Fraport Frankfurt Airport Services Worldwide AG
XMUN:FRA
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Okay. So I think everybody's on the line. Ladies and gentlemen, welcome to the presentation of Fraport Group's results of the second quarter of 2018. With me at the table, I have Matthias Zieschang, Fraport's CFO, who will present to you the financial performance of the second quarter and the first half year of 2018. After the presentation, he will receive and answer your questions.Now let me hand over to Matthias Zieschang.
Yes. Good afternoon, ladies and gentlemen, and also warm welcome from my side to our H1 call here from Frankfurt. Let me start my presentation with an overview on the operational and financial highlights of the first half of 2018. Our main operations here in Frankfurt continue to experience a strong traffic momentum, growing at around 9% in passengers. Key growing airlines are Lufthansa and Ryanair, but also easyJet. WizzAir and Condor are showing a good passenger development. Comparable to the first quarter's development, passenger growth predominantly took place on short-haul traffic. Hence, continental traffic was up by around 13%, while intercontinental traffic grew by 3% in the first half. As a result, our retail revenues per passenger continued to perform negatively as they were also impacted by the strength of the euro and the stressed operational situation we are having in terminal 1 and 2.On the flip side, the higher passenger numbers positively impacted aviation and car parking revenue. The increase in car parking was also able to offset for the negative development we recorded in our retail operations.Within our Ground Handling segment, you will also see it later on, revenue performed in line with expectations, while new hirings and extra shifts put pressure on the financial performance of the segment. Here, we hired especially more employees in the second quarter in order to maintain and improve service levels while seeing strong traffic growth.Within our international activities, we continue to see strong traffic trends and a good financial performance across our portfolio. An outstanding result certainly we recorded in Antalya, which I will also highlight more in detail. Adverse impacts, however, resulted from the conversion of the U.S. dollar and the Brazilian real accounts in Lima, Brazil and our U.S. Airmall business into our group accounts. Despite these effects, the underlying operational performance in Lima and Brazil was fine and in line with our expectations. On top of the very good performance of our international activities, we signed the agreement to sell our Hanover stake to iCON last Monday, which you will also see on the next slide.All in all, the second quarter financials were in line with our expectations and look even better if I adjust for the big property sale we recorded in the second quarter of 2017. Hence, we feel comfortable with the outlook we have given on the full year but more details on that later.Let me now highlight our most recent topic, the divestment of our 30% stake in Hanover Airport, which we signed 2 days ago. The financial details of the transaction are shown on the slide and also has been discussed with our IR Department on Monday. Therefore, I'd like to focus on the more strategic topic: why did we sell the investment? Hanover Airport has been with the group for exactly 20 years now. At the time we acquired Hanover, the idea behind the investment was to participate and later on also control a larger number of German airports. This idea, however, has never played out. As our peer strategic interest is to control and further develop assets, we decided to restructure and treat Hanover as a non-core asset within our portfolio. As we have also communicated previously that we want to work on our international portfolio to increase the visibility on the values behind and also to potentially crystallize value, we are now very pleased with the contract signed with a well-reputed buyer, iCON.The closing of the transaction is still subject to preemption rights of our 2 co-shareholders, and we expect the closing to happen in the next 2 months so that our full year accounts will be impacted by the transaction. Based on the purchase price and the 2017 full year accounts, the transaction EBITDA multiple is about 19x. So we achieved a fair price, which reflects the general high valuations of infrastructure assets in the market.Coming now back to the more day-to-day development, which you can see on Slide 5. The figures shown on the chart are not new as we published them already last month. More important certainly are the preliminary figures we released for Frankfurt in July this year. In line with the strong development of the previous month, July traffic performed very good again, growing at 7.5%. As a result, the year-to-date passenger growth for Frankfurt now stands at 8.8%. As this figure is still well above our old guidance for the full year traffic, we decided to raise our traffic outlook to slightly more than 69 million passengers. Translated into percentage growth, this represents an increase compared to the previous year of at least 7%.The reason for not upgrading the guidance of the current run rate of just under 9% is shown on Slide #6. You can see that the months of the previous year we have been comparing so far have been robust but not as good as the