Avolta AG (AVOL) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Dufry's Full Year 2022 Results Presentation Conference Call and Live Webcast. I am Moira, the Chorus Call operator. [Operation Instructions] And the conference has been recorded. The presentation will be followed by a Q&A session. [Operator Instructions] The conference may not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Xavier Rossinyol, CEO of Dufry. Please go ahead.

Good morning, good afternoon. Thank you very much everybody for being here in this full year 2022 results presentation of Dufry. I'm here joined by -- with Yves Gerster, our CFO. First of all, I want to start with a big thank you to all the Dufry team members. We are presenting today a very strong set of results and is thanks to the work of thousands of people on a daily basis. And not only thank you for the past, but also thank you for the basis of the new business in '23 and beyond. On a more personal note, today is my 9 months and 7 days since I rejoined Dufry, and I want to thank the Board of Directors of Dufry and its Chairman, Juan Carlos-Torres, that is here today, a big thanks for the opportunity and I can tell you also challenge. And also, a final thank you for Edizione for their trust on this combination with Autogrill, which we will update in a few minutes. Let me go straight to Slide #4 with some key messages for this session today. Five clear messages. Number one, the strength of the results of 2022. We have been ahead of our own expectations in turnover in core EBITDA and equity free cash flow. And we also have had a very successful refinancing a few months ago, which gives us a very strong financial position with the lowest net debt level in absolute terms since 2015 and being already ahead of our financial covenants for 2023. We also will confirm later on our guidance or our outlook for the long-term 2027. Second message, we have a clear long-term vision. We presented our Destination 2027, our new strategy in September, and we are already implementing it to do a full travel experience revolution. Third, earlier last month, we announced the new organization. We worked the torque. We have already organized the senior management of the company in line with a new strategy. Fourth, we are also advancing according to plan, slightly ahead of plan in the transformational combination between Dufry and Autogrill. As we explained when we announced the deal, we believe the combined new offering will really make a difference for the passengers, for the airports and for our brand partners. The whole purpose is to accelerate the value generation through this combination. We will update you on the integration. It's advancing well. And we confirm again all the targets we announced. The new group will be renamed and rebranded to reflect the new scope of business we have after the summer. Last message. We continue -- actually, we renovate our commitment on ESG that for us means people, environment and our communities. And why we all do that? We do all that to generate long-term value for our shareholders, thanks to this consumer centricity, to this digital and innovation focus and through establishing a new type of relationship with landlords and brands being on -- creating more value and not necessarily only talking about how we share the existing values. I will develop now each of them one by one. On the business performance, Dufry has achieved CHF 6.878 billion revenues in 2022, which is a 76% organic growth versus previous year. It has been driven by a strong traffic across most of our locations, but also through an increased performance of our operations. Second, our core EBITDA has reached CHF 606 million, 8.8% EBITDA margin, thanks to a very strong performance on all the lines of our P&L and also across most of the regions. Our equity free cash flow has achieved CHF 305 million versus a negative number the previous year, and EBITDA to equity free cash flow conversion of 50%. This is supported by the strong EBITDA I just mentioned, but also for remaining with the strict discipline in CapEx and other lines of the cash flow. It shows again that Dufry is able to adapt the cost structure and the cash flow generation to the situation of the revenues. It shows the resilience of the business. Last CHF 2.3 billion of available liquidity, of which CHF 850 million is straight liquidity and the rest are available credit lines. We are reaching already the covenant ahead of time, more than 9 months ahead of time. Leaving aside that with integration with Autogrill, we will accelerate this deleveraging. All the figures I just mentioned are ahead of our own outlook and the consensus. You can see that in Page 7. It's a major step up versus 2021. And again, Dufry is not only strong in turnover EBITDA and equity free cash flow, but it's also showing profit for equity holders of CHF 106 million. The organic growth has been strong across all the quarters and again continues in 2023. The year-to-date February, we have an organic growth of 71%. Of course, the comparables of the first half of '22 are easier. I'm going to mention here, and it's the last comment at least on the presentation I will make to 2019 numbers. But year-to-date, we will be 3% below 2019 numbers, talking to 2023. That has been across the board. Of course, more on leisure travel. But more and more, we are seeing also corporate travel coming back. APAC has been the lowest performing for all the reasons we know, mostly the restrictions on travel, in particular in China. Here, you have some of the supportive and impacts for 2023 on Page 9 now and some potential challenges. In general, we continue to see strong underlying demand, and we still believe that retail and F&B in travel are an inherent part of the travel experience, and we see a strong tendency to consumption. The lifting of the restrictions in Asia Pacific, in particular in China, are definitely good news. It will take some time because now Chinese needs to get business and needs to get passports renovated. So it will take some time. It will not come over the time -- overnight. But for the last half of the year, we believe this is going to be a very strong, supportive effect, not only in Asia Pacific, but also in some key locations in Europe and North America. We continue with our focus on cost control and discipline. We see things going on the right direction year-to-date, but we will continue to be vigilant as we were in 2022 to make sure that if something changes, we are on top of it. Of course, we also have some potential challenges, most of them linked to geopolitical and macroeconomic situations. Inflation continuously being something we monitor very carefully. In 2022, the impact has not been particularly negative. But as you know, we had an average of 80%, 84% of the shops opened during 2022. We were going to have 100% of the stores open in 2023, so there will be some pressure on the on the number of employees we are going to have in '23 versus '22. Any potential cap at airports or other traffic limitations, of course, remains something we keep an eye on. Our airport and landlord partners have made an effort also the airlines to try to cope with that and to have a more quiet summer in '23 than some of the issues we had in '22. And in both cases, the integration with Autogrill is an opportunity and a risk. I will confirm later that we continue with the same expectations, the same synergies, the same time of those synergies and the same restructuring costs. But of course, things could go better or slightly worse. I do not expect that to happen. We continue developing the retail space. At the year-end '22, we had 472,000 square meters, and we renovated a significant part of our portfolio and also we invested in a new space. You have the number of shops opened at the end of the year in this graphic, 91% in North -- in the Americas; 87% in Europe; and in Asia Pacific, 80%. The average, as I said, it was around 80%, 84% for the year. And for '23, we expect to be very close to 100% across the board. Also has been a very good year, and there are more details in the press release on renovating and extending some of our key contracts. So a strong performance '22. Yves will explain those in much more detail in a few minutes. But it's not only the last year or this year, Dufry has a clear long-term vision for the next 5 years. And this is what we presented in September, already knowing we will combine with Autogrill. So this is a combined vision for Dufry and Autogrill. This is our Destination 2027. Traveler-centricity. We need to make sure we focus more on the needs and the desires of the traveler at the end of the day to increase our expenditure per passenger, which will have not only a positive effect for us as a company, but also in our relationship with the airports. We need to build a company which clearly differentiates from competition. And we believe that the combination of travel retail and F&B is instrumental for that. Also, the combined group is much larger and increases the possibility of making an impact on digital. Digital cost money. Digital needs to