B&S Group S.A. (BSGR) Earnings Call Transcript & Summary

Hello, and welcome to the B&S Full Year 2024 Results Conference Call. Please note, this conference is being recorded. [Operator Instructions] I will now hand you over to your host, Peter van Mierlo, CEO; and Mark Faasse, CFO, to begin today's conference. Thank you.

Good morning to you all. Great you're all here. We'll talk about our 2024 results on the March 18, approximately a month earlier than last year, so that is the way to go, and that is also -- it shows you the quality of the organization these days. We will be trying to move it a little bit earlier even next year, but we're still negotiating with all the stakeholders, especially the auditor whether he will be able to meet that deadline. So we want to talk about our highlights and our strategy, and let's first talk a little bit about our strategy in terms of the company we are trying to build -- or trying to get in line, so to say. And so as you know, B&S consists of a holding company as well as 6 segments. We are building autonomous and accountable segments. Just to give you a little bit of flavor why we do this. We talked about this during our Capital Markets Day in 2023, obviously, but just to get everybody on the same page. We believe that building autonomous and accountable segments does create value for this organization. Why? Because it creates strategic optionality, and it also strengthens the management teams, builds on management information and as a result, at the end of the day, maximizes value creation within those segments. Those segments do operate in different markets, as you know. And we want to create the circumstances that they can operate as close to the market as possible. So that's why we believe that building autonomous and accountable segments does maximize the value for this group. Now what do we do around that topic? We are constantly busy in terms of strengthening the market -- the management teams within those segments, but also to create a kind of contract, so to say, between the segments and the holding, obviously, not a legal contract, but the things that they should adhere to. And those KPIs are around financial topics, return on invested working capital, interest coverage ratio, DSOs and DPO days and how you manage your working capital. Next to this, we've also created in 2024 HR KPIs and as well as a dashboard around HR KPIs, turnover of staff, illness, engagement review results, all the things that you need to make sure that your staff is functioning and delivering on their promises; logistical KPIs as well as, these days, sustainability KPIs. And that's how we talk about the business on a monthly basis. Every month, we meet the Executive Board with the segment teams, and we talk about the market developments, but also client selectivity, payment terms, cost levels, market developments, client onboarding procedures, just to mention a number of topics that we sound board with and try to optimize during those meetings. Last but not least, in terms of strategy, digitization. Yes, digitization is a bit of a distant word, so to say, I believe, that we mean the digitization is incorporating the clients or the suppliers' processes with our IT organization. And as a result, you really strengthen the relationships, you optimize the relationships in terms of operational excellence, but you also become true partners if you want to make that work. If I refer to the topic culture and governance, as I already mentioned, the HR KPI's dashboard, what we've done, we've rolled out material defining our B&S way of working in terms of supplier codes, in terms of customer codes, in terms of how to do business. And we are in the process of, topic by topic, making this more known within the staff and making sure that the staff actually does business along the lines of our B&S way of working. In the beginning of 2025, but obviously also in 2024, 2024 was the second engagement review we've done within the group. In beginning of Feb, we did the third engagement review. This year, in Feb 2025, we also incorporated our international organizations in the U.S., in Germany, in the Middle East into the engagement review. And the reason why we do this because we believe by following engagements, we also optimizing engagement. And as a result, we also optimize the value of the B&S Group at the end of the day. Sustainability, yes, we will publish our annual accounts tomorrow, and you'll be surprised, or maybe not surprised, but you'd be impressed with the professionality of our CSRD reporting in which we, I think, have done a great job to adhere to everything we need to do these days. If I move on to our financial highlights. Yes, turnover growth of 9%, a little bit above expectations. EBITDA, EUR 125.2 million, mostly impacted by EUR 2 million of profits on the sale of real estate. But at the same moment in time, almost EUR 9 million negative that we accounted for in the Liquor segment that I want to talk a little bit about when we get to the Liquor segment. In terms of growth, all segments delivered growth between 10% and 24%, except for Liquors, by the way. So Beauty increases revenue with EUR 80 million; Food, EUR 65 million; Personal Care, EUR 40 million. I must say strong performances across the board. Liquors, as you know, confronted by geopolitical tensions. And we do have change -- as we talked about a little bit, we have changed our strategy around Liquors in a number of topics, which we partly already discussed with you in previous quarters. If I go to the -- yes, sorry, acquisitive growth, I need to mention this. That all happened within Personal Care. There was around EUR 12 million of turnover increase due to the acquisition of Tastemakers. Tastemakers performed exactly in line with what we expected at the moment of acquisition. It does add value -- synergy value to the Personal Care segment, especially in the Confectionery business and the