Good morning, everyone. I'm Carl Cowling, Group CEO, and I'm here with Max Izzard, our Group CFO. As usual, we'll provide an update on our performance for the six months ending the 28th of February, 2025, and we'll also run through the highlights of the first half for the Group. Turning to slide three. Before we go into the detail of the first half, I thought it'd be helpful to give an overview of the Group's position following the announcement that we have sold our UK High Street business and as we look ahead as a pure-play global travel retailer. Firstly, this is a really important milestone for the Group, and we are now in our strongest ever position to enhance growth, profit, and cash flow, as well as capitalize on the substantial space growth opportunities that exist across each of our key travel markets.
It allows myself and the management team to concentrate on a simplified, travel-focused Group, alleviating any distraction from an increasingly divergent business and enables us to focus on enhancing the Group's future growth prospects and value creation. It is a very exciting time, and we have a clear and successful strategy focusing on four key areas of growth, as you can see on the screen. Turning to the next slide. On the screen, you can see how our business has evolved over the past decade into the global travel retailer we are today and the strong platform that has been created. This clearly highlights how our travel divisions have been the growth engine of the Group, representing 75% of Group revenue and 85% of Group trading profit today and generating annualized profit growth of over 10% over the past 10 years.
Through our clear growth strategy, including the two acquisitions we made in the U.S., we have created a strong platform, and with the ongoing strength in our U.K. travel division and the scale of the growth opportunities in both North America and the rest of the world, we are in our strongest ever position to deliver enhanced growth as we move forward. Already, this is a business that operates in 32 countries worldwide. Turning to the next slide. Following the sale of the High Street business, the geographical mix of the Group will change, with a greater proportion of revenue being generated in North America, the world's largest travel retail market, and the focus of the business will increasingly be on air travel. As I have said, the growth opportunities are substantial.
Firstly, passenger numbers are forecast to grow by more than double over the next two decades, driven by both population and economic growth. We are also seeing significant investment in airport infrastructure, creating destinations for travelers. Next, as landlords look to converge trends in travel retail, we are in a strong position to execute and further roll out our one-stop shop format. These factors, combined with the four pillars of our growth strategy, give us every confidence into the year ahead and beyond. We have a clear and robust strategy with operations in attractive high-growth markets, a strong balance sheet, and we are well positioned to generate substantial growth and, with that, value for our shareholders. This is a really exciting time for the Group. Turning now to an update on the first half.
During the half, we delivered a strong performance in travel, delivering profits of GBP 56 million, up 12% on last year. All our travel divisions continue to perform well with consistent like-for-like revenue growth, and we continue to innovate and grow across each of our three divisions. Our strong track record of winning new tenders, particularly in the U.S., continues, and we now have a new store pipeline of over 90 stores due to open across the globe, with more than 70 of these in North America. I am delighted to announce this morning that we have won six stores at a major East Coast airport in the U.S. During the half, we have also successfully opened 30 new travel stores across all three divisions, and we see further good space growth opportunities across our markets. This, coupled with growing passenger numbers, gives us the confidence to invest for future growth.
You will remember that we announced a GBP 50 million share buyback in September, reflecting the strong ongoing cash flow and the receipt of the pension fund buyout cash return, and we have completed GBP 27 million of the buyback as of yesterday. Today, the board is declaring an interim dividend of GBP 0.113, reflecting the board's confidence in the future growth prospects of WH Smith. Before I hand over to Max to go through the numbers, in light of the current economic uncertainty, I thought it'd be helpful to touch on current trading and let you know that we are trading broadly in line with our first half performance. Our business in the U.S., where there is understandably a lot of focus, continues to deliver positive light-for-light revenue growth despite a softening in passenger numbers.
However, as you will hear later in the presentation, our spend per passenger is strong and continues to gain momentum, and therefore our outlook remains unchanged for the full year. We are in a strong position to navigate this period of uncertainty. I'll now hand over to Max.
Thank you, Carl. Good morning, everyone. It's been a busy start to my time here at WH Smith, with the refinance, the sale of our high street, and time spent broadening my understanding of the business and looking at how we invest our capital. I'm delighted to be here today to take you through our first half financial results. As usual, all the numbers I am going to refer to today are pre-IFRS 16, and there are some bridges to IFRS 16 in the appendix. Turning to my first slide and starting with the financial highlights, our travel business has had a strong start to the year. Total Travel revenue, which is 75% of Group revenue, increased by 6% in last year to GBP 712 million.
Travel headline trading profit increased by 12% to GBP 56 million, driven by the growth in U.K. trading profit of GBP 3 million, GBP 1 million from North America, and GBP 2 million from the rest of the world. Travel trading profit margin also increased up 40 basis points to 7.9%. For the Group as a whole, we have had a good start to the year, with total Group revenue up 3% on 2024 to GBP 951 million. Group headline profit before tax was broadly in line with last year at GBP 45 million, and headline EPS was down 2% to GBP 0.238, reflecting lower profit from the high street division in line with market expectations. Our balance sheet is in a strong position with leverage at the end of February of 1.7 x versus 1.8x last year.
We have today declared an interim dividend of GBP 0.113 per share, which reflects the strong travel business performance and our strong cash generation. As before, we expect the interim dividend to reflect about 1/3 of the full-year dividend. Turning now to analysis of revenue. Total Group revenue for the half was GBP 951 million. This increase of 3% in last year was driven by all three divisions in travel, and current trading remains good. Across our global travel divisions, we have seen good momentum in the first half, with light-for-light revenue up 6% year on year, and on a constant currency basis, total revenue is up 8%, reflecting a strong operational performance and the increase in passenger numbers. All three divisions saw strong revenue growth in the half. High street, including our internet business, performed in line with plan, generating revenue of GBP 239 million.
