Hello, and welcome to the B&S Full Year 2024 Results Conference Call. Please note this conference is being recorded, and for the duration of the call, your lines will be on listen only. However, you'll have the opportunity to ask questions. This can be done by pressing star one on your telephone keypad to register your question. If you require assistance at any point, please press star zero, and you'll be connected to an operator. I will now hand you over to your hosts, Peter van Mierlo, CEO, and Mark Faasse, CFO, to begin today's conference. Thank you.
Good morning to you all. Great you're all here. We talk about our 2024 results on the 18th of March, approximately a month earlier than last year. That's the way to go, and that also shows you the quality of the organization these days. We will be trying to move it a little bit earlier, even next year, but we're still negotiating with all the stakeholders, especially the auditor, whether he will be able to meet that deadline. We want to talk about our highlights and our strategy. Let's first talk a little bit about our strategy in terms of the company we are trying to build or trying to get in line, so to say. As you know, B&S consists of a holding company as well as six segments. We are building autonomous and accountable segments.
Just to give you a little bit of flavor why we do this, we talked about this during our Capital Markets Day in 2023, obviously, but just to get everybody on the same page, we believe that building autonomous and accountable segments does create value for this organization. Why? Because it creates strategic optionality, and it also strengthens the management teams, builds on management information, and as a result, at the end of the day, maximizes value creation within those segments. Those segments do operate in different markets, as you know, and we want to create the circumstances that they can operate as close to the market as possible. That is why we believe that building autonomous and accountable segments does maximize the value for this group. Now, what do we do around that topic?
We are constantly busy in terms of strengthening the management teams within those segments, but also to create a kind of contract, so to say, between the segments and the holding. Obviously, not a legal contract, but the things that they should adhere to. Those KPIs are around financial topics, return on invested working capital, interest coverage ratio, DSOs and DPO days, and how you manage your working capital. Next to this, we've also created in 2024 HR KPIs, as well as a dashboard around HR KPIs: turnover, staff, illness, engagement review results, all the things that you need to make sure that your staff is functioning and delivering on their promises, logistical KPIs, as well as these days, sustainability KPIs. That's how we talk about the business on a monthly basis.
I mean, every month we meet the executive board with the segment teams, and we talk about the market developments, but also client selectivity, payment terms, cost levels, market developments, client onboarding procedures, just to mention a number of topics that we soundboard with and try to optimize during those meetings. Last but not least, in terms of strategy, digitization. Digitization is a bit of a distant word, so to say, I believe, but we mean that digitization is incorporating the clients' or the suppliers' processes with our IT organization. As a result, you really strengthen the relationships. You optimize the relationships in terms of operational excellence, but you also become true partners if you want to make that work.
If I refer to the topic culture and governance, as I already mentioned, the HR KPIs dashboard, what we've done, we've rolled out material defining our B&S way of working in terms of supplier codes, in terms of customer codes, in terms of how to do business. We are in the process of topic by topic, making this more known within the staff and making sure that the staff actually does business along the lines of our B&S way of working. In the beginning of 2025, but obviously also in 2024, 2024 was the second engagement review we've done within the group. In the beginning of February, we did the third engagement review. This year, in February 2025, we also incorporated our international organizations in the US, in Germany, in the Middle East into the engagement review.
The reason why we do this is because we believe by following engagement, we also optimize engagement, and as a result, we also optimize the value of the B&S Group at the end of the day. Sustainability, yeah, we will publish our annual accounts tomorrow, and you'll be surprised, or maybe not surprised, but you'll be impressed with the professionality of our CSRD reporting, in which we, I think, have done a great job to adhere to everything we need to do these days.
If I move on to our financial highlights, yeah, turnover growth 9%, a little bit above expectations, EBITDA EUR 125.2 million, mostly impacted by EUR 2 million of profits on the sale of real estate, but at the same moment in time, almost EUR 9 million negative that we accounted for in the liquor segment that I want to talk a little bit about when we get to the liquor segment. In terms of growth, all segments delivered growth between 10% and 24%, except for liquors, by the way. So beauty increases revenue with EUR 80 million, food EUR 65 million, personal care EUR 40 million. I must say strong performances across the board. Liquors, as you know, confronted by geopolitical tensions, and we do have changed, as we talked about a little bit. We have changed our strategy around liquors in a number of topics, which we partly already discussed with you in previous quarters.
If I go to the, yeah, sorry, acquisitive growth, I need to mention this. That all happened within personal care. There was around EUR 12 million of turnover increase due to the acquisition of Tastemakers. Tastemakers performed exactly in line with what we expected at the moment of acquisition. It does add value, synergy value to the personal care segment, especially in the confectionery business, and the creativity, because the team that we've acquired there is super creative in terms of building relationships, but also creating marketing materials, et cetera, et cetera. That is a real good add-on. If I move to the different segments in alphabetical order, we start with beauty. Yeah, strong growth, especially in the B2C part of the business. As you know, beauty consists out of B2C, business to consumers, B2B, as well as B2R.