creativity, because the team that we've acquired, there is super creative in terms of building relationships, but also creating marketing materials, et cetera, et cetera. So that's a real good add-on. If I move to the different segments. In alphabetical order, we start with Beauty. Yes, strong growth, especially in the B2C part of the business. As you know, Beauty consists out of B2C, business to consumers, B2B as well as B2R. B2R, the letter relating to the different platforms in the website world where we sell our goods to. The strongest growth was within B2C, 16%, mainly in the U.S., strong performance again. And there's really no reason to believe that, that's going to decrease in the future. It's a super strong part of our group. Also the efficiency gains we were able to realize in the U.S. in the warehouse department in Atlanta. Thanks to the robots that we have operating there, robots that actually collected goods out of the warehouse and bring them to the front. Super efficient and impressive process, I must say. In 2024, we started to build a new warehouse in the Netherlands that will be completed in 2025. And as a result, we do have the infrastructure also in Europe to grow our -- to -- we have the infrastructure to support the growth that we want to achieve. Food. Food also had a strong year. Double-digit growth in all 3 subsegments, so to say, the Duty Free channels, the Maritime business, mainly Cruises. And the third, the last one but not least, the Export/Distribution to underserved markets. And it is -- definitely, if we talk about digitization and connecting our clients to our IT infrastructure, then Food is a super example in the way they work with our platform, King Of Reach, and actually change the supply chain in those 3 subsegments, because of the IT that's being used to run the business. If I go to Health, Health had a good year also on the back of the growth in travel-related products, but definitely also their ability and their strength to build new relationships also in the Cruise businesses. And that's the reason that support -- those developments supported the growth of Health. And then I come to Liquors. On Liquors, please bear with me for a moment. So just to make sure that we're all on the same page. In 2023, we had one-offs in the field of debtors of EUR 4 million. This year, 2024, we have EUR 9 million one-offs, EUR 8.8 million, by the way, which relates to inventory, and that relates to a relatively small number of SKUs all meant for the Asian market. Now what have we decided together with the management of the Liquor segment, well, first of all, as we've discussed already, it's about integrating the European wholesale, bringing back the number of warehouses and, as a result, also gain from working capital optimizations that are possible if you work from the same warehouse. We believe that the -- the second bit is the other trade. So -- and we call other trade, to be very clear, that's trade in SKUs in multiple -- which are widespread and are meant or can be sold globally, so not in specific markets, so that you have the flexibility based on geopolitical occurrences or other things that influence the market that you can actually be flexible in terms of which clients you will follow through on based on the inventory at hand. And third, we've decided to limit the number of SKUs, which are specifically for the Asian markets. And as I said earlier, it's exactly this part of the business that was responsible for the EUR 8.8 million one-off in 2024. If we create all this, if we follow through on this, then we will only be sourcing products that can be sold in multiple markets, as I said. We'll realize a cost increase in the wholesale business, and we will be less sensitive for specific geopolitical decisions that might occur in the world. And that is how we believe that Liquors can play an important role within the B&S Group. It's always been a large segment. It will not increase its revenue due to these decisions that we are making, but we will increase the EBITDA margin in 2025 if we follow through on this, and we're going to make this work. So that is how we want to address the challenges that we've been facing in the last 2 years in Liquors, and we believe that we're going to bring it back on the right track in 2025. Then I go to the last 2 segments. Personal Care, again, a very strong year. EBITDA margin almost ticking like a clock, so to say. Growth partly because of Tastemakers, as I said earlier, but again, a strong performance with a strong client portfolio. And we feel -- we remain and we will be very positive about this segment, as we explained also in earlier calls. Travel Retail. Travel Retail came in, in terms of turnover as expected. It's still -- Schiphol remains an important part of this segment. And it's still not the case that in terms of international travelers, but also in the number of travelers that were actually still not at the level of 2019. We're getting closer. I believe it's now 95%. Whereas, last year it was 90% in terms of tax numbers -- sorry, not tax numbers, that's meant to be referring to the number of travelers at the airport. But again, the Asian travelers, as we all know, are still not on the same level. So it's not only about the number of travelers, but it's also about how the group of travelers actually consists out of international travelers here, yes and no. We -- yes, Travel Retail remains an interesting segment. It will grow mainly because of macro and because of the developments in the world and the relevance of Europe. And -- but next to this, management is truly focused on operational excellence, truly focusing on bringing data to the table to really manage the different parts of the businesses. So that's where we are with Travel Retail. Now if -- this ends my introduction in terms of this call around the 2024 results. And Mark will now go into the -- a little bit deeper to the financial review the year.

