WH Smith PLC (SMWH) Earnings Call Transcript & Summary

Good morning, and welcome to the interim results. I'll start by introducing myself. I'm Leo Quinn. And if I refer to Balfour Beatty, that's because it's my old company, and now it's WH Smith. I do remember about 6 months ago, I thought to myself, this is the last set of results presentation I'm ever going to have to do after 20 years. And I thought, wow, isn't that fun? And of course, now I'm back here again doing it. So, it's not the greatest place to be because it consumes so much time. But good news is I've got one slide and Max is going to do all the work. So it's pretty easy for me. Looking around the room, I was hoping to see a lot of familiar faces so that I get an easy ride. I don't recognize anybody. So it sounds like I'm going to sort of have to remake my reputation all over again. I want to start with just a few initial observations. You remember, I've been here now, sort of, 3 weeks, but even 3 weeks walking around the business, you do get to see things. And the first thing I'd say is that we shouldn't discount just how much has gone on in this business in the last 2 years. And my #1 priority is really how do we just steady the ship and allow people to get back to the knitting and doing what they do very, very well. Over the last 2 years, we've divested the High Street business, and the tail of that is still to be completed. So there's still work going on there. We've had some big changes around executive management and the Board, which is another big distraction. And then, of course, you've got the accounting issues that you had in North America. All of those things take senior management leadership time away from running the business. Hopefully, as these things start to get under control and actually finish, we're able to get back and focus on the knitting and all the basic things that we do. So I'm here really to apply, I think, what is some leadership and really to sort of steady the ship so that people can do their jobs. Secondly, I'd make some comments around cost and cash. In the first instance, we've got too much costs, and it's trending in the wrong direction. And in the second instance, we don't really have enough cash, so what we have to do is we have to reverse those two. The decision today around suspending the dividend was just a no-brainer. I mean our #1 priority is to ensure we've got a strong balance sheet. And I don't believe anybody holds our stock today for the dividend at GBP 6 a share. There's far better uses for the money. And if we get to the point where we have surplus cash, what we're going to do is use it to delever the balance sheet. And at the appropriate time, buyback some shares and then look at whether or not we would find an appropriate point to reinstate the dividend. The other point I'd make is that I don't know if you're familiar, there's an old story, there's a guy standing in Baltimore and he stops someone in the street and says, "How do you get to New York?", and the guy replies to him, "if I was going to New York, I wouldn't sort of start from here." Well, in the case of Smith, what we've got is we've got some green shoots. And I don't think this is a bad place to start from. In the first instance, we've renewed about 85% of our airport concessions in the U.K. And the minimum extension for an extension is usually 5 years. So that gives us sort of a clear runway ahead of us. But I would put a question mark over that: at what cost, and that needs to be understood and investigated. The second thing I'd say, if you are travelers, which all of you in this room will definitely be. But as you go through the Heathrow Terminal 5 and some of Terminal 3 and Terminal 4, we've got our new one-stop shop concept laid out there, which is really absolutely fantastic. And it's really quite exciting, especially the T5, it's -- you've got sort of installed iPhone shop and everything in there by Apple. But what we do is we bring this -- we bring real value to the traveling public. You're able to get your pharmacies needs serviced there. You can get your health and beauty, you can cover a snack, you can pick up a book, you can get a magazine, you can buy some gifts, you can buy some souvenirs. So our one-stop shop concept is really so we're seeing some real traction. And I'm hoping that's going to be an engine for growth for us going forward in the future. Having sort of looked around America in the few weeks I've been here, coupled with the U.K., I'm really quite taken by what I would describe as the energy and the passion of our people, and their commitment is absolutely incredible. And these aren't the highest paid people in the world, but their motivation is incredible. And again, one of the great places to start from with a workforce that is so motivated towards doing the right thing for the customer. So as I think about it, and as I sort of embark upon this journey, this is a business that's got a fantastic brand. It's a couple of hundred years old, not as old as my oldest brand that I ever ran, which dates back to 1723, which was actually De La Rue's portals. That's the paper factory that they had. So this one is sort of a junior in compared to that, but this has been around for a couple of hundred years. It's a credible, respected, strong brand. So that's really, really powerful. Secondly, it's got a fantastic business model in that we're not having to attract customers to us. Customers pass our door. It's our job to make sure we bring them in and they spend as much as possible in our stores. And we do provide a real value service to our customers in terms of the fact that you're going through an airport, you need something quickly, you can go through one store and pick everything up, and that allows you to get to your gate on time and relax and get on your flight and enjoy your journey. So I think I'm the lucky one here because I picked up a fantastic asset, and I think it's got a great future. It's going to take us time to get there. And I've got plenty of time and plenty of patience. So we're going to continue to do the right things in the interest of actually establishing a foundation for the next 100 years for this business. And on that note, I'm going to hand over to Max, who is now going to do all the hard work.

