Earnings Call: Q1 2019

May 14, 2019

Ladies and gentlemen, welcome to the Dufry's First Quarter 2019 Results Presentation Conference Call and Live Webcast. I am Sandra, 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. The presentation will be followed by 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, operator. Good afternoon and thank you for participating in Q1 results call. Presenting the results here today are myself, Julian Diaz, CEO and Yves Goester, for the first time, new CFO. As in previous calls, we are going to use the presentation disclosed today on our website. Let's move to Slide number 3. You can see the topics for today's call. I will first review our operations performance in the period, then we'll first present implications of IFRS 16 implementation done as of 1st January this year and also present the KPIs which we have aligned with IFRS 16 and that which will be using going forward. He will then continue with the presentation of Q1 2019 financials. To conclude, I will return for our trading update and our performance so far in 2019. Let's continue with Slide number 5. As a preliminary remark to this Q1 results, which show a positive start into the 2019 business year and an organic growth of 2%, I would like to remind that we have been implemented for the first time this year the IFRS 16 accounting standard, which impacts both our balance sheet and P and L and thus reduces the comparability with the related previous year periods. However, it is very important to note that IFRS 16 will not impact our economic performance and will not change our strategy and the way we run our business. I continue with Slide number 6 with the highlights Q1. Dufry delivered in 2019 Q1, a turnover growth of 3.4 percent reaching CHF1.882 billion, to which organic growth contributed 2% despite the shift of Easter holidays in the 2nd quarter. Excluding Brazil and South America, organic growth increased by 5.6%. We also continued to expand our gross profit margin, which grew by 40 basis points, reaching 60.3% compared with 59.9% in previous year. The following 2 KPIs are new and have been introduced in the context of the first time implementation of IFRS 16 as 1st January this year. Thus not comparable to previous years, the impact of IFRS 16 implementation and the details of the new KPIs adopted will be explained by our CFO, Yves Goester. The first new KPI is adjusted operating profit, which reached CHF 46,000,000 in the Q1 2019. And the second is adjusted net profit, which amounted to minus CHF8.8 million. As you know, Dufry's business has always had a pronounced seasonality for cash and profit generation during Q1. In the Q1 2019, our adjusted operating free cash flow reached $159,300,000 compared with $164,700,000 in 20 19. And the equity free cash flow came at minus $123,000,000 compared with $103,000,000 in 20.18. As mentioned, the 1st and 4th quarter are the less important forecast generation. Let's move now to Slide 7. Moving on to the operational developments, we continue to grow our retail space by opening 9,100 square meters of retail space across 86 shops, which include new shop openings and space increases in existing locations. We are also continuing to execute on our refurbishment plan with the renewal of 14,400 square meters across 27 locations. At the end of March, we have already a portfolio of 18,800 of signed contracts to be opened along 2019 beginning 2020. I would like also to mention the new organization, which we announced in mid January this year. Everything is now on place, and we created the new division Europe and Africa by combining the former divisions UK and Central Europe with Southern Europe and Africa. This will allow us to accelerate our custom focus and the commercial decision process in order to be closer to the market by consolidating the collaboration of 2 institutions online of managing the commercial side, the global platforms and the commercial departments in the divisions. I would also like to confirm the continuation of the dividend policy in this first in this Q1. Our shareholders have approved the dividend payment of CHF 4 per share at the AGM held last week. As compared with last year, the dividend has increased by 6.7%. If we move now to Slide 4, we will comment on the organic growth. We have continued to improve in positive territory with the turnaround trends seen in the Q4 2018. Organic growth reached 2% and saw a positive development of all divisions, except for South America where the situation in Brazil and Argentina remains challenging, especially we are talking about countries where Argentinians and Brazilians are the important ones in South America. Excluding South America, the group organic growth reached 5.6% increase. As you can see in the bottom chart, Europe and Africa has further improved by doubling their performance as compared with last year. Asia Pacific and Middle East have continued with a double digit growth on top of the double digit growth last year, despite obviously the high comparable. And as mentioned, South America remains challenging, both because of the unchanged economic environment and the high comparable that this region reached last year. If we move to Slide 9, we will comment division by division. Organic growth in division Europe and Africa improved by 2.4% with doubles the performance in Q1 2019. This has been driven by first a positive contribution from the UK, in general also by its new cruise business and Seco by an improvement seen in Spain where we have implemented several commercial initiatives announced during 2018. And third by the good performance in several other countries such as Turkey, Italy and most of African operations. In Slide 10, division Asia Pacific and Middle East. We are reporting an ongoing high double digit growth of 17.3 percent by this obviously duty free new concessions, MTR, that I announced a couple of times last year and also the new duty free shop at 1st April. Within this division, Instant 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 Indonesia besides obviously the aforementioned performance of Hong Kong and Australia. In Page Slide number 11, North America delivered a resilient performance, which improved to 5.3% as compared with the Q4 2018, but stayed below the Q1 2018, where we have seen a high single digit performance. The main factor here were the ongoing healthy performance of the duty paid operations, while we saw some of the duty free locations being impacted by the lower spend of Chinese passengers, especially in Canada. If we move to Slide 12, Central and South America. The overall performance of the division has remained at the same level of Q4 2018, reporting a negative organic growth of minus 10.8 percent and still