Ladies and gentlemen, good morning or good afternoon. Welcome to the Dufry's first quarter 2017 results presentation. I'm Sarah, 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&A session. You can register for questions at any time by pressing Star and One on your telephone. Should you need assistance, please press Star and Zero to call an operator. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Mr. Julián Díaz, CEO of Dufry. You will now be joined into the conference room. Thank you.
Thank you for the introduction. This is Julián Díaz and Andreas Schneiter participating in the call. Welcome to Dufry's Q1 2017 result presentation. Please go to page five of the presentation disclosure this morning in our website. I think the best highlight of Q1 was the acceleration of organic growth, reaching 7.2% in Q1. The initiatives implemented in 2016 and the normalization of operations like Brazil, Russia, and Turkey, although still this last one in low season, impulse our overall performance, was supported by U.K., U.S., South America, and Europe in general. It is also important to remark the high Dufry's business seasonality after World Duty Free and The Nuance Group acquisitions, being Q1 the lowest in terms of generations of revenues and EBITDA, as a consequence of the flat accrual of standard operational costs and the depreciation amortization, et cetera. Q1 is extremely affected in terms of profitability.
EBITDA during the quarter grew to reach CHF 154.7 million and cash earnings multiply and reaching CHF 0.29 per share. Let's move to page six. Turnover reached CHF 1.7 billion in Q1, 4.7% higher than one year ago. The main impacts of the 7.2% of organic growth were the changes in the scope, -0.6%, due to the closing of the wholesale operation in U.K. acquired from The Nuance Group. I repeat many times that our main business is and will continue to be retail. That will be like-for-like in June 2017. The impact of FX, -1.9%, due to the negative translation of GBP and EUR into CHF and the positive impact of the U.S. dollar. Gross profit margin reached 59.6% from 58.6% in Q1 2016, mainly due to the synergies generated through the World Duty Free acquisition. All the divisions performing well in this regard.
EBITDA grew by 5.6% above turnover, reaching CHF 154.7 million, 9.1% margin impacted by the seasonality of the business, compared with CHF 146.5 million in 2016. Cash EPS increased significantly, being CHF 0.29 in 2017 compared with -CHF 0.05 in 2016. Covenant net debt to EBITDA ratio was 7.79 versus 4.5x threshold. We have refurbished, I mentioned many times that this is a critical path in terms of driving more organic sales, 7,200 sq m of commercial space-
Ladies and gentlemen, good morning or good afternoon. Welcome to Dufry's first quarter 2017 results presentation. I am Sarah, 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&A session. You can register for questions at any time by pressing Star and One on your telephone. Should you need assistance, please press Star and Zero to call an operator. The conference must not be recorded for publication or broadcast. At this time, it is my pleasure to hand over to Mr. Julián Díaz, CEO of Dufry. You will now be joined into the conference room. Thank you.
Thank you for the introduction. This is Julián Díaz and Andreas Schneiter participating in the call. Welcome to Dufry's Q1 2017 result presentation. Please go to page five of the presentation disclosure this morning in our website. I think the best highlight of Q1 was the acceleration of organic growth, reaching 7.2% in Q1. The initiatives implemented in 2016 and the normalization of operations like Brazil, Russia, and Turkey, although still this last one in low season, impulse our overall performance, was supported by U.K., U.S., South America, and Europe in general. It is also important to remark the high Dufry's business seasonality after World Duty Free and The Nuance Group acquisitions, being Q1 the lowest in terms of generations of revenues and EBITDA, as a consequence of the flat accrual of standard operational costs and the depreciation amortization, et cetera. Q1 is extremely affected in terms of profitability.
EBITDA during the quarter grew to reach CHF 154.7 million and cash earnings multiply and reaching CHF 0.29 per share. Let us move to page six. Turnover reached CHF 1.7 billion in Q1, 4.7% higher than one year ago. The main impacts of the 7.2% of organic growth were the changes in the scope, -0.6%, due to the closing of the wholesale operation in U.K. acquired from The Nuance Group. I repeat many times that our main business is and will continue to be retail. That will be like-for-like in June 2017. The impact of FX, -1.9%, due to the negative translation of GBP and EUR into CHF and the positive impact of the U.S. dollar. Gross profit margin reached 59.6% from 58.6% in Q1 2015, mainly due to the synergies generated through the World Duty Free acquisition. All the divisions performing well in this regard.
EBITDA grew by 5.6% above turnover, reaching CHF 154.7 million, 9.1% margin impacted by the seasonality of the business, compared with CHF 146.5 million in 2015. Cash EPS increased significantly, being CHF 0.29 in 2017 compared with -CHF 0.05 in 2016. Covenant net debt/EBITDA ratio was 7.79 versus 4.5 threshold. We have refurbished. I mentioned many times that this is a critical path in terms of driving more organic sales, 7,200 square meters of commercial space in Q1, with a total target for renovations in 2017 full year of 26,700 square meters. We have also signed so far 23,000 square meters of new commercial space will be open until the end of 2017 and first months of 2018. Most of this space will be open in 2017, and the 23,000 are the square meters signed so far during the first quarter, and still we have three quarters to go.
Let's move now to page seven. Despite calendar effect, one day less in February and Easter Q2 2017 instead in Q1 2016, Dufry had a good performance in most of the locations in Q1. Let's go through the different divisions. Southern Europe and Africa, division 1. Turnover reached CHF 288.8 million in Q1 2017, with organic growth increasing by 2.8%. Spain and Malta with single-digit positive growth. Morocco, Ivory Coast, Dufry Italy in Italy, Turkey and Portugal, double-digit positive growth. Division 1 reached double-digit positive performance during the first three weeks of April, supported by Easter seasonality. Double-digit positive performance in all the operations, except in Spain and Malta, with single-digit positive performance. Central and Eastern Europe, division 2. Turnover reached CHF 415.5 million in Q1, with organic growth increasing by 8.8%. Double-digit growth in U.K., Basel in Switzerland, Finland, Serbia, Russia, Kazakhstan and Armenia.
Single-digit positive growth in Germany, Sweden and Bulgaria. Negative single-digit performance in Zurich and Geneva due to the seasonality of Easter period last year in Q1 and this year in Q2. During the first three weeks of April, double-digit positive performance in the division. All the operations, U.K., Switzerland, Sweden, Finland, Russia, et cetera, reaching double-digit growth. Asia, Middle East and Australia, division 3. Turnover reached in Q1 CHF 188.5 million, with organic growth decreasing 0.4%. Middle East operations, Jordan and Kuwait, single-digit positive growth. China, Macau, South Korea, Indonesia, Cambodia, double-digit positive growth. Hong Kong, double-digit negative performance, and Melbourne, single-digit negative performance due to the renovation of most of the commercial spaces in this airport. That will be finished by the end of May 2017. The closing of the operation in Mumbai and the partially close in Sri Lanka generated a negative impact in the performance of this division.