All right. Thank you, Leo, and good morning, everyone. Let me start with the financial headlines for the half year ended 28th of February 2026. As usual, all the numbers I'm going to refer to today are pre-IFRS 16, and IFRS 16 bridges can be found in the appendix. Total group revenue increased by 5% on last year to GBP 748 million, and we saw like-for-like revenue growth across all divisions. Headline profit before tax was GBP 3 million, in line with the company compiled consensus. This year-on-year decline has been largely driven by inflationary pressures on the business and the expected disruption from the U.K. store development program. The group generated a headline EBITDA of GBP 48 million in the half year, demonstrating the cash generative nature of the trading business. Headline net debt at the end of the period is GBP 496 million, and I will come on to talk more about this later in the presentation. The Board today has announced the suspension of the dividend as it seeks to rebalance the capital allocation of the business and focus on debt reduction. Turning now to the group revenue summary. In the 26 weeks to the 28th of February, the group delivered like-for-like revenue growth of 2%. By division, the U.K. saw a like-for-like revenue growth of 2%, reflecting the expected trading disruption from our largest ever store development program, including the refurbishment of stores at Liverpool and Heathrow Airport. These refurbishments are now complete. In North America, like-for-like revenue grew 1%. And within that number, Travel Essentials continued to perform well, increasing by 6% with InMotion down 4%, and resorts down 6%. The Rest of the World division delivered like-for-like revenue growth of 6%. And in the first 7 weeks of trading in the second half, group like-for-like revenue was 2%. By division, the U.K. was flat, largely reflecting a softening in air following disruption to flight schedules to the Middle East. In North America, we delivered like-for-like revenue growth of 2% with the core Travel Essentials business continuing to perform well and revenue growth of 6%. And Rest of the World delivered like-for-like revenue growth of 5%. In the near term, the headwinds facing the group remain evident. Whilst we have limited direct business operations in the Middle East, reduced passenger numbers and weaker consumer confidence is having an adverse effect on the business. I will cover more on the potential impact of this later in the presentation. Now turning to the segmental analysis. Starting with the U.K., revenue increased by 2% on both a total and like-for-like basis, Air was up 2% on a like-for-like basis, Hospitals were up 4%, and Rail was down 2% like-for-like. In North America, total revenue increased by 10% on a constant currency basis. In the Air segment in North America was up 15% on a constant currency basis and up 3% like-for-like. Within this, our Travel Essentials format, which now accounts for over 55% of revenue in North America, was the key driver of performance, with total revenue on a constant currency basis, up 22% and up 6% on a like-for-like basis. InMotion, like-for-like revenue was down 4% in the half year and resorts were down 6% like-for-like, driven by the continued reduction in Las Vegas visitor numbers. In the Rest of the World division, total revenue was up 8% on a constant currency basis, supported by new openings and up 6% like-for-like. On the right of the screen, you can see how we continue to actively transform the group with Air accounting for more than 70% of total revenue. Turning now to the group income statement. The U.K. delivered headline trading profit in the half of GBP 34 million. Reduction year-on-year reflects the inflationary pressures on the business, and the expected disruption as a result of the store refurbishments across several airport locations in the period. North America delivered headline trading profit of GBP 2 million with the reduction year-on-year, largely driven by the ramp-up costs associated with the new logistics setup and the annualization of increases in labor costs. The prior half year has been restated for the supplier income and inventory-related items identified at the full year. And the Rest of the World division delivered headline trading loss of GBP 4 million. This reflects a challenging performance in some locations and the inflationary pressures on staff and logistics costs. These locations are part of the current divisional review. So overall, group headline trading profit was GBP 32 million in the period. Central costs were GBP 15 million, in line with expectations. Financing costs were GBP 14 million, including the cost of the backstop facility, which is now being canceled following the draw of the USPP funding ahead of the convertible bond maturity in May. And this resulted in group headline profit before tax and non-underlying items of GBP 3 million. Turning now to non-underlying items. The non-underlying items recognized in the period are GBP 28 million, around half of which are noncash items. And more detail can be found in the statement. However, in summary, the group has continued to invest in its multiyear IT transformation program. Costs in full year '26 are expected to be around GBP 7 million and approximately GBP 5 million in full year '27 before the current program completes. We are also delivering a number of operational efficiency programs to make cost savings