Earnings Call: Q1 2018

May 8, 2018

Ladies and gentlemen, good morning or good afternoon. Welcome to the Dufry's First Quarter 2018 Results Conference Call and Live Webcast. I'm Sherry, the Chorus Call operator. I would like to remind you that all participants will be in listen only mode and the conference is being recorded. After the presentation, there will be a Q and A session. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Mr. Julian Diaz, CEO of Dufry. Please go ahead, sir. Thank you for the introduction. As I knew you all heard, this is Julian Diaz speaking. He is also participating in the call and Reas Snyder, both from Dufry. Welcome to this Q1 results presentation and less use as in previous calls, the presentation we published this morning in our website. Page 5 of the presentation shows the headlines of, in my opinion, positive Q1 2018 in 2 different fronts. From the financial point of view, organic growth increased by 7.1%, gross profit margin increased by 30 basis points, achieving 59.9 percent and EBITDA reached EUR 183,000,000, reaching 10.1 percent EBITDA margin. Cash flow generation improved significantly compared with last year too. From the corporate point of view, I think 2 very good news also announced during the quarter. First of all, the dividend of 3.75 percent approved by our annual general assembly. And the second one, the share buyback program up to EUR 400,000,000 that will be launched as already communicated in the press release on May 11. Let's move to Page 6 of the presentation. In Q1, we have delivered, as I said, a strong organic growth, 7.1% compared with last year and ahead of Q4 2017, where we reached 5.7%. Total turnover increased by 6.6 percent, reaching $1,800,000,000 All divisions performed well, especially Division 3 Asia, Middle East and Australia. I think the significant acceleration of this division had obviously the 2 main drivers. 1 is the Chinese passenger destinations and the other one also the good performance with Russian passengers destinations too. As part of the acceleration in organic growth and on top of the healthy increase in passengers in Q1, 5.4% in the locations where Dufry is operating shops. We have continued with the refurbishments of 7,100 square meters of commercial space with a total target for the full year of 48,000 and the opening of new 4,500 square meters with a total objective of 22,000 square meters basing the information on up to March 2018. As it's obvious, we are only in the Q1. At March 31, we have signed a new 13,900 square meters of new commercial space that will be opened along 2018 and beginning 2019. The total number of square meters of commercial space operated by the company by March 2018 was 440,200. Regarding our gross profit margin, we reached 59.9% compared with 59.6% last year, 30 basis points of increase as a consequence of 2 specific issues. 1, implementing better negotiation trends with our suppliers and the second one, the activation of several promotional agreements negotiated with our brands partnered to during 2017. EBITDA expanded by 100 basis points, reaching 10.1% compared with 9.1 year ago. EBITDA was $183,000,000 18.4 percent above last year. The profitability improvements are due to increase of gross profit margin, 30 basis points, the efficiencies generated by our business operating model and efficiency plan in personnel expenses and other expenses and the decline in concession fees due to better performance in some operations and the negotiated trends in others. Cash EPS in Q1 was $0.56 compared with $0.29 in 2017, Specifically due to a better performance in most of the lines in the P and L, but especially EBITDA and financial expenses, improved by the financial reorganization implemented last year as commented during full year results presentation. Free cash flow improved by EUR 32,000,000 with minus EUR 45,000,000 as reported information. As explained in previous calls, Q1 is the lowest quarter during the year in generation of cash and profitability for the highest seasonality concentrated in Q2 and especially in Q3 after royalty difference and Nuance acquisitions. If we move now to Page 7, we are going to comment on the performance by division. In Division 1, Southern Europe and Africa turnover Q1 reached 321,000,000 dollars plus 11% compared with previous year and positive 3.7 percent organic growth. Morocco, Egypt, Ghana, Nigeria, Kenya, Malta, France, double digit growth. Italy and Greece, single digit growth. And Spain, slightly positive. Division 2, UK, Central and Eastern Europe, turnover reached $397,400,000 an increase of 3.5% compared with previous year. Organic growth was negative minus 1.4 percent due to the closing of all operations in Geneva. Excluding this one, organic growth reaches plus 3.9%. U. K, Zurich, Basel, Sweden and Finland, single digit growth. Division 3, Asia, Middle East and Australia. Tum Novae reached $256,500,000 with an increase of 16.7% compared with previous year. Organic growth was 21.1 percent and continuing the good performance in most of the countries compared with Q4 2017. Macau, Indonesia, Cambodia, India, Jordan, Dubai, Russia, Kazakhstan, Bulgaria and Armenia, double digit growth. Singapore, reached $408,000,000 plus 2% compared with previous year. Organic growth reached 9%. Mexico, Dominican Republic, Trinidad, Flagship, the company that is operating sales on Barclays lines, double digit growth. Brazil, Argentina, Uruguay, Chile, Peru, Jamaica, single digit growth. Finally, Division 5, North America, turnover increased by 3% in Swiss brands and 8.4% organically. Double digit growth in duty free U. S. And Canada and single digit growth in duty paid in all the operations. Regarding trading update in April, obviously April is only 1 month of the quarter, but the information shows as follows. Despite a strong comparable with Q2, last year due to the seasonality effect, last year organic growth was in this quarter 8.9%. Total global performance was in April 2018, middle single positive growth. Division 1, Southern Europe and Africa, very good performance in Africa. Greece, Turkey, Malta, Italy, France and a slowdown in Spain, especially due to the seasonality. Division 2, UK, Central Europe, despite the seasonal effect, positive performance in Suricambaser. Division 3, Asia, Middle East and Australia, very positive trend accelerated in April. Good performance in Macau, Korea, Indonesia, India, Jordan, Kuwait, Bulgaria and Armenia. Division for Latin America. April sales composited performance in the division with Ecuador, Chile, Peru, Mexico, Dominican Republic, Flagship and Jamaica. And April sales has slowed down in Brazil, Argentina and Uruguay. Division 5, North America, good positive performance continued in April duty free and duty paid in U. S. And Canada. Then if we move to Page 8 of the presentation, one of the most obviously relevant components of the organic growth is shown in this page is passengers' expectations and increase. First of all, the international passengers grew by 6.6% based in ACI APOS Conciliation International Information by 6.6% during the Q1 2018. International passenger forecast is still very healthy, and I hope that very positive also, 