be very seriously addressed. If you have a company that is 1.8x bigger, the investment is similar, but the return on that investment is much, much better. We put ESG as one of the pillars of the strategy because we want to make sure that ESG is in the day-to-day of our people and our partners, not only something we do from time-to-time. And we walked the talk. We already announced a new organization, which number one, is a combination of senior management of Dufry and Autogrill. We always said that was a combination -- that was a merger and that we will get the best of the 2 teams. And second, the principles of this organization reflect exactly the principles of the new strategy. Number one, strong regions fully accountable for the P&L and the business development of those regions: EMEA, North America, LATAM and Asia Pacific. First time some of those regions are part of the group executive committee and report directly to the CEO showing the importance we give to those areas. Number two, each of the responsibles have relevant background on the relevant geographies. They do understand the markets and they can perform on those markets. Number two, we have a new Chief Digital and Customer Officer with relevant experience on transforming brick-and-mortar organizations into digital organizations, strong global functions to allow the regions to focus on the day-to-day of the business and at the same time, to guarantee that we can generate the synergies and that we can generate the efficiencies on those functions and need to be global supporting the research. And again, ESG and public affairs being part of the first layer of the organization. So you can see that all the principles on Destination 2027 are reflected now in the new organization. And as I said, a good combination of talent coming from Autogrill, coming from Dufry or coming from the market when we didn't have the necessary skills internally. And Destination 2027 is not something that is going to happen in '27. It's something that's going to happen from now to '27 and actually from yesterday to '27. And there are a few examples, and we intend to keep updating the market, more importantly, hopefully updating you on realities when you travel and you see differences on our shops and our restaurants going forward. We have introduced 70 new brands in the last 6 months to reflect brands that need to address new consumer profiles. We are already implementing the new smart stores with 6 new stores in the first quarter of 2023, where we're going to use data to define how the shop is organized, what is the assortment, what is the pricing, even for example, where the salespeople are going to be around the store. We keep pushing for some technology improvements like the self-checkout. The target is to reach 750 shops in North America alone this 2023. On the convenience, it's a clear proof that some technology can, at the same time, increase expenditure and lower some cost base. People and culture is at the center of what we do. Also, we have first time a Chief People Officer in the senior management, and we are using technology to have 1 single platform in which all our employees see what is going on in the group. And we have a new initiative we call Internal First. As of this week, all the open positions, both of Autogrill and Dufry, are already internally advertised to the employees of the both organizations. Again, we are trying to make sure that the integration goes as fast as possible. And we keep a renovated effort on transformational innovation. We are working on a travel retail innovation lab, and we will leverage on the innovation labs that Autogrill has on the F&B. And as I mentioned, after the summer, we will rebrand the company to make sure we reflect the new travel experience focus we have now. I think it's clear by now that the combination between Dufry and Autogrill is 1 of the key strategic steps into this revolution on the travel experience. Combined Group is serving already now 2.3 billion of potential passengers. Those are the number of passengers that are in locations, airports or motorways or cruise ships that they go in front or in locations where Dufry Autogrill is present. 75 countries, 1,200 locations, of which 350 are airports and 5,500 outlets. It's clear that this presence is a big opportunity if we really do our homework to have a total different engagement with travelers. We are the most relevant company in the travel experience, in the travel retail, in the travel F&B, in the market. Digital engagement, for example, it's easier if you have this type of critical mass. For us, it's key that we address passengers that have a limited time because the dwell time is limited that we can offer during that limited dwell time everything they might need or wish independently if it's travel retail, if it's convenience or if it's food and beverage. And we already explained it, but I'll keep insisting. It's not only diversifying the portfolio, it's also creating new segments, cross-selling opportunities between the different businesses we combined, the opportunity to create mixed formats between F&B, convenience and retail and is already happening in the highest street. The touch points I mentioned increases the capacity to have a better CRM and a better digital engagement and, of course, increased opportunities of business development. We have overlap in certain geographies. But in other geographies, 1 of the 2 companies have experience and know-how that can be used to bring the other company into those markets. And something even more important, in some cases, 1 of the 2 business segments is too small for any of us. The combined business, its opportunity to enter markets that in the past were not addressed. First flash on how the combined company pro forma net sales, I have to say that the Autogrill will publish the results later this week. So this is what they have announced earlier, so the numbers could change a little bit. But what is clear is that the combined company is more diversified and therefore improves the portfolio risk. Also on something very important, the contracts. We will have now more than 1,000 contracts across the group, which means that none of those contracts is as relevant as in the past. Airports remains #1 channel with a little bit more than 80%, but still 20% of the business, which is a considerable business will be another areas of transportation, motorways and trainer stations in Europe, cruise lines and seaports in mostly the Caribbean. Geographies. 47% EMEA; 47% the Americas; 6% Asia Pacific. Of course, over the next 3, 4, 5 years, we expect Asia Pacific to grow in importance. Business line extremely interesting. It's almost very balanced between Duty Free, Duty Paid and F&B. So again, a diversified portfolio also against potential regulatory changes. So a much more solid company after the merger than before. How is the combination going? Number one, as you all know, we announced the closing of the first part of the transaction, which was the -- a change of the Edizione percentage in Autogrill for shares of Dufry. And now we are in the process of acquiring the remaining 49.7% of the shares through a mandatory tender offer in Italy. We expect that to be finished at the end of quarter 2 2023. We remain committed to the level of synergies we have disclosed with or without the successful MTO. It will be maybe a little bit more complicated because that will mean that Autogrill retains some of the existing organizational rules, but the commitment is there. And before somebody else ask, I mean, the offer we have made, it remains unchanged and it will not change because we think it's the right price, it's the right offering, and it will not be changed whatever happens because we don't need to. We expect to be fully successful. But if there will be any trouble, the process will continue the same and the value generated will be the same. And just a flash on the integration. We already started the integration on the February 7, 2 days after the announcement of the 50%. We have to comply with certain governance matters because Autogrill is still publicly listed in Italy, and it has a separate Board of Directors. But we can, with the 2 governance, we can start the integration and the generation of the synergies. As a reminder, CHF 85 million of synergies over 2 years with CHF 100 million one-off cost also over 2 years. The focus is in really creating 1 single way of working across the group. Each of the regions will have from now on, all the business on that region: Duty Free, Duty Paid or F&B. And the second most important thing here is what it's called value capture, which are the synergies. The commitment to deliver the synergies. And with what we have seen now a month after the initial closing, I can confirm we continue with the vision that that's our clear target. And now I need some -- a little bit less light before I go to my last section. I want to put a video because everybody is very serious here. So let's see if I can warm you up before the presentation of the results. We cannot change the lights, no. Okay. [Presentation]