B2R, the letter relating to the different platforms in the website world where we sell our goods to. The strongest growth was within B2C, 16%, mainly in the US. Strong performance, again, and there's really no reason to believe that that's going to decrease in the future. It's a super strong part of our group. Also, the efficiency gains we were able to realize in the US in the warehouse department in Atlanta, thanks to the robots that we have operating there, robots that actually collect the goods out of the warehouse and bring them to the front. Super efficient and impressive process, I must say. In 2024, we started to build a new warehouse in the Netherlands that will be completed in 2025.
We do have the infrastructure also in Europe to grow our—we have the infrastructure to support the growth that we want to achieve. Food also had a strong year, double-digit growth in all three subsegments, so to say, the duty-free channels, the maritime business, mainly cruises, and the third, the last one, but not least, the export and distribution to underserved markets. It is definitely, if we talk about digitization and connecting our clients to our IT infrastructure, then food is a super example in the way they work with our platform, King of Reach, and actually change the supply chain in those three subsegments because of the IT that's being used to run the business.
If I go to health, health had a good year, also on the back of the growth in travel-related products, but definitely also their ability and their strength to build new relationships are also in the cruise businesses. That is the reason that those developments supported the growth of health. I come to liquors. Liquors, please bear with me for a moment. Just to make sure that we're all on the same page, in 2023, we had one-offs in the field of debtors of EUR 4 million. This year, 2024, we have EUR 9 million one-offs, EUR 8.8 million, by the way, which relates to inventory. That relates to a relatively small number of SKUs, all meant for the Asian market. Now, what have we decided together with the management of the liquor segments?
First of all, as we've discussed already, it's about integrating the European wholesale, bringing back the number of warehouses, and as a result, also gain from working capital optimizations that are possible if you work from the same warehouse. We believe that the second bit is the other trade. We call other trade, to be very clear, that's trade in SKUs in multiple which are widespread and are meant or can be sold globally. Not in specific markets, so that you have the flexibility based on geopolitical occurrences or other things that influence the market, that you can actually be flexible in terms of which clients you will follow through on based on the inventory at hand. Third, we've decided to limit the number of SKUs which are specifically sorted for the Asian markets.
As I said earlier, it's exactly this part of the business that was responsible for the EUR 8.8 million one-off in 2024. If we create all this, if we follow through on this, then we will only be sourcing products that can be sold in multiple markets, as I said. We'll realize the cost increase in the wholesale business, and we'll be less sensitive for specific geopolitical decisions that might occur in the world. That is how we believe that liquors can play an important role within the B&S Group. It's always been a large segment. It will not increase its revenue due to these decisions that we're making, but we will increase the EBITDA margin in 2025 if we follow through on this, and we're going to make this work.
That is how we want to address the challenges that we've been facing in the last two years in liquors, and we believe that we're going to bring it back on the right track in 2025. I go to the last two segments. Personal care, again, a very strong year. EBITDA margin almost ticking like a clock, so to say. Growth, partly because of Tastemakers, as I said earlier, but again, a strong performance with a strong client portfolio. We feel we remain and we will be very positive about this segment, as we explained also in earlier calls. Travel retail. Travel retail came in in terms of turnover as expected.
I mean, Schiphol remains an important part of this segment, and it's still not the case that in terms of international travelers, but also in the number of travelers that we're actually still not at the level of 2019. We're getting closer. I believe it's now 95%, whereas last year was 90% in terms of tax numbers. Sorry, not tax numbers. Well, tax numbers, that's meant to be referring to the number of travelers at the airport. Again, the Asian travelers, as we all know, are still not on the same level. It's not only about the number of travelers, but it's also about how the group of travelers actually consists out of international travelers, yes or no? Yes, travel retail remains an interesting segment. It will grow mainly because of macro and because of the developments in the world and the relevance of Europe.
Next to this, management is truly focused on operational excellence, truly focusing on bringing data to the table to really manage the different parts of the businesses. That is where we are with travel retail. This ends my introduction in terms of this call around the 2024 results, and Mark will now go a little bit deeper into the financial review of the year.
Yes. Thank you. Let us have a look at our financial developments. As indicated just by Peter, our overall turnover increased by 8.9%. The reported top-line growth was driven by all segments except for liquors in Peter's intro. Our gross profit increased by 5.4%, and as a percentage on turnover, gross profit margins came in at 15.0%, a decrease as compared to last year's reported 15.5%.
