Avolta AG (AVOL) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to Dufry's Q1 2023 Trading Update Conference Call and Live Webcast. I am Alise, the Chorus Call operator. [Operator Instructions] At this time, it's my pleasure to hand over to Mr. Xavier Rossinyol, CEO of Dufry. Please go ahead, sir.

Thank you very much, Alise. Good morning, good afternoon, good evening, everybody. Welcome to this trading update of Dufry figures. The first time we report combined figures between Dufry and Autogrill. I will go straight into the presentation with a business update. And in a few minutes, my colleague, Yves will update on the detailed financials, and then we will go to Q&A on the open floor. So if we move now to Page #4, we can see some of the highlights. Number one, we have a strong performance in quarter 1 2023, a strong continuation on what we already saw in the second part of 2022. So recovery continues in all the key metrics: revenues, EBITDA, EBITDA margin, free cash flow and also that has a consequence on a lowering leverage and increased financial flexibility. We have a clear new strategy, Destination 2027 that will bring a revolution on the travel experience, but you don't get to 2027 if you don't start working today. And the strategy implementation is ongoing in all the key pillars we disclose. Integration between Dufry and Autogrill on this strategic combination is going well, and we can confirm that all the financial targets on the cost synergies and then the revenue synergies will be achieved on the expected timeframe. And as we said already quite a few times, ESG not only remains a clear focus, but is part of our new strategy. If we now move to Page 5, just a reminder of our key strategy. We believe that a successful company has to focus on daily execution but has to have a long-term vision on where it goes. And for that, our NORTH-STAR is this Destination 2027 based in very clear 4 pillars: number one, consumer-centricity, traveler centricity to deliver on a travel retail and F&B revolution with a strong focus on our physical stores at airports, motorways, cruise lines, but with a very strong focus also on a digital engagement across the board. Second pillar is a geographical diversification, very clear focus on our core markets in EMEA and Latin America, but the reinforcement of our strategy in North America and particularly in Asia Pacific, where we see a lot of potential for growth. Third, operational improvement. And I think the quarter 1 shows that we are not only benefiting from a recovery on the travel, but we are also keeping our discipline in cost and CapEx to guarantee not only a strong recovery in sales but a strong recovery in cash flow. Last but not least, ESG has 1 of the 4 pillars of our strategy. If we move to Page 6, and Yves will give in a few minutes detail, we have reached CHF 2.4 billion revenues. That is 3 months of Dufry and 2 months of Autogrill. We consolidated Autogrill as of February 1 this year. This is a 113% growth versus the first quarter 2022. If we look at the organic growth without the effect of Autogrill consolidation, it has been 51%. Autogrill stand-alone on the first quarter, very similar numbers, 41%, a little bit less than Dufry stand-alone, but only because the recovery last year started a little bit earlier in the Autogrill portfolio than in the Dufry portfolio. Strong EBITDA margin, CHF 134 million, 5.7% EBITDA margin, very similar into the 2 business of Dufry and Autogrill. It's the lowest quarter of the year, as we all know, but even for a low quarter, it has been a good performance also on the equity free cash flow negative as always in the first quarter of the year because we're investing for the high part, which is the second, the third and the fourth quarter of the year. And we keep a very high liquidity availability and we have also made significant improvements on the leverage, on the covenants, on the rating agencies as Yves is going to explain. If we go now to Page 7, turnover is strong in the first quarter, both in a comparable basis and non-comparable basis. As I said, in both, the growth is very high. We are not going to see the same type of growth during the remaining of the year because the first quarter 2023, the comparables are easier. And the reason is very simple. In the first quarter of last year, we still had the effects of Omicron. But even if in relative terms, the growth will be less on the remaining quarters, we believe that the outlook we gave, which is reflected in the consensus, it's clearly achievable this year. Not only the quarter had the strong growth, but the last 2 months, March and now April reflect even a stronger performance. It's the first 2 months since the COVID crisis, where the revenues of the group and that is true both for Dufry, Autogrill and the consolidated are ahead of 2019 figures. We remain cautious and we remain vigilant because we have to be aware that there are several matters on the macroeconomic environment and in the geopolitical environment that could affect us. If we move now to Page 8, we see some of those that are all well known. The geopolitics, the macro, the inflation, the potential supply chain issues. On the flip side, we see strong recovery on the passenger, also a strong operational performance across all the portfolio. And we still have for the second part of the year, especially the last quarter, the recovery of the Chinese traffic, which is starting, but still in very low numbers for the reasons everybody knows. The flights going outside China, the