impacted by both the high comparables of the previous year and the our operations in Mexico and the Caribbean as well by the ongoing high double digit growth of the cruise business supported by the start of operations on board new ships. In 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 Q1 2019 has continued with a healthy increase of 5.4%. As we can see from the outlook chart on the right, also expectation continue at levels about 5% for the next 2 years. With respect to openings and closings, in slide number 14, in the Q1 2018, we have continued with our expansion of retail space by opening a total of 9,100 square meters of new retail space. The main highlights of the openings were 4 stores in Casablanca covering 4 30 square meters, a new shop in Helsinki 3 10 square meters, Cnew stores in China with a total of 3 30 square meters, 17 shops in Russia with 9 60 square meters of retail space, 14 shops across several locations in North America and a total surface of 18 90 square meters, And finally, 70 new stores on Boracis new ships with a subspace of 12.30 square meters. Looking at the refurbishments, we have been quite upbeat on the renovation of our operations as we have been renovating some important stores with considerable sizes in the Q1 2019 for a total of 14,400 square meters. The most important one are listed here. These two areas of discussion, gross retail space open and shops refurbished are really the basic key pillars for developing organic growth. If we move to Page 15, talking about new space signed. Among the new space signed until March 2019, we have a portfolio of 18,800 square meters to be opened during 2019 2020. The most relevant ones are as follow: further expansion in our cruise division with operation in 16 new ships and new storage at Petersburg with over 900 square meters, 18 shops in Boston totaling 1100 square meters, 7 stores in Indianapolis with 600 Square Meters and 3 new stores in Nassau across 500 Square Meters. Moreover, we have an important project pipeline, 35,500 square meters, we are currently obviously negotiating or participating in tenders. These potential opportunities are well distributed across several divisions such as Europe and Africa, Asia Pacific, Middle East and Central and South America. If we move to Page 16, resolutions of the AGM. On Slide 16, I would also like to give you a summary of some of the main resolutions approved by shareholders meeting on Annual General Meeting in 2019. First, our shareholders have approved the cancellation of 3,304,541 shares both in the share buyback program. Please note that this cancellation has a total accretive effect of 6.5 percent. And second, the AGM has approved the payment of a dividend of CHF 4 Swiss francs increased from CHF 3.75 last year. The increase of 6.7% has been decided based on the strong equity free cash flow we have generated in 2019. It was also an important decision, the appointment of a new member of the Board, Mr. Luis Maroto, CEO in Amadeus that will contribute a significant know how about the travel market and the IT developed in the travel market over the past years by Amadeus. I will now pass the floor to our CFO, Itz Gersner for his comments on the implementation of IFRS 16 and the financial statements Q1 2019. Thank you, Julian. Good afternoon. Before we get started, let me quickly introduce myself. I have been with Dufry for 13 years now in different positions within finance, most recently as Director of Treasury and Shared Service Centers. I have taken over the CFO position from Andreas Schneider on April 1, and I'm very pleased to be with you here today. Having said this, let's move on to Slide 18 and to introduction of IFRS 16. As you know, we adopted IFRS 16 in January 2019. The new standard brings profound changes to our financials, especially as part of the leases are now capitalized. As a consequence of the changes, we have adopted the set of KPIs we use to measure the performance of the business. It is important to note, the new IFRS standard has no economic impact on Dufry. This is evidenced especially in our cash flow statement, which remains largely unchanged. If we move to Slide 19, here is a summary of the main impacts on our financials. The starting point is the balance sheet where a lease liability and the right of use assets are recognized. In the case of 2 3, only the fixed minimum annual guarantees are capitalized. In the income statement, we see the consequence of this. Concession fees, which formerly were part of selling expenses, are now reflected in 2 separate lines. Lease expenses, which contain the variable component of the concession expenses and depreciation of right of use assets. As an additional effect, there is an interest charge on the lease liability. To the cash flow, as already mentioned, this remains largely unchanged. On Slide 20, a summary of some very important aspects you need to keep in mind. First, the amounts capitalized on the balance sheet do not say anything about the quality or profitability of the concession portfolio. Contracts with very different economics and risk profile may have a similar impact on the balance sheet. Also Dufry is seeking for long term contracts. The second very important point is the so called front loading effect. Due to the lease interest charge, net earnings are affected negatively at the beginning of a contract and positively in the second half. 3rd important point. Over time, the balance sheet positions as well as the P and L will develop quite dynamically. Renewals and new which contain fixed lease components will lead to additional capitalizations. As we will see later, the amended KPIs were designed to deal with this issue. Last but not least, it's not too much to repeat that the new standard has no economic impact on the group. Let's move now to Slide 21 and explore our KPIs. As mentioned, we align our KPIs with IFRS 16. As an example, EBITDA is no longer a meaningful KPI anymore as it doesn't include all concession related expenses. On the next slide, I will guide you through the amended and new KPIs on a step by step basis. On Slide 22, we see our first KPI, adjusted operating profit, our adjusted EBIT as you prefer. The only adjustment here is the PPA amortization. This should be a concept known to you as we always added this back to our profits. We like this KPI as it provides for a good operating profit metric using the current elements of the income statement. Moving to Slide number 23. Next is adjusted net profit and adjusted earnings per share. We have done some additional adjustments due to IFRS 16, however, still very close to the former KPI cash EPS. Moving to the Slide 24, the cash flow KPIs. As mentioned, the impact of IFRS 16 on the cash flow is very