6.8% in 2018, 5.8% in 2019 and finally, a projected increase of 5.5% in 2020. If we move to Page 9, in Page 9, what we have is a detailed explanation about the square meters of commercial space we are operating today. Total space, as I said, is 440,200 as a total commercial space. We opened 4,500 of new commercial space with a target of 22,000 for the full year. And we refurbished 7,100 with our total objective 2018 of 48,000. We have signed 13,900 signed space on the top right side of this slide. We expected 11,500 that will be open along 2018 and expected 2,400 that will be open during the Q1 of 2019. And obviously, in both cases, we are still in March and we have still 9 months to go in order to generate more new spaces. Project pipeline, as a consequence of our strategy, many times mentioned it of developing the company in Asia, Within the 50,400 square meters of pipeline opportunities, almost 50% of these opportunities are located in Middle East, Asia and Australia. And then significant development also expected in North America with 24%, Latin America with 12%, Southern Europe and Africa with 10%, and UK and Central Europe of 8%, all based in the 50,400 square meters of pipeline opportunities. If we move to Page 10, in terms of Dufry segmentation, I just comment on Dufry divisional performance on the right side, top side of this slide. As a consequence, I will comment on the Dufry by channel. As I am going to explain during this presentation, on top of the April retail activities, either duty free or duty pay, representing 90% of the business, the company has started a new strategic move 1 year ago with 3 focus of implementation in terms of channels. 1 is boarded shops, the second one is cruise lines and the third one is downtown duty free. Also commented during previous call, we just have been awarded one of the most important projects in terms of border shops is the MTR project. Is fast train from Hong Kong to Shenzhen in China. Cruise lines, we have been awarded of 31 new cruise lines that will be opened along 2018 2019. And Downtown and Duty Free, especially in Asia. We just opened a casino shop in Malaysia that will follow with, obviously, I hope, more new outlets during 2018. In terms of the U. S, just confirming our strategy, food and beverage and master concessionaire. And in terms of regional diversification, Asia continues to be number one priority for the company. In Page 11, by category, all the product categories performing well. Just reminding the strategy of the company's personal care, food and confectionery and luxury products. Personal care last year sorry, Q1 increased by 8%, food and confectionery by 7% and luxury products by 9%. In all these categories, we have seen a significant increase compared with the Q1 of 2017. Dupri by sector, 66% of the sales are generated through duty free activities and 34% through duty paid. If we move to Page 12, in Page 12, the priorities for 2018 already commented in previous calls. I think the first comment is regarding the new organization that we in the new global organization that we implemented during the Q1 of 2018 with different priorities, but one of them is the acceleration of the projects that I am going to comment on right now. Regarding the business operating model, business operating model will be fully implemented by the end of 2018 and will focus especially in 5 areas. Number 1 is the standardization of ERPs in terms of IT systems. Number 2 is the standardization organization. Number 3, standardization of process and procedures. Number 4, supply chain reorganization and standardization, including advertising promotion, master data, global catalog and the level of the logistic in terms of the scale. And the expected efficiencies due to this program in a full year basis will be 50 €1,000,000 as already commented on. And in 2018, the impact in the P and L will be €26,000,000 We have already launched this project in 32 countries, and we are expecting that will be launched and implemented in by the end of 2018. If we move to the 2nd page of priorities, Page 13, we have started a significant development of digital capabilities in the past, 2.5 years ago. But in 2018, we have the intention and is part of the strategic plan is to digitalize the company and to create a new digital plan that will be launched along the year. This digital plan will cover not only what we call customer focus and digital driven, basically focusing the customer, but also all the areas of the company that are considered global at the level of headquarters and in terms of the standardization of the logistics system. In case of the digital tools that we are using today and just for summarizing what we have done so far, first of all is the standardization and digitization of customer research through the CRM database. The second one is the employee digitalization with the tablets project that is implemented today in many countries, all our employees in the shops are equipped with Ipads. The only channel strategy including the new digital generation store, the rate loyalty program and the forum and the social media. And finally, the project that will elaborate the strategy for new product, exclusive product for travel retail and new services. Regarding the new strategic initiatives, as I said, duty free, duty paid and downtown and multi channel, cruise line, border shops and as well as food and beverage master concessions in the U. S. The footprint in Asia is remaining the number one priority in terms of geographical diversification. Finally, as a consequence of all the initiatives already mentioned, ongoing focus on cash generation and deleveraging of balance sheet. And right now, I am passing through Andreas Persnajder, CFO Global CFO for continuing with the financials. Andreas, please. Thank you, Julian, and good morning and good afternoon, everyone. So let's move to Page 15. As already commenced, organic growth in the Q1 2018 remained very strong at 7.1%, which is almost the same growth rate as 1 year before. Now there is one big difference, however. Comparables are now much tougher versus 1 year ago. So it is fair to that even if timing of Easter supported growth in the Q1, we performed very well in the Q1 of 2018. As already mentioned by Julian, looking at the divisional split, Asia, Middle East and Australia had an outstanding growth of 21% through a combination of like for like and additional space and an equally Latin America and North America both did very well with high single digit organic growth. The performance of U. K. And Central and Eastern Europe was impacted by the closing of Geneva, but operational performance of the division overall continued to be solid. The same applies also for Southern Europe and Africa. Moving then to Page 16, where we have the details on currencies. So the FX translation effect in the Q1 was minus 0.5%. The stronger Swiss franc against the U. S. Dollar resulted in negative FX effect, which could not be fully compensated by the positive FX effect on the euro and the British pound versus the Swiss francs. Based on the current exchange rates, FX translation effect will turn positive in the second quarter. Then if we move to Page 17, the income