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 has joined on the webcast. As usual, we will give you an update on our performance for the 12 months ending the 31st of August, 2023, and we'll also run through the highlights and important strategic growth opportunities for the group. In a moment, I will hand over to Robert who will take you through the numbers and 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 on the year from me and turning to slide three. 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 the results we've announced this morning reinforce my confidence in the business as it goes from strength to strength. We have a clear strategy which is being well executed, resulting in another strong year, delivering profits of 143 million pounds. We continue to see strong momentum, and with passenger numbers not yet at pre-COVID levels, there's a lot more sales to go for. During the year, we have successfully opened 118 new travel stores across North America, the rest of the world and in the UK. And we now have a new store pipeline of over 110 stores due to open over the next three years. So we continue to be successful and we are growing across each of our markets and have opportunities to grow further, particularly in North America. A real strength of this group is that it's also very cash generative. This is reflected in the proposed full year dividend and also our ability to invest for future growth. Turning to the next slide. And I thought it'd be helpful to run through our advantage growth model and what's driving our success. Firstly, passenger numbers. We have two benefits here. Recovery to 2019 levels is still ongoing and then the ongoing structural growth thereafter. Secondly, we continue to focus on driving average transaction values by expanding our categories and developing our formats. For example, our one-stop shop format. Third, we continue to see good opportunities to grow the margin through our ongoing forensic approach to retail. And finally, opening new stores, where we continue to be successful across all divisions, demonstrating the scalability of the group across the world. The model is focused on driving strong revenue growth, EBIT margin accretion, and generating high levels of cash as we scale our fixed cost base. Turning to the next slide. And here you can see the ongoing structural growth expected in passenger numbers that I just mentioned. This graph from the Airports Council International shows the actual growth from back in 2006 through to the end of 2019 when the pandemic hits. If you then compare the data from 2024, when passenger numbers are expected to return to 2019 levels, you can see that passenger numbers are expected to double from this point through to 2040. So we have every confidence that we are well positioned to continue to create value through the structurally advantageous markets that we operate in and the substantial opportunities that exist for us to win and open additional stores. I'll now hand over to Robert to take you through the numbers.