months from September 2017 onwards. Hence, there's a high likelihood that we will see a slowdown in terms of traffic growth going forward. Here, I'd like to highlight that we are not talking about a deterioration of the current traffic performance. We expect, of course, further growth also for the winter season. However, this growth will be compared to a stronger previous year's basis leading to lower percentage points growth.While traffic comps will get harder, retail comps on the other side should become easier, in addition to baseline effects from the stronger periods of low cost and short-haul traffic in the previous year. You can also see on the chart that the appreciation of the euro versus core-spending nations took place primarily in the second and third quarter of last year. Correspondingly, our retail revenue per passenger got under pressure. As we will compare to a different traffic mix from September onwards, we also expect to see a turning point in our retail development at the latest of Q4. Certainly, the currency development is something we cannot influence going forward. But on a like-for-like basis, we are optimistic that we have seen the worst in terms of retail performance, and we are done with the summer season.Talking about currency, traffic trends and summer seasons brings me to my next topic, our investment in Antalya on Slide 8. Following the harsh drop in the fiscal year 2016, Antalya has shown an impressive traffic recovery, not just last year, but also this year. The tourism industry in Antalya is not just benefiting from a more stable political environment these days but also from the strong depreciation of the Turkish lira, which makes Turkey a very attractive value-for-money destination. Hence, we expect Antalya Airport in 2018 to see the best-performing year in its history. As charges are denominated in euros, also the devaluation of the lira is not a burden for us and our Aviation P&L. In addition, the ongoing repayment of the project finance will ease the local interest burden of the investment going forward. Hence, we are not just expecting to see the best passenger performance, but also the best net result in Antalya's history.Moving on to the financial development in the past half, starting with our revenue bridge. I said previously our Aviation segment was showing good performance. Main drivers here were volume-related higher Aviation charges and security revenue. Profitability-wise, please keep in mind that security revenue is balanced with cost in the same amount so that only charges impact the segment's EBITDA.Like in the first quarter, the Retail & Real Estate segment was not providing for revenue growth. While the first quarter still was positively impacted by a property sale, the second quarter's results compare to a very high property sale we recorded in the previous year's second quarter. As a result, revenue in the segment decreased by around EUR 27 million in H1. While real estate revenue continue to be impacted by the loss of an energy supply contract without any margin, parking revenue compensated for the downturn in our retail business.Ground Handling revenue improved by around EUR 17 million. However, as indicated before, the segment was unable to grow its profits in the second quarter, leading to a flat EBITDA in H1. Reason for the negative Q2 profitability were higher staff costs, which I will explain on the next slide. Frankfurt, therefore, in total, contributed some EUR 19 million to the increase in group revenue.Within our international holdings, you can see the good contribution of our main assets as described before. As a result of the euro strength, the performance of Lima, Airmall and Fraport, Brazil continue to be burdened and converting their local accounts into our group accounts. In light of the sharp devaluation of the Brazilian real, let me highlight at this stage in that we adjusted our financial forecast for our Brazilian investment. While starting the year with an expected EBITDA of some EUR 45 million, we now expect to receive around EUR 35 million. As the local outlook remains unchanged at some BRL 160 million, please note at this stage that we are not scaling back because of poor operations or not meeting our targets. The only thing we have now adjusted is an updated currency expectation, which we are seeing well below our initial estimate at the start of the year.The development of our operating cost is shown on Slide 10. Out of the EUR 94 million increase in revenue, we translated some EUR 41 million into EBITDA growth. Bearing in mind that we also recorded some EUR 12 million of low-profit security revenue, we translated around 50% of revenue growth into EBITDA. The key OpEx drivers are shown on the chart. Personally, I like to focus on our staff cost development here as the remaining items don't require further explanation.So what has happened in staff cost? First of all, you can see the impact of the wage settlement. EUR 12 million in the first half is certainly somewhat higher than our guidance of around EUR 20 million for the full year. The discrepancy can be explained by the higher increase in wages agreed between the federal minister and the unions. Hence, for the full year, we should see a price impact on wages rather in the direction of around EUR 25 million than EUR 20 million as indicated before. The gains from our staff restructuring program become