statement. Gross margin increased by 30 basis points as mentioned, mainly driven by negotiations with suppliers and additional promotional activities. Concession fees improved by almost 20 basis points of turnover. Main driver was mix changes as well as an improvement on some of the concession contracts. For the full year, we continue to expect a small increase in concession fees as a percentage year on year, but even so, Q numbers illustrate that concession fees can improve in certain situations. Personal and general expenses together improved by 0.5 percentage point. Key driver was efficiencies from the WAM business operating model implementation launched in 2017. As a result, EBITDA margin increased by 1 percentage point to 10.1%. On depreciation, amortization and linearization, all items were in line with last year and were developing as expected. Depreciation remained stable as a percentage on turnover and amortization and linearization were stable as absolute amounts as usual. Other operational result was the negative €11,200,000 The bigger part of that was expenses related to new openings and closings, which accounted for CHF 6,500,000 of the total. This line also includes transaction costs from the Hudson IPO of CHF 1,500,000. Then financial results improved by €10,000,000 mainly due to the refinancing of the bonds and the bank facilities that we did in 2017. Income tax expense for the period was $12,500,000 There, we had a one off non cash charge of $1,800,000 due to the legal restructuring done in the U. S. Prior to the Hudson IPO. The other comment on taxes that I like to repeat on every call, the tax rate does vary quite significantly along the year and the Q1 is not indicative for the full year tax rate. Then non controlling interests were CHF1.9 million for the quarter. The lower amount compared to last year is mainly due to Hudson. So similar to Dufry, Hudson's net earnings are negative in the Q1. Hence, the additional minorities from the Hudson IPO do reduce this line for the quarter. For the full year 2018, minorities will increase compared to 2017 because of the Hudson IPO though. Cash net earnings to go to the bottom line where we add back acquisition related amortization, almost doubled to CHF 29,900,000 for the quarter. Let's move to Page 18, where we have the overview of the cash EPS. Cash EPS increased 93% year on year to $0.56 per share. The Q1 is always the lowest quarter because of the seasonality and as such the contribution to cash EPS is relatively low. However, Q1 results illustrate quite nicely on how the good top line performance combined with improvements on the cost side flow down to the bottom line. Let's move then to Page 19, where we have the cash flow statements. Starting with the free cash flow, we were minus $45,000,000 in the 1st quarter, which is an improvement of $32,000,000 compared to last year's same period. As in 2017, we invested a substantial amount in net working capital in the Q1 of 2018. This year, in 2018, it was $131,000,000 compared to the $137,000,000 last year. Now if you break this down in both years, 2018 2017, the investment in core networking capital was around $52,000,000 Part of that is due to seasonality and the other part is growth related. The other part of the $131,000,000 is the other working capital And there, the change was this year €79,000,000 versus last year, €86,000,000 So again, it's almost similar. The other working capital has become a lot more seasonal since the Nuance and World Duty Free acquisition due to the geographic exposure on one hand and contractual terms on the other hand. Having said that, the key message is that the changes are seasonal and will revert throughout the year as we saw it in 2017, but we will revisit this point in a minute. Equity free cash flow also improved by $30,000,000 in line with the free cash flow before financing. Below equity free cash flow, we have cash flows related to the Hudson IPO, which is a net inflow of $660,000,000 and the purchase of treasury shares and outflow of 120,000,000. We already commented on these transactions on the full year 2017 call. Then on Page 20, I would want to revisit the seasonality on the free cash flow. So there we have illustrated again the quarterly evolution. The chart shows that using 2017 as a template, Q1 and Q4 are typically cash neutral or even cash negative, and the big cash generating periods are the 2nd and third quarter. Then on Page 21, we show our operational cash flow KPIs. Measured as percentage of turnover, core net working capital was higher by 30 basis points compared to last year. For the full year 2018, we do not expect any change in the core net working capital levels, I. E. Our target range remains between 4 0.5% and 5.5%. This remains unchanged and there will be obviously seasonality as usual. Typically, our net working capital is highest at the end of Q1 and the lowest at the end of Q3. Then on CapEx for the quarter is 3.5%, and also there, our expectation remains unchanged at around 3% to 3.5% of turnover for the full year. Now on Page 22, we have started to put the additional cash flow metrics, which we want to start reporting going forward. I already discussed the various contributors earlier on, so I'm not going to repeat it. Overall, we can say that we are on track for full year 2018 regarding operational performance and cash generation, and we have delivered good results in the Q1. Then on Page 23, we have the balance sheet. There, the big changes have been a reduction in net debt and an increase in equity. Both are mainly related to the Hudson IPO. Other than that, the other lines are consistent with December 2017. So let's move to Page 24. Net debt at 31st March was $3,200,000,000 and our leverage covenant, which is basically net debt to EBITDA was 3.07 against the maximum threshold of 4x. As mentioned in earlier calls, our target leverage range is between 2x to 3x net debt to EBITDA. So effectively, we reached our target leverage this quarter. To conclude, Dufry shareholders approved the dividend payment of CHF3.75 per share on the AGM last week. So this is going to be paid in the next couple of weeks. And we will launch next Friday the share buyback program of up to CHF 400,000,000 that we announced about 1 month ago. So this is all from the finance section, and I hand back to Julian. The first question is from Charlie Muir Sands, Deutsche Bank. Please go ahead. Good afternoon, gentlemen. Thank you for taking my questions. I have 3, please. The first one is when you talked about border stores and the strategic opportunity there, I wondered if you have seen any further progress in the regulation of those in Brazil and how you think you're positioned there? The second one relates to the buyback, which you will commence shortly. I just wondered how will you think about balancing that against your ambitions to prioritize growth in Asia? Do you think that there's scope to do both if you saw an interesting acquisition opportunity? Or do you think it's a case of 1 or the other? And then finally, your interest charge, your net interest charge for Q1 was only €31,000,000 I think you've guided €150,000,000 to €160,000,000 for the year and that was