SSP Group plc (SSPG) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you, and welcome to the SSP 2022 Preliminary Results Call. My name is Nina, and I will be the operator for your call this morning. On the call today, we have Patrick Coveney, CEO; and Jonathan Davies, Deputy CEO and Group CFO. [Operator Instructions] I will now hand you over to Patrick Coveney.

Thank you, and good morning, everybody, and thank you for joining us for our preliminary results presentation for the year ended 30 September 2022. I'm Patrick Coveney, I'm the Group CEO, and I'm here today with Jonathan Davies and Sarah John. This presentation builds on the preliminary results RNS that we released at 7:00 a.m. in London this morning. Turning now to the agenda for this morning. I will start by briefly touching on the highlights from the year. Jonathan will then talk through the detailed financial review, and then I'll come back in to cover my impressions of SSP having been here now for 8 months, the global travel industry context and our strategy to deliver growth and returns, and our financial planning assumptions and near-term outlook. We'll then conclude with a question-and-answer session for those of you on the call. Now to our results. The key message from these results is that, SSP has both performed strongly, particularly in the second half of the year and it's set up to access structural growth opportunities for the global travel sector, thereby driving strong growth and returns. Jonathan will set out our financial performance for FY '22, but let me point to the GBP 127 million of EBITDA that we delivered in half 2 and the further strengthening of revenues in the first 2 months of FY '23. Our business is in good shape to drive excellent growth and returns in the years ahead, and I will describe the context and strategy that underpins that assertion after Jonathan now explains our financial performance. Over to you, Jon.