visible in the volume impact of the parent company.Here, some 400 employees left the company. On the other side, we employed some 1,000 new employees within our Frankfurt subsidiaries due to the increase in ground handling and security services. So obviously, we should also, at the extra, shift payments in that calculation. But nonetheless, we are talking about a significant reduction of EUR 40 million personnel cost compared to the old level, thanks to our restructuring program. The higher cost for FraSec finally can be attributed to the higher security revenue. In total, the group EBITDA stands now at EUR 461 million, and therefore, broadly in line with our expectations.Coming now to our bottom line development on Slide 11. Our group result of EUR 141 million remains more or less unchanged despite the EUR 41 million higher group EBITDA. As in the first quarter, the headwind in our financial result can be mainly explained by the following effects. First of all, we included the capital cost of Greece from the first quarter and half of April. Hence, we faced some EUR 12 million higher D&A and EUR 22 million of additional interest cost, so a total negative effect of around EUR 34 million. Second, the start of our Brazilian operations also was leading to higher D&A and interest cost. In total, we are talking here about some EUR 12 million. This negative effect from Brazil was more or less offset by Lima and our U.S. businesses, which led to an improvement of around EUR 10 million year-over-year. Within our result from at-equity investments, Antalya grew its contribution by around EUR 6 million compared to H1 2017.On the other side, our retail joint venture in Frankfurt was down by around EUR 2 million, which can be explained by the weak retail performance here in Frankfurt. Pulling all those effects together, we come to a more or less flat group result of around EUR 141 million, which is also broadly in line with the expectations.Leaving now our group P&L behind, coming to our cash flow development on Slide #12. Let me start here with the performance of our operating cash flow. While our operating cash flow before changes in working capital reflected more or less our EBITDA growth behind number of receivables we recorded as of the balance sheet date reduced our operating cash flow after working capital changes to a level of EUR 325 million. This figure compares to an operating cash flow of EUR 406 million in the previous year, which was positively impacted by working capital changes. As most of our working capital changes are connected with a number of receivables and trade accounts payable as of the balance sheet date, we expect to see a normalized development of the operating cash flow going forward.In addition to the lower operating cash flow of EUR 325 million, we recorded higher cash outflows for CapEx, which were in line with our -- the [ sole ] deviation compared to our expectations certainly comes here from Lima as we are still waiting for the EPC contract to be awarded. Together with the awarding, then we also expect to see some down payments either this or next year.Based on the lower operating cash flow and higher CapEx, our free cash flow turned negative in H1. Combined with the dividend payout, our group net debt grew by around EUR 185 million to just under EUR 3.7 billion. Hence, our net debt-to-EBITDA ratio based on our full year outlook still is at a comfortable rate below 3.4x, while our current gearing ratio is below 100%.Coming now to my last slide of today's presentation, our updated outlook for the full year. As described previously, we lifted our passenger guidance for Frankfurt to a level of slightly more than 69 million for the full year. Certainly, the higher passenger numbers will increase Aviation and parking revenue beyond our forecasted amounts. On the other side, our retail business performs below expectations, and the wage settlement for our Frankfurt staff is somewhat higher than we initially expected. Nonetheless, we see ourselves clearly at the upper level of the guided ranges, also despite the adverse currency effects in Lima, Airmall and Brazil. Moreover, the strong performance in Antalya and especially the Hanover extra gain will increase our results this year.Having said this, I'd like to thank you for your attention, and we can start now the Q&A session.
[Operator Instructions] The first question is from the line of Vittorio Carelli of Santander.
First one is related to the dividend for the accounts on 2018. Should we expect the inclusion of Hanover's sale into the reported net income as a base of the payout or you will exclude these proceeds? And the second question is related to the EBITDA margin of the additional increase in passengers that we're having in 2018. It seems that they are improving the marginality of the Aviation business, but I would like to receive from you, Matthias, more detail about the possible increasing in the EBITDA margin overall in the Aviation. I'm calculating something around 37%, 38% EBITDA margin. And the last one is related to the regulatory WACC. You are obviously increasing the leverage of the group and my question is referring to the tariff of 2020. Should we expect the regulator to take into account the group leverage for the next WACC? Or are you able to separate the international business leverage from the Frankfurt leverage in order to obtain a better WACC?
