Earnings Call: H1 2017

Jul 31, 2017

Ladies and gentlemen, good morning or good afternoon. Welcome to the Dufry Half Year twenty seventeen Results Conference Call and Live Webcast. I am Maria, the Chorus Call operator. I would like to remind you that all participants will be in listen only mode and the conference is being recorded. After the presentation, there will be a Q and A session. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Mr. Julian Diaz, CEO of Dufry. Please go ahead, sir. Thank you very much for the introduction, Maria. As Maria said, this is Julian Diaz speaking. Also Andreas Schneider is participating in the call from Dufry. Welcome to Dufry's Half Year twenty seventeen Results Presentation. We are going as always to use the presentation published this morning in our website. Please go to Page five of the presentation. In Page five, we have the highlights of what we consider another step for achieving our 2017 targets. And we confirm the acceleration of organic growth in Q2 twenty seventeen plus 8.9%. The important increase in gross profit margin reaching 59.5% in half year. EBITDA grew to 400,200,000.0 during the first six months. Free cash flow increased to $2.00 $4,000,000 in the quarter and net debt was reduced by $210,000,000 compared with March 2017. Let's move to Page six. Turnover reached EUR 3,800,000,000.0, plus 5.8% compared with last year, impacted by minus 1.7% due to the translation effect, especially generated by the devaluation of British pound and euro. In constant currency, turnover increased by 7.5% during the first six months of 2017. As already commented on, organic growth reached 8.9% in Q2 and as a consequence, 8.1% in half year twenty seventeen, the highest growth over the last five years. Most of the operations performed well, and we are still implementing our refurbishment plan 2017. Up to June 30, we have renovated 14,000 square meters of commercial space and opened 14,500 of new gross commercial space. We have also signed close to 22,000 square meters of new contracts. We will be open around twenty seventeen, nineteen thousand square meters and twenty eighteen, 2,800 square meters. Every time, and I want to remind that, we renovate a shop, spend per passenger increases between 1520%. Other initiatives as the brand plan or the specific marketing campaigns were the base of this acceleration of organic growth. On top of the good performance of currencies for some of the most important of our own clients' nationalities as Brazilians and Russians. EBITDA grew by 7.8% compared with last year, reaching $411,200,000 and EBITDA margin expanded to 10.8%. EBITDA was positively impacted in the quarter by the increase of gross profit margin and negatively impacted by the increase in concession fees and general expenses. In the case of concession fees, the 20 basis points increases in the quarter compared with last year quarter was due to the increase of mark in the Spanish concession contract. Then the mix of some important concessions with accelerated growth this year compared with previous year and the delay in renovating some other concessions where we started to pay a higher mark, still operating with the old surfaces. This is the case of Mergo. The concession fees rate we expect by year end is similar to the one point five year. Most of the extensions and renovations mentioned before are already opened and performing as expected. Regarding general expenses, the impact will be mitigated along the second quarter because partially, the impact was due to one off accrual. Our main target from now on is the implementation of our business operating model, where due to the standardization of our process and procedures, we expect to drive more efficiencies at EBITDA level by December 2018. The project is in a phase of implementation as expected. Annual expectation is to deliver 50 basis points at EBITDA level due to these efficiencies. Cash EPS finally grew by CHF 38.5%, reaching CHF 2.34 per share from CHF 1.69 in 2016. Free cash flow during half year 2017 was CHF 127,500,000.0, with an strong seasonal quarter reaching $204,500,000 58% higher than in 2016. The amount of one off payments during half year was close to $100,000,000 especially due to new contracts and extensions. Net debt reached $3,600,000,000 200 and $700,000 below when we compare with March 2017. A strong performance for the second quarter but next Q3, the quarter we are already now, is typically the highest cash generator due to the seasonality of our business. Let's now to Page seven of the presentation. Most of the information here has been already commented. Let me talk about the performance and the trading update. The acceleration of organic growth in Q4 twenty fifteen, plus 5.6% Q1 twenty seventeen, 7.2% has been confirmed in Q2 twenty seventeen with 8.9%. And as a consequence, half year 2017, we reached 8.1%. The translational FX impact was minus 1.7%. And as I mentioned, was due to the devaluation of the British pound and the euro versus the Swiss francs. The change of scope impacted negatively 0.6% due to the wholesale business that we closed acquired at with Nuance acquisition. And as a consequence, total turnover reached 3,800,000,000.0 versus 3,600,000,000.0 in 2016. On top of the increase of number of international passengers in the locations Dufry operates, where we increased 5.4%, during the first six months of 2017, Dufry has delivered a significant increase in productivity of 2.7% due to the initiatives mentioned during the calls and obviously, the the food and plant marketing initiatives and brand plans implemented. Regarding the different divisions, in Division 1, South Of Europe and Africa, total number increased by 4.4% and reached EUR 776,600,000.0 versus last year where we increased 5.8% in organic growth. Africa increased double digit growth performance, including Morocco, Ivory Coast and Egypt, and single digit growth in Ghana. Antalya and Turkey finally performed high double digit growth and great single digit growth based in the significant increase of Russian traffic. All the other operations, Spain, Italy and Malta, single digit growth despite a significant increase of traffic in Spain. But the problem we had there was the weakness of the British pound and as you all know, the most important international traveler in Spain are the British passengers. Division two, U. K, Central And Eastern Europe. Total number increased by 10.1% organically, reaching nine sixty one million compared with a similar figure in 2016 in reporting basis. UK continued very strong performance in local currency after the Brexit vote in June 2016 and the devaluation of the British pound. UK, Serbia, Russia, Kazakhstan, Armenia and Finland double digit growth. Switzerland performance was flat mainly due to the strength of the Swiss plant and Sweden, Germany and Bulgaria, single digit positive growth. In Division three, Asia, Middle East and Australia, turnover reached EUR 3 and 70,700,000.0 with similar levels than in 2016. Organic growth in the division was minus 1.5%. Double digit positive growth in Macau, Indonesia and Cambodia. Single digit positive growth in China, Korea, Singapore, Jordan, Kuwait and Saudi. The business in Hong Kong continues to underperform last year. Australia, single digit negative growth due to a total renovation of the shops that has been completed during the July, transforming