Thank you, Kyle. Good morning, everyone. Let's start off with the group financial summary. As usual, the numbers I'm going to refer to are pre-IFRS 16, and there's some bridges to IFRS 16 in the appendix. We had a strong year and saw a significantly improved performance versus 2022 with headline profit up 96% for the year at 143 million, which was in line with company compiled consensus, despite the strengthening of Sterling in Q4. Revenue at 1.8 billion was up 28% on last year. EPS was 80.3 P, up 93% on last year and ahead of consensus Free cash generation was 20 million, reflecting the additional profit and the significant investment in the business in the year. And I'll come on to all that later. We finished the year with available liquidity facilities of 316 million and leverage of 1.4 times, giving us significant capacity for the investment opportunities that we see across all geographies. The board has proposed a final dividend of 20.8P, making a total of 28.9P for the year, which is ahead of consensus, and which reflects a strong business performance, a strong cash generation, and our confidence in the outlook. So moving on to revenue on the next slide. Total group revenue was 1.8 billion, significantly ahead of last year, driven by all three divisions in travel. This is, in fact, the highest revenue number the group has reported since its creation in 2006. Travel was about 75% of group revenue, a mix that is only going to get greater as travel continues to grow and we open more stores. This really does reinforce the point that WH Smith is now a global travel retailer. Like-for-like revenue and travel was up 27% year-on-year and up 43% in total, reflecting a strong operational performance and the continuing recovery in passenger numbers. All three divisions saw strong growth in the year. We opened 118 stores in the year and expect to open over 100 stores this year. And I'll come on to the divisional performance in a minute. High Street, including our internet businesses, performed well, generating revenue of 469 million, down 1% in total. Our store business performed steadily, and Funky Pigeon generated revenue of 32 million. So let's look at travel in a bit more detail on the next slide. Travel performed strongly in both halves of the year, a performance that has continued into this financial year. Starting first in the UK, where total revenue was up 36% on 2022 and up 30% on a light-for-light basis. Air, which is our biggest channel, benefited from the recovery in passenger numbers, with light-for-light sales up 37% and total sales up 48%. We expect further growth this financial year in the UK on top of the continued improvement in passenger numbers. Hospitals, our second largest channel, has performed strongly, mainly through better ranging with total sales up 32% and light flights up 26%. We opened eight stores in the year. Rail, which is our smallest channel in UK travel at approximately 15% of sales, remains very resilient, despite the impact of industrial action, with like-for-like revenue up 19% and total sales up 15% year on year. Sales are now nicely ahead of 2019 in this channel. Overall in the UK, we opened 20 new stores and closed 19 small and less well-located stores. Going forward, we expect to add an additional 10 to 15 new stores each year. In North America, we also saw a good performance as passenger numbers continue to recover. We opened a further 43 stores and closed 14, increasing market share and improving the quality of our space. Total sales were up 32% and second half total sales were up 17%. This performance was driven by our core MRG airport business, which is now approximately 50% of the revenue of our North American division and performs strongly across the year and continues to do so. We are seeing passenger numbers grow and strong demand for our travel essentials categories. In our smaller businesses, we saw a lack of new launches in the electricals market in the second half, which impacted in motion, and this has continued into this financial year. And in our Las Vegas resorts business, we were up against a strong 2022 summer performance when there were an exceptional number of vacationing visitors. Overall, our North American business is well-placed for growth this financial year and beyond. And the rest of the world continues to grow, too. We opened 55 stores and closed 28, and total sales nearly doubled in the year. We continue to see passenger numbers recovering in Asia and Australia. Current trading and travel has been strong, with the UK up 13%, and on a constant currency basis, North America up 15%, and the rest of the world up 27%, really demonstrating the strength of the businesses we have here. In terms of like for like, we're seeing broadly the same trends as Q4. So, the UK continuing to perform strongly, MRG Air continues to also be strong, growing pretty much in line with passenger numbers, with strong demand for our travel essentials categories, and in motion and resorts, performing as I described earlier. Don't forget though, that for North America, this is a total growth story, and we continue to see strong total sales growth, up 15%. So turning now to the income statement. Headline profit before tax was 143 million, up 96% on last year, driven by travel, which delivered a profit of 164 million compared to 89 million last year. Travel generated nearly 85% of group profit from trading operations. In UK travel, profit improved by 48 million to 102 million due to higher revenue and improved margins. We expect further profit growth in the current financial year. In North America, now our second largest division by profit, we saw an improvement of 18 million from 31 million last year to a profit of 49 million, which includes the impact from the strengthening of sterling in Q4. Again, this was driven by increased revenue and improved margins. We see significant scope for further profitable growth, both from additional space and through the adoption of our forensic approach to retailing, which we've honed in the UK travel business and are now implementing in North America, focusing on driving up average basket spend and growing the margin. The group is subject to movements in the dollar exchange rate when translating the results of its US operations into sterling. A five cent move results in a change to full year profit of around two to three million. In the rest of the world, we also saw a good improvement of nine million, benefiting from an improving performance, particularly in Europe and also in Asia and Australia. As we move on from the pandemic, the travel business is significantly better placed for growth, from growing space and our forensic approach to retailing, which combined with cost leverage will drive EBIT margin accretion. High Street delivered a profit of 32 million as expected. We still see significant scope for cost savings, particularly rent, and the business is on track to deliver around 10 million of cost savings in this financial year. Overall then, group profit from trading operations was 196 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 26 million includes non-cash accretion of eight million relating to the convertible bond. So that left headline profit before tax at 143 million. So turning now to the cash flow. WH Smith is a very cash-generative business, and as we become increasingly travel-focused, this will grow further. There are three key points to note on the free cash flow for last year. First, we generated 235 million of operating cash flows as the business increased its profitability in the year, reinforcing the point on cash generation that I've just made. The investment made in the business with CapEx in the year of 122 million, including the new store opening program. We opened 118 new stores, including a further 43 in North America. We anticipate CapEx spend for the current year to be around 140 million, which includes opening over 100 new stores, reflecting both the opportunities we have, plus our confidence in the markets in which we operate. Third, as expected, we had a large working capital outflow in the year. Most of this was the first half impact as we exited from COVID and invested in the recovering travel business. We have also continued to invest working capital, opening new stores, and there's some timing in here too. This year, we expect a much smaller investment in working capital, which will mainly come from opening new stores. So turning now to the net debt. Net debt at the end of the year was 330 million, giving the group a leverage of 1.4 times EBITDA. As well as the free cash inflow, we then had 54 million of outflow on non-trading items, of which the biggest items were the 22 million dividend payment and 8 million to the ESOP. In June, the group completed its bank refinancing with a new five-year 400 million sustainability linked facility, replacing the previous 250 million facility and 113 million of term loans. We also have the convertible out to May, 2026. So we have plenty of liquidity and capacity to invest. And just to remind you, the coupon on the convertible is fixed at 1.625%. 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 and we expect CapEx in the current year to be around 140 million. Secondly, paying a dividend. We have a progressive dividend policy with a target dividend cover of 2.5 times. The board has proposed a full year dividend of 28.9 P for FY23. Thirdly, undertaking value creating acquisitions and then returning surplus cash to shareholders via share buyback. We're targeting an efficient balance sheet with a leverage envelope of between 0.75 times and 1.25 times EBITDA. At 31 August, 2023, our leverage was 1.4 times and we expect leverage to be within our envelope at the end of this financial year with net debt of around 310 million. I'll now hand back to Carl to talk about the operational performance.