and support business performance. We expect the remaining cost for these items to be around GBP 3 million to GBP 4 million in the balance of the year. The North America remediation and regulatory-related costs in the half year is GBP 3 million, and we expect further costs in the second half of around GBP 3 million to GBP 4 million. Regarding impairments and onerous contract charges, it largely comprises of GBP 8 million for North America, GBP 6 million for the Rest of the World. And charges are principally risen due to lower trading outlook in certain stores, including the Las Vegas Resorts stores. In the balance of the year, the group expects there to be further non-underlying costs associated with the North America Resorts fashion store closures, the review of the North America InMotion business and potentially some costs associated with the closure of locations in the Rest of the World. These costs will be largely noncash. And so turning to the group free cash flow. There are 4 key points to note on the free cash flow in the half. First, the group generated GBP 48 million of headline EBITDA in the period. Second, the underlying CapEx investment in the business was GBP 50 million and includes our store development program. Third, working capital was an outflow of GBP 54 million, with a one-off payable timing headwind linked to one of our large franchisor partners at the end of last year, new store openings and the seasonality of our business. Fourth, a tax refund in a period of GBP 5 million relates to tax recoveries in full year '26 relating to full year '25. Turning now to headline net debt, which was GBP 496 million at the end of the half year, comprising of the convertible bond of GBP 325 million, drawdown on the RCF of GBP 219 million and cash of GBP 48 million, which gives the group a rolling 12-month headline net debt to EBITDA leverage of 2.9x. Further cash outflows include dividends paid of GBP 8 million, cash spend relating to non-underlying items of GBP 22 million for the continuing business and GBP 10 million relating to the discontinued business, and this includes timing-related spend from the previous period. Let's now move on to capital expenditure. In the first half, the group invested GBP 50 million of capital. The majority of this has been invested into new stores and development of existing locations. Our latest flagship stores at Heathrow have just opened and customer feedback has been very positive. Our stores at Orlando Airport are progressing well, and we expect 6 stores to open later this year. The new stores at JFK are also progressing. However, they will not open in the current financial year. Looking forward, the group has a clear framework and a disciplined approach to growth investments. We have a strong store pipeline and expect capital costs of around GBP 90 million this financial year. Business opportunities are being prioritized based on their relative returns and ensuring that the group hurdles are met by each store opportunity. Moving on to store numbers on the right of the screen. During the first half, we opened 36 new stores with 7 in the U.K. and 18 in North America, all of which were in Air, demonstrating our clear focus on this channel and 11 in our Rest of World business with 9 in joint venture or franchise. In the same period, we closed 41 stores, in line with our strategy to improve the quality of our space to optimize returns, leaving net store closures of 5 in the first half. In the balance of the year, we expect to close or exit a further 30 to 40 stores and open around 10 to 20 stores with the reductions across our resorts and InMotion channels in North America and openings largely in our North America Air channel. So moving on now to capital allocation. In the near term, the group's capital allocation priority is to strengthen the balance sheet through tighter cost control and improve cash generation. In addition, the group will continue to invest to grow and protect value. This will be achieved by investing in business development and new space growth with a clear focus on attractive returns. Furthermore, business assets will be protected through maintenance and transformation projects. And the dividend has been suspended to support the strengthening of the balance sheet, and the group will look to reinstate returns to shareholders when surplus cash is available. Turning now to the operating performance of our 3 divisions. Starting with the U.K. Here, our areas of focus are clear: to develop ranges and formats that are relevant to the customer at each stage of their journey, enabling them to make best use of their time in traveling, put more products into their baskets to grow spend per passenger and profit. In Air, we have recently opened 6 one-stop shops, including refurbished stores at Heathrow, Liverpool, Belfast and East Midlands airports. This broadens our offer and improves basket size in these high footfall locations. Notably, over the past 4 weeks, we have opened 3 flagship stores across Heathrow Terminal 3, 4 and 5. Each of these locations showcase the full breadth of our Travel Essentials proposition, including a full health and beauty offer and in-store pharmacies. Our key growth categories of health and beauty and food-to-go remain attractive and well aligned to passenger needs. Alongside category development, we continue to focus on the quality of our stores and space growth opportunities. On the