before you announced the buyback. I just wonder whether that stood still or whether it was a bit lower? Thank you. Thank you for the three questions. Regarding Brazil, the project is progressing and accelerating now. The local governments already designed it the way these shops will be operated and located. And we don't have any specific, obviously, calendar that I can't communicate publicly because it's not fixed. But the project is progressing very fast now. And I think these shops will be open soon. Regarding the share buyback program, it's not going to interfere with what we already comment on in the market is small, middle sized acquisitions will be part of the strategy of the company from now on. And in parallel with whatever is share buyback implementation along the next 12 months, we remain aware of any possible steps in this regard. Regarding the interest, Andreas? Yes. So, look, I think we may have made 2 assumptions when we talk about the forecast, if you want, or the indication that we gave. I think we do assume slightly higher interest rates, a longer year, and I think that's one point. The other one is obviously with the share buyback, we may have slightly higher debt levels than what we initially forecasted. So I think if you were to assume that interest rates do not change, I would tend to agree, I think the $150,000,000 to $160,000,000 are probably at the higher end. Depending on how you visualize the interest rate environment, I think we still feel comfortable with what we said beforehand. But I think there is certain potential, if you want, in that respect. Great. Thank you very much. Thank you. Thank you for the question. Next question is from John Cox, Kepler Cheuvreux. Please go ahead. Yes, good afternoon, Julian and Andreas. Just two questions really. One is on emerging market currencies. Maybe Julian, maybe you can comment on that. The and the slowdown you're starting to see in Brazil and Argentina. Are you worried about what's happening with the emerging market currencies? Or do you think the amount of decline so far isn't really a concern? Obviously, if you look back to 2015 2016 when organic sales were really under a lot of pressure, the weakness in the Brazilian currency particularly was much more pronounced. I think it was like 30%, 40%. I think now we're just down maybe 10%. When should we get worried? Or are you guys worried about that at all considering that you slowed down to mid single digit growth in April? That's the first question. 2nd question, sorry, Andres, I know I keep coming back to the cash flow statement. It was an improvement, of course, still negative. Obviously, as you say, the seasonality does tend to confuse everybody, myself particularly. It is a $30,000,000 odd improvement. Should we just say multiply that by 4 to try and come up with a full year figure? Or maybe you can give us a best guess for your thoughts on free cash flow after payment of minorities for this year? Thank you. Regarding the first point, John, the currency fluctuation is obviously a concern for us. But so far, what we have seen is not the volatility that may impact the sales. As you know, because I think I tried to spend in the past, we have a significant saving in the pricing strategy, in the pricing policy compared with the domestic markets. As far as obviously the savings are still significant, the fluctuation is not impacting the volume of sales. All concerned is probably the high volatility more than the high devaluation of depreciation in one single moment. If the volatility is very high, then the expectations from the different customers is they wait until they see exactly how much they are going to pay for the product. As you know, we nominate the prices in U. S. Dollars in this part of the world. Finally, my conclusion is so far, I think what we have seen is not impacting the sales because still the savings are very healthy compared with the domestic market. Then the cash flow, Andreas? Yes. So on the cash flow, I think, look, the mechanics is always the same for the full year. And I think we shouldn't be confused by Q1 numbers. I think the cash flow is always a bit more complicated in Q1. But on a full year basis, I think if I just do my standard math and say, look, historically, free cash flow before financing has been, let's say, 55% of EBITDA. And then I deduct from that, give or take, €200,000,000 for, a, the financing costs and b, the minorities. Depending obviously on what EBITDA you're taking as starting point, but based on our plan, we will be somewhere, let's say, between $350,000,000 ish and $400,000,000 according to our plan if everything goes as we expect. But again, you will need to use your model as a starting point, but I think that's where we end up in our plan. Thanks. Just as a follow-up, Julian, just wondering about the currencies elsewhere in the world. Obviously, as you say, there is a tax advantage in Latin America, even if you're still pricing in dollars. What about, for example, Russia? The ruble is under pressure. The Turkish lira is under pressure. So some of those, excluding Latin America, are you seeing any weakness there at all because of what's happening with the currencies? Or again, are you pretty relaxed? No, not relaxed. No, but no, we haven't seen any impact yet. In fact, Russian and Russian destinations where the Russians are, the main passengers are growing very good, okay, very significantly. And I think obviously the volatility is an issue again, but for example in Russia, due to the devaluation of the ruble also the prices in the domestic market increases significantly. As a consequence, the savings in the shops again are adjusted. As I explained, there is always a period of time depending on the inventories in the domestic market, where obviously may these devaluations and fluctuations may impact the sales, but gradually as soon as the merchandise imported in the domestic market is reaching the level of obviously the new exchange rate, the savings are already are again very good and obviously very solid and as a consequence the sales are not affected. As we saw last year, last year, the spend per passenger globally increased by 2.3%. This year during the Q1, we had again an increase significant increase in the spend per passenger on top of the increase of last year. It's not yet again, we are concerned yes, we are concerned because this is something that we need to monetize, but not yet is not yet impacting the performance of the company. Maybe just then a final question, Julian, and my apologies on this one. Big congratulations, 100 basis points on the margin improvement in Q1 EBITDA, surprised a lot of critics out there. What do you think for the year as a whole? We're not exactly to be exact, but I guess 100 basis points for the year as a whole would probably be a bit too aggressive. What are your thoughts on the margin for the year? I think it's difficult always. I am going to explain how I look at it, because I think it's better that instead to say one number, you build your own model. I repeat, I think several times that we are projecting this year around 50% increase in sorry, 50 basis points increase in gross profit margin. After that, what we