Control system

The Control System chapter explains the most important key indicators used by the Executive Board to make the corporate measures taken as part of the Group strategy measurable and to evaluate them. Here, the Executive Board differentiates between financial and non-financial performance indicators.

Changes compared with the previous year

Following the suspension of the employee survey due to the coronavirus pandemic in 2020 and 2021, the Fraport Barometer was resumed in the Group to determine the key indicator of Employee Satisfaction across the Group. Passenger surveys were also carried out at the fully consolidated Group airports for the key indicator of Group Global Satisfaction, so that sufficient data was available for the calculation.

Compared to the same period last year, the Executive Board has streamlined the control system and reduced the scope of the most important financial performance indicators by the key indicators Revenue adjusted for IFRIC 12, EBIT, and Shareholders' equity ratio. Beginning with the reporting for the 2022 fiscal year, the Executive Board will focus on the following key financial and non-financial performance indicators, the developments of which are presented in the “Results of operations”, “Asset and financial position”, “Value management”, and “Non-financial performance indicators” chapters, and for which corresponding forecasts have been formulated in the “Business outlook” chapter.

Financial performance indicators

For Fraport, the growth-oriented development of financial performance indicators is critical for the long-term success of the company. The overriding importance of these indicators is reflected in the Group strategy as a set of criteria for the Group objectives “Growth in Frankfurt and internationally” and “Economically successful through optimal cooperation”. Control, derived from the Group strategy, is carried out primarily at the Group level, and segment-specific key figures are used to aid the process.

Fraport mainly uses key figures relating to the consolidated results of operations and to the Group asset and financial position, as well as key figures that link the results of operations with the asset and financial position, as key financial performance indicators (value management). In accordance with the long-term oriented Group strategy, the Executive Board manages and evaluates the development of financial performance indicators while also taking account of long-term forecasted market developments. In this context, strategic measures – such as the implementation of larger capital expenditure projects or the expansion of international business – can also lead to a short- to medium-term burden on the financial performance indicators.

The key financial performance indicators and their significance for Fraport are described in the following. The description of their development during the past fiscal year can be found in the “The Group’s results of operations”, “Asset and financial position”, and “Value management” chapters. The associated forecasted figures for the 2023 fiscal year can be found in the “Business outlook” chapter. Definitions for calculating the financial key figures can be found in the “Glossary” chapter.

Results of operations key figures

The results of operations include the presentation and explanation of significant earnings components and key figures. While the results of operations in the context of regular reporting provide information about the past business development and are forecasted in the business outlook, earnings forecasts are also regularly drawn up over long-term periods for internal planning purposes. The information resulting from this is essential for the Executive Board in relation to the company’s long-term management.

The most significant financial performance indicators for Fraport are EBITDA and the Group result.

EBITDA and, indirectly, the Group result through the earnings per share (EPS) are part of the Executive Board remuneration and underline the relevance of these financial key figures as a control element (see also the “Remuneration report” at www.fraport.com/publications).

Asset and financial position key figures

As well as in the results of operations, the result of the strategically adopted measures and operating activities of Fraport is also reflected in the Group’s asset and financial position. For Fraport, in particular the development of the net financial debt to EBITDA ratio and the free cash flow are significant. Also, under the influence of the coronavirus pandemic Group liquidity was introduced as a control parameter.

The net financial debt to EBITDA ratio and the free cash flow in particular serve as key financial indicators to the Executive Board to assess financial strength. The net financial debt to EBITDA ratio provides information on the financial stability of the company and how many years are required to service the net financial debt via EBITDA, if consistent figures are assumed for both indicators. The Executive Board has decided on a ratio of a maximum of five for this performance indicator and is resolved to reach this target value again in the medium term after the effects of the coronavirus pandemic are overcome.

The free cash flow provides information about the financial resources available to the Group from the operating activities of a period after deducting operating capital expenditure activities. These free funds can be retained in order to increase the company’s liquidity and to be available as a financial reserve for future capital expenditure or to reduce the leverage (the gearing ratio) and/or can be distributed among shareholders as dividends. Due to the ongoing expansion investment activities in Frankfurt and internationally, as well as the effects of the coronavirus pandemic on Fraport's operating activities, the free cash flow continues to be extraordinarily burdened and temporarily negative. In the medium term, the Executive Board expects a significant increase in free cash flow in positive territory.