Thank you, Robert. This is a slide that we've shown you many times before, but it's important to emphasize that we have a clear four pillar strategy, which continues to deliver industry leading returns and consistent growth in travel retail. Firstly, increasing the quantity and quality of our space in travel. 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 importantly, we expect this to continue to grow. Third, category development, where we continue to broaden our categories to reflect changes in customer behavior. For example, expanded food ranges, expanding health and beauty, and taking the best of InMotion into WH Smith. And the final driver, of course, focuses on cost and cash management, particularly as we look to invest for the future. Underpinning these four pillars is our forensic approach to retail, and I'll turn to this now. Our forensic approach to retail continues to be a key driver of our success, and it has never been more relevant than it is now as we continue to invest and take advantage of the opportunities in our markets. We are now a multi-format, multi-brand global travel retailer operating over 1200 stores across more than 30 countries with further growth opportunities across the globe, driven by our focus on format development and localization on both product offer and store design. What is certain is that we are seeing very good results in winning new space globally by using the expertise from our North America division on tailoring our retail offer to airports. Similarly, our North American business is benefiting from our forensic approach to space management, which has always been a key feature of our UK operations. And we have seen a strong track record of success through the development of our one-stop shop format, which presents good growth opportunities. In addition, we never lose sight of the importance of maximizing the returns of every meter drop of selling space across every individual store. And finally, as you would expect, we are always committed to tight cost control across the globe. 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 explain why we're excited about this division. This is the world's largest travel retail market with annual revenue of $3.8 billion. And we currently have a market share of around 13%. However, the growth opportunities are significant. And over the next five years, we are targeting to grow our market share to around 20%. Since we acquired both InMotion and MRG in the US, we have been focusing on improving both the quantity and quality of our space, as well as providing landlords with an attractive proposition focusing on bespoke stores and localization. This has delivered great success. We have won some key strategic tenders and opened over 100 stores, including 43 in the last financial year. That rate of winning new stores hasn't slowed. In fact, it's accelerated, resulting in a new store pipeline of over 60 stores, one undue to open over the next three years. And we know that tenders come to the market regularly, which is why we're confident we can take market share. North America now represents around 50% of our international store estate, and the potential for further growth is really exciting. And we're seeing strong returns, generating 49 million pounds of profit in the year, which is double the pro forma profits at the time of acquisition, and reflects the strong performance from new stores. So a real step change in both winning more significant tenders to build the pipeline, executing our store opening program, and delivering better returns than we had originally expected. Turning now to the next slide. On the screen, you can see a few of our latest store openings from the past year, one across nine different US airports, ranging from 13 stores, one opened in Newark, to eight in Kansas City, and two in Salt Lake City. As you can see, each of these stores have a unique design and a bespoke products offering, tailored for the airport, which we know is very important to US landlords. And we are seeing good results. Turning to the next slide. And I thought it'd be helpful to go into a bit more detail on some of our success as this demonstrates why we are confident in continuing to win share. You may remember we highlighted Newark when we updated you back in April. Today, I wanted to share the detail on our win at Kansas City Airport. Following a competitive tender, we won 85% of the retail space, comprising eight stores, which are all open. Here, we have applied our winning formula of creating brands and a product offer, which is tailored to both the location and also the landlord's requirements. 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 positive, and we're seeing strong financial returns. Finally, before we move on to the rest of the world division, I wanted to talk more about the scale of the growth opportunity across North America. As I've said, we currently have a low market share in the world's largest travel market, and this slide really sums up the size of the opportunity that exists. Of the top 70 airports in North America, there are a total of around 2,000 news, gift, and specialty shops across these airports. And on the screen, you can see the scale of the opportunity in the top 25 alone. The dark blue shading shows our presence currently within these top 25 airports with a light blue shading showing the scale of opportunity in our categories within each of the airports. I think it's very clear to see from this data why we're excited by the US. And as you have heard, we have a strong track record of winning tenders. So this gives you an idea of the scale of the opportunity available. Turning now to the next slide and our rest of the world division. We have a very clear strategy of the rest of the world to continue to enter new countries using our three operating models of directly run, joint venture and franchise, and build on our presence over time to leverage our fixed cost base and grow net margins. And the scalability of the group's retail formats is evident, having entered 28 new countries since we opened our first international stores in 2008. From this base, there are still very significant market share opportunities in the international travel retail markets, and I'll come onto this in a moment. We're also making excellent progress in winning new tenders by using our expertise from our North American division to localize our retail proposition in more stores across the world. This is demonstrated in our recent tender wins in Oslo and Brussels, where we've created bespoke stores for each airport, focusing on a strong sense of place and a localized product offer. And we see further good opportunities across all markets. Turning now to the next slide and focusing on Europe. On the screen here, you can see the scale of the opportunity in Europe with the dark blue section showing our current share across the top 50 European airports and the gray line showing our presence in the tech market and our InMotion brand. Over the past 18 months, we have significantly expanded our footprint in Europe with large wins in both Spain and Scandinavia. Despite this, we only have a very small share of the market. We also have significant opportunity to build scale in markets where we already have a presence, for example, in Germany and Italy. And of course, not forgetting our technology stores under the InMotion brand. So a lot to go for, and we are encouraged by the opportunities, particularly given our recent success rate. Turning now to the next slide. So we've made excellent progress in this division. We're in a strong position and we continue to win new business. During the year, we have won a further 30 new stores across both new and existing countries. And what is increasingly clear is that our success has in part been driven by use of localization for each airport. It's also been a busy year of store openings, successfully opening 55 new stores across Australia, Spain, Norway, Italy, and Malaysia. By the end of this month, we will open six stores in Barcelona airport. So by the end of 2024, we will be trading from over 360 stores in this division. Turning now to the next slide. And 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 markets under our InMotion brand. Since acquiring the business in 2018, we have successfully exported the brand from the US and won multiple tenders and is now a globally recognized brand. We now have 32 stores across all UK airports and a presence in five further countries. During the year, we have opened five new stores and have a further three planned to open. This includes a new Swedish flagship store in Stockholm, which you can see at the top of the screen. This store is 1,500 square feet, and passengers can pick up everything from tablets and headphones to a wide range of travel essentials from leading international brands, including Apple, Samsung, Sony, and Bose, as well as an extensive offer of own brand InMotion products. So it continues to be an attractive market and we see good growth opportunities. Turning now to our UK travel business. As many of you know, Travel UK is our largest and most established division and we continue to see opportunities for growth through new space opportunities, further margin growth and category expansion and we continue to invest. We have made excellent progress opening 20 new stores across all our channels in the year. and we are on track to open around 15 stores in the current financial year, the majority of these in our hospital channel. We see this annual space growth of around 15 new stores in UK travel extending into the medium term. We