Earnings Call: Q1 2016

May 3, 2016

Ladies and gentlemen, good morning or good afternoon. Welcome to the Dufry's First Quarter twenty sixteen Results Conference Call and Live Webcast. I am Shari, 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. Hello to everyone. This is Julian Diaz speaking from Dufry's headquarter in Switzerland. He is also here with me Andreas Schneider, Global CFO. For this presentation, we are going to use the document that we have disclosure this morning in our website. Let's go to the Page five, and I will make some comments here. During Q1 twenty sixteen, Dufry started with strong sales, EBITDA and significant improvement of organic growth compared with previous quarters. This is the first time in Q1 we consolidate the three companies, Dufry, Nuance and World Duty Free. And the result is a stronger seasonality in amortization, depreciation, impact of financial expenses and linearization and as a consequence, in profitability and cash generation, what will be mitigated in Q2, Q3 and Q4. In Q1 twenty fifteen, we have reached the highest level ever in Q1 of net cash flow from operating activities and free cash flow with a clear covenant level and significant headroom compared with the threshold. Let's move to Page six. Turnover reached CHF 1,600,000,000.0 with 60% growth. Consolidation of Wall Duty Free added 63% and organic growth was minus 5.2% compared with 6.5% in Q4 twenty fifteen. Translation impact was positive 2.2%. Pro form a organic growth in Q1, including World Duty Free, was flat plus 0.1% compared with minus 2.3% in Q4 twenty fifteen. Gross profit margin improved, reaching 58.6% compared with 57.5% last year. Synergies expected from Nuance acquisition are already reflected in the P and L due to the vendor's terms and conditions renegotiation and standardization of pricing policies in the different companies. From now on, EBITDA and cash generation will be very seasonal, being Q1 the lowest quarter. In this quarter, EBITDA reached CHF 146,500,000.0, 59.2% increase compared with previous year and 9% EBITDA margin. Free cash flow reached the highest ever in this quarter, 78,900,000.0 compared with CHF 19,000,000 last year. World Duty Free integration continued as expected and all the synergy targets and plans identified and complete for cost and gross profit margins. And the first impact will be reflected in the P and L during the second half of the year. Euros 50,000,000 cost synergy plan and €45,000,000 gross profit margin synergy are confirmed and will be reflected in 2017 P and L as disclosure on previous calls. Regarding the trading update, I will do it as always by in this case by division with the new organization. Division one, Southern Europe and Africa performed well and turnover reached CHF 2 and 86,900,000.0 in Q1 compared with CHF 125,300,000.0 one year ago. Underlying growth, including Wall Duty Free, reached 6.6% positive, mainly due to a significant double digit growth in Spain and France and high single digit growth in Africa, Italy, Czech Republic, Malta and Portugal. Greece maintained the same trend than previous quarters, also it is the lowest quarter now. And Turkey with double digit negative performance due to the drop in Russian passengers. In Division two, Central And Eastern Europe, turnover reached CHF427.7 million compared with CHF150.3 million last year. Underlying growth, including World Duty Free, reached 3.4%. Most of the operations performed well with single digit growth in Switzerland, UK, Germany, Sweden and Serbia and double digit growth in Finland and Bulgaria. In Eastern Europe, Russian operations continued to face difficult environment with double digit negative growth. Also, they were significantly better than in previous quarters. In Division three, Asia and Middle East, turnover reached CHF187.2 million compared with CHF137 million one year ago. Underlying growth was plus 0.1. Operations in Middle East and India, single digit growth with good performance in Jordan, India and Sri Lanka. South Asia Pacific, single digit growth with very good performance in Indonesia and Cambodia. Negative performance in China, Hong Kong and Macau and very good double digit positive performance in Korea. Division four, Latin America and Carif, reported turnover reached CHF 351,800,000.0 compared with CHF 3 and 27,100,000.0 one year ago. South America is still impacted by the strong devaluation of local currencies versus U. S. Dollar and the underlying growth was including World Duty Free 13.1% minus 13.1%. Good performance with single digit growth in Mexico, Puerto Rico, Trinidad Tobago, Jamaica and Ecuador and very good double digit growth in Dominican Republic. Brazil continues with double digit negative growth, but with a significant good improvement compared with previous quarters and with negative performance in Argentina after the peso devaluation during the last weeks of December 2015. Peso versus U. S. Dollar devaluated 66% year on year in Q1 twenty sixteen. Division five North America turnover reached CHF 367,300,000.0 compared with CHF 267,100,000.0 in 