WH Smith PLC

Good morning, everyone. I'm Carl Cowling, Group CEO, and I'm here with Robert Moorhead, our Group CFO and COO. Thanks for coming. It's great to see those of you who are here in person, and welcome to everyone who's joined on the webcast. As usual, we'll give you an update on our performance for the six months ending 28 February 2023, and we'll also run through the highlights and important strategic tenders we have won across the globe. In a moment, I will hand over to Robert, who will take you through the numbers, and then I will then take you through the operational performance of the business, and we will end with your questions. Before handing over to Robert, a quick overview from me and turning to slide three. We've had a strong first half, delivering profits of £45 million, and the group continues to trade ahead of 2019 levels. I've been saying for a while now that the group is in its strongest ever position as a global travel retailer. and I'm pleased to say that these results reinforce my confidence in the business as it goes from strength to strength. This has been an excellent half, successfully opening 62 new stores across North America, the rest of the world, and in the UK, with 60 new stores won. This takes our new store pipeline to over 120 stores due to open over the next three years. The strong momentum we saw at the end of last year is continuing, And with passenger numbers still not yet at pre-COVID levels, there's a lot more sales to go for. And we continue to see substantial growth opportunities using our broad suite of brands across the globe, particularly in North America. It's been another half of executing our strategy and at the core of everything we do and a key driver of our success is our ongoing forensic approach to retailing across each of our divisions. Finally, the interim dividend reflects the strength of our current trading and a high level of confidence going forward. Turn to the next slide. And I thought it would be helpful to remind you of the shape of the group as it stands today. The WH Smith of 2023 is very much a global travel retailer. Whilst we do have a robust and cash generative UK high street business, the growth engine of the group is our global travel business, which will represent over 70% of group revenue and around 85% of group profits from trading operations at the end of this financial year. The group is now in a stronger position, given the actions we've taken to strengthen our travel business internationally. As a result, our North American business will be our second largest division behind Travel UK in profit terms by the end of this financial year, and substantially ahead of our UK high street division. Our one-stop shop format for travel essentials in the UK continues to increase our spend per passenger and drive ATV and is increasingly successful. More to come on this later in the presentation. And what is key is that we've been able to harness the potential from the in-motion and MRG acquisitions made in 2018 and 2019. Since acquiring these businesses, we have already opened close to 90 stores in North America and one of further 60 stores there. and we've successfully exported the InMotion brand outside of the US. More generally, we're seeing consistent market share growth across travel retail as we continue to capitalise on the many opportunities that exist. I'll now hand over to Robert. He'll take you through the numbers.