Gross profit reported for 2024 is negatively impacted by the incurred provision on inventory and the one-off cancellation fee for the liquor segment, which Peter already highlighted earlier. Excluding these EUR 8.8 million one-offs, the gross profit margin stood at 15.5%, as such, relatively in line with last year. We have included the normalization table in the press release again for your reference. Operating expenses increased by approximately EUR 10 million - EUR 243 million. On the back of the global inflation and the tight labor market, staff cost increased approximately 8% to an amount of just below EUR 175 million. The other operating expenses, on the other hand, decreased by EUR 3 million, and as such, partly offsetting the higher labor costs.
The relatively new item, the other income, came in at EUR 6.2 million, and these consist of the reported income stemming from the newly acquired G&D contracts, for which EUR 4.3 million income has been realized during the year. Secondly, the one-off profit sale from the former travel retail building, which realized a profit of EUR 2.1 million. All in all, our EBITDA increased by 12.9% to EUR 125.2 million, resulting in an EBITDA margin of 5.2%. Depreciation and amortization for the year amounted to EUR 36.5 million, which is more or less in line with prior year. The financial expenses, though, increased by EUR 5 million to EUR 22.3 million, which increase is mainly due to the increased interest rates combined with the higher average debt positions outstanding throughout the year. All in all, this led to a net profit of EUR 47.2 million, of which EUR 39.9 million is attributable to the owners of the company.
As such, the earnings per share stood at EUR 0.47, up from EUR 0.40 last year. Let us briefly look into the elements of the turnover increase again, already highlighted by Peter in some more detail. Total turnover increased by 8.9%, of which organically our turnover grew by 8.3%, driven across the segments besides liquor. The acquired turnover contributed 0.6% within the personal care segment from the Tastemakers acquisition mid-2024. Lastly, the development of the EURO-US dollar exchange rate had a marginal impact on the 2024 reported turnover, but the impact is calculated on a month-by-month basis. That brings me to our financial position. Solvency stood at 26.6%, and as you know, this is impacted by both the realized payments related to the minority buyouts, as well as the fluctuations in the fair value of the deferred payments for the remaining minorities.
Please bear in mind that the value of these deferred payments is based on the projected EBITDA for the years to come. If the performance of these subsidiaries increases, the corresponding liability increases as well, whereas no assets are being revalued. Our net debt increased to EUR 380.8 million as at December 31st. Our net debt EBITDA leverage stood at 3.0. The interest coverage ratio came in at 4.1. Looking at the leverage and interest ratio calculated in accordance with the definition used by the banks, it stood at 2.9 for our leverage ratio and 4.3 for our interest coverage ratio. As such, both are within our banking covenants. Zooming on the non-controlling interest, which we have today. In January of this year, the option for the remaining 5% of the personal care segment has been executed.
The exercise price amounted to EUR 12.8 million, of which EUR 6.4 million was paid at closing, and the remaining in the first quarter of 2026. As such, from January onwards, no minority share remains within the personal care segment. For your convenience, we have included all remaining minority shares outstanding per segment in this overview. Let me elaborate a little bit more on the indicated increase in our net debt position, showing the bridge from 2023 to the end of 2024. The net cash from operations amounted to EUR 29.7 million. This net cash from operations was impacted by the increase in working capital positions. The increased invested working capital predominantly relates to the increased inventory positions, which increased by EUR 74 million. The majority part of this inventory increase stems from the increased inventory positions of our beauty and personal care segments.
The investing activities on acquisitions and minority buyouts amounted to EUR 50 million, which related to, as said, the buyout of minorities communicated to you all as per last year, as well as the acquisition of the G&D contracts and the acquisition of Tastemakers Holdings. The other investments mainly concerns the investments in new retail shops, renovation of buildings. Further, our favorite topic is the newly closed lease contracts, the IFRS 16 lease liability increased by approximately EUR 16 million as a result of newly closed lease or renewed contracts. The dividend payments to upstream cash from subsidiaries resulted in a dividend to minorities of approximately EUR 11 million. Please note that this amount is projected to decrease going forward as a result of the decreasing minority stakes within the group. All in all, net debt increased by EUR 74.3 million throughout the year.
Lastly, zooming in on our working capital development one more time. As indicated, our inventory position increased by EUR 74 million, which led to EUR 493 million in inventory as per December [audio distortion], with inventory in days increasing from 89 days - 96 days in 2024. Again, the majority part of this inventory stems from the increased positions within our beauty and personal care segment. When excluding for these excess inventory positions, inventory in days stood at approximately 85. With the trade receivables and trade payables both within our projected ranges, our total working capital increased by approximately EUR 49 million. For the outlook, I would like to hand over back to Peter.