Thank you, Patrick. So we've seen a strong recovery in the second half, and more importantly, we've seen a return to profit for the year. Looking at the financial highlights. Full year sales were GBP 2.18 billion, so slightly ahead of the guidance in our pre-close update in September. This represented a recovery to about 78% of 2019 levels. EBITDA was GBP 142 million pre-IFRS 16, again, slightly better than the pre-close. This compared with losses of GBP 108 million last year. This left us with an operating profit of GBP 30 million compared with a loss of GBP 209 million last year. Generated cash of GBP 52 million, helped by the ongoing recovery of sales across the period and after capital investment of about GBP 150 million, leaving net debt at GBP 297 million at the end of September. And over the next couple of slides, I'm going to run through the reported numbers and highlight the impact of IFRS 16 and the exceptional items, thereafter, our focus on the pre-IFRS 16 numbers. Looking at the overall P&L, you can see that the impact of IFRS 16 is to increase EBITDA by around GBP 170 million, mainly reflecting lower concession fees. It is offset by a higher depreciation charge, leaving operating profit broadly similar under both accounting treatments. Worth noting that the IFRS 16 concession fees don't include the benefits of short-term waivers of fixed rents of around GBP 23 million, which have been treated as exceptional profits. I'll come back to that. Looking further down the P&L, pre-IFRS 16, the net financing cost was around GBP 44 million compared to GBP 82 million under IFRS 16, which includes the unwind of the discount on the fixed lease liabilities. The minority share of profit was GBP 24 million back to nearly 2019 levels, reflecting the more rapid return to profitability of the countries where we have joint ventures, including across North America, India, Thailand and the Middle East. This left a pre-IFRS 16 underlying net loss of GBP 35 million and a loss per share of 4.5p. Now, under IFRS 16, there was a GBP 60 million exceptional operating profit. And as a result, the reported operating profit was GBP 92 million. The exceptional profit included the benefit of GBP 23 million of temporary minimum guarantee waivers, and the further GBP 62 million from the de-recognition of lease liabilities as we've removed minimum guarantees. This was booked in the first half and included the impact of the new government legislation in Spain. In aggregate, our IFRS 16 lease liabilities have reduced materially over the last couple of years from approximately GBP 1.5 billion to around GBP 850 million, reflecting the successful renegotiation of many contracts during the pandemic, linking minimum guarantees to passenger numbers so they now fall outside the scope of IFRS 16. This is commercially significant as in the event of future volatility in sales, it gives us greater downside protection. We've also made asset impairments of around GBP 18 million, mainly relating to outlets, which we've chosen to exit as a consequence of COVID. There's also an exceptional adjustment to financing costs of GBP 9 million, simply reflecting an effective interest gain on IFRS 9 debt modifications booked in the year. [ Left ] the net loss of GBP 10 million or 1.3p a share. So now I'm going to move on to the business performance, and first, we have a look at sales. So sales was covered very strongly as soon as the COVID restrictions were lifted in the second quarter. We've had a very good summer with sales at 90% of 2019 levels in the second half. In September, we've seen sales strengthened further, averaging 104% of 2019 levels in the first 8 weeks of the new year. The pace of recovery has been pretty consistent across our major markets. The best indicator of the trend is to look at the run rate compared with early 2020. That is still, of course, pre-COVID. And this was at 97% over the first 8 weeks with North America, Continental Europe and the Rest of the World, all above or very close to 2020 levels, of course, all well ahead of 2019 sales. The strongest performance is in North America, boosted by buoyant domestic air travel. North America is at 109% of 2020 sales and 131% of 2019, but this also includes the benefit of new openings and the recent strengthening of the dollar. In the Rest of the World, we've seen particularly strong recovery over the summer and into the autumn, with continuing improvements in passenger numbers in Thailand, India and Australia, all led by domestic air travel. And this is despite the travel sector in China, remaining largely closed, which, of course, has a knock-on effect to the rest of the Asian markets. In the U.K., the recovery has been impacted by the rail strikes over the late summer and into the autumn. However, the U.K. air business continues to perform well and very much in line with the rest of Europe. Of all our regions, the strong recovery in air has been led by leisure travel, suggesting a real pent-up demand for holidays, which has continued well into the autumn. And the shift in mix towards leisure passengers has also helped to drive sales growth into passenger numbers. Leisure travelers typically have longer dwell times and therefore, spend more than business travelers or commuters. Now, turning to profit. Overall EBITDA margin for the year recovered to 6.5%, in line with our previous guidance and reflecting the strong recovery in sales. Looking down the P&L. Gross profit margin improved by 40 basis points in the second half compared with the first half despite the increasing inflationary pressures in many food commodities. Gross margin were up by 1% versus pre-COVID levels over the year. This was a really strong performance given the backdrop of inflation and demonstrated the effectiveness of our ongoing program of menu and range engineering, as well as our ability to mitigate inflation with pricing. Labor issues were down to 30% in the second half, which was only 2% above 2019 levels despite the lower volumes and the inflationary pressures on pay rates. This reflected our disciplined management of labor levels through efficient scheduling, as well as opening and closing units or flexing opening hours. Of course, there was no further government further support in the second half. Concession fees, you can see we're only 1% above 2019 levels despite the much lower sales, again, reflecting all the work we've done on renegotiating minimum guarantees, as I described earlier. Turning to the cash flow. We generated underlying free cash flow of GBP 52 million in the year, helped by the positive EBITDA and the inflow of working capital of GBP 117 million. This was mainly being driven by the recovery in sales over the year, which will move from around 50% of pre-COVID levels last September to around 95% this September, and that has rebuilt our negative working capital back towards more normal levels. And we've also benefited from our success in maintaining similar levels of deferred payments. We estimate that the value of these deferred payments, mainly rents is currently in the region of GBP 120 million. We'd expect no more than 2/3 of these to unwind during the coming financial year, indeed, as we said previously. Steps up our capital program in the second half to GBP 100 million, leaving overall investments of GBP 149 million for the full year, which was in line with our guidance of the interims. Looking to 2023, we expect capital investment to increase to nearer GBP 250 million. So the higher end of that previous guidance, this reflects the growing pipeline of secured contracts, which Patrick will cover later, but also our greater confidence in the timing of the build program this year. Cash interest was GBP 41 million, and the cash tax was a very small outflow. And this left net debt very slightly lower at GBP 297 million of the non-cash adjustments and FX movements have been eliminated. Looking at the overall liquidity on our balance sheet, you can see that we have cash of nearly GBP 550 million at the year-end, which added to our undrawn committed facilities of GBP 150 million gave us access to liquidity of over GBP 700 million. Excluding the non-cash accounting adjustments to our reported net debt, left our leverage, I think, would be calculated for financing purposes at 2x net debt-to-EBITDA. So back within our historical target range. There are a couple of points worth throwing out here. You can see that our term debt is split broadly 50-50 between floating bank rate debt and fixed coupon debt. That is U.S. private placement notes. And the cash balances are reasonably well matched with our floating rate debt facilities, therefore, act as a natural hedge against any movements in interest rates. It's also worth pointing out that we hold these cash deposits in multiple currencies, broadly matched to our gross debt exposure, which means that they provide a natural hedge against the impact of any FX movements on our leverage. Looking at our capital allocation strategy. Our priorities for the use of cash remain unchanged. Our first priority is capital investment for organic growth, given our ability to deliver high returns on investment in new contracts and renewals, typically with discounted paybacks of 3 to 4 years. [ Continue ] to exercise the same disciplines around investment appraisal and very importantly, we've got a long track record of delivering returns in line with or ahead of our target hurdle rates. Our second priority is for M&A, and we believe that opportunities will arise in the near term, mainly as a consequence of the financial pressures on some of our competitors and the smaller players in the market. And we will actively pursue infill acquisitions, but as ever with the disciplined approach that we've demonstrated historically. Based on our current expectations, which we'll set out later, we would anticipate reinstating the ordinary dividend for 2023. We still believe that medium-term leverage range of between 1.5 and 2x net debt-to-EBITDA will be appropriate for the business, and we would expect to return any surplus cash to shareholders either through a share buyback or special dividend as we did prior to COVID. This has been a very effective financial model for a number of years. The next chart, looking at our track record from the IPO in 2014 to 2019. You can see that our capital investment rose from around GBP 70 million to GBP 80 million in 2014, '15, up to around GBP 200 million by 2019. But all of this investment was internally funded from operating cash flow, which had risen from around GBP 160 million to around GBP 280 million across this period. Importantly, we would, of course, have been able to sustain a higher level of growth from new business and the opportunities presented themselves. In fact, we elected to return surplus cash to shareholders through special dividends in 2018 and '19, and indeed, we're planning for a share buyback in 2020 prior to COVID, all of course, whilst maintaining leverage within that target range. The cash-generative nature of our business is very much at the heart of our financial model, and it's all underpinned by delivering high returns on each individual project. But there's no reason why this model should work in exactly the same way in the future once we've delevered further, especially as the market becomes arguably more challenging for our competitors, and we strengthen our competitive position. Now, let me pass back to Patrick to cover the business review and strategy.

