Ladies and gentlemen, welcome to the Flugarten Zurich AG Half Year Results 2021 Conference Call and Live Webcast. I'm Ambe, the Chorus Call operator. I would like to remind you that all participants will be in listen only mode and the conference is being recorded. The presentation will be followed by a Q and A session. You can register for questions at any time by pressing star and 1 on your telephone.
Webcast viewers may submit their questions or comments The conference must now be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Mr. Stefan Wittrick, CEO. We will now be joined into the conference room.
Welcome, ladies and gentlemen, to the presentation of our company's half year results 2021. My name is Stefan Mittrick. I'm the CEO of Zurich Airport, and I will host this presentation as usual together This is Lucas Prossi, our company's CFO. The presentation is available on our webpage, Zurich airport.com And available as a webcast as well. I will start with the business update Before, our CFO will provide you with information on our financial performance followed by the outlook.
At the end, as always, we will have enough time to answer your questions. If you are using the webcast platform, It's also possible to submit questions already during the presentation. Stefan Weber, our Head of Financial Services And Investor Relations will moderate the Q and A session. Air traffic demand Remain low during the first half year. Between January June 2021, only 2,100,000 passengers used Zurich Airport has a departure transfer.
Our destination airport, that's down 61% from the prior year period. In comparison with the first half of twenty nineteen, the number of passengers fell by as much as 86%. 20%, which also had a positive impact on the volume of freight handled compared with the previous year. While the first half year 'twenty one was disastrous for the whole travel industry, it is also quite evident That there is now slowly but surely light at the end of the tunnel. With the progress of vaccinations, East travel restrictions and lifted quarantine regimes, especially also in Switzerland, air travel demand has picked up substantially since summer.
Even if some setbacks will happen over the coming months, the trend shows now clearly in a positive Direction. We summarize the first half year twenty twenty one with the following milestones. Planning certainty will be crucial for bringing traffic figures back to pre corona levels. The Swiss government has taken important steps In that regard, in May, by lifting all travel restrictions and abolishing quarantine rules Also positive news was the rejection of a climate tax for passengers by Swiss voters. In June this year, They rejected the so called CO2 law, which would have foreseen a climate tax of between CHF 30 and CHF 120 Per passengers, a new law is unlikely to be discussed anytime soon.
So Swiss probably will follow route of the European Union in that regard, which is a very good use. A milestone was also the opening of the Hyatt Regency Zurich Hotel, which is the 1st hotel under the Hyatt Regency brand in Switzerland, the 255 Room Hotel It's located within the airport in the circle. Attached, there is a large convention center that opened at the same time and allows large events up to 2,500 people for conferences, fairs or also gala dinners. Bookings are, of course, still on a low level, That show also a clearly positive encouraging trend. Internationally, we are making good progress in NOIDA daily with the signing of the shareholder and financing agreements taking over the land shortly from the government.
The project development is on track, as are the Macare and Igiqe projects in Latin America. In Latin America, we see also Robust domestic demand already coming back, and we have stable operations. On the cost side, percent versus 2019. The short time work scheme by the government has been extended till February 22. In the past year, Frugavon Zurich AG has successfully placed a total of 3 bonds totaling CHF 900,000,000 While paying back a maturing bond for CHF 300,000,000 at the same time.
Moreover, as a precaution, We have exercised our contractual option to increase our credit facilities to a total of CHF 300,000,000 Swiss francs at the beginning of this year. In conjunction with reductions in costs and investments, our company's liquidity is We were also able to adequately safeguard liquidity in our Latin American holdings, Thanks to a combination of cost savings, increased charges and postponed concession fees. In spite of these positive developments, the first half of twenty twenty one remained financially challenging for the company, Our partner firms and the aviation industry as a whole, total revenue in the 1st 6 months of 2021 Decreased year on year by 15% to CHF264 1,000,000. Compared With 2019, this represents a decline of 55%. EBITDA declined slightly to €92,000,000 And the consolidated result for the first half year stands at a loss of CHF 45,000,000.
As can be seen on the slide, our investment reductions bear fruit and have been reduced by almost half. Let's go through our main segments shortly, starting with the Aviation business. The level of air traffic reached roughly 25% of pre pandemic levels at best in the first half year With intercontinental flights and business travel being particularly badly affected, on the slide, You see the main traffic figures for a difficult first half year 'twenty one. The trend since summer is clearly positive, While some setbacks have still to be anticipated for the coming months, freedom of travel is gradually restored globally, Especially for vaccinated people and also with a very liberal regime in Switzerland. The negotiated agreement for flight operation charges came successfully into force in the first half of this year from April Until December, a 10% discount on flight operation charges is applicable to support the successful Ramp up for the airlines.