screen, you can see some images of our new stores at Heathrow Terminal 3 on the left and at Heathrow Terminal 5 on the right. These openings really are setting a new global benchmark for Travel Essentials with the improved design, in-store navigation and extensive ranges, both with a pharmacy. And we are now the leading airside operator for health and beauty across Heathrow. On the bottom right, you can also see the new InMotion store within Terminal 5. Here, we have reduced the footprint to enable us to invest more space into higher growth and higher margin categories such as health and beauty and food-to-go. Moving on to our hospital channel. Hospitals delivered another strong performance in the half with revenue up 8% and like-for-like revenue up 4%. This growth reflects the continued strength of our multi-format approach and the partnerships that we have built. In addition to our partnerships with Costa Coffee and M&S Food, our own Smith Family Kitchen cafe proposition is performing well, and this gives us a great opportunity for further growth across the U.K. Hospitals. In total, we have 155 stores in over 100 hospitals and there are still significant space opportunities in this channel. Turning to Rail. And rail delivered a solid performance in the half. We have made good progress with our one-stop-shop format, including our new store opening at London Bridge station, which is performing well. We've also broadened our food and beverage on-the-go ranges as we continue to evolve our retail mix to maximize customer convenience. And looking ahead, we see further opportunity to expand this model across the Rail estate. Let's now take a look at our North America division. The priorities in North America are clear: improving and investing in our core Travel Essentials business, taking a selective approach to InMotion and focusing on operational improvements, the exit of our resort fashion stores, scaling down our specialty stores over time and improving the performance of our wider Resorts stores. We're strengthening our operating model and continuing to deliver against our remediation plan, which is progressing well. Global accounting policies are being rolled out across all divisions with associated operational systems and controls. Key financial reporting controls have been embedded into the North American month-end processes and commercial finance capabilities have been strengthened. Turning to the Travel Essentials business. And North America is the largest travel retail market in the world, with significant infrastructure investment and long-term structural growth trends. Our Travel Essentials business has consistently delivered a strong performance, growing 19% on a constant-currency basis in full year '25 and up 22% in the first half of this year. This part of the business now represents more than 55% of North America revenue, and Travel Essentials is our most profitable segment and on a fully allocated basis, generates around 10% trading profit margin. As we scale our business and enhance our operations, we expect to grow margins further which, in turn, will support the profitability of our North America business overall. On the top right of the screen, you can see our new store at Albuquerque Airport, which opened in January. This is a good example of where we have introduced the marketplace format, offering the convenience of everything under 1 roof, very similar to our one-stop shop strategy in the U.K. And we have the flexibility to realign our category mix over the term of the lease to ensure we stay ahead of changing trends. We expect a payback period of less than 2 years, and we have a long-term contract in place. And at Portland Airport, on the bottom right of the screen, we opened another new store in February, which is also performing well and has a similar payback period. So as you can see, we have a clear ability to win in prime locations, adapt our formats, and we're able to drive attractive returns. We have a strong store pipeline of stores and a healthy tender pipeline expected in the second half, and we are confident in the investment returns. Turning to InMotion. This brand remains highly regarded by landlords. However, in total, this segment is a like-for-like decline, and we are focusing on our commercial property, reducing the number of product lines, improving key line availability and reducing working capital. In the first half of the year, we closed 9 stores and opened 6 across Dallas, Denver, Detroit and Albuquerque Airports, primarily as part of wider retail packages within these airports. As we move ahead, we will continue to limit new store openings within InMotion stores being -- InMotion stores only being considered as part of strategically important tender packages where we can open new stores that pay back with strong returns. We are progressing the review of the existing store portfolio and expect to complete this in the second half of the year. Our review includes undertaking a deeper diagnostic of the estate to determine the factors that need to be in place for these stores to succeed. Over time, we expect the number of InMotion stores to decline by around 20% to 30% with store numbers reducing to below 100 in the medium term. Despite store closures, we see an opportunity to increase the margin over time with our strongest stores retained, range optimization complete and strengthened operational performance. So turning