the performance in a very positive one, also had an impact in the performance of the division. What impacted the organic growth in the division has been the closing of Mumbai in India and Sri Lanka. This last one subject today to attend the process decision. We believe the decision will be reached during Q3. Excluding Mumbai and Avianca, closings in the division performed a single digit positive growth. In Division 4 Latin America, TUNOVA reached EUR 819,600,000.0, increasing by 13.8% compared with previous year. Organic growth in the division reached 12.4% during the first six months of 2017. Double digit growth in Uruguay, Chile, Peru, Puerto Rico, Dominican Republic and Brazil. Single digit growth in Argentina, Ecuador, Mexico, Aruba and Trinidad and negative single digit performance in the British Caribbean Islands. In Division 5, North America, turnover reached $849500000.0.7.5 percent above last year. And organic growth positive reached 6.3% increase. Double digit positive growth in duty free in The U. S. And Canada and single digit in duty paid operations. During the first fifteen days of July, we have confirmed the same trend in consolidated basis and half year with single digit positive performance, even considering July is high season and the tougher comparable with July 2016. Division one, acceleration of double digit growth and single digit positive performance in divisions two and five. Continue double digit positive performance in division four, Latin America and single digit negative performance in division three, same trends, same regions in Division three Asia, Middle East and Australia. Let's now go to Page eight. In Page eight, what we have tried is to show one of the most important components of organic growth is the evolution of the square meters. We have opened, on the top of this slide, close to 14,500 square meters of new commercial space, gross new commercial space. In division one, Spain, Nigeria, Morocco, Egypt, Greece, Nice, and Kenya. Division two, Manchester, Brighton, God, which still is Russia and Belgrade. Division three, in Macau, Bali, and and Continental China. In division four, Brazil, Trinidad, Chile, and Flagship, the the sales onboard cruise line operations. And in division five, in The US and Canada, Detroit, Minneapolis, and several other ones with the smaller sizes. Regarding the the number of square meters of service, I think we have here very clear chart with 13,500 square meters renovated with the different operations where we were more active. Then if we move to page nine of the presentation, the 22,000 square meters of additional commercial estate already signed it, 19,000 that will be opened in 2017 and around 2,800 in 02/2018. Extensions in in the regional airports in Greece, Liverpool, Brazil, in Nashville, North Las Vegas, and many others. And especially, I would like to remark here the the new Hudson tender that we won in Barafras Airport in Madrid, the new sales onboard cruise lines improvement tour, the new terminal in Astana, and the new operations in Phoenix, New Orleans, LA, Oklahoma, and Chicago. Regarding the pipeline opportunities that we are showing in this bottom in the bottom of this slide is 35,000 square meters of commercial space that we are under negotiations or participating in tenders. Important and relevance, the 12 close to 12,000 square meters of North America, the 10,000 in UK, Central Europe, and and Central And Eastern Europe, and then Latin America, 6,000 Asia, 3,500 and South And Europe, 2,500. If we move now to page 10 is the second, obviously, information regarding the organic growth is the number of passengers. So far in 02/2017, the number of international passengers has increased by 8.7% in the different regions. The most obviously active Europe with 10.3%, Middle East with 8.1% and the lowest growth generated in Africa with 5.1%. In the location where Dupree is operating, the number of international passengers increased by 5.4%. Regarding the forecast, between 57% for the year 2017, '18 and 2019, obviously, very healthy. And I hope that the passenger growth to continue to be the most important component of this organic growth. Page 11. In Page 11, as always, we repeat, is different segmentation. Different by division, the most important tool number today generated in UK, Central And Eastern Europe by 26%. And then we have North America and Latin America with 22%, Southern Europe and Africa 20%. It's important to really comment on that in Southern Europe and Africa, the seasonality is even more deeper than in the rest of the locations. And in the third quarter, we will see a significant increase in South Europe and Africa too. And finally, Asia, Middle East and Australia, 10% is confirming our intention to expand the business in Asia as probably the most important priority from the regional point of view. We are, indeed, by channel. We are still, and it's clear, April retail operator. 92% of the total turnover has been generated in April retail, but then we have developed also alternative channels. In our strategy, what we have as as the April retail is some more cruise lines and border shops are important drivers for growth in the near and long term. Regarding the food per category, all the categories performing well. Two two comments, significant comments. Luxury growth increased by 21% compared with previous year in the same period of time. Perfumes and Cosmetics and Wines and Spirits, very close to 10%. And then Food and Confectionery, around 7.5%. The offset of this is publications related with publication books, magazines and newspaper cards where the product line dropped by 5% compared with the same period of last year. Again, we confirm here that our strategy is Personal Care, Fashion and Cosmetics, Food and Confectionery and Luxury products. Regarding the tax regime, this company still has a significant part of the turnover generated by duty free operations, 62% and duty paid, 38%. The intention, as many times repeated, is to to rise the duty paid to a level where we will report fifty fifty duty free duty paid. Then if we go to page 12. In Page 12, the priorities for 2017, I don't think that to comment on the all these aspects we detail is needed because we already comment on. Number one is increase and accelerate organic growth. This year, obviously, has been a significant increase compared with last year so far. The second year and the acceleration of the second year will be based in a higher performance last year, especially in the countries I mentioned, Turkey, Brazil and Russia. What we are going to do and is the process, and we are obviously doing it, is continue with the reforming new plan, accelerate the commercial initiatives and two aspects that are very relevant for the future. One is the whole digitalization of the company and the new one is the new generation store. Regarding the digitalization of the company, main target is to improve the efficiency and obviously create at the same time that we implement the business operating model efficiencies in all the areas, especially in the implementation of process and procedures. And the new generation is a part of the digitalization, but it's obviously the most relevant initiative that we have started regarding the digitalization. The new generation store has the the the intention to really connect with the customers when they are at home and