WH Smith PLC

Good morning, everyone. I'm Kyle Cowling, Group CEO, and I'm here with Robert Moorhead, our Group CFO and COO. Thank you for joining us this morning. It's great to see those of you who are here in person and welcome to everyone who's dialed in. As usual, we'll give you an update on our performance for the six months ending the 28th of February 2022. And we'll also run through the highlights and important strategic tenders we've won in travel, both in the UK and overseas. So in a moment, I'll hand over to Robert who will take you through the numbers, including a brief update on current trading. And I will then take you through the operational performance of the business and we'll end with your questions. Before handing over to Robert, then a quick overview from me and turning to slide three. Over the past two years, the clear focus of the management team has been to ensure that we successfully navigated the pandemic. and today's set of results demonstrates what we've achieved. This is thanks to the focus and efforts of the team, which I'm sincerely grateful for. At the same time, we've taken advantage of many opportunities which will underpin the growth path of the next few years, and I'll go into the detail of this throughout the presentation. During the half, we've seen a strong rebound in profitability, and we're on track to deliver meaningful profit for the full year. This has been supported by good recovery across all our travel markets, growth in passenger numbers and a strong performance over Easter. We have a very focused plan across the group around increasing conversion and driving average transaction value. This continues to deliver double digit increases in average transaction values versus pre-pandemic across our markets. Importantly, this is holding firm as passenger numbers return. In travel, we've successfully opened over 50 stores since the beginning of the financial year, and we have a pipeline of over 125 new store tender wins. We've seen a good recovery in North America, and we continue to see significant opportunities to grow our business there, which I'll come on to later in the presentation. So we are well positioned to benefit from the return in passenger numbers and to capitalize on new opportunities. I'll now hand over to Robert to take you through the numbers.

Good morning, everyone. Let's start off with the group financial summary. All the numbers that I'm going to refer to here are pre-IFRS 16, and there's some bridges to IFRS 16 in the appendix. So as our recovery continues, we saw a much improved performance in revenue and profit in the first half compared to 2021. And our revenue in the half was back to 81% of the six-month period to February 2020. Total group revenue at 608 million was 45% better than 2021. Headline profit for the half was 14 million compared to a loss of 19 million last year with both travel and high street delivering profit in the first half. EPS2 was positive at 6.9 P. Free cash flow in the half was an outflow of 29 million reflecting the additional capex and investment in the half and I'll come onto that later. We finished the half with cash on deposit of 65 million and available liquidity facilities of 250 million. So turning first to revenue. So on slide six, you can see that total group revenue was 608 million, significantly ahead of last year, driven by the recovery in travel. So looking first at travel and the three divisions there. In the UK, revenue was £189 million, up 139% on 2021, with hospitals the best performing channel, but with air and rail showing a steady recovery, which has continued into the spring as restrictions have been lifted. North America continues to perform well, given its high level of domestic and leisure passengers, and was up 111% on last year. In the rest of the world, like the UK, we're seeing a steady improvement. Here, revenue was up 106% led by the recovery in Europe. That meant total travel sales the period were 338 million, up 125% on 2021. High Street generated sales of 270 million in line with last year. The business has performed as we expected during the half. So turning now to the shape of the recovery in revenue in travel. This chart shows the monthly performance versus 2019 from April 2021 through to April 2022. The travel business has continued to improve compared to 2019 as restrictions have lifted. Whilst Omicron led to a small dip down, particularly in December and January, the travel business has recovered strongly. In the UK, the orange line in this chart, we've seen a steady recovery over the last 12 months, including InMotion, the UK was at 90% of 2019 in March and reached 102% in April, showing the strengths of the recovery in air and rail and the benefits of our additional business wins, particularly the rollout of InMotion in the UK. Hospitals continue to perform well. Our North American business, the Blue Line, saw the earliest pickup, given 85% of passengers are domestic. We continue to see improvements in TSA data, which was down 10% to 2019 at the end of March. Las Vegas too saw a pickup in leisure visitors. Recent occupancy rates have been good, especially at the weekend. A number of conferences and trade fairs, as well as shows and sporting events, are now regularly taking place. And the rest of the world, the green line shows the pickup led by Europe, where we are now seeing encouraging sales, particularly at tourist airports. Australia too is now seeing improvements as restrictions have been lifted there. So turning to the income statement now on slide eight. So the half saw a return to profit with headline profit before tax at 14 million, compared to a loss of 19 million last year. Their trading businesses delivered a 40 million improvement in profit compared to 2021. Travel delivered a profit of 10 million compared to a loss of 28 million last year. We saw a step forward in profit in all divisions of travel as government restrictions were progressively eased. In the UK, profit improved by 22 million to 3 million, driven by the recovery in sales and stronger margins. North America, too, returned to profit in the half with a swing of 11 million to a profit of 8 million. Like the UK, this was driven by sales and improved margins. In the rest of the world, likewise, we saw a good improvement and a swing of 5 million, benefiting from an improving performance, particularly in Europe. As the revenue of the business recovers, the operational fixed cost impact will result in an improvement in profitability. High Street delivered a profit of 26 million. As expected, an increase of 2 million on the prior year, which included 17 million of government support from rates. The benefits of the restructuring undertaken during the pandemic and our continued focus on all cost lines, for example, rent, drove this performance. The business is on track to deliver around 41 million of cost savings in the year. Overall then, group profit from trading operations was 36 million. Financing costs at 12 million includes non-cash amortization costs of 4 million relating to the convertible, which let me remind you has a fixed coupon of 1.65%. We expect the full year financing charge to be approximately 25 million with the cash costs around 10 million lower than that. So that left headline profit before tax at 14 million. So let's turn now to cash on slide nine. Overall, free cash outflow in the half was as expected 29 million. There are two key stories here. First, we generated 55 million of operating cash flows as the business returned to profit in the half. Second, the continued investment in growing the business. CapEx in the half was 38 million, reflecting the new store openings. We opened 44 new stores, including a further 11 in North America and 18 of the 28 in motion stores we now have open in the UK. We anticipate the full year CapEx spend to be around 110 million. And that includes the additional spend from winning the 31 stores in Spain. We then had a working capital outflow, which was primarily the investment to launch in motion in the UK and also in the recovering travel business. So looking now at our net debt on slide 10. Net debt at the end of the half was 336 million, reflecting an overall outflow in the period of 45 million. Of this, 29 million was the free cashflow. We then had 8 million of cash outflow on non-underlying items, which mainly relates to the restructuring announced in the summer of 2021 in High Street and is now complete. Other includes the non-cash convertible bond accretion. You'll remember the bond is bifurcated into an equity and debt element, where the debt element accretes to par over the life of the bond. This is around 8 million per annum. So that left us with a net debt at the end of February of 336 million and with a good amount of cash of which 65 million was on deposit. And let me just remind you of our financing arrangements, which give us the capacity to invest. We have the 327 million convertible bond, bank debt of 133 million and the undrawn RCF of 250 million, a total of 710 million. Our capital allocation policy remains unchanged. Investing in CapEx where returns are ahead of our cost of capital, the reestablishing of a dividend for our shareholders, undertaking attractive value-creating acquisitions in strong and growing markets, and returning surplus cash to shareholders by way of share buybacks. In normalized conditions, we have a leverage target of between 0.75 times and 1.25 times EBITDA. I'll now hand back to Carl to talk about the operational performance.