expect due to the projects business operating model and efficiency program between 30% 50% basic points increase due to the leverage of these efficiencies in the P and L. And finally, the concession fees and the concession fees as I said during the Q1, along 2018, where we are going to see is an increase of around 20 basis points compared with previous year. This is already giving you something between one number and another number. I don't want to give again the impression that they want to discuss about the EBITDA margin. Those are the targets we have in the company for 2018. Great. Congratulations again. Thank you. Next question is from Edouard Aubin, Morgan Stanley. Please go ahead. Yes. Good afternoon, guys. Edouard, Morgan Stanley. I have two questions. The first one is on Spain, which I guess is an important market for you. And given that your concession fee will increase by a 6 €1 amount, I guess it's key for you to increase your sales there. Could you please give us an update, a, on the traffic in Spain and what you're expecting for the year and b, on the spend per passenger, what you're seeing and what you're expecting? And then to come back on cash flow, sorry Andreas, but last year in 2017, extraordinary project generated cash outflow of I think around CHF 104,000,000, if I remember correctly. I think a few months ago, you indicated that you did not expect any significant impact in 20 18, 20 19. Is that more or less the case still or not? Okay. I will start, Andreas. If you want, I will start with the first question. Regarding Spain, it's obvious that Spain still has very it still had very healthy increase in number of passengers in the locations where we are operating was around 9%. What is behind this 9% for Dufry? Because obviously, we are retailers. First of all, is the low cost driven passengers and the second one is the British or the importance of the British passengers. The low cost is a very good passenger. And I think this is I heard or I read in many locations that low cost is a threat for the travel retail is completely the opposite. Low cost is a significant increase of passengers. What we need is to really deliver in these shops the value these passengers are expecting and we have and I think different commercial concepts that will accelerate sales based in low cost passengers. The meaning of the consequence of the low cost passengers is that maybe the spend per passenger, average spend per passenger will drop, but the total sales will facilitate obviously the leverage of many other costs in the company. And I think and I am sure that this part of the business during the next years, we will be a big contributor to the sales of the company. The second one is in Spain, a significant part of the number of passengers are British. And obviously, over the past years, what we had is a devaluation, significant devaluation of the pound. And this is important because in Spain, we nominate the prices in euros. And as a consequence, British passengers are, in terms of growth, not contributing to the growth in Spain. But in any case, in Spain, the growth during the Q1 was positive. This is more or less from Spain. Okay. Look, and then your cash flow question, you were absolutely spot on. So last year, we had extra projects or investment of €104,000,000 The largest part of that accrued actually in the Q2 2017. And so far, there's nothing special if you want in 2018. So I think the outlook for 2018 remains unchanged in that context. So we will not we don't plan to repeat if you want the 2,007 extraordinary investments. Okay, great. Thank you. Thank you very much for the questions. Next question is from Jorn Iffert, UBS. Please go ahead. Hello, Julian. Hello, Andreas. Thanks for taking my question. The first one would be please on the new shop expansion, net new shop expansion, the growth contribution of 2.2%. It seems very strong, looks very strong. Can you please give us a split of where you have expanded an existing concession contract and what where you have won a new contract where you haven't been the incumbent before? And the second question would be please on the minimum rent increase in Spain. Can you give us an update where we stand here? And do we see the cash component of the minimum rent increase in Spain below the EBITDA line in the linearization? And the last question would be please on the Spain concession. It's a quite big one for you as far as we are informed it should major 2019, 2020. Have you already started negotiations? When do you expect negotiations to start if not happened already? Or will this be a tender process? And some more details here would be appreciated. Thanks very much. Okay. Regarding the 4,500 square sorry, 2.2% increase in sales due to new concession, I don't have the split here, but most of these spaces were new. And in any case, they are new even considering the spaces where we are operating today. But in the sense of your question, most of them were new. 2nd is Spanish mark. I think the Spanish mark is a public information. Every year increases and this year increases by around 6%, 7% based in the original mark. And the third one, Spanish Concession, we have not started any negotiation yet, and I think it's a very early stage. We need to understand obviously better what could be the negotiation basis and the information provided by the performance of the company is the relevant one. Okay. Thanks. And regarding the Spanish MAC, the increase of plus 6%, 7% year over year, the cash component is also shown showed in the linearization, right? No. The mark what is below EBITDA is the cash advance payment that was done in the past. The rest is above EBITDA. All right. So the cash component is captured in EBITDA already? Exactly. So if we would have a higher MAC, then this will be captured in the line concession fees. Great. Thanks very much. Okay. Thank you very much. Next question is from Mariana Lopez, Santander. Please go ahead. Good afternoon. This is Rebecca at Santander, not Mariana. I've got a couple of questions for you. So just going back to the new the 2.2% new space contribution or new concession contribution, what do you think it should be for the full year? That's a question or there are more questions? There's more questions. And secondly, of the like for like, what was the split sales per passenger and packs growth? And my third question is about Asia and whether you're sort of seeing any sort of increased activity in terms of small and mid sized assets on the market? Okay. Regarding any other questions? No, that's it. Okay. Regarding the new space, I cannot comment on the specific new space, but the target that I mentioned regarding organic growth for 2018 between 5% and 7%, I think remains totally valid. And this is for me the critical point. Then as a consequence, probably we will be around 2% or something like that. But I prefer that we talk about organic growth. Regarding like for like, the increase of like for like is mainly driven in this in our case by passengers is obvious, but depending on the passengers and this is a blended. Just for you, for your calculation, within the like for like, in this specific case, there is probably 1% that is generated