Thank you, Jonathan. For those of you listening to this by way of recording, I'm now on Slide 16. In this review, I will cover 3 areas: one, my impressions of SSP and our priorities going forward; 2, the travel industry context and our strategy within it; and 3, our financial planning assumptions for future performance and our current outlook. Since joining SSP in late March, I dived into the business, visiting 20 of our 35 countries, some multiple times. You see I needed to dig deeper beyond the corporate office perspective to understand the essence of SSP. In doing so, I've engaged with our teams, our clients, our brand partners, our suppliers and with multiple local joint venture partners. Throughout I felt welcomed. I'm very conscious and I've learned that we're a winning business with in-market teams and skillfully restarted our business post the COVID shutdown and are now building share, growth and returns in each of our geographies. I've learned that we're a global business extending way beyond our routes in the U.K. And also, I'm learning to understand the wide network of stakeholders and relationships that we pull together to enable delivery of brilliant food and beverage solutions to travelers. From these engagements, I formed and tested with our Board and with our Executive Committee, a clear view on our foundation and priorities. My impressions of SSP are positive, but of course, we have improvement opportunities as well. We have strong foundations on which to build. We've got deep positions in large, fragmented and growing markets. Our skilled teams combine relevant local expertise with central group process and capability. In particular, our teams did an awesome job of reopening our outlets and our wider estate as the travel market bounce back post-COVID. We operate with 5 distinct concepts, sit-down restaurants, bars, quick-service restaurants, coffee shops and food-focused convenience stores. And we deploy these concepts expertly, but selectively through the air and rail channels across the world. Our strong partnerships with brands, clients and local joint venture partners have, if anything, been strengthened through the challenges of COVID. And we have a track record of winning new business, profitable new business against a rigorous investment review process. And all of this is integrated into an economic model, which drives our growth and returns and is deeply, deeply embedded both formally and informally across our business. Our priorities then as a I see them are: firstly, to remobilize as effectively as we can, using the competitive opportunities that are emerging through COVID to strengthen further our in-market positions. We've got significant potential for accelerated but targeted growth in some of our geographies, and I'll come back to [ say on this ] later. We can do more to strengthen our customer proposition and, in particular, to drive like-for-like revenue growth. In a challenging macro environment context, we need to do all of this with a revitalized efficiency program and by carefully managing our cash and leverage. We need to build on some capabilities to drive growth, returns and resilience. And lastly, we've got scope to leverage our scale and scope across the world more effectively. Let me transition now from these impressions to some actual data. [ Clinically ], you see here, SSP operates and competes in a structurally growing travel market. Here are set of recent third-party estimates and the traveler recovery and forecast growth rates for traveler numbers out to 2030. You can see that there is a pronounced build back everywhere. At some point through 2024, passenger numbers are expected to return to pre-COVID levels. Geographically, the strongest growth in the air channel is expected to be in North America and parts of Asia. And you can also see importantly a steady build back in the rail channel, as well as the growth that you're seeing in air. This growth is underpinned by a set of tailwinds that we highlight on the right of this slide, a long-term trend of rising incomes in emerging markets and that correlates with travel, a huge level of investment that I've seen and discussed firsthand with clients now who is traveling around the world and this investment is building out the quality and the quantity of the travel infrastructure. There's a shift in this infrastructure from retail to more space dedicated to on-site traveler experiences, especially food and beverage. And you're seeing a relatively stronger growth profile for low-cost carriers, which typically offer fewer onboard food solutions. And all of this is happening in a fragmented travel food and beverage market, where we are the second largest global player with a share of only 10%. Clearly, at the moment, consumers and businesses are facing multiple headwinds. However, and this is important, we believe that our markets are fundamentally more resilient to the pressures on consumer spending than many other consumer sectors. Why? Well, the post-COVID recovery in travel is being principally driven by leisure missions, which underpin 75% of our revenues. And we anticipate that the profile of these leisure travelers will even less impacted to these pressures than the wider population. We recently commissioned some research into the behaviors, the spending patterns and the food and beverage expectations of leisure travelers, which demonstrate this resilience. These travelers are affluent with 70% to 80% of flights now being taken by people earning above median income. Looking ahead, travel is the #1 priority for spend of discretionary income with a pent-up demand for holidays still very much [indiscernible]. And importantly for our business, food and drink experiences are an important part of the overall travel journey. 50% of travelers buy and consume food and beverage before flying and 45% of travelers buy food to bring on the plane with them. And the macro data supports this, air passengers are recovering strongly in nearly all of our markets, and are now back with over 85% of pre-COVID levels in every region expectation, which is still held back by China, and critically, spend per passenger is up on 2019. So standing back from this data, while of course, we cannot be immune to macro headwinds and to potential external events, no consumer-facing business can be. But what we're learning is that, our business model is more resilient to the current macro headwinds and the current narrative than many appreciate, both in terms of likely traveler behavior and our operational flexibility to meet that traveler behavior. On Slide 21, we highlight 3 macro headwinds on how we are mitigating each of them. In aggregate, these pressures are most pronounced in Europe and particularly in the U.K. So we have had a labor availability and rate challenge in North America, albeit, it now just seems to be easing as we transition into the winter. I'm not going to go into each of these elements, but to call out several examples. With regard to the economic slowdown, SSP is geographically diversified with more than 70% of our business now sitting outside the U.K. Our cost base and, in particular, our rentals are now largely variable. On the Supernormal levels of inflation that we're all experiencing and seeing in food, we have procurement scale and expertise. And every week through the trade calls that Jonathan and I host with our regional CEOs and with their teams, we track against inflationary pressures and ensure and manage events, the mitigation of these impacts fully in cash terms through pricing initiatives and other menu design initiatives. We're also conscious though that some consumers are under real pressure here, and we're building a range of offers at different price points, including entry-level value to ensure that we can find a way to have our proposition insofar as we can beyond the size of our consumers. On