Good morning, everyone. Let's start off with the group financial summary. And as usual, the numbers I'm going to refer to are pre IFRS 16. There are some bridges to IFRS 16 in the appendix. So we had a strong first half reflecting the continued momentum from all our initiatives and the continued recovery in passenger numbers. Revenue at 859 million was up 41% on last year. Headline profit for the half was 45 million ahead of company compiled consensus and 31 million ahead of last year. EPS was 23.3p, more than triple last year. Free cash flow in the half was an outflow of 66 million, reflecting the investment in the business and some timing. For the full year, we expect to generate positive free cash, and I'll come on to all this later. As we said in November, we expect full year CapEx to be around 150 million, reflecting the size of the growth opportunities we have. And with strong trading and our confidence in the outlook, we've announced an interim dividend of 8.1p per share. As before, we expect the interim to reflect about a third of the dividend for the full year. So moving on to revenue. So on slide seven, you can see that total group revenue for the half was 859 million, up 41% on last year. This very strong recovery has been driven by all three divisions in travel, which in total was up 75% on last year. Like-for-like revenue in travel was flat 2019, despite passenger numbers still well below 2019 levels, showing the strength of our performance. Passenger numbers are continuing to recover, so the business will see further increases in revenue. Travel was over two-thirds of group revenue in the half, and for the full year we're expected to be over 70% of group revenue, as it continues its strong growth. Our North American business continues to perform strongly, both in airports and in Las Vegas. TSA data improved to be down around 4% versus 2019 in the first half. Our like-for-like performance in North America remains strong. It's worth noting that in the equivalent period in 2019, we saw exceptionally strong sales in InMotion, driven by the newly launched Apple AirPods. In the rest of air and in Las Vegas, like-for-like revenue is nicely ahead of 2019. The rest of the world saw the strongest pickup as markets opened up and we opened new stores. There's more to come here too, as Asia and Australia are still well below 2019 passenger numbers. High Street, including our internet businesses, generated revenue of £266 million. Our store business performed steadily and was slightly ahead of 2022. Funky Pigeon generated a revenue of £17 million. And we're pleased with the start to the second half, with travel after the first seven weeks at 59% ahead of 2019. Looking forward, this is likely to be the last time we report against 2019 as it is becoming a progressively less relevant comparison. So let's look at UK travel in a bit more detail on the next slide. UK travel performed strongly in the half with light flight revenue versus 2019 up 2% and up 52% versus 2022. In total, revenue was up 19% on 2019 and 66% on 2022. This was driven by our biggest channel, Air, where like-for-like sales versus 2019 were up 4%, despite passenger numbers still 15% below 2019 during the period. In total, Air was up 35% on 2019, and this includes the rollout of the 30 in motion stores, where we now believe the brand can deliver annual revenue of around 90 million here, well ahead of our original forecast. Hospitals, our second largest channel, has performed strongly. We've opened four stores in the first half, with a further six to open in the balance of year. Rail, despite the impact of industrial action, has performed creditably, with light-for-light revenue down 8% on 2019. Without strikes, this channel would have been closer to down 1%, showing the strength of the recovery here too. Our performance in the first seven weeks of the second half was strong, led by air, where we had a very good performance over Easter, despite passenger numbers still well below 2019. During the half, we opened seven stores in UK travel, and on an ongoing basis, we see 10 to 15 new stores on average each year, which will be across all three channels. So turning now to the income statement. So headline profit before tax for the half was 45 million compared to 14 million last year. Travel delivered a profit of 47 million compared to 10 million last year, an improvement of 37 million. In UK travel, profit improved by 28 million to 31 million, driven by the recovery in revenue and stronger margins. In North America, we saw an improvement of 6 million to a profit of 14 million. As we saw in the UK, this performance was driven by revenue and improved margins. There's a small FX benefit in here too, of around 2 million. Our North American business is now our second biggest business by profit after UK travel, with significant scope for further growth. The group is subject to movements in the dollar exchange rate when translating the results of its US operations into sterling and a five cent move results in a change to second half profit of around 2 million. In the rest of the world, we also saw a good improvement and a swing of 3 million benefiting from an improving performance, particularly in Europe and Australia. As we move on from COVID, the business is significantly better placed for revenue growth, And this, combined with cost leverage, will also drive margin accretion. High Street delivered a profit of 24 million as expected. We still see significant scope for cost savings, particularly rent, and the business is on track to deliver cost savings of 13 million in this financial year. Overall then, group profit from trading operations was 71 million. Central costs are higher year on year as expected. This reflects increased share based payment costs and investing as the business recovers. Financing costs at 13 million includes non-cash accretion of 4 million relating to the convertible bond. So that left headline profit before tax at 45 million. So turning now to the cash flow. And there are three key points here for the first half. First, we generated 90 million of operating cash flows as the business increased its profitability in the year, demonstrating the cash-generative nature of the group. Second, the investment made in the business with CapEx in the half is 60 million, including the new store opening programme. We opened 62 new stores, including a further 29 in North America. We anticipate CapEx spend for this year to be around 150 million, which includes opening over 110 new stores, reflecting both the opportunities we have plus our confidence in the markets in which we operate. And third, working capital with an outflow of £79 million in the period. As you will remember, our working capital cadence in the group has always been a large outflow in the first half as a result of the seasonality in travel. This year is no exception, and around £40 million relates to that. The balance is primarily the investment in new stores and the recovering travel business. Taking into account the working capital cadence and the substantial level of operating cash flows generated in the second half, we expect to generate a free cash inflow for the year as a whole. So looking now at our net debt on the next slide. Net debt at the end of the half was 378 million. As well as the free cash movement, we then had 16 million of outflow on non-trading items, of which the biggest item is the £12 million final dividend announced in November and paid in January. And in a rising interest rate environment, it's worth pointing out that over 70% of our debt has a fixed coupon, with a convertible bond paying interest at 1.625%. And let me remind you of our maturity profile at the end of February. We had £126 million of term loan, and £250 million of undrawn RCF, both maturing in April 2025, and the convertible out to May 2026. So we have plenty of liquidity and capacity to invest. We expect full-year net debt to be around £325 to £335 million. We're targeting an efficient balance sheet, with a leverage envelope of between 0.75 times and 1.25 times EBITDAO. We expect to be close to the top end of that leverage envelope at the end of August 2023 and to be annualising within it at that point too. This includes our significant investment programme. And finally, let me remind you of our capital allocation policy. We remain focused on our disciplined approach to capital allocation and our capital allocation policy remains unchanged. Firstly, Investing in CapEx, where returns are ahead of our cost of capital. Secondly, paying a dividend. We have a progressive dividend policy with a target dividend cover of 2.5 times. Third, undertaking value-creating acquisitions and then returning surplus cash to shareholders for our share buybacks. I'll now hand back to Carl to talk about the operational performance of the business.

