Good afternoon, and thank you for participating in this half-year 2019 results call. As always, presenting the results here today are myself, already introduced, Julián Díaz, CEO, and Yves Gerster, CFO. As in previous calls, we are going to use the presentation disclosed today on our website. Please, let's move to slide number three. Here you can see the topics for today's call, where I will first review our operational performance in the period, then Yves will present the financials. To conclude, I will return for a trading update on our performance so far in July, and I will comment on the main activities we are implementing for accelerating our top-line growth. Let's continue with slide number five. The slide summarizes the half-year results. Our organic growth accelerated in the second quarter, supported by improvement in the like-for-like.
The cash flow continues to develop strongly, as expected, and is in line with our yearly targets. Our successful acquisition in Russia allows us to strengthen our market position especially in Moscow area. Last but not least, we are now finally able to execute the long-awaited opening of our first border shop in Brazil, which will happen in the coming days. We will, of course, look at all these points in great detail during the presentation. Let's continue with slide number six. This slide is regarding the half-year highlights. We see that Dufry delivered in the first semester 2019 a turnover growth of 2%, reaching CHF 4.18 billion, to which organic growth contributed 2.2%, and further, it's also important, improved to 2.3% in the second quarter. If we look at organic growth for the half-year, excluding South America, we would reach 5.4%.
If we look in detail, it is also encouraging to see that our like-for-like performance has considerably improved in the half-year as compared to the first quarter and reached the turnaround level in June and confirmed in July. Here as well, if we would exclude South America, like-for-like would reach +2.3% for the half-year. Taking into account this ongoing sign of improvement, we can also confirm our mid-term organic growth target of 3%-4%. We also continued to expand our gross profit margin, which we do by 40 basis points, reaching 60.2% compared with 59.8% in the previous year. The main drivers here were the negotiation with local suppliers, as mentioned in previous calls, and the further implementation of brand plans and other commercial initiatives with suppliers at global level. Going to our P&L KPIs.
Our adjusted operating profit reached CHF 237 million in the first semester 2019, while adjusted net profit amounted to CHF 72.9 million. As discussed in our last call in May, our P&L is now very much impacted by IFRS 16, and thus hardly comparable to the previous year. For this reason, I prefer to look at the cash flow metrics. In the first half year 2019, our adjusted operating free cash flow reached CHF 409 million. Equity free cash flow came in at CHF 140.4 million, which is in line with our target for the year between CHF 350 million-CHF 400 million. As you know, due to the seasonality of our business, the second half of the year is typically the most important in terms of cash generation, and Yves will provide more insight on the resilient cash flow performance.
Let's move now to slide number seven. Moving on to the operational development, we continue to grow our retail space by opening 15,400 sq m across 135 shops. This includes new shop openings and space increases in existing locations. New shops and expanded shops in Morocco, Italy, China, Russia, U.S., and several new cruise lines newly opened happened in half year 2019. We also continued to execute on our refurbishment plan with the renewal of 31,700 sq m across 80 shops in half year. Shops renovated in Spain, Sweden, Turkey, Morocco, Macau, U.S., and South America in Buenos Aires. At the end of June, we had already a portfolio of 15,300 sq m of signed contracts to be opened along 2019 and 2020. New signed contracts in Russia, Kuwait, U.S., Nassau, and Dominican Republic along this first half year. In June, we managed to sign a very important acquisition.
I am very positive on the Russian travel retail market. We already operate in Russia for many years, and this acquisition helps us to further consolidate this market by strengthening our marketing position in the Moscow area. This acquisition is also a very good example for the type of small and mid-size acquisitions we are currently looking and which allow us to quickly integrate new businesses into our platforms and to generate local operational efficiencies. With respect to the opening of our first border shop in the coming days in Brazil, in the city of Uruguaiana, I will comment on in detail in the next slide. If we move now to slide number eight, I will comment in more detail on the organic growth. We have continued to improve in positive territory.
Organic growth reached 2.2% in half one, and saw a positive development of all divisions, except in South America, where the situation remains challenged, but has shown signs of recovery in June and July. During the last three quarters, we have seen a solid recovery from 1.8% in Q4 2018 to 2.3% in Q2 2019. Let's pass now through slide number nine and analyze the performance division by division. Organic growth in division Europe and Africa reached 3.9% in half year, a significant improvement versus the last year. Looking at the second quarter, performance was even more impressive with organic growth reaching 5.1%. The positive development has been driven mainly by the U.K., supported by the new cruise and ferry contracts. Spain also had a significant improvement where we have implemented several commercial initiatives announced during 2018.