labor and energy, we're restructuring the way we work to reduce our reliance on labor through the use of digital solutions. But importantly and versus other in the sector, our energy costs are low, representing only 1% to 2% of sales. So without being complacent, we feel comfortable in the ability of our business model to mitigate these impacts. SSP has a deeply embedded economic model, which underpins our performance and has helped us to deliver a track record, which Jonathan outlined earlier, of shareholder value creation prior to COVID-19. Hopefully, you will see and have seen in our results today that as volumes have come back, which, of course, were most pronounced in the second half of FY '22, this model is enabling us to deliver strong results, strong profits, strong cash flows. Turning now to our strategic priorities. Here's how we think about the drivers of longer-term growth and returns. It's a combination of a targeted geographic focus where we are choosing to compete and enhance capability and operational efficiency. How we are competing? Starting now with geographic focus. SSP is on a very important journey from our largest market being in the U.K. to our largest market being in North America. Our U.S. business has a brilliant track record with a revenue compound growth rate of 26% and building returns in each year across the 5 years pre-COVID. We have a locally tailored strategy, delivering formats and brands that create a sense of place and a sense of localness at each airport and a strong well-regarded U.S. leadership team. Importantly, we built very long-term relationships with clients, these are typically local or state government owned. And we also built relationships with joint venture partners, many of whom are airport disadvantaged business enterprise, which is a prerequisite for operating many airport contracts in North America. As you can see on this map, though, we are underpenetrated. Today, we are only in 30 of the 80 largest airports in North America with a market share of approximately 10%. So we have a significant ability to grow shares strongly from here. And we've got a fourfold plan to do that. Firstly, we're going to increase our share in the existing 30 airports, large airports in which we operate. We're then going to steadily, and we're doing this further penetrate to 50 of the 80 top airports that we're not currently in. We've built a flexible model that enables us to deliver good returns across smaller airports. Those are airports which specifically have between 1 million and 2 million passengers per year. And we're going to add to these 3 initiatives by value creating infill M&A in North America but done with the discipline and the returns focused that Jonathan highlighted earlier. Our strategy will also build significant presence and scale in selected Asia Pacific markets. We have an exciting footprint already with building momentum. You can see from the chart that we've got a broad set of businesses in these markets, but our real jewel in India. We are now approaching as many outlets in India as we have in North America. We've got close to 300 outlets in India now and a fabulous joint venture partner in TFS. Across Asia Pacific, the breadth of our concepts, including access to international brands is particularly important. And we complement that capability with local joint venture partners in almost all of these markets to provide us with deep underground know-how and relationships. You can see it in the middle of the table, we are expecting significant growth across this region, particularly in India, with increasing numbers of travelers and increased demand for food and beverage and more use of air travel with a forecast for more than a doubling in the number of Indian citizens that will use air travel between 2019 and 2030. Our new business agenda is tightly aligned with these geographic priorities. And as you can see from the middle pie chart, 2/3 of our new contract pipeline is located in North America and Rest of the World, [ for ] Rest of World principally being Asia Pacific. As we continue to build on that pipeline, in the second half, we added a further GBP 50 million to take the total anticipated net gains that gains made in revenue since 2019 to approximately GBP 550 million of annualized sales by 2025. And as you can see on the left-hand pie chart, about GBP 325 million of that will come from units that we have yet to open. On the chart on the right, you can see the expected phasing of net gains in revenue terms by year through 2025. So, as I said earlier, our group is on a journey, a journey that is materially shifting our portfolio to higher growth channels and geographies. You can see on this slide how the pipeline will contribute to a pretty marked shift in the mix of our business over the decade since our IPO. We're moving from a business that was about half air to one that more than 2/3 air. And we're moving from a business where North America and Rest of World represented 16% of our business to almost 40% of our business in 2025. In truth, and this is important, as we build more and more momentum behind our strategy, pursuing further organic business wins and selected infill M&A, we would hope that the relative share of North America and Rest of World will actually be greater than 40% even and beyond 2025. Moving now briefly to some of the detail behind this pipeline. You can see across the top, some examples of our success in North American airports in Dallas, in Houston and in Santa Rosa. We've also had further success in Australia and in India. For example, in India in Goa, where we've had a retail tender win at Mopa International Airport. Finally, to note, our entry into Iceland, which was also announced this morning and which will become our 36th geographic market where we have now secured 2 major restaurant spaces. In terms of contract renewals. Again, we've had good success in North America, particularly in Toronto, Seattle and Phoenix. In Norway, where we've retained 11 units across 4 airports and gained an additional 6 units, all with our point convenience store [ round ]. And in the U.K., where we're doing a very nice job of working through renewals across multiple airports and where we've retained 6 units of Terminal 1 in Manchester and secured our Marks & Spencer franchise business across several terminals in London Heathrow. Turning now to how we compete, the execution elements of our strategy. As we move on from COVID, we have diagnosed a significant opportunity, dare I say an imperative to fully get after driving the performance of our large bars and big restaurants across the world, getting our big outlets really firing to trade harder, especially from a like-for-like perspective. We developed a full set of performance levers and tailored them by format, by brand and by region. We are also deepening our insights into consumer behavior and engaging with our clients on the implications of these insights for the formats and brands that we develop together. Leveraging these perspectives, we've created new formats and brands such as the Koh Hop bar concept in Thailand, a premium bar concept in the U.K. called Juniper, as you'd see most visibly and most successfully in Gatwick. And Soul+ Grain, a health and sustainability-focused coffee format. Importantly, we also need to refresh and revitalize and recharge some of our original U.K. brands, such as Upper Crust, Ritazza. And we started this journey and introduced new ranges with an encouraging customer response. Embracing digital is an essential part of our strategy, and we're well advanced in this area. There are 2 key business benefits to our digital strategy. First, digital ordering improves the customer experience. When we do it well, the average ticket per customer goes up, and we're now rolling these digital solutions rapidly. The second key benefit of the strategy