Strategic Analysis

1. Strategic Analysis and Action

1. The company discloses how it analyses the opportunities and risks of its major activities in the context of sustainable development. The company explains what concrete measures it is undertaking to operate in compliance with the essential and recognized sector-specific, national and international standards.

By applying a future-oriented, responsible corporate development strategy, Flughafen München GmbH (FMG) aims to protect its business model for the long term. As a result, sustainability represents an integral part of our corporate strategy which is incorporated into every aspect of our business.

Since 2010, we have been sharing our corporate strategy’s integrative approach to sustainability with the outside world by consistently publishing an integrated report in accordance with GRI. In relation to this report, we conduct a survey of relevant stakeholders, enabling us to identify key issues in sustainability management and prioritize them according to our materiality matrix. These issues are incorporated into the four fields of actions under Strategic Sustainability Management (company and management, environmental and climate protection, workforce and work environment, dialog and social responsibility) and transferred to the sustainability program in the form of specific measures.

FMG analyzes risks during its quarterly risk report and usesa risk management system. Company-specific opportunities are taken into consideration in the strategic planning process. The Strategy 2025 is based on a comprehensive scenario analysis regarding the future of mobility and air travel, revealing opportunities and challenges facing Munich Airport when it comes to sustainable development.

See also:
"Strengths 2014" - Integrated Annual Report, p. 24-29, p. 106-113.

2. Materiality

2. The company discloses what aspects of sustainability have a significant impact on its business operations and how, in its strategy, it takes them into account and systematically addresses them.

Sustainability is a central component in all aspects of the FMG corporate strategy. The “picture of the future 2025” touches on the key strategic opportunities and challenges for Munich Airport.

Sustainability is the foundation of Munich Airport’s approach to strategy. As such, economic, ecological, social, and local corporate responsibility represents the element that binds its work together and helps the airport to make its picture of the future 2025 reality.

Sustainability management’s four fields of action also reflect the concept of responsibility. Each field of action contains strategic objectives which are translated into initiatives and measures (along with their own timeline) for the sustainability program.

- The key components in the company and management field of action include the continued enhancement of products and services, compliance, supplier management, and site development.
- The field of environmental and climate protection focuses on reducing greenhouse gas emissions, conserving resources, and increasing energy efficiency.
- The field of workforce and work environment aims to bring about long term improvements to productivity through the optimization of HR management processes, training and professional development, enhancing corporate heath management, and measures to improve the work-life balance.
- The field of dialog and social responsibility focuses on maintaining close and responsible dialog with the local area and creating transparency in supplier relationships in the region.

See also:
"Strengths 2014" - Integrated Annual Report, p. 80-168, p. 24-29.

3. Objectives

3. The company discloses what qualitative and/or quantitative as well as temporally defined sustainability goals are set and operationalized, and how their level of achievement is monitored.

The integrated report outlines the individual initiatives and measures in the sustainability program, their time span, and the status of their progress in a transparent manner.

The leading objective for the environmental and climate protection field of action is to achieve carbon-neutral growth by 2020 (based on a value of 160,000 t from 2005). The annual carbon footprint and carbon database are studied for monitoring purposes.

FMG conducts a survey every year, which is linked to the publication of the integrated report and covers the core stakeholder groups. Stakeholders are able to nominate and rate the issues identified, either in writing or online. FMG also uses the results of internal scenario analyses to understand Munich Airport’s business model in the broader context of a sustainable approach to development. The annual stakeholder survey is used to prioritize the issues identified. The results of the survey are presented in a materiality matrix with two equivalent axes showing the significance of individual issues for internal and external stakeholders.
The issues are also incorporated into the objectives process. Sustainability is therefore a central element of strategic development at Munich Airport. Munich Airport also defines the main issues for reporting purposes accordingly. As part of the annual strategic objectives process, the relevant issues are discussed internally with the management staff at FMG. In addition, external feedback is obtained as part of the stakeholder survey regarding the content of the integrated report.

Munich Airport also takes into account stakeholder suggestions and feedback in relation to its business activities. Its stakeholders often force the airport to confront new and relevant issues and thereby act like a mirror, giving the company an idea of what is going on in wider society. This in turn makes it possible to identify issues and trends at an early stage, benefit from outside know-how, communicate the company’s positions, and take the sting out of conflicts.

See also:
"Strengths 2014" - Integrated Annual Report, p. 29.

4. Depth of the Value Chain

4. The company states what significance aspects of sustainability have for added value and how deep into the value-added chain the sustainability criteria are verified.

Within the classic aviation sector, FMG positions itself as a full service provider and also offers a diverse service portfolio for business partners and customers in the non-aviation sector. The organizational structure (value creation in business divisions and subsidiaries, management by corporate divisions, central services by service divisions) makes sure that a large proportion of the value created remains inside the company itself, meaning that value is added in line with the corporate strategy and the sustainability criteria. This also includes R&D, construction projects, energy supply, facilities management, logistics, the product usage phase, and recycling.