Yes. Yeah. Yeah, we expect consolidated top line to grow at approximately 5%, as you've read also in the press release, that is impacted by the different segments and the continued growth in there. It's partly impacted also by the strategic decisions made in liquors, as I've earlier referred to. We do believe that 5% is the right expectation as we look at the world today. It goes without saying that the world, yeah, the world seems to be less stable than last year due to everything that's going on. We don't have a crystal ball in that regard, so that's absolutely something that we'd like to mention in that regard. We project EBITDA margin in the range of 5%-6%, as we've done in the past.
I believe that normalized—sorry, but I'm also looking at Mark now—a normalized EBITDA margin would have been this year 5.5.
5, yes.
5.5%. Yeah, based on what we all know now, we believe that the EBITDA margin between 5%-6% is the right thing to do.
Feasible.
It's feasible. Staff costs, other operating costs in line with what is to be expected. That's more or less our outlook. We do believe that there's going to be a bit of positive cash flow generations from our working capital position as we end last year, as was referred to by Mark, higher in beauty and personal care, partly because of strategic reasons, partly also for build-up of US stock. Yeah, and those things will diminish again, we believe, in 2025, and as a result, positive cash flow could be expected in that regard. That's also part of the outlook, I would say. That brings us to the end of this presentation, and we love to open for questions. As was already mentioned by our Francois, you can press star one, but I'm sure that Francois will explain that in more detail than I just did.
Back to you.
Thank you, Peter. Yes, as a reminder, if you would like to ask a question or make a contribution on today's call, please press the star one on your telephone keypad. If you change your mind and want to withdraw your question, please press star two. Please ensure your lines are unmuted locally as you'll be prompted when to ask your question. The first question comes from a line of Robert Jan Vos from ABN AMRO. Please go ahead.
Hi, good morning all. I have a couple of questions, if I may. I was a bit puzzled by the comment on the covenants, and you explained that, Mark, because 4.1 reported is less than, to my knowledge, covenant for the interest coverage ratio of 4.25. That is clear. Is that the adjustments that are made there are similar to the adjustments made between reported EBITDA and adjusted EBITDA? That is my first question.
Great. Okay, just let's go through them directly, the answer. Two things. The reported ratios, first and foremost, based on reported figures, which you also find in the financial statement, and then secondly, based on the banking covenant report, which we file with our banks. Part of the changes as compared to the two is, for example, if you do an acquisition, you need to take into account full year figures for the acquisition entered into and some other adjustments. That is one of the items we change, which differs. Partly, indeed, also, if you have some one-off, which you can account for, is also included. That's why we include them both. Lastly, it's very important to mention is that the interest coverage ratio is four throughout the year.
That had been changed and communicated earlier that the interest coverage ratio is flat out 4.0 throughout the year as compared to the leverage ratio, which changes indeed still for the third quarter, which our leverage is spiked as a result or the ability to build up inventory positions for the gifting peak season, Q4. In Q4, it's decreased by the same 0.25- 3.75 at the leverage ratio. Does that answer your question, Robert Jan?
Yes, very clear. I apparently missed that new covenant of flat 4 for the interest coverage ratio, but that's fine. Otherwise, I would have asked you very close to 4.25 by reporting 4.3, but that is not the case anymore.
No.
I have to be frank with you.
Sorry, Robert Jan.
No, go ahead.
Go ahead.
No, I just wanted to mention that as a wannabe boring CFO, I would like to be a little bit further from the covenant, which we also project to realize throughout the remainder of this year that we will also move further away from the interest coverage ratio.
Okay. I have a related question. I think you said at your Q3 that you have hedged part of your variable interest costs. That is in effect, I assume, today. My question is, yeah, we saw the net debt position increase a bit stronger than at least I had expected. You talked about interest rates. What is your view on interest costs for next year? Will they increase further considering these two components, higher net debt and also higher rates on average?
We project these to decrease slightly based on two factors. First and foremost, the cash generation, which we project to realize in the company. Secondly, that on a general basis, but that is of course very—I need to be careful there and not to be speculative regarding the rates, which way we are heading. As compared to prior periods, we have hedged a significant part of the interest exposure. As such, at least the base rate, which we can expect, is fixed. For the remaining part, we still are exposed to the variable interest rates, which the market will be confronted with throughout the coming years, which at this stage, I would say, is relatively harder to predict as compared to, let's say, six months ago.
Okay. That's clear. Thank you. I have a couple of other questions. Going to liquors division, in the outlook statement, I read the phrase lower top line performance. In the comments, I think Peter said that you do not expect the segment to grow revenues in 2025. Should that be read as a flattish revenue for liquors in 2025, or is that too positive?
From my perspective, flattish 2025 for liquor top line performance would be too optimistic, but also depending on the performance, which at this stage is very volatile if we look at the liquor market at this stage.