Let's look at travel in a bit more detail on the next slide. Here you can see the key drivers of the travel revenue growth, with strong light-for-light growth contributing GBP 39 million, or 6%, and net space growth contributing GBP 14 million, or 2%. Our North America business is subject to change in sterling to US dollar exchange rates. The first half was impacted by GBP 7 million compared to the prior year due to stronger sterling across the period. We also have a small comparison headwind from the 2024 leap year. The effect of an additional day's trading in our statutory reported revenue last year amounts to around GBP 4 million. Turning now to the travel segmental analysis. Starting with the U.K., revenue is up 7% on both a total and light-for-light basis, with good momentum in all three channels, particularly in air.
Air was up 9% on a like-for-like basis, and hospitals were up 4% like-for-like, and rail also up 4% like-for-like. In North America, total revenue was up 5% on a constant currency basis, driven by air, which grew 9%. Total like-for-like air sales were up 4%. Our Travel Essentials format, which accounts for over 50% of revenue in North America, was the key driver of this performance, with total revenue on a constant currency basis up 20% and up 8% on a like-for-like basis as we continue to increase our spend per passenger. We continue to see good opportunities to win and open more Travel Essentials stores in air.
Our smaller North America air business, InMotion, has seen some improved performance, with light-for-light revenue down just 1%, and resorts was down 3% light-for-light, impacted by the Super Bowl annualization, with the event being held in New Orleans compared to Las Vegas last year and store closures across two major hotels in Las Vegas, as previously signposted. The rest of the world has delivered a good performance, with total revenue up 15% on a constant currency basis and up 9% light-for-light. We are well positioned to benefit from further opportunities as we continue to establish ourselves in key markets. Turning to the income statement. Headline profit before tax was GBP 45 million, down GBP 1 million on last year, reflecting the reduction in profits from the high street business.
Travel delivered a profit of GBP 56 million compared to GBP 50 million last year, and Travel generated nearly 80% of Group profit from trading operations. In Travel UK, profit improved by 8% from GBP 37 million to GBP 40 million due to higher revenue, improved margins, and tight cost control. North America, now our second largest division by profit, delivered a profit of GBP 15 million, up GBP 1 million on last year. In North America, we've increased revenue and improved margins, and at the same time, we've invested in our store estate to support growth. Rest of the world delivered a profit of GBP 1 million compared to a loss of GBP 1 million last year, reflecting investment returns from our new stores as we continue to build the business in this division.
High street delivered a profit of GBP 15 million, as expected, and it's worth noting that following the announced sale of the high street business, this will be the last time we fully report on the high street operations, and at the year end, the high street business will be presented as a discontinued operation. Overall then, Group profit from trading operations was GBP 71 million. Central costs are broadly flat year on year, and tight control of this area will remain a key focus. Financing costs at GBP 12 million includes non-cash accretion of GBP 4 million relating to the convertible bond. That results in headline profit before tax of GBP 45 million.
Our Travel business is performing well, and we have a significant opportunity to grow space and increase revenue each year into the medium term, which, together with our forensic approach to retailing and tight cost control, will also drive our profitability. Turning now to non-underlying items. As you'll see on the screen, we have recognized a number of non-underlying items in the period, and a significant proportion of these items relate to the high street business, and two-thirds are also non-cash. We have continued to invest in our multi-year IT transformation program and anticipate full-year spend to be around GBP 15 million. We have also completed a number of operational efficiency programs to deliver cost savings and support our business performance.
Turning to the high street costs, and these include GBP 37 million of non-cash impairments and onerous lease provisions following the strategic review of the store portfolio, and this includes GBP 15 million of goodwill associated with the high street division, GBP 8 million of store closure costs, GBP 3 million relating to the rationalization of our U.K. distribution centers, which we began in 2024 and is now complete, and GBP 6 million relating to the disposal of the U.K. high street business, which will be cash settled in the second half. The total transaction and separation costs are anticipated to be around GBP 25 million-GBP 30 million, the majority of which will be incurred in the second half of this year. Overall, the cash impact of non-underlying items in the half is GBP 25 million, and this includes some timing-related spend from previous periods. Turning now to the Group free cash flow.
We are a cash-generative business, and as we become increasingly travel-focused, this will continue to grow. There are three key points to note on the free cash flow for the first half. First, we generated GBP 94 million of operating cash flow, with 80% of this generated in travel as the travel business increased in profitability in the period, reinforcing the points on cash generation that I've just made. Second, the investment made in the business with CapEx in the half of GBP 50 million, including the new store opening program. We opened 30 new stores, including a further 10 in North America, and we anticipate our investment for the current year to be around GBP 110 million, which includes opening over 60 new stores, reflecting both the opportunities we have plus our confidence in the markets in which we operate.
We're getting good returns on these investments, generating ROCE ahead of our cost of capital in each of the three divisions. Third, as expected, working capital was an outflow of GBP 87 million, which mostly relates to the new store setup and opening costs and the seasonality of the business as travel continues to grow. Taking into account the working capital cadence and the level of operating cash flows generated in the second half, we expect to generate a substantial free cash inflow for the full year. Turning now to the net debt. Net debt at the end of the half was GBP 454 million, comprising of the convertible bond of GBP 315 million, drawdown on the RCF of GBP 178 million, and cash of GBP 39 million, which gives the Group a rolling 12-month net debt to headline EBITDA leverage of 1.7 x compared to 1.8x last year.