when they are in the airport. The idea is to communicate all the important aspects of the high street retail and the travel retail in terms of promotions, pricing and obviously using the same language. Regarding the new concessions and expansions, we're calling on that in previous slide. The new business operating model, the EBITDA margin and the most important target for this year, cash generation and deleverage. The medium term leverage, already commented many times, is below three net debt EBITDA. Then we move to Page 14 of the presentation. As is a disclosure in the presentation and in the press release, Dufry's Board of Directors is considering an IPO for North American business. In case it happens, the intention is to keep majority ownership in the business with full consolidation. The level of integration expected will sustain the global synergies of the whole group. And if we move to Page 15, the intention of this is really follow the trend in the American market. The North American travel retail market differs from other international markets in several specific segments. One of them is the importance of food and beverage. 60% of the travel retail in The U. S. Is food and beverage, wherein the rest of the world is around 30%. Within the retail, there is another significant difference. 77% is duty paid and 23 or 25% is duty free, the opposite than in the rest of the world. There are also other characteristics due to the ownership structure of these airports where you have counties, airlines, cities, state. And these structures have been developed with different types of management. One of them is the master concession operator. The other one is developers. There are there are many aspects. And there is also an important factor in the DBE programs in the in The US where the operations are normally done with associations with ACVB firms of women and minorities. These businesses are considering the tender of request for proposal documentations and the f f the FAA is responsible for overseeing all these all these programs. As a consequence of this different development of the travel retail in The U. S, what we have considered is that in terms of the strategy, the food and beverage business as a main priority for expanding on top of the normal convenience and specialty shops that we are operating today, where we are the leader, one of pillars for the growth. And the other one is to participate in these intermediate structures between the landlords and the retailers. And one of the examples is the contract that we have been awarded in Midway in Chicago. Then we go to Page 16. Here, we have the rationale for Dufry as a group and for Dufry North America and the consequence of that. And to, obviously, to retain control in a possible IPO, as I said, we will keep the implementation of our global synergies, one of our strategic pillars worldwide and generate overall global efficiencies. The proceeds of this IPO will allow Dufry to accelerate the reduction of leverage for reaching our leverage target ahead of time. Also, company will be positioned with better financial flexibility for expanding in the future M and A opportunities and accelerating our growth globally and especially in Asia. As I mentioned both things in many of the conference calls, obviously, intention of the company is to expand to the business in Asia. Also, the intention of the company is to continue with M and A opportunities, which M and A opportunities all are opportunistic. And in our case, we have repeated many times, medium sized and small sized opportunities are available, and this M and A future opportunities obviously will be considered. It will also position Dufry for returning cash to our shareholders. That is one of the, obviously, important focus of our more of our investors during this year in order to compensate the shareholders in terms of productivity and profitability. As leaders in The U. S, this IPO will facilitate our North American business to focus in a specific food and beverage, master concession operator's model and other similar models and will increase the financial flexibility to capture growth through our current retail scope. I think this is an important news. We are all obviously focusing in analyzing properly and submitting to the Board of Directors the right business proposal and the right financial proposal. And from Dufry's perspective, we believe this is one of the best events in order to accelerate the delivery of growth to our shareholders. We move to the presentation financials. I will pass through Andreas Schneider to continue with the subject number three. Thank you, Julian, and good morning and good afternoon, everyone. So let's move directly to Page 18. Julian already commented in detail on organic growth of the group, so I will focus on the other growth aspects. Changes in scope includes the discontinuation of a wholesale business that we terminated in May 2016. The respective effect was 0.5% for the quarter. The second quarter now was also the last period where this business generated a scope change. So going forward, there shouldn't be any further changes in scope based on today's business profile. Then on the organic growth by reaching in the second quarter, this remained broadly consistent with the first quarter. As already commented by Julian, we had an acceleration in both European divisions and The U. S. Asia division lagged for the reasons described already earlier and Latin America continued its strong double digit performance. If we then move to Page number 19, there we show some of the key emerging market currencies. And what the information clearly illustrates is that the exchange rate movements against the U. S. Dollar have reduced substantially over the last two months sorry, over the last twelve months. This trend also has continued in the first days of the third quarter. So for example, if we look at the Brazilian real, the currency has been trading at very similar levels compared to one year ago. So as a result, the volatility in emerging market currencies has substantially normalized and assuming that this remains the case, that this remains unchanged, it should not have any material impact on our top line growth any longer. Then if we move to Page number 20, there we have the main currencies for Dufry in terms of translation effects. The translation effect for the quarter for the second quarter was minus negative was minus 1.6%. The main driver being the devaluation of the British pound, which started at the end of the second quarter twenty sixteen due to the Brexit vote. As this effect now has annualized, the impact of the British pound will be relatively small going forward. On the other hand, the U. S. Dollar traded lower against the Swiss franc in recent months. In cases current these current trading levels S. Dollar versus the Swiss francs prevail, we do expect a negative translation effect also for the remainder of the year because of that. Then if we go to Page 21, there we have the income statement for the half year 2017. Starting with gross margin, gross margin grew by 110 basis points in the first half, mainly driven by the synergies of World Duty Free integration. Then concession fee measured as percentage of turnover increased by 50 basis points compared to the first half of twenty sixteen. Having said this, if we compare concession fees only for the second