBITDA and segment EBIT in 2014 in comparison with 2013. On the organic level, the Group companies Antalya, Lima and Twin Star will continue to develop positively in 2014. The value contribution in the fiscal year 2014, compared with that in 2013, will fall as a result of the application of IFRS 11.
Preview of net assets and financial position for 2014 The net assets and financial position of the Fraport Group will be characterized by continuing capital expenditure in moder- nization and maintenance of the Frankfurt site. Depending on the construction progress of Terminal 3, the investment volume is expected to be above the level of 2013.
The forecasted increase in investment activity will tend to increase the outflow of funds in the statement of cash flows and to nega-