small. Therefore, the cash flow became by far the best way to measure the performance of the business. This is a new KPI. As mentioned before, in the way IFRS 16 works, part of the concession payments are now reported as cash flow from financing activities. By adding lease payments, as shown in the table on the right, we have a very good view on the cash generation by operation. The beauty about our adjusted operating cash flow, it is a good proxy to the former EBITDA. We will see that also later when we are talking about the financial covenants. Then finally, on Slide 25, we have the equity free cash flow. Here, we have no changes as IFRS 16 has no impact on it. This concludes the KPI that we will be using going forward. Let's then move on to Slide 26. IFRS 16 also resulted in a change in our covenant calculation. Adjusted operating cash flow replaces EBITDA as a denominator. Net debt continues to be defined the old way, I. E, not considering lease liabilities. With the new calculation, the covenant increased slightly, which is reflected on the bottom right chart. We therefore increased the threshold from 4x to 4.5x to maintain the headroom under the covenant. Again, this is purely due to the calculation and does not reflect the change in risk profile of the company. So that was a quick understand when I will go through that in more details. If you are not able to attend the event, the presentation will be available and feel free to reach out to the IR team to schedule a call. The team is delighted to answer any questions you may have to IFRS 16, the new KPIs and obviously also to any other questions or comments you may have. Let's move now directly to Slide 28 to discuss the Q1 financials. Julian already commented on organic growth, so let me just emphasize 2 messages here. First, we are pleased with the continued improvement of organic growth in the Q1, despite the shift of Easter to April this year. Secondly, that we achieved this despite the challenging conditions in South America. Looking at the currencies, challenging environment in some of the key currencies, especially due to the Argentinean pesos and Brazilian real. On Slide 29, we have the FX impact on turnover. We had a positive FX impact in the Q1, a result of the strengthening of the U. S. Dollar versus the Swiss francs. As you can see on the bottom left chart, the impact would have been more positive if it wasn't for the euro and pound sterling going in the other direction. Let's now move to the income statement on Slide 30. Okay. So there are a number of things to understand in this slide. Let me walk you through that step by step. The first element I want to focus is the 2nd last column called comparable. This is very important because given we have not restated 2018 figures, the Q1 2018 reported and Q1 2019 reported are not directly comparable for the most part. For this reason, we have pro form a adjusted Q1 2018 in order to provide you with a better comparison with Q1 2019. The adjustments provide you with an indication of the magnitude of IFRS 16 would have on Q1 2018. Again, it's important to keep in mind, it's just a pro form a calculation. Before going into details on the P and L, let me repeat again. The best way to measure the performance of the company for the Q1 is to look at the cash flow. Having said this, we can now go into the most important changes. I will use the reference we have in the last column called note to guide you through. Note 1, this reflects one of the biggest changes. Only concessions or part of concessions, which are not capitalized are shown here as expense in Q1 2019 and Q1 2018 pro form a. On top, as we are bridging from the former selling expense line, some expenses related to concessions not related to concessions like credit card fees or packaging, etcetera, were moved to the line called other expenses. Moving to Note 2. Other expenses has only a small impact from IFRS 16. The biggest impact in the line is from reclassifications. On top of the portion that came from selling expenses, the former other operational result line is reflected here. Note 3. Here, we show the new account depreciation of right of use. Note 4, this reflects the new interest charge on the lease liability. Finally, Note 56 are the consequence of all the items above in both taxes and minorities. Moving on to Slide 31. Let's focus now on the 2 income statement KPIs we will use going forward to measure the performance of the business. As I already explained the concept before, let me go directly to the analysis. As you can see in the top table, adjusted operating profit reached CHF 46,000,000 from CHF 80,000,000 the year before. So again, Q1 2018 is just as an indicative pro form a calculation, so take it with a pinch of salt. On the positive side, gross profit expanded by 45,700,000 as a combination of turnover growth and gross margin expansions. On the other hand, personal expenses increased by close to CHF 23 1,000,000. Most of the changes can be attributable to our North American business, where we see from an a decrease in minimum wages and additionally, this quarter, a one off expense related to changes in the management stream. Expenses also increased in lease expenses and depreciation of right of use. As explained before, these two lines will vary dynamically going forward as a result of new contracts and renewals. Moving to the table below, where we show the adjusted net profit and the adjusted earnings per share. Here, we have most of the items relatively in line with last year, so I will not comment on those. The only point I would like to highlight is the accretive effect of the share buyback program executed last year. If we go now to Slide 32, where we have a summary of the cash flow. Let me repeat once more because it's really important. Going forward, the cash flow is the best way to measure the performance of the business. Besides the main KPI you see on top, it is important to remind you about the seasonality of the business. Adjusted operating cash flow is very This seasonality is also reflected in the equity cash flow with Q1 and Q4 typically being negative. Just to clarify once more, Equity free cash flow is expected to be in the range of CHF 350,000,000 to CHF 400,000,000. This is also valid for this year. For the medium term, we expect equity free cash flow to grow in line with the top line. Let's move now to Slide 33. Here we have our typical cash flow summary as you are used to see it in our presentation. The only difference here is the second line, lease payments. As mentioned before, IFRS 16 requires us to reflect lease payments and cash flow from financing activities. But as lease payments in our case are clearly related to the operations, we added back to the operating