visas, et cetera, is taking a little bit more time. But definitely, over time, over the next few quarters, that would be something beneficial for our business. If we move to Page 9, we can see that the good performance has been across all the board. EMEA, 58% growth, again, like in the last 12 months, better performance on the touristic destinations because on some of the big European airports, we're still missing the Asian and the Chinese passengers, but it's pretty much across the board that the improvement keeps continuing both on passengers and [ spend ] per passenger. North America, also very strong performance, 34% organic growth, a little bit less than the rest of the regions, but only for one reason. A lot of our business in North America is related to domestic passengers and those domestic passengers has started the recovery earlier than international passengers. So 2022 already saw an improvement. If we go to Page 10, something similar in Latin America, 48% growth, again, very good performance on the touristic destinations. And Asia Pacific, the strongest growth close to 300% but is also very well known that has been the region that started the recovery the latest. If we go to Page 11, which I think it's an important one because it shows how the company keeps diversifying. From a geographical point of view, EMEA 45%; North America, 34%; LATAM 16%; Asia Pacific, 5%. 80% of our business is at airports, but 20% is in other strategic channels like motorways, cruise lines, port shops, et cetera. We always try to address the business to where those passengers are and in different regions are in different places. And my favorite one is that today, with this new strategy of addressing all the needs the travelers have because let's remember that traveler is unique even if they might buy different things, they have same passengers, same dwell time. And we want to be able to offer them duty-free, duty-paid, convenience, luxury and F&B. 1/3 of the business is F&B and 1/3 is duty-free and a little bit less is duty-paid. More and more, over the next 12, 18, 24 months, we are going to start implementing our hybrid concepts that will even further dilute this separation between segments. If we go now to Page 12, it's a little bit more detail on these travel experience revolution we have been starting explain and it's already happening. I'm not going to cover all in detail because it will take me hours, but we are already implementing the store of the future that now is the store of the present that are stores that are much more fun, much more entertainment. Our smart stores, we already have live 6 smart stores where we can identify to the second, what happens in the store, how the passengers move, how they interact with our sales force. So we are trying to improve the way we do our merchandising, thanks to actual data, and it's just the start. And we want to have live stores. In travel retail, unfortunately, for many years, stores have been too [ static ]. You do it once and you keep it for years. Now we are doing stores that can adapt much more to the changes on the profile of the customer. This excitement that we do for the passengers, it's also reflected in our capability to excite more our brands. And together, we are bringing more and more novelties and more digital-oriented retailing on our concessions. We are working in upgrading the e-commerce, the digital, Alibaba is a key partner on that and we are accelerating there, especially now with the Chinese coming back to the worldwide market. We are redefining also the type of stores of merchandising. There are 4 pictures here and more and more this is going to be happened. Our commitment to this travel experience, this additional focus on the traveler, this additional investment in data in digital, in the stores, is and question and we are pushing for it very, very strongly. Of course, it takes time to keep seeing it, but every month, and that's our target, internal target, every month, we need to deliver some improvement in each of these topics I just addressed. If we move now to Page 13, ESG, we continue with 2 key ideas. ESG needs to be tangible on the day-to-day for the people in the group for the team members, but also for the external stakeholders. And second idea, we need to quantify it. It cannot be just nice speeches, but if we talk about protecting the environment, we have science-based targets, and it's even part of the management remuneration, and we strongly communicate them to customers, to our people, to the partners and the community. Again, as I said earlier, this is 1 of the 4 pillars on the strategy. And my last page, Page 14, the integration. The integration is well advanced. The teams are already working as one team. The commitment to deliver the CHF 85 million cost synergies is not only unchanged, but is clearly reinforced. And I want to thank all the colleagues for the amazing daily job they're doing, independently, if they used to work for Autogrill or Dufry, now we all work for the same company. Thanks to that effort, we have the performance we have today. But I also want to thank them for the openness on adapting one to each other. The ways of working we are designing is to get the best of the 2 organizations. And for that, you need, of course, very good organization, very good integration management office, very good communication, but you also need goodwill by everybody, and that is completely on the [ table ]. So I'll come back in a few minutes on the conclusion. Now I hand over to our CFO, Yves Gerster.