Okay. That's also clear. Maybe on the minorities, you already mentioned that there has been another cash out of EUR 6.4 million in Q1 2025, and the other part of that is scheduled for Q1 2026. Is it fair to assume that there is no further schedule or option-related triggers other than these two? I believe there is something in 2028. Is that the right conclusion?
Yep. Basically, that's also why we included the table again, for which subsidiaries' option agreement is in place and also the timing thereof. You can read, if you look at the slide deck, that for FragranceNet in 2028, the next option will be effectuated. For the French company, mid this year, an option on 50% can be effectuated until the end of 2027. I would also like to refer to the financial statements, in which the deferred payment liability is also disclosed in more detail.
Okay. Thank you. Then my final question.
These are the minorities with options. Obviously, there are still—and I do this by heart, and that's always dangerous—there are still minority interests in health of 30%, 5% on beauty level, 5% on HGG level. There is in this Spanish company a 49% in Top Care Distribution, but that's a relatively small company.
It's part of the beauty.
That's it, right?
Okay. Taking into consideration your net debt, also your leverage, and your interest coverage, timing-wise, does it make sense to look at that very specifically to do other deals outside where there are options?
No, no, no, no. We are not—I don't think the executive board today is a super fan of all these minority interests, as you may have noticed in the last two years. There is nothing concrete in there, obviously. Otherwise, we would have disclosed that. We will be—yeah, we'll be looking at those.
Only if it's healthy for the customers.
Obviously, if it's the right deal, then we'll strike it. Otherwise, not.
Okay. That's clear. Final one. Sorry to linger on, but I take the opportunity. You reported in the past three years quite some material one-off costs and benefits, also in 2025 and in the second—sorry, 2024, and particularly also in the second half. Your view on EBITDA profitability between 5% and 6%, does it assume any further one-off effects in 2025, or is the base case that there are no further one-off effects in 2025?
That's definitely what we strive for, and we don't believe there will be. I need to take that back to a certain extent because of everything that's happening in the world. I mean, apart from that, we believe—we certainly believe, and that's also what we're striving for—is to become better in control and, as a result, have lesser of these exceptionals. That's part of the strategy.
Yep. That's very helpful. Thank you.
The next question comes from a line of Tijs Hollestelle from ING. Please go ahead.
Yeah. Thanks, Operator. Good morning, gentlemen. Yeah. I basically had also my first question would have been on the bank covenants because I also have written them down at the previous annual report. We had the discussion in the past, so I really need to see how B&S is going to lower the debt position. Although if you follow the company many years, like most of us here in the call, then you do understand that it needs to invest in inventory and you see opportunity. I know that you're paying your dividends and you're actively spending cash on reducing the minority stakes and reducing complexity. It's all good. The problem for an average generalist fund manager is that this screens as very, very risky, and therefore you get a massive discount on your valuation.
My question is, do you have any other options to, let's say, structurally reduce the net debt position in the coming 12 months? Are there any hidden asset sales, maybe you're contemplating the sale of a division, or you have really specific trade working capital programs running that can bring in a lot of cash? Is there anything possible on the, let's say, the next four quarters or so?
I must say that if we would—we've been looking at this Tijs. I mean, it would be stupid to say that we're not looking at this. If you look at this and you look at the turnover growth and you look at, well, say, 5.3%, 5.4%, 5.5%, 5.6% EBITDA margin, and the cash generation capacity of the company, as you will see, is quite strong, actually. If you take into account that I do believe that we could optimize working capital further, especially in comparison with Q4, which I already referred to and which is also referred to in the press release in detail, a couple of specific reasons why inventories went up. If we achieve our outlook and we also achieve cash inflow from working capital in spite of the growth, in spite of the growth, because the growth will lead normally to additional inventory.
Due to the specific circumstances of Q4, there would be a positive—I am not promising a positive—but if there would be a positive working capital, then the cash generation will be strong, and as a result, net debt will decrease. You do not have to sell assets to realize that decrease in net debt position because next year, we still have the smaller buyout of the personal care, which was already referred to. Apart from that, there are no hard options to buy out.
In short term.
In the next three years, actually. Yeah, we are kind of, well, bullish. We're very positive in terms of second half year cash generation because there won't be a buyout of minorities. If we realize our strategy towards autonomous and accountable segments and optimizing working capital, taking into account the specific character of the business, we do because we buy when the price is right very often. It has some specifics in the business model why you need to invest in your inventories, as you know, Tijs, better than anyone else because you've been following us now for such a long time. Those are the—this is how we think. These are our train of thoughts in terms of our net debt position.