Other countries such as Turkey, Italy, and most of African operations also performed well. Let's move to slide number 10. We look here at the division Asia, Pacific, and Middle East, which continued to report an ongoing double-digit growth, reaching 13.9% in the half year. In the second quarter, growth was a bit lower due to the strong comparables, as you can see in the chart. Organic growth continues to be driven by the new concessions, especially MTR in Hong Kong and the new duty-free shops at Perth Airport. Eastern Europe reported a single-digit organic growth. The Middle East saw a slightly lower performance due to the high comparables of the previous year, while Asia as a whole showed a good performance with positive contribution coming also from Cambodia, China, and Macau. Besides, obviously, the aforementioned good performance of Hong Kong and Australia.
In slide number 11, the next slide, we see that North America delivered a resilient performance of 3.7% in the first semester. The main factor here were the ongoing healthy performance of the duty-paid operations. While we saw a sign of duty-free locations being impacted by higher comparables. If we move to slide number 12, Central and South America, the overall performance of the division has remained at the same level of the last few quarters, reporting a negative organic growth of -10.6%. However, we have seen signs of recovery in the months of June and July. On the opposite, Central America has posted a positive performance, mainly supported by operations in Mexico and the Caribbean, and well by the ongoing high double-digit growth of the cruise businesses driven by the start of operations on board new ships.
On page number 13, I will now look at the passenger growth. Both chart and table continue to show a very positive picture. Indeed, the global performance in passenger numbers in the first half 2019 has continued with a healthy increase of 4.6%. As we can see from the outlook chart of the right, also expectations continue at a 5% level for the next two years. If we go to slide 14. In the first half year 2019, we have continued with our expansion of sales area by opening a total of 15,400 sq m of new retail space. The main highlights of the openings were four stores in Casablanca covering 430 sq m , three new shops in Italy, et cetera. There is a list of the openings there.
Looking at the refurbishments, we have been quite active on the renovation of our operations as we have been renovating some important stores with considerable sizes in the first half of 2019, for a total of 31,700 sq m . The most important one are listed here. These two areas of discussion, new retail space open and shop refurbishment, are the two key pillars for developing organic growth in our business. If we move to page 15 of the presentation, we see that with the new space signed until June 2019, we have a portfolio of 15,300 sq m to be opened during 2019 and 2020. The most relevant ones are as follows.
A new store in St. Petersburg with over 900 sq m, one new shop in Kuwait, 1,200 sq m, eight new shops in Boston totaling 500 sq m, seven stores in Indianapolis, 600 sq m, three new stores in Nassau across 500 sq m, and a new shop in the Dominican Republic with 540 sq m. Moreover, we have an important project pipeline, 34,000 sq m, which are currently negotiating or participating in tenders. These potential opportunities are well distributed across several divisions such Europe and Africa, Asia, Pacific, Middle East, as well as Central and South America. If we move now to slide 16.
This is something we have been working on for a while, I am very pleased to announce that we will be opening our first border duty-free shop in Brazil in the coming days. As we have been discussing in the past, we were awaiting the local regulation to be finalized in order to start these operations. Now finally everything is going to happen. During the next few days, the shop will be open. This shop is located in the south of Brazil, in the city of Uruguaiana, and the size is 850 sq m. This is a very important project for us, as we commented on in the past, because there are opportunities in 32 cities in Brazil that are eligible to receive this type of a store. As you all remember, I mentioned the twin cities.
Twin cities meaning cities in Brazil that have a twin city on the other side of the border. If we move now to slide 17, I would like to remind you on the acquisition of a majority stake of RegStaer Vnukovo, announced in June. It is a very important step as it allows us to considerably strengthen our position in the Moscow region, in addition to the other Russian existing operations in St. Petersburg, Sochi, and Krasnodar, completing our also existing Domodedovo and Sheremetyevo operation in Moscow region. The operation in Vnukovo is a very long-term concession until the year 2035. It includes more than 30 duty-free and duty-paid shops across a retail space of over 6,800 sq m , and it reached, last year, EUR 58.8 million sales.
This concludes the first part of my presentation. I will now pass the floor to our CFO, Yves Gerster, for his comments on the financial section. Yves.