Thank you very much, Xavier, and good afternoon to everybody also from my side. And let me start with the personal note just by taking up what Xavier just mentioned. The integration is progressing and is very well on track. And one of the examples on how we are performing well in that regard is what we do today. We are reporting for the first time, numbers as a combined group. We are consolidating and reporting together since the 3rd of February this year, we had to do the annual reporting in the meantime. And within 3 months, the teams on both sides were able not only to align on the financial structure, the accounting structure, et cetera, or the core numbers but also to combine those numbers and to report now within only 3 months for the first time the combined figures. And that is only possible because the teams are working extremely well together are fully dedicated and engaged and work day and night to make that happen. I'm extremely proud on that. Having said that, let me move on to the details of the financials of this quarter. We are typically providing a trading update with only revenues or mainly revenues and turnover. What we are doing this time around is we thought it would be helpful to provide some additional information with the key KPIs of the P&L, the cash flow statement and also the balance sheet. Starting with EBITDA. Before we look into the numbers, a quick reminder that we have closed the combination with Autogrill on the 3rd of February 2023 and consolidated the company fully ever since then. The EBITDA numbers you see on the slide contained the full quarter heritage Dufry and only 2 months as of the 3rd of February for Autogrill, i.e., February and March. This applies to both to 2022 on the left hand side of the chart and also 2023. Having said this, let's look into the EBITDA performance in a little bit more detail. Core EBITDA came in at strong CHF 134 million for the quarter with a margin of 5.7%. This compares to CHF 64 million or 3.8% on a comparable basis of last year. So a significant improvement, which is mainly related to the solid performance across all relevant lines of the P&L. There are 2 points which are important to note. First, as you know, we have a seasonable business. So for the first quarter shows typically the lowest performance throughout any given year, the generated EBITDA as an absolute amount as well as the margin are very good for the first quarter. Secondly, the 5.7% we are showing here are by no means a proxy of what we should expect for the full year. We confirm our outlook for the full year with an expected EBITDA margin of around 8%, as mentioned previously when disclosing full-year numbers. Moving on to the next slide with the cash flow. On the cash flow, we see a very similar picture than EBITDA. Three comments in that regard. Number one, historical numbers on the chart are Dufry stand-alone. For 2023, we consider Autogrill from February onwards, so the same as for EBITDA. Secondly, the same seasonality as for EBITDA also applies for the cash flow. Cash flow is typically negative in the first quarter as we build up inventory for the high season. That obviously applies more to the retail side of the group to a lesser extent for the food and beverage side. Thirdly, and most importantly, the number, we have delivered a solid result with only minus CHF 138 million during the first quarter. Moving on to the next slide. As we have just seen, cash flow is always negative in the first quarter, and therefore, we also see typically an increase in net debt. This is also the case this year. While we followed the normal seasonality, it is important to note that the net debt position in Q1 2023 is also partially related to the combination of Autogrill. Overall, net debt increased by around CHF 280 million. Moving on to the next slide with the Dufry covenant. Looking at the leverage, there is a material decrease, which is related to 2 effects. Number one is the business combination with Autogrill and most importantly, the continued good performance on the operational business. As you can see on the chart, we are still in the covenant holidays. So the covenant holiday will last until the third quarter this year where we have the first testing. And b, with reported 3.1x leverage, we are already today significantly below the threshold of 5x and also already very close to the previously provided outlook for the year, which is between 3x and 3.5x. Moving on to the next slide with the maturity profile. So the maturity profile maybe looks a little bit complex, but it's actually a very simple message. Let me start first on the right side. What you see there is the RCF the used amount and also the unused part, which is in excess of CHF 1.3 billion. What we have disclosed a little bit earlier in this quarter during April is that we were able to increase the RCF by EUR 180 million. So as you know, Dufry already has a healthy liquidity position. So why are we increasing the RCF even further? It's actually pretty simple. First, Autogrill has some financing arrangement in place. In total, the amount is around CHF 1 billion. You see that more or less in the middle of the table in the gray area. Out of this CHF 1 billion, only around half of it is strong. While no final decision has been taken at this stage, we consider to refinance that by the group in due course, and we will use the RCF to do so. Second point, Dufry has a maturity in 2024. It's the EUR 800 million bond you see on the right hand side maturing in 2024. Also here, no final decision has been taken on how to refinance that, but we are in an extremely comfortable position with having access to around EUR 2.7 billion of available liquidity and a full flexibility on how we will finance that in due course. Moving on to the next slide with the rating upgrade. So as we have communicated earlier this quarter, we have received an upgrade from both rating agencies, S&P Global Ratings as well and Moody's. And we have not only received an upgrade by 1 notch. We have also received a credit watch positive by S&P and a positive outlook by Moody's. So in principle, the way ratings work, we can expect a further review of the rating of Dufry in due course by the rating agencies. Moving on to the next slide with the MTO update. So this slide, you're pretty familiar with it. We have shown that already several times. We are pretty well advanced. And the only point which is not completed yet is the red square one. It has been initiated, the MTO, as you know, but not completed. Autogrill is already fully consolidated, as mentioned previously, and we integrate the company, including the full synergies as we speak. Related to the transaction structure, we are required to do the mandatory tender offer for the remaining Autogrill shareholders despite controlling Autogrill already. Minority shareholders can choose between 2 options. They can either tend their Autogrill shares for Dufry shares. It's basically the transaction we have already completed with Edizione and to do that at the same terms and conditions or they can choose for the cash alternative. The offer period will end next week on the 18th of May, and there are several possible outcomes. So in a nutshell, the thresholds are, if we achieve an ownership of 90% or above that triggers the sellout period. If you are above 90% ownership, that triggers the squeeze out process and subsequent the delisting. If you are at least 2/3, we can reopen the tender offer period for a few days to reach the thresholds I have mentioned before for the sellout and the squeeze out. To be very clear, the mandatory tender is a technical requirement. We very much welcome all the shareholders of the combined group, but the MTO outcome does not have any impact on the ongoing integration and the synergies we plan to generate. Also important to note the transaction is also supported by the Board of Directors of Autogrill. The financing is fully secured as mentioned before, also for the MTO process and the outcome we have the required approval by the shareholders to generate Dufry shares or as I've mentioned before, on the debt side to finance the MTO with liquidity, if required. We are progressing on the tender as planned, as it is standard in those process and as we are also -- we've seen previously, shareholders will tender relatively late, typically in the last days of the offer. We are looking forward to the Autogrill current shareholders joining the combined group. And having said that, I'm handing over back to Xavier.