remain focused on driving spend per passenger and ATV, and this is delivering excellent results with revenue growing ahead of passenger numbers. Our forensic approach to retail means that we constantly change the mix of products in store, and we see further opportunities to grow gross margins. So we are excited for the prospects in our UK travel business, 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 ongoing recovery in passenger numbers. Turning now to our one-stop shop format on the next slide. Our one-stop shop 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. Later this month, we will open our latest flagship one-stop shop at Birmingham International Airport, further expanding this format. Birmingham will be our largest UK travel store, covering 6,000 square feet of selling space, with a localized design tailored to the requirements of the landlord, providing passengers with a bespoke customer experience, encompassing everything you would expect from a WH Smith, as well as a broader product range, large health and beauty, tech zones, and coffee. By putting everything under one roof, we are able to provide both new and existing customers with a fast, convenient shopping experience, and importantly, convert more people to more products, which in turn increases our spend per passenger and drives ATV. Turning to the next slide. The hospital channel is a successful channel for us and is the second largest in UK travel by revenue behind air. It is an expanding market and there are plenty more opportunities for us to continue to grow our space and improve the retail proposition under the WHSmith brand and our new coffee concept. It's a great example of how we continue to innovate with a strong proposition tailored to each location with a broad suite of brands in addition to WHSmith, including M&S, Costa Coffee and The Post Office. And we continue to invest across our existing store portfolio as well, as driving further growth with a strong store pipeline. During the year, we opened eight new stores, including Royal Liverpool and Royal Sussex Hospitals. In addition, using our expertise in localization, we have also recently won two new stores at Royal Hallamshire and Northern General Hospital in Sheffield under a new coffee concept. Working with local artists and roasteries, we have designed a bespoke store with a local coffee offer. This win was particularly pleasing given we were up against globally recognized coffee chains. We know that localized coffee propositions are attractive to landlords and we are in active discussions with others across the UK. Looking ahead, we have a good pipeline of opportunities where we see scope for at least one of our formats in up to 200 further hospitals. Turning to rail, our smallest channel in the UK travel, which represents around 15% of revenue, and it remains an attractive market for us and has proven to be resilient despite industrial action. We have seen a very encouraging return of passengers with leisure and weekend passengers recovering the fastest, which is helping to drive our ATV growth. We know from our segmentation of return on space analysis that leisure is the customer segment which is most valuable to us. And we also continue to invest in this channel in new formats and opportunities. Earlier in the year, we successfully completed the refit of our Paddington store to a one-stop shop format, extending our health and beauty ranges from one meter of space to eight meters of space and allocating more space to tech accessories. This has been very well received by passengers and driven strong sales. In addition, we have continued to focus on category expansion and improving our ranges of food and drinks. Turning now to the next slide. And finally in travel and consistent with our strategy to identify new space opportunities, we have recently launched a new premium gifting store concept under the brand Curiosity. This new concept demonstrates how we're able to adapt, innovate and create another bespoke localized brand and product offer with a strong focus on sense of place. We now have six stores open at Gatwick and Bristol airports, as well as at St. Pancras station and two stores within Selfridges. In addition to providing a new shopping experience for travelers, this format also offers an incremental sales opportunity in locations where we already have a WH Smith store, by freeing up the space to expand categories such as health and beauty and food to go. It's still early days, however, we know that this is an attractive proposition for landlords, not only in the UK, but also overseas, as we have recently won two new stores in Dubai, and we see further wholesaling opportunities internationally. Turning to the next slide and a quick summary on our overall travel business. So the outlook for our global travel business is strong. We have had an excellent year of progress driven by improving passenger numbers, ATV growth, further margin growth, and new space opportunities. The scale of the growth opportunities globally is substantial, and we continue to have a high success rate of winning new tenders. Our new store opening program is also very much on track with 118 stores opened in the year. And as you have heard, our forensic approach to retail is driving great results. As the revenue of the business continues to improve, the operational leverage benefits will result in an improvement in margins and profitability. So looking ahead, we have started the new financial year well, and we expect another year of investment, strong progress and growth. Moving on now to the next slide. Let me give you a quick update on High Street. And during the year, it delivered a good performance in line with expectations, delivering profits of 32 million pounds. This division will become an increasingly smaller part of the overall group as we grow travel, with High Street now accounting for around 15% of group profit from trading operations. We talked a lot through the presentation about our forensic approach to retail, and we continue to manage our space in High Street to maximize returns and maintain a flexible cost structure, and it continues to deliver good results. In addition, we continue to see good growth opportunities with funkypigeon.com. During the year, we have delivered savings of 15 million pounds, slightly ahead of plan. These savings come from 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 have worked hard over the past 10 years to create a very flexible lease portfolio in the high streets, 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 480 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 after years of savings, the high street cost base is still substantial, and we continue to see opportunities for further savings. You can see on the table our latest forecast for cost savings up to 2026. This gives us a total of £21 million over the next three years. Turning now to our ESG commitments. We have excellent sustainability credentials and we continue to make good progress. Over the past year, you can see some of our achievements in the table on the screen, including being one of the top performing specialty retailers in Morningstar's Sustainalytics ESG benchmark and being awarded a AA from MSCI ESG ratings. We have set our target to achieve net zero and are working with our supplier partners to help reduce emissions across our value chain. Finally, the need for literacy support is as important as ever, and we continue to invest in our partnership with the National Literacy Trust. Over the course of next year, we'll be sponsoring a new reading hub in Swindon as part of their Early Years Matter campaign. When we think about our colleagues and our commitment to them, we have made really good progress. Earlier in the year, we increased the pay award for all colleagues to support with the cost of living pressures, and also brought forward the pay award for store colleagues. Our DEI activities have continued at a pace, and we now have five employee networks focusing on pride, gender, parents and carers, disability, and race and culture. All of the networks are sponsored by members of our exec teams and are encouraging an open and honest forum for colleagues to drive positive change within the business. In addition, we have launched a new mentoring scheme in the year focused on fostering female talent within our organization. We remain committed to developing our colleagues' skills and developments. We have launched digital learning skills sessions to support learning both inside and outside the workplace. Turning now to our final slide to summarize. The group is at its strongest ever position, and we've started the new financial year well. We are very well positioned to capitalize on new and existing opportunities across the globe, and we expect to deliver significant profit growth in the current financial year. We already have a very strong pipeline of over 110 store openings across the next three years. It is very evident that our travel business is highly scalable, and we now have over 1200 stores across 32 countries. North America is now the second largest division by profits and will continue to become an increasingly more significant part of the group. Similarly, we see good growth opportunities in the UK and the rest of the world. We are significantly increasing the dividend and at the same time continue to invest in the business and we will see a fall in leverage. Finally, we will remain fully focused on creating value for our shareholders. So that's it for me. Thank you. And we will now take your questions, starting with those of you in the room.