I'm warming up the audience for Yves. Last slide on my side on the ESG. Look, ESG is a big word with all kind of opinions about it. For us, what is really important is to make ESG tangible on the day to day. It's important for our people. It's important for the communities where we are. In many locations, we are #1 employer of that part of the world. So we have -- we consider a big responsibility to make a difference, but a real difference, not just nice reporting, but a real difference. In that line, we focus on our people. We focus on the communities, and we focus on the environment. The Board has already added ESG as 1 of the 3 metrics for long-term incentive plan of management. So we commit to a specific target also on the remuneration side. The focus is diversity and inclusion. That's also something we started improving. Still far where it should be, but improving on the new group Executive Committee. We keep focusing a lot on training of our people. We are working not only internally, but also with our external partners, especially the suppliers with a Supplier Code of Conduct. On the environment, we try to make it tangible targets, not just nice words and also more and more on the customer focus. You have much more information on the annual report. I'll come back later for a conclusion. Thank you very much for your attention. Yves?

Thank you very much, Xavier, and good afternoon, everybody. So after the frenzy video, let's look at some, hopefully, good numbers. Starting directly with our core P&L. As a quick reminder, and as you probably know, the core numbers are the new way of presenting our financial information on top of the formal IFRS numbers. And they are adjusted by only 2 aspects. Number one, we revert the impact of IFRS 16. So what you basically see in the core numbers is much closer to IAS 17 numbers, so what we have before the implementation of IFRS 16 in 2019. And secondly, we continue to adjust for acquisition-related adjustments. We have done that already before, and we are continuing to do that. So looking at the numbers line by line, starting directly with the turnover. We have generated a turnover of 6 points or close to CHF 6.9 billion, which represents a growth of 76% compared to the year 2021. Gross profit came in at 61%. This is above pre-pandemic levels. And we have seen there some tailwinds in regards to the strong demand with the recovery of travel, so in the number of passengers, but also in regard to the demand of those passengers. In respect to concession fees and personnel expenses, we have seen some advantages. In respect to concession fees, there was still a small but an element of MAG relief, still applying in 2022. And with respect to personnel expenses, we had a small but also an advantage in regards to the hiring. So as you remember, we mentioned that several times before, we -- in some markets, we're struggling to hire as fast as we wanted to. So there will probably be some catch-up element into 2023. As a result, EBITDA is coming in at CHF 606 million and 8.8%. The financial results were slightly better than the year before. Here, there are a number of effects. One is the lower overall debt position, which led to lower expenses and some smaller other effects. Net profit, CHF 190 million, positive compared to a similar amount negative in the year before. And core profit to equity holders slightly above CHF 100 million, turned again positive after 2 difficult years of COVID-19. Moving on to Slide #24 with the regional performance. We have seen improvements in 2022 across all the regions and especially in the second half of the year. We have achieved a strong performance of the region despite capacity cuts, for example, in the U.K., but also flight disruptions in several areas of the world. The Americas delivered a 62% organic growth versus 2021. North America and especially the U.S. recovered relatively early in the year already due to domestic travelers. Typical leisure destinations, like, for example, the Caribbean, but also Mexico were also among the best-performing regions throughout the last 2 years. During the second half, also South America started to recover. APAC was the region which was most impacted in 2022 with an organic growth of close to 65%. We have seen further openings during 2022 with Australia, Macau, Indonesia leading the way in the quarter. We are now looking at China and the developments of the lifting of the restrictions earlier this year, i.e., 2023. Moving on to Slide 25 with the segments. Xavier has already presented the well-diversified geographical split, channel split and also the categories and business line split for the combined organization going forward. What you see on the slide here is a standalone basis until 2022. The performance was mainly driven by EMEA and the Americas from a business line perspective. Duty Free accounted for 58% of net sales and Duty Paid for 42%. Moving on to the cash flow statement. Change in net debt was relatively neutral for the year. Trade working capital moved in line with the strong business performance in the second half of the year. So what we have done there compared to the half year is with the strong recovery and the strong performance of the underlying business, we have started to build up again inventory. And we also did that due to some restrictions we have seen still on the supply chain. So there were some restrictions and as a consequence to compete with the strong demand we have seen from our customers, we have increased our inventory to make sure we are nowhere out of stock at any moment in time. CapEx came in at 1.6% of turnover, influenced by some lower spending. Please bear in mind that the first quarter, we still have discussions around Omicron and also about geopolitical tension. Having said that, we have spent all the CapEx which is required from an operational perspective in 2022, and there's no spillover effect into 2023 or beyond. Cash flow related to minorities came in at CHF 65 million related to strong performance of the business, especially in geographies where we do have minorities. There, please be remembered about the strong and early recovery of our operations in North America, where we typically have from a legislation perspective to operate with minorities. Income tax paid was also driven by the better performance of many of the operations. And putting all of what I've just mentioned together resulted in an equity free cash flow of CHF 305 million. Change in net debt on top was affected by 2 additional impacts. On one hand side, by the refinancing we did towards the end of 2022, i.e., we have refinanced all the main bank debts of the organization. We'll come to that in a minute. That was affected by some one-off expenses there and the purchase of treasury shares. Moving on to Slide #27 with the financial covenants. Two messages here. Number one, as you remember, we have received