Thank you, Robert. Thanks. Let's start with travel, which as I explained at the beginning of the presentation, is the growth engine of our business. So turning to the next slide. This is a slide that we've shown you before, but it's important to emphasise that we have a clear four pillar strategy to deliver consistent and sustainable growth. Firstly, increasing the quantity and quality of our space. This includes our ability to develop and evolve our formats, which we've been really successful at over the past couple of years. and has underpinned our ability to consistently win new business. Secondly, increasing average transaction value and conversion. We do this by re-engineering our ranges and continue to see a double-digit increase across all of our channels, and importantly, we expect this to continue to grow. Third, category development, where we continue to broaden our categories, for example, premium food, health and beauty, and tech. And the final driver, of course, focuses on cost and cash management, particularly as we look to invest for the future. So turning now to North America, our fastest growing travel business. And before I go into the detail of our business in North America, I thought it'd be helpful to remind you of the considerable benefits of the acquisitions we made in 2018 and 2019 in Motion and MRG. Since we acquired both businesses, we've been focusing on improving both the quantity, quality of our space and LaGuardia is a great example of this where we've moved from a small store to a much larger walkthrough format. Roll forward to today we've successfully merged the two businesses and are now trading from 320 stores with 37 opening in this financial year alone and we have a very strong pipeline of openings to come including some significant wins in Canada. As such North America now represents around 50% of our international store estates, and the potential for further growth is really exciting. At the same time as growing our store estates, we're expected to generate over £50 million of profit from this business in the current financial year, which is double the pro forma profits at the time of acquisition. All this despite the disruption caused by the pandemic. So a real step change in both executing our store opening programme winning more significant tenders to build the pipeline and delivering better returns than we'd originally expected. Turning now to slide 17 and the scale of the opportunity in this market. So we currently have a low market share in the world's largest travel market. We've continued with our strong track record of winning tenders in the US. What's very clear is we have a formula that can provide landlords with an attractive proposition, which is a tailored approach to store design and localization. Looking ahead to 2024, we expect to be trading around 380 stores in the US. I know I've shown you the graph on the screen before, but I think it really demonstrates the growth potential and scale of opportunity for both MRG and InMotion. From our analysis of the North American markets, we know that there are a total of around 2,000 news, gift and specialty retail stores across the largest airports, giving our North America business a market share of around 13%. On the screen, you can see the top 25 airports, and the dark blue line shows you how many stores we have either opened or have won in each of these top airports, with the light blue section showing you the scale of opportunity in each airport in terms of stores that are dedicated to our categories. If you take Newark Airport, which I'll come on to, where most of the retail space has been tendered over the past 18 months, we've won considerable business there. This gives you an idea of the scale of opportunity available, and we expect a significant amount of business to come to the market over the medium term. Turning now to the next slide. And I thought it'd be helpful to go into a bit more detail on how meaningful these significant tender winds are to us. We've been steadily growing our presence in the New York region. This started with LaGuardia, and more recently we have enjoyed some considerable success at Newark with an important 15-year contract. Giving Newark some context, Its passenger numbers are comparable to Gatwick here in the UK, so a substantial airport. Within the new Terminal A, which has only recently opened, we've won 13 new stores, totalling over 60% of the retail space within the terminal. Seven stores opened in January, and I'm pleased to say that they are trading well, and we will open the remaining six later this year. We have also applied our latest productivity and efficiency learnings here by introducing self-service tills, following a successful trial at the end of last year to lower our cost to serve. Feedback from both the landlord and customers has been extremely positive, and we're seeing strong financial returns. And all of this is underpinned by our forensic approach to retailing and the four key pillars of our strategy. Turning now to our rest of the world business. We focus a lot on North America, but I'm equally excited by the prospects in our rest of the world divisions. We have a very clear strategy here to enter new countries and to build our presence from a small base while taking the learnings, creating efficiencies such as our EU distribution hub and building our