Good morning. Jonathan Pritchard at Pale Hunt. First one on in motion, if I may. I know you mentioned the pipeline, et cetera, in terms of tech products. Is there anything that does slightly keep you awake at night that it might be about big tickets and consumer spending and the propensity to spend more? Just wondered if that might be a thing. And then just a couple on sort of run rates, really. CapEx 140 for next year, given the pipeline, would you expect to stay at 140 for the next couple of years after that? And then on closures, 60-odd this year, 20-odd, so 60-odd last year, 20-odd this year. Is 20 more the number to think about going forward, or might you have spikes?

Well, if I take the first, you take the second, Robert, and I'll take the third. So in terms of emotion, when you think about emotion, really the core of our business is tech accessories. Yes, we do sell hardware, but the profit that we make on hardware is is actually tiny. It's very low margin hardware. The whole core of the model is tech accessories. It's all of the boring stuff that makes your hardware work and that market is very robust. The market that is slightly weak at the moment is the headphone market and that's a cyclical thing with Apple. So at this point last year, about a couple of months ago, Apple launched their second generation AirPod and we're anniversarying that. And as with Apple in the hardware cycle of their launches, sometimes they get out of kilter and you can see quite a big downturn. Normally though that will even itself out. And tech accessories, including headphones, has grown each and every year over time. So it's a very robust market, tech accessories, and it's good margin. And increasingly, a lot of those accessories that we're selling are accessories that we source ourselves from China. So I'm very confident in the overall market of Inmotion.