During the first three weeks of April, division 3 performed single-digit negative growth, with China and Middle East, Sharjah, Jordan and Kuwait, single-digit positive growth and Macau, South Korea, Indonesia, Cambodia, double-digit positive growth. Also continue the negative impact of closings in Mumbai and Sri Lanka. Latin America, division 4. Turnover reached CHF 400 million in Q1, and organic growth increased by 12.7%. Mexico, Argentina, Ecuador, Trinidad and the British Caribbean, single-digit positive growth. Brazil, Uruguay, Chile, Peru, Puerto Rico, Dominican Republic, double-digit positive growth. During the first three weeks of April, all the operations accelerated the positive growth, reaching most of them double-digit positive growth. North America, division 5. Turnover reached CHF 392.1 million during Q1, being organic growth 4.8%. Double-digit positive growth in U.S. Duty Free and single-digit positive growth in Canada Duty Free. Duty paid in the U.S. also performed single-digit growth.
Acceleration of growth in this division during the first three weeks of April, with good performance in all the different types of businesses. Let's move to page eight of the presentation. As I mentioned, Dufry has opened 5,600 sq m of new commercial space. Locations already announced in Italy, France, Greece, Indonesia, China, Chengdu, Brazil, Chile, and several new shops in the U.S., New York, Boston, Houston, Tampa, Tucson and Phoenix. We have also renovated, as I mentioned, 7,200 sq m of commercial space, and those are the locations from Athens to Los Angeles. Let's move to page nine. 23,000 additional space signed in 2017. Locations are Italy, Spain, Greece, Colombia in Bogota, Pullmantur sales on board cruise lines, Jamaica, and several new contracts in the U.S. Phoenix, Grand Rapids, New Orleans, and Des Moines are part of the additional space signed so far.
The project pipeline opportunities, as in the previous calls, is very healthy, 32,000 sq m, and the negotiation of participation in tender processes. Most of this space is located in North America, in division 5, but also we have a very good representation of this pipeline in Middle East, 27%, and Latin America, 22%. Let's move to page 10. The most important, or one of the most important components of organic growth is very positive in forecast. For the year 2017, 2018, and 2019, between 5% and 7%. So far, in February 2017, the increase of number of international passengers was 7.6%. This is obviously a significant good base for understanding the potential of the organic growth during the next quarters and in the next year. Let's move to page 11. Duty free segmentation.
This is one of the most relevant parts of the risk diversification strategy, duty free by division, on the right top side of this slide. Most of the divisions performing well. Let me just comment on the significant strong seasonality in Southern Europe and in U.K., Central and Eastern Europe, where we reach 25% of the sales in U.K. and Central Europe. This is the division 2, and 17% in Southern Europe and Africa. These two divisions are the most affected by seasonality. In terms of categories, confirmation of we are obviously very focused in personal care, perfume and cosmetics, confectionery and food, catering and finally, luxury product. In all these categories, we have grown very close to 10%, and in luxury goods by 16% compared with previous year. If we move to page 12, duty free by channel, the acceleration of our airport sales.
Turnover reached CHF 392.1 million during Q1, being organic growth 4.8%. Double-digit positive growth in U.S. duty free and single-digit positive growth in Canada duty free. Duty paid in the U.S. also performed single-digit growth. Acceleration of growth in this division during the first three weeks of April, with good performance in all the different types of businesses. Let's move to page eight of the presentation. As I mentioned, Dufry has opened 5,600 sq m of new commercial space. Locations already announced, in Italy, France, Greece, Indonesia, China, Chengdu, Brazil, Chile, and several new shops in the U.S., New York, Boston, Houston, Tampa, Tucson, and Phoenix. We have also renovated, as I mentioned, 7,200 sq m of commercial space, and those are the locations, from Athens to Los Angeles. Let's move to page nine. 23,000 additional space signed in 2017.
Locations are Italy, Spain, Greece, Colombia in Bogota, Pullmantur sales on board cruise lines, Jamaica, and several new contracts in the U.S., Phoenix, Grand Rapids, New Orleans, and Des Moines are part of the additional space signed so far. The project pipeline opportunities as in the previous calls is very healthy. 32,000 sq m under negotiation or participation in tender processes. Most of this space is located in North America, in division 5, but also we have a very good representation of this pipeline in Middle East, 27%, and Latin America, 22%. Let's move to page 10. The most important, or one of the most important components of organic growth is very positive in forecast. For the year 2017, 2018, and 2019, between 5% and 7%. So far, in February 2017, the increase of number of international passengers was 7.6%.
This is obviously a significant good base for understanding the potential of the organic growth during the next quarters and in the next year. We move to page 11. Duty free segmentation. This is one of the most relevant parts of the risk diversification strategy, duty free by division, on the right top side of this slide. Most of the divisions performing well. Let me just comment on the significant strong seasonality in Southern Europe and in U.K., Central and Eastern Europe, where we reach 25% of the sales in U.K. and Central Europe. This is the division number 2, and 17% in Southern Europe and Africa. These two divisions are the most affected by seasonality. In terms of categories, confirmation of we are obviously very focused in personal care, perfume and cosmetics, confectionery and food, catering and finally, luxury product.
In all these categories, we have grown very close to 10%, and in luxury goods by 16% compared with previous year. We move to page 12, duty free by channel, the acceleration of our airport sales. Most of the new contracts mentioned before are in airport retail, but we are also trying to accelerate our growth in cruise lines and in border and downtown shops as mentioned in previous calls. Regarding duty free by sector, impacted by the seasonality, 65% duty free, 35% duty paid. We are going to see over the next two quarters is an increase of the duty paid for this seasonality explained. Let's move to page 13, priorities for 2017. To drive more organic growth and to continue with organic growth acceleration is priority number 1.
This can be done with 2 different, obviously, initiatives, increasing the penetration and increasing the spend per ticket. The initiative for driving organic growth started last year and continued this year with the renovation of square meters of commercial space. This year, I confirmed that the initial target is to be between 23,000 and 30,000. We have a significant set of actions for driving our customer experience via digital innovation, based in 4 pillars. One is, first of all, understanding better of customers through research and mystery shoppers. The second one is training all the staff and provide them with the latest technology. This is something I commented on in previous calls with the iPad technology. Three, omni-channel digital experience, Reserve & Collect, and also the initiatives in order to improve the efficiency of the operations through digitalization. Social media is going to be part of this.
Finally, the last pillar is digital innovation with the opening of the new store generations, I will comment on later on. The second target for this year is the implementation of the new business operating model. There are 2, obviously, more important issues here. One is the standardization of operations after the 2 transformational acquisitions, and the second one is the implementation of efficiencies at EBITDA level. I mentioned the last time that the target for implementing these efficiencies in the P&L will be CHF 60 million along 2017 and 2018. We have started the first wave of initiatives of the business operating model in 17 countries, including Australia, Switzerland, North America, and South America, and we will implement along 2017 and 2018, this business operating model in all locations. EBITDA margin, we confirm the medium trend, obviously target of reaching 13.5%.