This discount was agreed upon in our negotiations with the airlines last year And will terminate at the end of this year with stable charges on pre corona levels then for the years to come. As mentioned earlier, the CO2 Act was rejected. Still protecting the climate It's one of the greatest challenges of our age for aviation. Our company has taken climate change Very seriously for decades, for instance, as an infrastructure operator, we have already met the requirements After Paris agreement for 2,030 and made a binding commitment to be 0 carbon by 2,050, Including a defined reduction pass. We are also committed to the use of alternative sustainable aviation fuel, And we do our part so that this technology can be used at Zurich Airport by the airlines as quickly As possible.
On the next slides, we will provide you with an overview about our commercial and real estate Business for retailers and especially for bars, cafes and restaurants, The restrictions imposed during the first half of twenty twenty one were drastic. While stores were able to reopen only at the beginning of March, Restaurants were not permitted to do so until early June. On top of the absence of passengers, as many people Thanks to very stable partnerships, however, we did not lose any tenants and have had no legal issues so far, While still remaining a tough stance in our contractual discussion, since the beginning of July, All our retail and hospitality offerings are open again during main hours. Our commercial business has resumed well. During the summer, travel peaks slightly above the traffic figures.
The circle has been equally impacted by the lockdown, But it's progressing well in its transformation from a construction project to a vibrant new district at the airport And a stable real estate revenue source. A milestone was, as mentioned, the opening of the Hyatt Regency The hotel and convention center, we gradually open new offerings, for example, a new brand house By the Ama Group about mobility. At the same time, our office tenants are moving in sequentially. Overall, 85% of the available space is leased out. Our commercial partners in retail tax and duty free And Food and Beverage Operations have seen turnover fall significantly as a result of the coronavirus.
The legal assessment is that the minimum annual guarantee agreed is not payable by tenants affected by Closures ordered by the authorities. Accordingly, we did not recognize the minimum annual guarantee for the period Of the official closures ordered by the authorities in the first half of twenty twenty one, same as in the period of the prior year Lockdown. In addition, further rent concessions for the post lockdown period were discussed with the commercial partners concerned And solutions agreed. The rent concessions granted in this context were recognized as assets in accordance This IFRS 16 and will be amortized on a straight line basis over the term of the relevant contracts. In sum, the minimum annual guarantees were lowered by approximately CHF20 1,000,000 in the first half On the next slide, an update from our international holdings Let's begin with some updates from Latin America.
In Brazil, Our airport shows steady improvements in terms of traffic since April, and we are confident that the positive trend Should continue since traffic is based mostly on domestic demand. As stated in the past, We are eligible to receive a compensation in Brazil for part of the COVID-nineteen damage in form of a financial re equilibrium. So far, we can confirm the receipt of the financial re equilibrium for our airport in Roipa for the year 2020. We estimate to receive a positive response also for Vittoria and Mackay for 2020 shortly. For 2021, We haven't handed in our requests yet, but we will do so in due course.
From an operational point of view, We consolidated our management functions in Brazil, which results in cost savings in the low single 1,000,000 digit Swiss francs amount. Let's now turn to another continent where we were able to make significant and crucial progress in India. As shown on the slide, some milestones were achieved culminating in the signing of the financing agreements with the State Bank of India. In the last one and a half years, we have been in discussions and negotiations with the bank even during The pandemic and we are very satisfied with the conditions provided by the bank. As a reminder, Out of the total CapEx of around CHF 650,000,000, we expect for Nordea, We have to transfer roughly 35% from our parent company in Zurich as equity, while the remaining 65% Please provided by the State Bank of India in Indian rupees on a nonrecourse basis.
We are proud to say that The financing represents the largest debt financing secured for a greenfield airport in India ever and is also the largest debt Underwriting by a single lender in India for a greenfield airport. Besides signing the shareholder agreement, We are also pleased to confirm that most of the land has been handed over to us. We have signed the site Inventory memorandum, which gives us the right of way to the available part of the site to commence Construction activities. We have started the same already this week, And we plan to deliver the first phase of Neuda International Airport within 3 to 4 years once all of
Thank you, Stefan. Good morning, ladies and gentlemen. Welcome also from my side. I will now give you an overview of the financial performance of the company. The pandemic's impact is still obvious and can be clearly seen in our financial numbers.