to our Resorts business. As we announced previously, we are not planning to open any new stores in Resorts. Following a review of the business, we are in the process of exiting a fashion stores and reducing the number of specialty stores. In the first half of the year, we have made good progress. We closed 8 stores, 5 in speciality and 3 in fashion, where the leases were short, so there were opportunities to exit without penalty. We have confirmed the exit of an additional 8 fashion stores in the balance of the year. And in 4 locations, we are in discussion with the landlords to reformat the stores. And for the balance of 10 stores, we are reviewing strategic options with third parties. We aim to largely complete our exit of the fashion stores this year. With regard to speciality, we are reviewing further reformatting options and controlled exits where the lease arrangements run over the medium term. We are continuing to optimize the operational performance of our hotel convenience and Welcome to Las Vegas stores, which remain profitable and with a good margin. Let's now take a look at our Rest of World division. Here, we delivered total revenue growth of 8% with like-for-like revenue up 6%. Here, we will focus further investments where we already have scale and expertise, ensuring we deepen our presence and strengthen profitability in the markets we know best, with a particular focus in Ireland, Spain and Australia. During the first half, we agreed new investments in the Republic of Ireland, which is an important market for us, and we will be introducing our successful one-stop shop format, the Dublin, Cork and Shannon airports. We also opened new stores in Melbourne and Tenerife airports in line with our key market focus. In addition, we continue to actively manage our store portfolio, which will result in exiting and reducing our exposure in subscale markets as contracts expire or through active portfolio management. During the half, we closed 4 uneconomic stores at Düsseldorf Airport, and we have recently exited our uneconomic business in Norway. We also continue to explore the potential to withdraw from other uneconomic markets while also assessing how we can move to a franchise model in other locations. As we look ahead, we are sharpening our focus on a less capital-intensive franchise-led model, an area in which we already have considerable experience. This approach will allow us to open any new stores in high-potential markets where we see opportunity to extend our presence. And during the first half, we've expanded our franchise store portfolio with a further store in the Philippines and 2 further stores in Saudi Arabia opened at the start of the second half. We have also opened 5 stores in Malaysia with our existing joint venture partner. By working in partnership with experienced local operators, we can leverage their local expertise alongside our space and promotional management to optimize performance. I will finish by summarizing the outlook for the group for the full year. So turning to that now. In light of the uncertainty arising from the conflict in the Middle East, the group is taking a more cautious outlook, reflecting the impact on passenger numbers and weaker consumer confidence. Much will depend on the peak summer trading period, and the group assumes no immediate improvement in consumer confidence and assumes that jet fuel supplies can be maintained. At this stage, the group expects to deliver full year '26 headline group profit before tax and non-underlying items of GBP 90 million to GBP 105 million. Planning assumptions for the full year ended 31st of August 2026 are as follows: total group revenue of 3% to 5%, in the U.K., total growth of around 1% to 3%, in North America, around 6% to 8%; and in the Rest of the World division, around 2% to 4%. U.K. headline trading profit margin of around 13% to 14%, North America around 7% and around 4% in the Rest of the World. This reflects the expected reduction in brand marketing, increased promotional activity and inflation headwinds. There is no change to the outlook for central costs or finance costs. Our full year net debt at this stage is expected to be around GBP 420 million. So let me summarize everything you've heard. The group has delivered a solid first half trading performance, and we have made good progress with the key priorities set out in December across each division. In the U.K., Air business, we have completed a significant store development program ahead of the peak summer trading period. In North America, while there is more work to do, we're encouraged by the early signs of improvement, particularly in our Travel Essentials business. Across Rest of the World, our focus remains firmly on improving the profitability and cash generation of the business. For the group, we are committed to strengthening the balance sheet while maintaining flexibility to invest selectively where returns are compelling. As a result, as you have heard this morning, we are rebalancing our approach to capital allocation with an increased focus on driving cash and debt reduction. Looking ahead, given the ongoing conflict in the Middle East, the global economic environment remains uncertain. We are, therefore, taking a cautious view while remaining focused on execution, cash delivery and operational improvements across the group. Thank you for your time this morning, and we will now take your questions.