cash flow. The first big mover here is cash flow is net working capital. I will talk about that on the next slide. Next, we have the income tax, which was close to 0 in Q1 2019. This is the result of the tax refund received in the period. If it wasn't for this, income tax would have been similar to last year. All the rest is pretty much straightforward. Moving to Slide 34. On top chart, we see the core net working capital evolution, which is higher in Q1 2019 compared to Q1 2018. There are 3 main reasons for the change: 1st, the shift of Easter to April 2nd, the continued weak trading in South America and third, the new operations we have opened in the last few quarters. CapEx in Q1 stood at 3.1% over turnover, fully in line with our guidance of 3% to 3.5 percent over turnover. If we now move to Slide 35. Slide 35 displays our balance sheet the summarized way we like to show it. The big change here, as you can see, is the addition of the right of use on the asset side and lease liability on the liability side. Going to Slide 36, I wanted to focus on the 2 chart at the bottom. As mentioned before, we have redefined our main covenant. The left chart shows the evolution of the former concept and on the right side, the new one. You can see clearly that we continue to have a comfortable headroom the new definition. If we now move to Slide 37, all remains pretty unchanged here. We remain having a well balanced maturity profile with no maturity before 2022. Okay. This concludes my part of the presentation. Julian, back to you. Thank you, Ibs. I now move to the Slide 39 for conclusion and trading update. In the Q1 of 2019, we have seen a positive start despite all the difficulties we have gone through in South America. We have increased organic growth by 2%. I think it's important to remark the improve of sales performance in Spain and also the contribution of 2 very successful activities in Hong Kong and in Australia. Performance today in April and considering that's only part of the Easter period has been accrued here. This day, the catholic part is 2.4%. That is still to be accrued during the 1st 2 weeks of May, the Orthodox Easter. But only with this, what we have confirmed is that the company is accelerating the increase in organic growth 2.4%. We also would like to confirm our mid term average organic growth guidance, between 3% and 4%. And regarding the equity free cash flow, I am going to repeat what I said during the quarter, within the last call presentation. In 2019, our target is to reach between $350,000,000 $400,000,000 increasing in line with the turnover of the company and also obviously depending on the circumstances. But I think in terms of the target, I want to be very clear just in case there is a misunderstanding. We confirm also our current dividend policy for the year 20 19. This completes our presentation and we can now move on to the Q and A session. We will now begin the question and answer session. The first question comes from Jon Yifert from UBS. Please go ahead. Yes. Hello, gentlemen, and thanks for taking my questions. The first one would be, please, on the gross profit margin expansion, which was healthy for the quarter. It seems majority of this is coming from North America. Can you help us to better understand gross profit margin trends in the other regions? Second question would be please on the category sales. You had a good boost in tobacco, wine and confectionery, but cosmetic, for example, was down. Is there a change in structure change? Or it's just a snapshot for the quarter and this will, yes, change the next couple of quarters again? This would also be helpful to understand. And then please, the last question on the concession fees. Again, up, if I calculate it correctly, around 130, 140 basis points even adjusting for the new accounting year over year. Is this annualizing then in Q3 once the new contract is annualized? Or shall we get used to a higher concession fee increase over a cycle versus your guidance of 20 to 30 basis points? Many thanks. Thank you very much for the question, John. This is Julian speaking. Regarding the gross profit margin, I think North America obviously during this quarter performed very well, but all the divisions performed well in step 1. And we are expecting that in 2019, again, we are going to see an increase of gross profit margin in most of the divisions. The reasons are, as I mentioned before, the continued activities started with the brands, especially in the brand plans, the increase of advertising or compensation regarding disclosure of the brands and also the negotiation processes with the local brands. As you know, I mentioned that still we have not developed this part of the development of the gross profit margin. Regarding the category mix, it's just a mix depending obviously on the circumstances because some of the operations that we have started during the last quarter of 20 18 are performing better in other categories, especially liquor and tobacco and the mix now is changing a bit, but the performance in terms of 2019, I don't think that the parcel and cosmetics will be impacted in the negative side. And finally, the concession fees that you may calculate, but it's very difficult because there are also in the depreciation line it's as you know, it's a discounted cash flow of the MAX. The reality is that it has been as always announced, we are expecting this year between 20 30 basis points in the full year of increase in the line of concession fees and it's probably a bit deeper the result here because the lowest quarter and the new operations started. But when the new operations will be normalized in 12 months, I think the 20, 30 basis points is a good reference in terms of growth of concession fees in 2019. Thanks very much. And if I may quickly have a short follow-up just to clarify on the cash flow, you had a tax present from Spain and so the equity cash flow was down, if I adjust for the tax spread maybe €40,000,000 €50,000,000 versus Q1 2018. I assume this is only coming from Easter predominantly, that Easter there's a time shift? Or any other structural things that we need to consider? So this one off tax payment, no, that's a one off event. So it's basically related to a tax payment we have done in earlier year, if I remember correctly, 2, 3 years ago. And that's basically the refund because that tax has been paid in excess of what is actually required. But we knew that this is coming at some point. But as the cash flow was weaker year over year in Q1, this has to do with the Easter timing, I assume, and that's the capital movement. Well, the Easter plays an effect, yes. As I've stated before, the net working capital was partially affected by that and obviously also some other