Yes. Thank you. So let's have a look at our financial developments. So as indicated just by Peter, our overall turnover increased by 8.9%, and reported top line growth was driven by all segments, except for Liquors and Peter's intro. So our gross profit increased by 5.4%. And as a percentage on turnover, gross profit margins came in at 15.0%, a decrease as compared to last year's reported 15.5%. Gross profit reported for 2024 is negatively impacted by the incurred provision on inventory and the one-off cancellation fee for the Liquor segment, which Peter already highlighted earlier. Excluding these EUR 8.8 million one-offs, the gross profit margin stood at 15.5%, as such relatively in line with last year. We have included the normalization table in the press release again for your reference. Operating expenses increased by approximately EUR 10 million to EUR 243 million. So on the back of the global inflation and the tight labor market, staff costs increased approximately 8% to an amount of just below EUR 175 million. The other operating expenses, on the other hand, decreased by EUR 3 million and, as such, partly offsetting the higher labor costs. Then the relatively new item, the other income came in at EUR 6.2 million, and these consist of the reported income stemming from the newly acquired G&D contracts, for which EUR 4.3 million income has been realized during the year. Secondly, the one-off profit sale from the former Travel Retail building, which realized a profit of EUR 2.1 million. All in all, our EBITDA increased by 12.9% to EUR 125.2 million, resulting in an EBITDA margin of 5.2%. Depreciation and amortization for the year amounted to EUR 36.5 million, which is more or less in line with prior year. The financial expenses, though, increased by EUR 5 million to EUR 22.3 million, which increase is mainly due to the increased interest rates combined with the higher average debt positions outstanding throughout the year. All in all, this led to a net profit of EUR 47.2 million, of which EUR 39.9 million is attributable to the owners of the company. And as such, the earnings per share stood at EUR 0.47, up from EUR 0.40 last year. Then let us briefly look into the elements of the turnover increase again, already highlighted by Peter in some more detail. So total turnover increased by 8.9%, of which organically, our turnover grew by 8.3%, driven across the segments besides Liquor. The acquired turnover contributed 0.6% within the Personal Care segment from the Tastemakers acquisition mid-2024. Then lastly, the development of the euro-U.S. dollar exchange rate had a marginal impact on the 2024 reported turnover. The impact is calculated on a month-by-month basis. That brings me to our financial position. So solvency stood at 26.6%. And as you know, this is impacted by both the realized payments related to the minority buyouts as well as the fluctuations in the fair value of the deferred payments for the remaining minorities. Please bear in mind that the value of these deferred payments is based on the projected EBITDA for the years to come. So if the performance of these subsidiaries increases, the corresponding liability increases as well, whereas no assets are being revalued. Our net debt increased to EUR 380.8 million as at December 31. Our net debt to EBITDA leverage stood at 3.0. The interest coverage ratio came in at 4.1. But then looking at the leverage and interest ratio calculated in accordance with the definition used by the banks, it stood at 2.9 for our leverage ratio and 4.3 for our interest coverage ratio. As such, both within our banking covenants. Then zooming on, on the noncontrolling interest, which we have today. So in January of this year, the option for the remaining 5% of the Personal Care segment has been executed. The exercise price amounted to EUR 12.8 million, which EUR 6.4 million was paid at closing. The remaining amount in the first quarter of 2026. As such, from January onwards, no minority share remains within the Personal Care segment. For your convenience, we have included all remaining minority shares outstanding per segment in this overview. Then let me elaborate a little bit more on the indicated increase in our net debt position, showing the bridge from 2023 to end of 2024. So the net cash from operations amounted to EUR 29.7 million. This net cash from operations was impacted by the increase in working capital positions. The increased invested working capital predominantly relates to the increased inventory positions, which increased by EUR 74 million. The majority part of this inventory increase stems from the increased inventory positions of our Beauty and Personal Care segments. The investing activities on acquisitions and minority buyouts amounted to EUR 50 million which related to, as said, the buyout of minorities communicated to you all as per last year as well as the acquisition of the G&D contracts and the acquisition of Tastemakers Holdings. The other investments mainly concerns the investments in new retail shops, renovation of buildings. Further, our favorite topics, the newly closed lease contracts, the IFRS 16 lease liability increased by approximately EUR 16 million as a result of newly closed lease or renewed contracts. The dividend payments to upstream cash from subsidiaries resulted in a dividend to minorities of approximately EUR 11 million. But please note that this amount is projected to decrease going forward as a result of the decreasing minority stakes within the group. All in all, net debt increased by EUR 74.3 million throughout the year. Then lastly, zooming in on our working capital development one more time. As indicated, our inventory position increased by EUR 74 million, which led to EUR 493 million in inventory as per December, with inventory in days increasing from 89 to 96 days in 2024. Again, the majority part of this inventory stems from the increased positions within our Beauty and Personal Care segment. And when excluding for these excess inventory positions, inventory in days stood at approximately 85. Then with the trade receivables and trade payables, both within our projected ranges, our total working capital increased by approximately EUR 49 million. Then for the outlook, I would like to hand over back to Peter.