2015. Underlying growth was positive 4.9% as a result of a very good performance in our operations in Canada with double digit positive growth and single digit positive performance in The U. S. If we move now to Page seven of the presentation, As already commented, Russians and Brazilians having an impact in the organic growth of the company, but comparing spend per passenger and spend per ticket gradually improving over the last three months. Regarding the organic growth and the initiatives that we have started in order to reach this 0.1% compared with minus 2.3% reflected in the bottom of this slide, including Wall Duty Free, were a range of initiatives that we started in 2015 and continued during the 2016 to accelerate the organic growth and showing good results, minus 5.2% compared with minus 6.5% in Q4 twenty fifteen. We have refurbished 8,000 square meters of commercial space, 2% of the total during this first quarter, with a target to complete 65,000 square meters by year end, around 15% of the total commercial space we have today. We have opened 4,500 square meters of new commercial space along the first quarter in locations as Italy, France, Nigeria, UK, Switzerland, Hong Kong, Cambodia, Puerto Rico, Brazil and The U. S. We have also signed 25,000 square new 20,000 new square meters of commercial space. 22,000 of this commercial space will be opened during 2015, 5% of the total, including operations in Cairo, in Egypt, Kenya, Nice, Alicante, Malpensa in Milano, Malaga, Lagos, Morocco, Glasgow, Newcastle, Cambodia, Korea, Bali, Brazil, Lima, Buenos Aires, Puerto Rico, Mexico and several new locations in The U. S. The total number of new shops signed was 75. On top of that, we have also signed 25 new shops with 3,100 square meters of commercial space that will be opened along twenty seventeen. We have also 36,000 square meters of pipeline opportunities. As commented in the past, 46% of these spaces are in North America, 25% in Latin America and 16% in Asia. We have also developed a significant number of marketing activities and initiatives as global promotions, new preorder websites in 13 countries, customer retention programs as VIP promotions and or RED application for creating a global loyalty program, customer engagement initiatives as a virtual makeup and brand plans with the twenty fifth most important suppliers. If we move to Page eight and analyzing the different components of the organic growth, in this page, what we can see is a forecast for 2016, 2017 and 2018 regarding the international number of passengers. Obviously, the regions where we are better located for gaining productivity are Asia Pacific, Middle East and Latin America and Caribbean, with a very also a strong possibility to drive more passengers in North America. In Page nine of the presentation, as significant at this stage of the organic growth situation, significant improvement in terms of spend per passenger due to the significant improvement in the local currency evolution. U. S. Dollar Brazilian real, devaluation of Brazilian real, 36% devaluation of the Russian ruble, 19% devaluation of the Argentinian peso, 66% and devaluation of the Mexican peso, 21%. I am sure that if the situation continues to evolve in the same direction, the spend per passenger and spend per ticket will gradually also improve. If we move to Page 10, I have already commented on most of these things. The only pending matter here in this slide is the opening Q1 twenty sixteen. 50% of the 22,000 square meters that I comment at the beginning of the presentation sorry, not 22,000, the 4,500 that I comment on the presentation were opened in North America, 41% in Latin America and the other ones in Southern Europe and Africa and Central Eastern Europe with 2%. If we move to Page 11 for updating regarding the World Duty Free integration process, We have created a stable organization, defined it including employees from Nuance, World Duty Free and Dufry in the process to finalize to be finalized by June 2016. Integration process timing and resources defined and approved. Implementation expected to be complete by June 2017. Final synergy implementation plans defined for achieving the $50.60000000 dollars core synergies and the 40,000,050 million euros gross profit margin synergies during 2016, full impact in the P and L in 2017. First effect in the P and L during the second half of twenty sixteen. The Group Executive Committee approved in March the future business operating model with the targets as follows: first of all, create a stronger divisional teams able to lead and support significant number of countries create new governance processes to ensure headquarters divisions and countries are fully aligned and end goal to streamline country organizations and achieve savings in the local P and Ls by end of twenty seventeen. At this stage, we are analyzing the efficiencies and the valuation and the processes to be implemented. I will pass through Andreas now for continuing with the second part of the presentation, financials, first quarter twenty sixteen. Thank you, and good afternoon