Vittorio, your first question, dividend policies. So clear answer, Hanover is excluded. What we have in mind is 40% to 60% payout ratio. We also focus on the, let me say, adjusted normal net income, which we have without any add-ons. So second question, EBITDA margin. It's a classical answer, it depends. On one side, we have a clear metric on the revenue side saying that in Frankfurt, that 1% more traffic -- or let me say, 1 million more passengers drive EUR 10 million more revenue equals EBITDA, so we have divided this into EUR 7.50 Aviation fees plus EUR 2.50 for retail and parking and other stuff. So this is well lit. So if you, for example, in this year, assume 5 million more passengers, you can expect EUR 50 million more revenue and more EBITDA, et cetera, as variables. On the other side, we have, as always, a wage drift, a wage increase, which in, let me say, in normal years is about EUR 20 million per year. And in this year, we have a higher negative impact of about EUR 25 million due to more than 3% wage increase. And the, let me say, the incremental Aviation margin depends, on one side, from the revenue side. So number of passengers times EUR 10. And on the other side, regardless what we are making on the revenue side, the wage drift or wage increase of normally EUR 20 million or, in this year, EUR 25 million. And so when, in this example, where we in this year are going up to nearly 5 million passengers. On the other side, seeing this EUR 25 million wage increase, we would have an incremental margin of 50%. But again, when it is higher or lower on the volume side, we have a positive or even a negative impact on the margin, the incremental margin in the Aviation segment. With regards to the WACC, of course, we focus on all the group numbers of capital structure from the consolidated group balance sheet, also the beta factor for the whole company. So of course, the higher leverage has an impact on the capital structure on one side, also on the beta factor. But nevertheless, taking all into consideration, we have in this year already reduced the WACC. If you take the actual data and put them in the capital asset pricing model, let me say, the downturn risk or downturn potential on the WACC level is very, very limited. So if and when we talk about 0.1 or 0.2 and not having also, let me say, in the consideration the ongoing leverage in the capital structure of the group accounts.
The next question is from the line of Ruxandra Haradau-Doser of Kepler Cheuvreux.
Three questions, please. First, in the H1 report, you mentioned that you expect now retail revenues below the level of last year, but you maintained the segment EBITDA guidance because of higher-than-expected other income. What exactly do you mean with this? Second, in 2012, you had some ambitious retail targets. Could you please remind us what has been internal consequences and actions for not reaching the retail revenues of EUR 4 per passenger since 2013? And third, could you please give us an update on the CapEx for this year? Only EUR 359 million in H1, less than EUR 100 million for Frankfurt expansion in H1. So what shall we expect for H2, excluding Lima?
Thank you for the question, Mrs. Haradau-Doser. First of all, retail revenue, as mentioned and as described, retail was disappointing in H1. So I think the reasons are, obviously, the structure, more continental traffic, the waiting times, the currency impact plus perhaps general trends, negative trends from e-commerce and other distribution channels. So on the -- looking forward, now this is a given from the past. Looking forward for H2, we have -- yesterday, we had our board meeting here and the management team of the retail joint venture presented all their measures for the next 2 and 3 years, what to do to work against the negative trend, and I think this was very convincing, what they showed us. First of all, we have the basis effect coming from the currency, which is a significant effect, latest in Q4 but perhaps already beginning at the end of Q3. And this basis effect from the exchange rates plus also countermeasures will lead to some optimism in the management team in a way that there is now a commitment that the absolute revenue in retail in H2 will be higher -- of 2018 will be higher than H2 in 2017. So we are reaching the turning point. The spend per pax is still negative, but it's reduced, but the absolute revenue will be higher in the second half '18 than in the second half '17. This is a change to the first half of '17 where we are below -- in the first half of '18 where we have been below the '17 figures. So coming to the, let me say, the measures, what are they doing? So it's a bunch of measures. Two additional things to bring up, the things in retail, more pop-up stores, more focus in food and beverage, fancy things which will be offered, concept store portfolios, higher utilization of digital channels, tailor-made retail concepts. So it's a lot of things we are changing, a lot of stores, for example, in terminal 1 in the B area. Now there will be the [indiscernible] in the Duty Free shops. One will be called and concentrate on so-called World of Beauty in the eastern part of T1 B. The Western part will be called World of Taste. Looking at differentiation, shops will be refurbished, will be changed. New brands you will see at the airport. So it's a bunch of measures. And the combination of these measures, which will be realized in the next 24 months plus the basis effect, gives us the optimism that we have reached the bottom line of the business. Now we can looking ahead, not in a way that now immediately overnight, the spend per pax will go up. Again, there will be a change of the structure on more Continental passengers. There will be an ongoing pressure on it. But absolutely, now there is a good likelihood that we will see higher retail revenues compared to the last year. So in real estate, then we have also in Q2 the special effect that in Q2 2017 we sold a lot of land, which brought us additional income or EBITDA of up to EUR 15 million. So this we haven't had in Q2 2018, but we are looking forward for another land sale now for the rest of year 2018 so that we can compensate this more or less. So we are also very optimistic. That's the reason why in Q3, in Q4, we -- the numbers also in real estate will change and turn into the positive in this segment. Third question with regards to CapEx, first of all, you can see in the presentation on Slide 12 what we spent in the first half of 2018: EUR 60 million, Brazil; EUR 50 million, Greece; more or less nothing in Lima because we have today not fixed the EPC contract; and then EUR 200 million in Frankfurt. Now looking forward on starting with Frankfurt, we expect about, for the full year, EUR 450 million. So for the second half, another EUR 250 million. In Brazil for the full year, about EUR 180 million, maximum EUR 200 million. And in Greece for the full year, up to EUR 120 million CapEx. So if you put all together for the remaining 6 months, it should be about up to EUR 500 million, which we -- perhaps also some EUR 1 million for Lima. Lima is a big question mark depending from the signing of the EPC contract. But you can, up from July until December, total CapEx around EUR 500 million. Yes, so far the CapEx issue.