In the first Half of twenty twenty, the 1st 2 months January February, were still on pre crisis level before the aviation world changed rapidly in March. The first half year twenty twenty one was completely affected by the crisis. And as a result, this year's numbers have been slightly worse than last year. Aviation revenue fell by 50% to CHF 66,000,000. The fact that aviation revenue did not decline as deeply as passenger volumes It's because not all charges are linked to the letter.
Moreover, a temporary 10% cut in flight operation charges, Excluding emission and noise charges came into effect as of April to help airlines ramp up operations again. Over the same period, non aviation revenue rose by 10% to CHF 198,000,000. I will explain on the next slide why this number increased. Compared with the prior year period, EBITDA fell by 12 percent to CHF92 1,000,000. In comparison with 2019, EBITDA is as much as 70% lower.
The bottom line result for the first half of twenty twenty one was a loss of CHF 45,000,000. In the prior year period, we likewise posted a loss of CHF 28,000,000 whereas a profit of CHF 143,000,000 was achieved in 2019. Revenue was mainly due to the application of IFRS 16 to the rent concession granted in the retail, Tax and Duty Free and Food and Beverage segments. In the appendix of the presentation, you can find further information that explains the IFRS While the revenue from parking was also affected by the crisis, revenue from the international business performed similar to last And facility management posted a plus of 8% to CHF 75,000,000. This increase is primarily attributable to additional rental income from the circle.
Our past investments in Strengthening stable real estate revenues have proved particularly beneficial during the crisis. As mentioned before, we have been able to cut our operating costs considerably. Compared with the prior year period, Operating expenses fell by 17% to CHF171 1,000,000. The savings are mainly attributable to lower personnel expenses as a result of short time working, lower police and security costs and other general cost reductions. Compared with 2019, after adjustment for expenses for construction projects, operating expenses were down by 30%, Which translates into cost savings in the first half of the year of roughly CHF 73,000,000.
I will now outline some key ratios. Net financial debt, excluding the airport Zurich noise fund, Stands at CHF 1,400,000,000 and net debt to EBITDA peaks at 7.9 times. As a result of lower profit numbers, the return on invested capital stands at minus 1.5%. The operating cash flow figure was also lower compared to the prior year period, while the free cash flow was slightly better than in the year before Due to the significant reduction in cash outlays for investments. The next slide shows the largest project We've been working on this year.
The Circle was officially opened in November 2020. That being said, There is still some completion work to be carried out until the end of this year before CapEx for the circle will drop to insignificant levels. The new package sorting system hasn't seen any major construction delays resulting from the pandemic so far. Plant installation and interior fit out were done during the first half of the year. Work on the new building will be completed by the end of the year And the new central package system area will then be gradually installed.
The project is expected to be completed by 2025. The expansion of landside area is a major project and pivotal for the use of all landside zones. Although the work has the work was Proceeding on schedule, the decision was taken to delay completion in order to safeguard liquidity. The new landside passenger areas are now scheduled to open at the end of 2026 at the latest. This will include new retail outlets, underground logistics and a ground level foothold.
With this, let's move on to the outlook. The forecast for the current financial year is If the positive trend from the beginning of the summer months continues, Passenger volumes can be expected to sustainably exceed 50% of 2019 levels by the end of the current year. This will create the conditions for the company to return to profit and generate positive free cash flows again. Further setbacks cannot be excluded, however. As well as aviation revenue, commercial revenue remained under pressure for 2021.
Thanks to additional income from the circle. Revenue from real estate provided to be extremely stable during the crisis and is set to grow in 20 21. A speedier recovery is expected in the case of revenue from international business activities as this is more dependent on domestic travel in the respective markets and should therefore recover more quickly. The company expects to further improve the cost savings achieved in 2020 this year. That being said, it's also foreseeable that costs are set to increase again as of next year.
1st, The short time work scheme will come to an end. 2nd, the volume related cost will increase once passenger number increases. But still, the achieved cost reductions, mainly in overhead and administrative costs, shall be partly sustainable beyond the recovery phase. Investments at the Zurich base in 2021 will amount to approximately CHF 220,000,000. Therefore, the CapEx guidance set at the beginning of the year can be confirmed.
Depending mainly on main construction begins on project in Neuda, Investment at subsidiaries abroad will add a maximum of CHF 100,000,000. This is clearly to be seen as a maximum number for 2021. On this slide, Slide 23, I'd like to provide you with an Stated overview of our estimated CapEx in Zurich and internationally over the next few years. Although we are still pursuing our strategic projects and our high quality standards in Zurich, we have reduced our midterm CapEx plans as much as possible, especially where CapEx is capacity driven. Internationally, CapEx is based on a project basis and is typically front loaded over the concession period.