Jonathan Pritchard at Peel Hunt here. On average transaction value in U.K. Air more recently, could you just explain the nature of that? Is it trading down within categories? Or are people not choosing to buy anything in the category, if that makes sense? Is it they're just buying a lower quality product or just ignoring the category completely? And carrying on to U.K. Air, just a little comment perhaps on promotional activity and how that's playing out. I know you just mentioned it in terms of a headwind for the second half. And then in the U.S., that transfer of skills you've often talked about in the past from U.K., those skills you have in the U.K. that have been transferred to the U.S., I'm talking about margin enhancement, basket building, et cetera. Is there still more to go there? Or is that largely played out?

Thanks, Jonathan. So in terms of what's playing out in terms of average transaction value in the U.K., I think it's important to probably put those into kind of 2 areas. One, you've got the impact from what's happening in the Middle East. You've got a mix change in terms of the type of consumer that's coming through the airports. You will have had a larger proportion of your consumers coming through or passengers coming through traveling long haul. You've got less of the long-haul flights happening and/or less kind of loads going into some of the long haul, particularly to locations within the Gulf. And so the mix of the passenger and therefore, their buying appetite, the types of things that they're buying will be less. But kind of simple kind of example of that might be the neck pillow. If you're traveling, you're on a 7-, 8-hour flight, maybe you're buying a neck pillow, if you're traveling now to Portugal, maybe you're not. And that would probably go to the same effect of the kind of quantum of the products that you might buy as well, the basket size being different. And then difficult to disaggregate these things, but kind of the consumer confidence and their propensity to spend, we're also seeing play through in spend per passenger as well. And in terms of promotional activity, I think this links nicely together. As consumers see that their propensity to spend is less, the importance of us being able to offer value to our consumer and demonstrate value, that's often through the sort of promotional activity that we offer as we -- the meal deal, for example, is an easy one that we often kind of go to, providing value there for the customer is important, and that can have a margin impact. That's really what I'm talking about there. In terms of North America -- excuse me, in terms of North America and the transfer of skills and services, I think there absolutely is more to go out there. We've seen really positive strides that we've made by sharing resources out of the U.K. and across the group into North America. Easy examples of that would be in the kind of construction world as we've looked to embed and enhance best practices over in North America as we've continued to invest in that part of the business. Space and format as well as part of that. More recently, in the last 3, 4 months, our operational team in the U.K. has been supporting the U.S. as well. So I think it's proven to really add value. And I think, as you say, there is more to go out there. What we see over the more medium term is embedding that capability locally is important, too. So it can't be run from the U.K. It has to be embedded locally.