The next question is from the line of Andrew Lobbenberg of HSBC.
Can I ask about Greece? So your new baby, you seem quite quiet about it in this presentation. How do you see it trading there into the summer peak? And to what extent are you concerned that -- I think Ryanair has pulled a few aircraft out. So what's happening in Greece? A bit further to the east, Antalya, you seem evangelical about how well it is trading. Did you have the opportunity to buy the stake that ended up going to TAV? Why didn't you go for it if you are so positive about the thing? And how do you coexist with TAV going forward? And then just finally, can you say a little thing about Fraport U.S.? I appreciate this, an FX thing, but the numbers seemed down quite a lot there. I guess that's Boston dropout but that looked quite a big step-down with Airmall.
Yes. Thank you for the question. First topic, Greece. Greece is very fine. You can see passenger numbers more than 10% more compared to previous year. So everything is in line. It is not in line, it's more than we expected on the passenger side. So operations are doing very well. What you mentioned with Ryanair, this is a special issue. They withdrew some aircraft from Chania in -- on Crete. And they went to the public and said this has to do with charges, they are too high. And everybody knows that they have to utilize these aircraft and the pilots on other [ patients ] and perhaps they used this to complain and blame us. On the other side, when you look now, these have been domestic routes which they skipped, and all these domestic routes in the meantime are now taken over from other airlines. So the net impact on our business is 0. We changed -- or we exchanged Ryanair by other airlines like Aegean, which took over their routes, so this is nothing. So looking forward, we expect again also for the full year a very high number of additional passengers. So the EBITDA last year, we had EUR 117 million EBITDA. And yes, I think you will see a significant increase of this EBITDA number in Greece for this year, so EUR 140 million, perhaps even a little bit more for the full year. So everything is absolutely in line with our plans. So the second question with regards to Antalya and TAV. First of all, Antalya in the figures is a -- really, it's a fantastic recovery. Nobody expected this. Even we have been surprised by this, and we are happy. We have a clear guidance that in this year, we will reach above 30 million passengers in Antalya, perhaps even above 31 million. This will be and would be an all-time high, that's for sure, that we will see this all-time high. And also, it's for sure that when you look on the net income of Antalya in our presentation on Slide 8, we have shown the track record of the net result. You can see we have the highest net result in 2014 with EUR 85 million, of course 100%. Then it went down to EUR 68 million, minus EUR 24 million in '16. This was [indiscernible] and the recovery in 2017 was plus EUR 40 million. And now we are giving a clear commitment that the net result will be above the EUR 85 million, so also an all-time high. So we are very happy because this net income will later on translate into dividend payments from Turkey to us. And now you know that we changed our partner. IC group sold to a fair price, a 50% stake to TAV. We also had the chance also to go with them and to sell our 50%, but due to the fact that we are convinced that this is a very good investment, that we also at that point of time believe that there will be a recovery, we thought that the price has been fair. But nevertheless, it's not fully reflecting our expectation with regards to the future. And that's the reason why we decided to keep on running this operation in Antalya. Because we think that the amount of expected dividends is much higher than this cash amount, which TAV paid to IC group. So that's the situation in Antalya. Third topic, which you mentioned, Fraport U.S.A., you can see it in this year in the numbers the drop of the EBITDA. This has to do with the loss of the concession of our Boston activity. This will be more or less not only full year replaced. It will be overcompensated in the future by the win of the concession at JFK Airport, JetBlue Terminal T5, and you will already see in the second half of this year a positive EBITDA contribution from JetBlue, which will -- which goes up, which ramps up, so much higher number in 2019. And then we think that in 2020, then we have EBITDA contribution from JetBlue, which at that point of time then is higher than what we lost by the Boston concession.