Yeah. Okay. That's clear. Yeah. A bit more specific also on the growth debt because I also looked at the annual report of 2023, and I saw that there's a EUR 175 million bank loan with a maturity in 2026. That looks far out, but if it, let's say, I'm not sure which month, but you probably should start renegotiating that somewhere at the end of this year. On.
I would say a little bit earlier, Tijs.
Yeah. As early as possible. The credit facility, EUR 65 million, maturity between 2024 and 2026. How do you feel about that renewal? You already mentioned it in Robert Jan question with hedging and variable interest rates, but what are the options for B&S in this respect?
Look, we are currently looking at and work on some options which are near to completion and also on some additional or alternative funding sources. The main facilities which we have running have a maturity as per the end of 2026, so late December 2026. We are looking and starting discussions with our partnering banks early this year already just to make sure that we start this process and have a smooth process throughout this year so that we have all the time to look at the funding position which we project for the years 2027, 2028, just to make sure that we are right on time in getting the facilities which we need to grow our company.
Yeah. Okay. That's clear. Yeah. I had a question about what was it called? Yeah, the other income on the P&L, so that shows, let's say, the contribution from your government and defense contracts. In the P&L, I think it stayed EUR 6 million. You mentioned in the press release, there's a direct impact of EUR 4.8 million on the EBITDA contribution. It also includes, let's say, then costs in the other line items of the P&L. Is that the way I should look at it?
Yes. Sorry. You have the EUR 2.1 million from the sale of the travel retail building, which is also included in that line item.
Okay. Yeah. So indeed, looking forward, basically, you should then kind of model the [audio distortion] and defense contracts.
Exactly. Not the one-off. That is why we clearly indicated the one-off of the retail sale of the retail building.
That's clear. Yeah. In the past, B&S was one of the preferred distributors of the military. The organization has a lot of permits and certificates to operate as a supplier to the army. I think that's still the case. How are you exposed to a potential big boom in all kinds of defense investments in Europe? Can you, yeah, let's say, explain to us where you see benefits, what type of products you can sell? As I would say, typically, soldiers need a lot of products from B&S. That goes from tomatoes to liquor and from shampoo to medicine. What is your exposure to these kind of trends?
Yeah. Yeah. Yeah. We need to talk a bit about geopolitical affairs if we want to mention it. There's going to be a number of trends that probably will influence this. First of all, there's quite a bit of U.S. army in Europe as well as in maybe in parts of Asia and maybe in the future in the Middle East. That there's going to be a downsizing of U.S. army presence in Europe is probably a reasonable expectation. That there's going to be an increase in the Middle East, that could also be a reasonable expectation. That European troops within Europe, Latvia, but also in the northern part of Europe and in the southern part of Europe, might increase, I think. Yeah. I'm not a historian nor do I follow politics any more intense than most of you probably.
The German troops will be increasing. The solution in the Middle East, whether that's going to be UN forces, yes or no, is very hard to predict at this stage, whether UN forces will be part of the equation in the solution that politics will need to build in the Middle East, but also in the Ukraine is uncertain. It's clear that the Russians don't want any European troops nor US troops. They might accept UN troops. That could be the UN could be part of that solution. Where do I go next in the world? Asia, hopefully, is going to be stable in this regard. That hopefully was a human being remark, by the way, and not so much whether we will increase our efforts.
I must say that the government and defense portfolio in terms of options and in terms of contracts that might come to the market, and that's also the reason why we invested in it, is definitely an interesting part of our portfolio. That's also the reason why we did this. It is relatively capital and, well, maybe not capital, but relatively cash intensive in terms of the inventories that you need to build up. The mere fact and experience is that the first year of operations is not going to be, doesn't lead, it would be too positive to expect a positive cash generation in the first year of new one contracts because you need investments in all logistical patterns. You need to find solutions, optimal solutions, et cetera, et I am very much aware that I am not giving you an answer that you're looking for.
I do agree with you that the outlook is positive due to the number of contracts that will come to the market and all the different developments that we will need, unfortunately, to a certain extent in the defense. Without the geopolitical tensions, we would already have a nice portfolio of possible contracts that we could win.
I'm not only talking about these separately recently bought, but also part of the food division is already exposed to defense.
Yes, that's true. That is definitely true. The number of surfaces and products, so today, our portfolio that we supply to these forces is very food-centric. As people may know or may not know, around coal, there are around 500 SKUs prescribed by the UN that you need to deliver. We are very good at that because we have the infrastructure to be able to organize all of this. That's definitely a pro. At the same moment in time, we're also looking at providing services around, for example, laundry services or canteen services because that is also part of that business that's very much needed. In theory, health could be part of that, but that's not that easy because, as you may imagine, especially defense forces are very particular around their medicine and their health processes. That's not an easy part.