is that, it allows us to drive the efficiency and structural productivity of our units. And you can see that in the case study on the next slide. Here is a case example of a couple of units that I've come to know well: Vyne and Ballard Brew Hall, both in Seattle Tacoma International Airport, where we've rolled out order at table. Customer take-up is high. Approximately 2/3 of customers are now using order at table to place their [ orders ]. And because these customers have more time to browse and consider their orders, we've seen an increase in how much they're spending as well. And critically, order at table has also allowed us to operate these 2 units with fewer people, servers in this case, which in a world of labor challenges on both rates and availability is important to our business and economic model. While Adam and Peter, who lead our team in Seattle Tacoma and [ Princess ], the lead server in Vyne are achieving with digital is very encouraging in so many respects. SSP has been on an extraordinary people journey through COVID. I have nothing but admiration for our teams and how they have worked and how they have led for the past 3 years. We've gone from having 39,000 colleagues in 2019, down to 20,000 at the height of COVID, and now back up to 35,000. In that context, the capability that we're building in attraction, retention, inclusion, engagement, skill building and safety have been very encouraging. While doing all of this, we have improved engagement levels as measured by the aggregate positivity score in our comprehensive annual colleague survey in 2022 by 1.5 percentage points to 76%. Last year, we launched our new sustainability strategy, setting clear and measurable targets. We have already made significant progress against it, for example, in increasing our plant-based menu offerings and eliminating unnecessary single-use plastic from about 80% of our brand package. We've now fully mapped our carbon footprint, a massive piece of work that we've undertaken and are developing the road map to achieve net zero emissions by 2040. This matters to me personally. It is in this area that I want SSP to take a leadership position. With the greatest share of our missions coming from the food and beverages we serve, we have a real opportunity to get ahead in the development of climate smart food, which is the right thing to do and will make us more competitive on client tenders, will appeal to the climate conscious consumer and will positively reinforce SSP's employment [ brand ]. In January, we will publish our inaugural sustainability report, which evidences our commitments in this area. As we emerge from COVID-19, we need to revitalize a multiyear program of efficiency initiatives to support profit conversion. This slide shows some of the initiatives we already have in train, many of which I've already spoken about this morning. An example, again, is commercial deep dives. Here, we take our strongest contributing outlets and look at each of the performance levers available to them to step on profitability. In the U.S., we launched this program Phoenix 2.0. There will be a similar programs across the U.K., Spain, the Nordics and Australia, all coordinated and shaped by a type that experienced central value creation plan [ team ]. In an uncertain and challenging environment, this rigorous focus on profit conversion and embedding it into our weekly, monthly and annual performance management routines is a central part of our model. So now I wanted to pull what all of this means together into a set of financial planning assumptions for SSP. We do this conscious of the fact that a lot has changed in our industry and that our business and ourselves operate in an uncertain environment. So, notwithstanding these understandable caveats, let's start with our judgment on future revenues. We're assuming that passengers recover to between 85% and 90% of pre-COVID levels by 2023 and increase by a further 5 percentage points in 2024. As I described earlier, this is based on a fairly full recovery in air and leisure travel and a slower recovery in rail and business travel. On top of this, there is the impact of accumulated inflation since 2019 and very importantly, the higher level of super inflation this year as we assume that we increase pricing by an additional 5% to offset the cash impact of Supernormal cost inflation on the P&L. If we then add in the benefits of the net new contracts that we discussed earlier, you can see that sales should be in the region of GBP 2.9 billion to GBP 3 billion for 2023 and GBP 3.2 billion to GBP 3.4 billion for '24. At the bottom of the chart, you can see our high-level assumptions and profitability, which are essentially that EBITDA margin on the like-for-like business should be back to approximately 11.5% by 2024. In other words, back to broadly 2019 levels. By 2023, the like-for-like business should be at an EBITDA margin of approximately 9.5%, which is consistent with our previous guidance and the rebuilding of margins as sales strengthen. You can also see that we're assuming the net contract gains deliver an approximate 7% to 8% EBITDA margin contribution over this time period, reflecting the phasing of openings and the preopening and ramp-up costs that we typically incur. So, our current planning assumptions then are as follows; sales of GBP 2.9 billion to GBP 3 billion this year, assuming a recovery in passengers to 85% to 90% to 2019 levels and EBITDA in the region of GBP 250 million to GBP 280 million. Looking a year further out, we're assuming a passenger recovery to 90% to 95% and with a further improvement in margin and EBITDA of between GBP 325 million and GBP 375 million for FY '24. This assumes the sales contribution of GBP 350 million to GBP 400 million from net new business, which comes from the already secured pipeline. Clearly, we would hope to be able to win net new business on top of this. However, I should also stress that the timing of new contract openings always carry some uncertainty and we're assuming that contract retention remains at historic levels. Of course, we face high levels of macro uncertainty, both in the different paces of recovery from COVID in the travel sector in different parts of the world and from the broader geopolitical and macroeconomic environment, both in terms of the impact on the travel sector and the inflationary and consumer spend pressures that we are currently seeing. But based on what we know today, these outcomes represent our best planning assumptions. So, to finish. We're seeing a strong rebound in travel and our economic model is working well as that happens. We've seen -- we got off to a good start to FY '23 with good revenue momentum in the early part of the year. We are dealing with the cost headwinds and we're anticipating a further recovery in sales and profitability in '23 and '24. By 2024, we expect to be above pre-COVID levels of revenue and EBITDA. We're confident to accelerate the mobilization of our pipeline, investing GBP 250 million of CapEx in 2023 to build that out. We have high levels of available liquidity and our balance sheet is strengthening. As Jonathan said earlier, our net debt is now below GBP 300 million and our net debt to EBITDA is already at approximately 2x. We anticipate a resumption of our new dividend payments starting in respect to this financial year. And as we look further forward, we're well paced to deliver strong and sustainable growth and returns. On a personal level, and before opening the call up to questions and answers, let me say that I'm sorry we couldn't be with you in person for this presentation today. But that's because for medical reasons, following a recent surgery that I had, thankfully, a successful one, I'm unable to travel to the U.K. for another couple of weeks. So, now I'm going to hand back to the operator to moderate the questions and answers.