Thank you, Yves. Last page, Page 24, the conclusions. We keep our uncompromised focus on delivering the Strategy 2027 -- Destination 2027, and we do that on a daily basis, with focus on quarterly results, but never forgetting that we are also transforming the industry and Dufry and Autogrill for the long term. And compromise consumer and traveler focus with a strong reinforcement of the digital part of it, combining retail and F&B to create a new experience at the travel destinations. Continuing not only growing, but with very strict disciplined approach to business development, having the ESG on a daily basis on what we do. The consolidation and the integration between Dufry and Autogrill is going on the right direction and it's moving as planned. And we are seeing that, and we will see it more and more delivering the expected results, both on the commercial part and the revenue synergies and in particular, on the cost synergies. And with the work done by everybody in the group, starting with the people that is on the front line, on the stores, on the restaurants that deliver the daily sales, continuing across all the support functions from warehouses to the local or regional offices, all the way also on the financial and the finance team that has been working on increasing our flexibility. With that, thank you all the team once more, reconfirming this commitment to keep delivering on what we started saying in the new strategy presentation in September and now opening the floor for questions. Thank you very much again for your attention.

[Operator Instructions] Our first question comes from the line of Natasha Banoori with Morgan Stanley.

I have 3. So the first one will be on current trading. Could you please give us some more granularity on current trading by region in April? And also how duty-free is performing versus food and beverages and also how momentum has evolved into the first 10 days of May, if you may, please? My second question is just on master concession. So obviously, one of the key rationales for the combination with Autogrill was the result of formation of master concessions. Have you started to see this competitive advantage play out yet? And can you share any recent feedback you have received? And I think previously, you mentioned this format was particularly appealing in the U.S. Can you please remind us why that is? And then my third question was just on the margin guidance for the full year. So you reiterated your guidance. And you guide currently for margins to [indiscernible] 50 basis points of headwinds, mainly from personnel expenses this year. Could you please tell us where you currently stand on recruitment and wage inflation?

The current trading is very similar to what you see on the first quarter by regions, of course, in better numbers because as we said, the quarter is still a little bit behind 2019 and April is already a hit. But the major trends on what goes faster and slower is very similar. For example, the fastest growing and will not come as a surprise is Asia Pacific, but again, the comparables are [ bad ]. So there is no major change of trends if there is an acceleration on those trends. And the same thing applies for Dufry and Autogrill for retail and F&B. I gave a little bit of the growth -- the organic growth on the first quarter was 51.5% for Dufry, 40% for the Autogrill. But if you look and that Autogrill already was a little bit faster growth last year, simply because of the different geographical and business segments, again, we see very similar growth. The master concessions, just as a reminder, we've been together as a company for a little bit less than 3 months. So I would say, first, be patient, there are things that cannot be done in question of weeks or months. But even in that case or with this caveat, we are already seeing the market going in several locations on that way. One, I can disclose because it's public because in some cases, we will only disclose when the agreements have been reached and signed, but the current tender in Spain is the first time that a retail tender mostly on duty-free includes F&B outlets inside or along the retail concessions. I think it's a very meaningful example that airports not only are recognizing the value of combining retail and F&B, but they put that already an ongoing tender. There are a few other examples and there will be more examples. It's clear that this key element of the rationale is starting to work. And I can tell you there is not one single airport that at least doesn't ask to understand the advantages. Another thing is that some of them will go that way, some of them would not. On your last question on the margin guidance, as we said, we keep what we said. We see some headwinds coming, particularly at the rest of the year on cost inflation. Hopefully, we will minimize it as much as possible, but it's too early to say if we can do better than what we forecasted a few months back. For now, we feel comfortable. Nothing has accelerated negatively, but too early to see if we can do better than that. So I think the right thing to do after only 4 months of activity is to remain on the same path of cost control of discipline and trying to deliver as much as possible what the market expects for the year.