Yes, yes. So yes, we expect consolidated top line to grow at approximately 5%. As you've read also in the press release that, that is impacted by the different segments and the continued growth in there. It's partly impacted also by the strategic decisions made in Liquors as I've earlier referred to. And we do believe the 5% is the right expectation as we look at the world today. It goes without saying that the world seems to be less stable than last year due to everything that's going on. And yes, we don't have a crystal ball in that regard, so that's absolutely something that we'd like to mention in that regard. We project EBITDA margin in the range of 5% to 6%. As we've done in the past, I believe that normalized -- our EBITDA, I'm also looking at Mark now, our normalized EBITDA margin would have been this year 5.5%. So yes, based on what we all know now, we believe that the EBITDA margin between 5% to 6% is the right...

Feasible.

It's feasible. Staff costs, other operating costs, in line with what is to be expected. So that's more or less our outlook. We do believe that there's going to be a bit of positive cash flow generations from our working capital position as we end last year, as was referred to by Mark, higher in Beauty and Personal Care, partly because of strategic reasons, partly also for buildup of U.S. stock. And yes, and those things will diminish again, we believe, in 2025. And as a result, a positive cash flow could be expected in that regard. So that is -- that's also part of the outlook, I would say. That leaves me -- that brings us to the end of this presentation, and we love to open for questions. [Operator Instructions] Back to you.

[Operator Instructions] The first question comes from the line of Robert Jan Vos from ABN AMRO.

I have a couple of questions, if I may. I was a bit puzzled by the comment on the covenants. And you explained that, Mark, because 4.1 million reported is less than the -- to my knowledge, covenant for the interest coverage ratio of 4.25. So that is clear. But is that -- the adjustments that are made, there are similar to the adjustments made between reported EBITDA and adjusted EBITDA? That's my first question.

Great. So okay, just let's go through them directly, the answer. So 2 things. So the reported ratios, first and foremost, the based on reported figures, which you also find in the financial statements. And then secondly, based on the banking covenant report, which we file with our banks. Part of the changes as compared to the two is, for example, if you do an acquisition, you need to take into account full year figures for the acquisition entered into and some other adjustments. So that is one of the items we change, so which differs, and partly indeed also if you have some one-off, which can account for is also included. So that's why we include them both. But lastly, it's very important to mention is that the interest coverage ratio is 4 throughout the year, so that had been changed and communicated earlier that the interest coverage ratio is flat out 4.0 throughout the year as compared to the leverage ratio, with changes indeed still for the third quarter which our leverage is spiked as a result or the ability to build up inventory positions for the gifting peak season Q4. And then in Q4, it's decreased by the same 0.25 to 3.75 at the leverage ratio. Does that answer your question, Robert Jan?

Yes. Very clear. I apparently missed that new covenant flat for the interest coverage ratio, so -- but that's fine. Otherwise, I would have asked, you're very close to the 4.25 by reporting 4.3, but that is not the case anymore. I have more question that's very...

Sorry, Robert Jan.

No. Go ahead, go ahead.

I would just want to mention that as I want to be a boring CFO. I would like to be a little bit further from the covenant, which we also project to realize throughout the remainder of this year, that we will also move further away from the interest coverage ratio.

Okay. I have a related question. You -- I think you said at your Q3 that you have hedged part of your variable interest costs. That is in effect, I assume, today. So my question is, yes, we saw the net debt position increase a bit stronger than at least I had expected. You've talked about interest rates. So what is your view on interest costs for next year? Will they increase further considering these 2 components, higher net debt and also higher rates on average?

We project these to decrease slightly based on two factors: first and foremost, the cash generation, which we project to realize in the company; and secondly, that on a general basis, but that's, of course, very -- I need to be careful there and not to be speculative regarding the rates which way we are heading. But as compared to prior periods, we have hedged more significant part -- or we hedged a significant part of the interest exposure. And as such, at least the base rate which we can expect is fixed. So for the remaining part, we still are exposed to the variable interest rates, which the market will be confronted with throughout the coming years, which, at this stage, I would say is relatively harder to predict as compared to, let's say, 6 months ago.

Okay. That's clear. I have a couple of other questions. Going to Liquor division, in the outlook statement, I read the phrase lower top line performance. And in the comments, I think Peter said that you do not expect the segment to grow revenues in 2025. So is that -- should that be read as a flattish revenue for Liquors in 2025? Or is that too positive?

From my perspective, flattish 2025 for the Liquor top line performance would be too optimistic. But also depending the performance, which at this stage is very volatile if you look at the liquor market at this stage.