Thank you, Robert. Let's start with travel, which as you know, is the core of our business. And before I go into the operational performance, I thought it'd be helpful to run through our key areas of focus across the wider travel business. So turning to slide 12. Now, I know you've heard this before, but let me just reiterate that these are the key drivers that are gonna deliver sustainable growth. The first pillar of the strategy focuses on increasing the quantity and quality of our space. This includes our ability to develop and evolve different formats. We've opened over 50 stores since the beginning of the financial year. And as you've heard, we have over 125 more already won and yet to open. The second pillar focuses on increasing ATV and conversion. This is done through actively re-engineering our ranges and we've seen a double digit increase across all channels. Thirdly, category development, where we broadened our category, such as health and beauty and electricals, and developed our premium food ranges. And the final pillar, of course, focuses on cost and cash management, particularly as we look to invest for the future. As I go through the presentation, you'll see that these initiatives are integral to each channel and territory. Turning now to our UK travel business on slide 14. As I've said, we've seen a strong recovery since the peak of the Omicron variant. And while there are still some uncertainties in the broader global economy, we're optimistic about recovery for travel in the UK. There is pent up demand for leisure travel, particularly over the summer and school holidays. This was evident over the February half term holiday and more recently over Easter. In addition, tour operators have seen a sharp increase in holiday bookings for 2022 versus pre-COVID levels, which is really encouraging. As you would expect, we have a robust plan in place for this summer to maximise these opportunities. Across our other channels, our UK hospital business is our second largest channel behind Ayr and provides us with significant growth opportunities in terms of increasing our space and improving the retail provision within hospitals. And in rail, leisure travel continues to increase with strong weekend performances and sales back to 84% of pre-pandemic levels. What is really pleasing is that our ATV growth across all channels is holding firm as passenger numbers recover. So turning now to our performance in slide 15. And on the screen you can see the table which clearly shows the improving trends we're seeing in the UK. In air you can see a significant improvement from the first half's performance into Q3 as restrictions have been lifted. In hospitals as restrictions were eased with more visitors and elective surgeries taking place, we have also seen an increase in sales with sales now at 98% of pre-pandemic levels. In rail, it's a similar story with an increase in passenger numbers and this has accelerated more recently with a stronger Easter performance. Looking ahead, we expect these trends to continue across all of our channels. So turning now to slide 16. And as I said at the beginning, throughout the pandemic, we've not lost sight of our good retail disciplines. Space management and our ongoing focus on format development has continued to drive significant opportunities across all our channels. And it demonstrates how we're constantly evolving and responding to the ever-changing needs of both passengers and landlords. Across our larger stores, we are identifying opportunities where we can reposition our traditional formats of news, books, and convenience stores to unique one-stop travel essentials formats. What we mean by this is extending our categories such as health and beauty, tech, food to go, and pharmacy products to provide customers with all their travel retail needs under one roof. So customers like it. It's good for us as it increases ATV and spend per passenger. And landlords also like it as it increases the pound per square foot of selling space. We now have this format open in four airports, including Heathrow Terminal 2, Gatwick and Manchester, as well as Euston Station. Customer and landlord feedback has been very positive. Turning now to slide 17. On the screen, you can see the category data from our one-stop shop store at Heathrow Terminal 2 and how the store format has evolved since 2019 through to today. The dark blue section clearly shows how we've increased the space and significantly increased the sales of new categories such as health and beauty. By developing our format in this way, we've created a strong proposition for customers, increased penetration, grown our ATV and spend per passenger, improved our margins, and created a format with strong economics for landlords. So turning now to our new InMotion stores in UK Air on slide 18. And you'll remember that we bought the InMotion business back in 2018. And at that time, we knew there were good growth opportunities for this business, both within and outside of the US. Despite the pandemic, we haven't sat still and we have now successfully opened 28 of the stores one last summer in UK airports. This now positions us as the market leading technology retailer in travel locations globally. These stores combine the learnings and expertise from the US as well as the results of extensive customer research in the UK to provide a first class customer service experience and a combination of premium products from brands such as Apple, Bose, Sony, and Samsung, as well as an extensive range of tech accessories. Tech accessories is a strong growth market. An early indication would suggest that our annual sales will be ahead of our original forecast of 80 million. So turning now to our hospital and rail business on slide 19. And as I've said before, the hospital channel is an important channel for us and is the second largest in revenue behind air. It's a robust market and there are plenty more opportunities for us to continue to grow our space and improve the retail provision. It's a great example of how we continue to innovate with a strong proposition tailored to each location and trust and a broad suite of brands, including M&S, Costa Coffee and the Post Office. Looking ahead, we have a good pipeline of opportunities where we can see scope for at least one of our three formats in up to 200 further hospitals. Returning to rail, and rail is an attractive channel for us with around 1.7 billion of passengers pre-pandemic. We're seeing an encouraging return of leisure passengers with leisure and weekend passengers recovering the fastest, which is helping drive our ATV growth. We know from our segmentation and return on space analysis that it's this customer segment which is most valuable to us. And we also continue to invest here in new formats and in new opportunities to meet customer needs. During the period, we successfully opened our first one-stop shop format in rail at Euston station. This has been very well received by passengers with strong sales. In addition, we've opened a new standalone bookshop at Edinburgh station and our first rail store with a combined M&S food offer in Bristol. Turning now to a quick summary on UK travel and slide 20. So we've made good progress since the start of the financial year with 30 new store openings in the UK. and we're on track to open a further 15 stores in the second half. Some of you may remember that we're also the