Robert? In terms of CapEx, Jonathan, once we're out of this year, the next two or three years, I'd be thinking more around 120.

And in terms of new store closures, typically, and in the main, the stores that we close tend to be smaller travel stores where we've won a tender, we've opened larger stores in better quality space. I'll give you a good recent example is Newark, where we've opened 13 brand new stores. We actually closed four smaller stores. And so there will always be a bit of that. I think it's typically more towards the lower end going forward in answer to your specific question there.

Thanks, morning. Richard Chamberlain, RBC. Could I ask a couple on rest of world travel? First of all, how you see the margin sort of panning out over the next few years? Should we expect a sort of steady progression there? And also, how do you see the ownership model changing? I think it's roughly about half directly run at the moment. Should we expect more directly run units going forward instead of either JV or franchise? Thanks.

Would you want to take the first? I'll take the second. Sure. In terms of the progression, I think I sort of talked about this before. We don't see the rest of the world getting up beyond 10% as an EBIT margin. And that's a function of the sort of disparate nature of the number of countries that we operate in. We're currently going to, this last year we were around 5, 6% I think in terms of EBIT margins. So over time I would expect to see that accrete towards 10, but it won't be over the next couple of years. We're still opening a lot of space. We're still getting into new countries. So accretion, slow accretion, but probably towards 10% in the medium term. Thanks.

In terms of the ownership model in the rest of the world, we've got directly run stores, joint venture, and franchise. Where we're in established European markets, typically they're directly run stores. In the Middle East and Asian markets, we typically move more towards franchise or joint venture, but our optics on it is what model will create us the best value, what will get us the best execution, and that's how we think about it. So I think we will continue to grow through all three of those routes.

Thanks.

Morning, Warwick O'Kinds from BNP Paribas Exxon. Two questions, please. The first is on the sort of cadence of tenders in the US. There's obviously been a bit of a catch up since COVID on the number of tenders the airports are offering. What does this year and next year look like in terms of that speed of tenders? The second question is your comments, Kyle, about gross margin opportunities. Just interested in that in a historical context. Do you expect gross margins to be higher in travel, bearing in mind mix, et cetera, higher than historic levels? And if so, does that mean higher EBIT margins or does it absorb higher costs? Thank you.

Okay, so in terms of tenders, the first thing to say is that landlords very rarely give a timetable of tenders. What I will say there about the U.S. is the vast, vast majority of U.S. airports are publicly owned, and therefore their procurement rule states that at the end of a contract, they have to go to tender. and the typical life of a contract is seven to ten years so therefore broadly over the course of the next decade the vast majority of retail business will come up for tender we're quite a new entrant so most of our contracts are quite fresh all of the contracts that come up typically we're not the incumbent and hence why the opportunity for us is is so outstanding So the answer is I don't know how many tenders will come up, but the past would suggest a number will come up, and our ability to win tenders is actually increasing, not decreasing. So we're very optimistic about our ability to grow in North America. In terms of gross margins, the way we think about it as we move more towards a one-stop shop, we're moving from lower margin categories into higher margin categories. And a good example of that would be moving the share of sales more from news and magazines and more into towards accessories with a higher margin. And that's how we're growing our gross margins. And I think we've stated that as we see our business grow and scale, we would expect our EBIT margins to get better as well.