effects. That's correct. Thank you. Thank you. The next question comes from John Cox, Kepler Cheuvreux. Please go ahead, sir. Yes. Good afternoon, guys. And the it is quite good to see organic sales accelerating and obviously gross margin gains coming through. But of course, a couple of bucks. On the adjusted operating profit margin for the year compared to what you've given us now for 2018, I. E, the €738,000,000 on the revenue for the year, should we assume that margin then will be flat? Obviously, it was down in Q1 amid that concession fee inflation and other bits and pieces going on. So the first question is, is that margin we could everybody's going to move to looking at the adjusted EBIT margin. I'm sure should we expect a flat margin year on year compared to that €738,000,000 we see on slide 22? I'm going to ask the same about the adjusted EPS now. You've given us a $7.50 figure for post IFRS 16 adjusted for 2018. Holding all other things equal, I guess we should assume that will go up this year at least in line with revenue if you have a flat margin at the adjusted operating profit level? That's the second question. 3rd one, just on Latin America. I seem to remember you saying in Q4 that Brazil was showing signs of improvement. Today, you seem to be saying no Brazil is going backwards again. Brazil and Argentina is still struggling. Wondering if you could give us a bit more granularity on that because obviously Brazil is an important market for you. And then I'm going to finish off if I can with the free cash flow question. Basically as Jan said, it's a €50,000,000 deficit more or less in Q1. You seem to be still saying €350,000,000 to €400,000,000 A couple of can I get some clarification? Some people out there seem to think you were giving guidance of whatever your equity free cash flow was last year plus your sales growth? I seem to remember you saying it was going to be between €350,000,000 €400,000,000 or if you could just give us guidance on that? And then as part of that, are you relatively confident that equity free cash flow will be higher this year than it was last year? So a lot of questions. I'm very sorry. Obviously, it is all new for us with this IFRS 16, but that would be very useful if you can just clarify those points. Thanks again. So, Luc, let's start with the first one. Thank you very much for your questions. On the adjusted operating profit, there, what you can assume is flattish performance during the year 2019. So it's basically similar to what we have commented before in the past on Sorry, that's margin or absolute? You're talking about margin, I guess. I'm talking about margin, yes. Yes, great. Then to your last question first on the equity free cash flow, there our guidance for the medium term remains the same. We are talking for this year $350,000,000 to $400,000,000 of equity free cash flow, and we expect this to grow in line with the top line going forward. So it's nothing changed to what we have stated before. Okay. And then on that free cash flow though, obviously, just to come back to question, you're €50,000,000 light in Q1 this year almost if you exclude that one off from the Spain repayment, etcetera. Are you confident that equity free cash flow this year will be higher than it was last year? Or you're saying, no, no, we want to strictly say between €350,000,000 €400,000,000 that's the guidance? Yes. So that's the guidance. So we will stick to that. I'm not saying it's higher or lower. It's between $350,000,000 $400,000,000 And the cash flow statement of Q1 is not changing my expectation in that respect. Okay. The next question comes from the line of Paul Bonnet, Bank of America. Please go ahead, sir. Have you answered everything? No, not everything, but you received. Okay. Just a moment. The question is regarding Latin America performance. John, at the time that we held the conference with the last conference call, Brazil, so a slight and I said this word, a slight improvement in terms of sales. During the quarter, it's exactly the same than the previous quarter. Both Argentina and Brazil are performing at the same level than during the last quarter 2018. What I have seen again in May, and I don't want to comment on very strongly about it because maybe in the future you will tell me about Brazil again is that Brazil is improving again compared with the Q1, the performance. And this is something that is happening during the last 2 or 3 weeks. Thanks. Next question. Can I ask my question? Yes, please go ahead. Sorry, guys. Hi, Pauline and Aviv. Yves, welcome again to the team. I have a couple of questions on my side. So I know you've done the pro form a numbers and everything, but my question would be on the margins. So obviously, the question on the concession fee increase has been asked. But if I just put everything into a brief summary calculation, I see margins, EBITDA margins down around 140 bps year on year. And even if I was to look just because of the 70 bps staff cost increase plus €130,000,000 to €140,000,000 increase in concession fees based on the pro form a numbers and the 40 bps increase in gross margin, obviously. And this is also reflected in the adjusted operating profit coming down almost 40% year on year. Would you still guide towards flattish margins for the full year is my first question? Then the second question is in terms of the current trading, you mentioned that we're now at 2.4 percent organic growth in April, which is an improvement. But I went back to the call transcripts of last year, and you were saying that Easter has generally a positive 70 bps to 80 bps impact. So because Easter fell in April this year, is it actually on a comparable basis almost a slowdown versus last year is the second question or at least not an acceleration? And then I would say as well, I've noticed that you have other financial income that have increased by €13,000,000 And what's the driver of that? And then maybe finally on I and I, if you can give us an update because I've seen that they intended to maybe break down the contracts more or something. So if you could give us an update on that based on what they said on their earnings call, that would be much appreciated. Thank you so much. Yes. So look, on the pro form a calculation, you mentioned at the beginning of your first question actually. So look, as mentioned before, concession fees and EBITDA, it's actually gone as a concept. So we are not looking at that anymore. The adjusted operating profit, again, I expect a flattish development in respect to margin over the course of 2019. Then let me quickly do the last question first because before I hand over to Julian for the second one. Other financial income, this you need to look at basically net. So you need to look