In addition to the free cash flow, we had an outflow of GBP 89 million on non-trading items. The largest of these related to distribution to shareholders, with GBP 29 million for the full year 2024 final dividend payment and GBP 23 million for the current share buyback. Cash spend relating to non-underlying items was GBP 25 million, predominantly relating to IT and supply chain transformation projects and operational efficiency programs across the business. We also had the GBP 75 million cash receipt in relation to the pension surplus following the buyout in September 2024. We expect net debt at the end of this year to be around GBP 400 million, and we have a strong balance sheet, and our leverage ratios continue to fall as our profits grow.
Following completion of the sale of the high street, we aim to return leverage to within the target range of 0.75-1.25 x EBITDA by the end of August 2026. Let's now move on to our refinancing. As recently announced, we have successfully completed a refinancing of the Group's convertible bond. The new refinancing includes GBP 200 million of USPP notes, which represent WH Smith's debut issue in the USPP market. The notes have a maturity of 7, 10, and 12 years and have been issued on investment-grade terms. In addition, we have GBP 120 million of three-year bank term debt with two uncommitted one-year extensions. Based on the resulting new financial structure and the delayed draw terms to coincide with the convertible bond maturity in May 2026, we would expect the income statement interest charge to increase from 4.6%- 6.3% by the end of full year 2027.
The refinance strengthens our balance sheet, extends our debt maturity profile, and diversifies our capital structure. Turning to my final slide. Looking forward, we remain focused on maintaining an efficient balance sheet and on our disciplined approach to capital allocation. As has always been the case, our first pillar of our policy is to invest in the business. Where cut returns are ahead of our cost of capital. The growth opportunities available to our travel business are significant, whether it is opening new stores, refurbishing our existing estate, or winning better quality space. Secondly, our commitment to a progressive dividend policy is well established, and we seek to grow our dividends at least in line with EPS growth, with a target dividend cover of around two and a half times. As you have already heard, we have today announced that the board has declared an interim dividend of GBP 0.11.
We also have a strong track record of making selective value-creating acquisitions, and we continue to look at opportunities when they arise. Finally, we have a long track record of returning excess cash to shareholders via buybacks, and as of the 15th of April, we have completed GBP 27 million of the GBP 50 million share buyback announced in September 2024. To conclude, we've had a good first half with strong revenue and profit growth in our travel business. As Carl has mentioned, whilst we are mindful of the economic uncertainty, the Group continues to trade broadly in line with our first half performance. We have a resilient business, and we are well positioned to benefit from the growth opportunities in travel retail and deliver attractive shareholder returns. I will now hand back to Carl to talk you through the operational performance of the business.
Thanks, Max.
Starting with Travel UK, our largest division, we have had a strong half across each of our channels. We continue to deliver high levels of light-for-light growth. Light-for-light revenue was up 7%, reflecting ATV growth, increased spend per passenger, and growth in passenger numbers. Profits were up 8% to GBP 40 million. We see further good growth opportunities in this division as we continue to invest, and we aim to open around 10-15 new stores in the U.K. each year. Turning now to our airport performance in the U.K. We have delivered a really good performance across our U.K. air channel with light-for-light revenue growth of 9% in the half. Our one-stop shop format is delivering strong results, driving profitability, and highlighting significant opportunities for the future.
We continue to expand this format, and we have recently refitted stores at Manchester and Stansted by significantly increasing the space dedicated to health and beauty ranges. In addition, our stores at Edinburgh and Newcastle airports have seen a complete refit to our one-stop shop format, and we are seeing good results. Across both Edinburgh and Newcastle, we have designed stores encompassing everything you would expect from WH Smith, as well as a broader and improved product range, including health and beauty, tech, and food to go. You may remember we launched a new food range ahead of the summer peak last year, Smith's Family Kitchen. I'm pleased to say that this is performing very well, and we continue to expand our ranges and improve our offer for customers, which now includes pastries and bakery items.
By widening our offer and creating a fast, convenient shopping experience, customers are putting more items in their baskets, which in turn increases our spend per passenger and drives ATV. The exciting part here is that this one-stop shop format is highly scalable and not only applicable for our larger stores in air, but also our smaller stores, so we see plenty of opportunities for the future. Turning to the next slide. The hospital channel is the second largest by revenue behind air, and it has delivered a good performance in the half with light-for-light revenue up 4%. Our ongoing success in hospitals illustrates our ability to generate increased profitability from our stores by improving our retail proposition. For example, tailoring our product offer to the specific requirements of hospital staff, patients, and visitors by providing an increased range of food, health and beauty, and tech accessories.
During the first half of the year, we opened two stores, and more recently, we've opened our second Smith's Family Kitchen Cafe at Greater Manchester Hospital. You can see a picture of this on the screen. Whilst it's still very early days of this format, customer reaction has been positive, and we're in discussion with the hospital trusts on how we can work together to improve their F&B offer. We expect to open a further eight stores in the second half, and we see plenty more opportunities to continue to grow our space and improve the retail proposition under our broad suite of brands and new formats. We currently have 147 stores across more than 100 hospitals, and we see scope for at least one of our formats in up to 200 further hospitals. Turning to rail. Here we've delivered a good performance with light-for-light revenue up 4%.