quarter, the increase is about 20 basis points. Personnel and general expenses combined, they increased by 20 basis points compared to last year. In the second quarter, we had some specific charges, which are nonrecurring in nature. And excluding these one off effects, the percentage to turnover slightly improved year on year. Then share of results of associates were negative due to a one off charge in the quarter. There is one asset we have owned as part of the Nuance transaction that has not developed in the way we expected, and we have therefore decided to fully amortize it. EBITDA for the period was EUR $411,000,000. EBITDA margin for the period was 10.8%. Depreciation and amortization were fully in line with previous quarters when measured as absolute amounts, So the quarterly charges were around EUR 40,000,000 and EUR 90,000,000, respectively. Then linearization, which is related to the noncash elements of our Spanish contracts, was EUR 46,000,000 for the half year. The expected charge for full year 2017 is just below EUR 60,000,000. But as the line item does consider seasonality, we will have a positive contribution in Q3 of about EUR 10,000,000 and then again a negative charge in Q4 of about EUR 23,000,000. Other operational results for the period was minus EUR 14,700,000.0. The largest part is as usual due to start up of new projects as well as local restructuring and other project costs on the other hand. Financial results was EUR 90,000,000 for the half year, some EUR 8,000,000 lower compared to the same period last year. The increase in the second quarter compared to the first one was mainly driven by one off expenses as well as increasing interest rates in the U. S. Dollar on the very short end of the curve. Income tax was minus EUR 600,000.0. As usual, this is very much a result of seasonality, we shouldn't read too much into that number. It does fluctuate along the year. Net earnings as a result were minus EUR 900,000.0, an improvement of EUR 57,000,000 year on year. Minorities for the period were EUR 24,000,000. The increase compared to last year is mainly due to the good performance in The U. S. On one hand and the strong growth in emerging markets on the other hand. Cash earnings, where we just add back acquisition related amortization, was EUR 35,000,000 higher at EUR 126,000,000. Then if we move to Page 22, we have, as usual, the cash EPS evolution. Cash EPS for the period stood at CHF 2.34, which represents an increase of 38% compared to last year. Just as a reminder, to the seasonality of the business, the third quarter is by far the most important quarter for the business as you also see on the chart on the top left of the page. Then on Page 23, we have the cash flow statement. Free cash flow for the half year was CHF 125,600,000.0. This number also includes certain projects related to cash outs, which we already commented on in our last calls. In total, these cash outs amounted to about CHF 110,000,000, of which CHF 33,000,000 are reflected in CapEx and about CHF 75,000,000 are included as a change in working capital. This means that if we look at somewhat normalized cash flow generation, so excluding these project related cash outs, we generated about EUR $213,000,000 free cash flow for the half year, and that is about a 15% higher free cash flow compared to last year. Then on Page 24, we have our key metrics on the cash flow as usual. So core net working capital, which includes inventory, trade receivables and trade payables, was 5.3% of the turnover, and this is fully in line with our expectation and about 20 basis points better than the same period last year. On the CapEx side, we currently run at around 4% of the turnover, including the EUR 33,000,000 extra CapEx that I mentioned beforehand. So if we look at the full year, we do confirm that we expect total CapEx to be in the range of 3% to 3.5% of turnover. Moving then to Page 25, we have illustrated here again the quarterly sequence of the free cash flow generation. So firstly, what you will see is that we do have a very seasonal cash flow pattern with the third quarter being by far the most important quarter in terms of cash generation. Secondly, you also see that negative free cash flow in the first quarter has been fully compensated in the second quarter with reported free cash flow in the quarter being CHF205 million. As mentioned before, there were about CHF33 million of one off cash out in the first quarter and about EUR 75,000,000 in the second quarter from projects related to Greece and Latin America. If we adjust for these cash outs, then the normalized cash flow generation was the 50% that I mentioned beforehand. On Page 26, we have the balance sheet. Here, I think, is nothing unusual other than the normal amortization in intangible assets, deleveraging as well as some translation effects. There are no material shifts in the balance sheet. On Page 27 then to conclude, we have the overview on the financing and the covenants. So net debt at thirty June was just above EUR 3,600,000,000.0, so EUR $210,000,000 lower than at the end of the first quarter. Covenant was EUR $368,000,000 and well below the threshold of EUR $425,000,000. And the debt by currency as well as the debt maturity profile has been virtually unchanged compared to previous quarters. So this concludes the financial part of the presentation, and I hand back to Julian. Thank you, Andreas. Let just share a few remarks in Page 29. We expect good market conditions during our Q3 high season and the rest of the year. Also, in terms of comparable, we have a higher one, as I mentioned before, in Brazil, U. K. And Spain last year, where diesel operations performed weaker due to the reasons already explained. The third quarter is also the most important in terms of generation of cash, which continues to be our main priority for 2017, Mainly, with organic growth acceleration, I mentioned during the last call that in a normalized base, including second half, we should be above five percent this year, 5%, 6%. The implementation of the new business operating model will be impacting the P and L in 2018, but we are already implementing this in 17 countries. The digitalization that is an important part of Dufry's strategy for the next five years is having four specific pillars. One is the customer research. We are increasing and improving the quality of our research regarding the customers. We do quarterly analysis with significant of the investment in time and effort from the rest of from the total organization. The intention is to be more accurate in terms of assortments, pricing policies and marketing tools, especially promotion. As you know, more than 50% of the sales in our business are always based in novelties and promotions. The employee digitalization is another way of improving the efficiency of the company, especially in process and procedures. Omnichannel strategy, already commented in previous in previous conference calls where we have different approaches. One is regarding the the the point of contact with the customers from the moment they they booked the trip to the moment they return home. And in the process, in the trade agencies, in the, with the carriers, in the airports, in the in the shops, and finally, in, in when they arrive home again. But, we we have also the the the strategy to develop, internal omnichannel, tools. One of them is, Red, is, the