global supply relationships, all while delivering good returns. As some of you may remember, we opened our first international stores in 2008 in Denmark and since then we've made significant progress entering new markets and winning significant tenders using our three economic models of directly run joint venture, and franchise. While we are now present in 28 countries, there are still very significant market share opportunities in the international travel retail market. The strategy has been successful. If you take Spain as an example, we opened our first store in Alicante Airport in 2016, and today we are trading from 43 stores, with a further eight stores one and due to open either this summer or into next year, taking us to 51 stores, one across Spain. Similarly, in Australia, where we started in Melbourne 12 years ago, we now have over 60 stores across all the major airports. And the same applies in Scandinavia, where we've grown from five stores to 34 stores, either one or open today. Turning now to the next slide. And as you've just heard, we're in a strong position and we continue to win new business. We've had another very successful half, winning 15 new stores. What's clear is that part of our more recent success in winning new tenders has been as a result of our utilising our expertise from the US in terms of localising our store designs and product ranges. This has been particularly important in winning new business in both Brussels and Oslo, and you can see these stores on the screen. Looking at the past six months, we have successfully opened 26 new stores across Australia, Spain, Belgium and Malaysia. All of these stores were delivered and opened on plan, and they were all trading well. We have also focused on areas to drive profitability further, including driving ATV and increasing conversion, as well as developing our formats, and we're seeing good results. Turning now to the next slide. Before we move on to our UK travel business, I wanted to remind you that we also see further good growth opportunities globally in the technology market under our InMotion brand. We have successfully exported the brand from the US and won many tenders since, not least our big win in the UK across all airports. So the brand is now present in six different countries outside of North America. During the first half, we've won a further three new stores in Rome, and we continue to see further good space growth opportunities, particularly in Australia and Europe. Turning now to our UK travel business. Travel UK is our biggest division and its prospects for continued growth are excellent. Passenger numbers in air still remain around 15% below pre-pandemic levels, so this gives us confidence that the profitability of this business will continue to improve, not least from the return in passengers. In addition, we continue to invest in our store portfolio in the UK, while also identifying new and better quality space opportunities across each of our channels and developing our categories. During the half, we have made further good progress, opening seven new stores, including London City Airport, four in hospitals, and two rail stores, including our first standalone M&S food store at Glasgow Queen Street Station. And we're on track to open a further 11 stores in the second half. Across all our channels, we continue to focus on format and category developments to increase our spend per passenger and drive ATV, and this is delivering excellent results with revenue growing ahead of passenger numbers. So we're excited for the prospects in our UK travel business in the short term for the peak summer season ahead and also beyond. And we will continue to focus on the key growth drivers, space growth, increasing ATV and spend per passenger, driving EBIT margins, and of course, the recovery in passenger numbers. Turning now to our one-stop shop format on the next slide. And this format continues to generate significant opportunities across all channels and improve profitability. We have a very strong customer proposition here which is tailored to each location and channel. You may remember we opened a large format one-stop shop across Heathrow Terminal 2 and Gatwick to include a pharmacy. These stores are trading extremely well and this summer we will begin the refit of our largest store at Birmingham Airport to open another store under this format. Using the same format in rail, we opened a store at Euston station last year which is performing particularly strongly. In addition, we continue to see further opportunities in our smaller stores by better utilising our space and extending our categories such as health and beauty, tech and food to go to provide more customers with all their travel retail essentials under one roof. And importantly, convert more people to more products which in turn increases our spend per passenger. We've successfully introduced this to a number of stores across air and hospitals, and we're expanding this into eight major network rail locations this summer. It appeals to customers and landlords also like it as it increases the pound per square meter of selling space. And it's good for us as it increases our spend per passenger and drives ATV. Turning now to our focus on category developments on the next slide. And we continue to focus on category developments across all channels, further supporting our