at the income and the expenses net. There are a number of interest optimizations we are doing which result in interest income. But if you look at the figure net, then you get a pretty good understanding of our financing costs. From my side, Paul, regarding the Easter period, I have obviously comment on that is, this year, the complete Catholic Easter was performing including this was performing 2.4% at the level of organic growth. It's still missed there due to the seasonality. One important part of the Easter period that is the Orthodox Easter that happened during the 1st days of May. As a consequence, what you are seeing there is not the full effect of the Easter period for Dufry, it's only the catholic part. Imagine for one moment that we are talking about Russia, we are talking about Greece, we are talking about Turkey. There are specific destinations and origins impacted by this shift. But in any case, the 2.4% is including an important part of the Easter period. Regarding AENA, I don't know exactly what obviously their intentions are, but I know one thing for sure. They are today developing with us, as I mentioned before, 5 tests in order to understand if there is a new business model after 7 years of contract, of course, the business model has to be changed in order to drive more sales and as a consequence more income for the airport and obviously better profitability for Dufry. And the only thing I can say is the test already started in beginning of the year, in my view are very successful. And I think part of what is happening in the Spanish performance is due to these specific tests. And I hope that during the next month, the tests will be complete and we will be both parties in the position to negotiate a possible extension or a possible new relationship. I don't want to guess on what is the next step. The reality is that today we have a contract that will be terminated in October 2020. The second thing second fact is we are developing a project for understanding if there is a different way of operating the airports that were planned 7 years ago. And the third one is I know that Ierna is very willing to understand new formulas of collaboration with Dufry. I think that those are the facts. The rest, if there are intentions to do and a split of the concessions is something that in my view with Dufry, it has not been on the table. Understood. Maybe just one very quick follow-up question on that. On the earnings call, I think the CEO of AENA mentioned that in terms of profit, so in terms of EBITDA, estimated EBITDA of those contracts between €30,000,000 €50,000,000 from the past. But I would say in terms of earnings, the CEO of AENA seemed to be saying that you are positive. Can you give us a magnitude of the earnings that you make in Spain, just so we know what is at risk or not? Historically, I have been repeating one thing. We are in the concession business. In each location, it's a concession. And the incumbent, in our case, is we are incumbents in Spain. We have obviously the advantage of knowing the business and performing as obviously the best way possible. If I disclosure specific about concessions, then any competitor, if there is a tender, will be able to compete with us. For this reason, we don't disclose any specifics of any concession worldwide. It's a competition issue, no it's a financial issue, it's a competition issue. I am not going to create a competitive advantage to other competitors if there is a tendency. I completely understand. Okay, fine. Completely understand. Thank you so much. Thank you, Pavel, sir. Thank you. We have now a question from the line of Daria Fomina, Goldman Sachs. Please go ahead. Hi. Thank you. Thank you so much. I actually have 2 follow ups on the questions that were asked before and sorry if I'm being slow here. So the first question is on the concession fees. You mentioned that adjusted for the new accounting, they're going to come down in the second half of the year after the new contract wins annualize back to the 20 to 30 basis points growth year on year. Does that imply that the actual full year growth will be stronger than that because clearly the Q1 is higher? And then my second question is the question that was just asked on Easter, right? So my from the same conference call last year was that the Easter impact is bigger. Can you just clarify and say what was the contribution of this Catholic Easter in April data? And also on the Russian Easter and as a Russian person, right, it's not a public holiday. So I would assume that most of it most of the Easter benefit actually comes from the Catholic side of it, while you have a seasonally always strong May in Russia as it's a week off in the strong May in Russia as it's a week off in the region? If you answer those two questions, that would be very helpful. Greg, sorry. I will repeat probably something I already explained, but that doesn't matter. Let me try again. With the concession fees, the question was about more than the underlying concession fees because what you are seeing in the P and L is obviously a combination between the lease payments and the depreciation of the discounted cash flow, obviously the mark and on the formula. What I said is concession fees, as we've repeat in the past, will increase between 20 30 basis points per year. The impact during the Q1 is higher because the quarter is lower and there are new operations and I mentioned the operations that we have opened during the last quarter of 2018 that are impacting more in the lowest quarter than in the highest quarter basically because some of these contracts started to operate during October, November last year. What I said is when these contracts will be annualized in terms of comparing the performance, this 20, 30 basis points are still valid, but I am talking about underlying concession fees. Regarding the Easter period, in general, Easter represent between 60 and 100 basis points of increase compared with previous with a similar obviously with the previous year. In this case, it's 40 basis points because still there is there the possibility and I haven't seen the total numbers regarding the all sort of cannibal that another increase due to the Easter period will be accrued in May and not in sorry, in April. That is the information I have provided. But I am still in the same thing. When Easter happens, it's between 60 and 100 basis points of increase compared with the previous year. This is normally the formula. This year, I have comment on 40 basic projects and in the next call we will talk obviously about May June. That's very clear. Thank you. Thank you so much. The next question comes from the line of Rebecca McCallum, Santander. Please go ahead, madam. Yes. Good morning. Good