loyalty application that has been successfully launched in more than 10 countries so far. The preorder in format in order to facilitate the pickup in the purchase and in arrivals. And finally, as I mentioned, the store digitalization. Two examples of the store digitalization are today in Marine Terminal 4 and Mervyn. In both cases, I think there is a significant change in the way the retail in our business is going to be operated. It's the first time that we are able to contact with the customers when during the trip and at the moment they are in labor. So I repeat many times, it's it's not new. In travel retail, only between 1519% of the total passengers or potential customers buy something in April. With this type of technology, we will be able to improve and increase the penetration rate and the same thing in the Sprint particular. This is the next five years, this will be the most important strategic move in order to really confirm that this is the the the way to go. We are developing right now new shops in Hydro Terminal 3, Storage and Cancun. And finally, as I mentioned during the presentation many times, focus on cash generation and delivery remains unchanged. That's the main conclusion of this presentation. I think this is a good one. In any case, we are from now on open to the Q and A part of the presentation or comments. Everything is welcome. Thank you very much. We will now begin the question and answer session. And session. The first question comes from John from Kepler. Please go ahead. Yes. Good afternoon, Julian, Andreas. John Cox, Kepler Cheuvreux here. A couple of questions for you. Just on the organic growth for the year, Julien, did you say 5% to 6% for the year? That looks a little bit cautious given the fact you're saying that the trends you saw in Q2 are continuing into July, which obviously is close to 9%. That's the first question. Second one, just on the margin. I couldn't quite work out what you were saying about the concession fee or rather selling expenses in H1 being similar for the year. Could you just give us a best guess for your assumptions for the EBITDA margin for this year? Obviously, the what you've done in the first half, top line fantastic, but margin progression has been somewhat more muted than probably many of us expected. You seem to be saying it will accelerate in the second half of the year, but can you give us a best guess for the year margin? And then the third question, just on the strategic rationale about the IPO in North America. How should we think about that? Is it really they have ideas in mind for acquisitions in the sort of food and beverage space? Should we be looking at like you know, auto grill? Or should we be looking at something like fast casual dining experience, Chipotle, that sort of thing when you're talking about food? Because obviously, there's a big difference in multiples that you would apply depending on what sort of expansion you're looking at in that food and beverage business. Thank you, John, for all these comments and questions. Let me start. Regarding organic growth, I think it's obvious that last year, during the third and fourth quarter, we accelerated a lot the organic growth. The problem that we had in the past regarding organic growth ended during Q3 twenty sixteen, that in fact is the highest quarter, too, and accelerated means that positively accelerated in Q4 twenty sixteen. To maintain the level of 5%, 6% on top of what I am now commenting on, I think it's realistic target. Regarding the concession fees, what I said and I explained what happened during the first six months of this year is that we expect a concession fee rate by year end of around 27.5%. 27.5% could be 27.2%, around 27.5%. Regarding the EBITDA margin, I didn't comment anything about general expenses because I didn't say anything. I didn't comment on I don't expect any significant improvements in G and A expenses. The impact of this one off accrual in Q3 is relevant because it's in the Q3, but in a full year basis, I don't think it will be a critical issue. Regarding EBITDA margin full year, as I always comment on, I don't think that this is the time that I can comment on that because it will depend on the third quarter and, obviously, performance is very difficult. I cannot say because I prefer to wait until the performance in Q3 is confirmed. Everything looks right, but as you know, it could be different and the seasonality of this company now is very high. The strategic rationale for food and beverage in The U. S, I tried to explain it, but I will try again. In The U. S, we are leaders, and we control a significant part, the most important part of the convenience store business. If we want to accelerate growth, we have to look for alternative models. We all know that in The U. S, the Travel Retail is a different Model one. The reality is that 50% of the turnover in Travel Retail U. S. Is food and beverage. And within the 40%, as I said, an important part around 70% is convenience. Inconvenience, we have today a significant part of Frutz and Beverat's grab and go. And I think this is going to continue to be one of our main priorities. But we have also analyzed the strategic rationale of expanding in food and beverage in The US, not with huge transactions, obviously, because what we need at the beginning is to really acquire know how of this business and the infrastructure. But it will be a company that will be a retail company, not a food and beverage company. The food and beverage is grab and go and fast casual. Nothing that will be compared with a huge operators and we don't we don't don't visualize being free competing with these operators even in The US. The US is going to be a convenience market for us with the Grafang or Food and Beverage within the convenience plus Food and Beverage fast cash flow. The the acquisition the acquisition move in the rest of the world will continue like until today. It's more than medium sized companies that can be generated through the generation of cash that this company is showing in the cash flow statement. And that's all, nothing is new, except in The U. S. And with the rationale that I just commented on. Okay. Just follow-up. So you're saying in terms of organic sales growth, you expect 5% to 6% growth in the second half of the year compared to the second half of last year? No. Sorry, but probably I didn't explain it properly. In the year. In the year, 5% to 6%. Okay. And then the second thing, you are saying that concession fees for the year as a whole will be 27.5% after being a similar level last year, basically. Yes. This is the point. Okay. So it's quite a dramatic improvement because I think in h one, you're at, like, 28.9%. That will call actually, I'm I'm including the other bits that were included. Q1 and Q4, especially Q1 are very low in terms of generation of sales and productivity. But I think it's going to be like that. Okay. Great. That's encouraging. Thank you. The next question comes from Volker Bosse, Badri Bank. Please go ahead. Hello gentlemen. Volker Bosse. Congratulations on the organic growth. Three questions from my side. I would like to try it again with your fiscal year twenty seventeen full year earnings expectations. Do you feel comfortable with the EBITDA consensus expectation of 1.05 for the full year? That's my first question. And the second question is also in regards