Thank you, Julián. Good morning or good afternoon, depending from where you're listening to the call. Let's move directly to slide 19 to discuss the half-year 2019 financials. Julián already commented on organic growth, let me just emphasize two messages. First, we are pleased with the continued improvement on organic growth in the second quarter. Second, that we have achieved this despite of challenging conditions in South America. Moving on to slide 20, we have the FX impact on turnover. While we had a positive FX impact in the first quarter, this has completely reverted in the second quarter. The reason for this change is shown in the bottom left chart with the movement in the U.S. dollar, the euro, and the pound sterling. Let's now move to the income statement on slide 21.
The first thing to point out here is that given we have not restated 2018 figures, the half-year 2018 reported and half-year 2019 reported are not directly comparable for the most part. For this reason, we have pro forma adjusted half-year 2018 in order to provide you with a better year-on-year comparison. The adjustment provided you with an indication of the magnitude of IFRS 16 would have on half-year 2018. Again, it is important to keep in mind, it is just a pro forma calculation. I am happy to say that this 2018 pro forma is available on our website, also with the quarterly breakdown for all quarters of 2018. Having said that, let us now analyze the most important changes. Starting with gross profit. The gross profit margin expanded by 14 basis points in the first half of 2019, in line with the first quarter. Lease expenses.
As you know, these expenses are related to the variable part of our concessions. As a percentage over turnover, it increased by 70 basis points due to contract renewals and new concessions, mainly signed in the second half of last year. Personnel expenses as a percentage over turnover increased by 50 basis points driven by the U.S. This increase comes mainly from Q1, where we had a one-off in North America. In the second quarter, it increased much less, by 30 basis points, which is mainly due to an increase in minimum wages in several states in the U.S. Depreciation of right of use increased a little over CHF 30 million. As you know, changes in this line are related to renewals and new contracts. Financial results improved by CHF 2.9 million due to achieved further optimizations. Looking at lease interest, this also decreased in that period.
As mentioned before, there is a significant front-loading effect here in this line, which basically means that we expect lease interest to decline for the next few quarters. Further down, income tax is lower compared to last year, mainly due to a one-off in the U.S. in the first half of 2018, as already commented in the first quarter. Having gone through the most relevant lines of the P&L, let's move now to our KPIs in the table below. Adjusted operating profit reached CHF 237 million, versus CHF 295.7 million in the previous year. Adjusted net profit reached CHF 72.9 million, versus CHF 136.2 million in the first half of 2018. If we now go to slide 22, we have a summary for the cash flow. Besides the main KPIs you see on top, it's important to remind you about the seasonality of the business.
Adjusted operating cash flow is very seasonable. With the first half being the lower point. This seasonality is further intensified in the equity free cash flow. What is important to note is that last year we had a very strong second quarter, which is unusual and what was not repeated this year. By the same token, we expect the third quarter being stronger year-on-year. As mentioned on the slide, we confirm our target for the year. Let's move now to slide 23. Here, we prepared for you a bridge to show the main cash flow components. As you can see, most of the components are as to be expected. There is nothing unusual. The chart below show again a very clear picture for both core net working capital and CapEx similar to last year's level. On the left side, you have the core net working capital.
As you see, there is little bit of a typical seasonality. However, if you compare Q2 2019 with the same period last year, we can see that we are at similar levels at the lower end of our expected range. The same can be said for the CapEx, which you can see on the right-hand side. The levels seen in 2019 are very close to the one year earlier, so we are good here as well. Moving to slide 24 with our balance sheet in the summarized way we like to show it. The big change here, as you can see, is the addition of the right of use and the lease obligation. Apart from that, there is a reduction in equity, which is mostly due to the dividends paid earlier this year. Other than that, nothing to be mentioned.
Finally, on slide 25, we have an overview on the financing. I want to focus on the two charts at the bottom of the page. As mentioned before, we have redefined our main covenant. You can see clearly that we continue to have a comfortable headroom to the threshold of 4.5. The right table shows the debt maturity profile, which remains unchanged with no maturity before 2022. Okay, that's it from my side. Julián, I hand over back to you.
Thank you, Yves. I now move to slide 27 of the presentation, for the conclusion and trading update. In my conclusion, I want to focus in three main topics and start with the organic growth. In the second quarter of 2019, we continued to see a continuation of the improvement seen in the previous quarters, with organic growth reaching 2.2% in half year and 2.3% in Q2. We can again confirm our mid-term organic growth guidance of 3%-4%. We are working very hard to accelerate growth again, seeing that the business is accelerating is encouraging. In the first three weeks of July, organic growth reached around 3%. With respect to like-for-like, we expect performance to be positive in the second half, supported by the commercial initiatives we have implemented.