some covenant holidays by the banks until and including June with the first testing to happen only in September by Q3 this year. So message #1 is already now at the end of December, we are below that threshold with a leverage of 4.8. So it's way ahead of the deadline. Point #2, and that's also important. In the transaction with Autogrill, the combination with Autogrill, we have financed the first state entirely with equity. Message #2, i.e., the MTO process for the remaining 49.7% of the shares, which is currently in public cans. We have given the minorities the option to purchase those shares to either get to free shares or to opt for a cash alternative. So disregarding the results, disregarding on how the minorities decide from a covenant perspective, the leverage will decrease even further. So from a covenant perspective, I'm completely relaxed about the next quarters and years to come. Moving on to the maturity profile. As I've just mentioned before, we have refinanced the bank debt already back in December 2022. You see that here with the new RCF, which actually even increased from CHF 1.3 billion to now CHF 2.1 billion. The refinancing we had to do was around CHF 1.8 billion. It also contained the term loan of around USD 500 million. So if you take the CHF 1.8 billion, look at the refinancing, we actually even were able to increase the RCF by around CHF 300 million in total, which gives us a lot of flexibility. What is also important to note here is that the RCF is mostly undrawn. So the group currently has access to CHF 2.3 billion of liquidity [indiscernible] gives me a lot of comfort for not only the [indiscernible], but also for the potential refinancing of the 2024 maturity, i.e., the bonds of EUR 800 million. And that CHF 2.3 billion does not even take yet into account the cash generation this year and the cash generation we will have next year. The bonds only matures in October 2024. Moving on to next step evolution on the next slide on Slide 30. As you can see, net debt has reached by the end of 2022, a little bit more than CHF 2.8 billion, and that's the lowest level in the organization since March 2015. Moving on to the outlook on Page 31. Most importantly, we confirm our outlook for '23 to '27, as presented at our Capital Markets Day in September 2022. As Xavier has already mentioned earlier today, we are fully committed to our Destination 2027 strategy, including the combination with Autogrill. Ultimately, we aim to generate value for you, for our shareholders. We will confirm our outlook towards 2027. We want to provide some remarks on 2023 and also the year 2024. First, we expect turnover to grow between 7% to 10%. This is in line with what we have communicated at the Capital Markets Day. What is new, though, is that the basis is starting with the 2022 combined reported turnover. So we have reported turnover today, and Autogrill separately has reported turnover a couple of days ago in their initial reporting to the market on the top line. Secondly, we target to maintain a robust profitability. During 2022, we have already achieved the 75 to 100 basis points margin improvement we have initially expected and communicated at the Capital Markets Day only for 2023. So we even went beyond that with a reported 8.8% EBITDA level. While we continue to focus on cost and efficiencies, we expect to see around 50 to 60 basis points of pressure on EBITDA margin in 2023, in line with our previous communication. So what that basically means is that for the full year 2023, we reconfirm what we have provided as a margin outlook at the Capital Markets Day in 2022. And most importantly, on the cash flow side, we will turn to the historical levels of CapEx of around 4% for the combined group. We're already expecting a conversion from EBITDA to be in the area of around 20% for this year. In the Capital Markets Day back in 2022, we're committing to the 20% as well, but only starting as of 2024. We are consolidating Autogrill as of February, and you will receive the full set of combined financials with our half year results. Personally, I'm very excited about the coming weeks and the months to come with the integration of the business and to grow together as one team. We have started to work together. And the first couple of weeks so far, the teams are working extremely well together, and I'm very much looking forward for that combined churn. And with this, I hand over back to Xavier for the closing remarks.

Thank you, Yves. Only 1 slide. Same message as I said at the beginning. Strong 2022 with reconfirmation of the midterm outlook '23-'27. Strong has been in revenues, in EBITDA, EBITDA margin and equity free cash flow and net earnings. We keep the highest financial flexibility in the history of the company with the lowest net debt level since 2015 and more deleverage, thanks to the combination with Autogrill because they come with 0 net debt. Clear new strategy, which, of course, we will fine-tune more and more when we learn about Autogrill, but the big Destination '27 and the big vision is there. We know where we're going. And more importantly, it's shared and understood by all the key people around the combined group. Consolidation of Autogrill as of February and the integration process already ongoing and as expected to be completed in the next 12 months with the generation of synergies over the next 24 months, as previously disclosed. We are becoming a little bit of a boring company in the sense that we keep bringing here what we say previously. And with that, we finish and we open, unless you want to see the video again, we open for Q&A. Normally, I show it twice.

We will now begin the question-and-answer session. [Operator Instructions] The first question is from Patel Chandni from Barclays.

One second, excuse me, operator, excuse me. We have people live here. So we will start with some questions on the floor, and then we will move to the call, if that's okay. You need to speak on the mic because otherwise, I will not hear you. So who is first?

It's Rebecca McClellan, Santander. I've got 3 questions, please. Firstly, the 2022 organic revenue performance versus 2019. I think it was 116%. If 84% of the stores were -- if only 84% of the stores were open, what organic comparison do you have for the actual like-for-like stores that were open?

Well, I don't have that calculation, and I'm not sure it makes sense because, of course, I didn't say the 84% of the sales. It was only a number of stores. And of course, in any given airport, the stores you don't open are the less relevant stores, the remote stores, maybe opening hours also which then hours you don't use, of course, as that. So I will not do -- I will not try to match because this is not average square meters on that. So I will really take the organic as comparable because we had to open the space that we needed for the people or the passengers we had.