drive to increase ATV and spend per passenger. I'm very pleased with the progress we're making in food, where we've worked hard to improve our ranges by introducing premium third-party brands such as Yo Sushi, Crush and M&S. And during the second half, we will be introducing more chiller space in air and rail ahead of our peak trading period to support further the growth in this category. As a result, our overall food sales in travel UK are up 54% versus 2019, Turn into the next slide on page 27 and I'll summarise our performance on travel. So the outlook for the travel business is very strong. We had a strong first half of the year and the second half has started well. In line with many industry commentators, we remain optimistic that passenger numbers will fully recover by next year. But as you've heard, we're already trading ahead of 2019 levels. And as Robert has said, as the revenue of the businesses continue to improve, the operational fixed cost ratios will also result in an improvement in margins and profitability. Finally, the scale of the opportunities, including winning new space across all our territories and developing our customer proposition means that we're very excited by the short and long-term prospects for our travel business. Moving on now to our high street business. And our high street business delivered a good performance in the half, delivering profits of £24 million as we continue to focus on the retail fundamentals and our forensic approach to retailing. Our high street strategy is as relevant today as it's ever been and ensures that the cash flow and profits of this business are sustainable. During the half, we saw a particularly strong performance in books, supported by Prince Harry's Book Spare. We also delivered a good Mother's Day performance across both our stores and FunkyPigeon.com. Looking at cost savings, and during the half, we delivered savings of £7 million, slightly ahead of plan. These savings come from right across the business, including rent reductions at lease end of around 50%, as well as 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 just under 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 component 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. Turning now to how we continue to deliver against our ESG commitments. We have excellent sustainability credentials and we continue to make good progress. Over the past six months, you can see some of our achievements in the table on the screen, including being the top performing specialty retailer in Morningstar's Sustainalytics ESG benchmark. Also, we're included once again in the Dow Jones World Sustainability Index and we've been awarded an A rating in CDP's annual climate leadership survey. and recognised for our work on supplier engagement. We've set our target to achieve net zero and are now engaging our supply chain to work with us to reduce emissions across our value chain. 20 of our suppliers covering approximately a quarter of our supply chain already have carbon reduction plans in place. Finally, the need for literacy support for disadvantaged children is as important as ever, and we continue to invest in our partnership with the National Literacy Trust. When we think about our colleagues and our commitment to them, we've made really good progress. We've increased the pay award for all colleagues to support with the cost of living pressures and also expedited the pay award for store colleagues. Our DEI activities have continued to pace. We now have a board led by a female chair, and for the first time, more women than men on the board. We also continue to improve gender representation at senior executive levels. Our gender and LGBTQ plus networks have been strengthened and we relaunched a reciprocal mentoring scheme for executive team members with underrepresented groups. We've also launched a mentoring scheme specifically targeting female talent within our organization. We remain committed to developing our colleagues skills. We've recently launched digital learning skills sessions to support learning both inside and outside the workplace. And it's been really encouraging to see a year-on-year improvement in our employee engagement survey. Turning now to our final slide to summarise. So, the group is in its strongest ever position. And looking ahead, we are confident that we will be successful in winning new business across the globe. We are extremely well positioned and we already have a strong pipeline of over 120 store openings across the next three years. And that's in addition to opening 62 stores in the first half. We expect to see substantial further growth in profitability in the balance of this financial year, with North America becoming an increasingly significant part of the group. As you've heard, we expect this business to deliver over £50 million of profit in this financial year. And we continue to invest for growth, with CapEx in the year expected to be around £150 million. This, along with the interim dividend announced today, reflects the strength of current trading and high levels of confidence in the future prospects of the group. We are a profitable, cash-generative and innovative group. And as always, we remain focused on creating value for our shareholders. So that's it from me. Thank you. And we'll now take your questions, starting with those of you in the room.