through new space new spaces, no, it's the same space. If it sales per passenger there and the remaining is like for like. Okay. What is the third question? It was about Asia and sort of small and midsized assets and whether the market you think is sort of it starting to heat up or? There are several small, middle size possible transactions in Asia, but we have not progressed a lot with these transactions yet. And your view on small to midsize is sort of what EUR 100,000,000, EUR 200,000,000 revenue or It's between EUR204,000,000 and EUR 204 100,000,000 in sales. Okay. Thanks. Next question is from Paul Bonnet, Bank of America Merrill Lynch. Please go ahead. Hi. Thank you so much for taking my questions. So I have a quick question. While going through your bond prospectus, I was looking at the UK Framework Agreement, which will expire in May 2020, but there is a 3 year extension option. And it said that it's at the that certain conditions have to be met for it to be exercised. Who has the option to exercise it? Is it the UK airports or is it you? So look, I think there's put it that way, I think there are certain performance criteria, and this is actually quite standard for these type of contracts in the UK. So in a way, I think it goes both ways. So I think we have to write and also the airport has to write. But the basic assumption is, if we continue to operate as we do today, this will be out of question that we do extend. This will be out of question that you will It's clear that we will extend. Put it sorry, I wouldn't say it. Sorry, sorry. It is absolutely undoubted that we will extend the contract. Okay. Thank you very much. And another quick question. I see that you had a 20 bps selling expenses decrease. To what extent is this also driven by the loss of the Geneva concession? Of the contract? Not at all. It's totally no, no, it's the opposite. I think this is obviously Geneva's appeal it was a pure duty free operation with better performance in terms of percentages. Okay. And lastly, if I may, I see that distribution centers added EUR 10,000,000 to the EBITDA versus last year incrementally, excluding which basically your regionals margin are overall 60 bps instead of 100 bps. How should we think of distribution center going forward? Because it seems that in terms of geographical split, they take an even more a bigger share of the case, I'd say. The statutory report is based in the obviously tax and international agreements we have with the distribution centers. For calculating properly the EBITDA at the regional level, you need to allocate in the base in the different volume of sales in most of the cases, what is allocated in the distribution centers. You cannot understand from the performance point of view, the different divisions just with the statutory information, because obviously part of the gross profit margin is allocated in the distribution centers. The distribution centers, this is number 1. Number 2, the distribution centers cannot be projected a lot because it's basically a reflect of the mix of sales in the different operations. And I think to tell you that this is going to be like last year, it could happen similar to last year distribution, but it cannot be confirmed because it depends on the performance, especially in the high season. It's not an easy calculation in terms of the distribution centers because the gross profit margin of different product is different. The gross profit margin allocated to the distribution center depending in the distribution center is contributing or not contributing to this product in the supply chain is very difficult. Sorry, I cannot give you any specific information, but in terms of projections for you, let's do it one thing. Let's do it in percentage similar to previous year. Okay. Next question is from Volker Bosse, Baader Bank. Please go ahead. Hello, Volker Boste, Baader Bank. Congratulations on the great set of results. A lot of questions are asked. Two final ones, first on especially on the upcoming summer season and your outlook for Greece, which is very much linked to the travel activity and spending power of the Russians. So how do you look on Greece in the moment? And second question would be regarding your shareholder structure. So on the paper form, H and A holds still 20 0.9%, although the shares are handed to 3rd parties here, derivative structures. But did you receive any news from your shareholders here? Or is the EUR 20.9 billion still valid? Or any update on that? Thanks. Okay. Regarding the first point, summer season in Greece and I will add Turkey, they look great and the information we are receiving is very positive in both cases. In Greece, due to the European and obviously the renovated number of Russians too and in Turkey because the bookings from Russia. In both cases, what we have heard is very positive. Regarding the shareholders' structure, the official disclosure, as you know, is 20 point something percent and this structure has been disclosure through different 3 colors structure. What is obviously important here is the official disclosure information, but the reality, if you analyze the different disclosure done so far is that the economic interest in the company is very low. I cannot comment on what, because obviously it's a calculation that depends on many things, but it's not far away of 20%. Okay. Thank you very much and congratulations again. Thank you. Next question is from Peter Dastard, One Investment. Please go ahead. Hi. Thank you very much. I'll just take three questions one at a time, please. Firstly, just to understand on space. Can you give us any thoughts as to whether there are any significant expiries or losses that are coming in the other quarters, kind of the size that we've noted before? And also at the same time, there were some renegotiations of concessions for space extensions last year. And I was wondering when we should start to see the positive impact of those space extensions in this year or is it next year? Okay. Regarding the space per quarter, we are not expecting any significant impact of square meters losses during second, third and fourth quarter of 2018. As I obviously sometimes remind, we have concession portfolio with an average duration of 8.5 years so far. And this is something that obviously is in my view is supporting the growth in terms of square meters. The second one is the renegotiation of different contracts. We have renegotiated 2 contracts last year that started to impact during the second half of the year. I think what we have seen in the low season is a higher impact. And for this reason, I comment on both things, the renegotiation of contracts and also as is also known, I comment last year that a couple of contracts and I mentioned at that time, one contract in Australia, one contract in America. We started to pay the new rent in January when the shops really were open with a new configuration and the new renovation done in the second and third quarter. As a consequence, I think as long as the year is going on, what we will see is that the savings that we have shown in the Q1 will be mitigated. For the reason I comment on that by year end, the performance of concession fees will