Understood. My second question is just about China. Obviously, well, in the presentation, you talked about China being -- domestic China being 1 of the stronger performers at the latter part of 2022. Is there any cannibalization if the Chinese travelers start to leave Mainland and sort of spend elsewhere?

That's a very good question and not easy to answer because it's more common sense than anything else. So common sense says that if Chinese travelers have options outside China versus until now that they could only go basically to internal China or Hainan, of course, there should be some movement of the sales between domestic China, Hainan in particular, and the rest of the world. As you know, our presence in Hainan is very, very small. As a foreign company, we cannot operate Duty Free stores in China. We only have a management and supply agreement. So we believe part of the flow will go outside. Hainan will remain an important destination for sure, but maybe less so in the future than until -- for the last 3 years.

Okay. And finally, just in terms of the integration and sort of merger of the 2 businesses. I presume that the sort of infrastructure, the IT, the technology is a very separate sort of platforms. And so how easy or not is it going to be to integrate the 2 businesses in that respect and ultimately get to data sharing, and I think they have a data laboratory. How easy or hard is it going to be to achieve that?

So if you put in the same sentence, IT and easy, it never works. So IT is going to be difficult, that's for sure. But I think we are going to try to be smart. So how important is for us to have a common ERP is probably not a priority. So we will focus, of course, already now on financial reporting that is clear and is practically already done. Second, on consumer-facing activities, and that will include the access to information on passengers. That it can be integrated much faster because you don't need to integrate the systems. You can just over -- put an overlap on the pre-existing systems. But the priority would be anything that is consumer-facing. We may know secret, not only the technology, but also the supply chain. Today, we already have 2 supply chains, Duty Free and Duty Paid. And now we are going to add another 1 that is F&B. And the suppliers are different in some cases. In some cases, are the same, in particular, in North America. The F&B suppliers are very, very much overlapping with the F&B convenience food we have in Hudson in the convenience. So more than 50% of what we sell is the same already in Hudson with Autogrill North America. But the back-office will remain a little bit different for the time being. The strategy on the integration is to focus on what delivers the highest value with a shortest time frame. Everything else, it will keep going on the long term. Thank you.

Gian-Marco Werro, Zürcher. I appreciate this especially the details you also gave with the milestones for 2023. I like it's a lot the new stores that you want to open in the first quarter. Maybe can you give us a bit more detail for the full 2023 about how many stores you want to refurbish already than this year? Of course, maybe depend also on how successful or how happy you are with the first 6 stores in the first quarter. Then remembering back the exciting Capital Markets Day in London, where you presented all the initiatives and the digital revolution that you want to bring into travel retail. Can you also give us some detail already there about how many of those innovations you already could implement in some of your key airports. It would be helpful. And then also, you mentioned the recruitment topic, like HR challenge for 2023. Can you maybe provide us with some detail about what you expect to -- by how much you need to increase your personnel costs for Dufry standalone? Or maybe if you already did some planning and budgeting for the combined group?

Thank you for the questions. I will try to answer. We'll keep some elements to surprise you as a passenger. As I always say, I don't know if you buy shares or not that, I cannot influence, but please shop when you go through our stores or restaurants. But we need to keep a little bit of surprise and also keep a little bit of competitive edge. So the advantage of the smart stores is that you don't need to have all your portfolio becoming smart stores. What you need to do is to make the right sampling to have the different profile of stores, airports and passengers. Because what you learn in 1 store, even if the next 1 is not a smart store, you can implement what you have learned. So I'm not going to disclose today how many other stores we will do. We will do the pilot with 6. We will learn about it. We will fully learn about the cost benefits, and then we will have an implementation plan for the remaining of the year and the future. On the digital innovations, I mean, look, the focus, and we already started with some elements, but the real, real breakthrough on the digital implementation for the customers is going to be when we can launch a digital engagement program, including Dufry and Autogrill, which hopefully will be done later in the year. Until then, what we are doing is to build, one, the technology, the technology we will need to do that. Second, we start adding some external partners. We've seen that in order for any loyalty or engagement program with consumers to make a difference can not only be giving a discount on our product, but it needs to be something that we offer different from competition. Third, we are advancing and we start having now finally some positive effects of the collaboration with Alibaba and some of the key platforms they have, particularly addressing Chinese travelers, which will be also embedded in our digital platform. Recruiting, we recruit more or less people depending on the demand. That's 1 of the things I think we have proven over the last few years and '22 again, that we are very making sure that the cost structure follows sells not the other way around. Of course, with the new stores, the new opening hours, we will need to have recruiting. But we are also trying to be smart. In the sense, for example, the self-checkouts are being clearly helpful on managed peak hours. You still need people because of self checkouts, you might need somebody assisting you. You still need people on the store, but you can map hours much better. So it's not only bringing people into the stores, it's bringing people in a smart way into the store when and how it is needed. The more team members that can interact with passengers to help the sale, the better it is versus doing more administrative type of work.

Jörn from UBS. If I may ask 2 to 3 questions, please. The first 1 is in the tenders which are upcoming, are you already using your combined offering of classical to retail and F&B? And also, if you get some additional feedback from the last time you updated us on this combined offering. The second question would be, please, on the gross profit margin in 2022 was very strong. How many basis points was the benefit from the promotions? And do you expect or can you offset this with a change in product portfolio? And the third question would be, please, on the equity free cash flow in 2022. Just to double check this. Yves, I think you mentioned there was no or there will be no CapEx spillover in 2023? And also, what was the really the benefit of the macro relief in the cash flow statement in 2022 that we get a better feeling for the underlying number?