Health standalone, if you look at those, if you look at new markets that we might be looking at and which will also be on the rise because of the geopolitical tensions, is the NGO market where it's more easy to create options in that market. Again, very immature, very early. I am just sharing my thoughts as a result of your question. We could talk around this question for a lot longer, but I will stop.
Yeah. It's complex. Thanks a lot. One final, and that also goes to the liquor business. I was running the numbers also quickly this morning. I see quite a drop in the OpEx of the division. What is it? To EUR 15.9 million. Is that a good starting point going into the first half of 2025? You basically right-sized the cost base. It does not really matter for the top line if it drops by 1% or 4%, but you are aiming to get, let's say, break-even. Make it break-even. Is that a fair assumption for the liquor business in the beginning of this year?
Correct.
Yeah. Okay. That's helpful. Thank you.
The next question comes from a line of Patrick Roquas from Kepler Cheuvreux, please. Go ahead.
Yes. Good morning, gentlemen. Sorry, I tuned in a bit late, so some of the questions might have been answered already. Sorry for that. The first one is on FragranceNet.com. Can you spend a few words on the growth and expansion of this part of your business? The second one is on liquor. What are your expectations for this segment in the midterm? Can you remind us what is needed for, let's say, the EBITDA level to go back to previous levels of good profitability? Thank you.
I was at FragranceNet last Friday in New York. Yeah. FragranceNet just has a very strong market development way of working. It plays the price game B2C on websites in the US. It has a great infrastructure for different warehouses, of which a number of them are fully automated and are less dependent on staff costs, et cetera. Literally less dependent on staff costs because you can just hire or, well, not hire or buy or lease more robots.
Operating in a market which has ample room for growth.
It's just a huge market. I mean, it's just a huge market. They are the strongest one-product website in the US. By the way, that's being told to me by local management. I didn't study on this, but they definitely have a very strong performance. Now, in terms of liquor, yes, Patrick, great that you asked this question again because I want you all to understand. Although we've tried to explain it before you were on the call, apparently, there are three reasons. There are three things that we're doing. One of them, integrating wholesale Europe as a result, minimizing the number of warehouses and decreasing working capital in that part of the business. We took the decision that we can only source products in the segment liquor, which we can sell in different markets.
As a result, become less sensitive or less, yeah, sensitive to geopolitical things that are happening. That is another big decision. Thirdly, and that is also the reason why liquor will be flattish, so to say, that word was used earlier in the call around turnover. That is because we took the decision that we have played a role in a very limited number of SKUs for the Asian market, and we decided to decrease strongly in that part of the business. As a result, also become less sensitive to geopolitical affairs. Those are the three measures we are taking. We do believe that liquors, that as a result of these measures, which will be fully implemented in 2025, liquors will come back with good margins and EBITDA levels.
is really no reason to think that the wholesale business in Europe does not perform or cannot bring normal results, which is also true for the global other trade business. We call that other trade because that does not include those specific SKUs specifically for the Asian market that I earlier referred to. Patrick, those are the three measures we are taking, all good collaboration with the liquor segment management team.
Thank you for that.
The next question comes from a line of Maarten Verbeek from the IDEA!. Please go ahead.
Good morning. [audio distortion] Just to stick to the liquor business. Roughly one-third of your liquor business is sold in Asia. So that's about EUR 185 million. How much of that business is where you're referring to those limited SKUs which might be carved out of your portfolio?
In the past, not in 2024, but in the past, there was, yeah, I'm doing this by heart, so I'm also looking a little bit shyly into my CFO. In the past, and then I'm talking about 2022, 2023, I think that was 50% of the year. Not 100, but close to the 100. Last year, this was substantially less, maybe half of that number, I would say. These numbers are approximately right, Maarten. If you want to know the exact details, then we're happy to share that in an email or so.
Yeah. It is a fair assumption that it is a significant portion, Maarten, of the sales towards the Asian market. Not all of it, definitely not all of it, but a significant portion thereof.
Yeah. Because the other trade business in Asia is definitely held.
Yeah. It more or less suggests that about EUR 25 million-EUR 100 million will be carved out of the liquor business in Asia.
That's a rather large range you now mentioned. Did I understand you got 25-100 that you said?
75-100.
Not from the 2024 number, I think.
No, no, not for the 2024 number, but in general.
In the past.
If you look at the total turnover towards the Asian market, which we also disclose in the financial statements, last year, it was approximately EUR 200 million indeed. What we will be disclosing for this year is that towards the Asian markets, it is a little bit less. It is approximately EUR 160 million in 2024 for the liquor segment. The portion of these SKUs is also lower as compared to 2023. Does that answer your question, Maarten? Does that make sense?
Yeah. It always makes sense.