exclusive retail partner for GridServe's electric forecourt, and we were pleased to open our second outlet this month. Whilst it's still early days, we see good opportunities with this format going forward. So continue good progress, and we are now set up well with strong customer and landlord propositions tailored to each location and channel. And we continue to focus on customer conversion and driving ATV, and we're delivering good results. So lots still to go for. Turning now to slide 22 in our North American business. North America is a very attractive travel retail market. It's the largest in the world, valued pre-COVID at $3.2 billion. It now represents around 50% of our international store estate, and there are significant opportunities for us to grow this business further, which I'll come on to. In terms of the recovery, the US is a robust market. And despite economic headwinds, passenger data shows a consistent and steady recovery. And it's important to remember that 85% of US air travel is domestic. Total revenue in March was at 104% compared to 2019 levels. And we're confident in a strong performance as the recovery continues with more new business wins. We've also implemented a number of our core skills and travel retail disciplines from the UK to the US market to drive ATV and higher sales. And we're seeing some really positive results. And given the similar customer dynamic and high footfall environments to our UK travel business, we remain in a good position to apply our expertise here. Our resorts business in Las Vegas has proven extremely resilient with an encouraging recovery driven by new conference centers and events attracting more visitors. Turning now to slide 23 on our new store pipeline. During the period, we've continued with our strong track record of winning tenders. When we acquired MRG in 2019, it operated for 56 stores in Ayr and 111 resort stores, mostly in Las Vegas. Looking ahead to 2024, we expect this to increase significantly with 63 stores already won and due to open over the next three years. Similarly, within Motion, we now have 115 stores trading, and we have already won a further nine stores. On the graph, you can see the projected capex requirement for each financial year. And of course, these numbers and forecasts do not include any further tender wins, which should only serve to strengthen the portfolio. As we've seen many times before, the US is the largest market in the world for travel retail. On the screen we've pulled out the top 25 airports and you can see from the data and dark blue section of the graph how many stores we have either open or have won in each of these locations versus the total number of stores in the airport dedicated to our categories. If you take the world's largest airports as an example, Atlanta, We have only 17 stores currently out of a possible 119 news and specialty stores within this airport. This gives you an idea of the scale of the opportunity available within just one airport, and we expect a significant amount of business to come to the market over the medium term. Similarly, across the top 50 airports, MRG are only currently represented in 20 of the top 50, with InMotion represented in many more. This again gives us huge scope with MRG to win additional space in these locations going forward, particularly given the existing relationships with InMotion. So we see significant growth prospects for our US business, given our very small market share of around 13%. Turning now to the next slide and a new store opening, in fact, our first WH Smith branded store in North America on slide 25. This store opened at LaGuardia Airport back in January and launched using Amazon's Just Walk Out technology. This is our first store globally to launch with this technology, and both customer and landlord feedback has been very positive. This format enables passengers to travel through the airport with a quick and easy checkout-free shopping experience. Whilst it's still relatively early days, we're pleased with the performance of the store. Turning now to an update on the rest of the world on slide 27. Now outside of the US, WH Smith has a very low market share of the international travel retail market. As a result, there is significant opportunity to grow our footprint in new and existing territories through NBC and technology tenders using our three economic models of directly run, JV, and franchise. Similar to the UK and the US, we had a good pipeline of new business wins prior to the pandemic, and we are pleased to have kept up that momentum. During the half, we have successfully opened 12 new stores across Australia, Europe, and the Middle East. And we've continued to win new business in key locations such as Spain, which I'll come on to, a further six stores in Australia, and additional stores in Sweden and Malaysia. In addition, we've also won a further seven in motion stores at Dublin, Milan, and Stockholm airports, taking the total number of stores outside of the UK and the US to 11. As we have done in the UK, we focus on areas within our control, including driving ATV and increasing conversion, as well as developing our formats, and we're seeing good results. We've also brought our expertise and skills from the US to our other territories, such as Australia and Europe, where we've opened new stores with a unique sense of place and localization. This has been extremely well received by landlords and passengers. And we continue to build on areas where we've already won stores, for example, in Spain, which I'll come on to now. During the half, we won a significant and highly-competed tender in Spain, comprising 31 additional directly-run stores, now making us the market leader in Spanish airports and taking the total number of stores we operate there to over 50. This is a great example of how we entered a key territory some six years ago with a single store in Alicante and have since grown our presence, leveraged our assets and created a platform for us to continue to grow even further. We know, for example, there is more opportunities to go for, not just in the NBC market, but also in the electricals market under the InMotion brand. This recent tender win includes a combination of existing contracts and significant new wins, in locations including Madrid, Barcelona, Mallorca, and Ibiza. Before I move on to the high street business, let me just do a quick recap on travel on the next slide. So as we've emerged from the Omicron variant, we've seen a good recovery across all of our travel markets, and we're now operationally stronger than prior to the pandemic. While there are still some headwinds, we're cautiously optimistic, and like most industry commentators, we believe that passenger numbers will only fully recover by 2024. Meanwhile, we remain very well placed to benefit as the recovery continues. We have a robust plan in place to drive ATV and increase conversion. We have a very strong pipeline of new space across all our channels and territories, totaling over 125 new stores won and due to open over the next few years, with the majority in North America. As you've heard, we see good opportunities with our one-stop shop format. We have also successfully launched InMotion into the UK and Europe, and we're now the number one technology retailer in travel locations globally. And we expect further good growth opportunities across all of our channels. Turning now to