Jonathan Pritchard at Peel Hunt. Three from here for me. In the US, the maturity profile of the stores, please, how quickly do they get to maturity and what sort of cash payback are we seeing in the States? I'll stay in the States. This sort of secret sauce that you have, the localization, I think that's an imitation as a pure form of flattery. Why don't the oppo Copy a little bit here. Is there something especially secret? Obviously, you probably won't reveal it, but do you know what I mean? I think you know what I'm getting at. And secondly, one-stop shops. What's the potential long-term in the UK to roll that format out or evolve into that format?

Do you want to take the first one, Robert, on the US? And I'll take the secret sauce and the one-stop shop.

Morning, Jonathan. The maturity profile is not the same as we see elsewhere in the world. It does depend. If it's a new terminal, then it does have a bearing on when the passengers get transferred over to that terminal and when they go to the gates where the stores may be. But broadly, it's exactly the same as we see elsewhere in the world. The economies are slightly different. CapEx is slightly higher, the rents tend to be slightly lower, and the contracts tend to be slightly longer. So you put that all together, pretty similar to what we see everywhere else in the world.

The secret sauce, Jonathan, it's the secret sauce. No, the business that we bought, MRG, they grew up 50 years ago doing bespoke shop designs in hotels and casinos in Las Vegas. That is their bread and butter. That is their secret sauce. That's how they grew as a retailer. And they've refined that for airports. And we are learning from them about how to better do that in Europe and the UK. And they're just several steps ahead of the competition in terms of being able to localise and being able to really bring local partners into that environment and making it look really bespoke to that city. And if anything, our clear air with the competition has grown. And what we're able to do now with landlords is to be able to show examples of where we've launched those stores and the sales results. So I think there will be moves from the competition to try and do something different, but all I can say to you at this stage is that the clear air that we've got has only grown. In terms of the one-stop shop rollout, I'm very excited by this. Andrew Harrison, the MD of our UK travel business at the moment, he's incredibly excited as well. And I think it's just such a no-brainer for customers. If you're rushing through a travel environment like an airport or a railway station, being able to pick up all of those things that you need under one roof when you're in a hurry is just so important. A magazine, pain relief, a charger for your phone, a sandwich bag. Having that all under one roof is very compelling. And whenever we see that we expand our ranges, we're seeing more and more benefits from that. So do I think we're going to see lots of the stores, including pharmacies, across air and rail? I don't. But what I think you will see and rapidly see over the course of the next year, two years, is an expansion in our health and beauty and tech accessory ranges. such that when you go into a WH Smith, it's not news books convenience, it is that one-stop shop. And you'll increasingly see that across all of our channels.

Thank you. Morning, it's Richard Chamberlain at RBC. I'll ask a couple of questions, please. The first one's on the High Street issue. I was wondering about the high street margin in the first half, to what extent it was affected by mixed changes, say books versus stationery, or were there any other sort of one-offs that affected the margin in H1, and how confident are you of improving that in H2, and maybe actually growing profits year on year in the second half on the high street? And then the second one was on the UK travel. How disrupted was that in the first half by you know, rail strikes, et cetera. Can you put any sort of numbers on that or give us a sense of what the impact of disruption was? Thanks.

Would you want to take the first one, Robert? I'll take the second. There's no real change, mixed effects in the high street in the first half. Stationery still has the highest margin category. We're still delivering good sales through stationery. In terms of second half, I think most people got us in for a profit just below double digits. For the second half, which I think leaves us in a good position overall for the year, broadly where we were last year in total for High Street. So no real change to the economics.

In terms of UK travel and rail strikes, we've managed to absorb the impact, but if it hadn't been for the rail strikes, we would have been flat on 2019. That's how substantial it's been. So we've had a number of days where trading has been very poor. So on the weeks and days where we haven't had rail strikes, even though passenger numbers are down 20% in rail, we're pretty much flat on 2019. And if it weren't for those strikes in the first half, we would have maintained that flat position.

Thank you. John Stevenson from Palehunt. Just following up on one of the earlier questions, can you talk about your win rate or conversion rate in the US at the moment? I mean, given you just taking 60% of Newark on a new terminal and you've got proof of concept, are you finding that actually your win rate, conversion rate is improving? And what's the sort of run rate like in terms of the contract expires in those sort of top 25 airports going forward? And second question, just on the security changes that are coming up over the next year or so, how important are liquids in terms of as a footfall driver?

Right, in terms of the win rate, broadly, the tenders that we're going in, we're winning around 50%, which is a really, really strong hit rate for tenders considering we're going up against two very large dominant players in the US. It's really difficult to predict a run rate. We have to be quite cautious because landlords never give a timetable for when tenders come up. Or if they do, often those timetables can slip and can slip by as much as a year or two years. All I can say is that when the tenders come up and we go into them, we win a substantial chunk of the business. And more often than not, well, in fact, most of the time, we're never the incumbent. Our contracts are all quite new. So all of the tenders that tend to come up typically are contracts that are owned by Doofree or Lagardere. In terms of the security changes in terms of liquids, it It was quite a while ago that it happened and there was that switch. And what we saw was a massive change in our land side sales going down and going down significantly on our air side sales going up. So there will be a little bit of redevelopment there. Our spread of our business is very different now. We've got so many different categories. And I was touching on the presentation in the questions, the one-stop shop. We're less reliant on just categories like drinks. We've got tech accessories. We've got food. We've got health and beauty. So it's a change that we'll manage. We're already seeing some airports experimenting with it now. So we're already getting a good flavor of what will be the change in consumer experience. So when we start seeing the change in bigger airports like Heathrow and Gatwick, we'll have a plan in terms of how we're going to equalise or grow our sales.

Right, but it's not like liquids are sort of the gateway drug, if you like, to the wider offer if people are coming in for that?

No, no. I think we feel pretty confident of that.

Morning. Tim Barrett from Numis. I had two questions on travel, please. Firstly, around the US, your 50 million commentary around US profits. Interested in the factors behind that. Obviously, it's not like for light sales yet, but is it synergies or new openings that have driven the above business case performance? And then just also interested in that guidance around 50 new openings a year. It feels like natural conservatism, but can you put that in the context of the 62 that you've opened in the first half? Thank you.

Well, in terms of U.S., do you want to take U.S. profitability, Robert?