[Operator Instructions] Your first question today is from Jamie Rollo with Morgan Stanley.

3 questions, please. Just starting with some really helpful bridges you've given on Slide 36. Could you just clarify first what you've got in there for currency versus '19, if anything? And also, if I do the simple math, it looks like you're already assuming this year's sales at about 105% of '19, you're running at 104% of Q1 '19 already. That seems quite conservative given the recovery is still to come in the rest of Asia and maybe some resolution in U.K. rail? Secondly, just on the margins, again, really helpful guidance for this year and next year. But that 100 basis point headwind from a contract ramp and sort of Supernormal inflation, do you expect that to go eventually? And therefore, what year should we be looking to get back to 11.5%. Indeed, is there anything to stop you getting above the 2019 levels, given your examples on tech and so on? And then finally, just on the refinancing plan, I'm wondering, given you've explained how big the liquidity is and the cash and the balance sheet, how much of a facility you actually need? I'm just wondering, M&A and dividends, what we should be thinking about there? It looks like you've got plenty of headroom, but quite a big interest cost at the moment.

Thanks, Jamie. I may pick up the -- what I think, I can get 4 questions, actually the middle 2 one and kind of current run rate and what that means for the rest of FY '23 and your question on margin, but I'll let Jonathan jump in on currency and refinancing plans if that's okay. I mean undoubtedly, we're off to a decent start relative to '19. But we're also conscious of the profile of '19 and the timing of which both contract wins and M&A, for example, the business that we bought in Holland and what that means for the comp as we roll through. So, we're -- I would acknowledge that we're off to a decent start, but I think our guidance reflects the potentially some version of conservatism, but also what we think the comp period in '19 looks like as we go through the rest of the year. On your point on margins, the -- it's worth just reinforcing that right now, we have this elevated level of net gains that we're commissioning. But of course, we're also restarting a lot of the base of state as well and the combination of those 2 factors, which plays out differently by geography does put some sort of near-term margin pressure on us. But without getting into the specifics of exact timing or guidance, I think you do point to the fact that in some of our more established units, which we are increasingly digitally enabling, there is the potential to kind of continue to build margin in those units and that also, we'll roll out across the state. So, the kind of planning assumptions we've given are what they are, but do please recognize the sort of mix effect between brand new outlets, reopening outs and the performance of the ones that are larger and more stable and increasingly more digitally enabled. So Jonathan, will you pick up the other points for Jamie.

Jamie, so, I think with regard to FX, I mean essentially, the plans are all on a sort of consistent currency basis, which is current FX. So, there will be with reference to sort of pre-periods, a couple of points of FX in there, but thereafter, there's no assumptions around FX as would be normal. In terms of your comment about the liquidity in the business, I think it's a fair comment. Just north of GBP 700 million is a lot of liquidity. It means that we have got plenty of power -- firepower for M&A or accelerated new contract growth. Equally, if we're -- as we look forward, I think we'd return to the approach that we've adopted over a number of years pre-COVID, which is to say, if we're looking forward at the pipeline don't foresee the opportunity to deploy that cash with the right returns on new business or M&A, we'll start to think about returning it to shareholders. But clearly, that would fit somewhat premature right now. But clearly, what we'd like to do is focus it on growing the business quite frankly.

And just to clarify, just on that revenue bridge is constant currency but the figures you've given for the last 8 weeks are including currency, are they?

Yes, that's right. That's correct, yes.

And a couple of points versus the '19 basis for mark-to-market, right?

Yes, exactly right.

Our next question is from the line of Leo Carrington with Citi.

Dig into the drivers behind the increase of GBP 50 million to the run rate revenues from new contracts, how bigger. How much of this is new signings? Or have you also begun to incorporate the impacts from inflation into the overall role of contracts, one? And then secondly, but with a few different parts. Could you just elaborate on Jamie's question, please. Can you give an indication of where the recovery in passenger numbers was at in the first 8 weeks of this financial year? And then when it comes to the cumulative inflation of 12%, I think that implies inflation of only, say, 4% in '22 and 5% in '23 or similar numbers, which strikes me as lagging somewhat the broader inflation metrics we see. So, can you just give your views on the price versus inflation and how that might unfold for 2023?

John, I'll take both of those if it's okay. Simple answer on the first question, it's all on new wins. The level of difference from inflation that is -- would be de minimis. So, we have been more successful in securing incremental business in the second half than we have probably guided, we were going to be when we did our interim results in May. Let me go to the second question. If I do this relative to 2020 and you'll see Jonathan introduce the comparison for the first 8 weeks, both to '19 and '20 and that these are approximate numbers. And bear in mind that they reflect the slower recovery in rail as well as the faster pace of recovery in air. So, our volume relative to 2020 is about 80%. Inflation relative to 2020 cumulative through the period is about 10%. Net gains constitute about 5%, and there's a little bit of FX and that brings you to the 97% that you see in the slide that Jonathan introduced earlier. If you dig into that a bit further, and you see it highlighted in the slide that Jonathan went through, what you see here is that in Continental Europe, Rest of World, and in particular in North America, the performance is ahead of 2020, most pronounced in North America and that's reflected in higher volume levels that are now approximately 80%, decently higher actually across those 3 regions, which compensates for the fact that the U.K. is less than 80%, reflecting a much greater rate weight towards rail and some of the near-term impact of rail strikes.

And on the inflation versus price?

Yes. Well, it's worth -- I'm going to be just a little coy in my response here. I mean we are not a business, our cost of goods is quite -- would be a much smaller percentage of our sales than you might see in other retail or food service businesses. And so for us to have 10 percentage points of price increases in the period from '20 through to '23 with the first 2 of those years having very low levels of inflation is quite significant inflation recovery if you factor in where our gross profits are or where our cost of goods would be. Just for the avoidance of any doubt whatsoever, that represents full cash recovery of the Supernormal inflation that we're receiving now both in raw materials and ingredients and also where necessary in labor.

The next question is from the line of Jason Molins with Goodbody.

Just in terms of contracts and Patrick, you alluded to some contract wins tracking ahead. But maybe I think you've mentioned before that you've seen, I guess, a bit of a backlog in tenders post-COVID and during COVID. So, maybe if you can elaborate a bit further on where you see those opportunities coming in the next 6 to 12 months and perhaps a bit of detail on what the competitive backdrop is like hasn't necessarily changed? And then just a question around CapEx. I appreciate you've given guidance for '23, given the pipeline, how should we think about that in '24 as well? And then a final question, if you don't mind. You [indiscernible] exciting market and opportunity. What's your market position in that region? And could you also look at it infill M&A as well in India?

Okay. Let me -- I'll deal with the first question. Jonathan, will you pick up India as well because you're a master of all things, India, including our joint venture relationship there as well as the CapEx question. Just on contract Jason, first of all. So yes, I mean we have seen a -- there was -- in many instances, there was a suspension of tendering activity and contracting activity through COVID. Everyone was focused on downsizing business. And actually, in the vast, vast majority of cases, as I indicated earlier, and the relationship between clients and food and beverage providers was very collaborative and partnership focused in helping the industry, the whole travel sector survive and manage through COVID. But you are now seeing a restart to some of that contracting activity having had that pause. We are reassured that the competitive dynamic is quite rational in terms of how that's happening. And the competitive sense is also somewhat narrower than it might have been 3 or 4 years ago, in particular with I think some smaller and more local players have seen some of the challenges of operating in the travel sector and is somewhat less attractive to them in aggregate across the world than it is to be the sort of broader specialists like ourselves and 3 or 4 others that you would know. So, I think you can expect the real areas of focus for us in terms of targeting incremental gains being in the geographic priorities that we set out earlier, particularly in North America, where we see an opportunity across each of the levers that I described, winning more business in the 30 big airports, we're already in, gaining entry into the 50 large airports that we're not in and constructing and operating, which is we're well underway with a somewhat different go-to-market model in North America for smaller airports, those with 1 million to 2 million passengers and complementing what we do organically with a very strong team in those areas -- apologies, because there's a fire alarm in the background. So Jonathan, I'm going to transition to you.