Good morning. Vincent Ryan from GoodBuddy. Three questions for me, please. Firstly, if you could just give us a sense of how ATV is currently trending within the UK business. Are you seeing any net of the expansion in terms of new categories? Are you seeing any signs of softness in underlying spend within the UK specifically? Secondly, if you could update us around the curiosity concept, how big do you think that could be or how incremental could that be to your UK business as a whole in the sort of mid to long term? And finally, given that you've recently refinanced your debt, could you give us an update on the sort of the broad terms of your revolving credit facility and sort of thoughts of your deal average going forward? Thank you.

I think you know which question you're doing, Robert. I do curiosity then. So our ATV is in a really good place. And what we're doing, particularly in the UK, is broadening out our categories. And it's this whole thing around the one-stop shop format of moving into health and beauty and tech accessories within WH Smith stores. So what's happening is when people are coming into our stores, people are typically putting more products in their baskets. And that work will continue. There's still a lot of scope for us to continue to grow that. I think we've only just started when it comes to tech accessories within WH Smith stores. And there's still a lot that we can do around health and beauty. And I talked in the presentation about expanding the range in Paddington. So we've got Euston Station, and we've got Paddington, where we've got this big health and beauty range. It's worked fantastically well. Over time, we will expand that to other rail stores, and we will be able to expand our health and beauty offer into other airport stores. So our ATV is very strong year on year, and it will continue to be so. Curiosity, it's still early days. We've only got six stores. The one in St. Pancras is a good store, and if you wanted to see one in action, go and have a look at that store. We're selling premium cards there. It's a great fashion offer. It's very different to WH Smith. A bit like InMotion, when you go into an InMotion store, you wouldn't think it was anything to do with InMotion. It's the same with Curiosity. It's a very different brand because we don't want any substitution effects. I think there will be an opportunity to grow that brand across the UK in travel locations. Will it be massive? It won't be massive. But is it a nice extra business and another string to our bow when we're talking to landlords? Yes, it is. And then I could do the third question, but I think Robert will probably...

probably answer it a bit better. I'll answer it and say that we're pretty much in line with market in terms of our refi, in terms of the margins that we're paying. But bear in mind that the biggest part of our debt is the convertible, and the convertible's got a fixed coupon of 1.65%. So we're very well hedged in this current environment. and we are dipping in and out of our facility. So it's pretty much all on the convertible at the moment. And that would be where I'd be thinking about the financing costs over the short term.

Great, thank you.

Good morning. Tim Barrett from Deutsche Numis. Can I ask two bigger picture questions, if that's all right? The first was just to learn a bit more about the $3.8 billion number that you mentioned in the US. Could you just explain a bit more about the envelope of that? What kind of categories it includes? Is it everything apart from duty-free? The second question, in terms of the like for like in North America, obviously a bit of noise, as you said, around Vegas and stuff. But if you leave that aside, what's the kind of medium term like for like you aspire to there?

Well, in terms of the overall market, $3.8 billion, those are all of the categories that we effectively play in. So it's everything from souvenirs, gifting, convenience, books, all of those categories. And we can pretty much play in any part of the retail offer. We also franchise stores over there. So in the US, we run three Lego stores, for instance. So if a landlord has a block of, say, eight retail units, we will be able to either fill that proposition with retail that we do ourselves, or we will find other partners and will effectively franchise those stores. So all of that market is addressable. And where we've had significant tender wins like Newark and Kansas City, we've been able to demonstrate that we could fill all of that retail offer. So in Kansas City, for instance, we took 85% of the entire retail space. So we feel pretty confident that that's an addressable market for us, and it completely excludes any F&B. In terms of like-for-likes, in terms of the core part, 50% of our business now is what we refer to as MRG, the big business that we bought in the US, MRG Air. That's where we're spending all of our money opening stores, and that's where our core like-for-like stores are. Our like-for-like growth there is really good. It's high single digits, and exactly where we need it to be, and with opportunities to grow. The two differences that we have in terms of like-for-like is Vegas, where we're seeing this kind of shift, this difference in pattern in terms of who's traveling to Vegas. It was all holidaymakers this time last year, whereas now it's more geared towards conference people and events. So the like-for-likes are slightly down, but not significantly, and we expect it to wind its way through. And then we've got this in-motion... part of our business in the US, where because the in-motion stores are very small, headphones are such a significant part of that business that when the headphone market is down, then it causes a real short-term issue for us. But again, this quite often happens with tech accessories, and it irons its way out. And in the same way that we're now faced with being out of kilter with a big launch, the time will come where there's a big launch where we're out of kilter with a flat market. And so we should see some growth. So we feel very optimistic about our US business. Thanks a lot.