Group liquidity provides information on the financial stability of the Fraport Group, even over a long period of time. The Executive Board also aims for liquidity of at least €1 billion in the long term. Against the backdrop of the current macroeconomic volatilities and the high level of debt related to the pandemic, a temporarily significantly higher level of liquidity is being maintained.

Links between the results of operations and the asset and financial position (value management)

To increase the Group’s value in the long term, the Executive Board specifically draws parallels between the development of the results of operations and the asset and financial position. In this context, the Executive Board plans and manages the Group’s development according to the principles of value management.

At Fraport, the most important measurement and steering figure of this approach is the “Return on Fraport assets”, in short: ROFRA, which makes the different-sized segments of the Fraport Group comparable in terms of economic enhancement. Compared to the current WACC, the ROFRA shows whether the business units created value (ROFRA > WACC) or not (ROFRA < WACC). The calculation of the WACC is shown in the “Value added” section.

The ROFRA is calculated on the basis of the EBIT extended by the results before taxes of the Group companies accounted for using the equity method divided by the Fraport assets. The Fraport assets are defined as the average of the Group’s or segments’ fixed interest-bearing capital required for operations including the carrying amounts of the Group companies accounted for using the equity method. To avoid economic enhancement coming solely from depreciation and amortization of assets, the Executive Board recognizes regularly depreciable or amortizable assets within Fraport assets at half of their historical acquisition/manufacturing costs (at cost/2), and not at residual carrying amounts. Goodwill and investments in Group companies accounted for using the equity method and other assets not included in depreciation and amortization, in particular assets in construction, are recognized in full at cost because they are not subject to regular depreciation and amortization. Within the scope of the initial implementation of IFRS 16, other property, plant, and equipment also includes the rights to use resulting from leasing contracts. They are included in the calculation as half at cost.

ROFRA is also an element of the Executive Board remuneration and underlines the long-term goal of Group-wide business activities that create value (see also the “Remuneration report” at www.fraport.com/publications).

Value added

In addition to the ROFRA, Fraport uses the value added as a measure of economic enhancement. The value added is annually consolidated and recorded at Group and at segment level. It is calculated from the “adjusted” EBIT, which also includes the results before taxes of the Group companies accounted for using the equity method, minus the Fraport assets multiplied by the WACC.

The goal is to generate value added of zero for the regulated Aviation segment, and generate clearly positive values added for the other segments.

Fraport calculates the weighted average cost of capital (WACC) using the capital asset pricing model and uses this regulatory specific WACC to calculate its airport charges. Given the continuously changing economic environment, interest rate levels, and/or Fraport’s risk and financing structure, Fraport regularly reviews, and, if needed, adjusts its WACC. The WACC is also used for the value management of the Fraport Group. The WACC for the fiscal year increased compared to the previous year to 7.3% (before taxes, 2021: 6.1%). For details on the use and calculation of the cost of capital in the context of impairment tests, please refer to note 4 in the Notes to the Consolidated Financial Statements.

The WACC is comprised as follows:

Non-financial Performance Indicators

In addition to the key figures for its financial development, Fraport measures the development of “Non-financial performance indicators”, which are also essential for the long-term success of the company and result primarily from the Group objectives “Service-oriented airport operator” and “Fairness and recognition for partners and neighbors”.

The description of the development of the most important non-financial performance indicators during the past fiscal year as well as the implemented measures are presented in the “Non-financial performance indicators” and “Combined non-financial report” chapters. The associated forecasted figures for the 2023 fiscal year can be found in the “Business outlook” chapter. More information on the topic of “Corporate Social Responsibility” can be found on the company website at www.fraport.com/responsibility.

Customer satisfaction and product quality

For Fraport, the quality of performed services and the associated customer satisfaction are decisive competitive factors and of key significance for the long-term success of the business. The clear objective is to raise its own quality and a high level of customer satisfaction. Fraport uses performance indicators for the purposes of measurement and control. The key indicators include the global satisfaction of passengers and baggage connectivity.

Global satisfaction describes passengers’ satisfaction with the services and processes offered and the overall service at the airport. It is collected as part of continuous passenger surveys at all fully consolidated Group airports. The Group global satisfaction indicator is the weighted average of the global satisfaction in Frankfurt and at the fully consolidated international airports.

The target value for global satisfaction of 80% for Frankfurt Airport remained unchanged for fiscal year 2022. This target value is to be maintained until the inauguration of Terminal 3. Fraport has set a goal of at least 85% commencing from the year that Terminal 3 opens. The target value for Group global satisfaction also remained unchanged at 80% after the survey was resumed in the Group in fiscal year 2022.