and good morning, everyone. So let's move straight to Page 13. We are starting with the different growth components in terms of organic growth. We have seen a further improvement of 1.3 percentage points in first quarter twenty sixteen compared to the fourth quarter in 2015. And if we look also at the pro form a organic growth, including World Duty Free, the improvement from Q4 is about 2.4 percentage points. So I think it does confirm the trends that we saw in previous quarters, so that there is kind of a normalization, if I can call it that way, underway. Then if we go to Page 14, there we have basically the divisional performance. Again, it's a very same picture. It's consistent with the trends that we've seen in the past quarters. Julian already commented in detail on the divisional performance. So I suggest we move directly on the next page to the FX, Page 15. There, the volatility in emerging market currencies reduced a bit in the first quarter of twenty sixteen, although as pointed out, the effects are still considerable. The Brazilian real traded still at a 36% devaluation compared to one year earlier. And in the case of the Russian ruble, the impact was still minus 19%. So things are getting better, but we are not back to normal yet. As to the main currencies, the translation effect in the first quarter twenty sixteen was a positive 2.2%. And basically there, the strong exchange rate of the U. S. Dollar and the euro against the Swiss franc supported that translation effect. On Page 16, if we go to the income statement there, again, as in previous quarters, it is actually pretty hard to compare to last year because of the substantial impact from the acquisitions. So just quickly going through the different points. Gross margin improved by 110 basis points. If we adjusted for scope changes, the gross margin improvement, if you want on a stable basis or on an adjusted basis, would be 50 basis points. And there, one of the main drivers has been the Nuance synergies. Then the EBITDA margin overall remained flat at 9% year on year. But really, the cost structure has changed. On one hand, the concession fee increased on the back of the World Duty Free consolidation. On the other hand, personnel and general expenses were lower. There again, we have actually quite a bit of nuance synergies contribution to that lower expenses. Below EBITDA, depreciation and amortization were similar to Q4 twenty fifteen. So the overall charge in the first quarter was $137,500,000 This is also basically the run rate going forward on a quarterly basis. Other operational results in the quarter was minus $5,500,000 There hasn't been any material charge from the World Duty Free restructuring in the quarter, but we do expect to have some additional expenses in the remaining 16. Overall, we do expect still to have around a $30,000,000 charge for restructuring still to come. Then linearization was $43,000,000 for the quarter. This is a fairly new item in the sense that we presented it the first time in the third quarter twenty fifteen, and we will explain it in more detail in a few minutes. Financial results, 50,000,000 in the quarter. And this, again, is basically the run rate going forward. There was no nothing special in there. So I think it's a good proxy going forward. Income taxes were positive $10,000,000 This was very much driven by the deferred tax impact of the negative results for the quarter. There, I would like to reiterate that the tax rate does vary quite strongly along the year. And also it's quite complex to forecast the overall tax rate. At this stage, we feel that tax rate of 20% to 25% is realistic for the full year 2016. But on a quarterly basis, still there may be significant deviations from that tax rate. Non controlling interests were CHF5.6 million. The most important minorities that we have nowadays is basically in The U. S. Business, but we also obviously have others, but The U. S. Is by far the biggest part. Then to conclude, net earnings to equity holders were minus CHF86 million. Main driver for the result was the linearization charge as well as the more pronounced seasonality as already commented by Julian. So I think in the order of for the sake of clarity, I would like to discuss now the seasonality and also the linearization in a bit more detail, and we have prepared Slide 17 for that. So starting with seasonality. What the chart at the top of the page show is that the seasonality pattern for different lines in the income statement are actually getting more extreme as we go down the income statement. So the more further we go down the income statement, the more pronounced the effect is. So if you go, for example, to sales, the first quarter was about 20% of turnover. In terms of EBITDA, it's about more or less 15% of the overall EBITDA. But then if you go to EBIT and net earnings, you see that it's actually turning negative. On the other hand, if you look at Q3, this is really the quarter where there is a positive effect and the seasonality effect is actually compensating in the other way. So Q3 is going to be the