The three aspects of this achievement should be, number one is the reflection of the full-year duty-free synergies in financial, that one is fully confirmed. The second one is the contribution from full implementation of the CHF 60 million of business operating model efficiencies. That will happen in 2017 and 2018. Finally, the full recovery of the markets where we suffer more over the past two years: Brazil, Russia, and Turkey affected markets. This is, in fact, one requirement that we don't control, but what we have seen so far in 2017 is very positive, and we are expecting good results in these locations. Extension of contracts. It says here a key contract, is not correctly key.
Most of the new contracts mentioned before are in airport retail. We are also trying to accelerate our growth in cruise lines and in border and downtown shops as mentioned in previous calls. Regarding duty-free by sector, impacted by the seasonality, 65% duty-free, 35% duty paid. We are going to see over the next two quarters is an increase of the duty paid for this seasonality explained. Let's move to page 13. Priorities for 2017. I think to drive more organic growth and to continue with organic growth, acceleration is priority number one. This can be done with two different, obviously, initiatives, increasing the penetration and increasing the spend per ticket. The initiative for driving organic growth started last year and continued this year with the renovation of sq m of commercial space.
This year, I confirmed that the initial target is to be between 23,000 sq m and 30,000 sq m. We have a significant set of actions for driving our customer experience via digital innovation, based in four pillars. One is, first of all, understanding better of customers through research and mystery shoppers. The second one is training all the staff and provide them with the latest technology. This is something I commented on in previous calls with the iPad technology. Three, omni-channel digital experience, Reserve & Collect pre-order, and also the initiatives in order to improve the efficiency of the operations through digitalization. Social media is going to be part of this. Finally, the last pillar is digital innovation with the opening of the new store generations. I will comment on later on. The second target for this year is the implementation of the new business operating model.
There are two, obviously, more important issues here. One is the standardization of operations after the two transformational acquisitions. The second one is the implementation of efficiencies at EBITDA level. I mentioned the last time that the target for implementing these efficiencies in the P&L will be CHF 60 million along 2017 and 2018. We have started the first wave of initiatives of the business operating model in 17 countries, including Australia, Switzerland, North America, and South America. We will implement along 2017 and 2018 this business operating model in all locations. EBITDA margin, we confirm the medium trend, obviously target of reaching 13.5%. The three aspects of this achievement should be, number one is the reflection of the full-year duty-free synergies in financial, that one is fully confirmed. The second one is the contribution from full implementation of the CHF 60 million of business operating model efficiencies.
That will happen in 2017 and 2018. Finally, the full recovery of the markets where we suffer more over the past two years. Brazil, Russia, and Turkey-affected markets. This is, in fact, one requirement that we don't control, but what we have seen so far in 2017 is very positive, and we are expecting good results in these locations. Extension of contracts. It says here a key contract. It is not correct. Probably key is a word that we use in this phrase, but this extension of contract that are not important contract under renovation or extension in 2017. What we are looking here is five specific contracts. The other ones are very small, and three of them are already agreed for extension. Cash generation and the leverage.
We confirm the medium-term leverage of below three net debt EBITDA, and this is, for us, a target that will be fully achieved in 2018. Right now what we have is just to comment on the target in 2017. Andreas, I will pass through the presentation to you.
Thank you, Julián, and good morning and good afternoon, everyone. Let's move directly to page 15. Julián already talked about organic growth. Let me comment on the remaining aspects of turnover growth. First of all, changes in scope. That includes only the wind down of the wholesale business that we acquired as part of the Nuance transaction. The coming second quarter will be the last quarter where we have a change in scope from that business. The other component, the FX translation effect, was minus 1.9%, and we will see the details of that in a minute. On page 16, we show the evolution of various emerging market currencies. It is evident that the normalization has continued also in the first quarter of 2017. Based on the current exchange rate, the Brazilian real will be stable from the third quarter onwards.
The Russian ruble will have a positive effect of about 10%-15% for the remainder of the year. In the case of the Argentinian peso, we expect to see this moderate devaluation of Q1 also to continue for the rest of the year. On page 17, we have the details of the FX translation effect, as mentioned beforehand. Compared to the fourth quarter 2016, the negative FX translation effect in the first quarter was more moderate at -1.9%. This was mainly driven by the lower devaluation of the British pound versus the Swiss franc. Based on current rates, we should see a further reduction of the negative FX effect in the second quarter of 2017, and a flattish development in the second half of the year. Let's move then to the income statement on page 18.
As an introductory remark, I would like to highlight that the first quarter is always the lowest quarter of the year, and as such, it has the lowest profitability and any fixed costs have a relatively higher weight. We already discussed turnover, let's focus on the lines below. The gross margin improvement was driven by the synergies of the World Duty Free integration. Over the full year 2017, we expect gross margin synergies to contribute approximately CHF 14 million. Additionally, which would translate roughly into half a percentage point of margin. Concession fees increased by 0.9 percentage points compared to the first quarter 2016. Although there is some seasonality in the cost item, if we use the full year 2016 concession fee-
Is a word that we use, in this phrase, this extension of contract that are not important contract under renovation or extension in 2017. What we are looking here is five specific contracts. The other ones are very small, and three of them are already agreed for extension. Cash generation and the leverage. We confirm the medium-term leverage of below three net debt EBITDA, and this is, for us, a target that will be fully achieved in 2018. Right now what we have is just to comment on the target in 2017. Andreas, I will pass through the presentation to you.
Thank you, Julián , good morning and good afternoon, everyone. Let's move directly to page 15. Julián already talked about organic growth. Let me comment on the remaining aspects of turnover growth. First of all, changes in scope. That includes only the wind down of the wholesale business that we acquired as part of The Nuance Group transaction. The coming second quarter will be the last quarter where we have a change in scope from that business. The other component, the FX translation effect, was -1.9%, we will see the details of that in a minute. On page 16, we show the evolution of various emerging market currencies. It is evident that the normalization has continued also in the first quarter of 2017. Based on the current exchange rate, the Brazilian real will be stable from the third quarter onwards.
The Russian ruble will have a positive effect of about 10%-15% for the remainder of the year. In the case of the Argentinian peso, we expect to see this moderate devaluation of Q1 also to continue for the rest of the year. On page 17, we have the details of the FX translation effect, as mentioned beforehand. Compared to the fourth quarter 2016, the negative FX translation effect in the first quarter was more moderate at -1.9%. This was mainly driven by the lower devaluation of the GBP versus the CHF. Based on current rates, we should see a further reduction of the negative FX effect in the second quarter of 2017, and a flattish development in the second half of the year. Let's move to the income statement on page 18.