The next question comes from the line of Harry Gowers with JPMorgan.

I've got 2 questions, if I can. The first one is just on the integration process between Dufry and Autogrill so far. I know it's early days, but maybe you could talk about if you're seeing any opportunities and where for upside versus your synergy targets? And the second one would just be on the consumer. So obviously, volumes and sales are coming back. But are you seeing any signs anywhere of a consumer who's reluctant to spend in travel locations or any sign of weakness at all in spending in any formats or categories?

I'm very happy you are such an optimistic person. We are just starting now the synergies. So I think I can confirm we have identified now that we have full access to the information and the 2 teams are working together, that the EUR 85 million cost synergies will be delivered in full and on time as expected. If there is not upside, let's first deliver on the 85% and then we see if there is more to come. In general, the consumer behavior is pretty in line across the geographies. So we don't see yet any sign of a slowdown. I think one thing that is important to always remember, Dufry now is in 75 countries and 1,200 locations with 5,500 stores. The level of diversification we have today is higher than ever before. Being in so many countries, I can guarantee you that we have at least one event that we don't like per week. Said that, thanks to diversification, that more than compensates somewhere else. So of course, there are places that the performance is better than others. But overall, the trends remain strong. It could be weakness on the consumer sentiment, if there is a recession or something like that later in the year? Yes. But there could also be some upside, for example, the recovery of the traffic of certain parts of the world that they were not traveling yet. Overall, as I said earlier, we remain vigilant and cautious, but we don't see major risks on the consumer sentiment at this stage.

The next question comes from the line of Jorn Iffert with UBS.

It would be 3, please. The first one is, I mean, has the product portfolio and the classical retail changed for you somewhat versus pre-COVID? Do you currently see, for example, consumers go more to high-ticket items? Yes, also have you adjusted somewhat? And do you also see that the gross profit margin can hold up for longer as limited promotions are needed? So this will be the first question, please. Second question would be, please, on your SG&A cost visibility. Given your hiring plans on staff or the shops, how good do you see the SG&A cost visibility for 2023 would be also the second question? And the third question, please. As you start to sell more solutions, combining retail, with food and beverage, do you expect that the concession fee pressure is starting to ease for the next 2, 3, 4, 5 years?

All of them very relevant. Look, of course, different passengers in different geographies might have different expectations. So for example, if you go more to domestic traffic in North America, convenience, speed of service keeps growing as a key feature. Maybe on the last few years, consumers have learned, thanks to the digital support that things move faster and we need to be there. On the traditional duty-free, yes, we see a trend. And I think we said that in our strategic plan presentation, there is, in general, a trend towards more premium product on our core categories, which, of course, benefits us just to mention 2 of the trends that we see. Look, working on the gross profit margin, and I'm going to talk more on megatrends in the quarter because this is just a trading update. We see for '23 similar parts of what we saw last year. It's true that on the personnel cost, as you're saying, we need to keep putting more people because we have more shops open now than we had in 2022, also higher demand and there is inflation. But all the positives and negatives, I think we discussed them in detail when we presented our full-year results. And as Yves said at that time, these 50 points of deterioration on the margin between '22 and '23, we believe is enough to cover all these eventualities. Your last question is probably the -- one of the key questions, what is going to have on the concession fees? And I will make a few comments there. Number one, the concession fee as a percentage of the sales are lower in F&B. So the new portfolio will be on that sense, having a lower concession fee. Second, this is a competitive market. Airports that provide clear growth on passengers and clear growth on the opportunity, increasing square meters, changing flows, of course, will have the expectations to have higher concession fees. Said that, I think certain elements like minimum guarantees, et cetera, will be different going forward than today. So I do not expect to have a decrease on the concession fees. I actually -- I think we said that it might be slightly increasing over the next few years. But what we do believe is that the speed of that change in any case will be lower of what we saw into the period '15, '19 to mention one. So we believe airports are more focused now on who will be delivering a different retail experience, who will be investing more on the stores, who brings more digital experience and maybe less focus on the short-term financial proposition. But at the end of the day, the airports will do whatever they think they need to do. But we, as Dufry, with our current diversified portfolio, we will be more disciplined and more stringent to ourselves on where and how we beat. It doesn't make sense just grow for the sake of growing. We will only focus on growing if we can expect a good return on those investments, and we are making that very clear to everybody.

The next question comes from the line of Ali Naqvi with HSBC.

Just regarding the organic sales growth, could you maybe break out what volumes are doing versus 2019? I assume it's the same for Autogrill and Dufry, but by region, it may provide some more color. Regarding net concession wins in the quarter, obviously, I saw that there was some growth there in the quarter. Is the tendering market still pretty rational, i.e. is everyone sort of -- or is no one sort of trying to win market share by sacrificing margins? And then there was an update by Aena regarding extending contracts with some of their partners. Are they asking you to extend your Spanish contracts under the same terms, i.e., that they are margin neutral?