In line with our other channels, we continue to focus on investing in new formats and improving our ranges across many of our stores, including the refurbishment of some of our mainline rail stores such as King's Cross and Charing Cross stations to provide an improved customer proposition. During the half, we also refitted stores at Glasgow Queen Street and York. By increasing the space to more food to go and health and beauty products across these stores, we have increased our spend per passenger. Moving on now to our North America division on the next slide. North America is our most exciting growth opportunity, the world's largest travel retail market, and we see excellent prospects to further grow our airport business here. We continue to invest and re-engineer our Travel Essentials airport business, which is driving higher growth and profitability.
Total revenue in the half on a constant currency basis was up 5%, with light-for-light revenue up 3%. We delivered profits of GBP 15 million, up 7% year on year. We also see good opportunities to win and open more stores, delivering good returns as we aim to grow our market share to around 20% by 2028. At that point, we would expect to be operating around 500 stores and for our overall air business to be around 85% of the total North American division, driving higher growth and profitability. Turning to the next slide. As a reminder, our air business is the largest and fastest growing part of our North American division and combines our Travel Essentials and InMotion businesses, and this is where we are investing most of our capital.
Our approach to growing our air business in North America is similar to the U.K., but it's at a much earlier stage of development. Around 80% of air travel in the U.S. is also domestic. During the first half, we've continued to focus on improving the quality and efficiency of our estate and driving profitability by applying the retail disciplines from our U.K. stores. Using the data from around 200 stores, we are actively analysing our space to enhance our ranges, introduce new categories, and review space allocation, and I'll come on to this. Over 90% of our new store pipeline growth is in Travel Essentials. In our Travel Essentials business, we grew light-for-light revenue by 8% in the half, and we see lots of further opportunities for improvements in sales and profitability by applying our retail expertise.
Overall, while it takes time to implement these changes in the U.S., they're delivering encouraging early results. Turning to the next slide. Of the initiatives we are taking, we are strongly focused on increasing spend per passenger. In the first half, we've seen strong spend per passenger growth of around 5%. By focusing on areas of growth we can control, we are in turn able to mitigate the potential weakening in passenger numbers. It's also worth remembering that we have a very low average transaction value. We are not a luxury retailer, so our focus is on increasing conversion, growing ATV, and broadening our ranges so people put more items in their baskets, all of which we expect to continue. Of the changes in our offer, there are predominantly our food and drink categories.
This means increasing the space allocated to fresh food and snacking and investing in more chillers across key stores with more to come. At the same time, as has been the case in the U.K., we're developing our health and beauty category, and this is set to become a more important part of our business. Using these principles, as I have said, we are delivering superior returns in spend per passenger, and while this is really encouraging, we know there is much more to go for. In addition, we are working on rolling out our central supply chain to support improved availability in sales, which also reduces back-of-house activity. This has been trialed successfully in New York and expanded across the whole of the East Coast, again supporting our spend per passenger growth.
We are confident we will continue to grow our light-for-light sales in Travel Essentials and are excited by the opportunities that exist. Turning to the next slide. I thought it'd be helpful to demonstrate why we're confident in our ability to continue to win market share in the U.S. by highlighting some of our recent successes. As I've already said, we are targeting a 20% market share by 2028. On the screen, you can see some of our most recent wins across the U.S. at Portland, Dallas, and Albuquerque airports, and we can now confirm that in addition to Orlando, where we were awarded preferred bidder status for five stores, we have won six stores at a major East Coast airport. This is a significant win for us as we continue to grow our space and cement our position as a leading Travel Essentials operator on the East Coast.
As I have said many times before, the scale of the opportunities in the North American market is what excites me the most within this division. During the first half, we opened 10 new stores, and we are on track to open around 25 in the year, including openings at Dallas, Portland, and Washington, and we are seeing good returns. This takes us to a new store pipeline of over 70 stores already won and due to open. However, as you can see on the screen, with the light blue bar showing the scale of the opportunity in each of the top 25 airports alone, there is still a lot to be optimistic about, and we have every confidence that we will continue to win new business given the number of tenders we are participating in and our current success rate.
As we continue to target our 20% share by 2028, we would expect our overall air business at that point to be around 85% of the total North American division, which will drive higher growth and profitability. Turning now to our rest of the world business. Here our approach is clear: to build scale in our existing markets and to continue to enter new countries using our three operating models of directly run, joint venture, and franchise, and over time leverage our fixed cost base to grow net margins. We have delivered a good performance in the first half, with profits increasing year on year and light-for-light revenue up 9% versus last year. We are in a strong position, and we continue to make good progress entering new markets. During the half, we opened 17 stores across airports in Australia, Spain, and the UAE.
As you would expect, we are focusing on driving ATV and spend per passenger across these stores by doing similar work to that in the U.K., by expanding our categories and introducing a broader offer for customers to include tech accessories, health and beauty, and food. We have also opened three InMotion stores across Copenhagen Airports, offering a world-class range of electronic products for the traveling customer, as well as experiential zones for brands to showcase their latest product launches. The opportunities are significant, and where we're opening new stores, we are pleased with their performance, and we tend to track significantly ahead of the previous incumbent. Turning to the next slide. I thought I'd highlight our Australian business, where we now operate over 60 stores. Here our focus is on winning new Travel Essentials stores across air.
As we do in the U.S., we've taken the learnings from our U.K. business, and we've applied our retail disciplines, including design, marketing, and category development, to improve the customer proposition. However, we also have a sizable hospital business. If you take Alfred Hospital in Melbourne as an example, we've recently won all the F&B space, serving hospital visitors and staff from the main food court. In addition to our established Long Shot cafe brand, we've introduced two new brands here, selling a wide range of hot and cold food and barista coffee. We have also, for the first time, introduced self-service screens where customers can order and pay easily and quickly, and this has proven very popular.