to understanding on your outlook, you said EBITDA margin improvement of 50 basis points until fiscal year twenty eighteen. So my question is, to which basis you are referring here? So the 50 basis points is in 2018 versus 2017 or 2018 versus 2016? So perhaps some words for clarification on that. And finally, on your potential IPO process, any idea about the timeline of next steps, what is to expect? Thank you. Thank you very much. Yes. Regarding the first question, as I just answered, EBITDA expectations remains for us unchanged, but I cannot confirm anything because I prefer that the high season is over. Again, we are very seasonal now. It's very difficult. We need to to really perform a completely year with this seasonality in order to understand where we are. But the the trend is is is very good because what we have seen is the recover, gradually recovery in Turkey and Antalya, gradually recover or significant recovery in Brazil and significant recovery in Russia. This is one of the components that I mentioned at in previous calls that is is relevant regarding the the to achieve the the, obviously, the target of EBITDA. The second one, as you know, was the famous efficiencies. As you mentioned here, it's compared with 2017 or is it's compared with 02/2015. The 50 basis points, and I told about that in in in the previous calls, the 50 basis points that will be delivered through efficiencies will be based in 2016 p and l. The third one is, obviously, the third element for confirming the expectation of the share media is the delivery of an implementation of the synergies due to the acquisition. What I can confirm is all were implemented in 02/2016, and we are in the process to reflect all in the P and L in 02/2017. The IPO timeline, this is depending on many regards, but we believe that will be before the year end. Year end. Okay. Thank you very much. All the best. Thank you. Thank you. The next question comes from Johan Effert from UBS. Please go ahead. Hello, Julian. Hello, Andreas. Thanks for taking my And the first one would be please on the royalty free synergies. And could you please quickly share with us what were the incremental synergy amount materializing in the first half twenty seventeen? What will be the incremental synergies supporting the second half 2017? And are there any other incremental synergies from Wirtui Free coming into 2018? Second question would be coming back to your comment on M and A that this is opportunistically. If something, for example, would show up in the second half, is this something you would consider? And would you also include the consideration of an equity hike for it? Or would you purely find as this debt? Third question, please, would be on the EBITDA margin, which you highlighted or the target is near term above 13%. Shall we read into this? Is this more 2019, 'twenty? Or can this already happen in 2018? And then just two housekeeping questions, Andreas, what is roughly your best expectations for the interest cost line for 2017? And then in the other line, you were talking about, I think, couple of one offs, which are not recurring. And if you have some more details here, it would be appreciated. Okay. Regarding the synergies, I don't have the exact figure, but it's around $50,000,000 So around $38,000,000 It's around 50,000,055 million dollars Sorry, because the exact figure, don't have it here, Impact in the P and L. Then acquisitions are opportunistic. I cannot comment on anything when the acquisition depends on the other part, but I can say two or three things that I always repeat. If this company has as a pillar for growth acquisitions. These acquisitions in the process we are should happen in Asia because, obviously, it's the it's the way the where we will comp complete our our own strategy. But acquisitions are in display in this moment available worldwide. The acquisitions that are more likely to happen, if happen, are a small and medium size. I don't visualize any large or big transaction in the in the short and medium term. Regarding EBITDA margin targets, for us is 2,018. And I think the implementation of these three aspects that I mentioned in the previous question are or at the time I was answering this question was based in 2018. Then on the question on the interest costs, so my best guess as of today would be in the area of 180,000,000. So this would then include also, if you want, the one offs that we now have in the second quarter. And I think if you look at the lines above the EBITDA, yes, we can share of associates, that is clearly a one off, so this is clearly identifiable. And then on the general and take personal expenses together, the one off there is kind of a mid high single digit amount of millions. So that's why if you want to take that as a recurring sorry, to move that forward, you will need to strip out that amount. Okay. Thanks very much. And if I may follow-up on the M and A regarding financing. Would it be that the small sized companies is this the size that you can finance this debt? Or is it potentially also requiring a capital increase? Not at all. No capital increase, and we don't have even in mind to talk about capital increases. Okay, great. Thanks very much. Thank you. Next question comes from Jaafar Mestari, JPMorgan. Please go ahead. Hi, good afternoon. I have two questions, please, on the North America IPO I think when you presented the strategic rationale, you mentioned a contract you've been awarded in Chicago as an example of what could be the contract of the future. So if you could maybe just go through this a little bit with us. It looks from the outside like the contracts are still very much being attributed to pure play food and pure play players, but was that different for you in Chicago? Do you have any of those master concessionaire contracts already that you can use as a case study? And my second question is on shareholders. As part of this project of IPO in North America, are you aware of the intentions of Mr. Di DiDomitio? And is your understanding that the historical shareholders of Hudson would want to remain shareholders of Dufry Group? For given the opportunity now. Are there any signs that they could be more interested in being shareholders of Dufry North America directly? Is that part of the plan? Regarding the first part, obviously, this is a business that is an strategic move, but it has not been completed yet. What we have in Midway is a is one of these contract master concessionaire where we collaborate with another food and beverage company and a a management company for, you know, participated in the tender. What we have in this in this tender responsibilities to operate the duty free and the duty paid. As a consequence, this is a this is a new move for us. And I hope that we'll generate a lot of more value because the reality is with this type of strategic move, we we have better control of the operations and also longer concessions. That is, as you know, one of the most significant challenges always in travel retail. Regarding the intention of third parties, I cannot comment on anything. But as you know, you know, the the the headquarter, the the controlling the reference shareholders in Dufry AD are different names, starting with with three and with other companies already reported. Mr. Cohen or Mr. Didiomichiro, as you commented on, are not part of the IPO and they are not going to