In Brazil, after having successfully built a new terminal in Florianopolis, there is only limited CapEx needed for this airport going forward. For the planned works in Victoria and Macquarie, we currently expect CapEx of approximately CHF 80,000,000 until 2024. In Chile, the main CapEx item will come from the airport in Iquique with estimated investments of roughly CHF 20,000,000 in 2021. In India, we estimate total CapEx for this greenfield airport to amount to around CHF 650,000,000, which is spread over the next 3 to 4 years. As of now, we believe the construction start will be in Q4 this year.
Now I would like to provide you with some thoughts about our mid term business and financial planning. 2019 was an extraordinary year in terms of financial of our company. Today, the situation is quite different with a lot of uncertainty. We, of course, don't know when the current crisis ends. Nevertheless, there are some moving pieces that gives us confidence that we should Be in an even better position in the years after the crisis than we were in 2019.
With the signing of a tariff agreement in July 2020, we have clarity regarding the refinancing of the losses caused by the crisis. Aviation revenue bounced back in line with traffic. On the non aviation side, our investments in real State, which includes the Circle and the Priora assets, are estimated to pay off as well. Together with higher revenue from our international subsidiaries, We believe our non aviation revenues will perform strong in the years to come. Together with the goal to achieve sustainable cost savings, The profitability of the company will be higher once reaching pre crisis passenger numbers.
Of The new airport in India and the terminal in Mark A will have been built. Our international CapEx will drop significantly. On the other hand, possible pent up CapEx in Zurich may arise and increases CapEx compared to the now reduced levels. However, the positive cash flows after reaching the breakeven point of 50% volumes will allow us to resume an attractive dividend in parallel to reducing debt. This last slide gives you a glimpse on how our Debt situation may evolve in the coming years.
As a result of high international CapEx, mainly in NeuDon and Macrae, Our international net debt held on the books of our international subsidiaries will increase. At the same time, with the air travel recovery taking place, We estimate solid free cash flow generation in Zurich with which we aim to deleverage our parent company's balance sheet. Here, our strategy remains unchanged. We aim to keep leverage low in Zurich and target to take out the maximum of loans for our international holdings in local currency to achieve a natural currency hedge and optimize equity returns. Especially in the year 2020, This strategy has been successful.
The lower parent company leverage helped us to raising long term bonds at highly attractive conditions. With this, I am at the end of my part and hand back to Stefan.
Thank you, Lucas. We now open the Q and A part And then answering the questions raised by phone. Stefan Weber, I hand over to you for the moderation.
Thank you very much. We have received a couple of questions On the cost savings, so Lucas, could you probably share a bit more color on the long term cost savings? What OpEx line items will drive the savings and how much will be saved over the full time of recovery until we reach 2019 passenger levels.
Yes. This is not actually a surprise that cost saving is on the top List of potential questions. So I think the cost savings achieved by the half year of 30% It's quite remarkable. Our initial estimate was 15% to 20% due to a large part Of fixed costs, generally in our business, but also based on a faster recovery Then what is happening right now? Or maybe in other words, with the 30% cost saving, we were able to mitigate the slower recovery Quite well on the cost side.
The total amount of OpEx saving in the full year 2020 last year was around CHF 80,000,000. And for the outlook, I think we have to split the operating among the individual drivers. There are costs that depend directly on the volume where we have to be mainly careful that these costs do not increase Faster than volumes, but there are also cost savings based on supplier contracts that have been renegotiated, which I consider us sustainable. And ultimately, we can also influence part of the costs directly, for example, in the administrative area or the overhead. So all in all, the management's ambition is to keep half of the 2020 cost savings, which we can directly influence over the recovery phase.
And in numbers, this amounts to €20,000,000 to €30,000,000 compared to 2019 and mainly consist of reduced staff In Zurich and abroad and cost savings based on supplier contracts that have been renegotiated And cost savings in the administrative and overhead area.
We have one follow-up question on costs related to staff. So Sjobin from Deutsche Bank would like to know once the short term working scheme will end in February next What are your plans? Could there be an additional headcount reduction? And if so, how material Might this be in terms of costs?