By the ongoing refurbishment of the shops, where we have another 13,900 sq m to be executed in the second half. Last but not least, because also Brazil and Argentina have shown signs of recovery in June and July. As explained in previous calls, renovations are not only change in decoration, it's a deeper initiative improving the traffic flow, assortment, communication in the shop, et cetera, what support the increase in spend per passenger. We also have at least another 7,500 sq m of new retail space to be open across all divisions and in locations such as Helsinki, Kuwait, Pulkovo in Russia, in several locations in the U.S., the border shop at Uruguaiana in Brazil, our store in the Dominican Republic, as well as several shops on cruise lines.
Regarding acquisitions or total growth will further accelerate through the full consolidation of the RegStaer Vnukovo operation, expected to be closed in the second half of 2019. This operation includes duty-free and duty-paid shops and generate a sales volume of EUR 58 million in the full year 2018. Besides strengthening our position in the Moscow area, the consolidation will allow us to extract operational efficiencies in the local platforms. Regarding the equity free cash flow, I am going to repeat what I said during the last few presentations. Our mid-term target is to reach between CHF 350 million and CHF 400 million, and increasing in line with the turnover of the company. I am confident we can reach this target also for 2019. This completes our presentation, and we can now move to the Q&A session. Thank you.
The first question comes from the line of Edouard Aubin with Morgan Stanley. Please go ahead.
Good afternoon, Julián and Yves. I have one question on geography and two questions on cash flow. On geography, in the second quarter, your EBIT was down 10% year-over-year in Europe, despite the fact that the top line pick up sequentially, to 5.1. In North America, despite the sales slowdown, I think it was one of the lowest in three or four years, and the increase in employee costs, you had over 20% increase in your EBIT. If you could explain the diverging trends in these two geographies and the difference in terms of operating leverage. Then moving on to cash flow. Your adjusted operating cash flow as a percentage of sales in the second quarter was down 180 basis points. I guess as you mentioned, the increase in employee cost more or less offset the increase in gross margin.
Should we assume that the delta is basically the concession fee increase? If that's the case, that's substantially higher than the 30, 40 basis point that you're guiding for over the long- term. Why the increase in Q2, and what should we expect for the remainder of the year in terms of concession fees? Thank you.
Regarding the first part, the geography, I think, as you know, we are also allocating part of the profitability in the distribution centers. This is what happened here. The straight understanding of what happened in the EBIT in division one and in division three is not possible because there are allocations in the distribution centers, as you know. Regarding the adjusted operating cash flow, Yves, you want to answer?
Yes, absolutely. Thank you, Julián. Thank you very much for the question. Look, if we quickly go through the two, three components you have mentioned. For the employees, I think we were clear that the main increase is basically coming from North America. We have seen a one-off this year due to the change in the management, and we have seen some pressure due to the increase in the minimum wages in the U.S. Beside of that, I think there we should be stable. From the concession fees, yes, we have seen an increase of around 70 basis points for the concessions. Again, as I've commented earlier in the call, and as also we have stated in the last call, this is mainly coming from the new concessions we have signed last year in the area of the cruise lines and the other new contracts we have signed.
Besides that, we believe that over the next couple of quarters, we can improve again and see similar margins than we have seen in the past.
Okay. Thank you, Yves. Just a follow-up on cash flow. On your equity free cash flow, again, down 40 basis points in H1. Your tax payments were really low. Should we expect an increase in the second half or not?
Look, the reason for the relatively low taxes we have seen in the first half was, if you remember, the one-off we had in Spain, which was basically a repayment from the tax authority. We have commented on that in Q1. For the remainder of the year, you can assume to see something similar than last year. The only thing you need to deduct is basically this one-off.
Okay. Thank you.
The next question comes from the line of Jon Cox with Kepler Cheuvreux. Please go ahead.
Yeah. Good afternoon, guys. Jon Cox, Kepler Cheuvreux. A couple of questions. Actually just coming back to what my colleague said on the underlying EBIT or underlying profit now is a key or is a KPI for you guys. I think the guidance at the start of the year was flat to maybe down a little bit. We're now running down well over 100 basis points on that. I'm just wondering where you think it will come in on the year. You're mentioning that some of the pressures are the new contracts coming through. I'm just wondering, do you think that will unwind as those contracts gain a head of steam, or did that come up?