This is an important gateway for the group as we look to focus on growing our food credentials, and we can use the learnings from this business as we look to grow and adapt our food proposition across the globe. Turning to our next and final slide. This is the start of a new era for WH Smith as a pure-play global travel retailer. As I've explained, we are in a strong position to operate in exciting, high-growth international markets. Travel is a highly scalable business. The opportunities for future space growth are considerable across the 32 countries in which we operate, with North America our most exciting opportunity for growth, as you've heard. At the heart of our business is the ability to innovate and, with that, drive spend per passenger growth. While we're mindful of the economic environment, our simplified business has a highly attractive financial profile.
We've delivered a good first-half performance, and we're in a strong position to continue to deliver growth. That's it from me. We'll now take your questions, starting with those of you in the room.
Thank you. Hi, Carl. Richard Chamberlain, RBC. Maybe I can start with three, if that's all right. On the U.S. business, Carl, the space contribution to sales came in a little bit lower, I think, than the market was expecting in the first half. I just wondered, is that to do with the sort of timing phasing of some openings? Second one, I guess for you, Max. Sorry if I missed it, but which, I think you said a third of the non-underlying cash items are a third of them are cash. Is that right? Which items are cash-related?
Maybe you could also just give an update on how much of the Asia-China sourcing you guys do. Obviously, a very topical theme at the moment. I imagine it is not very much now. You are shot of high street and stationery and so on, but yeah, that would be helpful. Thank you.
I will take question one and three, and Max, if you take number two. I mean, we have not had as many openings as you might imagine in our first half, but we have got a really huge store pipeline. We have got 70 stores that are won and due to open over the next two years, but there are quite a few in the second half and quite a few in the first half of next year. That pipeline in America is ever-growing, and there are some really sizable wins in there from some significant airports.
I would say we're well on track towards our 20% market share target over the next four years. I'm really pleased with where we are. We're awaiting the results from another couple of quite significant tenders, and we know of two quite significant tenders that we're about to enter into. There's a lot to go after there. I'll let you take the non-underlying, and then I'll do China sourcing.
In terms of non-underlying, as you say, we've had kind of GBP 70 million of total non-underlying costs. GBP 25 million of those relate to cash. Of the GBP 25 million, broadly speaking, kind of GBP 15 million links to what I consider kind of transformation-type items. The operational efficiency that we've done to drive cost savings through the business, the IT transformation, and the supply chain transformation linked to our high street business as well.
You have then got kind of the remainder is a flow-through of the cash linked to items that we had last year. Probably, in my mind, the slightly more interesting follow-on is, what should I expect in the balance of year? What I have indicated already is that the IT transformation, we should be expecting around GBP 15 million for the full year, so another GBP 10 million or so on what we have already got. The separation and transaction cost linked to the high street sale is, broadly speaking, another GBP 25 million-GBP 30 million. We have still got a step up in terms of cash non-underlying in the second half.
In terms of China sourcing into America, in terms of directly sourced products, it is tiny for us, as in around 1%. Very manageable.
In terms of the primary source for a lot of our suppliers, of course, a lot of it does come from China because we run a number of InMotion stores there. What those suppliers seem to be very good at, though, is they've got a number of different sources for those products. They've got factories across the Philippines into Vietnam. Whilst it's quite turbulent over there at the moment, actually, we think we're going to navigate our way through it quite well. We've got good stock holdings of all of the key accessories. The thing to remember about the WH Smith and the InMotion business is it's quite low ticket value. If you take InMotion products, it's all the stuff that you need to enable your hardware. It's all of the bulk standard stuff, leads, chargers. They're all needs-based things.
I think we're very much better sheltered, if you will, than other retailers. We will have the opportunity to source from a number of different wholesalers within the U.S. Whilst it's a bit of a surprise, I think we'll navigate our way through it well.
Morning, Jonathan Pritchard at Peel Hunt. Actually, two on the high street, funnily enough, just how disproportionate was the amount of time that you yourself, Carl, and senior executives were spending on the high street relative to its contribution and just how excited you were about being able to focus more on travel? Just cast my mind back, some of the great and the good at WH Smith have sort of earned their stripes at high street, learning their stuff on space allocation and profit maximization, etc.
Do you feel a little bit as though that might be lost with the departure of high street? That might be something that, as a group, you might just have lost. Just thirdly, just to sort of wax lyrical on the economics, really, and just how defensive is that core travel range? Does history tell us that people do, despite the fact that they're small ticket items? Do people try to dial out that sort of thing in tougher economic times, or are they genuinely defensive, you believe?
In terms of time on the high street, I guess the thing that has changed each and every year over the last decade is the businesses have become more divergent. Our travel business is around food to go, tech accessories, health and beauty, and high street remains being about stationery, really, and cards.
The engine room of the business and how we govern the business and how we think about the business and synergies, be it IT, be it kind of how we organize our people, increasingly are for two very, very different businesses. In terms of being able to focus really on what we do around our supply chain, our IT, how we organize ourselves, it will be a lot simpler having a travel business because even though we operate in 32 countries, broadly, the strategy across each of those countries is very similar. From that point of view, it does make us a much simpler business. A lot of our DNA was forged from the high street, a fight to survive 20 years ago that then sort of fueled our way of doing business in travel. I think that DNA has really been overtaken in travel.