As an introductory remark, I would like to highlight that the first quarter is always the lowest quarter of the year, and as such, it has the lowest profitability and any fixed costs have a relatively higher weight. We already discussed turnover. Let's focus on the lines below. The gross margin improvement was driven by the synergies of the World Duty Free integration. Over the full year 2017, we expect gross margin synergies to contribute approximately CHF 14 million. Additionally, which would translate roughly into half a percentage point of margin. Concession fees increased by 0.9 percentage points compared to the first quarter 2016.
Although there is some seasonality in the cost item, if we use the full year 2016 concession fee as a benchmark, the increase is 0.1 percentage point, and as such, the first quarter 2017 is in line with the development of the business generally. Personal and general expenses as a percentage of turnover remained unchanged as the higher relative weight of the fixed cost compensated for the synergies. We expect that the remaining synergies from World Duty Free integration will be visible in the financials in the coming quarter. As a result, EBITDA for the first quarter was CHF 154.7 million, with a 9.1% margin. Below EBITDA, depreciation was fully in line with last year, and amortization was lower compared to last year in absolute terms, and also when measured as a percentage over turnover.
The improvement in the amortization is due to a positive translation effect from the British pound, as well as the full amortization of certain assets and extension of contracts. For the full year, we believe that the first quarter amortization is a good indicator generally to extrapolate. Other operational results for the quarter were minus CHF 6.7 million. There the majority of costs were related to new projects and local restructuring costs. Financial results improved by CHF 8.8 million, mainly due to the earlier repayment of the US dollar bond and the related cost savings. That's the repayment we did in December last year. Income tax was positive CHF 10.2 million for the quarter. As usual, I would like to highlight here that the tax rate does vary significantly across the year. The first quarter is typically not a strong indicator for the full year tax rate.
Non-controlling interests increased by CHF 1.3 million, mainly due to the good growth in locations where we do have minority partners. Overall, net earnings to equity holders improved by CHF 24.8 million. Cash earnings, which add back basically the acquisition-related amortization, were CHF 15.4 million for the quarter. If we move to page number 19, we have, as usual, the cash EPS. Cash EPS was CHF 0.29 in the first quarter. Because of the seasonality of our business, the overall contribution is small in the first quarter, but as you see, the development is trending in the right direction. The improvement year on year was CHF 0.34. On page 20, we have the cash flow statement. Similar as for the P&L, also the cash flow statement is strongly seasonal, and the first quarter is the lowest quarter in terms of cash flow.
Typically, we would expect a neutral to a negative cash generation for the quarter, and this was no different in the first quarter 2017. Having said this, there were some additional elements that reinforced that trend. Let's start with net working capital. Overall, we invested CHF 137 million into net working capital. Different elements were, on one hand, the buildup of inventory ahead of Easter. That has always a negative impact on cash flow in the first quarter. Now, this year, this effect was even more pronounced because Easter fell effectively in the second quarter of the year. Furthermore, we also have a higher order volume in locations where we have a benchmark. The increase is 0.1 percentage point, and as such, the first quarter 2017 is in line with the development of the business generally.
Personal and general expenses as a percentage of turnover remained unchanged as the higher relative weight of the fixed cost compensated for the synergies. We expect that the remaining synergies from World Duty Free integration will be visible in the financials in the coming quarter. As a result, EBITDA for the first quarter was CHF 154.7 million, with a 9.1% margin. Below EBITDA, depreciation was fully in line with last year, and amortization was lower compared to last year in absolute terms, and also when measured as a percentage over turnover. The improvement in the amortization is due to a positive translation effect from the British pound, as well as the full amortization of certain assets and extension of contracts. For the full year, we believe that the first quarter amortization is a good indicator generally to extrapolate.
Other operational results for the quarter were minus CHF 6.7 million, where the majority of costs were related to new projects and local restructuring costs. Financial results improved by CHF 8.8 million, mainly due to the earlier repayment of the US dollar bond and the related cost savings. That's the repayment we did in December last year. Income tax was positive CHF 10.2 million for the quarter. As usual, I would like to highlight here that the tax rate does vary significantly across the year. The first quarter is typically not a strong indicator for the full-year tax rate. Non-controlling interests increased by CHF 1.3 million, mainly due to the good growth in locations where we do have minority partners. Overall, net earnings to equity holders improved by CHF 24.8 million. Cash earnings, which have backed basically the acquisition-related amortization, were CHF 15.4 million for the quarter.
If we move to page 19, we have, as usual, the Cash EPS. Cash EPS was CHF 0.29 in the first quarter. Because of the seasonality of our business, the overall contribution is small in the first quarter, but as you see, the development is trending in the right direction, the improvement year-on-year was CHF 0.34. On page 20, we have the cash flow statement. Similar as for the P&L, also the cash flow statement is strongly seasonal, and the first quarter is the lowest quarter in terms of cash flow. Typically, we would expect a neutral to a negative cash generation for the quarter, and this was no different in the first quarter 2017. Having said this, there were some additional elements that reinforced that trend. Let's start with networking capital. Overall, we invested CHF 137 million into networking capital.
Different elements were, on one hand, the buildup of inventory ahead of Easter. That has always a negative impact on cash flow in the first quarter. This year, this effect was even more pronounced because Easter fell effectively then in the second quarter of the year. We also have a higher order volume in locations where we have accelerated growth. There is a certain time lag, as the increased sales are not reflected yet in the financial, but the buildup of networking capital is up front. Having said that, as we will see later, the core net working capital as a percentage of turnover still improved year-on-year because of the strong performance of the overall group. We have some other elements with seasonal deviations, such as sales taxes, concession fees, as well as advertising income.
We expect that these components should normalize along the year, that Q1 should be the low point. Moving to CapEx, this was in line with an absolute demand for the full year expectation with CHF 77 million for the quarter. If it's measured as a percentage of turnover, it was above our target corridor. Same reason as seasonality. Below free cash flow, the cash out for interest reduced mainly due to the bond repayment, as mentioned before. Some of you may remember in the last presentation, we mentioned an additional cash out of more than CHF 100 million in the first and second quarter related to a number of projects. The first quarter cash flow reflects about CHF 33 million of these cash outs, and they are included in CapEx.
The remaining amount, i.e., approximately CHF 75 million, is expected to be booked in the second quarter of this year, and it will be reflected in working capital changes as we talk about prepaid concession fees and cash deposits. This means the remaining amount will not be included in CapEx, but in working capital. This means we will have an additional cash outflow in 2017, but the CHF 75 million will be recovered over time. If we move to page 21, there we have our usual KPI cash flow. Mentioned before, CapEx as a percentage of turnover was 4.5% because of the low seasonality, but we expect this to revert to our target range over the next quarters. Our target CapEx remains unchanged at 3%-3.5% of turnover.