So we'll take the first one. Look, not yet. I mean the closing was a month ago. So we are still working on potential collaboration on the tendering with Autogrill. The feedback in general remains very similar to the one we told you when we announced the deal. There are a few airports and a few landlords that are neutral. And there are some that they are already extremely enthusiastic about the possibilities to offer something innovative and different to their passengers. So we will focus, of course, first, on the second market. And we are convinced that we will see some hybrid concepts and some entrants of new markets or 1 of the 2 businesses over the next few months. So we will make the integration tangible in the short term. Tangible to make material effects immediately not because we always said this integration is a question of years, not only months, I mean the cost years. But the first reaction of some airports is very, very positive. We are starting to look at some opportunities. So we will see some clear effects in 2023. Second question. Look, the gross profit margin is a very complicated matter because it's a combination of different geographies have different margins. Duty Free, Duty Paid has different margin, and each of the categories we have also have different margins. So when you see the global margin is a combination of many things. And of course, the answer to your question is if we are good retailers, which could make only promotions at the end of the day, bring additional value. So it should be a combination. So overall, we believe the margin reflects the reality of 2022, and we remain focused on that. But that's why we believe looking unless you can see the P&L of every operation as we do, when you see the mix, I think it's better that you focus on the different -- on the EBITDA margin because the different lines can change on one case or the other. As we always say, Duty Free has higher gross profit margin, but also higher concession fee, for example, than the Duty Paid. And now with the F&B, we'll be even more complex because the P&L structure is completely different. But the gross profit margin, we believe, will remain strong for the incoming months. And last question is for you, Yves.

So in respect to CapEx or more general the year 2022 and the specific elements you mentioned. So look, I think the way from a modeling perspective, and I think that's where your question obviously goes to is the way you would need to look at it is as follows. On CapEx, as mentioned, no spillover in 2023, and we have provided in our outlook for 2023, the CapEx level we expect to see in the combined group for 2023, which is 4%. And then in respect to concessions, look there, we are not providing further details. We preview the outlook and the specific considerations for revenues for EBITDA and for the equity free cash flow. But as I've mentioned before, overall, the amount is not that relevant. We are fading out from this special situation of COVID. There was still some element, yes in 2022, but for 2023 and looking forward, this is not something which should be any concern or relevant anymore.

[ Benjamin Wyman ] from CH Media. New company, new name. Can you say what's your commitment to Switzerland and Basel as your headquarters? Or are you looking at new headquarters? And will the Swiss Cross be part of the new logo? Or will it be removed just like Toblerone?

Very difficult questions. I mean we are a Swiss company. We remain committed to Switzerland. I do believe that what we need is to focus on delivering the business, delivering this travel experience revolution. Like any modern company in the world nowadays, we have experts on the different areas across the world. We do not see it, and we do not manage the company from 1 centralized building in Basel. That has not been the case for many years, and we will continue like that because you have centers of expertise and know-how across the world, and we are a global company, and we need to reflect in a structure that understands that global wall and that global complexity. On the logo and the brand, I cannot opine. We have hired an expert, and they are doing now their research. And then we will see in due time. I don't know if I can make my usual stupid joke that what I do believe the name would not be either or out to try. Those 2 names are out of questions. Hopefully, we'll come something a little bit nicer. Thank you very much. Jon?

Jon Cox, Kepler Cheuvreux. A couple just on your guidance for free cash flow this year of 20% conversion on the core EBITDA consensus is around CHF 1 billion or getting close to CHF 1 billion. Are you comfortable with equity free cash flow assumptions and somewhere close to CHF 200 million for this year? And can you confirm that includes any restructuring costs plus also the deal costs themselves? So that would be roughly CHF 150 million combined, I guess. Then sort of looking forward into next couple of years. Wondering where you think that conversion ratio can go to. Obviously, 50% this year looks great. A lot of reasons why that was the case. Just wondering, do you think you can get to 50% going forward on that conversion ratio from core EBITDA? And then just the last question on the MTO. It looks like there's going to be quite a substantial dilution if everybody takes the shares. It seems around half of the Autogrill shareholders are naked as it were so they're not hedged. And the clear risk is you're going to get a load of Dufry shares suddenly being sold once the Autogrill minorities get hold of them. Just wondering if you thought about any mopping up operations there. You've said already, you're pretty comfortable with the covenant even if people just want to take the cash. I wonder if you could maybe do something like a buyback or something to try and mop up that liquidity coming into the market potentially later in Q2.

So look, on the consensus, I mean, it's not us to opine on. The consensus is something, obviously, which is a result of the opinion of all of you together or most of you. So look, what we have seen so far in respect to consensus is for 2023 is pretty much in line with what we have presented at the Capital Markets Day back in September 2022 and it's also in line with what I have presented today. So from that perspective, it looks that we are aligned. In regards to the restructuring and the transaction costs, so, look restructuring costs are already in there. What you need to consider there is that most probably not all of that is coming in 1 single year. So we're just about to start this journey and part of the integration costs will come in 2023 and part of that also potentially in 2024. Now with respect to the transaction costs, that is coming below equity free cash flow, as mentioned previously. So that's not part of the calculation or the outlook.

On the sustainable conversion rate, I mean, look, I think what we tried to explain back in, and we'll continue with the same, is to keep -- I mean, we need to keep growing the sales ahead of the passenger growth. We need to keep improving EBITDA margin. I'm talking now midterm, long term. I think Yves explained very well the '23 is a particular year with a combination of '22. And that should reflect in the conversion rate. I think we gave some indication back in September, 50%, and you know and I know you. It's a tricky question because you know it's not possible to reach that level on a sustainable manner. The reason is because you need to keep investing on the business for the future. I mean, you can obtain that in 1 or 2 specific years if you squeeze the organization, but it's not sustainable over time. But our expectation is to keep improving the conversion rate from a normalized manner. On the MTO, it's -- as you very well said, it depends on the relative change of the 2 shares who will take cash or who will take shares. On the current exchange rate is more likely people will take shares than cash, but that is not an absolute because there are some investors that might have limitations on the type of assets and the type of markets they can invest. On the flow back, depending on what happens after, of course, it's something we are monitoring. But I will also tell you that we are making an effort to expand the combined renovated equity history to new shareholders. As I always say, our focus is company and the operations of the company and the results of the company, not the share price that follows. But I do believe that the new renovated combined equity history, it has merit in itself, and we'll keep attracting new people over time. Share buybacks, look, this is a consideration that it needs to be taken very seriously. And that in due time, it might be something that the Board discusses. But at this stage, there is no plans to do any share buyback. We still believe, and we said that the transaction in any of the scenario is accretive in net earnings, and we stick to that. Leaving aside the additional strategic value of the future growth, the future digital, a more diversified group. So I think to us that the combined group has a much stronger long-term value than the separate organizations. In order to renovate, now we could take some calls from the operator, if they are still up there.