key quarter for us going forward even more so than it was in the past. The reason that we have such a strong seasonality nowadays is that many cost components are distributed or incurred evenly along the year, such as certain personnel expenses, some general expenses above EBITDA or depreciation, amortization and interest below EBITDA. Then the other point is basically linearization. And there, the accounting treatment even reinforces the seasonality impact as we see at the on the bottom of the slide. So overall, the linearization charge in Q1 is around 60% of the expected charge for the full year. And also, if you looked into Q3, you see actually that we will have a positive impact from linearization in the third quarter. So just to remind everybody what linearization is all about. It is a non cash item and it is an accounting treatment related to the concession contract in Spain, where there is on one hand an increase in minimum guarantee and on the other hand, prepayment of concession fees. Then moving to Page 18, if we look to the cash earnings per share, we had effectively a zero cash EPS for the quarter with minus $05 per share. Again, the main reason for the big change compared to last year is the linearization charge, which impacted cash EPS for the quarter by about $0.80 As mentioned beforehand, both the linearization and the increased seasonality have changed the profile to a certain extent. So the direct comparison year on year is not very indicative. And the same pattern that we have seen, for example, for the seasonality of net earnings will also apply to cash EPS going forward. Then if we move to Page 19. As already mentioned, we had a very strong quarter in terms of cash generation with a net cash flow from operating activities of $119,000,000 and the free cash flow of 79,000,000 and this compares basically to the $19,000,000 free cash flow that we had one year ago. If we then look to the KPIs on Page 20, what we do see is basically that we have improved the net working capital by 20 basis points compared to Q4 twenty fifteen, which I think is a very good performance given that Q1 is the weakest quarter of the year. In terms of CapEx, that was at a normal level 2.7 of turnover, 44,000,000. This is very much in line with the expected CapEx of, call it, 3% to 3.5% turnover on the full year. Then on the balance sheet, Page 21, there has not been any significant change to year end to 2015, very much same thing as we have seen, so nothing to comment there. And then last but not least, on Page 22 on financing. Our net debt at the end of Q1 was around $3,880,000,000 some $70,000,000 lower than at the year end 2015. And in terms of covenants, our main covenant, the net debt adjusted EBITDA remained practically stable at $3.94 compared to $3.92 at year end. So that's all from the financial side, and I hand back to Julian. Let's move to Page 24 of the presentation. We have seen organic growth gradual improvement in Q1 twenty sixteen in almost all divisions. Also the impact from Russians and Brazilians is still there. We expect in both cases, the situation will improve in the next quarters. Spend per head in both nationalities has improved during the last three months. The seasonality of the new Dufry has changed going forward. Q1 is the lowest quarter in sales and EBITDA and heavily distributed depreciation, amortization, financial costs and year's highest linearization effect further enhanced impact on quarterly results. During 2016, our focus remained unchanged. Quality free integration and delivery of synergies, accelerate organic growth with the initiatives mentioned before and deleverage and generation of cash. I think we have been very consistent in terms of the message and it still is, in my view, valid what we said. Now if there are not any other issues here, we will start the Q and A section. We will now begin the question and answer session. The first question is from John Cox, Kepler Cheuvreux. Please go ahead. Yes. Good afternoon, guys, and congratulations on that margin expansion and the cash flow, very, very reassuring. But I have a couple of questions for you. First one on organic sales for the year. Julian, I think you said earlier in the year, maybe between 34% for the year as a whole. Q1 is was pretty weak again, although it's sequentially improving. I wonder if you can give me a best guess on that for the year as a whole. That's the first question. Second question, just on Argentina. I estimate Argentina was probably about 3% of pro form a group. Can you give us an indication of what sort of sales decline you're seeing there? I presume it must be more or less in line with the currency, so potentially halving in Argentina because obviously you're pricing in dollars. And then a final question, just looking ahead, I think Andreas at our Swiss seminar, you mentioned returning cash to shareholders could be back on the agenda if you get to three times net debt to EBITDA as you don't need to go much below that. I wonder if you can just confirm that potentially you could start returning cash to shareholders either