Core net working capital improved by 40 basis points to 5.6% year-on-year, despite the increase in core net working capital. The improvement that we mentioned in earlier calls is also confirmed in this quarter. If we move to the balance sheet on page 22, the situation is very stable and there are no major shifts since year-end. To conclude on page 23, net debt increased in the first quarter to CHF 3.83 billion, as explained by the cash flow. Covenants, as mentioned, were 3.79 for the first quarter against the maximum threshold of 4.5 times. To the financing mix and the duration, there weren't any material changes, I think there everything remains unchanged. This concludes the financial part of the presentation, and I'd like to hand back to Julián.
Thank you, Andreas. Let's move to page 25. We have returned to the growth that the company used to deliver in organic positions. To continue with this organic growth in 2017, we required, and it's obviously going to happen, the implementation of the Digitalization of the Business, the acceleration of commercial initiatives that are already mentioned in this call and previous calls, the refurbishment and continue with the refurbishment of the operations, and the increase of the retail space, the 23,000 sq m that so far we have increased. The total number of sq m we were operating by year-end 2016 was 420,000. The implementation of the Business Operating Model is one of our main priorities. So far, the first wave includes 17 countries.
All the countries, the 64 countries of the company, will be implemented from the Business Operating Model point of view by December 2018. The New Generation Store, that in my view, is one probably the most relevant initiative from the commercial point of view we are implemented, will be open in Heathrow Terminal 3, Zurich, Melbourne, Cancun, Madrid, and all of these are in progress. The first one will be in Melbourne. This is the comment I made when I was commenting on the performance in Melbourne. Melbourne, 70% of the space from the commercial point of view was closed down because we are in total renovation. Finally, focus on cash generation and deleveraging as is very well-known, is going to be one of our main priorities for 2017 too. That's all from our side. Now, all the comments or questions are welcome. Thank you very much.
We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. You will hear a tone to confirm that you've entered a queue. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use only handsets while asking a question. Anyone who has a question may press star and one at this time. The first question is from Jon Cox from Kepler Cheuvreux. Please go ahead.
Yeah, good afternoon, guys. Congratulations on that organic sales growth acceleration. Looks very impressive. Of course, we want more. Julián, you seem to be saying double-digit growth, in all of the regions or most of the regions in the first few weeks of the year. Of course, we know it is Easter-related. Adding it all up, I guess it's growing at double-digit rates for the group as a whole. That's my first question. Second question, just on the margin. Obviously as you saw the stock performance this morning, there are some market concerns. Given the fact that the EBITDA margin only rose by 10 basis points when consensus is for 100 basis points rise for the year, are you confident that this will accelerate as we go through the year? Just to maybe as an add-on there, you mentioned concession fees.
You seem to be saying that should be 10%, sorry, 10 basis points higher this year compared to last year, versus the almost 1%-
In organic positions. To continue with this organic growth in 2017, we required, and it's obviously going to happen, the implementation of the digitalization of the business, the acceleration of commercial initiatives that are already mentioned in this call and previous calls, the refurbishment and continue with the refurbishment of the operations, and the increase of the retail space, the 23,000 sq m that so far we have increased. The total number of square meters we were operating by year-end 2016 was 420,000. The implementation of the business operating model is one of our main priorities. So far, the first wave includes 17 countries. All the countries, the 64 countries of the company, will be implemented from the business operating model point of view by December 2018.
The new generation store, that in my view, is one probably the most relevant initiative from the commercial point of view we are implemented, will be open in Heathrow Terminal 3, Zurich, Melbourne, Cancun, Madrid, and all of these are in progress. The first one will be in Melbourne. This is the comment I made when I was commenting on the performance in Melbourne. Melbourne, 70% of the space from the commercial point of view was closed down because we are in total renovation. And finally, focus on cash generation and deleveraging as is very well-known, is going to be one of our main priorities for 2017 too. That's all from our side, and now all the comments or questions are welcome. Thank you very much.
We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. You will hear a tone to confirm that you've entered a queue. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use only handsets while asking a question. Anyone who has a question may press star and one at this time. The first question is from Jon Cox from Kepler Cheuvreux. Please go ahead.
Good afternoon, guys. Congratulations on that organic sales growth acceleration. Looks very impressive. Of course, we want more. Julián, you seem to be saying double-digit growth in all of the regions or most of the regions in the first few weeks of the year. Of course, we know it is Easter-related. Adding it all up, I guess it's growing at double-digit rates for the group as a whole. That's my first question. Second question, just on the margin, and obviously as you saw the stock performance this morning, there are some market concerns. Given the fact that the EBITDA margin only rose by 10 basis points when consensus is for 100 basis points rise for the year, are you confident that this will accelerate as we go through the year? Just to maybe as an add-on there, you mentioned concession fees.
You seem to be saying that should be 10%, sorry, 10 basis points higher this year compared to last year, versus the almost one percentage point we saw in the first quarter. Just the last housekeeping question. I wonder if you can just give me the figure you used in absolute amounts to get to the cash EPS level, linearization, and the amortization after tax. Thank you.
Okay. Thank you, Jon. For the Q1, obviously the organic growth, 7.2%, is impacted by seasonality. One day less of sales in February is a lot in one quarter, and the Easter period in the Q2. Obviously, the consequence of what I said is confirmed. If the organic growth during the first three weeks of April 2017 has been double-digit growth. Yes, obviously, it's also supported by the seasonality. Regarding the margin EBITDA, in my view, what we are disclosing in Q1 is tremendously impacted by significant fixed cost structure. In several operations, for example, the U.S. or U.K., we have performed well, but not at the level to really generate the EBITDA margin that probably the market was expecting. I remember, or you mentioned it in the past also, everybody was expecting around 9.5%.
I am not concerned about that, because when the sales and the EBITDA accelerate, especially Q2 and Q3, the EBITDA will grow and will reach the level expected. In terms of concession fees, I don't remember to mention anything specific. In this time, on top of the seasonality, you have a mix effect. Higher sales in the U.K. and other countries with high concession fees. The second one is the increase of the MAG in Spain and in Finland. That is not a secret that we said that the MAG in Spain and in other countries, especially in Finland, due to the contract signed at the time, these operations were, in one case, acquired, and in the other case, awarded in a tender process. The MAG is increasing year by year.
The main two increases in the Spanish MAG happened last year and the year before, all years from now to the end of the contract, the MAG will increase. What else? The cash EPS, Andreas.
On the cash EPS, what we added back is CHF 76 million, which is the acquisition-related amortization. That's the only adjustment that we made for cash earnings or cash EPS.
There's no adjustment for linearization at all?
In the cash EPS, we don't adjust for linearization or deferred taxes. This is just add-on information for people who want to do their own adjustment.
Thank you.
Thank you, Jon, for the questions.