If you already knew that these new contracts were going to be higher last year, I'm wondering why this wasn't sort of included in the guidance at the start of the year. That's the first question. Just really, where are we going to come in on the underlying operating profit? Why didn't you see it maybe a bit before and why are we running down over 100 basis points at H1? It looks like it's going to be very difficult to make up in the second half of the year. The second question, just on the improvement in trading, which is obviously very encouraging. I seem to remember that the slowdown in Latin America probably started towards the end of July last year.
The fact that you're already growing at 3% in the first few weeks, obviously before you start hitting the really, really easy comps, is quite encouraging. I wonder if you just confirm that the slowdown last year started towards the end of July. When you're talking about the pickup in organic sales to 3% in the first few weeks, that you're not really running into that very easy comp. Just the last question on M&A. What should we expect going forward in terms of M&A? Do you have anything sort of may come through in the second half of the year? That sort of stuff. Thank you very much.
Let me start with the first and the second question, and then maybe Julián can answer the M&A one. First of all, about the EBIT or the operating profit. Look, what we provide as a guideline of flattish margin is basically for the medium term. We have seen now so far this year some pressure. That's correct, as you have mentioned. But we are convinced that during the second quarter we can catch up part of that and then probably also in the next couple of quarter the remaining bit of that. It probably will take a few quarters, but in the medium term, we believe, or we are convinced that our medium-term guideline of flattish margin holds true. For the second question, you're right.
The slowdown in South America, we have basically seen, if I remember correctly, last year by the end of July, last week of July, around that time. Therefore, obviously the comps are becoming a little bit easier from now onwards.
Regarding, Jon, regarding M&A, this is Julián speaking. I confirm the same thing. We are very active and looking for opportunities. We have several small and middle-sized opportunities that may materialize, but it's obvious I cannot confirm that it's going to happen, because this depends on other decisions, too, on the seller's decision. We are very active, and we would like, during the second part of 2018, to materialize one or two of these opportunities.
Thank you.
The next question comes from the line of Joern Iffert from UBS. Please go ahead.
Hello, Julián. Hello, Yves. Thanks for taking my questions. The first one is also coming back, please, to the adjusted EBIT being down around CHF 25 million year-over-year in the first half. Can you tell us, are the new contracts loss-making in Q1 and Q2 on EBIT level? Is it only really the concession fees and personal expenses going up, impacting your performance here? Second question is on net new shop expansion. It slowed down somewhat in Q2 versus Q1. Have you lost a contract, and if yes, where has this happened? I think some new contracts are annualizing by Q4. Is your pipeline strong enough that you can maintain that new shop expansion growth between 2%-3%, also in Q4, the first half 2020? The last question also to follow- up from my colleague.
The adjusted EBIT year-over-year for the second half, can we expect here some stabilization, some positive growth year-over-year? Many thanks.
Okay. I can start with the first one. Yes, with the new accounting system, with the new accounting standard, sorry, we have some operations with losses at the EBIT level that will be corrected during the second part of the year, especially during the Q3. The second question, sorry, Joern, I couldn't understand exactly the question because I couldn't hear. What was the second question, please?
Yeah, sorry for this. The net new shop expansion slowed down in Q2 to +2.3% versus Q1 +3.3%. I was wondering if you lost a contract anywhere, which is worth to highlight?
Yeah. Sure. I see. No, we have not lost any contract during this year. I think it's just the annualization of the comparable. I think in terms of the second part of the year, we have some contracts that will start alone Q3 and Q4 that will mitigate this 2.3%. Regarding the pipeline in Q4, I think the point in Q4 is that we have probably, in terms of number, higher number of opportunities that will be generated during the third quarter and fourth quarter that we are expecting during the next weeks' news. I don't think so. I think it will increase, the number of pipelines. Not only will we maintain, will increase. There is another one from adjusted EBIT.
Sure. Look, we expect a sequential improvement of the operating margins in the next quarters. We have seen that already in Q2, which showed a better development than Q1. We expect this trend to continue over the next quarters.
Is it too early to say if adjusted EBIT in total terms in the second half 2019 could grow positively year-over-year?
No, look, Joern, it's really hard to say. As you know, we typically don't give guidance on the full year, but look, it's hard to say, and as I've mentioned, we expect it to improve gradually over the next quarters.
Yeah. Fair. Many thanks.