Baggage connectivity provides information about the percentage of baggage at Frankfurt Airport that is loaded on time in relation to the total departing baggage. Baggage connectivity measures, among other things, the performance of the airport in its role as a hub with a transfer share of about 50%, and thus a high proportion of transfer baggage. A high and stable connectivity proves the good quality of baggage processes. The objective also remains the achievement of a long-term baggage connectivity of more than 98.5%.

Attractive and responsible employer

For Fraport, appeal and responsibility as an employer is, like customer satisfaction and product quality, a key factor to ensure the long-term success of the business. Fraport AG understands appeal to mean the creation of good working conditions in order to gain and retain committed and qualified employees. To measure and control its appeal and responsibility as an employer, Fraport uses various performance indicators, such as employee satisfaction and the ratio of women in management positions.

Employee satisfaction is a central instrument for measuring employee mood. Fraport is convinced that satisfied employees achieve higher customer loyalty and improved performance. After employee satisfaction was surveyed in the previous year on the basis of the “pulse checks”, the indicator will be surveyed every two years from fiscal year 2022 onwards on the basis of a more comprehensive survey of the employees of Fraport AG and the Group companies. All labor-intensive Group companies in Frankfurt and in Greece, Slovenia, Bulgaria, Peru, Brazil and the USA participate in the survey. In 2022, the survey was further developed in terms of content, methodology and process. The results obtained from this provide the basis for long-term goal setting. The goal is to continuously improve employee satisfaction. By the end of 2026, employee satisfaction at Fraport AG should therefore increase to at least 4.8, or at least 0.1 higher than in 2024. The minimum target for the Group is 4.9. Here, too, the value should be at least 0.1 higher than in 2024.

As a responsible employer, Fraport AG respects and promotes personal diversity and attaches great importance to ensuring that this is reflected in the way employees interact with each other. Diversity is a key goal for Fraport AG, which the Group systematically addresses as part of its diversity management. Fraport AG places particular focus on promoting women in management positions at the two levels directly below the Executive Board as well as at the first level directly below the respective management levels at the German Group companies. This corresponds to the objectives in the “Act on Equal Participation of Women and Men in Management Positions in the Private and Public Sector”. For reporting purposes, executives who report directly to the Executive Board are categorized as level 1. Executives who report to this first level of management are categorized as level 2. Regarding the Group companies in Germany, the levels of management are categorized based on comparable positions at Fraport AG. The goal is to increase the proportion of women in management positions in the Group in Germany, at the first management level below the Executive Board to 30.8% and at the lower management level to 30.2% by the end of 2026. For Fraport AG, the proportion of women in management positions is to be increased accordingly to 31.8% at the first management level and 30.9% at the lower management level. Fraport respects local circumstances and therefore does not impose any quotas based on German law on the foreign Group companies.

Occupational health and safety

As a responsible employer, Fraport contributes to increasing and maintaining employees’ performance and preventing work-related health hazards through targeted preventative measures in occupational health and safety. Fraport evaluates the effectiveness of the measures for health management by, among other things, continuously analyzing the sickness rate. The calculation excluding illness-related absences beyond sick pay (extended sick leave) primarily reflects the development of short- and medium-term illnesses. The effects of demographic change in the Group and the corresponding increase in the average age of employees contribute, among other things, to a linear increase in the number of long-term illnesses. The focus is on limiting or reversing the sickness rate, which is increasing due to seasonal and age-related absences, among other things. Beginning with the reporting for 2019, the Executive Board has limited the Group sickness rate to the German Group companies. Due to different regional legal regulations, but also due to the personnel structures that differ in the German Group companies, the sick leave rate in the international Group companies plays a subordinate role for local management. The objective, for both the Fraport Group in Germany as well as for Fraport AG, is a maximum rate of 7.2% by 2025.