the high street on slide 31. And our high street strategy will be familiar to many of you, but it's worth reiterating, as well as some of the actions we're taking. Our forensic focus on space management remains, as do our third-party partnerships such as the Post Office and new partnerships such as Legami and Tink for stationery. In terms of category management, we continue to adapt and we've launched new ranges relevant to each location and in towns where competitors have closed. We're also trying to reduce retail selling space in our larger stores. This reduces complexity, stock and running costs, and early results are very encouraging. As you would expect, we have also increased our investment and focus on whsmith.co.uk, and we've seen good growth through investing in the site. This has included improving customer conversion and product presentation, broadening our approach to marketing, and investing in fulfillment using our Swindon distribution center. All of this has enabled us to have a credible multi-channel offer for our customers. And as you would expect, cost efficiency remains a key part of the strategy. Turning to the next slide. So starting with the market, and it changed significantly during the pandemic, footfall remains down around 20% on the UK high streets, while the online market has continued to grow. There's been a clear shift in the last two years, which without the pandemic would probably have taken around six to seven years. We've acted quickly to this changing market in a number of ways. Firstly, by restructuring the cost base to reduce costs but also increase the level of flexibility in our business model. This, for example, covers labor costs in stores, head offices, and the distribution centers. We've reviewed our categories and extended them where appropriate to ensure we have greater relevance in this market and where competitors have closed. New categories include working from home ranges, tech accessories, and we've increased our range of cards where competition has weakened. In addition, we've launched a trial with Deliveroo across 10 of our high street stores offering customers access to 600 WHC with products on demand direct to their door through Deliveroo in as little as 20 minutes. As usual, we've worked particularly hard at managing costs, so turning to the next slide. We're on track to deliver savings of 41 million pounds in the year. These savings come from right across the business, including rent reductions at lease end of around 50%, as well as logistics and supply chain efficiencies. As many of you know, we've worked hard over the past 10 years to create a very flexible lease portfolio in the High Street with short leases, where our average lease length is now only around two years. This has set us up very well to respond quickly to changing market conditions. We have around 450 leases due to expire over the next three years. Given this rolling programme of lease renewals, we therefore have further opportunities to renegotiate our occupation costs going forward and expect rent reductions to remain a key components of our future cost reduction strategy. Even with years of savings, the high street cost base is still substantial, and we continue to see opportunities for further savings. So going forward with the strategy we have in place and the actions we've taken means that the cash flow and profits of this business are robust and sustainable. Turning now to Funky Pigeon on the next slide. And before I go into the performance, let me just give you a quick update on the cybersecurity incident we announced last week. And I'm pleased to say that while the investigation is still ongoing, we're in the process of getting the site live. And as we said in our statement last week, we do not expect this incident to have a material impact on the financial position of the group. So turning to the performance, and as you know, the online greetings card market has seen considerable growth for a number of years. The market for greetings cards in the UK is substantial. estimated around 1.6 billion pounds, with online penetration currently estimated at around 15%, with forecasts suggesting that penetration will grow to around 20% by 2024. While the pandemic clearly accelerated the growth of online shopping, it's still apparent that this is an under-penetrated market with plenty of opportunity to develop this business further still. Following a very strong COVID year, Funky delivered revenue of 21 million. As with many online retailers, as we anniversary the lockdowns, the sales and EBITDA will be lower this year as expected, and we continue to invest in the business. However, we see plenty of opportunity to grow. During the period, we strengthened the management team significantly with a number of senior hires. We developed the Funky Pigeon app and invested in platform enhancements, extended our gifting ranges, and following a very successful Mother's Day, we have seen an increase in flower orders. have also extended the fulfillment capability to meet demand with a new production facility in swindon leveraging our group assets and we are really pleased with the performance of our next day delivery service seven days a week we should receive very positive customer feedback so we see plenty of opportunity to further grow this business turning to the next slide and i'm pleased to say that during the period we were only one of 12 retailers worldwide to be included in the Dow Jones Sustainability Index. This is the second year we've been included. In addition, we are currently the highest performing specialty retailer in Morningstar's ESG Sustainalytics benchmark. As you would expect, our ultimate goal is to be net zero by 2050 at the latest. We recognize we can't do this alone, and so we're collaborating with our suppliers, our landlords, and customers to walk towards this goal. We continue to focus on more environmentally responsible sourcing practices and we've redesigned and removed plastic packaging from our seasonal ranges wherever possible. Finally, we continue to champion children's literacy through our partnership with the National Literacy Trust by donating books and additional funds to ensure we support children across the UK who most need our support. Turning to the final slide to summarise. So looking ahead and the group is well positioned for further growth. We are operationally stronger than prior to the pandemic We've won some significant new business across the globe. We have a very strong pipeline of over 125 store openings across the next three years. We've seen a strong rebound in profitability and the board is confident in the outlook for the group. The growth opportunities for travel are substantial. And we now have a highly successful global technology business within Motion which has successfully launched outside of the US into seven countries. We continue to invest in new stores and develop new formats, such as our one-stop shop for travel essentials. So we are a resilient, innovative, and financially strong group. And despite the uncertainties in the broader global economy, we remain confident that we're well positioned to emerge stronger as the recovery continues. And as I said at the beginning, we expect to return to meaningful profitability in the current financial year. So that's it from me. So thank you. We'll take your questions starting off with those of you who are in the room.