The next question is from the line of Stephanie D'Ath of RBC.
The first one is coming back on the dividend. Am I right to say that you didn't change your regular dividend payout policy, but with the Hanover sale, we could potentially see an extraordinary dividend? My second question relates to the retail spend per head, which was down double digits in Q1 and Q2. You've said you were expecting an improvement in trends going forward. And given the easier comps, is it fair to assume that the second half, the retail spend per head should not be down double digits? And then maybe if you could give your outlook for 2019. Would you expect the spend per head to start declining or what are your thoughts on there? And then finally, could you please give us on the CapEx line, I think for the full year, you expected in total a maximum of EUR 900 million maintenance and expansion CapEx. So is it fair to say that this is still the case or even slightly below, given the numbers you gave earlier?
So starting with your first question on Hanover. As I already mentioned, so Hanover is a one-off. So we will get EUR 109 million cash for this sale. And also, we have in the -- at WACC information, we have given the positive impact on our results, EUR 25 million EBITDA, EUR 77 million higher net income. But here, we make a clear adjustment when we are going to use our payout ratio of 40% to 60% because it's not a sustainable income. It's really one-off. And so it will have -- we gave a clear indication that the dividend will go up in '19 for the year 2018, but this has to do with the general ramp-up of our group net income year-by-year and has nothing to do with the one-off of Hanover. So spend per pax, also as I mentioned, first of all, you could see in Q1, Q2 this double-digit minus. So the minus will continue, but it will turn into a single digit one. And again, we expect absolutely seeing a higher retail revenue in the second half of '18 compared to '17. And then the question was, what will happen in '19? So it's really open but -- so absolutely, also we expect in '19 then a positive development, absolutely. And we hope that also then the downward trend in the spend per pax then will go to 0 or perhaps will be even 0. CapEx, I already also gave the indication. So again, Greece, for the full year, Greece, EUR 120 million; Brazil, EUR 180 million, EUR 200 million; Lima, EUR 60 million; EUR 450 million for Frankfurt. When you take this all together, you are a little bit above EUR 800 million. So this is as of today the actual expectation about the group CapEx as of today, a little bit more than EUR 800 million.
And sorry, just on the second question, a follow-up. The security lines, you said that it impacted Q1 because of some bottleneck issues and that you had fixed that for Q2. Could you just maybe be a bit more specific on -- in terms of the minus 11? What was more currency and mix related to long haul, short haul? And what was still due to security lines as well?
Yes, it's very difficult to make a quantitative differentiation. When you look on the first half here, so we -- you can see in the spend per pax, we lost about EUR 0.50 per passenger. So -- and we, based on this information which we have, which is not a pre-size calculation, we assume that about 50% or even a little bit more of this EUR 0.50 will come from currency, so EUR 0.25, EUR 0.30 from the currency side. And let me say, the rest, so another EUR 0.20, EUR 0.25 per passenger, is driven from the structure and perhaps will part from the structure and the rest from increased waiting times due to the security issue. Here, we are improving the situation so the waiting times are going down. This has to do that we bring in more personnel, one reason. Second, we have in the terminal 1, in the A area, already installed 3 additional lines. And as already communicated, the big step forward then, of course, will be in the first half of '19 when we have realized this new hall on the current parking place of terminal 1 in the A area where we bring in up to 10 additional security lines. And this is a huge step forward where we think then we could overcome all the existing problems. And then also being back with secured times on the old level that these negative driver of the trend then is gone.
The next question is from the line of Johannes Braun of MainFirst.