Climate protection

The operation of an airport and air traffic have various effects on the environment. Fraport is committed to the due and proper consideration of the environmental requirements associated with this. Fraport’s environmental policy places importance on the sustainable and careful use of natural resources. The Executive Board has determined Scope 1 and 2 CO₂ emissions as the most important key figure for measuring environmental impact. In 2022, Fraport adopted the decarbonization master plan. It describes the strategic principles and defines the framework for the implementation of the measures and thus represents a policy document for decarbonization. Part of the master plan saw the Group-wide targets for Scope 1 and 2 CO₂ emissions for 2030 tightened once again. The aim is now to reduce the CO₂ emissions for which Fraport AG, the fully consolidated Group airports managing airport operations worldwide, and the climate-relevant subsidiaries at the Frankfurt site are directly responsible, to 95,000 metric tons by 2030. If necessary, the objective will be adjusted to any changes in Fraport’s airport portfolio. Fraport AG seeks to reduce CO₂ emissions at Frankfurt Airport to 50,000 metric tons by 2030. Fraport aims to be completely CO₂-free in Scope 1 and 2 CO₂ emissions by 2045, and does not include offsets in the achievement of the targets. Along the way, Fraport has set interim goals for itself. By 2040, CO₂ emissions are to be reduced to 40,000 metric tons in the Group and to 25,000 metric tons at Fraport AG. Compensation is excluded when targets are achieved (“Net Zero Carbon” according to the Intergovernmental Panel on Climate Change).

Finance Management

The core objectives of finance management of Fraport AG are securing liquidity, limiting financial risks, achieving an appropriate level of profitability, and ensuring flexibility. The highest priority is to secure liquidity. Based on the Group’s solid shareholders’ equity base, this is generally secured through both internal financing via operating cash flow and external financing in the form of debt. Simple and transparent financing concepts are being pursued in connection with how financing is structured at Fraport AG as well as in the international business activities. Financial risks caused, among other things, by foreign currencies are met first and foremost by financing in the respective currency to the extent possible (natural hedging). The following section shows how finance management is implemented at Fraport AG.

To secure liquidity within the scope of its finance management, Fraport AG aims to achieve balanced financing composed of bilateral loans, private placements/bonds (capital market), loan financing from public loan institutions, and promissory note loans. In addition, Fraport AG has a strategic liquidity reserve to ensure its independence from financing sources. The significant financing measures at Fraport AG are related mainly to ensuring operational liquidity, refinancing existing financial maturities, and from the capital requirement, particularly for capital expenditure in Terminal 3 at the Frankfurt site and for the international Group companies. In addition, the negative free cash flow in fiscal year 2022 had to be offset by various financing measures. Despite the demanding financing environment, Fraport AG succeeded not only in obtaining the required funds on the capital market, but also in maintaining its liquidity reserve at a high level. Appropriate financing instruments are selected based on the situation, depending on the attractiveness of the price, of the volume of the financing, and complying with a balanced financing mix. In keeping with the long-term nature of capital expenditure, the financing of these projects is mostly long term as well. In line with the finance policy, loans can be borrowed both at a fixed and at a floating interest rate. To reduce interest rate risks from borrowing with floating interest rates, interest rate hedging transactions can be concluded as a rule.

The majority of the fully consolidated Group companies in Germany are integrated into the Fraport AG cash pool. The liquidity in these Group companies is permanently guaranteed – via access to their own liquidity at any time as well as, within the scope of the agreements also concluded in some cases, to the financial resources of Fraport AG – so that external financing is not necessary. At the same time, the close connection of these Group companies to Fraport AG also ensures that attention is paid to other strategic objectives of financial management within the Group.

For the fully consolidated foreign Group companies and the Group companies included using the equity method, liquidity is secured depending on the relevant company shareholding and the market environment, either by concluding project financing, bilateral loans, or by internal provision of funding via a Group loan or shareholders’ equity.

The substantial strategic financing measures in the foreign Group companies relate, in particular, to the expansion commitments within the framework of the concession agreements for Lima and Antalya.

It is planned to finance the existing expansion commitments in Lima with a financing mix consisting of shareholders´ equity to be additionally contributed, the operating cash flow, and external financing. As a first step towards raising the external financing, a bridge financing of $450 million was raised in 2020 and has since been extended until the end of the first quarter of 2023. The long-term follow-up financing of $1,250 million was signed in December 2022 and will replace the existing financing of $450 million in the first quarter of 2023.

To finance the first concession payment of the new Antalya operating concession and the expansion investments, financing of approximately €1.4 billion was raised in the first step, which was secured with guarantees from the shareholders due to the current local market environment. This included capital contributions to the new joint venture that was established in connection with the new operating concession at Antalya Airport (Fraport share: €375.3 million). Moreover, financial debt at Fraport Greece was repaid and refinanced ahead of schedule as part of the completed refinancing. Regarding the financing of capital expenditure in Brazil, further drawdowns from the loan agreements concluded in 2018 in the local currency were made in fiscal year 2022. The loan facility has thus been almost fully utilized for the agreed investments. Interest and repayments have started in Brazil.