The first question is from Chandni Patel from Barclays.

Congratulations on the solid sales results today. And I've got 3 questions, please. And the first is what happens when you refinance your CHF 800 million of debt in October next year. When I look on Bloomberg, it looks like the 2027 bond yield is 6.7%. So I imagine that's around 400 bps or so increase in interest cost. So is it fair for me to assume '23 will be lower interest cost, and then you'll see kind of a spike in '24-'25 and then lower again in '26-'27 as you kind of delever the business. Is that a fair assumption? The second question is on the encouraging trends that you pointed out, the current trading trends. So the group organic growth, you said, is minus 3% below '19 levels year-to-date. Can you break that out or give some sort of commentary around how that split between price growth and volume recovery? And then my final question is around net new concessions. So I think you've shown minus 3.6% versus '19 in Q4. So I guess this new, you've been exiting, I think, quite a few contracts. Do you see the sort of contract rationalization continuing into 2023?

So look, on the refinancing of the 2024 bond, I mean, you're absolutely right. If you look at the current conditions, if you would finance it basically as a forward starting facility, you're assuming that the conditions remain the same, then yes, if you refinance it with the new bonds, you build conditions. But Look, I think what we need to take into consideration here is what I've mentioned before. The group currently has access to CHF 2.3 billion of liquidity, that contains the RCF, which is and the liquidity [indiscernible]. Also just mentioned comes in with a net debt of 0. So there is no refinancing requirement in principle there. Now the Board [indiscernible] catch between now and the October 2024 maturity. We can use the available liquidity. We can take any form of refers to, including bonds or any other needs in case of to be a bank financing, obviously. So from that perspective, I don't believe that come 2024, and we would see a bond opportunity in the area of whatever, 400 basis points of margin, we would necessarily do that for the full amount, most probably not.

Yes. I mean the year '23 has started strong. Two comments. The comparables will be more difficult on the second half of the year for obvious reasons. And everything we see so far is encouraging. But we need to remember that 2022, we had probably the longest summer, and I'm not talking weather-wise, but for travel retail in record. I mean a lot of demand moved not from September to October, even end of October. So we had a very lengthy summer. And leisure traffic for us is very important. So for '23, we see positive trends. For example, the opening of China, it should be good money in Asia Pacific, but some of our key airports like London or Canada. But on the other side, we also don't know whether summer will be as long as this year. So that's why the guidance we gave last year, and we reconfirm today, we believe it's the right one for the full year. Look, the net concessions, I think it's very important, and that was an active part of our new strategy, we call it active portfolio management. We are in the business of making money. We see airports and other landlords as partners. And therefore, we believe both parties have to make the necessary amount of money. And therefore, we believe that discipline on tendering is of essence today and going forward. I still believe we can increase our market share in several markets, but only under the premise that we believe it will be a proper return on investment on those concessions. Thank you for your questions. More questions from the phone?

The next question is from Ali Naqvi from HSBC.

If we were to look at 2023 in isolation, could you just give us the moving parts on the costs by segment, what's going up and down or and decided to have an H1, H2 split? And then can you tell us what's going on with sort of customer demand in terms of dwell time or spend per head? Is there anything to be worried about as you exited 2022 and that seems sort of in the current trading data so far? And then finally, you made the point on obviously APAC being a bigger part of the group over time. When does that start to materialize? Does that come through more slightly growth or M&A? And just following up from that, is there anything you can tell us about the Aena contract negotiations?

So on the first one, if I understood the question, it will take 2 hours to answer all the moving pieces on the P&L. I mean I think first half or second half, as I said, depends on the weight of the different bits and pieces of the business. I think we published a full year result for P&L and half full P&L we can go to that, but this is maybe I would suggest an analytical exercise you can do with Yves and Christine in a separate moment. There is nothing absolutely essential. You will not see just comparing the 2 P&Ls. And of course, remember, this is a seasonal business. Summer is our most important point. On customer dwell times, spend per head, categories, et cetera, I think to particularly worry. As a general long-term trends, we think our business will be based on 1 side on more premium in the segment of the Duty Free. There is a clear premiumization across all our key suppliers. So we are going to see that. We believe convenience is going to be more and more about fast transactional time. We believe that the self-checkouts, boiling cues is key for that segment. And on the F&B it's a bit of both. We think there are subsegments on the F&B that could bring additional value. And we're seeing also transactional time, for example, being able to order on a self-ordering device versus having to have the waiter. It's also something that can bring additional value. So the different trends. But if you tell me exiting '22 entering '23, any big change is not the case. APAC, when? Look, the commitment is there. We have a new CEO for APAC. She will be taking over in the next couple of months as we are doing the transition now. It will be a combination. I mean the expansion in Asia, will be organic growth for the existing locations. It will be leveraging on some of the partnerships we have, like the partnership we have with Alibaba. It will be new tenders, new joint ventures. And maybe on M&A. There are no specific targets on the table right now. We always said that M&A is part of our long-term strategy, and Asia is not an exception to that. But right now, we are focusing on the priorities I described earlier. Aena tender. Look, Aena is a big piece of our business, but it's not an exception for us to the approach of cost discipline. Therefore, we are looking into it. We will make an offer for those parts of the business, we believe are reasonable, and we will make an offer in which we get our return on investment. We will not sacrifice the profitability of the group. One place has always been with us or is traditional or we have some type of sentimental attachment to that. This is business, and this is about making money on the long term. It's a complex tender with 6 packages with a lot of things to be analyzed. So too early to see the level of our interest, but we will commit to a disciplined approach to those financials. And you know that our contract runs until October this year and the tender, we will settle between May and June. And then we will know which part of the business will retain, we don't retain.

The next question comes from Mandari Dhar from RBC.