We have a number of new initiatives now that I think really lead the way in our travel business in terms of using AI for pricing, in terms of how we think about ranging, space allocation. It is all very cutting-edge in travel. I think all of our innovation really comes from our Travel UK division. We sort of home those things that really work and then spread those into our other divisions. Travel UK is sort of the hub of where all of our kind of forensic approach comes from, and then we spread it out into other markets. In terms of your point about are we really sheltered, of course, I cannot predict what happens with consumer confidence, but we are a very low average ticket value. If you take Heathrow Airport, our average ticket value is less than GBP 12.
People largely are buying stuff that they need for their journey, something to eat, something to eat on the plane, something to entertain their kids, something to kind of power their electrical products, deodorant, those sort of things. I think those are going to be right at the end of people's lists when it comes to kind of conserving cash. People may be less likely to go into a restaurant. They could be more likely to get a meal deal and go onto a plane. History has taught us that we're able to weather these storms better than other retailers. Whilst now we have a big tech business in InMotion, in the U.K., we sell Apple hardware products. Actually, in the rest of the world, in America, we do not sell any hardware. It is all about tech accessories.
That market has always proved to be very stable.
Yeah. Morning. Richard Taylor from Barclays. Two questions, please. Firstly, on the U.S. business, just trying to get an idea of how far you are through the process of applying your space management analysis to that estate. I know you've said you're adding food and beverage, health and beauty, and so on. What proportion of the estate has benefited so far from this? Also linked to this, what sort of reception are you getting from landlords who realize that the ownership structure is different? Secondly, thanks, Max, for your answer on non-underlying items. Just to understand, once the GBP 10 million or so in H2 and the GBP 25 million or so from fees are spent, are there any other things that we should think about into FY 2026 and beyond in terms of items to consider?
Thank you.
In terms of your space management question, it is very different in America. American landlords, when they agree to award a win on a tender, are very fixated on the look of the store and what the layout is of that store. Unlike perhaps other markets where we want to change the space, we do have to seek their permission. We do have to take them through the process and take them through the journey. It tends to be quite a bit slower in America. We are well on the way with that journey. We have got lots of proof points. It can just sometimes be a bit bureaucratic. At the end of the day, you are typically saying to a landlord partner, "This is what your customers are saying. This is what they want to buy in our stores over the last two years.
This is where the stores are really busy. Why don't we give a bit more space to that area and take a bit of space from an area where the customers don't want to shop within? It is a very logical argument, but it just takes a bit of time. On the good side, we've already refitted a number of stores, so we're seeing that benefit, but we still have a lot to go after. These things tend to be an iterative process, as they've always been in the U.K. You go back 12 years in the U.K., we'd only have one chiller for food. Now we've got 20 chillers in a typical airport store for food and for drinks. These things kind of move over time as the consumer gets used to the proposition. Yeah. Max, non-underlying.
Non-underlying. Yeah.
In terms of next year, it's too early to be fully committed in terms of what do we expect. The IT transformation is a program, as we've said already, that is spread over two to three years. I'd be expecting next year for the GBP 15 million to be dropping down to around GBP 10 million and then probably half of that again in the year after. We've got some other areas that we're looking at, in particular around kind of right-sizing the high street business. There will be some cash costs associated with that in 2026 as well, maybe around GBP 5 million. There are other items that may come up and be considered for treatment in that way the year after, but probably a bit early to say in terms of that at this stage.
Maybe a placeholder around kind of GBP 20 million-GBP 30 million, which I think is what we said previously as well for a more typica l year.
Sorry, the GBP 20 million to the GBP 30 million is for FY 2026?
The 2026.
Okay. Thank you.
Thank you. Morning. Warwick Okines , BNP Paribas Exane. Just firstly, could you talk a bit more about the multi-year IT transformation? As you said, it is two to three years, but at what point do you start to see benefits and what exactly are those? Secondly, sorry, naive question, what are these high street business right-sizings in 2026 costs? Why do they perpetuate? Maybe just more broadly, I know the UK rail business and the high street business have obviously been very different locations. Do you see any greater opportunities for rail with the absence of the high street business to compete with?
Do you want to say the first two?
First two, yeah. In terms of the IT transformation costs, that is broadly linked to the upgrade of all of our IT infrastructure across the business, in particular where we've got areas of kind of core IT infrastructure that are, if you like, coming to end of life. We have been investing in that through the kind of early part of this year, actually latter part of 2024 through this year. We have things like data migration, transition of kind of our information security that we've been continuing to invest in, as you'd expect. Most organizations are doing that. We have also got modernization of our store systems and making sure that we get the operational benefits of those. Already we're starting to see some of the benefits.
At the back end of this year and into 2026 and beyond, we're going to continue to see effectively the operational benefits as well as the cost efficiencies that come from that. We're really confident in the spend that we're putting into the business, and it gets a lot of scrutiny. Carl and I chair a monthly IT portfolio forum to look at these type of things. It's very well considered and very kind of deliberate investment. In terms of the right-sizing of the high street, I think when we presented the high street plan or the sale of the high street just a couple of weeks ago, we talked about right-sizing the business and the central cost savings to be delivered as part of that. The non-underlying GBP 5 million I'm referring to, or broadly GBP 5 million, is linked to that.