Thanks, Patrick. Jason, so I think the first point on CapEx, reasonably straightforward. There is a bit of -- particularly around investments in renewed contracts that we see coming up this year and that's one of the reasons with the pipeline we've talked about that we're mobilizing is why that's one of the reasons we guided to the CapEx being sort of in the GBP 250 million region for the coming year. I think that as we look forward, clearly, this is based on the pipeline as we see it today. So, notwithstanding new news, we think that CapEx will probably drop. So, I think if you have to look at consensus, it's probably in the region of GBP 200 million for the following year, and that would feel about the right sort of killing ground. Otherwise, we would have probably tackled that head on this morning. So, I think that's the basic [ steer ] for 2024 in terms of CapEx. With regard to India, I mean, we have a very, very strong business in India. So in 2016, we acquired a controlling stake what was already the leading player in the travel market in India, TFS. I have to say it's been a tremendous partnership that's really worked very well and one that we would look to continue definitely where we have access to a partner, which is a privately-owned business with great reach into the food sector generally and great expertise in the airport sector, knowledge of the market, knowledge of the clients. Clearly, we are bringing to that our own expertise, technology, brands and know-how has worked exceptionally well. But we have a pretty significant position there. So, we are the largest operator in many of the big international airports. So, those would include Delhi, Mumbai, Goa, Kolkata, Chennai to name a few. And so I don't think we are proactively looking to M&A as a way of securing greater share there. I think we're already in a very strong position to win new business. So, I think the risk of consolidation would be to potentially sort of risk too much concentration in many situations. Worth saying as well that the -- our big portfolio to international competitors are either not present there or are very, very -- or have very, very limited representation. So really, the competitive market is all about local players. So, again, it's not unforeseeable that we could find M&A opportunities. We've got something we're really focusing on proactively. We think we're very well placed to win business organically there. Hope that answers the question, Jason.

The next question is from the line of Tim Barrett with Numis Securities.

Could I ask a short-term question and then a longer-term one. Shorter term, you've been very, very restrained and not blaming rail strikes, but if airports are up over 100% or over 100% in the U.K., rail materially below 84%. I just wondered if you could split out what's going on there. And the second question on the labor side, your second half labor sales ratio is very impressive. I'm guessing you're based for 10% labor inflation in the U.K. or around, but what's happening in the Rest of the World around labor?

Jonathan, if I pick up labor and you might just give a breakdown of the U.K. as far as we can between the 2 channels and what it means in the context of strikes. So yes, I mean, it's worth recognizing that the pressures on labor availability and rate are not confined to the U.K. And so, we would have multiple markets where if you take our labor rates in October-November '22 when compared to our labor rate in October-November 2021, you would -- that we would have multiple markets where at that kind of hourly rates, entry-level rates, vast majority of our people would have double-digit increases in labor rate, reflecting both base pay and various shift premia and variable pay differences and so forth. So, that level of labor inflation is pronounced everywhere. And the U.K. is towards the higher end of that, but it's not actually the highest. We have 1 or 2 markets in Continental Europe that are higher. And North America is in a similar sort of place to U.K. on rate, although even taking North American aggregate really misses just the level of local variation you've got on availability and rate movements across the business. So, what I would say right now is that we have been able to move away from unlike some other industries from labor availability challenges. We have all the people that we need to run our outlook. But we are -- we have a pronounced step-up in the level of pay that we're putting in that reflects the examples I've just given. Now how does that feed into the second half following labor percentage ratio that you're describing. That's the benefit of operating leverage, right, where when we start to get some our units re-firing, even with higher rates, we're able to see our labor percentage nudge back. And as we -- as I said in the presentation earlier, as we progress our digital agenda and other [ cost activity agenda ], we think we're going to be able to deliver in line with those kind of ratios as we go forward. We've got to work hard to do that, but that's the kind of SSP capability or what Jonathan and Miles would describe as the real focus on the middle part of the P&L, which is big part of what we talk with our regional CEOs and key country team leaders about on weekly trade calls, monthly performance reviews and so forth, and that's -- it's critical that we really stay on that. Jonathan, will you pick up the U.K. question on channel mix?

Tim, so I mean first thing I should say is that it is, of course unhelpful on the sort of stop-start nature of these strikes, is doubly unhelpful because clearly shutting up significant portions of the estate in rail stations for a day at a time is not straightforward. Being said all of that, we shouldn't lose sight of the fact that it's short term, it is only in U.K. rail stations. It's not even across the entire country or certainly hasn't been to date. It's only one part of the business in 36 countries. Looking at the specifics and again, you referred to the sort of the sales trends that we presented earlier, first one I'd say is that undoubtedly it has had a contributory factor. It's a contributor factor to the sort of clearly flatter trajectory for U.K. rail compared to other markets. The impact is not huge. It's certainly -- it's low single-digit percent on the U.K. in terms of what's the impact on sort of the growth trajectory as we look at the early part of this financial year. So principally, looking at October and November. Worth saying as well that the -- a bigger factor in the sort of trends that we're looking at on that chart is just about the different channel mix across the different countries. So, if you look at the U.K., and you think that, historically, it's been broadly sort of 2/3 [ relevant ] there. In the summer, of course, that mix almost flips around and so you get the benefit of the holiday traffic over the summer. But as we -- we're now it's part of the year where holidays are over, in normal times, it will be much more dependent on the business travel in air but notably, the rail business and commuter traffic. Now, it's stating the obvious, those are the sectors of travelers recovering more slowly. So, we always anticipated that if you looked at that trajectory with reference to 2019 or indeed 2020, you always expect the U.K. business to flatten off a bit just because it is exposed to the areas, it's more weighted to the areas that are growing less rapidly from COVID than the other parts of the business. So, that is important to note, that is a more material impact on the run rate differential than the strikes themselves.