Okay. That's also clear. Then maybe on the minorities. You already mentioned that there is -- there has been another cash out of, I believe, EUR 6.4 million in Q1 2025. And there, the other part of that is scheduled for Q1 2026. So is it fair to assume that there's no further schedule or option-related triggers other than these two? And then I believe there's something in 2028. Is that the right conclusion?

Yes. So basically, that's also why we included the table again, so which -- for which subsidiaries, an option agreement is in place and also the timing thereof. So there you can read, if you look at the slide deck that for the FragranceNet in 2028, the next option will be effectuated and for the French company, mid this year, an option on 50% can be effectuated until the end of 2027. And also I would like to refer to the financial statements, which these deferred payment liability is also disclosed in more detail.

Robert Jan, so these are the minorities with options. Obviously, there are still -- that I will do this by heart, and that's always dangerous, but there are still minority interest in Health of 30%, 5% on Beauty level, 5% on HTG level. And then there is in this Spanish company, there's 49% in Top Care. That's a relatively small company. It's part of Beauty, And that's it, right?

Okay. But taken into consideration your net debt, your -- also your leverage and your interest coverage, timing-wise, does it make sense to look at that very specifically to do other deals outside where there are options?

No, no, no. Well, we are not -- I don't think the Executive Board today is a super fan of all these minority interests, as you may have noticed in the last 2 years. But there's nothing concrete in there, obviously. Otherwise, we would have disclosed that. But we will be -- yes, we'll be looking at those.

And only if it's healthy for the business.

But then, yes, obviously, if it's the right deal, then we'll strike it. Otherwise, not.

That's clear. A final one, sorry to linger on, but I take the opportunity. You reported in the past 3 years quite some material one-off costs and benefits. Also in 2025 and in the second -- sorry, 2024 and particularly also in the second half. Your view on EBITDA profitability between 5% and 6%, does it assume any further one-off impacts in 2025? Or is that -- is the base case that there are no further one-off effects in 2025?

That's definitely what we strive for, and we don't believe there will be. But I need to take that back to a certain extent because of everything that's happening in the world. But apart from that, we believe -- we certainly believe, and that's also what we're striving for, is to become better in control and, as a result, have lesser of these exceptionals. That's a part of the strategy.

The next question comes from the line of Tijs Hollestelle from ING.

Yes, I basically, also my first question would have been on the bank covenants because I also have written them down at the previous annual report. We had a discussion in the past as I really need to see how B&S is going lower than the debt position is. So although if you follow the company many years, like most of us are in the call, then you do understand that it needs to invest in inventory and you see opportunity. And I know that you're paying your dividends and you're actively spending cash on reducing the minority stakes, and reducing complexity is all good. But the problem for an average generalist fund manager is that this screen as very, very risky. And therefore, you get in a massive discount on your valuation. So my question is, do you have any other options to, let's say, structurally reduce the net debt position in the coming 12 months? Are there any hidden asset sales? Maybe you're contemplating the sale of a division or you have really specific trade working capital programs running that can bring in a lot of cash. Is there's anything possible, let's say, in the next 4 quarters or so?

Well, I must say that if we would -- we've been looking at this, Tijs. It would be stupid to say that we're not looking at this. But if you look at this and you look at the turnover growth, when you look at, say, 5.3%, 5.4%, 5.5%, 5.6% EBITDA margin and the cash generation capacity of the company, as you will see, is quite strong, actually. If you take into account that I do believe that we could optimize working capital further, especially in comparisons with Q4, which I referred to and which is also referred to in the press release in detail, a couple of specific reasons why inventories went up. And if we achieve our outlook, and we also achieve a cash inflow from working capital in spite of the growth, because the growth will lead normally to additional inventory. But due to the specific circumstances of Q4 and it would be a positive, and I'm not promising a positive, but if there would be a positive working capital, then the cash generation will be strong. And as a result, net debt will decrease. And you don't have to sell assets to realize that decrease in net debt position because next year, well, we still have the smaller buyouts of the Personal Care, which was already referred to. But apart from that, there are no hard options to buy out minorities in the next 3 years actually.

Short terms.

So we are kind of -- well, bullish, we're very positive in terms of second half year cash generation because there won't be a buyout of minorities. And if we realize our strategy towards autonomous and accountable segments and optimizing working capital, taking into account the specific character of the business. So we do -- because we buy when the price is right very often, so it's not a -- it has some specifics in the business model why you need to invest in your inventories, as you know, Tijs, better than anyone else because you've been following us now for such a long time. But those are the -- this is how we think. These are our train of thoughts in terms of our net debt position.

Yes. Okay. That's clear. Yes. And then a bit more specific also on the gross debt because I also looked at the annual report of 2023, and I saw that there is EUR 175 million bank loan with a maturity in 2026. That looks far out if it's -- let's say, not sure which month, but you probably should start renegotiating that somewhere at the end of this year.