In terms of rail, it operates in a very similar respect to air. Customers traveling through rail, they want snacks, they want food, they want tech accessories, they want health and beauty. The only slight similarity with the high street business and different to air is that there is quite a good cards business. Unfortunately, it is very last minute cards business. While our record day for Valentine's Day was on Valentine's Day, our record day for Mother's Day was on Mother's Day. That is the only difference. The only similarity is the cards business. Everything that we do in rail over the next few years will be broadening health and beauty, broadening food, and broadening tech accessories.
Good morning. It is Charlie from HSBC. A few questions from me, if you do not mind. Number one, could you just quickly chat in your outlook?
What does that contain for your expectations for domestic U.S. flight demand? Appreciate there's sort of numbers out there from Delta, American and an acronym that's just suddenly left my mind at the worst possible moment of sort of down 10%-15%. What is that? Is that in your outlook at all? The second is, what are your contingency plans for tariffs within InMotion in the U.S.? Sorry, within your tech sales in the U.S., do you expect to pass prices through? Thirdly, what are you expecting for resorts for the year? Are you expecting to see a return to positive LFL? Is that what you've budgeted for? And then my final two are much more incidental, so I apologize. For funkypigeon.com, I appreciate we've now had Mother's Day.
We've now had the sort of the, what I'm trying to say, the peak trading period for the sort of larger comparative of Moonpig. At nil EBITDA the year, are you expecting an incrementally higher number than the 6 million we saw last year? Finally, and I apologize, five questions outrageous. Are margins in hospitals in Australia lower as they are in the U.K. versus the rest of the portfolio? Thank you and apologies for so many questions.
Blimey. There are a lot of varying views on what's going to happen with air traffic in the U.S., and nobody really knows yet. I mean, there are so many different views. I mean, it's a large country, and domestic travel in the U.S. accounts for more than 80% of the total traffic, and it tends to be quite resilient.
What we're focused on is making sure that we have got the absolute strongest plans for spend per passenger to mitigate any potential downsides. In a world where that did happen and where people do tighten their belts, I think our offer can be a lot stronger than any of our kind of retail and F&B competitors within an airport environment because we can provide something in the moment at actually quite a reasonable price. History has taught us that if we act accordingly, the effects on us will be a lot lower than other retailers. That's what we're going to do. We're going to focus on making sure we've got the best food offer, the best accessories offer. Similarly to the U.K., the average ticket price in the U.S. is less than $20 across our entire air estate. I think we're well positioned.
In terms of the contingency for tariffs, I think we're in a good place there. The vast, vast majority of all of our products are low ticket value tech accessories. It's leads, it's power banks. Even the headphone market is largely a replacement market. It is very needs-based. As long as we have got a very good offer in line with what a U.S. customer would understand it to be, we're going to be in a good place. A lot of electrical accessories are also made outside of China, in Vietnam, in the Philippines. There are a number of different sourcing options. I think we'll be able to mitigate a lot of the impact.
Where tariffs do come through, I think we will be able to pass that on in pricing because it will be, as a percentage, it might be quite high, but it is on quite a low ticket price. I think it will land well in the markets. In terms of resorts, the first thing I would say about resorts is, in many ways, in even a year's time, I doubt we will be talking about resorts because it is becoming a much smaller part of the business. We are not spending lots of money opening stores in Las Vegas. We have opened one store. We will open one store in total this year. The sales are okay. There is always an ebb and flow of customers there. The prognosis for Las Vegas in the medium and long term is good. There are lots of sports events, so traffic into Vegas will be good.
Our focus, a bit like InMotion, is on maximizing the margin. We sell a lot of accessories in Vegas, and therefore growth of profitability is where we're really focusing. In terms of Funky Pigeon, the way that we're thinking about that at the moment is kind of stabilization of profits from last year. I don't think we're expecting anything particularly different in terms of what we're looking at. I mean, the hospital margins in Australia, I don't want to misquote myself. Do you know off the top of your head? I mean, the hospital margins in the margin in hospitals in Australia is very good and would probably be the strongest because it's largely an F&B business. The difference between our hospital business in Australia to the U.K. is it's less about product and more about food. It's a bit of an F&B operation.
It's something that we've always historically had, but it's quite a good growth business from that point of view. I couldn't give you the exact, I haven't got the exact margin off the top of my head.
Hey, good morning. It's Harry Gowers from JP Morgan. Just two questions, if I can. I appreciate it's quite a short period and obviously impacted by the timing of Easter as well. Is there any more color that you could provide on the U.S. like-for-like performance in H2 to date? Second question, just on the U.S. spend per passenger growth in H1 of 5%, are you confident that can continue into H2, or do you start to lap any initiatives or introductions of new categories over the course of the year? Thanks.
In terms of our current like-for-likes, we're in a good place.
The only reason we're not being more specific is there is a complete dislocation in terms of timing because it's Easter this weekend coming, and Easter was, what, three or four weeks ago last year. There are two strong weeks coming up. It is sort of all dislocated from that point of view. What I can say, though, is if you look at the stub period up till now, like-for-likes in the U.S. continue to be positive. Our spend per passenger, I've got more confidence in its ability to maintain and grow in a positive direction because we're putting more initiatives in place. The initiatives aren't necessarily clever initiatives around pricing or promotions. They are about giving more space to categories that we know consumers want. We know that we'll get a shift of sales into those categories. It is not rocket science.
It's going to be giving more space to drinks, more space to sandwiches, more space to snacking. We know that works. I think in our Travel Essentials business in the U.S. that we know that we've got good momentum of, and our like-for-likes there in the first half are 8%. We know that we've got the ability to carry on growing that spend per passenger. I think we feel really confident. We can't give you a prediction on passenger numbers, but I think our ability to trade above those passenger numbers is good for a number of reasons. Yeah.