Sure. So what's driven it? I guess when we work, there are three things, really. There's certainly some synergies that we've been able to do in the U.S., and particularly if you think back to we had two head offices in the U.S. We had Jacksonville for Emotion and we had Las Vegas for MRG. We've been able to bang the two together. And so we've been able to take out costs from that point of view. We've certainly used some of our commercial knowledge and ways of working in the UK and applied those to North America. And that was always in the plan. And those synergies have been coming through nicely. Then you have the space growth. And when we did the acquisitions, we knew we had space growth opportunities. We've overachieved on the space growth. I think we've done better than we had originally thought in our business case. You wouldn't be surprised to hear we were quite prudent in the way that we put our business case together. And we've done better and continue to do better than we had in the business case. And then it's all the other forensic approach to retailing that we've been able to take over there. The way that we look at our return on space, our pricing, our promotions, all that sort of sophistication, we've been able to apply to North America and continue to do so. So overall, I'd expect to see the margins continuing to improve in North America. and we're able to see an increasing level of profitability as we open more space, take the opportunities of the operational leverage and continue to see this business grow significantly over the medium term.

In terms of the pipeline, it's not necessarily that we're cautious, it's just that it's very difficult to give a forecast because of this lack of timetable. And there certainly has been an acceleration in tenders over the past kind of 18 months coming out of COVID, because a lot of airports went dormant. So we don't expect the volume of tenders to be as high over the next 12 months. And all we can do is to look at the past history and be relatively prudent. Hopefully we can beat that number. As things stand today, with all that we know about past performance, it seems like a reasonably good forecast.

Hi, Matt Garland from Deutsche Bank. I just had two questions. I guess 30 stores or so closed in the first half, just in terms of, I guess, number of additional stores that you think are likely to be closed and maybe where geographically they may be. Is it, I guess, on a net store basis, how should we sort of be thinking about the next couple of years? And the second question, just in terms of input costs, how are you seeing those trends sort of over

the next six months to a year obviously i know you do them far in advance but just what are the sort of trends that you're seeing in terms of your input costs thanks i'm in terms of the closures um i think going forward when we look over the next um few for the next 12 to 18 months it's nine and ten in terms of the the plan ones as a result of the the pipeline that we've got in place of that 120 So we will be coming out of a smaller, less productive space and going into better space as we win more business. So there will be smaller levels of closure and travel going forward.

Sorry, in terms of the input costs? In terms of what, sorry? The input costs, the trends that you're sort of seeing in your input costs. Well, in terms of from suppliers? From suppliers, yes.

Well, I mean, we have a mix of categories. So we operate in a number of fixed price categories, news, magazines, books, where you tend to get relatively static prices. So we don't have the same inflationary pressures as a lot of retailers, and especially in terms of the overall food retailers. So within our sphere of categories, it's all manageable. And so we're not experiencing a big issue at all.

And are you seeing, I guess, any alleviation of those input costs as you look forward or not particularly? Not at the moment, no. Thank you.

Good morning. It's Harry Gowes from JP Morgan. First one, just on North America. So profits expected to double this year versus the pro forma pre-pandemic total, I think. And you've got the impact from the pandemic in there. So the question is, when could it double again from the current level in terms of the run rate? And if you could give a little bit in terms of the midterm outlook for ATV. So I think you mentioned some of the categories which you can continue to expand. But how much incremental change do you think you can actually drive from here?

Thanks. Okay. Well, I mean, we're not giving a forecast to double our profits in the U.S. That said, we do see substantial opportunity in the U.S. I mean, we've got a big pipeline here. in terms of opening stores already. And we would like to think that we will continue to have a very high rate of winning stores. And there are obviously efficiencies with going with that in terms of our head office costs and improving the EBIT margin. But it would be imprudent of me to declare a doubling at this stage. In terms of ATV, I think I'd probably be a bit more positive about that. I see as many opportunities now as I did two years ago. I think there is still a lot of opportunity in terms of rolling out categories like health and beauty, tech accessories, strengthening our food range, strengthening the offers for customers for all of their travel essentials across all air, rail, and also in hospitals as well. So I still think there's a lot of opportunity to grow ATV. Our ATV is still relatively small. It's still around £10. So Being able to grow a further 10, 20% in absolute pound terms is not very much. And by putting a better range of products in front of customers, giving them more choice, I think we've still got a lot that we can do. And we would say we are really, really good at space management. Unlike some retailers who sort of grade their stores, we have store-specific planograms. We can forensically go into each store and change the ranges and alter the space of those stores to meet with the customers that are going through those stores. So we'll continue to operate that way, and I think we'll still have a lot of opportunities.