I would say a little bit earlier, Tijs.

Yes, yes. As early as possible. And then the credit facility, EUR 65 million, majority between '24 and '26. So what is your feel about that renewal? So you already mentioned it on Robert Jan's question with hedging and variable interest rates, but what are the options for B&S in this respect?

Look, we are currently looking at -- and work on some options, which are near to completion and also on some additional and alternative funding sources. But look, the main facilities, which we have running -- have a maturity as per the end of 2026, so late December 2026, so we are looking and starting discussions with our partnering banks early this year already, just to make sure that we start this process and have a smooth process throughout this year. So that we have all the time to look at the funding position, which we project for the years 2027, 2028, just to make sure that we are right on time in getting the facilities which we need to grow our company.

Yes. Okay. That's clear. Then I had a question about, what was it called, yes, the other income in the P&L. So that shows, let's say, the contribution from your government and defense contracts. And in the P&L, I think it states EUR 6 million. And you mentioned in the press release, there's a direct impact of EUR 4.8 million of the EBITDA contribution. So it also includes, let's say, cost in the other line items of the P&L. Is that the way I should look at it?

Yes.

Sorry. The EUR 2.1 million from the sale of the Travel Retail building, which is also included in that line item.

Okay. Yes. So indeed, looking forward, basically, you should then kind of model the government and defense contracts.

Exactly, and not the one-off. That's why we clearly indicated the one-off of the retail -- sale of retail build.

Clear. Yes. And then in the past, B&S was one of the preferred distributors of the military sort of organization. There's a lot of permits and certificates to operate or to supply to the Army. I think that's still in case -- still the case. So are you exposed to a potential big boom in all kinds of defense investments in Europe? Can you be -- yes, let's say, explain us where you see benefits, what type of products you can sell? As I would say, typically, soldiers need a lot of products from B&S. That goes from tomatoes to liquor and from shampoo to medicine. But what is your exposure to these kind of trends?

Yes. We need to talk a bit about geopolitical affairs if we want to mention it. So there's going to be a number of trends that probably will influence this. So first of all, there's quite a bit of U.S. Army in Europe as well in -- maybe in parts of Asia and maybe in the future in the Middle East. There's going to be a downsizing of U.S. Army presence in Europe is probably a reasonable expectation, that there's going to be increase in the Middle East. That could also be reasonable expectation. The European troops within Europe, Latvia, but also in the Northern part of Europe and in the Southern part of Europe might increase is, I think, yes -- but I'm not a historian nor do I follow politics any more intense than most of you probably. So the European troops will be increasing. The solution in the Middle East, whether that's going to be UN forces, yes or no, is very hard to predict at this stage. But the UN forces will be part of the equation in the solution that politics will need to build in the Middle East, but also in the Ukraine is uncertain. It's clear that the Russians don't want any European troops nor U.S. troops. They might accept UN troops. So that could be -- the UN could be part of that solution. Where do I go next in the world? Asia, hopefully, is going to be stable in this regard. That hopefully was a human being remark, by the way, and not so much whether we will increase our efforts. I must say that the government and defense portfolio in terms of options and in terms of contracts that might come to the market, and that's also the reason why we invested in it, is definitely an interesting part of our portfolio. And that's also the reason why we did this. It is relatively capital -- well, maybe not capital, but relatively cash intensive in terms of the inventories that you need to build up, and the mere fact and experience is that the first year of operations is not going to be -- it doesn't lead. It would be too positive to expect a positive cash generation in the first year of new won contracts because you need the investment -- investments in the whole logistical patterns. You need to find solutions -- optimal solutions, et cetera, et cetera. So I'm very much aware that I'm not giving you an answer that you're looking for, but I do agree with you that the outlook is positive due to the number of contracts that will come to the market and all the different developments that we will need, unfortunately, to a certain extent in the defense. But without the geopolitical tensions, we would already have a nice portfolio of possible contracts that we could win.

And just to be clear, it's not that I'm only talking about these separately recently bought product. Also part of the Food division is already exposed to defense.

Yes, that's true. That is definitely true. And the number of services and products, so today, our portfolio that we supply to these forces is very food-centric. As people may know or may not know around the globe, there's around 500 SKUs prescribed by the UN that you need to deliver. And we are very good at that because we have the infrastructure to be able to organize all of this. So that's definitely a pro. At the same moment in time, we are also looking at providing services around, for example, laundry services or canteen services because that is also part of that business that's very much needed. In theory, Health can be part of that, but that's not that easy because the -- as you may imagine, especially defense forces are very particular around their medicine and their health processes. So that's not an easy part. Health standalone, if you look at those -- if you look at new markets that we are -- might be looking at, which will also be on the rise because of the geopolitical tensions is the NGO market, where it's more easy to create options in that market. But again, very mature, very early. So I'm just sharing my thoughts as a result of your question. And we could talk around this question for a lot longer, but I will stop.