Good morning. Fintan Ryan here from Goodbody. Two questions, please. Firstly, on the U.K. spend per passenger, can you give a sense of how that's evolved in H1, so versus that 5% in the U.S., and particularly across the three channels of air, hospital, and rail?
How much of that is pricing have you taken already? What pricing are you expecting in the second half, particularly with labor cost increases? Secondly, I guess sort of related to the last question, as you lean more into food and beverage and health and beauty sales within your travel footprint, what would you think is the best in class in terms of sales mix for food and beverage, health and beauty? Where is your best operations with those categories currently trending? Given that in your hospital footprint, you are already doing standalone food and beverage offerings, would you consider in new tenders or within your other air and rail travel estate to open more standalone food and beverage concessions? Thank you.
In terms of U.K. spend per passenger, you are sat next to the architect of it, actually.
Air is broadly similar to America, but the difference with our U.K. business is it's 5%-6% spend per passenger on top of 5% and 6% on top of. What we're really, really good at, if you don't mind me blowing some smoke at you, Andrew, is continuously layering on initiatives to continue to grow our spend per passenger. We always have a pipeline of 20 initiatives. We're constantly doing testing and learning. What Andrew will be doing in a number of stores now is testing different ranging mechanics, testing different pricing mechanics, testing different promotion mechanics, working out what works, rolling out to a further 20 stores, and then kind of exploding it out to the store estates. We've got a continuous run of initiatives that do that. We see similar growth in hospitals and rail. In hospitals, it's all about food.
In hospitals, it's all about giving doctors, nurses, patients, visitors a better food offer. We have still got a lot more that we can do there to improve that offer. We are also improving our health and beauty offer within hospitals. Myself and Andrew were down in St Thomas' Hospital last week where we have completely refitted our health and beauty offer, and we have seen a huge uplift. We are taking things like that and rolling it out. I think we are very confident in our ability to continue to grow our spend per passenger in the U.K. across all three formats. History would suggest that we are really consistent in doing that. In terms of F&B, we are looking at tenders and opportunities, particularly in air. We run coffee houses now in airports. We run Costa Coffee in an airport.
We are opening a food offering and a coffee offering in Manchester Airport. That is something that we are always looking at. The blend in terms of a one-stop shop between how customers shop and how customers think when they are grabbing a bit of food or a book, customers increasingly want everything very convenient. They want to be able to grab a hot coffee or a hot sandwich at the same time. You will see more and more of that from us in terms of our general offer, improving our food offer, having more push-button coffee in our stores, increasingly barista coffee in our stores, and then looking at a more advanced food range where we can include hot food. You will see a lot more of that from us.
Good morning. Tim Barrett from Deutsche Numis. One question on cash.
Sorry to keep on about this, but modelling the high street exit, it sounds like about GBP 10 million net inflow this year, GBP 6 million next year. Just in terms of the balance, that tax asset, when do you think that will come through? Second question is around closures, just whether you had a figure for the full year to net off against the 60 openings. Last question, slightly broader, any more thoughts about efficiencies following the U.K. budget, so the national insurance changes coming in?
Should I take the first three?
Yeah.
Thanks, Tim. In terms of the high street, as you say, the gross cash, we are expecting GBP 52 million, so GBP 36 million to be settled on completion, which should happen through the summer. GBP 6 million then deferred for GBP 12 million following completion.
The 10 million of deferred tax assets, that's going to be on an as-realised basis. That could run out for a number of years in terms of where the 10 million is going to be. As you say, you've got the GBP 25 million-GBP 30 million of separation and transaction costs. That's around GBP 10 million of transaction costs and around GBP 15 million-GBP 17 million of separation costs, which is going to effectively take another 6-12 months. As much of that as we can, we're going to put through this year. In terms of closures overall, maybe just stepping back into openings as well. We've opened 30 stores in the first half. Very much focused on improving the quality of our store estate. 43 closures in the first half.
Around half of those relate to small franchise stores, and 15 of those actually linked to a particular partner that we've had in India where they've been going through some liquidation challenges, let's say, since COVID. Not too concerned with the loss of those stores overall in terms of profitability or sales. We've had closures, I would say, for the full year, expecting kind of early 50s with openings overall in the 60s. Net kind of 10 for the year, but with around 20 of those closures being in that small franchise part.
In terms of efficiencies, we're always looking at ways of improvement.
Actually, when we touch on the non-underlying costs and all of the IT transformation that we're doing, we're doing that in mind with making the whole payment process in our stores much easier, much simpler, allowing customers to be able to transact direct in terms of self-scanning tills in a much easier way without having to have interventions. Also, an IT system that allows a smooth transition of stock from the source all the way through our supply chain and into stores with less intervention from staff. Those are the real efficiencies that we're going to see coming through this year and next year in terms of making our business model much simpler and having less interventions, and therefore we should be able to maintain our payroll ratios.
Thank you.
I think that's it. I don't know. Are there any questions from the ceiling?
Thank you.
To ask a question, please press star followed by one on your telephone keypad now. If you change your mind, please press star followed by two. When preparing to ask your question, please ensure your device is unmuted locally. We currently have no questions, so I'll hand back to Carl Cowling for closing remarks.
Asking the questions in the room. I was wondering whether Robert Moorhead might be online asking a quick question. Thank you very much, everyone, for coming. I hope we've given you a real flavour of what's going to happen over the next six months. Thank you very much, and look forward to updating you in November.