Hi, Kate Calvert here from Investec. Two questions for me. The first one is on the rest of the world travel business and its margin. How do you see the margin progression over the next three years? Do you need to put more central cost in given the number of wins and potential for new countries, or are you in a position to start leveraging your margin now? And the second question is on Funky Pigeon. How long do you think it might take you to get back to peak profits? We'll try another cheeky question.

Would you want to take the first and I'll take the pigeon? Okay. In terms of the rest of the world, the margins this year, I think around 6% most people have got in. They are lower than they would be going forward as a result of the significant opening programme that we've got in the rest of the world and the fact that places like Australia and Singapore are still yet to come back to where they were in 2019. So we're not getting all the operational leverage through there. Over time, I expect us to get through to double digits in terms of that margin accretion, but it'll take a number of years to get there as we continue to open new stores and invest in opening those new stores, but the margin should accrete over time.

In terms of Funky Pigeon, it'll take a while. I mean, it was a very obscure year. It was a year when the vast majority of card retailers across high streets were closed, and I think, as with other pure plays in a specific sector, it's going to be very hard to recover that because, of course, the marketing costs were significantly lower as well. We had a good Mother's Day. We see our business building with Funke next year, but we don't see it building back to anything like the profit levels that we had in the COVID year.

Thank you.

Thank you. It's Richard Taylor from Barclays. Three questions, please. Firstly, on the 120 sites, one but not yet open, can you give us a feel for the sort of average square footage or profit potential of those sites versus the existing travel estate that you've got? Is that better space, worse space in line? Secondly, I think it's the first time you've mentioned the Canadian market. Can you just give us a bit more detail on the opportunities there, market size, competitive environment, other contracts similar to the US with non-controlling interests? And then finally, a follow-up to the funky pigeon question. the reduction in EBITDA in H1 versus last year. Is that partly normalization post-COVID, partly marketing costs post-data breach, or a bit of both? So some color on that will be welcome. Thank you.

Robert, do you want to take one and three, and then I'll do Canada at the end? In terms of the pipeline, broadly the same as we're seeing elsewhere. Nothing particularly special in terms of size or returns or anything like that. So I would say in line and as before. in terms of funky in the first half, a little bit of all three of those things coming into play, expecting the second half to be better. Obviously, year on year, it should be significantly better, given that we were impacted last year in the second half. But it's a function of all those things. And as Carla's already said, we're not going to get back to the sort of COVID level of profitability as volumes are lower than they were.

In terms of Canada, it is really exciting, and to win at two big airports is important. We can't get overly excited by it. It's a much smaller country than the US. I think it's got around 40 million population. We've got a couple of tiny stores in Vancouver, but to have Calgary, I think, is really important. Having a presence in three airports... in what is a very, very do-free dominated airport retail environment, I think gives us a really good in to win further space. It's an important country to be part of. And on the face of it, it seems to be like an easy country to operate in. So we think there will be further opportunities from this.

Paul Rossington from Patriots BC. Can you just talk about any other potential opportunities you see coming out of the do-free autogrill tie-up? Do you see there being any fallout or where they may be forced to exit some airports in the US that might give you an opportunity?

Well, we haven't heard any of that yet. And to listen to them, it's only positive opportunities. And we certainly haven't heard any fallout from them having to... release space all I can say is that hopefully it provides distraction and all of their messaging is around looking at food and beverage and for us that's great we're a specialist retailer we just focus on specialist retail and hopefully there will be some level of distraction there as there will be in other competitive quarters that will allow us to continue winning business across the globe but I'm not sure I've got any more comment than that Any more? Or should we go on to questions from there?

Thank you. It's Nicholas Katsapas from BNP Paribas Exxon. I just had one question on the North American opportunity in rail and possibly other formats. Could you update us on your thinking there?

Well, we've got two stores in rail now. We've got one at Moynihan Train Hall and one at Penn Train Hall in New York, and both are doing well. So there is an opportunity there, but it's nothing like the business that we'll see in the UK. And really, we don't want to get distracted in the US. The opportunity in airports is just so huge. And I think distracting ourselves and looking at other channels and focusing on other channels would probably not be wise at the moment. But that said, we do have two very successful stores in rail. And as we continue to perfect those, maybe that opportunity will become greater in time. In the interest of time, should we go on to the WebEx for any questions? Should we open it to the sky? Or not?

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No questions.

Well, that sums it up. There are currently no questions registered. Well, I'm Thank you, everyone. Thanks for coming. It's been a really great turnout. We had a really good first half and we're looking forward to a strong second half. So thank you for all your support.