That's complex. And one final and it also goes to the Liquor business of running the numbers also quickly this morning. So I see kind of quite a drop in the OpEx of the division of, is it, EUR 15.9 million. Is that a good starting point going into the first half of '25? So you basically rightsized the cost base, so it does not really matter for the top line if it drops by 1% or 4% as you are aiming to get, let's say, breakeven -- back at breakeven. Is that a fair assumption for the Liquor business in the beginning of this year?

Correct.

The next question comes from the line of Patrick Roquas from Kepler Cheuvreux.

Sorry, I tuned in a bit late, so some of the questions might have been answered already. Sorry for that. The first one is on FragranceNet.com. Can you spend a few words on the growth and expansion of this part of your business? And the second one is on Liquor. What are your expectations for this segment in the midterm? And can you remind us what is needed for, let's say, the EBITDA level to go back to previous levels of good profitability?

I was at FragranceNet last Friday in New York. Yes, FragranceNet is on -- it just has a very strong market development way of working. It plays the price game, B2C on websites in the U.S. It has a great infrastructure for different warehouses, of which a number of them are fully automated and are less dependent on staff costs, et cetera. Literally less dependent on staff cost because you can just hire -- or not hire or buy or lease more robots.

And operating in a market which has ample room for growth.

It's just a huge market, it's just a huge market. And they are the strongest one product website in the U.S. By the way, that's been told to me by local management. I didn't study on this, but they definitely have a very strong performance. Now in terms of Liquor, yes, Patrick, great that you asked this question again because that's -- I want you all to understand. And although we've tried to explain it before, you were on the call apparently, there are 3 reasons -- there are 3 things that we're doing. One of them, integrating wholesale Europe, as a result minimizing the number of warehouses and decreasing working capital in that part of the business. We took the decision that we can only source products in the segment Liquor, which we can sell in different markets and, as a result, become less sensitive to geopolitical things that are happening. That's another big decision. Thirdly, and that's also the reason why Liquor will be flattish, so to say, that was used earlier in the call around turnover, that's because we took the decision that we have played a role in a very limited number of SKUs for the Asian market, and we decided to decrease strongly in that part of the business. And as a result also become less -- to become less sensitive to geopolitical affairs. So those are the 3 measures we are taking, and we do believe that Liquor is -- that as a result of these measures, which will be fully implemented in 2025, Liquors will come back with good margins and EBITDA levels. There's really no reason to think that the wholesale business in Europe doesn't perform or cannot bring normal results and -- which is also true for the global other trade business. And we call that other trade because that doesn't include those specific SKUs specifically for the Asian market that I earlier referred to. So Patrick, those are the 3 measures we're taking, all good collaboration with the Liquor segment management team.

The next question comes from the line of Maarten Verbeek from the IDEA!.

Just to stick to the Liquor business. Roughly 1/3 of your Liquor business is sold to -- or in Asia. So that's about EUR 185 million. How much of that business is where you're referring to those limited SKUs, which might be carved out of your portfolio?

In the past, not in 2024, but in the past, there was -- I'm doing this by heart, so I'm also looking a little bit shyly to my CFO. But in the past, and then I'm talking about '22, '23, I think that was 50% of the -- so not 100%, but close to 100%. Last year, this was substantially less. Maybe half of that number, I would say. These numbers are approximately right, Maarten. But if you want to know the exact details, then we're happy to share that in an email or so.

Yes. But it's a fair assumption that it's a significant portion, Maarten, of the sales towards the Asian market. Not all of it, definitely not all of it, but a significant portion thereof.

Yes. Because the other trade business in Asia is definitely help.

Yes.

But it more or less suggests that about EUR 75 million to EUR 100 million will be carved out of the Liquor business in Asia.

That's a rather large range you now mentioned. Did I understand you correct? EUR 25 million to EUR 100 million that you said?

EUR 75 million to EUR 100 million.

That's not from the 2024 number, I think.

No, no. Not for the 2024 number. But in general, if you look at the total turnover towards the Asian market, which we also disclosed in the financial statements, last year, it was approximately EUR 200 million indeed. And what we will be disclosing for this year is that we -- towards the Asian markets, it's a little bit less. So it's approximately EUR 160 million in 2024 for the Liquor segment. So the portion of these SKUs is also lower as compared to 2023. Does that answer your question, Maarten? Does it make sense?