Thank you. Anything else?
The next question comes from the line of Rebecca McClellan from Santander. Please go ahead.
Yes, good afternoon. Just three small questions from me, please. Firstly, can you guide to what your expected new concession contribution would be for the second half? Equally, it looks, according to slide 20, that FX is probably going to be a similar drag in the second half as it was in 2Q. Would you concur? Then just, could you comment a little bit more on the U.S.? Hudson in particular was talking about the impact of the pressure from Chinese or lower Chinese spending on duty-free. How much of duty-paid would be Chinese, if any? So any comments on that, please?
Yeah. The new concessions during the second part of the year, as you know, Rebecca, we don't give guidance in this short period of time. I think it will be obviously a similar level than during the year, but I prefer that we don't give guidance for one quarter.
The second is Chinese. Obviously, the Chinese are having an influence in the performance of our duty-free in the U.S., especially because the drop in spend per passenger. There are two aspects here. One is the type of Chinese the profile of the Chinese traveling to the U.S., and this is having an impact in the performance, number one. number two, what we have seen is a slight recovery of this spend per passenger over the past months. I think it's very early to say what is the final conclusion. In general terms, we don't have any issues with the Chinese. Worldwide, we are satisfied with the performance. The only place has been the U.S. and Canada.
Okay, thank you.
Okay.
The next question comes from the line of Andrew Pentol from TRBusiness. Please go ahead.
Hello, good afternoon. Thanks for taking my call. I just wanted you to elaborate a little bit on the Brazilian border stores. Can you tell us whether the store will be a new generation store? What are your expectations in the early going, given the ongoing challenges in the country? Just maybe give us a little insight into the planned offer in the store. Also, I want to just talk about following the RegStaer acquisition. Just obviously, you mentioned the opening of a store in St. Petersburg arrivals, and I just wanted to ask you how big an opportunity is it for the company with the Russian arrivals business for you? Thirdly, with the cruise business in the Caribbean also booming, how do you assess the potential in the coming year in that area?
Okay. Thank you. Regarding the Brazilian border shops, I think it's important to really remind that we have been really chasing this opportunity for many years, and finally, the legislation by the local governments was issued. We have been convinced that one of the most important drivers for growth in our travel retail business in Brazil was, at that time, the border shops. Why? Because obviously there is a significant border shops business on the other side. Personally, I cannot give you any guidelines or expectations in terms of performance. First of all, because it's the first time this business is existing. Secondly, I think to put guidance publicly is a very risky thing regarding obviously the competition in this area. We are convinced it's going to be a very good business for our existing operation in Brazil.
Regarding the M&A, I already confirmed that we are very active in terms of looking for opportunities. There are two aspects here that are very relevant. One is which territories, and the other one, which size. In terms of territories, what we have said is that we are pursuing opportunities from Middle East to Asia, meaning in the current division number two. It is for us a priority to allocate capital in Asia. The second one is the size. The size, I always said that it's middle and small size acquisitions that could be easily integrated and could deliver synergies and cost efficiencies quite straight. Regarding the arrivals of St. Petersburg, I think in Russia in general, we are obviously convinced that it's going to be a good level of expansion for the business in Russia. It's a different business than in the business that exists in Brazil.
It's a completely different one, and it's not going to have the same impact. Even so, will facilitate the growth in Russia. In terms of the cruise business, we are today participating in the most important developments of any cruise line in the Caribbean. I think next year is going to be really the year of testing how important is this business for us because we are along 2019 and beginning of 2020. We are adding to the portfolio of ships around 30 or 35 new ships. That depends obviously on the handle from the cruise lines. In our opinion, in 2020 is going to be for us a real test about the performance of this business, especially in the Caribbean.
Thank you very much.
Okay.
The next question comes from the line of Jaafar Mestari from Exane BNP Paribas. Please go ahead.
Hi, good afternoon. I've got two questions, please. One on cash flow and one on the alternative channels. Going through your cash flow statement, you had a cash lease payment of CHF 511 million in H1, and that's materially lower than the combined P&L lease expenses, which are around CHF 600 million between the right of use depreciation and the lease interests. You've talked a little bit about front-loading in the lease interests, which helps explain it, but your cash payments are actually even lower than just the right of use assets depreciation. I know it's been the same in full-year 2018 in your pro forma. I know it's been the same in Q1, I'm not saying it's unusual, but it's quite a big delta, could be quite material to cash flow.