I have 3 as well. First on, if I've got my math right, there was actually a decline of traffic from China and also from Korea in Q2, which is obviously unhelpful for retail revenues. Any specific reasons for that? And do you expect that trend to continue? Second question in your subsegment, service and other, there was a decline of EUR 9 million year-over-year in terms of EBITDA. Just wondering what you're hiding there -- over there. Is this a one-off? And then thirdly, sorry for coming back to this, but what keeps you from returning the EUR 109 million proceeds from the Hanover stake sale to shareholders in form of special dividend? I appreciate that it can't be part of the regular dividend payout but why not making a special shareholder return here?
Mr. Braun, first question, trend from China. So it's -- yes, it's true. When you look on intercontinental traffic, we had in the first half -- generally, the trend was in favor of continental traffic so this intercontinental traffic was positive but underperforming compared to the destinations on the continent. And when you look in the presentation, we have the traffic allocation in the appendix on Slide 18. It's clear. It was 1%. Far East is under-proportionately performing. This has to do that, yes, the seat load factor is relatively high on these routes so the number of destinations is exhausted. So up to now, it's not allowed for Chinese carriers to start more additional destinations from Chinese cities to Frankfurt. We are working on this issue. And this is in the moment, it's a capacity-driven problem so the demand is given. Also, the willingness of Chinese airlines to bring in more routes and additional capacities, but in the moment it's not allowed for them based on the bilateral agreements to launch additional routes. That's a little bit the limitation and we are a little bit suffering from this issue. The second question, I didn't get. Can you please repeat it? What's was your second question?
The second one, yes, there was -- in the subsegment, there was another, which is in your external activity subsegment, there was a decline of EUR 9 million year-over-year in terms of EBITDA and I was just wondering...
Yes. It's also a shift between the quarters, but it has to do with our internal services. We are talking about facility management, about IT services, et cetera. And here, we are a little bit lower compared to previous year. But something has to do with shifts between the quarters, so this will more or less improve in Q3. But it's related to internal services like facility management and -- primarily facility management, but also IT services. Third question, Hanover, yes, again, it's -- I think we are interested to have a sustainable dividend policy. And we have our clear rules, which we, since years, clearly communicated to the market. So this 40% to 60% range plus a strong commitment to all investors saying that the last paid dividend is a floor for the future, I think this is -- we are offering the market upside potential in combination with downside protection. I think this is a fair deal in always saying whenever we have one-offs like 2 years ago when we had this one-off from compensation payments from Manila, now this is sale of China, we exclude this because on one side, we have an increase for the indebtedness of the group and I think, first of all, we showed that we are valuing our minorities. And second, now we take the EUR 109 million and to reduce our net debt. And then all we take the money and to invest in new projects in the international business. And in the pipeline, we are looking and focusing on Sofia in Bulgaria, which will be privatized. And now it should be the starting point for this bidding process. And also, in Brazil now where the next round was small regional airports. We are looking whether this could be interesting for us, and therefore, now we have the firepower. It would be the wrong signal to take the money. We don't have any influence on share price because it's a one-off and it's not our policy.
Okay. Just one follow-up on that. Your net debt target for the full year is still EUR 4 billion, but I guess, with a slightly lower CapEx in your guidance...
Up to.
Up to. The slightly lower CapEx. And also this EUR 109 million proceeds from Hanover, I guess, the EUR 4 billion will not be reached.
Yes, sure. Let me say the EUR 4 billion was the maximum, having in mind that we invested about EUR 1 billion. Now you have heard, based on the delay in Lima and some other things, we -- for this year, we expect EUR 800 million, perhaps a little bit more. So we are less than this, what we originally expected. Also, more than EUR 100 million from Hanover, that's for sure. When you take now the indebtedness of end of June, so there is some likelihood that at the end of the year we will be a little bit below.
[Operator Instructions] The next question is from the line of Arthur Truslove of Crédit Suisse.
A couple of questions from me. So the first one is, in what scenario would you think about potentially disposing of your associate investment in Xi'an? Obviously, you've just disposed of Hanover. I'm just keen to kind of hear your thoughts on that. And in addition on that one, can you just tell us what Xi'an's net debt-to-EBITDA ratio is? Second question on commercial revenue per passenger. Is there likely to be any opportunity at some stage to take a greater share of concessionaire revenue? From memory, your big contract comes up in 2022. Can you just talk about how you think about how that might change? And finally, once again on retail. Clearly, in the second quarter, spend per passenger was down by 12%. Can you just estimate approximately how much you think was attributable to the challenges associated with [ Kering ]? Just so that we can kind of have a think about how that might progress through the year.