afternoon, everybody. I'm Rebecca McCallum, Santander. I've got three questions, please, for Lianne and Yves. Firstly, can you just talk about your views on the minimum wage pressures in the U. S. When they're potentially going to annualize or if you see that as a pressure going through 2019? My second question is on sort of current new space, which is contributing quite nicely to organic growth. My understanding was that was largely coming from cruise and MTR. And is it fair to say that they're lower returns or lower margin businesses at this stage in their life cycle? And then my third question is just about the Chinese tender passenger in North America. So I think you mentioned that you were still seeing some weakness there. Could you sort of comment please? Thank you for the questions. Regarding the first question and the minimum wage, we have seen this increase of minimum wages along 2018 and especially during the 2nd part of 2018. And I think to be sure that we all understand the annualization will be starting in June 2019. Regarding the new space, most of the new space, no most, an important part of the new space is due to the cruise business and MTR, but also we have obviously important new shops in St. Petersburg and also in Perth. It's true that and I mentioned that the margins in the cruise business and the MTR business are lower than the average in the company. This is something that I already explained in the past. The only thing to add to this explanation is that the returns due to the type of business we are talking about are very similar compared with the April retail environment. Regarding the spent per passenger in South America, still is impacted. I think the problem in Argentina is different than the problem in Brazil. Let's say the problem for Argentinians is different than the problem for Brazilians. In terms of the problem for Argentina is the huge devaluation that happened compared with the the Argentinian peso last year. And this is impacting the operations not only in Argentina, also in Brazil because an important part of the customers, even that the number one customer in Brazil are Brazilians. The number 2 are Argentinians and it's obvious that it's impacting because the perception of price as you know, we nominate the prices in U. S. Dollar. What is happening with the spend per passage? In both cases, still is weak and still we have an issue regarding the impact of Argentinias and Brazilians in all the operations worldwide where we have these type of customers. My feeling looking at what is happening and I mentioned this before is that the case the Brazilian case will be faster in terms of recovery and that we are going to see from now on and I hope that is not going to turn around again and a slight and positive increase during the next month, especially during July August that are also good months in Brazil. Regarding Argentina, I don't think that in 2019, we are going to see a recovery in Argentina. But obviously, the comparable will be better as soon as obviously the devaluation last year is comparable with the devaluation this year. That will happen again from July, August, probably the best or the best, sorry. The most obviously way or the best way of explaining is that in Argentina and last year during the quarter, we have a significant hit because the devaluation started in September. Gradually, we are going to see probably a recovery, but it's because the comparables are going to be better. Okay. Thank you. And sorry, also could you just comment on Chinese spend per passenger in North America? I think in particular you made a comment about Canada? The subject that was mentioned in the pre release is regarding the Chinese passengers in North America. The Chinese passengers, especially in Canada, have been changing from the profile point of view. I think the evolution of the Chinese traveling is going to be significant because by 2020, it's expected that 200,000,000 Chinese will travel. And the profile, the average profile of these passengers is not the same than in the past where we used to see only high level Chinese passengers traveling, buying whiskey bottles of €30,000 or cognac bottles of $25,000 Now we have a more, I wouldn't say mass market, but still the spend per passenger with the Chinese is higher than with any other different nationality. But in 2019, what we have seen in Canada especially is the increase of this different profile Chinese passengers And the main subject regarding the drop in spend per passenger in North America is in duty free, I'm talking about duty free, is Chinese passengers and the main reason is the change of profile. Thank you, Helane. Thank you. Next question comes from the line of Edouard Aubin from Morgan Stanley. Please go ahead, sir. Yes. Good afternoon, guys. So Edouard Aubin from Morgan Stanley. So I have two questions. 1 on Thailand and another one on sorry to come back on the sales growth. But if we look at Thailand, I think the press is reporting that you guys are bidding for Bangkok Airport, which is a very big airport. So if you could confirm that's the case and then who you might be partnering with. And regarding Thailand, obviously, you have upside and downside, but we had example in the past in Asia due to the very competitive nature of this bidding process of some of your competitors incurring losses. So if you're indeed bidding, can you please reassure us that the terms could be structured positively, if possible? And just on the sales growth, I mean, Julien, you've been in this business for many, many, many years. When I if we step back and I look at your like for like sales growth, which has been basically negative for the past 3, 4 quarters, I understand obviously there is some impact of LatAm. But structurally, has the price gap between duty free retail and high street retail not narrowed now to serve to such an extent that that's that might not be a structural issue for the industry and the lack of course, basically, given that the world economy is relatively strong, has been relatively strong over the past few quarters? Thank you. Regarding Thailand, we have not decided yet if we are going to present our proposal. We are evaluating the project. And the only thing I can say is that whatever proposal we are going to present, if any, it will be with one thing that I think Dufry has been welcoming in the past is financial discipline. I think Thailand is a very important market and we are considering as an strategic move participating in this tender, but it's not decided yet and need to obviously will depend on the final conclusion with our partners. I cannot disclose the partner because we have a confidentiality agreement where we are not allowed to disclose partner until the