My question is: Can you remind us why your P&L lease charges seem to overstate the cash payments that much, and whether you'd expect this delta to remain the same or to progressively come down?
Sure. Thank you very much for the question. Look, it's probably a little bit technical, but in principle, there is no connection between what you see on the P&L, the three elements, i.e., lease expenses, depreciation, right-of-use, and lease interest on one hand side, and what you see on the cash flow statement, which is the lease payments.
It's probably one way to look at it is to take the lease payments as basically a complement to the lease expenses you already see on the balance sheet. On the P&L, sorry. You have the lease expenses, which is part of the cash expenses, and then you have the part from the cash flow statement, which is the lease payments, and those two elements together basically give you the full picture from a cash flow perspective. I don't know if this makes any sense. I think it's really a little bit technical, so if you want, we can also take it offline.
Yeah, that'd be useful. Just broadly speaking, last year, for example, your cash lease payments, if I'm correct, in your pro forma for 2018, was around CHF 1 billion. Your combined charges in the P&L were about CHF 1 billion and 115, and that's not unusual. There's no reversal through the year. Towards the end of the year, it's completely normal if there's a delta there. It doesn't indicate one's going to converge towards the other.
Well, look, it really depends on the structure you have. As you know, basically for the IFRS 16 impact there, we just consider the contracts which have a fixed component, i.e., fixed minimum annual guarantee. The P&L movements or the positions you see on the P&L and the ones you see in the cash flow, there is a certain disconnect between the two. Look, more than happy to guide you through that. We can take that offline. Again, it's probably a little bit technical, but more than happy to look at that.
All right. Thanks. My second question is on the alternative channels. I think it was back in 2015 already that you mentioned the opportunities, cruise lines, border shops, and downtown duty-free. Cruises, it has been happening for the past few quarters. Border shops, it looks like it's finally happening. My question, I guess, is under what time horizon is it realistic to expect you to address downtown duty-free on the bigger scale?
We are now developing downtown duty-free in Macau and in Malaysia. In terms of the bigger scale, I would say along 2020, not this year.
Okay. Thank you very much.
The next question is from Jon Cox with Kepler Cheuvreux. Please go ahead.
Yeah. Thanks for letting me have a second go, as it were. I just have a question on, you talk about M&A yourself. We've had two years now where the stock has been under a lot of pressure, and obviously now HNA has washed out, and there was speculation that maybe HNA would be interested in taking over at one point, and obviously that's probably part of the reason why the stock price is where it is. Just wondering if you've had any other approaches at all from potentially other interested parties, given you are a pretty unique asset, and you are pretty attractively valued currently. Thank you.
Obviously, it's a difficult question to answer. I think in terms of other interested parties, I can say there are not any type of negotiations or any type of processes today regarding this specific subject. What I can say is that if you see obviously the strength of our shareholders' base is explaining what you are partially obviously commenting on. I think the investment from Richemont, that is a strategic investment, is one of the most important in our view in order to develop partnerships with brands like the brands they hold. In terms of the shareholder base, the most important and relevant is that we have a very solid base of shareholders interested to develop the value of this company. As you know, we have been historically considered an equity growth story.
I think during the time that we have been an equity growth story, the valuation of the company was in terms of multiples of EBITDA above 10. Gradually, due to the size and due, obviously, to the conditions of the market too, conditions that have been also linked with the perception like we are a retail company, we have moved from this growth story to a value story. I think this is, in my view, one of the most important reasons. Obviously, there is not a black and white reason why we are in the situation we are today. I think what we need to do is to really accelerate the growth in travel retail. In fact, the possibility is true, is still valid. The assumption of growth in this business is still valid.
What we need is a combination of, in the past, organic growth and new companies and new acquired companies, acquisition, that will bring the company to this level between 8% and 10% in gradual growth. Of course, to continue with 10% during 14 years, again, 20% growth top line during 14 years again, is going to be very difficult. In terms of achieving between 8% and 10% per year, with a combination between organic growth, including new concessions and like-for-like, and including a small middle-size acquisition, is a possibility that is a real, obviously, fact. I think this is the point. Behind this strategy, there are other possible shareholders interested. I think this is also an important discussion that is more at the shareholders level, more than at the management level.
From my point of view, what I say is the shareholder base we have today is very solid. They have confidence in the company. They have shown this confidence for many years. Today, what we are trying is obviously, is present a case that will be attractive for the shareholders like in the past.