Well, we said in the past, and Which is true also to answer the question precisely. This is something that we really have to be carefully looking at In the next month, so far, we have reduced staff by roughly 8% In Zurich, so this is something that is already done, and we will see in the next year's cost For 100% for the full year effect, but it depends on the scenario that we assume In autumn, looking into the winter capacity planning, if the recovery is taking place, one has to consider that this So going in peaks and we if the recovery follows now the trend of summer, we also need A lot of stuff during the peaks. If we see like another slowdown of the recovery, this is some thing that we have to carefully assess in autumn, forward looking to the end of a short time working, which
relating to retail revenues and the bias that is caused by IFRS 16. So Pascal from Bank Vontobel would like to know what contribution from IFRS 16 can we expect negotiations with tenants about the rents and minimum guarantees for 2022.
Yes. Short answer to that. From today's perspective, we expect roughly the same amount As we had the CHF 20,000,000 in half year for the second half of the year, so total of roughly CHF 40,000,000 compared To a total of €50,000,000 last year, so the amount will be lower this year. And this is based on discussions we currently Have or already signed contracts with our partners, so we have like a high visibility on that. And the second part of the question, do we already negotiate contracts for 2022?
No. We always said, and this was true last year and true for this year, we have to look into like individual agreements with our partner. There is not like one size fits all approach from our side. And whatever we agree has to be for the individual year, no multi
Next, we have a question from Martin from Bank of America. Is it your intention to pay a dividend as soon as net profit is positive on a full year basis? So then let's move on. Next question from Charles from Kempen. He would like to know about an update on the
We have not had considerable new tenants that we could announce. We had 3, 4 Brands and dialogue tenants that we announced, but in terms of total space, this is not the relevance to change the big figure. We still have Roughly 10% to 15% of the offices available, but In terms of the size of this development and that we had to rent all at the same time, we believe this is a very good Occupancy rate for a real estate office project in general, especially during this pandemic and also For the size of the project, so no progress on the big figures in office over the last 3 to 4 months, probably also a little bit Pandemic driven, we see that a lot of tenants say, let's first wait still 1 or 2 years, now might extend their tenant agreement for another year till they have made their final home office policy after corona. And there is a certain reluctancy in the market to sign new agreements now, but We believe that all reasons to shape your office after, corona Going to a direction to have less space at very well connected places in kind of modern set up, so the circle fulfills all these criteria companies will have on their checklist.
So we are not worried at all that within 2 years, The circa will be close to 100% occupancy.
And we have another question from Charles, more finance related. You mentioned a net debt To EBITDA target below 3x by 2025, could you give us more granularity On the development in the coming years.
Yes. I'll also try to give you a short answer on that. So we assumed in our business and financial planning that the reduction of the leverage, the reduction of the debt towards this Target goes in parallel with the recovery of the passengers. So therefore, we set This is a 4 year target. And once we are creating positive free cash flows, Which in our assumption is now the case for towards the end of this year, but for the full year next year, Then we have to balance a debt reduction, dividend payments and CapEx of that plant, but over the next 4 year in parallel with the recovery of volumes.
And we have received some questions from Vittorio from Alvento. Tariffs might go down significantly. So by assuming a lower cost base, a lower WACC and a flattish regulated asset So how can the situation for the Zurich Financials be in a better position compared to 2019?
I mean, this is much forward looking. I think it's really too early To worry about, 1st of all, I think there are too many like moving targets around the question of Let's say, the next tariff period after 2025, and therefore, we A little bit reluctant to give here further guidance. Let's focus first on recovering the losses that we have in this period.
Obviously, in the Aviation segment, I mean, we have a certain rate of return, which now kind of is Has become stable in the Swiss regulatory environment. And in that context, if traffic would be lower than anticipated, if costs would be lower, Obviously, we can still charge a tariff that allows the same rate of return. So I think that's the good thing about aviation that you have a kind of ensured Rate of return, while, of course, in the non aviation business also we have now gained volume That we can compensate volatile aviation traffic in the short term. So I think both FX work in our favor, a guaranteed rate of Counter effect on the revenues.
The second question from Vittorio. Closure on the international division.
That's something that is on the radar I understand you as investors and analysts to have more that you want to have like more details. We try to give you more details, for So I'm in the annex of the analyst presentation, etcetera. But there might be also Like an individual segment with more disclosures going forward, yes.
So with the expansion of the land side area, if we have a rough estimate on How much additional revenues this might generate by 2025, 2026 on the Landside Retail area?
No, not so far. There are no details disclosed at that project stage. So you have to do like an educated guess on that.