Did I understand that correctly, you're saying a low single-digit number of percentage points?

Yes, exactly right. It's an impact of 2% or 3% in the first couple of periods.

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

Just the first one would be on kind of the disciplined M&A that you've referenced in the presentation. So I mean, where and what could you look to potentially acquire? And is there actually a list of assets out there, which are of a high enough quality for you to actually be interested in? And then just second one on the U.K. business. I mean, pre-COVID, probably fair to say the U.K. was less of a focus relative to some of the other regions from a top line perspective. So, given some of the brand initiatives and the refreshment going on in the U.K. right now, should we maybe factor in a bit of a step change in growth going forward above the kind of 3% or low single-digit percentage that we used to see in the U.K?

Yes, let me try to quickly answer, so I'm conscious we wanted to finish at 10:15, I want to just, sorry, I'll just answer them briefly, if that's okay. So yes, I mean, we are -- I think the best way to think about where we're looking for to target our M&A is to match it against the geographic priorities that we've discussed. But to recognize there may be value creating opportunities in, in some of the other markets as well. We've used language of infill M&A, which will give you a sense for kind of size and how we're thinking about it and I think that's the right way for our business to proceed from here. And clearly, we signaled that North America is a focus area for us in that respect. On the U.K., I mean, I think that the guidance is the guidance that is reflected in the planning assumptions that we've given. I would like us to be able to take off our growth rate in the U.K., but we are conscious of some of the starting point of our channel mix that Jonathan just described and probably the tougher macro environment in all sorts of ways in the U.K. right now than in other parts of the world. So hence, the revenue and EBITDA guidance we've given, but while -- just to finish on that, while we are undoubtedly on a pass of North America becoming our largest market, the U.K. is always going to be a very important market for SSP. It's our home market. It's large in size. Our share position is very good. Our relationships are good. it just so happens that we've obviously got a much higher level of share there than we do in some of the markets.

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

I'll just 2, if I can. In terms of the new initiatives that you're talking about, is there anything you can say in terms of the payback or incremental margins or anything that you might be able to hint at? And how much of those can be applied to your estate versus where they're currently deployed?

Yes. I mean we've got some -- there's many initiatives, Ali that we've applied. I think the 2 that I would highlight are the focus on driving like-for-like particularly in our [ travelers ] where we were encouraged by the progress and momentum in some of these, and you saw that through the second half, and it's a big part of what we're -- what we think will underpin our performance for FY '22. And then the second is digital, where we have -- if you include the new outlooks, we've got 2,500 digital outlets that -- over the next number of years that we need to put further digital enablement into. And now we need to test that as we go that sort of encouraging case examples, some of which I've mentioned are replicated at greater scale. But undoubtedly, if you go forward through 3 years, the traveler experience in terms of digital enablement and also what that means for how we staff and set up and design our outlets will look a little different. And so they'd be the 2. But again, beyond the financial guidance that we've given, we're not going to say any more on the impact of that until we delivered it and we're able to talk about it.

The next question is from the line of James Rowland Clark with Barclays.

I've realized you haven't got an awful lot of time left, so I just ask one. Patrick, I think -- well, if we roll back 3 years, your predecessor was very keen on the growth opportunity and accelerating the growth opportunity in North America, in particular. I wonder if you wouldn't mind briefly outlining how your strategy is notably different or better than his might have been at this point 3 years ago?

James, I'll give a very quick answer. I haven't a clue. And actually, I say that, I don't mean to be [indiscernible] but our focus is determining what the right strategy is now based on the market conditions now and working with the experience of a really, really good Group Executive who know these markets really well and a central team that have a track record of successfully deploying capital across multiple different opportunities. So frankly, if you don't know what Kate thought or what Simon thought you'd want to ask them, but it's just not appropriate for me to form any public judgment on our strategy of a business 2.5 to 3.5 years before I joined. Sarah, we might just take one last question if it's there and then finish up.

The next question is from the line of Greg Johnson with Shore Capital.

I'll just keep this one brief. Just given a sort of a step-up in minority payments or charges in the second half, given sort of strength in the balance sheet and liquidity and the macro backdrop, is there -- is there a chance of maybe bringing some of these JVs in-house?

Jonathan, do you want to pick that up?

Yes. So, I mean interesting question, Greg. I mean, the answer is that in most cases, those joint venture arrangements are there for a purpose. I sort of referenced this to the earlier question about India. Often, I mean we have a number of very long established partnerships, which we think serve us very well because we get the benefits of some of SSP's expertise, global scale, allied with real local knowledge. That doesn't mean to say, however, that there may not be 1 or 2 opportunities in the -- and I'm thinking more in the associates group where there are still opportunities potentially to take bigger controlling states. But generally, they are there for a purpose, I think, is the -- would be my broad answer, Greg. It's interesting thought.

This concludes our question-and-answer session. I would like to turn the conference back over to Patrick Coveney for any closing remarks.

Yes. Thank you, and thank you for moderating the call for us. Listen, and considering a very good turnout today, thank you for spending the time with us. In part, I think because of the fact that I'm whatever 8 or 9 months into the business, we had a lot of content here on this call, both in terms performance through FY '22, kind of impressions and key elements of our forward-looking strategy and then the introduction of these financial planning assumptions for '23 and '24. So, we hope that's been helpful to you in setting out the investment case for our business more explicitly than it had been during the COVID period. And we look forward to taking further comments and questions after we finish up this call. So, thank you for spending the time with us and stay well. And when you break for Christmas or the holidays, I hop you've got a really good break. So, bye then and speak soon.

Thank you.

Ladies and gentlemen, this concludes today's conference. Thank you for joining. You may now disconnect. Goodbye.