be part I don't know exactly because obviously they can buy shares in the market. They will not be part of the rationale of this IPO or any of that. Right. Thank you very much. The next question comes from Edward Donohue, One Invest. Please go ahead. Good afternoon, gentlemen. A couple of questions if I may. Just with regard to the concession fees, should we I understand your company that well, it's near to me, but we should actually see a plateauing of this going forward. And if that is the case, you talk some of the dynamics around that, the inputs there? And the other one is with regard to the M and A, as you said, was opportunistic, but then also squirting that with regard to faster deleverage and returning cash to shareholders. How should we sort of see those ranked as such? And how will you balance those elements? Thanks. Thank you very much for the questions. Regarding the concession fee in this business, it's a combined, you know, or blended, I would say, of different contracts. In most of the contracts, what we have is a percentage. We pay a percentage on turnover. And sometimes, we have a minimum guarantee in each contract based in many aspects, be based in number of passengers, could be based in square meters, could be based in the range we paid previous year. The dynamics of this of this concession fee is depending on the on the operator. And I read in several reports from analysts and they are here present that this business is changing and the most important part of the profitability will go today for our service. I totally disagree with that. Totally disagree. You know, they are talking of we are talking about concessions where there are tender processes. But the tender process is one of the 10 of the possibilities to get in a concession. You can also negotiate. You can also create joint ventures. You can you can do many things regarding this part. I think the trend, when there is a concession option process, obviously, the trend is the rent percentage, the rent rates are increasing. How long and how far? You know, if you're thinking Dufry, excluding the two consolidated companies, Wobbit Free and Nuance, and after I don't know how many years reported in the market, we are still below 25% in like for like basis. This is the important thing. It's how to manage the concession portfolio. And if you ask me what is the trend in the future, again, if there is an auction process or there are auction processes, pure economical and financial, where DPS probably you know, is not very specialized and don't participate in many of them, the trend is that rents will increase. But if we are able, as we have been in the past, to manage concessions in different ways with one on one negotiations or joint venture tenders or even, you know, acquiring a small concession portfolio with long duration, we have been we will be able to maintain a significant level of concession fees like we are today. Regarding M and A opportunities, the question is very straight. I have to answer the question very straight. The priority number one today is to return cash to the shareholders. And if we have to put the balance, depending on the size, depending on many things. But one of the priorities of the company today is return cash to the shareholders. Thank you for that. Just going back to the concession. If you look at your portfolio to blend now going back to your point about the ability of self managing versus a sort of standard template. Do you see that that has actually shifted more to your favor? And it goes back to my point about a plateauing and also about your point on the percentage of revenues that you mentioned earlier for the second half versus the first half. Is that something that we should actually see that it's maybe an emotive phrase, but the balance of power shifted more in your favor going forward? Well, I mean, the balance of power is always on the side of the airport because the airport is the landlord. This is this is obviously like that. Then it's how to do it or how to implement this power. And the power is not only the capacity to increase the rent. It's also the capacity to generate more sales because if we pay a percentage on sales, we will pay higher rent. The the the issue here is not how to to drive the the highest rent. The issue here is how to drive the highest rent with the highest income per passenger. And I think there are many airport authorities in the world today, and I met, you know, several there two weeks ago, where you have or they have, sorry, they have the intention to reach the maximum income per passenger. And this is a combination and collaboration between the operators and the other ones. But the answer to your question is very simple. The power is always on the landlock side. Right. Okay. Thank you very much for the answer. The next question comes from Thagry Ferenbach, AWP. Gentlemen, you mentioned in your outlook, the strong comparable base from previous years in some markets. And then you said that you see an organic growth rate in the whole in the full year of 5% to 6% is realistic. So the assumption is correct that the growth rate of 8.9% in Q2 will slow down in the coming quarters? Question one. And question two is, I didn't understand quite right the decision whether you will do the IPO for the Northern American business will be taken before the end of the year. Did you say that? And you may have any idea how much of cash you can generate out of this IPO to lower your debt? Thank you. Okay. Regarding the first part and the organic growth, yes, the path of growth will slow down because, for example, last year, I remember now that in q four, we grew organically 55.6%. And obviously, just the comparable is is is going to impact in order to reach this 5%, 6% that I mentioned. Regarding the IPO, I cannot comment on the specifics. And as you know, obviously, this is an important legal aspect where if you ask me a specific questions like the IPO, first of all, I don't know most of the answers because we don't know yet. But secondly, I cannot answer these questions. Thank you. The next question comes from Johannes Braun, MainFirst Bank. Actually, I only have one left. On Slide 12, you are now stating that the medium target of EBITDA margin would be above 13%, while at Q1, you still said 13% to 30.5% is the target. I'm not sure whether you are guiding down here or whether it is just semantics. My my my I could say the same thing. It's for me, above 13% is a is a significant good performance in travel retail, especially in a company with multi contracts and and multi country operations like we are. It's a thirteen, thirteen point five. I would say above 13% in order to be sure that I meet both requirements. So there's nothing we should read into that? No. No. No. It's way of explaining. Thank you. Next question comes from Thomas Braumann from Mirabaud. Please go ahead. Good afternoon, Thank you very much. I have an additional one to the strategy in The U. S. With regard to F and B. I think I understand what you're trying to say, but when you say you have to acquire know how and also infrastructure in this specific part of food and beverage. That said how should we take that? Is that acquisition by externally? Or how do you intend to acquire this know how and and and the infrastructure? That would be first part of my question. Okay. And and the second? Well, I I I answered