next year or the following year? Thank you. Thank you for the questions. I would start with the organic growth sales. I think I mentioned in the previous call, in my view, we remain I remain optimistic about the positive organic growth full year 2016. I think what I have seen in terms of the most important aspects of what were impacting the organic growth were the sales to Brazilians and to Russians. In both cases, spend per passenger and spend per ticket, we have seen a gradual improvement. And in the Russian case, we are very close to previous year sales per passenger and sales per ticket. And in the Brazilian case, very close in terms of sales per passenger and also in sales per ticket. What is going to happen by year end? And the only thing I can repeat is what I said. I think if the summer season, especially second and third quarter are as we expect, we will be in line with, as I said, 3%, 4% organic growth increase. But the seasonality this year could impact significantly if we are not performing well in organic growth during the summer. Regarding Argentina, you are right. In terms of more or less, 3% of the total sales, it's two point something, it's not 3%, it's two point something. Sales dropped by 22% in Argentina in U. S. Dollars. And then I think for the returning cash to shareholders, I think this is still very much an important topic for us. So at this stage, I think the focus clearly is to deleveraging profile sorry, the deleveraging of the debt. But I think once we will get to a situation where we have, let's call it three or below three returning cash to shareholders, definitely is something that is very high up on the priority list. So I think there, our position is unchanged. Thanks so much, guys. Thank you. The next question is from Jorn Ifert from UBS. Please go ahead. Hello. Thanks for taking my questions. The first one would focus on 2017. Can you please share with us what percentage of revenues has to be renewed in 2017? If negotiations have already started, you are observing here regarding concession fees? Is it relatively stable? Do you see a step up or even maybe slight decreases at smaller airports that suffered from lower emerging market and consumer spends? This will be question number one. Question number two, you mentioned you will open around 5% of your total square meters in 2016. What is roughly the revenue contribution you're expecting from here? And what also would be the net number for 2016 on the square meters? And last question, please. If I remember correctly, you mentioned around €20,000,000 cost savings in Brazil, independent of any synergies from M and A. And you also had an efficiency program running of around €50,000,000 Would you mind sharing with us what is reflected in the Q1 twenty sixteen profitability? And then the same with Nuance synergies, what was the incremental contribution in Q1 twenty sixteen? Okay. Regarding the concession fees, I think we have disclosure the sorry, regarding the concession contract, I think we have disclosure in the annual report the percentage. I don't see any relevant concession understanding relevant concession that will impact the top line of the company that is going to be renovated in 2017. In my view, the concession portfolio is very stable. Regarding the net the impact in terms of new operations, I think we have we are going to open around 5% of the total square meters of commercial space that you, as in the past, could calculate 5% of the total sales. In this year, what I think we should see regarding the closing in terms of nonprofitable concessions or concessions that we are terminating and we don't want to extend could be around 2%. And in Brazil, we have implemented a planned full year impact in the P and L of around €20,000,000 savings in 2016 along 2015 that will be gradually impacting 2016. I don't remember now. I don't know. Maybe if you would contact Rafael, he will be able to tell you exactly how much was the impact in the first quarter in Brazil. But it's not significant because we are in Brazil, as you know, having also the Q1 as the lowest one of the lowest quarter, if it's not the lowest quarter. Regarding Nuance, we have two impacts in the P and L in the first quarter, around €8,000,000 0.5% of the total sales due to the gross profit margin improvement. And in terms of cost synergies, the last figure I saw was around CHF 9,000,000, always Swiss francs. All right. Thanks very much. The next question is from Rebecca McLellan from Santander. Please go ahead. Yes. Good afternoon. Just a couple of questions. Firstly, can you strip out what the organic growth in Spain was over the first quarter? And also, if possible, the organic growth in North America, excluding Canada? Sorry, Rebecca, we don't disclose your specific operations performance in general, as that if there is a big problem. In this case, we cannot disclose the information. Okay. And then just my second point. You talked about sort of the review of the country operations with the aim of getting some P and L opportunities, such as I think probably towards the second