The next question is from Felix Remmers from Credit Suisse. Please go ahead.
Yes. Hi, everyone. Three questions, if I may. Coming back on the EBITDA margin, maybe if you can share some more light on the OpEx, excluding the concession fees you need to pay. If I calculate rightly, the increase percentage point we saw in the first quarter. Just the last housekeeping question. I wonder if you can just give me the figure you used in absolute amounts to get to the cash EPS level, linearization, and the amortization after tax. Thank you.
Okay. Thank you, Jon. For the Q1, obviously the organic growth, 7.2%, is impacted by seasonality. One day less of sales in February is a lot in one quarter, and the Easter period in the Q2. Obviously, the consequence of what I said is confirmed. If the organic growth during the first three weeks of April 2017 has been double-digit growth. Yes, but obviously, it's also supported by the seasonality. Regarding the margin EBITDA, in my view, what we are disclosing in Q1 is tremendously impacted by significant fixed cost structure. In several operations, for example, the U.S. or U.K., we have performed well, but not at the level to really generate the EBITDA margin that probably the market was expecting. I remember, or you mentioned it in the past also, everybody was expecting around 9.5%.
I am not concerned about that, because when the sales and the EBITDA accelerate, especially Q2 and Q3, the EBITDA will grow and will reach the level expected. In terms of concession fees, I don't remember to mention anything specific, but in this time, on top of the seasonality, you have a mix effect. Higher sales in the U.K. and other countries with high concession fees. The second one is the increase of the MAG in Spain and in Finland. That is not a secret that we said that the MAG in Spain and in other countries, especially in Finland, due to the contract signed at the time, these operations were, in one case, acquired, and in the other case, awarded in a tender process. The MAG is increasing year by year.
The main two increases in the Spanish MAG happened last year and the year before, but all years from now to the end of the contract, the MAG will increase. What else? The cash EPS, Andreas.
Yeah. On the cash EPS, what we added back is CHF 76 million, which is the acquisition-related amortization. That's the only adjustment that we made for cash earnings or cash EPS.
There was no adjustment for linearization at all?
In the cash EPS, we don't adjust for linearization or deferred taxes. This is just add-on information for people who want to do their own adjustment.
Thank you.
Thank you, Jon, for the questions.
The next question is from Felix Remmers from Credit Suisse. Please go ahead.
Yes. Hi, everyone. Three questions, if I may. Coming back on the EBITDA margin, maybe if you can share some more light on the OpEx, excluding the concession fees you need to pay. If I calculate rightly, they increased by CHF 19 million. In that, there were no one-off costs or special things we need to consider, so that's really OpEx, we should also further extrapolate through the year. Then on CapEx, there was this CHF 36 million CapEx in intangibles. Can you be a bit more specific what exactly that is? Is that prepaid concession fees, or how should we think about that? And then finally, on, I don't know how much you can say about it, but on HNA. Obviously, they announced that they acquired 16% or intend to acquire 16% of the company. Have you been approached by them? Have you been in discussions with them?
Any thoughts on that move?
Okay. Thank you. Regarding the expenses that are today with the new structure of the company. At the personal expenses level and at the other operational expenses, fixed costs in several operations that are accrued in equal parts during the different quarters. I don't think that excluding some new operations that we started are not relevant. I am not going to say that this is a change that impacted the cost structure of the company. I think the issue here is personal expenses and other operational expenses. I am talking about above EBITDA, that are fixed and, as a consequence, impacted more in the lowest quarter of the year. Regarding the CapEx, what we have accrued there is an extension for several years.
I would say, I think it's 10 years of a contract. What we have paid is a fee for the extension, and for this reason, we accrued as CapEx. Regarding HNA, I think it's clear one thing. We have not been contacted yet. We have not met with HNA, the representative, yet. What we know is the communication they forward to us. On one side, HNA, on the other side, Temasek and GIC, explaining that they have the intention to perform a transaction covering 16.69% of the total shares of the company, that this transaction has a loan stop day of, I think it's August 21st, and subject to customary conditions, including official approvals and regulatory approvals. That's all. From my side, it sounds, in principle, very positive because obviously there is a lot of interest of our company to expand the business in Asia.
The opportunity with a company with this size and with this specifically, managing millions of Chinese customers from the tour operator side to the hotel side. It sounds positive, but I cannot tell you anything else from the other side because we have not discussed anything yet.
Okay. Thank you very much.
The next question is from Thomas Baumann from Mirabaud. Please go ahead.
Yes. Good afternoon, gentlemen. My first question refers actually also to concession fees and maybe to Andreas's remark. I would like to understand what you actually meant. Concession fees year-over-year went up by CHF 19 million. In that, there were no one-off costs or special things we need to consider, that's really OpEx, we should also further extrapolate through the year. On CapEx, there was this CHF 36 million CapEx in intangibles. Can you be a bit more specific what exactly that is? Is that prepaid concession fees, or how should we think about that? Finally, on, I don't know how much you can say about it, but on HNA. Obviously, they announced that they acquired 16% or intend to acquire 16% of the company. Have you been approached by them? Have you been in discussions with them? Any thoughts on that move?
Okay. Thank you. Regarding the expenses that are today with the new structure of the company. At the personal expenses level and at the other operational expenses, fixed costs in several operations that are accrued in equal parts during the different quarters. I don't think that excluding some new operations that we started are not relevant. I am not going to say that this is a change that impacted the cost structure of the company. I think the issue here is personal expenses and other operational expenses. I am talking about above EBITDA, that are fixed and, as a consequence, impacted more in the lowest quarter of the year. Regarding the CapEx, what we have accrued there is an extension for several years.
I would say, I think it's 10 years of a contract, and what we have paid Is a fee for this extension, and for the reason we accrue it as CapEx. Regarding HNA, I think it's clear one thing, we have not been contacted yet. We have not met with HNA representative yet. What we know is the communication they forward to us, on one side, HNA, on the other side, Temasek and GIC, explaining that they have the intention to perform a transaction covering 16.69% of the total shares of the company, that this transaction has a longest stop day of, I think it's August 21st, and subject to customary conditions, including official approvals and regulatory approvals. That's all. From my side, it sounds, in principle, very positive because obviously there is a lot of interest of our company to expand the business in Asia.
The opportunity with a company with this size and with this specifically, managing millions of Chinese customers from the tour operator side to the hotel side. It sounds positive, but I cannot tell you anything else from the other side because we have not discussed anything yet.
Okay, thank you very much.
The next question is from Thomas Baumann from Mirabaud. Please go ahead.
Yes, good afternoon, gentlemen. My 1st question refers actually also to concession fees and maybe to Andreas' remark. I would like to understand what you actually meant. Concession fees year-over-year went up 0.9 or 90 basis points in the quarter, and I understood you saying that adjusted by the seasonality, that would translate into a 0.1 or in a 10 basis points increase. What I didn't understand is whether when you say adjusted for seasonality, whether you refer to the Easter effect that we had in Q1 or whether you refer, let's say, to the yearly seasonality. If you could provide some clarification, that would be great. My 2nd question is really new concession growth.