I just have 2, if I may. Firstly, how do you view the outlook for the -- in terms of competition in the tender market? I suppose, thinking about some of those smaller markets that you haven't previously been able to enter or haven't been profitable to enter you might see some of the local operators struggling in the current environment. So that presents potentially an opportunity for less competitive entrants? And then secondly, is the changing of the $100 million liquid restrictions that's coming through in 2024 likely to impact your operations? I suppose it might have some impact for convenience but equally could make security quicker and faster and easier?

Thank you very much. Look, we have a high level of respect for all our competition. This remains a competitive market. But the stars being signs that not everybody is going to go to anything at whatever price. And we have something that was announced a few days ago, about 1 player announcing they will not go to the Spanish tender, 1 of the biggest players. It's encouraging to the sense that not everybody believes they can go anywhere at any price. On the 100 milliliter, I think on your question, you also answer. Of course, there is a few people that might buy something, especially on the convenience because they cannot take the liquids with them. But on the other side, the new machines will make the security screening much easier and therefore, increase the dwell time. So we think in the worst case will be a netting effect. And overall, we think that anything that makes an easier security check is positive for our business. It will increase dwell time. It will increase productivity of that dwell time and it will decrease the level of stress of some passengers and therefore, it will increase the likelihood of them spending money on our shops. Next question.

The next question is from Matt Garland from Deutsche Bank.

I just have 3. First, in terms of the combined group. If you were to reach 2019 sales this year, would it be correct to think about the equity free cash flow being -- opportunity being around CHF 350 million. And secondly, just in terms of the free standalone. It looks like the sort of core concession fee has gone up by, I think, around about 50 bps since 2019. Is there sort of a -- are you seeing a sort of structural reason as to why that's increased? Or can you sort of give any further details on that? And then finally, just in terms of luxury sales, it looks like luxury sales sort of down 50% from 2019 levels. Do you see any, I guess, structural reason as to why it shouldn't recover back to 2019 levels? And also sort of looking cost this year and next year with the China consumer coming back. Do you have an idea about how much you think luxury sales would come back in sort of 2023, 2024?

Look, let me start with the combined or your question around the returning of the sales to 2019 levels. So look, for us, the way we have drafted and the way we have provided you the indications for the future is not by locating and comparing it to 2019, but basically to look into the future and the new reality we are facing. And if you look at our outlook, which are provided at the Capital Markets Day, but also today, that takes that into account. And I think it's especially important because the new combined group follows completely different lines, as Xavier has mentioned it before, I mean the gross profit margin of the different companies is different. The personnel expenses of the different companies and the combination with Autogrill will lead to different numbers and so does the cash flow. So to compare it one to one from my perspective or from our perspective, it's impossible and probably also not as I've mentioned before, the right approach. What is the right approach is to do it the way we have explained it in the Capital Markets Day with the outlook we have provided there. And also today, that leads to the most accurate result in that sense. And as I've mentioned previously, is also very much in line with what you guys have provided us a consensus. Luxury sales, I think that's more things for you.

In any case, I don't see the increase in concession fee. You mentioned actually, they are pretty stable between '22 and 2019, just for the record. Look, on the luxury, you can have to approach as a retailer. What I do want to sell or what actually my customers and my potential customers want to buy. So we need to adapt, and that's what we're doing with the combination with Autogrill, is adapting F&B. It's a very important segment. Luxury sales are important, absolutely. You are a spot on that. Some of the higher expenditure on luxury are Chinese, and they are coming back to travel. So we should see an uplift there. But again, if the trend is luxury, we will offer more luxury. And we see that premium in beauty, in wine and spirits, it's a megatrend, and we see that, and that's good for our business. But likewise, if we need to offer F&B or we need to offer convenience to complement because even the same passenger might want different things on the journey, you can be buying a very expensive luxury product, and at the same time, you need to reach something. So for me, the name of the game is to adapt our offering to whatever are the needs of the passenger. And with Chinese, definitely, that means more luxury when they come back. Next question, please?

We have a question coming from the webcast of Mr. Fehmi Naamane from ODDO asking, hi, regarding Autogrill motorway activity in Italy, can you give us the details of the contract maturity type of rent, et cetera? And what future you can see there for this activity, which has different drivers than your core businesses, more domestic, more resilient, less growth, et cetera?

You know the policy of the group is not to give any details on specific concessions for competitive reasons, and we are not going to change that. Second, you're a spot on. It's a complementary business to the air travel. What we announced the combination, we said that in certain markets, people travels, which means that are alternative to airline travel. In the Caribbean, for many years, we had seaport shops. We had cruise lines because that's a way in which travelers arrive to the different islands, not only airports. So we are in all those means. In Europe, train and motorways are a complementary channel for short-haul domestic flights. Yes, the profile is different. It's more convenient and more domestic. But if you think about what we do in Duty Paid in the U.S. is also more convenience and it's also more domestic. So we believe it's a good complement of the existing business for Europe. I think we made clear that it's not a segment we are going to expand anywhere outside Europe, but for Europe makes sense to have it like the cruise lines and the seaports makes sense to have it in the Caribbean. Any other questions?

The next question from the webcast is from Simon LeChipre from Stifel. You mentioned CapEx sales at 5% at your CMD. You now expect 4% for 2023. Why this change? Does the 4% ratio include the 50 bp impact related to the Travel Experience revolution that you flagged at CMD?

So look, what we have provided today as an outlook is for 2023 mainly. So it's a '23 and '24 in respect to the CapEx is for 2023. So we expect to see a catch-up up to 4% or to 4% for the financial year 2023. What we communicated at the Capital Markets Day, i.e., the 5%, which you rightly mentioned, that still hold true. It's more related to the outer year so. Any other question? You know I have a watch there and it keeps getting down. And according to that, we have 42 seconds. Any other questions on the phone, on the webcast?

There are no more questions from the phone, sir.

Any last questions here?

That would be impressive.

Well, we need to cover somehow 23 seconds. Well, we can show the video again, but that is 1 minute. So now thank you very much, everybody, for your attention. Thank you for the people taking the travel to come all the way here in Zurich. I appreciate. We will see you soon in the presentation of the first quarter update. Thank you very much. It's time.

Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.