It's Tim Ramskill from Bank of America. Three questions, please. I guess, Leo, listened to your initial observations, you referenced a question mark over the U.K. renewal program and the kind of the costs associated with that. So maybe just interested in perhaps expanding on that topic. So you talk about very good paybacks on North American projects less than 2 years. So maybe a compare and contrast and perhaps just some thoughts about that focus on capital allocation going forward. And then secondly, forgive me, but I'd look at the Resorts business and really struggle to see why that isn't entirely noncore. So maybe just some thoughts on that. I guess I clearly recognize the balance between the cost of a rapid exit versus something that's measured more carefully. And then finally, just a quick one, Max, numbers-wise. I think you've sort of on your chart, you had GBP 32 million of non-underlying cash costs in the first half. Just some sense as to what that might end up being for the full year, please?

I'll take the first one very, very simply. Look, there's clearly more competition has crept into the U.K. market, and that requires you to sort of bid competitively. I've not, in all my experience, found that our returns go up in that environment. So I think that is a challenge that we'll have to take on board. On the other matters, back to Max again.

Yes. So in terms of Resorts, I think it's a fair challenge, our Resorts business, it's something we spent quite a lot of time thinking about. And as I laid out in December, we're taking some initial action on our fashion side of the Resorts business and the specialty side of the business. Both of those have been in quite material decline over the last 2 years. And the profitability and the margins that we get from them are very much kind of subscale to the rest of the business and fashion in particular, has been largely loss-making. So I think our initial focus is absolutely to get that part of the business reformatted or closed down or exited. In terms of our Hotel Convenience business, which is in Resorts, it's actually quite profitable. We're happy with the returns that we're getting there. And our welcome to Las Vegas business as well, also profitable, but we will continue to keep the review strategically as what's the right thing to do there. I'll just pick up on non-underlying just before we go on. So in terms of non-underlying costs, now I've managed to clear my throat. In terms of non-underlying costs, you're right, GBP 32 million of cash cost, GBP 28 million of P&L charges. Of the GBP 32 million, GBP 10 million of that relating to our discontinued business. So at the end of last year, and that's largely the High Street and Funky Pigeon to be clear. So last year, I talked about there being around GBP 17 million, GBP 15 million to GBP 17 million of cash costs associated with that to flow through into this year, GBP 10 million of that now already complete and somewhere between GBP 5 million and GBP 7 million further cash costs related to our discontinued business in the second half to come. And so for our continuing business, we had GBP 22 million of cash in the first half, part of that related to costs that we've taken at the end of last year, too. And so in the second half, expecting somewhere between GBP 10 million and GBP 15 million on non-underlying costs -- cash costs to come through.

Tim Barrett from Deutsche. A couple of things. Firstly, going back to the question on the U.K. Your point is very clear, Leo, about inflation and concession fees in this industry. Where does that leave you on longer-term margins? Do you view this as a rebasing now at 2026? Or could you get back to last year's EBIT margin in the U.K.? The question on Rest of the World. You talked, Leo, about simplifying that. Is there low-hanging fruit that could be produced quite quickly? And then the last question, just very quickly, was Easter in the last 7 weeks in both periods? And has that got any impact on how we should review the 7-week period?

Look, I'd only comment on one thing. There's always -- there's no industry that I've ever worked in where margins aren't always been the other side of the coin in having too much cost, it's an opportunity to save it, isn't it? So what you've got to do is ultimately look at the waterfall of where does that get recovered. And those are things that we will obviously be working on in the next 6 to 12 months. Max, on the other point, Easter wasn't included. I think, yes.

Yes. So Easter is slightly brought forward this year versus last year. So it will have had a benefit in effect to March, and a small impact, therefore, on April overall.

So negative?

Yes, it would have been negative. So if you -- let me talk about maybe -- it's difficult again to disaggregate what's happening in the Middle East. But in terms of volumes, passenger numbers for large Air, I think it was around 8 million in March, expected to be around 12 million for April. And passenger numbers, broadly speaking, over that period are up in large Air, somewhere between kind of 3% and 4% in March and down nearer kind of 2% to 3% in April. So that's what's happening with passengers. Difficult again to disaggregate what's Easter and what is Middle East. Largely, we think the Middle East is the thing that's causing the drag.

Rest of world?