FMG takes sustainability criteria into account throughout its entire value-added chain. Its main focus is the area of procurement. When issuing calls for tenders, it always adheres to national and EU legislation and treaties, the application of which is then confirmed again when the offers are submitted. The purchasing policies contain precise sustainability criteria, while adherence to competition requirements is monitored by the in-house Compliance division. As part of its supplier management process, Flughafen München GmbH conducts annual assessments of around 150 partners under framework agreements. In 2014 suppliers were again evaluated on the basis of such criteria as product quality or the quality of the service provided, reliability, and developments in terms of services and pricing, as well as whether companies were certified in accordance with quality and environmental standards. In the event of poor outcomes, the suppliers have the opportunity to eliminate existing deficiencies in supplier audits. FMG’s supplier structure (32% from Munich, 64% from Bavaria, 98% from Germany) strengthens the region’s economic cycles, reduces transportation emissions, and minimizes the risk of violations to human rights.

See also:
"Strengths 2014" - Integrated Annual Report, p. 51-58.
• Corporate profile and organizational structure for FMG:
http://www.munich-airport.de/en/company/konzern/profil/struktur/index.jsp

Key Performance Indicators (KPI)

Key Performance Indicator GRI 1,2.
Description of key impacts, risks, and opportunities

Risks:
All information related to risks is processed once a quarter in the form of a risk report, which is issued to the company’s directors and divisional managers. As a result of these reports, the management team is able to react quickly and efficiently to any changes to the risk situation. Whenever necessary, responses to new or altered risk situations are implemented straight away. The members of the parent company’s Supervisory Board also receive the most recent risk report on a regular basis.

Munich Airport Group owns a comprehensive risk management system, which it uses to identify, evaluate and monitor significant risks on a regular basis. It looks at the level of expected loss and the likelihood of occurrence to distinguish between risks to be observed, risks to be monitored, material risks, and going concern risks. The risk management system focuses particularly on important risks from the perspective of each of the companies. The effects of risks can depend on many aspects, such as the financial performance of the company in question. That is why the individual companies (parent company, subsidiaries) are treated separately when categorizing the level of loss during the risk evaluation.
Risks are broken down into market and economic risks, investment risks, process risks, risks caused by extraordinary external circumstances, and other risks.

Growth and opportunity Projects:
Along with other construction projects, the development of the third runway and the Terminal 2 satellite are the two main infrastructure projects at FMG.

Third runway:
The year 2014 brought an important legal decision regarding the expansion plans for Munich Airport. On February 19 the Bavarian Higher Administrative Court rejected all objections against the planning approval notice issued by the government of Upper Bavaria for the third take-off and landing runway. After sitting for almost a year, the court decided that the construction of a third runway is justified from a planning perspective and that the associated objectives – coping with future transportation demand and boosting the economy and job opportunities – are sufficiently important to outweigh the opposing public and private concerns (the environment or noise protection, for example). According to the court, the planning authorities did not exceed their powers or the discretion they enjoyed. The judgment represents an important milestone in terms of the expansion of the airport. In July 2015 the German Federal Administrative Court in Leipzig rejected all objections to the construction of the third take-off and landing runway.

Satellite:
The satellite building for Terminal 2 is being built as part of a joint venture involving FMG and Deutsche Lufthansa. It will offer additional handling capacity for eleven million passengers per year. Previously, the work had switched increasingly to the interior, where Lufthansa’s service facilities and a broad range of catering and retail facilities are emerging by degrees. At the start of 2015 the first vehicles for the passenger transportation system between Terminal 2 and its satellite were delivered. Construction of the new terminal building is scheduled to finish during the third quarter of 2015. The new building has been devised as a kind of “Green Satellite”. An ambitious target has been set whereby future CO2 emissions should be 40% lower than for both the existing terminals.

An expansion to Terminal 1 will aim to make the airport even more attractive to passengers and airlines. The building project is set to increase the capacity of Terminal 1, create new retail and catering options and lounge areas, and improve passenger handling processes. The use of innovative construction and technical systems should keep energy requirements and CO2 emissions for the new building as low as possible and at least 40 percent lower than in the existing terminal. Construction is due to start in 2017.

On December 31, 2014, operation of the hotel was handed over to the Hilton hotel chain. The Kempinski Hotel Airport Munich was originally opened in 1994, offering guests a 5-star hotel with 389 rooms, a spa area, and conference facilities in direct proximity to the terminal. Construction of an extension with approximately 160 new rooms will aim to counteract ever-increasing demand. The extension is due to open in 2016. FMG will bear all of the planned investment of 36 million euros.

See also:
"Strengths 2014" - Integrated Annual Report, p. 30-33.
• https://www.gutfuerbayern.de/de/index.jsp