Then we have another question coming from Deutsche Bank. It's on regulation in a broader sense. So how are we being compensated by the regulation for the losses suffered Due to COVID-nineteen, and do we anticipate any long term Higher costs as a result of COVID. So for example, because people move around differently or have a Different behavior or requirements for testing facilities, etcetera.
Maybe I'll start with the regulation. First, our mechanism here that we have agreed on with our partners last year is that The new tariff period only starts when we have recovered the economic losses of the regulated business Over time until there's like an ending point in 2025, but it's basically an NPV 0 calculation taking into consideration the over earnings from the beginning of the tariff period started in 2016. And the under earnings arising from the existing situation, once this is going to A zero number, then the new tariff period will start. So this is what we Naim as a compensation for the losses. And your second question might be also Early to see the long term impact on the cost structure out of the COVID crisis.
In my personal view, this is something that the industry really has to carefully Work on and avoid like long term costs arising from today's document checks So similar measures taken during the pandemic. Overall, if There are more costs as relates to the regulated segment and will be then part of the Refinancing going forward.
Next, we have Jose from Santander. His first question is on the personnel expenses. So personnel expenses in H1 this year, they were lower than H1 last year, but also lower than H2 last year. So what additional actions such as SAF reduction Did produce those additional savings? And could you please quantify the benefit of short time working hours
Double check. This comes from the fact that last year, we had like 2 full months or even 2.5 full months of operation. Now we have the full impact for the 6 months of short time working. So far, we received €20,000,000 of compensation in the half year 2021, which
And then the second question is on Economic relief from regulators or from governments, sorry, other European airports, they have
Even if you look on the European scene, this has mainly been given to regional airports and hardly any airports In our size or if then something was given, it has a cost attached to it, which is higher than our way of doing it ourselves. So we are not intending to ask in Switzerland for Government relief because we think it's cheaper to do it on the private capital markets. And on the other hand, of course, we ensure that through the tariffs, we can regain over the coming years most of the loss. While in Brazil and Latin America in general, Chile also, where there are official packages For relief on the concession fee, for example, which we don't have in Switzerland, there, of course, we apply for these relief schemes. And also we In Chile, we already got it in Brazil.
We are sure we get it for the concession. So there it's a standard procedure where we apply for it.
There are currently no more questions on the webcast. Do we have any questions on the phone?
The first question comes from the line of Dario Maglione from Exane BNP Paribas. Please go ahead.
Hi, good morning, everyone. Three questions for me. The first one, have you tender any new retail concession contracts? And if yes, how are the rates compared to pre pandemic level? Question number 2, on retail and duty free, You recorded CHF52 1,000,000 in H1, against CHF 34,000,000 in H1 last year.
Why was that the case? And question number 3, construction cost inflation, we're seeing cost inflation for most of construction Projects around Europe and the world, what about in India? Have you already contracted out the construction phase? And do you have any integration formula or something to prevent cost inflation there? Thank you.
Thank you, Dario. I start with the first question on new retail tenders. Luckily, the large retail concessions we have, they have longer duration Until above mid-twenty percent. And obviously, it's not the best timing to tender out now new concessions. Of We perceive a large hesitancy to commit hefty minimum annual guarantees as Was in the past, we have smaller, of course, usual smaller rental agreements that we Continually renew.
So if we have to renew 1 this year, we do it for 1 or 2 years so that we wait for a Better business environment to do longer contracts again. But if we talk to the retail tenants, they Perceive it as us that we will still have some impact this year, next year. We will have maybe Growth a little bit postponed, but everyone believes in the midterm Traffic, we will generate at the medium sized premium hub like Zurich is. So we do not definitely not see retail tenants that want To move out and not to renew, but obviously now is not the right time to do a new 10 year contract because We have to wait till the markets have become slightly normal more normal again.
On your question regarding the duty free revenues, We might have go into a little bit more details bilaterally. But in general, one can say that the results As per half year, not directly comparable to each other for accounting purpose, which, 1st of all, one has to differentiate between releases that we provide to our partners, which Because of the lockdown situation that is recognized in the same year, which was basically The full impact then last year by the half year result and this year somehow different as we are Capitalizing whatever is after post lockdown period under the IFRS 16 rule. And in my view And your question Regarding the EPC contract, we are now in the tender of the EPC contract for NOIDA. Therefore, we have to carefully look into cost inflation, which is not secured by an EPC contract so far. But from first Signs we get, this is not something that is worrying us for the time being.
Also there is an inflation linked in tariffs Going forward to refinance.
Thank you.
Next one in line.