be an increase of around 20 basis points. Okay. But in terms of the space impact of those extensions, getting new space terms and better quality space. When is that being felt? This is the impact will be, as I said, is the same. I tried to explain it through the concession fees. Seco is sorry, is 3rd and 4th quarter. Right. This year? Okay. Yes, yes. Yes, fine. And then you talked earlier about the exclusive travel retail product and services you wish to launch and you mentioned your response in the low cost carrier opportunity. Can you give any sort of sense as to whether this of what significant steps we may look for coming out this year or next year in that regard, please? Yes. We have created, in my view, a very good relationship with the suppliers, with the vendors. And they have obviously the same intention is to develop exclusive products for travel retail in different areas. So far, what probably you have heard is about confectionery, where we have launched 2 or 3 new products, all great success with Linde. There is also an ongoing project with Diageo for launching in travel retail new whiskies with different international brands, but always well known brands. The intention is to really attack the core categories, and especially spirits and confectionery. But there is also or there are also initiatives that will be based in the personal care, fashion and cosmetics and other products, including the important brands. What is the target here is within the brand portfolio we have is alternative presentations and products that will use the brand equity in order to impact the customers and also create this selectivity this is a combination of things that are also linked to, this is a combination of things that are also linked to the digitalization that I mentioned before that is one of the main drivers that we are expecting for organic growth in the future. It will be a combination of services and products that will be special and located in travel retail environments. When I mentioned travel retail, I say in Dufry environments. And during 2018, what we are going to see is a significant development in new exclusive products for travel retail in Dufry. And in 2019, we are going to see products and services. And the services will be also communicated through digital tools. This is obviously a huge project that we started. Part of this project is recognized as the name emotion, but the full and complete implementation of this project will be along 2018 and first impact in the organic growth, I hope, will be reflected in 2019. Right. And for low cost carrier passengers, is it were you talking more about specific products tailored to the fast response short stay or are you talking about the whole retail concept? Yes, we have 2 different lines of initiatives. 1 is to develop as is today in more than 14 countries over convenient store concept, this happens. Also within the travel retail, standard travel retail shops, we have developed within Dufry, duty free travel retail and with the concept in duty paid product lines that are specifically addressed in passion and cosmetics, in rings, in confectionery that are specifically addressed to low cost passengers. The low cost passengers are good. I don't want to really discuss about that the low cost passengers are going to deteriorate the travel retail. I think it's totally the opposite. Low cost passengers are going to lead an important part of the growth in the future. What is going to happen? And this is something that is important to know, that the average spend per passenger probably will drop because the spend per passenger in low cost passengers is lower. But this doesn't mean that they are not going to buy anything. What we need to do and we are doing it is to develop specific products and commercial concepts, shops in this case, to really attend these passengers and lead these passengers to be customers in the travel retail environment. And I think we have been very successful. Again, regarding duty paid activities, we have grown a lot. And regarding the convenience store concept, we have grown a lot too. That's my opinion. Okay. Thank you. And then last question is just when you think about the investment and expense investment that's required do to step up or maybe reinvest some of the BOM savings behind this to drive growth? It's a very relevant obviously question because the digitalization is not for free. And I think what I can say is what we are trying now is to enclose in this 3.5 percent, 3%, 3.5 percent of CapEx, whatever change is needed. And so far, we have been doing that. In fact, if you compare this year and we have done a lot of investment with previous year, we have 3.5 percent of increase in terms of CapEx. I am not telling that it's not going to be higher. Probably, we will need specific higher investments. But in terms of projections, 3%, 3.5% of CapEx is a very good projection. The next question is from Johannes Braun, MainFirst. Please go ahead. Yes, hi. I have just one question actually. I was wondering if you can give us an indication of what the impact of the Easter timing was not on sales growth, but on the concession rate really because clearly you had more revenues in Spain with last year as the Easter travel fell partially in Q1, but you paid fixed rents in Spain, so the cost per sales ratio should have benefited from that. Just wondering if you can give us an indication of the underlying development. I think last year, you gave us some idea of this effect, and it was quite significant, if I remember correctly. So that's why I'm asking. Okay. Last year, Easter is not it's it's Holy Week and Easter both weeks, because depending on the country, one is more important than in the other. This year, in the last year we have 2 weeks in April. This year we have 1 week in March and that was the Holy Week and then 1 week in April that was the Easter period. The impact depending obviously on the location is different. In Averas, let's talk about in Averas, it's around 0.7% of growth. I am talking about sales. I don't know below sales because it's difficult, but around 0.7%, 0.8% in a quarterly basis. Okay. So the underlying development was still up in Q1? Yes. Next question is from Rene Saner, Octavian. Please go ahead. Yes. Hi. Thanks for taking my question. A question on the digital shop concept. Obviously, beyond the commercial opportunities you were expecting, it seems to me you're creating a lot of advertising space at the same time. So my question would be, what is the expected impact midterm on this €50,000,000 advertising revenues you are recording? And if I'm correct, I think there's no concession fees on that. So that should be quite interesting opportunity. Then a follow-up on Brazil. There has been talks about a change in the duty free allowance. Is there any progress on that? And thirdly, on Hudson, now that the business is listed separately, maybe you can elaborate a bit more about what we should going forward in terms of initiatives, in terms of pushing the food and beverages business and the mass concession business? Okay. Regarding the digital shop and the relationship with advertising income. First of all, advertising income is not