That's really useful, Julián. Thank you. When I look at the shareholders' pact, which you're part of, and the board, et cetera, it looks like actually somebody sold out because I think it's gone from about 18%- 15%. I'm not sure if it's just the use of options, because I know you guys use a collar on that. I wonder if you give me any comment on that. I was thinking maybe one of them may have sold out. I haven't seen anything officially communicated. By way of a follow-up, do you guys have any thoughts on remaining independent? If somebody came in and made you guys an offer, would you have a look at it?
Are you saying, no, we want to maintain our independence, and given the fact you own 18% of the company or close to, you obviously can block any takeover.
Well, regarding the first question, I think it's obvious that nobody has disclosed any type of sale. Not to my knowledge. I think it's something technical from this collar structure point of view. I don't think that anybody will confirm in the near future that they have sold or in the past, they have not confirmed it. I don't think that it's going in this direction. The second part is a more strategic question. I think this is a situation where the valuation we are today can be obviously part of the discussion. In our case, it's not part of the discussion. In our case, what we are talking about is a company that has a significant good position and strength when we compete with other competitors, less transparent than we are.
Being a listed company is a very good strategic position for a company involved in the concession business. In the future, everything could happen. If you are asking me today, I don't think so. I think it's better that we remain listed, and we obviously remain in a different scope of equity story, not in the value story.
Great. Thank you very much.
The last question for today is from René Saner with Octavian. Please go ahead.
Yes. Hi, guys. Hope it works now. Three questions from my side. One, a follow-up on the border shops. I believe to recall that you're working with a local company called Brasif. If you just could remind us of the terms of this collaboration, and you mentioned 32 twin cities, what are the plans or the rollout of further border shops going forward? Secondly, also in Brazil, now we finally had border shops moving through Congress. There is the duty-free allowance, which has been also held up for quite a while. I believe the proposal was to increase it from $500- $1,200. Is there any movement on that side? Thirdly, on Spain, I just wanted to understand the rationale. A third of your refurbishments, 11,000 sq m , has been done in Spain, and the contract is only running another year or so.
What is the commercial rationale, or is this more of a, lack of a better word, a marketing expense to show Aena what you can do commercially for them going into these renegotiations? I believe they report tomorrow the numbers. Is there any news or do we expect any news to come out from Aena with respect to the tender? Thanks.
Thank you, René. Regarding the border shops, it's the same structure that we are using for operating the airport shops. We have a minority partner, but the full operation and the control of the operational side is in our side. It's nothing different. This border shop is just like an airport shop. It's nothing different. We don't have a local partner for the border shop in terms of operating the border shop. What we have is a local partner for operating in Brazil, and this is something disclosure and for many years known by the market. Regarding the duty-free allowance is obviously something also important. We have been for many years waiting for implementing and increasing the allowance. As you know, just applying the U.S. inflation rate to the original $300, then $500 allowance, this number should be even close to $1,500.
What we have heard is that the government is considering to approve $1,000. What is the meaning of that? Is that we will be able to sell products increasing from $500- $1,000 unit price, and that the sales ticket, the amount per ticket could reach $1,000. The origin of this consequence is that we will be able to display in the shops higher price point of view products, and also we can sell more per ticket. As you know, we are limited in Brazil, that is 65% of the total business, arrival shops. With this increase, obviously, it's a significant good news for us. It finally is approved that I hope will be in the near future. Regarding Spain, obviously, there are two answers to the question. The question regarding why are you investing in Spain if the contract is until the year 2020?
The number one answer is that we are contractually obligated. We have a limit, a threshold investment obliged in Spain, that if we don't invest, we need to return the capital to Aena, to the port authority. In this case, obviously, what we are doing is investing in the shops, number one. Number two, the main reason for investing in the shops is the test that we agreed with Aena in order to show Aena that there is a different way of operating these travel retail shops in terms of performance. The only thing I can say, and probably Aena will explain it better tomorrow, is that the tests are really good, and the performance in those tests is very good compared with the standard performance in Spain today. We are very satisfied, and the investment has made a lot of sense.
Okay. Do we expect Aena to elaborate on the tender process anytime soon?
I don't know. I don't have a clue. I don't know. Obviously, October 2020 is far away from now. I think there is enough time in order to decide whatever they want.
Thank you very much.
We have no more questions.
Okay. Thank you very much for participating in the call. As always, we remain at your disposal in case you need something. Thank you very much.
Thank you very much.