Good morning, it's Jonathan Fritchard from Pale Hunt. Two if I can. In the States, I think you've been very bullish about the pitchfork abilities of marshals. The competition must be smelling the coffee a little bit with... The fact that the bespoke solutions are really covering favor, have you seen much of an improvement in the, well, you don't know what the pitch book looks like, but the opposition response, have you seen any developments there to make life a bit tougher for MRG, or are you confident that there's still a lot of clear water between, as I say, your pitch book and everyone else's? And then secondly, just really a history lesson perhaps for us in terms of, you know, you talk a lot about ATV and you talk a lot about conversion, but intuitively you would think that lower consumer confidence makes that more difficult. So how has ATV and conversion progress developed in the past at times when the consumer wasn't quite so confident?

I'll take both of those then. So in the US, I think if anything... there's more air between us and our nearest competitors. I think when MRG were pitching for stores two, three, four years ago, they were pitching stores on a promise. Now when they're out there tendering, they're able to show landlords a great collection of stores they've implemented. So the store concepts they've implemented in San Francisco, in LaGuardia Airport where you've got all of these walk-through stores, they're able to show landlords this is what we can implement and these are the results. So I think, if anything, our pitch is more authentic and stronger now. The other thing that MRG have that the competition don't have is they operate quite a few of the retail categories vertically. So they actually source and retail souvenirs, fashion, clothing, all of the different categories that we operate. And the two main competitors in America, they need to find third parties to help them. And that's still in place. So I think we've got the advantage over being able to put everything under one roof without having to utilize other brands. And I think we're able to demonstrate our execution ability. And I think those two things, I think probably give us clearer air at the moment. In terms of the second question around ATV, really what we've done is we've broadened our category range in all stores. And at the most extreme, you've got Heathrow Terminal 2, where you've got a huge range of health and beauty and tech accessories and pharmacy. But in all of our stores, we've expanded health and beauty and tech accessories. And customers want that in a travel environment. They want to be able to pick up products quickly and easily and go through the till. And we find that when you put essentials categories together, there's this cross-fertilization between those categories. And all the evidence suggests that's going to hold. And actually, if anything, I think as things get busier, it's more likely to hold because people aren't going to go into another shop and perhaps queue at a till. So we're pretty confident. And when we've seen sort of the quite venetic travel at Easter, where the airports have been very busy, if anything, we've seen a slight tick up in our ATV, not a reduction. So we feel very confident that we're going to hold on to our ATV. Managing Director of Travel UK, Andrew, sat down. He's very confident.