In terms of opportunities and low-hanging fruit, I think we've been very clear on the fact that we want to scale down our direct operations in a number of markets in Rest of the World. We are taking action on that already, as I think I've talked about with Düsseldorf and Norway. We're looking at a number of other locations as opportunities either to franchise or to move to exit as well. So there's not a lot more I can talk about at this stage on that, but making good progress. We obviously have a number of longer-term contracts in place, but making good progress.

Kate Calvert from Investec. A couple of questions for me. The first question is just on the FCA investigation. Have you had any indication on how long this might take? My second question is just on the store closures in both the U.S. and the Rest of the World. Can you give us an idea on how material the sort of level of losses are within those businesses? And the third question is going back to Rest of the World, how much growth opportunity is there to go after in Australia and Spain?

Lucky you. You get to do it.

Yes. So in terms of FCA and timing, we're continuing to work closely with the FCA. We don't have any update on timing and can't really comment further on it at this stage, but things continue to progress in terms of discussion with them. In terms of store closures, dealing with Rest of World first. So the 2 that we've closed out initially being Düsseldorf and Norway. On a full year basis, Düsseldorf would have been revenue of around GBP 4 million and Norway would have been around GBP 15 million to give you some kind of feel for the impact of those. In terms of margin, both very low to not a lot of impact from a P&L perspective and actually upside in terms of cash. And I'm so happy with those. In terms of the fashion stores and specialty stores, the ones that we've closed so far only a handful really, little impact in terms of revenue. When I come to talk about the fashion store closures in the back end of the year, I'll give you some quantification of what those look like once we know exactly how many we've closed. But the Resorts business broadly breaks into 4. So fashion is about 1/4 of it.

It's Richard Chamberlain from RBC. Could I ask maybe three quick ones as well. Max, what kind of net debt-to-EBITDA level do you think you'd be targeting now for the end of this fiscal year? Second one is just going back to InMotion. It sounds like you had a more encouraging like-for-like performance so far in H2, which is sort of somewhat odds with the cautious comments on the sector overall. So is that sort of timing issues? Maybe you can just give a bit more color on that. And then third, sort of intrigued about the comments about the Albuquerque store flexibility to realign category mix and so on. And is that a sort of template for the future? And maybe you can just give a bit more color on which categories you're referring to in terms of potentially moving away from and into.

You're the only qualified one on the table.

So in terms of net debt-to-EBITDA, looking to bring that down closer to 2x from a leverage perspective, if that's what you're referencing. I think given the outlook that we've got and the net debt guidance of GBP 420 million, it's going to be difficult to see that below 2x by the end of the year, around 2x, I suspect, just above it, given where we are at this point. And that's fairly typical in terms of seasonality for the business, probably important to say that. This is the first time really that we start to get a clearer picture for the year at least in terms of our travel business outside of having the High Street. So as expected, we have this seasonality, but it's pretty acute for us. In terms of InMotion, you're right. I'd like to say that we're really buoyed by the fact that InMotion is up at 3% in the first 7 weeks of trading, and we are encouraged. I think green shoots is the best we can suggest at this point. We've done a lot of work in terms of ranging. Those kind of 9 store closures helped, the 6 new good ones coming in helps, although not necessarily on like-for-likes. But the other thing to kind of bear in mind, there was the government shutdown, if I kind of broadly call it that, the TSA impact. And so dwell time was longer. That does have an impact on InMotion. When you've got people staying in the airports for longer, we often see an uptick. So it's good news, but it's early days, still a long way to go on InMotion, I think. In terms of Albuquerque and the comments around realigning mix, I think there, what you -- what we're trying to communicate and get across is that as you've seen in our U.K. business over the last 10 years, there's been a very constant and regular need for evolution of the different product ranges that we offer to the business. And so we have seen in the past, in some examples in parts of the Rest of the World, I could probably point to where we've got, let's say, a heavy books range and not a lot of optionality of moving away from that even when the customer needs has moved away from that. And so to your point in terms of templating, as we seek to contract moving forward, and this has been in place for a little while now, looking to make sure we've got some flexibility or at least the opportunity to go back and probably have the discussion with the landlords about what's working, what isn't is important. So we don't get stuck in the zone that we don't want to.