Great. It always makes sense. Referring to your outlook statement on revenue, where you state that all the segments will perform in line with their midterm guidance, except for the just-discussed liquor business and also the travel business, assuming they will at the midpoint. For travel, it will be half of the midpoint. You make that calculation. More or less, it seems that liquor will be stable. We just discussed that liquor will be declining. That actually means that for the other businesses, they will operate at the top end or higher of the revenue range. Is that a fair conclusion to make?
I think you are making very thorough calculations, so that's a good thing to hear. Look, in order not to make a very granular and even more specific outlook, which we provided, first and foremost for those segments, which we refer back to the communicated compound annual growth rate for the years, which we communicated to you all in November 2023, I would say it's fair to say that some of those segments will be at the higher end and some will be at the midpoint. For the other ones, basically, let's start with the retail. The change in the portfolio of the retail segment makes that it will not grow as previously projected, basically because we lost airports in Denmark, Copenhagen, which will cease our operation, which eventually will make that the turnover in total will be more or less, I would say, at par.
For the liquor segment, yeah, I think we elaborated on the liquor segment quite significantly, so let's leave it at that.
Okay. Thanks.
Does that make any clearer?
No, sorry. Please continue.
No. I was just asking whether that's clear for you.
Yeah, yeah, yeah. You just also discussed that you will increase your stake in personal care and there will be cash out. According to me, there are still cash outs to be expected from previous buyouts, like another portion of the personal care and also for the G&D and also for Fragrance. My question is, on one hand, what was the contingent liability at year-end 2024? How much will be paid this year? For example, for personal care, I think there will be two tranches. You still have G&D. You still have Fragrance. Could you give an update what we should expect this year?
Yeah. Sure. As previously communicated, to bring you back to early 2024, when we increased the first stake in personal care, the 24%, I'm doing this also about 24.24%, so approximately 24%. The payout thereof, also in two tranches, early 2023, sorry, early 2024 and early 2025. The second portion of that buyout has been paid early this year, in January. That has been paid as per today. Secondly, the deferred payment on this, the remaining deferred payment for the personal care segment, as you might expect, as per December 31, is, yeah, in line with the amount we mentioned this morning, the EUR 12.8 million, which is also classified, sorry, as a short-term liability as we executed this in January this year.
Lastly, on the G&D acquired contracts, as included in the press release as shared mid last year, indeed, two deferred payments will be there, as per the half of this year, so July 2025. I think I ticked all boxes of your question, Maarten.
Lastly, maybe a bit detailed. When I look in your cash flow statement, there are two new lines: change fair value of other financial assets and proceeds from other financial assets. I presume that's related to the G&D contracts?
Correct.
Okay. Thanks very much.
We have another question from Robert Jan Vos from ABN AMRO. Please go ahead.
Yes. Sorry for coming back again, but I have a strategic question, which is a bit of a follow-up on what Tijs asked. If you look at the travel retail and now five years since 2019, your revenue is still EUR 10 million below what you reported back then, and your EBITDA is less than half or actually even closer to one-third of EBITDA reported by then. It seems that it takes you a lot of effort and maybe also a lot of management time. My question would be, what is lost in synergies, maybe, or elsewhere if you take a new strategic view on this division because you're still far away from, let's call it, normalized profits as reported in 2019, despite a bit of inflation, despite new locations apart from the Copenhagen one you just mentioned.
What is lost if you were to look at a potential disposal of this unit?
Yeah. I figured that those last words were actually your question. Yeah, there are different options, obviously. A couple of things that are important is that we won huge contracts in Abu Dhabi as well as in Qatar who are still growing into their opportunity because that's not mathematics, to be honest, whether it takes one year, two years, or three years. It's also different in different locations to really optimize the potential of those number of stores that you have in the same venue. That is definitely something that we're looking at with interest in terms of optimizing those locations.
I don't know whether any one of you is a frequent flyer, but if you've been to Schiphol in the last 24 months, I believe, then you can't have missed that they are rebuilding and refurbishing that airport in a huge manner, which doesn't influence our revenue positively either. You don't always get fully compensated. We are in the midst of let's exactly see where we're going before we take any strategic decision in terms of those developments. I do know that also travel retail contracts, not so much in this country, but definitely in different other territories, will come to the market. That is definitely something we want to experience first before we take any other decisions or pursue other options. That's where we are. That's exactly where we are.
That is also how we talk as an executive board with the management team of travel retail.
Okay. Thank you.
There are no further questions, so handing back over to you to conclude today's call.
Thank you so much. Thank you for the interest in this great group. Thank you for the detailed questions. It was a pleasure to answer them. We hope to see you soon or in our next quarterly update call. Thank you so much, and have a great day and a beautiful week. Thank you.
Thank you for joining today's call. You may now disconnect your line.