The next question comes from the line of Daniel Birkey from Zurcher Kantonalbank. Please go ahead.
Yes. Hello. I would have a question regarding concession accounting, which was very low in the first half. I expected some concession accounting in Brazil. Did you delay This project on the 2 airports and then maybe a second one on India.
Let's say we have the pandemic going on and on, you have Some covenants or like an still exit possibility? And also difficult questions, but if you could shed some light on this one. Thank you very much.
Thank you for those Questions regarding concession accounting. The accounting treatment of the concessions in Latin America and India Different. We do not need to apply concession accounting for the project in Neuda, which is In my view, in favor to us and in favor of you as there are not like the overall CapEx of the project goes into Piondel for the next years. For Brazil in particular, there were no major investments in Brazil In the first half year twenty twenty one, as this project in Markay is only starting In a couple of weeks. And if there is an exit point in Neuhta, there's always an exit point in the project.
But so far, Looking into the milestones, having the financing signed, having like good progress in the year And the handover of the land, this is not actually an option that we pursue.
And maybe one additional word from me on the India daily project In March, that was before the 2nd wave hit India, traffic figures were already Domestically in India, above pre pandemic levels. And of course, now we had the 2nd wave, but already now, the domestic Traffic is coming back fast. And we are a 40 year concession for The capital of a €1,200,000,000 country, and we are very convinced that this Capital, which at the same time also the main economic capital besides Mumbai, will have a very clear Growth as a developing market irrespective of the economic development of India and the pandemic Definitely does not have a major impact on a 40 year outlook for such a main capital Airport, so we I think it's we really have to look 40 years and In a very large market, which has just one airport, so if you look at the London area, this is kind of the Gatwick now developing there. So We are not worried for short term considerations on that project.
The next question comes from the line of Christian Nedercu from UBS. Please go ahead.
Hi. Thank you very much for taking my questions. A few, if I may. Firstly, on the traffic in the second half The year, if you can put a bit more color around your guidance there and talk about the winter schedules. But also if you can make Reference a bit to what you'd expect for 2022 in terms of your discussions with Swiss, in terms of their connectivity, In terms of discussions with new airlines or anything that you think is noteworthy there?
The second one, on Zurich CapEx, You do mention that delayed or postponed projects in 2021. Could you remind us What is the quantum of the CapEx that you've postponed in Zurich since the start of COVID-nineteen? And maybe help us how to think about mid term CapEx there beyond the next few years. And I guess the last one, just A bit of a sort of conceptual one, but in 2,051, when your concession ends, could you remind us what happens So your revenue streams from the non regulated side of the business, which of those Remain going forward even if you wouldn't have the concession in the airport. So could you give us a bit more details there as well
I might start with the second half traffic. So in general, we are cautious to give like Precise guidance for second half of the year and also for next year. There is, as we have mentioned And as you understand, a lot of uncertainty around. But from that point on, having had like The 43% of volume in July, from that point on, we expect like a Gradual recovery towards this 50% end of the year and from the first numbers we see from August, this I'm going to detail for next year. But nevertheless, I think from that point on, we expect to reach like 2 3rd of pre crisis level by next year and then a growth towards pre crisis level until 2025.
This might be conservative compared to other airports guidance and generally to the industry assumptions. But I think we're also very happy and ready if recovery takes place faster. But we remain on the cautious side in terms of OpEx and CapEx planning going forward, and that's our base assumption. And if things move on quicker, Your second question on CapEx, I think for the next year, we have also set beside the annual CapEx Number of EUR 220,000,000, we also have flagged set an investment program of EUR 600,000,000 For 3 years, so 2021, 2022 and 2023, so on average €200,000,000 number is also what we expect as CapEx Exinturic for the next 2 years. And then depending on the recovery, we assume also like a moderate ramp up of CapEx towards An annual number of €250,000,000 towards maybe €300,000,000
In Zurich ending 2,051, if we look at the concessions we have in Brazil and in India and abroad in general, And after 40 years, you have to transfer back the asset without any compensation. So Zurich is a fundamentally different concession because we are the owner of the different concession because we are the owner of the land, we are the owner of all the buildings. And of course, operating An airport needs certain public rights to do it. So for this, we get a concession from the Swiss government, Which we perceive as a since we are owning and controlling the buildings, we will Also, we perceive this as a kind of internal concessions, but of course, governments Could try to get more tax money to make some other conditions on the concession, which we then have to See what happens in 20 years. But commercially, in case we would not this concession would not be renewed, So the government would have to fully compensate us for the value of the land and of the buildings under Swiss law.