Yes, Xi'an is a minority investment. So in our definition, it's non-core. It's not a strategic asset like Pulkovo in St. Petersburg where we saw 10%. Like Hanover, where we saw 30%. But we are happy with Xi'an because when you look on the financial numbers, they're always going up. So we spend prices [ we know only ] for the 25%, we spent EUR 88 million. So we feel comfortable. But nevertheless, again, it's not a strategic asset. So when you are willing to buy it, we can talk about it. It depends from when there are some investor coming around the corner, we can talk about this issue. But there's no intention to sell it. So this is our general policy. But this has nothing to do with Xi'an. This has to do with treating this as non-core asset. So the numbers, EBITDA of Xi'an is EUR 90 million and net debt is EUR 120 million. Of course, [ 400% ]. We can make a simple calculation based on multiples what could be the value of the whole company and of our stake. So retail, so at each and every airport, of course, we have an individual contract or contracts with the retailers. In Frankfurt, we had a long-term contract with Heinemann brothers for the Duty Free places in terminal 1 and 2. And here already in the last -- beginning of last year, we negotiated with them in a way that we, on one side, we expand it and extend it, the contract from 2020 to 2030 or 2031?
'31.
'31, so the extension of 11 years. And we also included then the additional retail area from terminal 3 and we are going to inaugurate this in October 2023. And therefore, we got from them, without any financial contributions, 50% of their Frankfurt operation. So it was a fair deal. Now we have the JV with them. We get 50% from the profit and the dividends. And on the other side of the airport, they got an extension, including an inclusion of the additional terminal 3 area so that this issue now is fixed till 2031, and we think it's a fair and good contract, not only contract now, also joint venture with Heinemann brothers. Yes, and at the other airports, we have individual contracts which we're permanently optimizing whenever they are running out. And -- but in general, I think when you look at all concession agreements, we have reached a level which is really good. So I can't see any deficit, saying when we have a new contract, there will be a significant improvement because already, everything is relatively good so far.
The next question is from the line of Cristian Nedelcu of UBS.
The first one is around working capital. Could you elaborate a bit on the increasing receivables and the EPC down payment throughout H1? And can you also tell us what's expected in the second half of the year? The second one is closely related. What is your expectation for operating cash flow in 2018? And if you can provide a bit more visibility into the -- into your expectations of operating cash flow from Greece, Brazil, Lima and the main international assets. And the last one from my side, please. Could you tell us, please, the total incentive in absolute terms or in million euros that you expect to offer this year in Frankfurt and your initial expectations for next year -- what's the absolute amount there?
Yes. First question, working capital development, as you mentioned, this is a normal -- it's a volatility, which we always see like a, yes, white noise or random walk. So this, let me say, special volatility always is given when we are paying upfront payments or when we're receiving something from companies. And this, for example, happened in 2017 when we received from Dufry for the Duty Free contract an upfront payment, I think the amount was EUR 40 million -- was it EUR 40 million? EUR 50 million, which went as a positive contribution into the working capital. And on the opposite, we -- in all EPC contracts and we pay upfront payment to the construction companies, and this happened in this year already for the EPC contract in Brazil. So last year in '17, we were benefiting from the upfront payment, which we received from Dufry. And in this year, it was running against us because we had to pay upfront payments to the construction company in Brazil. So with regard -- and this is -- all along, it's leveling out. So with regards to the operating cash flow for this year in total on the group balance, we expect a little bit more than EUR 800 million. And this would be higher than this, what we realized in 2017. And, yes, with ability to -- with regard to the international business, yes, let me say, as a good indication, always please look on the EBITDA numbers, I think, which are absolutely apparent. And then also what went out as money are the interest payments, so take the EBITDA minus paid interest expenses, and then you have the good indication what is the operational cash flow of our subsidiaries.
[Operator Instructions] There are no further questions at this time. I hand back to Christoph Nanke for closing comments.
So ladies and gentlemen, thank you, everybody, for taking time with the call, for your questions. And yes, if you later on have any questions, please go on call us in the IR team. Thank you very much so far.
Thank you. Bye-bye.
Ladies and gentlemen, the conference has now concluded. You may disconnect your telephone. Thank you for joining, and have a pleasant day. Goodbye.