Hi, frederick howard at bank of Ireland. Looking at your esg page, you make References to various providers. I see sbti on the right-hand Side, but nowhere mentioning your relationship with them. I just wondered what stage of the certification process are You at with them or what are you at the stage? thank you.

We have our target certified with sbti.

Good morning. Paul Rossington from HSBC. A couple of follow-ups, really. Perhaps I missed it, but have you actually said what the ATV grew by year on year? And I was wondering if you could split that by items and then inflation. Thank you. I have a couple more, but I'll give you that one first.

Have we disclosed our ATV year on year?

I don't think we have disclosed it. Great.

And is there any split you might be able to give us on items and inflation?

The vast majority of it is about items. We trade in a number of different categories. And while some of the categories do attract inflation, such as snacking products, quite a few of the categories that we trade in, categories that have come from the Far East, haven't seen significant inflation. The main reason why our ATV has gone up is people putting more products in their baskets.

Thank you. On the U.S. five-year market share target, 20%, that means you're effectively going to increase your U.S. revenues by just over 50%, I guess, pre-inflation. What kind of leverage could we expect to see in the margin of that business over that period?

The way I think about it, Paul, is that at the moment we're in FY23, North America delivering an EBIT of around 13%, and that should accrete by around 50 basis points. a year and targeting around 15% slightly less than we are targeting in the UK. And that's because of the scale of that market and the additional distribution and warehousing costs that we'll have in North America when we get to that size of business. But continuing to see margin accretion mainly through the leverage effect of opening all those stores and being able to get the fixed costs spread over a higher revenue number.

Thank you. My last one, net debt leverage, EBITDA leverage. You say you're going to be back within the envelope this year. Are you able to say, I'm assuming you're going to be in the top half of the envelope, not in the bottom half, but just wondering if you have a view on that.

Maybe slightly above middle of the envelope, but it will depend a bit on the number of investment opportunities that we have. If we win a lot more business that we need to open this year, then we will spend the capex to open that business if that's the timing of it. But that's my expectation. We will be in the envelope. We'll be nicely in it, but probably towards the mid part of it. Okay.

Thank you.

Shall we move on to questions through the webcast?

Thank you. If you've joined us via telephone lines and would like to ask a question, you can press star 1 on your telephone keypad. Our first question comes from Kate Calvert from Investec. Your line is now open. Please go ahead.

Good morning, everyone. Two questions from me. First on US Air. Roughly how much of the space do you regard as immature? And could you talk to what sort of maturity curve you're expecting for the nearest stores? And the second question is on UK Air. Could you talk about the breakdown by product category? For example, how much of your business is news and food? Thank you very much.

In terms of you, I'm not showing this to the US. OK, in terms of in terms of USA, the amount of businesses immature. Well, I would say most of the stores that we've opened in the last 12 months would be immature and in the sense of particularly as we come out of COVID and in a number of these. locations which are new terminals, the movement of passenger numbers into the new terminals can take time, and so there is a buildup to the full capacity in those terminals. I'm thinking of places like Newark or MCO in Florida. Most of the last 12 months, I would say. And then in terms of what we expect going forward, they get matured pretty quickly, six to 12 months. And then we'll see a pickup in year two in terms of the returns that we get because we don't have the pre-opening costs. And mostly the passenger numbers are in place by then. So really up to around 12 months.

In terms of UK air and product categories, we've seen quite a seismic shift over the last couple of years, and I think we'll continue to see that. So a higher proportion of our business is food, and that will continue to be so as we expand out chillers and we broaden our food range and we premiumize it. More of our product range will be health and beauty, and I think we've only just started there. And we can see where we've got stores fully fitted out, the amount of sales that we can drive from health and beauty. And we compare that to small stores and there's a huge opportunity. And then even though we've got in motion stores, in-air stores, we have 35 times the amount of footfall through a WH Smith store. So taking the best of in motion and having a really good tech accessories range in WH Smith. Again, that will expand that category. So that's the shift that we will see over time and that we've seen from the last couple of years, but that will continue. So more sales in food, health and beauty, and tech accessories.

Thanks very much.

Thank you. We have no further questions from the telephone lines, so I'll hand back to the room. Well, thank you, everyone. Thanks for coming.

Thank you very much.