half of twenty seventeen. These are new efficiency drives, is that correct? Yes. This is the plan that we comment on before the acquisition, before World Duty Freeze acquisition in January 2015. At that time, I mentioned that we were targeting €50,000,000 synergies due to the efficiencies that we have identified. The reinitiation of the same plan is nothing new. Okay. But it's over and above, for example, the $20,000,000 that's coming out of Brazil? It is a part of this €20,000,000 This €50,000,000 is regarding the new business operating model and the way that we are trying to manage the company with the new acquired companies and the efficiencies that we may identify because, again, is now we are in the process to identify all the values in especially in the local operations. And this is a process we are involved right now. Okay. Thank you. The next question is from Thomas Baumann from Mirabaud. Please go ahead. Yes. Good afternoon, gentlemen. Most of my questions have been taken, but just a clarification on the linearization charge, Andreas. This includes the depreciation of the upfront of the upfront payment to AENA as you showed it on Page 17. Can you confirm? That is correct. So it has two components. It has really the prepayment impact or effect. And you also have, if you want this minimum guarantee, straight lining, you have both components together in that linearization line. Okay. But the depreciation is linear that is not subject to seasonality, right? Correct. You're right. Thank you. The next question is from Felix Ramers from Credit Suisse. Please go ahead. Yes. Hi, everyone. Thanks for taking my questions. Actually, two. One on clarification. So you talked about 3% to 4% organic growth. Is that on pro form organic growth or really underlying reported organic growth if everything goes well? And on the shop refurbishment, you said that you're targeting 20,000 square meters or 15% of total square meters to be refurbished by the year end. That sounds quite high. Is that a normal run rate? Or what do you also expect in terms of spend per passenger sales increase out of that shop refurbishment plan? Yes. The first question is organic growth. Will answer both. 34.4% is organic growth, including obviously World Duty Free. It's in pro form a basis. It's always including all the operations. And the total number of square meters that we target for refurbishment in 2016 is 60,000 is 15% of the total, and it's obviously very high compared with previous years. And is that impacting CapEx in that sense and also sales growth, that refurbishment plan of 50% of total? The sales growth, as I mentioned before, in many other conference calls, normally sales increase between 1520% of the renovated spaces. Along these square meters, I think you can count on that because it's a rule. Normally, it happens everywhere. In the sense in terms of CapEx, I think with the indication that we've given like, call it, 3%, 3.5% of turnover, we should be able to cover that CapEx program. So from that perspective, there's no additional CapEx planned or to be added, if you want, in the model for that refurbishment program. Thank you very much. Thanks. We have a follow-up question from John Cox, Kepler Cheuvreux. Please go ahead. Yes. Just a couple of follow ups. Sorry, Julien, this 3% to 4% organic, this is based on you're reporting minus 5.2% in Q1. Is that correct? Or are you referring to the plus 0.1% I am referring to the plus 0.1%, including World Duty Free. Okay. Okay. And then secondly, you said next year, there's no big concessions that you need to renegotiate. But you also mentioned that you would potentially withdraw from 2%. Was that correct? So that would be No, a negative but this is for 2016, no next year. I am talking about 2016. 2016? Yes. 2% scope will be in scope, which you're going to withdraw from? Yes. Okay. And anything for 2017? I don't know. 2017, I don't have a clue about what is the scope of possible closings. I cannot answer, Adrian. Okay. All right. Thanks very much. The next question is from Volker Bosse, Baader Bank. Please go ahead. Hello. Volker Bosse, Baader Bank. Thanks for all the answers provided. Two questions remain from my side. First, the pro form a organic growth, if you would exclude Brazil and Russia, that was a figure you mentioned last time at the conference call. Could you provide us also with this kind of organic growth figures, so excluding Brazil and Russia? And second, as a kind of reminder, what's your net debt to EBITDA target going forward? So end of twenty seventeen, around 3x, is that something you have in mind, or 3.5x? Perhaps as a reminder what you outlined as a target here. What we have disclosure today, the plus 0.1% is including Brazilians and Russians. It doesn't exclude anything. I think during the first quarter twenty sixteen, what we have seen is obviously the performance in terms of one year ago, and we don't want to differentiate now because it's just comparable. I cannot tell you how much is the impact now of Brazilians and Russians because we are now consolidating World Duty Free