So I will take maybe the second and the third, if you want to address the first Yves.

Sure. So look, in respect to the sales and the volume, obviously, between 2019 and today, there was a certain level of inflation. We haven't disclosed details there. But if you take a rough average, also taking into account our geographical split, you will get to an indicative number, which probably is appropriate. So while sales are above 2019 levels, we obviously see from a real terms perspective, a certain impact. So that's slightly behind 2019 levels.

On the net concession, yes, the quarter has been quite positive. But you know that differently from the sales that happen every day, the tenders go up and down. So I think it was particularly high compared to what we expect for the full year. We said that the net concession should deliver on an average year between 0% and 1%, and we believe that should be the case. For me, again, what is more important is that they deliver on the bottom line. On Aena -- sorry, before that, if people is more rational, I think we are seeing clear signs that things we saw in '17, '18, '19 are not happening anymore. I think everybody is recognizing is particularly in the minimum guarantees that -- if this is a partnership between the landlord and the operator, it needs to be because we both benefit if sales grow up, but we also share the risk if sales are not as strong. And I think that philosophy -- that was the traditional philosophy for many decades in the industry is coming back and I think we all lost a little bit track of that in the 5 years before COVID. So I think in general, the market -- what we see some tenders that used to be minimum guaranteed that went out as minimum guaranteed per passenger, which is a completely different ball game. Aena, it's an ongoing tender. And there, the only thing I can say is, number one, we support Aena in everything we can. We believe in Spain and what they're doing there is very good. We believe a lot on the Spanish airport growth, but we have to keep a confidential note while the tender is happening and we will keep that. So we hope things evolve on the incoming -- on the near future in the positive way, and we are very respectful to the process and we will keep confidential. For now, we need to see the next few weeks what happens with the tender, and we will keep informing as soon as Aena makes their own announcements. For now, we think we did what we had to do, and we are happy on that side, particularly on the effort all the teams put to present the tender, and we will keep updating you and the market on any developments when those developments are made public.

The next question comes from the line of Dhar, Manjari with RBC.

It's Manjari Dhar, RBC. I just had 2, if I may. First, I was wondering if you could share any early learnings from the new stores future formats and the 6 digital stores that you're trialing so far this year? And then secondly, I was wondering if you could sort of identify any of the key markets for growth in Asia Pacific outside of China, perhaps any of the markets that are now an opportunity for the combined group that perhaps were not an opportunity for duty-free stand-alone?

I mean, the store of the future that as I said the other day I was talking to the team, we should change the name and call it the store of the present. So you can see it in Arlanda, you can see it in Belgrade, you can see it in some parts of Sao Paulo, Guarulhos, you can see some of those more luxury dedicated concepts in Zurich Airport. It's an ongoing process and every store we do and maybe there is another dozens of a store of the future that we have presented in negotiations of tender that I cannot disclose the name. But we are absolutely moving very fast on that direction. Key markets in Asia, you will allow me not to make any discussions for competitive processes. But I can tell you, we are looking at all the areas in Asia Pacific. And of course, as we cannot go everywhere, all the time, we are focusing on those markets where we think that either they have more growth and potential or where we can make a difference there. I always said that the additional growth in Asia Pacific will be a question of years, but our philosophy and my personal philosophy is you build a year through 12 months and you build every month through 4 weeks and every week through 7 days. So we work on a daily basis to get there. As you know, we appointed a new CEO for Asia Pacific. She's taking over as we speak, and we will reinforce the team there. And thanks to all that, over the next months and years, we will see evolutions there.

The next question comes from the line of Gian-Marco Werro with ZKB.

Three questions from my side, please. First one is also related to the targeted cross sales. I know it's only 3 months in the integration now. But did you already start some pilot projects also for initiatives to generate cross-sales such as the vouchers you mentioned at your Capital Markets Day? Second question is your joint venture with Alibaba, you mentioned today during the presentation that the partnership with Alibaba is accelerating now. Can you please elaborate there a bit more? Besides Hainan and maybe really also highlighting Hainan. And then the third question is also on Brazil, really specific there. As I remember, is it a very domestic market driven by the domestic citizens? How do you see the consumer sentiment developing there?