So from an investor Our economic value, the building center land, if we would lose the concession, someone else would have to compensate But we do not think this is a kind of comparable concession Renewal as you perceive it abroad. Here, it will just be an internal concession as we perceive it.
Understood. That's very helpful. I just quickly follow-up. Effectively, in this scenario, let's say, the concession is not renewed, you would still Keep on getting the Project Circle revenues. Out of the other real estate or other non regulated activities, are there other revenue
What we do with it, but if you look at a dock or a terminal building, if you would not get the concession, of course, the government could expropriate us Formally for this, but then they would have to compensate the economic value of this also.
Perfect. The main point here is that compared to other concessions, especially also in our portfolio, but to, let's say, the normal concession of infrastructure, there will be Either an exit value or terminal value in the valuation of our company.
That's very clear. Thank you very much, Anton.
Next one in line.
The next question comes from the line of Andrew Lobbenberg from HSBC. Please go ahead.
Hi, there. Two questions, if I may. I'm quite keen to understand how you expect commuter traffic to develop and hence the footfall On the land side business, could we have less visibility of that in the land side of aviation? And then my second question would be around the consequences of the Switzerland and EU relations and the referendum that rejected So what are the consequences of that? I suspect I might have asked this at full year, but still And what are the politics behind that and the threats or opportunities?
Andrew, could you please repeat your first question?
Yes. So what do you expect for footfall on the land side business? How quickly do you think commuter traffic might rebuild? Is it realistic, say, that you regain pre pandemic levels in 2025? Or do you think that's too optimistic for the commuter traffic,
Thank you, Andrew. Footfall, we have on the land side, we have 3 major segments. 1 is passengers, 1 is employees and 1 is commuters. In terms of employees, especially on the office segment, of course, we have this, On the one hand, home office rule now and probably, adjusted home office rules for the futures. But I believe Zurich Airport, there's a location will be perfectly tenants will have less office Space, but more people per square meter.
So I think overall, we will not have less footfall from employees. On the same front, on the commuters and of course passengers and employees working at the airport, They will come up again in line with the recovery of aviation, which we all believe will maybe need 4 to 5 years' time. So I would say in 5 years' time, with all the circle footfalls, footfall will be higher Then pre corona. On the second question, I think if I understood it right, you asked About the relations between Switzerland and the EU and whether this has any impact of freedom of travel, There is, in my understanding, no risk that Switzerland will fall out of Schengen or there will be again borders. So I believe Switzerland does not have The fear that we will fall out of Schengen, whatever happens with these constitutional discussions between Switzerland and the EU.
Next in line.
The last question comes from the line of Johannes Braun from Stifel Europe. Please go ahead.
Yes. Thank you. Thank you for taking my question. I only have 2 left in terms of, I guess, modeling. So firstly, you mentioned the MEC discounts amounted to €20,000,000 in H1.
Can you just tell us How much that was relative to total MEX, so in percentage terms? And then secondly, on the cost reductions, just to clarify On the Slide 22, on the outlook slide, you are guiding OpEx to be down year over year. But I think, Lucas, in your previous comments, you said Do you expect half of 2020 savings to be maintained? So that would actually mean costs would go up on a year over year basis? So just trying Just clear the circle here.
Yes. The short answer on the first question, The agreements we made with our commercial partners represents roughly 1 third of the guarantees. And the second question, we found ourselves also in a situation where we once last year with the full year result Guided like a 50% ambition of cost savings. And So we also figured out that once we have now even higher cost savings achieved by half year, this is more confusing than helpful to you. So I think cost in the second half are tend to be higher than in the first half because on the back of Higher volumes.
So I think that's correct. And what we now set as a target is that I've explained in at the very first The very first question is that we go into an absolute number as our cost saving ambition in the area of CHF 20,000,000 to CHF 30,000,000 Based on this, which is still 50% and therefore in line with our target from the beginning of the year, what we said that 50% The directly influenced cost is like the cost saving ambition for sustainable cost savings.
So, euros 20,000,000 to €30,000,000 lower than 20 19, correct?
Yes.
Okay. Thank you.
There are no more questions from the phone.
Do we have questions in the webcast? No more. So then I conclude with a half year result With the half year 'twenty one that was probably the lowest during the pandemic, we see clear signs of Recovery irrespective of some short term setbacks in the pandemic in autumn, and we look forward quite Confidently on the recovery of the business we are in. Thank you for attending the call and Looking back for further exchange during the year. The call is closed hereby.
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