You always make sense. Then referring to your outlook statement on revenue. whereby you state that all the segments will perform in line with their midterm guidance, except for the just discussed Liquor business and also the Travel business. Assuming they will at the midpoint and for Travel, it will be half of the midpoint, and you make that calculation, then more or less, it seems that Liquor will be stable. And we just discussed that Liquor will be declining. So that actually means that for the other businesses, they will operate at the top end or higher of the revenue range. Is that a fair conclusion to make?

I think you are making very thorough calculations, so that's a good thing here. Look, in order not to make a very granular and specific -- even more specific outlook which we provided, so first and foremost, for those segments, which we refer back to the communicated compound annual growth rate for the years, which we communicated to you all in November 2023, I would say there, it's fair to say that some of those segments will be at the higher end and some will be at the midpoint. Then for the other ones, basically, so let's start with the Retail. So the change in the portfolio of the Retail segment makes that it will not grow as previously projected basically because we lost airport in Denmark, Copenhagen, which will seize our operation, which eventually will make that the turnover in total will be more or less, I would say, at par. Then for the Liquor segment, I think we elaborated on the Liquor segment quite significantly, so let's leave it at that. Does that make everything clear?

Yes. Please continue.

I was just asking whether that's clear for you.

Yes, yes, yes. Then you just also discussed that you will increase your stake in Personal Care, and there will be a cash-out. But according to me, there are still cash-outs to be expected from previous buyouts like another portion of the Personal Care and also for the G&D and also for Fragrance. So my question is, on one hand, what was the contingent liability at year-end at '24? And how much will be paid this year? So for example, Personal Care, I think there will be 2 tranches. You still have G&D. You still have Fragrance. So could you give an update what kind -- what we should expect this year?

Yes, sure. So as previously communicated, so to bring you back to early 2024, when we increased the first stake in Personal Care, the 24% -- that was about 24 -- 24%. So approximately 24%, the payout thereof also in 2 tranches, early 2023 -- sorry, early 2024 and early 2025. So the second portion of that buyout has been paid early this year, so in January. So that has been paid as per today. Then secondly, the deferred payment on this, so the remaining deferred payment for the Personal Care segment, as you might expect, as per December 31 is, yes, in line with the amount we mentioned this morning, so the EUR 12.8 million, which is also classified as a short-term liability as we executed this in January this year. Then lastly, on the G&D acquired contracts, as included in the press release, as shared mid last year, indeed, 2 deferred payments will be there. So as per the half of this year, so July 2025. And I think I ticked all boxes of your question, Maarten.

And then lastly, maybe a bit detailed. When I look in your cash flow statement, there are 2 new lines, changes in fair value of other financial assets and proceeds from other financial assets. I presume that's related to the G&D contracts.

Correct.

We have another question from Robert Jan Vos from ABN AMRO.

Yes. Sorry for coming back again, but I have a strategic question, which has -- a bit of a follow-up on what Tijs said -- Tijs asked. If you look at the Travel Retail and now 5 years since 2019, your revenue is still EUR 10 million below what you reported back then, when your EBITDA is less than half or actually even closer to 1/3 of EBITDA reported by then. So it seems that it takes you a lot of effort and -- but maybe also a lot of management time. So my question would be what is lost in synergies maybe or elsewhere if you take a new strategic view on this division? Because you're still far away from, let's call it, normalized profits as reported in 2019, despite a bit of inflation, despite new locations, apart from the Copenhagen one you just mentioned. But what is lost if you were to look at the potential disposal of this unit?

Yes. I figured that those last words was actually your question. And yes, there is -- there are different options, obviously. A couple of things that are important is that we won huge contracts in Abu Dhabi as well as in Qatar, who are still growing into their opportunity because that takes -- that's not mathematics, to be honest. Whether it takes 1 year, 2 years or 3 years, it's also different in different locations to really realize the potential of those number of stores that you have in the same venue. So that is definitely something that we're looking at with interest in terms of optimizing those locations. I don't know whether any one of you is a frequent flyer, but if you've been to Schiphol in the last 24 months, I believe, then you can't have missed that they are rebuilding and refurbishing that airport on a -- in a huge manner, which doesn't influence our revenue positively either, and you don't always get fully compensated. So we are in the midst of, let's exactly see where we're going before we take any strategic decision in terms of those developments. And I do know that also Travel Retail contracts, not so much in this country, but in -- definitely in different other territories will come to the market. Now -- so that's definitely something we want to experience first before we take any other decisions or pursue other options. So that's where we are. That's exactly where we are, and that is what -- that's also how we talk as an Executive Board with the management team of Travel Retail.

There are no further questions. So handing back over to you to conclude today's call.

Well, I must say thank you so much. Thank you for the interest in this great group, and thank you for the detailed questions. It was a pleasure to answer them. And we hope to see you soon or in our next quarterly update call. Thank you so much, and have a great a day and a beautiful week. Thank you.

Thank you for joining today's call. You may now disconnect your lines.