I would like to understand why you only had only inverted commas a 0 there, given the fact that you opened several thousand new sq m of shops last year, and I would have expected at least a kind of a positive spillover effect into 1st quarter this year. Maybe my 3rd question is, in a slide, you referred to Turkey, Russia, and Brazil, where you said, we'll get back to this targeted EBITDA margins of 13%-13.5% once these three markets have normalized. What I would like to know is, well, all we know from today, how far away are we from, let's say, normalized 2015 business levels? Is that, let's say, 10%, or is it 30% or 40%? Just a kind of an order of magnitude would help me here. Thank you.
Hi, Thomas. Let me start.
Hi
With the first question, Julián will answer the second and the third one. On the concession fees, what I actually wanted to say, probably I was not very clear here. Of course, you do have also a seasonality in the concession fees along the year. I don't want to suggest that the Q1 concession fee is, if you want, stable and fixed, and that is the numbers to use. What I wanted to say here, if you take the Q1 concession fees and then compare it against the average or the full-year concession fees of last year, the increase is only 10 basis points. What I actually wanted to say is look, don't take me wrong. Don't say, well, now concession fees every quarter is only going to increase 10 basis points, and that's it.
I think there is to be some volatility or seasonality for that matter. What I wanted to say, like the 90 basis points of last year, of the first quarter last year, for various reasons, and I think Julián already commented it, is maybe not the only comparison point that we should use. That's what I wanted to say. Look, if you look at the full year 2016, the concession fees that we have in the first quarter look a lot more consistent than if you just look at it on a year-by-year basis. That's all I wanted to say.
Okay.
From my side, I think the new concessions, the 5,600 sq m of commercial space that were opened during the last part of February and March, and you know that obviously I cannot be specific because I don't know when all the operations opened, but they were opened mainly in March, contributing +0.5% of sales. The termination.
0.9 or 90 basis points in the quarter, I understood you saying that adjusted by the seasonality, that would translate into a 0.1 or in a 10 basis point increase. What I didn't understand is whether when you say adjusted for seasonality, whether you refer to the Easter effect that we had in Q1 or whether you refer, let's say, to the yearly seasonality. If you could provide some clarification, that would be great. My second question is really new concession growth. I would like to understand why you only had only inverted commas a 0 there, given the fact that you opened several thousand new sq m of shops last year, I would have expected at least a kind of a positive spillover effect into the first quarter this year.
Maybe my third question is, in a slide, you referred to Turkey, Russia, and Brazil, where you said, we'll get back to this targeted EBITDA margins of 13%-13.5% once these three markets have normalized. What I would like to know is, well, all we know from today, how far away are we from, let's say, normalized 2015 business levels? Is that, let's say, 10%, or is it 30% or 40%? Just a kind of an order of magnitude would help me here. Thank you.
Hi, Thomas. Let me start with the first question, Julián will answer the second and the third one. On the concession fees, what I actually wanted to say, probably I was not very clear here. Of course, you do have also a seasonality in the concession fees along the year, I don't want to suggest that the Q1 concession fee is, if you want, stable and fixed, that is the numbers to use. What I wanted to say here, if you take the Q1 concession fees compare it against the average or the full-year concession fees of last year, the increase is only 10 basis points. What I actually wanted to say is, look, don't take me wrong, don't say, well, now concession fees every quarter is only going to increase 10 basis points and that's it.
I think there is to be some volatility or seasonality for that matter. What I wanted to say is the 90 basis points of last year, of the first quarter last year, for various reasons, I think Julián already commented it, is maybe not the only comparison point that we should use. That's what I wanted to say, look, if you look at the full year 2016, the concession fees that we have in the first quarter look a lot more consistent than if you just look at it on a year-by-year basis. That's all I wanted to say.
Okay.
Okay.
Thanks.
From my side, I think the new concessions, the 5,600 sq m of commercial space that were opened during the last part of February and March, you know that obviously I cannot be specific because I don't know when all the operations opened, but they were opened mainly in March, contributing +3.5% of sales. The termination of the contract in Dubai, because it was not a profitable contract, we terminated. The temporarily closing in March of Sri Lanka, I hope that is temporary, because obviously we are participating in a tender for extension, contributed in -0.5%. The final calculation is 0. Regarding Turkey, Russia, and Brazil, obviously, I cannot say that it's going to happen because what we have seen so far is just two quarters with significant improvement in Turkey, Russia, and Brazil.
The total business that we have lost in these operations, sorry, due to Turkey, Russian passengers and Brazilian passengers, was around 5%-6% of the total sales. I think last year, with sales this year, very close to 5%. I think this 5% is what we need to recover. The reality is there. I cannot say something different. Most of these operations are growing high double-digit growth. Around 2017, beginning of 2018, I guess the business will be again in the company. This is futurology.
Okay. Now, coming back to this new concession, what I actually meant, I didn't expect that the 5,600 that you opened in Q1 would already contribute massively to sales in Q1. I'm referring to all the thousands of sq m that you opened in 2016. When you analyze that should be a spillover, and I would have expected in new concession growth to have a positive number from what you opened last year. Not this year, last year.
Yeah. Sorry, I don't have the calculation here with me now, but let me check and I will answer you. I cannot answer the question because I don't have the information here. It should be positive, and I think it will be positive, but I cannot answer it. I don't know.
Maybe a last one to Andreas. Did I understand you correctly that we can take the amortization charge in Q1 times four, that would result in CHF 360 million, which would be again, kind of CHF 20 million lower that you guided back in March. Is that correct?
Correct. I think, put it that way, I think the concession fee as we see it now probably is closer to CHF 360 than it was to CHF 380. That is correct.
Not concession fee.
I'm sorry. The amortization. I apologize. Sorry. My mistake.
All clear. Thank you.
As a reminder, if you wish to register for a question, please press star and one on your telephone. The next question is from Jean-Philippe Bertschy from Vontobel. Please go ahead.
Good afternoon, gentlemen. I would have a question on the profitability on the EBITDA development. In the different regions, you just have negative in Asia with a margin of 4%, if you can maybe put some color on that. With regards to the gross margin improvement, the 100 basis points, you were mentioning the synergies, which are quite significant. If you can put some color as well on the mix of the different categories. You're mentioning, I think luxury was up 16%. What was the contribution on this mix?