always for free. It is not for free, because it's a combination that we negotiate with all the airports and depending on the airports, we pay or we don't pay, but it's basically an agreement airport by airport. And sometimes we pay concessions, sometimes we don't pay concession fee because depends on the concession fee agreed also. This is number 1, just for clarifying. The second thing, obviously, advertising is a good driver, but it's not advertising. In reality, what we are doing here, we call it advertising. What we are doing here is really promoting the brands in collaboration with the brand owners and creating equity this brand equity. What is the good thing with the digital shop? I think the digital shop has there are many objectives, but let's talk financial objectives. Number 1 is to increase the penetration rate. Number 2 is to increase the spend per ticket. And number 3 is to increase the advertising income that we call advertising income. Regarding the first two, they are the main drivers for continuing with organic growth. The last one, advertising income, is a compensation that will depend on many things, will depend on the exposure of the brands, will depend on the number of products that we list from the brands. It's very difficult to really project this at the stage we are with the development of this shop. We have only opened 5 shops. If the question is, these shops will facilitate the development of the advertising income line in the P and L, the answer is yes. But I cannot tell you that it will be 1% or 2% or it's very difficult. We cannot project that so far. Regarding Brazil, the duty free allowance is still an ongoing project for us. The project has been so far leaded by us and by the organization of retailers in Brazil. And as you know, Brazil has more important things to decide than the duty free allowance. There is not a reason why this allowance has not been increased during the last 12 months, but the situation is exactly the same. In the country, has today other important political issues and economical issues to solve and this is one of the issues in the list. The last one, Hudson. I prefer that we don't comment specifically on Hudson in this call, because it's going to be a call in 1 hour from now, where probably my colleagues will explain the strategy that we are following up. What is for us the importance in HAPTUNE is the leader in retail in the U. S. And Canada, in either duty free or duty paid. The company has a significant room for improvement in which areas. Obviously, number 1 is retail, but there are 2 areas where we need to understand if the company could perform. Number 2 is food and beverage. Number 3 is master concession agreement. Regarding the first line, I don't see that I need to comment anything else because we have been expanding the business either duty free or duty paid. Regarding the Hudambeberas, this company is involved in a territory, is operating in a territory where 65% of the business is generated through food and beverage, opposite to other territories in the world where 65% is generated by retail. As a consequence, one of the strategic moves that we did with the IPO is facilitate that one of our subsidiaries that is going to be that is going to invest in food and beverage is isolated in one single territory, obviously, with the conditions of that is managed by us and is controlled totally by us. And the food and beverage is an opportunity and is a great opportunity for Hudson and in our view will be one of the main drivers of growth in the future on top of the growth that they have already projected and reported to the market. Master concession is one of the trends in the market too. Very often, we see this type of agreements in the U. S, less important and less expanded outside the U. S. Also, I think international is one of the models that we tried in the past with different airports. In fact, we have today in the list of priorities identify these master concession agreements outside the U. S. And Canada, but in the U. S. And Canada is one of the main drivers for controlling concessions. In our case, we have already been awarded of 1 of the airports in Chicago Midway and we are participating in other 2 RSPs. Is this something that will change the scope of the company in the short term? The answer is no, but in the middle long term, we create a more sustainable and better concession portfolio. Regarding what is the last question? That's Hudson. Okay. Thank you very much. Yes. Thank you very much. Thank you. We have a follow-up question from John Cox. Please go ahead. Yes. Thanks very much. Just a couple of quick ones. On the buyback starting on Friday, just wondering what method you're using. Is it will you have a parallel trading line there? That's the first question. 2nd question just on your Investors Day coming up on the 31st May, any can you give us any idea what you might be discussing at the Investors Day? And just lastly, Andreas, on IFRS 16, wondering if you guys have done any work on what the impact will be on EBITDA and net debt next year when you implement IFRS 16? Thank you. Okay. So I'll take all three questions. So look on the buyback, we will not have a secondary line. We will do everything on the primary line from a tax perspective because this will be done out of paid in capital sorry, paid free reserves and there is no tax consequences anyway. So and we will follow, if you want, kind of a dynamic approach. Then on the Investor Day, there from an operational perspective, we want to dive into more detail into, if you want, the digital part of things. So operational aspects, that will be the focus on it. On the finance side, as you pointed one of the possible topics could be IFRS 16. Now I think in that context, I will defer, if you want, to the Analyst Day as well. I think as a preliminary comment, what we do know as of today based on the work that we have done so far is that will be obviously additional assets and liabilities generated through IFRS 16 because we will capitalize the fixed parts of our concession agreement. So in essence, the minimum guarantees or any fixed rents that we may have. The current environment, but take that with a big pinch of salt, that we're talking about is about 7,000,000,000 to 8,000,000,000 of assets and liabilities that we will add to the balance sheet. On the EBITDA side, we pretty much would double up EBITDA to around 25% EBITDA margin. So there's EBITDA to around 25 percent EBITDA margin. So there's about €1,000,000,000 very large number, very number of concession fees that will be shifted through the amortization. But I think given the complexity of the topic, I think there is strong preference that we can explain that in more detail with more time, not by phone, but in person. So that will be one opportunity to do it on the Analyst Day. Thank you. That was the last question. I would now like to turn the conference back over to Mr. Tias. Thank you very much to all the participants in the call. The questions are always welcome. And if you need anything else, please contact us directly to the Investor Relations departments for calling us. Thank you very much. Ladies and gentlemen, the conference is now over.