that. It it it depends on the answer. No. No, no. I can answer now. Yes. The know how an infrastructure obviously is something that we don't have internally now, and we need to acquire a small, medium sized company, a company that will lead us through the process of understanding the business. But I am talking about external acquisition. External acquisition. Okay. Well, answers my second question. Thank you. Thank you very much. Next question comes from Arno Lopez, Credit Suisse. Please go ahead. Mister Lopez, your line is open. Cannot hear you. Okay? Yeah. Thank you for taking my question. You mentioned that the IPO in North America would help accelerate deleveraging. I was wondering if it would fair to assume you will recon your concern taking out any of the bond issues you have with TriNet? Sorry. Can you repeat the question again? I acoustically didn't understand it. Yeah. I was saying that you mentioned during your presentation that following the or the IPO of North America business would help accelerate deleveraging. And I was just wondering if it would be fair to assume that you will be taking some of the bonds outstanding? We haven't made a final decision on that, but that is a possibility that we're currently looking at. Okay. And the IPO would be potentially before the end of the year, as you said, so it would be maybe more towards 2018 potentially? We haven't commented on detail on that one. So I think we will need to see on the timing in the next few quarters. Okay. Thank you. Next question comes from Corinne Dretler from Bloomberg. Please go ahead. Hi, thanks. I just have one question. Earlier when Mr. Bossier asked about the potential IPO process, the timeline, and the next steps and what to expect, your answer was before the year end. What exactly was that referring to there? I mean, was it the next update regarding this decision process or the actual I I mean, what exactly were you referring to there when you said before year end? The the actual IPO Okay. Loans. So if the IPO goes through, the potential IPO could go through before year end. Do I understand that correctly? This is the idea. Yes. Okay. Thank you. But it depends on many things, as you know, that we don't control. Yes. Yes. Yeah. Thank you very much. Welcome. The next question comes from Felix Ramers, Zedgate Capital. Please go ahead. Yes. Hi, Thanks for taking my question. One from my side. On The U. S, I mean, all the other regions actually show an improvement in the EBITDA margin except for North America. So I was wondering what was the reason here, especially in Q2? And then secondly, on the potential IPO, as I understand it, the businesses are quite interconnected also with this EBITDA coming from distribution centers. How do you intend to untie that for the shareholders then in the potential new IPO or company? Regarding the EBITDA in The U. S, this first six months, we have had many new operations and many start ups that impacted the profitability. There is not an issue there. There is one thing there. The second one is exactly that. What you asked in the second question, it was an intercompany decision to move as we have done in other times profitability from operations to the distribution centers. Regarding the second part of the question, that is that this is a totally transparent. We control the information, obviously, from the day one. And the transfer of the gross profit margin is fully secured and fully transparent. It will be fully secured and fully transparent. There is not an issue with that mail. Okay. And I mean, this new company would then be led by independent managers? Or how that be the company the new company, the company with, obviously, minority shareholders will be managed and operated in the same way that is today from the operational and business point of view. They will be part of the global cash pool in order to benefit from the synergies, the global synergies that the company will generate in the future. The company will be subject to the process and procedures that we are in that we are operating today. And all these things are only having an issue. It's how to be more efficient and how to implement the global efficiencies in the local in the local model. As you know, if you know the group, we have been always repeating the same thing. This is a global company. Not because we want to be in many countries. It's because the global synergies and global efficiencies are shared and implemented at local level. And we hope, and I think this is the intention that due to that with the IPO, the situation on this regard will remain unchanged. Thank you. Thank you. Our last question comes from John Cox. It's a follow-up question. Thank you. Yes. Thanks for taking the follow-up. Just a couple of add ons. One is just on HNA. I wonder if you've had any communication with them. There's a lot of news Chinese government putting pressure on various companies. A report on Anbang today saying they need to sell their foreign assets, etcetera, etcetera. Have you had any discussions with HNA on this at all? Just wondering where you are on that. And then the second question on the returning cash to shareholders. The I'm just wondering what sort of dividend policy do you think you guys would have? And also, what do you think about buybacks? Is there a chance that with the IPO proceeds, you may even do a little buyback? Or is that isn't on the agenda at the moment? Thank you. Okay. Thank you. Regarding HNA, we we don't know anything, obviously, because they are doing a private transaction with the the Chemistry and GIC. But we know one thing on the other side is we started with them a process of collaboration in the different aspects of the business they have as a vertical integration with the travel agencies, with the carriers, with airports, and with the duty free business. They have a small duty free business in China too. And what we are doing is creating a plan for extracting the synergies and contributing the synergies obviously to the business we have. And second part is how to really manage the the Asian market and how to improve in the Asian market. And we have also with them a significant, obviously, objective because still we are talking about plants to really manage the 200,000,000 Chinese that will travel in in 02/2020, along the world. In both cases, they are very collaborative. We have identified many opportunities, and we are there. Regarding the corporate aspect, we have not had anything. And, obviously, I cannot comment on anything because it's a private transaction between them. Regarding the return in cash to shareholders, nothing new today is is avoided. I think return in cash to shareholders in a very broader base is what it is. I cannot say it's going to be cut, it's going to be a share buyback. It's it's not, in my view, it's not decided yet. But the board of directors is focusing this specific requirement because, obviously, we had also the market and will be solved in due time, especially during the first quarter of twenty eighteen. Thank you. Welcome. There are no more questions. Okay. In this case, let me say thank you to all the participants in the conference call. I appreciate a lot, obviously, the interest in Dufry. And we remain available through the installation department. So that is via whatever is needed. Thank you very much. Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.