Hi, good morning. Just wanted to ask, obviously there's a bit of sector consolidation going on. I mean, how do you think about participating in it or where that's focused, either in the US or Europe? And then secondly, Mags, given the strong travel recovery, are you expecting Mags to rebase this year or how do you expect that to progress? Going forward.

Do you want to do the sector consolidation, Robert? I'll take the moment.

I know as much as probably you do. Well, I've read it in the press. I mean, I guess G3 and Autogrill, if they get together, that means they have a huge amount of the US market. How landlords will react to that, who knows? We've got plenty to get on with ourselves. We've got over 125 stores to open. There's plenty more opportunity in our markets. We're focusing on what we're doing at the moment. And that's where our energies are.

In terms of minimum guarantees, most of our minimum guarantees now are linked to passengers. So as passengers return, obviously those minimum guarantees go up. But obviously having a business where our penetration has increased, our conversion has increased, and our ATV has increased, it leaves us in a pretty strong position when we're linked to passengers.

Good morning. Kate Calvert from Vestec. Three questions for me. The first one is on the potential for your one-stop travel essentials format in the UK. What is the potential beyond the current four that you have? And also, do you have one of these one-stop travel essentials within your Spanish wins? So could we be seeing one opening in Spain in the near future? The second question is on the UK. I think you've got about 45-odd stores which are hibernated at the moment. Are there any costs associated with those at the moment in the P&L? And the third question is on InMotion. You comment that you feel you'll be ahead of the original 80 million sales guidance. How far ahead do you think you might end up?

Worth a try. I'll take the first one, and I'll pass to you for two and three. So the one-stop shop potential, I think there's huge potential. And I'll tell you for why. Customers really like it. Customers like to have all of essentials under one roof. It makes a lot of sense to them to be able to pick up everything and go to one till. Obviously, it's good for us because we're getting more trade. But very importantly, the economics are very strong for landlords. So the sum of the parts is greater. By putting essentials together, you get that cross-fertilisation from one category to another. So the overall sales go up. The landlord, therefore, effectively gets more rent, but from less space. And they're able to use the space that's freed up for fashion retail or for food and beverage. So it's a very, very strong argument for landlords. So we've got the store at Heathrow Terminal 2. We're operating this in Gatwick. We've got a big health and beauty rollout at Manchester Airport. And then Euston Station is really exciting. And if you haven't seen our Euston Station store, I really would urge you to go there. It's something to behold. It's probably a little bit smaller than this room, but it's on track. It'll take £15 million. And the economics per square metre are intense. I was there recently. There were four of us, and we had to constantly move around the store It was the middle of the day. There's so many customers coming in and out. So I think we've really proved the concept in air, and I think we've really proved the concept in rail. So I feel very ambitious for the rollout of the one-stop shop format. Robert, what about these hibernating stores?

So the hibernating stores, Kate, I... There are some costs, but they're not material. So things like holding on to store managers, holding on to key supervisors and people who can operate the stores is something that we made a decision to do right at the beginning of the pandemic. So when the stores reopen, we would have the right people in the right place to make sure we open them efficiently, quickly, and we were able to operate them as soon as we could. So those costs are still there, but those are probably the main ones, but they're not really material. In terms of in motion, I'd be disappointed if we haven't moved that 80 towards 90.

Thank you. Can I just come back on the first question with the Spanish wins or any of those?

Oh, sorry. Well, we do have some health and beauty ranges within the stores, but the Spanish stores are all very small. So it's very traditional. So we're sort of sticking to our knitting a bit there because I don't know that even in Madrid, the typical store would be a third the size of this room. So it's very difficult to bring all of those categories in. But when we talk to international landlords, we always use the Heathrow example. We're constantly talking to them about, this is what we could do. Why don't we try and do a wider range of categories for you? This is how the economics work. So we'd like to think that we will take this format abroad.

Good morning. It's Warwick Okynes from BNP Paribas Exxon. Two questions, please. Firstly, Karl, on ATVs, could you just tell us whether ATVs are double digit versus pre-pandemic in all three of the UK channels? And secondly, Robert, you'd be disappointed if I didn't ask you about UK costs in the high street business. You've increased the cost saving from 35 to 41 million. Why are you not more optimistic about profits in the second half of this year? And perhaps you could just confirm whether the outer year cost savings are unchanged from the guidance you gave at the full year.

ATV is double digit in all three channels.

Thank you.

um in terms of the out here is no change um i i think the profits in the second half are pretty that they are pretty close to what we said they were going to be except for the impact of funky pigeon so the high street profits themselves in the second half no change to where we where we were expecting them to be um back in in november

I suppose, Robert, what I mean is really where have those extra cost savings come from and where have they gone, given that you've hedged energy out to next year? Where is that extra $6 million gone?

Some of that is the variable cost relating to the e-commerce businesses. So you're saying Some of the sales are slightly lower than we had hoped in some of the e-commerce businesses as the market's normalized and the variable costs will come down accordingly. So that's the main driver of it. And we're still seeing some savings coming through from rents and rates. So all that side of things are still coming through nicely.

Very clear. Thank you.

Good morning, Owen Shirley from Berenberg. If I could ask one more on ATV to start with. I know you're not going to give us numbers, but has the pace of growth in ATV changed over the last year versus 2019? Secondly, on the big increase in momentum in travel winds in North America, are there any sticking points still remaining? Is there anything in your pitch book that you would like to make better? And I guess a third sort of related question, is F&B important at all to you? Or do you think it's important to landlords? Thanks.

Well, in terms of ATV, we're sort of holding it really. I mean, as I said, if anything, we saw a slight uptick at Easter because as it got busier and people were rushing through departure lounges, you know, even before we consolidated some of the categories, 30% of people come into a WH Smith. So as we put more categories into our stores, we are always going to be the beneficiary there. So, you know, as things get busier, I think we feel very confident to at least hold on to our ATV growth. In terms of North America, in terms of categories, I think you're right to look at food. The pre-packaged food within our stores and the food offer is poor compared to what we do over here. The previous MD of the UK Travel Division is overrunning North America now. We're going to put in a lot of disciplines around our food offerings. how we do coffee, how we bring all of that together. And of course, we're always looking at different ways and different categories and how we might improve our retail footprint. In terms of any sticking points in North America, the only challenges that we see that myself and Robert are dealing with the team are growing pains because we are growing so fast over there. We have so many new stores to open. So the things that we're doing over there, we're improving the bench strength of the team because it's a business that is doubling in size effectively. At the moment, we're focusing on winning retail tenders. We're not looking to move into F&B. But, you know, it's always a market that we'll look at. But I think we've got enough on our plates at the moment winning retail stores.