Complete, and they have also Brazilians and Russians in the operations. It's very difficult because the way we organize the company is impossible. I think it's better that from now on, Brazilians and Russians have already disclosed it in one year because we thought that was a good idea to show the impact of Brazilians and Russia during the year. Now it's comparable. You are comparing with the same scope last year. And even that today still are important, I don't think that could explain anything else than we have already explained. Regarding the net debt to EBITDA, so just to be clear, I don't think we have any targets out there. We just try to explain our own planning. And what we expect to happen if everything goes according to that plan, we should be probably below 3.5x by the 2016 and below 3x in the second half of twenty seventeen. So that is, if you want, the medium term planning that we have in terms of cash generation or deleveraging overall. Perfect. Thank you very much. All the best. Thank you. Thank you. The next question is from Marta Brusca, Bank of Belvieu. Please go ahead. Good afternoon, everybody. I just have two questions, maybe first to clarify on the seasonality. I was just wondering, regarding the gross profit, it obviously will follow the same pattern as sales. But how about the gross profit margin, does it have the same seasonality as sales and EBITDA? Or will it be higher, for instance, in Q1 than in Q2 or Q3? And the second question is regarding Korea. I mean, I was discussing maybe some time ago, the possibility you know how attractive the Korean market is maybe also for potential acquisitions and with the recent extension of the concession lifetimes in Korea from five years to ten years, would that market look now more attractive for you for potential acquisitions? So that's it. Thank you. So on the seasonality of the gross margin, I think you can assume there is so put it that way, there may be some variances in the divisional structure and in the growth sorry, in the performance. But overall, I think the gross margin should follow largely the seasonality pattern of sales. And then for Korea? Korea is a very important travel retail destinations. For Dufry today, we are focusing airport retail. And obviously, airport retail where we can generate profits. As you know, it's a very competitive market. So far, we have not identified any operation outside airport retail, talking about downtown shops. Regarding possible acquisitions, I think it's very early for discussing acquisitions on any regard and especially in Korea, where there are obviously important companies. But today, my only message about Korea is we are going to remain in Korea in locations where we can generate the returns and level of profitability this company requires. Thank you. The next question is from Markus Streitmatter, Zurcher Kantonalbank. Please go ahead. Good afternoon, gentlemen. Once more, regarding the linearization item, if I recall correctly, you gave an earlier guidance for about €25,000,000 negative for the whole year. Now in the first quarter, it was minus €43,000,000 And for the whole year, it looks like it might be minus 60,000,000 or minus €70,000,000 I don't quite understand why that is. Is the business in Spain going so much better than you expected? Or what is the reason behind the much higher number here? Well, I think there must be a misunderstanding or miscommunication from my side in this case, which I apologize. So what we said is basically the linearization for the accounting year 2015, so for the four months was minus 29,000,000 And what we said at the full year presentation is that the linearization for the full year 2016 is expected to be around CHF 72,000,000 to 75,000,000. And that is basically what is also shown here. Now what is happening there is like that the Q1 linearization is over proportionally high because actually Q1 is the weakest quarter. So because you do actually straight line, the impact in Q1 is bigger. But if you're referring to the $25,000,000 in this case, we haven't communicated it very clearly beforehand. So I do apologize for that. Okay, great. So what would be your best guess for the year 2017 and 'eighteen then for the whole year, the linearization item? For 'seventeen and 'eighteen, probably for 'seventeen, I would need to double check that. But just to give you a very rough number, it will be probably around $60,000,000 in 2017, and it probably will be around 35,000,000 to €40,000,000 in 2018, but I should confirm that number separately. But all in the negative territory? But always in negative territory, correct. Okay. Thank you. We have a follow-up question from Rebecca McLellan, Santander. Please go ahead. Yes. Hi. My first question is just following up on the linearization for Andreas. Given the sort of momentum in Spain, is there any chance that annualized sort of hit will be revised downwards over time as PAX growth seems to be perhaps stronger than anticipated? So purely from a technical I think, Rebecca, if you don't mind, I will comment on that. Think there is a possibility