presentation of the tender documentation. Regarding the sales growth, I think it's a very important question. The like for like that you have seen is a like for like that is impacted by one specific region in the past where South America and Spain and this year is only South America. What is the subject with like for like? Like for like is the way to express the same square meter sales compared 1 year to the other year. The impact due to the like for like drop in South America is significant. And I can't tell you the number. Excluding the South America business, like for like in the company increased during the Q1 2019 by 2%. I think that the business is still in a very good position, I am talking about travel retail in order to compete with other types of channels, for example, and you know the information. There are 2 channels today that are forecasted as the winners in the evolution of travel retail And then when the evolution of retail, one is online retail that from today to the year 2021 is expected to grow to reach 10% of the total retail sales worldwide around 16% and the second one is travel retail at least 6.7%. What is the positioning? And I think this is also very relevant regarding the pricing policy. Pricing is a very important subject in travel retail as probably you know, MineOne said is an independent institution and company disclosure, very specific information about this subject. Today, pricing or pricing sensitivity is the 4th is the number 4 issue when travel retail is welcoming customers in the shops. Number 1 is the variety of brands. Number 2 is the service. Number 3 is the opportunity to experience and to have experience in the shops and number 4 is pricing or relating with pricing. This is public information, you can check it. In my view, we are in a huge position, in a very good position in order to compete with any high street pricing development. And the like for like I mentioned to you excluding South America is confirming that. The travel retail is facilitating the customers to experience, to find the best brands and also to find the most suitable prices because as you know the prices in each location are not nominated based in the country, are nominated based in the country of origin of the passengers in order to facilitate the like for like growth. And I am not convinced because this is you cannot guess what is going to happen with this type of evolution, but I think travel retail will report positive like for likes in the future due to this competitive advantage. This is my opinion. Regarding if in duty free and duty pay the prices are narrowing compared with previous years or previous obviously times, yes, it's true. It's true. I think I may agree with that because the reality is that the especially the currency volatility and the currency fluctuation in South America shows that is when you compare the pricing the savings that we have in South America 1.5 years ago with no devaluation, no high devaluation, no fluctuation was around 40%, 45%. Now we are 20%, 25%. It's a deterioration of the perception. Maybe it could be understood like that, but I think it still is a very good saving. And I hope that as soon as the countries are recovered, the situation will also recover. Okay. Thanks, Juhi. The next question comes from the line of Jan Verro, MainFirst. Please go ahead. Hello, everybody. Thank you. Just also a housekeeping question in relation to your net working capital increase, which you mentioned was affected by the concessions as well as South America, but also that Easter timing. So can you mention or quantify the effect of Easter timing on the increase in net working capital, please? Well, no, we cannot quantify that. But look, I mean, it's obvious that due to the Easter, which is just like starting in Q2 this year, you can assume that there was a significant amount of goods which have been purchased towards the end of the last quarter and that obviously has an effect on the net working capital. I cannot be more specific on the magnitude of that. Okay. Thank you. We have a follow-up question from the line of John Cox, Kepler Cheuvreux. Please go ahead, sir. Yes. Hi. Actually just going back to one of the questions that maybe you missed. But the cash EPS adjusted for IFRS 16, I'm just wondering you would expect that to be higher this year compared to last year is the first question. And actually, you can see there's a lot of questions about the timing of Easter and the impact. Can you give us any color on organic sales growth in the 1st couple of weeks of May? I know it's very, very early and it's very, very tentative. But can you give us any have you seen actually an increase from this 2.5% we saw in April? Or is it still running around the same level? Thank you. So okay, let me quickly start with the cash EPS. So look, John, as you know, we cannot give any guidance on that and also not on 2019. Joao, from my side, I think what we have seen in May is I would start, but I cannot give you daily sales volume because it's going to be very complex. In the next call, you will tell me, Julian, you told in the conference call that during the 1st days of May, I cannot do it, John, I'm sorry. I like to explain how the things are going, but not in weekly basis. Okay. Thank you and see you later. Thank you. Thank you. See you later. We have a follow-up question from the line of Paul Bonnet, Bank of America Merrill Lynch. Please go ahead, sir. The cash flow in the Q2 last year, you had some pull forward or something like this. Could you give us kind of your not your expectations for the Q2, but obviously it's a lot more important. Can you quantify the impact of that pull forward that you had last year? Pull forward, can you be Well, we didn't catch the full question probably. Can you start with your question once more? Because it got cut off. I think the first got cut off. Of course, sorry. Yes, basically, I think the cash flow was unexpectedly strong in the second quarter last year. I just don't know if you can remember some of the granularity and give us some details around that and what you would expect for this year? Well, I will need to come back to you on that. I don't remember what was the specific thing which affected Q2 last year, what you are mentioning. So let me review that and come back to you. Okay. No worries at all. I'll just get the details and we can talk about it later. Perfect. See you later anyway. Thank you. Thank you. Bye. There are no further questions, sir. Okay. Thank you for participating in the call and I'll see you later. That's all. Ladies and gentlemen, the conference call is now over. Thank you for choosing Chorusco and thank you for participating in the conference. You may now disconnect your lines. Goodbye.