Morning. Richard Teller from Barclays. I've got two questions, please. Firstly, on the 125 sites you've now got in the hopper, can you give us an idea of the quality of these sites? Is the revenue per site fully recovered better, worse, in line with the existing sites? And is the profitability, again, better, worse, or similar? And then secondly, I think you do quite a bit of sourcing in the Far East and China. Do you see any issues at the moment, or do you anticipate any issues given the lockdowns over there at the moment with your supply chain? Thank you.

Do you want to take the first one or I'll take the second? In a fully recovered world, the quality would be as good, possibly better, than we've had. We're winning some really good business. In terms of profitability, again, broadly the same as they were beforehand. The only one I just might mention is Spain, where we won the 31 stores. That is a significant tender. It was highly competed, and the margins that we'll get from that are pretty much average that we would get from the rest of the world part of the business. But everywhere else, everything else is pretty much as it was beforehand.

In terms of sourcing in the Far East, given the issues that everybody experienced last Christmas, we've been we've been very proactive this year so they give you all of our back to school stock is already on the water everything everything's either here in britain or it's on its way all of our christmas ranges have now been signed off and are in production some of them well in fact a good chunk of them will hit by by midsummer and so the action we've taken is to pull everything forward because i i think My view is that it will be increasingly more difficult to get products out of China, because with all the lockdown restrictions happening, there's going to be a slowdown. But I think we've moved pretty fast. We don't have any ranging decisions now to make in the Far East for Christmas. Everything's done, everything's signed off, and it's either on its way or it's being produced and then on its way.

I was sort of interested to know whether there are any sort of changes you've made in the way you operate and travel during the pandemic that are going to actually give you lasting benefits post-pandemic, you know, for example, labour percentage of sales in the US sort of structural things you might have done, whether there is potential for a sort of greater level of profitability coming out this side of the pandemic?

I mean, the first thing we've done in travel, obviously, is change our commercial mix. So we have a higher ATV and a better penetration to the commercial economics of what happens per passenger has changed fundamentally for travel and will remain there. In terms of our labour force, as we've grown back our labour across the summer, we're going to be employing an extra nearly a thousand people in the UK alone in our travel business. We will have more part-timers. So if you fast forwarded, I don't know, a couple of years, the proportion of part-time to full-time will be much higher than it was pre-pandemic. And that gives us a lot more flexibility. With the same labour costs, we can flex up and have more people at peak times during the week and at holidays. and flex it back down. And that will give us some benefits. In the US, we're introducing self-checkouts. And self-checkouts, American consumers like them now. They experience them in supermarkets. Bizarrely, you just don't get them in airports. And we've done a couple of trials, and it's been well received. We know that we can get a lot of, we know from what we've done in the UK, there's a lot of efficiencies through self-checkouts. So we have quite a big rollout program over the next 12 months about putting those self-checkouts in, because labour costs have gone up quite significantly in the US, but we think we can probably more than offset that by bringing in self-checkouts.

Thanks. Richard Chamberlain, RBC. Yeah, I guess linked to that, guys, what sort of staff cost inflation are you seeing at the moment then in travel, given the very sort of tight labour market? Has it gone up broadly in line with the living wage? And then the second one, I guess, slightly longer-term question, how do you see your sort of longer-run earning power now for the group as a whole? I mean, I guess we've got High Street full down, you mentioned. You've got rail... presumably impacted by work from home hybrid working, etc, but equally as stronger travel pipeline, all the stuff you've done on the cost base, etc, during the pandemic. So I mean, can we assume that the sort of pro forma EBIT level in two, three years time is at least as high as as pre-pandemic levels? Not an easy question.

I'll do number one, and then my partner can do number two. Have a stab. In terms of labour costs, it dramatically varies across the world, and then within countries, it varies. In America, there has been quite a bit of labour inflation, and it changes quite dramatically by state. We've moved quite fast. Of course, it's awkward getting to airports, parking, It's awkward hours. You do have to be on the money there. So we have moved. It's not still without its issues, but we're coping well. In the rest of our markets, I would say we're in a good position. We have a very loyal store base. We have good opportunities for staff in terms of advancement. And I think we're coping better than most. And when I look particularly at airports, There's a number of F&B retailers having to close early, shut shops because they just haven't got the people to man them. We're not in that position. That said, we're not complacent. There's a lot of people that we need to attract and bring in over the summer. So we are thinking more disproportionately around engagement and what we do around retention than we've probably ever done before. But I would say we're in a pretty strong position.

So in terms of looking out, compared to pre-pandemic, the group has changed shape quite significantly. The travel will become an increasingly, it's already by far the biggest part of the business in the recovered world. It will become an increasing part. It'll become a bigger and bigger part of the business. In terms of EBIT margins, when I think about travel, broadly the same as pre-pandemic. But again, the makeup is very different. And I'll just walk you through how I think about it. So in terms of the UK, our goal is to get back to the same EBIT margins as we had pre-pandemic. And those are the market leading EBIT margins of around 17%. Since pre-pandemic, we've now won in motion. In motion is profitable, very nice business, generates lots of cash and profit, but at a lower margin. So that will dilute the UK EBIT by around 100 BIPs. And then we had the rest of the world pre-pandemic that was generating margins of around 7%. That should increase, not significantly, but it should increase. We should see some accretion through there. And then we have the North American business. And the North American business should be generating EBITs in low teens and a bigger part of the business than what's pre-pandemic. And international will be a bigger part of the business pre-pandemic. You put all that together and all that complex sort of where the divisions were, you get broadly back, in my mind, to where we were pre-pandemic for the total travel business. But with a business that has got far greater opportunities to grow and has much higher volumes than it had pre-pandemic.