Yes, we can design pilots and in several tenders and in several existing shops, we are doing that. So you will see hybrid concepts later this year. Joint venture with Alibaba, yes, we are together in Hainan, but in particularly, what we are accelerating is the digital collaboration, and again, because of competitive reasons, I'm not going to disclose before [ it's live ] but we are already implementing some technology improvements for Chinese travelers in Asia Pacific. We already have a couple of locations live, and we extended to 12 locations in the next 3 months. The idea, particularly in this case is to have a higher digital engagement with Chinese travelers, not only when they travel, but even before they travel. The idea is to increase our engagement and to increase the sales we can do to those travelers. Brazil, it's an interesting question. Yes, Brazil, most of the sales are at arrival, therefore, more for domestic passengers, not domestic, international arriving passengers, but more linked to the economics of Brazil. Probably in Latin America is one of the weakest performance right now, but the materiality of Brazil today in the overall portfolio, it's probably less than 1% or 2% so it's not relevant. And the good thing, again, on the diversification, Brazil was a high performer a few years ago. Now it's low performer Argentina, the other way around, just to name a neighbor. And that is always the case. I mean different countries have different contribution. We believe it's a great country. We believe will be again, much more important in our portfolio.

Okay. Just a quick follow-up. But in the past, I remember, Brazil accounted for around 7% of Dufry alone. So I just -- of course, if we do the dilution now, if Autogrill still, if this market would recover back to normal levels, then this -- you could then still double your revenues there in this market, no?

Well, as a principle, I do not discuss country specifics for many reasons, including competition. Brazil today has lower contribution as it used to have. But if you look at Latin America as a whole, you see that their contribution is extremely good and their profitability is also good. What happens is that, the macroeconomic situation of the different countries in Latin America is different today than it was a few years back. And therefore, the consumer expenditure is also different. But I could name 20 countries that are worse than 5 years ago and 50 countries that are better. And I think that's not a dynamic I want to start because our knowledge of the behavior of each country is part of our strategic advantage. And I don't want to share that publicly with the competition listening. But, yes, there is potential in Brazil, like there is potentially in many other countries. And I'm sure there are dangers that we don't see in other countries. But overall, the positives, I think, will be more than the negatives.

The next question comes from the line of Jaafar Mestari with BNP Paribas Exane.

I've got 2 questions, if that's okay. Firstly, just on the Autogrill transaction, what would be the ideal mix of debt and equity financing if you had options? I mean, of course, if all the Autogrill shareholders take shares, then you don't really have auctions. But if a big chunk of [ Dufry ] shareholders take cash and you have to go and refinance that, where would you aim to end up in terms of equity versus debt, taking into account number of shares dilution and the leverage that the combined company can take. And then second question on Aena. I appreciate your comments on the confidentiality and I respect that. So hopefully, my question on the references things are public information. I'm really curious what your mindset was the day before you ended that period and decided not to bid for Madrid and Barcelona, it's public information that Aena received no bids for those lots. Did you write off those locations? Did you think that's it, someone else going to bid and get them, we're out? Or did you have a strong view that in the current expectations rationally, you would probably end up where you are right now, which is the second round and things may evolve? Interested if you're walking away from those.

I'm going to answer the second question, and then Yves will answer the first one. Look -- and I'm not going to specifically answer on Aena, but in general. When you are bidding on a tender, you have to bid on what you think makes sense for you, because that's the only thing you actually control. And when we analyze any tender, what we do is to see what is the potential we see on that business, what is the profitability we can get. And based on that, we take the decision on what if we bid or not and what we bid for that then. If you start thinking what competition may or might not do, you are doom because that's impossible to know. And you might be taking the wrong decision. When we bid or not is based on this renovated disciplined approach. We are -- of course, we want to sell. That's our business. We need to sell for us. We need to sell for our suppliers. We need to sell to pay our concession fees. But when you bid, you need to be very disciplined. And that's what we do. And I think with that, I think I'm answering your question without going to the specifics of Aena, which I don't feel comfortable for confidentiality reasons. It's more a general statement on how we bid. On your first question?

Sure. Look, on your first question about the MTO outcome and the potential debt versus equity mix. So look, first of all, it obviously depends if shareholders tender or not. And we do expect them to tender. So that's probably point number one. Point number two, if you look at the current share price for a rational investor, it would be rational to tender for shares. So from today's perspective and I didn't look at the share price over the last hour, as we are on the call, but it will be rational to go for the shares. And then look, I can repeat what we have mentioned previously. What we are considering for our decision is on the one hand side, accretion dilution, first point; second point, leverage and target leverage of the organization; and point number three is interest expenses combined with refinancing risks. So if we put all of that together, we will come out with a certain mix if we can decide at all because, again, based on the current situation and current metrics, the chance that people would go for shares is higher than for cash.

The next question comes from the line of Alessandro Cecchini with Equita.

I have one question about your leverage target of around 3% to 3.5% for this year. I presume that 3.0 is assuming 100% of a share swap, so without that or cash. Considering that now we are at 3.1. And I mean, in the next quarters, you should, I mean, improve EBITDA and generate cash. I'm just assuming what are your considerations or assumptions below the equity free cash flow to arrive to such a level that it seems to me a little bit conservative given your target to deliver at least 20% of cash conversion in terms of equity free cash flow against EBITDA that according to consensus, are roughly EUR 1 million for this year?