Okay. Regarding profitability in Asia, obviously, this is also impacted by the contract in Dubai because it was not a profitable contract, we terminated. The temporary closing in March of Sri Lanka, I hope that is temporary because obviously we are participating in a tender for extension, contributing a negative 0.5. For this reason, the final calculation is zero. Regarding Turkey, Russia, and Brazil, obviously, I cannot say that it's going to happen because what we have seen so far is just two quarters with significant improvement in Turkey, Russia, and Brazil. The total business that we have lost in these operations due to Turkey, Russian passengers, and Brazilian passengers, was around 5%-6% of the total sales. I think last year, with sales this year, very close to 5%. I think this 5% is what we need to recover. The reality is there.
I cannot say something different. Most of these operations are growing high double-digit growth. Along 2017, beginning of 2018, I guess the business will be again in the company. This is futurology.
Okay. Now, coming back to this new concession, what I actually meant, I didn't expect that the 5,600 that you opened in Q1 would already contribute massively to sales in Q1, but I'm referring to all the thousands of square meters that you opened in 2016. When you analyze that should be a spillover, and I would have expected in new concession growth to have a positive number from what you opened last year, not this year, last year.
Yeah. Sorry, I don't have the calculation here with me now, but let me check and I will answer you. I cannot answer the question because I don't have the information here. It should be positive, and I think it will be positive, but I cannot answer it. I don't know.
Maybe a last one to Andreas. Did I understand you correctly that we can take the amortization charge in Q1 times four, that would result in CHF 360 million, which would be again, kind of CHF 20 million low that you guided back in March. Is that correct?
Correct. Put it that way, I think the concession fee as we see it now, probably is closer to the CHF 360 than it was to the CHF 380. That is correct.
Not concession fee.
Sorry. The amortization. I apologize. Sorry. My mistake.
All clear. Thank you.
As a reminder, if you wish to register for a question, please press star 1 on your telephone. The next question is from Jean-Philippe Bertschy from Vontobel. Please go ahead.
Good afternoon, gentlemen. I would have a question on the EBITDA development. In the different regions, you just have negative in Asia with a margin of 4%. If you can maybe put some color on that. With regards to the gross margin improvement, 100 basis points, you were mentioning the synergies, which are quite significant, but if you can put some color as well on the mix of the different categories you're mentioning. I think luxury was up 16%. What was the contribution on this mix? Thank you.
Okay. Regarding profitability in Asia, obviously, this is also impacted by the intercompany charges. There is a decrease in the profitability, mainly due to the Sri Lanka operation. In Sri Lanka, for several weeks, was not part of the consolidation of the information. This is the main reason, also the intercompany charges. Regarding the different families or product mix, the fastest in terms of growth has been luxury products. Let me check. I got it here. With around 16% increase. We have perfume and cosmetics and wine and spirits with +8%, and food and confectionery with 5%. All the different operations performed quite well, and this is obviously in constant currency. That's all, no? That's the question.
Yes. Is there an impact on the margin? Is it like a positive mix impact?
No, the mix, no. The margin was impacted by the synergies generated by the acquisition of World Duty Free and Autogrill in one.
Very clear. Thanks.
The next question is from Arnold Noppes from CreditSights. Please go ahead.
Hi. Thank you for taking my question. When you mentioned that 1Q was going to be the low point in terms of working capital, you are not including the CHF 75 million remaining of CHF 100 million cash outflows for projects, correct?
Yes, that is correct.
The free cash flow profile for 2Q should be significantly lower than was last year if we assume that the 75 is on top of whatever it was last year, correct?
Correct. On the other hand, you should have a certain, if you want, relative improvement, isn't it, because the normal working capital that we have now had a negative impact in Q1 partially should revert. Not everything, but partially.
Correct.
I think that's the other element that should be on a positive note for the working capital. You are right in the general way if you think about working capital. That is correct.
All right. Thank you.
The next question is a follow-up question from Jon Cox. Please go ahead.
Yeah, thanks. Thanks for taking another question. Andreas, maybe you can answer, or Julián, what is your best guess for the rise in concession fees this year? Obviously, with 90 basis points in Q1, you've talked about 10 basis points for the year as a whole. Do you have any best guess what you think will happen to concession fees at all?
Jon, it's very complex because it all depends on, obviously, the mix of the different operations. What you have seen in the first quarter is that operations with the high, let's say, concession fees, were more important in terms of growth and in terms of participating in the total contribution to the sales. I cannot guess. Obviously, we have the budget, but we have not disclosed the budget in the past. I don't like the idea to disclose our budget in this presentation. In principle, I think what you have seen during the first quarter, in my view, in 2017, will be very similar to the total if the important operations are performing like today. If the important operations, I mean, the U.K. and the U.S., where obviously we have different, higher concession fees and duty-free, are participating less in the total, will be lower.
I think it will be depending on the mix. In terms of your model, I suggest you put more or less the same thing than the first quarter.
Okay. Thanks so much.
That was our last question.
Okay. Thank you very much to all the participants in the call. We are always available if there is something else. Let's see how the second quarter continues. 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.
By the acquisition of World Duty Free and Autogrill in one.
Very clear. Thanks.
The next question is from Arnold Noppes from CreditSights. Please go ahead.
Hi. Thank you for taking my question. When you mentioned that 1Q was going to be the low point in terms of working capital, you're not including the CHF 75 million remaining of CHF 100 million cash outflows for projects, correct?
Yes, that is correct.
The free cash flow profiles for 2Q should be significantly lower than was last year if we assume that this CHF 75 is on top of whatever it was last year, correct?
Correct. On the other hand, if you should have a certain, if you want, relative improvement, isn't it, because the normal working capital that we have now had a negative impact in Q1 partially should revert. Not everything, but partially.
Correct.
I think that's the other element that should be on a positive note for the working capital. You're right in the general way of to think about working capital. That is correct.
All right. Thank you.
The next question is a follow-up question from Jon Cox. Please go ahead.
Yeah, thanks. Thanks for taking another question. Andreas, maybe you can answer, or Julián, what is your best guess then for the rise in concession fees this year? Obviously, with 90 basis points in Q1, you've talked about 10 basis points for the year as a whole. Do you have any best guess what you think will happen to concession fees at all?
Jon, it's very complex because it all depends on, obviously, the mix of the different operations. What you have seen in the first quarter is that operations with the high, let's say, concession fees, were more important in terms of growth and in terms of participating in the total contribution to the sales. I cannot guess. Obviously, we have the budget, but we have not disclosed the budget in the past, and I don't like the idea to disclose our budget in this presentation. In principle, I think what you have seen during the first quarter, in my view, in 2017, will be very similar to the total if the important operations are performing like today. If the important operations, I mean, the U.K. and the U.S., where obviously we have different, higher concession fees and duty-free, are participating less in the total, will be lower.
I think it will be depending on the mix. In terms of your model, I suggest you put more or less the same thing than the first quarter.
Okay. Thanks so much.
That was our last question.
Okay. Thank you very much to all the participants in the call. We are always available if there is something else, and let's see how the second quarter continues. 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.