Got it. Okay. Thank you.

How good was that answer, Richard? That's a good answer. Brilliant.

Morning, it's Harry Gowers from JP Morgan. I've got a couple if I can. First one on Funky Pigeon. So it's obviously coming up against tough comms, but maybe is it finding it a bit tougher versus expectations at the start of the year? And if you could give us anything in terms of where the business could get to financially over the next couple of years. On Spain, understands you knocked the incumbent off their perch. So maybe you could give us some flavor for how you managed it. And are there any examples of some significant tenders coming up where the competitive dynamics are similarly favorable? And just on UK rail, if you could talk about any trends in terms of passenger mix, ATV, and outlook. I mean, is 85%, 90% of 2019 maybe the new normal? Thanks. Thanks.

Okay, in terms of Funky Pigeon, I think when it comes to the online market, I think everybody is sort of suffering versus last year. The card market is still robust. I think our expectations for Funky over the next few years are still very strong. We're in the process of investing in a new app, in a new technology stack for the business. We've got a really sort of strengthened team in place. I think there's lots of opportunity for further penetration within the card market. So we think for the sort of medium, long term, we're in a strong position. Kind of annoying having a cyber attack, which has sort of hit us for a few weeks. And clearly, we need to come back from that strongly. But I think we feel pretty confident in the outlook over the next couple of years. In terms of Spain, you're right, it was a very, very intense tender. It was us versus Lagardere versus Hudson, and as you rightly say, we did knock them off their purchase. We have stores that are more productive. We have stores that, when we take over stores, we deliver more pounds per square foot than our competitors. We have a better assortment of products, and we have stronger operations, I would say. And we find increasingly that we're more able to win tenders when we come up against them in our traditional categories. So I think this is the culmination of some of that. There's quite a lot of tenders going on in Europe at the moment. We're part of several active tenders, both within our traditional categories and within electrical. So I think we feel pretty confident in the outlook when it comes to our new store pipelines. In terms of rail, I mean, in terms of commuters, it'll be many years, won't it, before it gets back to 2019 levels. But for us, I'm not sure that matters. Our share of those rush hour pinch points was tiny. I said earlier that sort of 30% of people who go airside go into WH Smith at a rush hour at half past seven. is something like 0.1% of people will go into a WH Smith. People just put their heads down and want to get through a station. You probably know from your own actions in a rush hour, you're not going around browsing in shops. Our passengers in rail tend to be the longer destinations, the leisure customer, the family, people rushing in to get lunch. Actually, the profile of our sales is quite evenly spread throughout the day. Leisure passengers have come back at a huge rate in London. We have really strong weekend sales in travel. So even if passengers overall remain at below 2019 levels, I think we'd be confident that our sales will be at and above 2019 levels.

Hi, from Deutsche Bank. Just two quick questions. I guess thinking about the rest of the world division outside of Europe, given trends seem to be for less globalization rather than more, has your thinking changed at all around the growth opportunities, I guess, from the rest of the world division? And then just in terms of the Spanish concessions, has there been a greater focus, I guess, around price? So have you seen concession fees there sort of materially increasing versus where they were previously? Thank you.

Well, in terms of the rest of the world outside of Europe, the recovery has been slower, but the recovery has been slower because of COVID restrictions and because of vaccinations in a number of countries and travel restrictions. We are seeing quite a fast recovery now. It's just It's just behind Europe. So Australia has opened up. Singapore has started to open up, really, in the last couple of months. I mean, up until two months ago, effectively, it was still down more than 90%. It's improved by about 25%, 30% across the last two months. So I think there's still plenty of opportunities in the rest of the world. There's nothing to suggest that the recovery won't happen. And there'll still be opportunities in Asia and the Middle East. And of course, we have relatively small shares there and particularly when it comes to our sort of new brands like in motion i think there will be quite a quite a bit of opportunity in spain in terms of the price it is it is a highly competed tender i mean that the spanish the spanish tender process is you know it's a it's a public opening of envelopes and he who puts the most money on the table wins it's as simple as that um so from that point of view you know the margins are always going to be you know challenging But we think we're in a good place. We understand the markets really well because we've already got 18 stores there. So I think we understand the economics well and we understand our proposition versus our competitors. Sorry, say it again.

So sorry, you haven't necessarily seen that trend move outside of Spain in terms of pricing becoming more of a... No. Thank you.

No, thankfully. Are there any questions on the telephone that we should go to? Sounds very old-fashioned to say telephone.

Hello. If you would like to ask a question... please press star followed by one on your telephone keypad. If for any reason you would like to remove that question, please press star followed by two. Again, to ask a question, please press star followed by one. We will pause briefly as questions are registered. There are no questions registered at this time, so I'd like to pass the conference back to the floor. Thank you.

Well, I think I'll wrap up. Thank you, everyone. Thanks for coming. Good to see you all. And see you again in six months' time, hopefully.