So look, we are currently at 3.1x. So as you have rightly mentioned, from a performance perspective, we -- if everything goes according to plan, we can expect that there's a certain element of improvement in that regard, which would lead to a reduction of the leverage in the remaining part of the year. On the other hand, as Xavier has mentioned at the beginning of the discussion of the speech, we remain cautious on one hand side. And secondly, we will also have transactional expenses related to the combination with Autogrill, which, as mentioned previously, will be reflected below the equity free cash flow. But they are relevant for the net debt consideration, which is also part of the equation for the covenant calculation.

There are no more questions on the telephone. We now move to the questions from the webcast. The first question comes from Karine Elias with Barclays. Is your intention still to address the 2024 notes at 18 months ahead of maturity? Would that be through debt or cash on balance sheet?

So look, as we have mentioned previously, the intention is typically 12 to 18 months ahead of maturity. As I have mentioned during the discussion today, we have already secured required facilities, especially also now with the increase of the RCF by EUR 200 million to be fully ready for a potential refinancing of the 2024 maturity with the RCF. However, there is no decision taken yet. So over the next couple of months or quarters, we will still consider to look into potential alternatives if we want to require. And what is also important to note there is, obviously, the 2024 maturity comes at very attractive terms. So from a pure financial perspective or from an interest expense perspective, it would make a lot of sense to keep it as long as possible, especially as we have the financing secured with the RCF. So there is no risk involved into that.

The next question comes from Santiago Domingo with Magallanes Value Investors. Under which scenario percentage of Autogrill share capital, would you delist or merge Autogrill with an unlisted company?

So the requirement is that if you have more than 2/3 of the present shares at a general assembly, AGM or EGM, you have the possibility because you have a qualified majority of the shares in your hand to merge Autogrill with a non-listed Italian entity. What is important here because sometimes we have seen confusion in that regard, is not 2/3 of the outstanding shares, it's 2/3 of the shares being present at the general assembly.

The next set of question comes from Yvonne Chow with Nan Fung Trinity. May I follow up on your EBITDA. EBITDA margin was up a lot year-on-year. It was 5.7 percentage point versus 8 percentage point guidance. Could you please lay down the stepping stones to achieve the significantly improving margin expected in the rest of the year? Was integration cost frontloaded and included in core EBITDA, that's why? And then would integration cost of EUR 100 million be approximately equally spread over 2023 and 2024?

If you look at the first one, it's basically the seasonality effect. So as Xavier has mentioned before, Q1 is the lowest season and therefore, you have certain effects, which outweighed compared to other quarters. I mean fixed cost, for example, et cetera. And as you know, certain impacts or certain cost elements, we are -- as it is based on accounting, we are basically normalizing during the whole year. So you see basically an overhang of certain costs versus summer, but this is not unusual, it's pure seasonality and there is no other significant effect to be mentioned. And as I have mentioned previously today, all the lines of the P&L, which are relevant for the EBITDA and the EBITDA margin have contributed to the results. So there is no unusual pattern and also no relevant one-offs. In respect to the second part, look, it's to be seen. I mean costs occur when they occur. But basically, we do expect to have them spread over 2023 and 2024.

The next question comes from Julie Gasser with Allianz GI. In case of financial -- refinancing needs, may you consider issuing a new convertible bond?

So look, in respect to the financing, what we have disclosed and what is the intention is that any equity steps so far, which are discussed are purely related to the transaction itself. So that's point number one, and I think that's important. So it's basically the MTO financing, which is outstanding. Now in respect to the financing of the MTO, what we have also made clear in that regard is that, as mentioned previously, the shareholders have the option of Autogrill to opt for equity or cash. And depending on the outcome of their decision i.e., if a majority of them would go for cash, we would allow ourselves to refinance that partially with an equity product. If this is a right issue or an equity-linked product or similar, there has been no decision being taken. Again, I want to point out what I've mentioned before, given where we currently see the share price of Dufry, a rational investor would actually tender for equity or for Dufry shares. And from that perspective, there's a high likelihood that we will see them doing that.

The next question comes from Ali Titcomb with Trium Capital. Following the recent news with respect to its breakup, are you expecting any changes to your relationship with Alibaba?

The answer is no. No changes because the part of Alibaba, where we do business with, it remains intact. It's -- so we didn't have relationship with the different parts, but basically, one that stays as one of the newly created divisions or company of Alibaba. So nothing will change for that.

Gentlemen, there are no more questions from the live webcast. Back to you for any closing remarks.

No, just thank you, everybody, for attending in these busy times. And thank you for all the questions and the interest. And please make sure that if you travel, you buy in our stores or restaurants, that's what we really appreciate. With that, thank you very much. Seen you soon.

Thank you very much.