that Lot two that has the base in Barcelona and the Mediterranean will be out of the mark along this year. And as a consequence, the linearization will be positively impacted. Lot number one, we're basing in Madrid and other cities that were in the same package will take more time. But currently, the guided linearization chart incorporates Lot two in MAG throughout the concession, is that right? In this linearization today, we have Lot one and Lot two. Okay. So if Barcelona exits the MAG, then suddenly the linearization charge will have to be reviewed Yes, to positive, it will improve. Okay. And my second question is just about the comment on the Chinese. So talking about sort of relatively weak trends in China, Hong Kong and Macau. Are you also seeing that with the Chinese coming to London or into Europe, etcetera? Are you seeing any sort of weakness in spend per passenger or indeed actual Chinese packs in sort of long haul? The slowdown in spend per passenger that we have seen is basically in China. No issues in sort of longer destinations? In China or related China Chinese destinations like Macau and Hong Kong. Okay. All right. Thank you. We have a last follow-up question from Ioann Ifert, UBS. Please go ahead. Yeah, thanks again for taking my follow-up questions. The first one would be on the net working capital. Good performance in Q1. Should we expect this as a new run rate also for the next couple of quarters? So the cash outflow should be very limited for 2016? Second question would be in the linearization, the upfront payments in Spain are reflected. What is the charge in 2016 and 'seventeen just for the upfront payments in Spain, which are amortized? And last question, industry trends. I mean, we have seen a couple of concessions in the market, competition. What are you observing at the moment incrementally in the last couple of months? Do you see a kind of industry discipline coming from larger players? Do new landlords look for local players or more for the global players? Just maybe if you could share your thoughts on current industry dynamics. Thanks very much. So I'll take the first two questions, and then Julian may want to comment on the industry trends. So on the net working capital, I think we're very pleased with the improvement that we have achieved so far. I think we have the goal to improve further in the net working capital. So I think to get below 6% is definitely something that we would like to achieve throughout 2016. It's going to require quite a bit of work, but hopefully, can improve that. So I agree with you that we should get some positive impact hopefully along 2016 from lower net working capital requirement overall. And I said the long term target is between 56% of turnover. Then on the linearization, the upfront payment, in principle, it's relatively simple. The upfront payment, the old voltage we made at the time was around CHF 300,000,000. So this would translate into about CHF 40,000,000 or CHF 35,000,000 per annum. That will be basically, if you want, for in the linearization. And then the industry trends. Yes. Regarding the industry trends, the first thing is I don't want to create the idea that this industry has not been very competitive over the past, let's say, ten years. It's still obviously very competitive. Regarding what happened over the past six months, that is specifically the question. I have seen, in my view, companies with less discipline in the past, having a more discipline from the financial point of view. For example, as you may know, it has been a tender in Korea in one airport, where nobody presented a proposal. It was totally empty of interest of different travel retail operators. Probably, it's the first time in a long history of this business that I have seen that nobody presented a proposal. I think the competition is going to remain tough. But I think there are areas and market niche that we are going as in the past to continue to follow-up and to chase in order to maintain the level of efficiency in the concession fee payment. This concession fee payment has been with the whole company consolidated with the new organizations consolidated 26.4%. I think what I have mentioned is before the consolidation of these two companies, we were talking about twenty two point five percent, 23%. Consolidating Nuance and Warranty Free with around 3333.5% concession fee, we will be around 26%, 27%. This is my expectation. And due to the characteristics of the concession portfolio we have, as you may know, is above eight years, the duration. I think we will have a lot of chances that we'll continue. All right. Thanks very much. It's helpful. That was the last question. Okay. This is Julian Diaz. Thank you for participating in the call as always. Any other further questions or clarifications can be addressed to all of us, Andreas, the Investor Relations teams or myself. And I hope next time we will have better organic growth to report. Thank you very much. Thank you. Bye bye. Ladies and gentlemen, the conference is now over. 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