SSP Group plc

Thank you. Good morning everybody and welcome to the SSP preliminary results presentation. I'm Donathan Davies and I'm joined today by Miles Collins and Sarah John. So for the agenda today, I'll give you a short introduction. Miles will then take you through the financials and I will then cover the business review and our plans for the recovery. And we'll finish with Q&A. So firstly, a quick summary of the highlights. It's been a very challenging year, of course, but we've seen a strong performance in the second half. While sales only recovered to 38% of pre-COVID levels, we managed to return to break even at an EBITDA level, representing a 22% profit conversion on the lost sales to 2019, which is well ahead of the guidance that we'd given earlier in the year. We generated cash in the second half of 83 million, again, a very positive outcome when compared with the expected cash usage. This performance has once again demonstrated that we continue to keep a very tight grip on our operations and on our cash flow, which has always been a feature of the business. So all of this left us in a very strong cash position with 935 million of available liquidity at the year end, including the 300 million from the CCFF, which we will repay in February. Our priorities for 2022 remain unchanged, that is to continue with the reopening of the business in a very disciplined manner, keeping a tight grip on costs and cash flow, especially whilst uncertainty remains around the pace of the recovery and, of course, with the recent emergence of the Omicron variant. Having said that, we've also continued to build our pipeline of secured new business And we see plenty of opportunities for investment and growth ahead as the travel sector recovers. And we've also made good progress in strengthening some of our key capabilities, particularly with regard to our sustainability strategy. So now let me pass to Miles who will take us through the financials.

Good morning. Clearly our full year results were once again heavily impacted by COVID-19. but we're in line with the guidance we gave in September with our pre-closed trading update. Overall sales were 834 million for the year, down by 70% compared to 2019. We saw an underlying EBITDA loss of 108 million on a pre-IFRS 16 basis and an operating loss of 209 million. Following the rights issue in the spring and strong free cash flow generation in the second half year, net debt reduced to 308 million. Under IFRS 16, we saw an underlying operating loss of 323 million and net debt of around 1.48 billion, reflecting the additional lease liabilities for the minimum guaranteed rents. Over the next few slides, I'm going to run through the reported numbers and highlight the impact of IFRS 16. And then once I've dealt with the accounting, I'll focus on the pre IFRS 16 results. So looking at the overall P&L, you can see the impact of IFRS 16 mainly reflected in lower concession fees offset by a higher depreciation charge. You'll note that the net result of these changes is that the underlying operating loss is higher by approximately 114 million under IFRS 16. The principal reason for this difference is that the IFRS 16 concession fee don't include the benefit of any of the short-term rent waivers we've secured amounting to 92 million. As was the case in the prior year, these have been reported as exceptional items. And if we included the adjustment to these rent waivers, the underlying operating loss would be similar under both accounting measures. Looking further down the P&L, We saw an overall net loss of 222 million pre IFRS 16 or 32 pence per share. And under IFRS 16, this underlying net loss increased to 324 million or 47 pence per share. The net financing costs under IFRS 16 was 72 million compared with 44 million on a pre IFRS 16 basis due to the unwind of the discount applied to the capitalized minimum guaranteed rents. Under IFRS 16, the tax credit was approximately 51 million and the non-controlling interest share of the losses were around 19 million. A brief word about the exceptional items. The non-recurring items added a further 18 million to the reported loss before tax, reflecting impairments, restructuring costs and debt modifications, but offset by the temporary MGR waivers of 92 million that I've just referred to. We've made a number of further impairments to fixed assets and right of use assets amounting to 24 million, largely reflecting the slower recovery in the travel sector we're now assuming compared to our expectations at the end of the 2020 financial year. We've also recognized further goodwill impairments relating to the goodwill created from the acquisition of SSP by EQT in 2006. The restructuring costs of 18 million were mainly redundancy costs, and we've expensed the fees for the amendment and extension of our bank facilities, which we negotiated alongside the rights issue. The exceptional financing costs principally reflect the requirements of IFRS 9 and the impact of the debt modifications as a result of the revised agreements with our lenders and the higher interest costs that we will pay during the waiver period. Now, leaving the accounting and turning to the underlying performance of the business, firstly sales. During the first half, revenue remained at very low levels, running at only 20% of pre-COVID levels, as you would expect given the reinstatement of lockdowns during the winter across many of our markets. During the second half, the gradual easing of lockdown restrictions resulted in increasing passenger numbers across the travel sector. In the third quarter, revenue improved to 27% of 2019 levels, led by a strong recovery in North America, and in the fourth quarter to 47%, driven principally by improving rail and air passenger numbers in the UK and continental Europe. Since our pre-close update in September, we've seen trading continue to strengthen across all of our principal markets, with first quarter revenue currently averaging around 66% of 2019 levels. Looking at our regional performance in more detail, This chart illustrates a couple of the points I've just made, namely the real recovery in North America during the third quarter, followed by the sharp improvement in both continental Europe and the UK during Q4. In continental Europe, this fourth quarter improvement reflected the ongoing recovery in rail passenger numbers and increased air passenger numbers over the summer holiday season. The UK recovery began slightly later once lockdown restrictions were finally removed in late July. The further improvement over the first nine weeks of the current quarter can be seen across all four regions, albeit at a lower level in the rest of the world division. Now turning to profit. With sales down by around £2 billion versus pre-COVID levels, The impact on profit continues to be mitigated by the extent of the actions we've taken to reduce operating costs, the extension of furlough and other government support, and our further success in negotiating rent concessions, principally minimum guaranteed rent waivers. As a result, we've managed to limit the profit conversion on the reduced sales to around 22% for both H1 and H2. That second half out term was better than the 25% indicated at the interim results in June, helped by our success in accessing additional government support in a number of countries in continental Europe, reflecting the continued impact of the pandemic on the travel sector. That's left the operating loss for the year at 209 million. Looking forward, against a likely backdrop of higher cost of goods and labour inflation, as well as significantly lower levels of government support. Our expectation for profit conversion on the reduced sales in 2022 compared to 2019 continues to be at the upper end of a range of 25% to 30% as we set out in our pre-close update in September. Looking at the P&L for the year, and I'm comparing it to 2019 on the slide, The GP was up by 0.8% year on year to 71.9%, reflecting the work that we've done to simplify and optimise our ranges during the COVID period. You can see the operating cost reductions that we've made in response to COVID, taking out over £950 million of costs from labour, concession fees and overheads compared to pre-COVID levels. We've reduced labor costs by 57%, benefiting from keeping units closed where passenger numbers are low and continued access to government furlough schemes. We've managed to reduce rents by around 61%, mainly through continuing to agree minimum guarantee waivers with our clients. And we've also been able to reduce the rest of our cost base dramatically, taking over 50% out of our overhead costs, again, helped by reduced unit numbers. That discipline in only opening units in line with the recovery and passenger numbers is illustrated on the next slide. Throughout the last year, we've delivered significant reductions in operating costs, primarily by reopening outlets very selectively, trying to match the number of units as closely as possible to the passenger numbers. We can do this because the vast majority of our operations are in multi-unit locations. With sales running At around 65% of 2019 levels in the first week of December, we now have approximately 72% of our units open. Looking briefly at the P&L for H2, As we indicated in our pre-closed statement in September, as a result of the improvement in sales over the summer and the actions taken to manage profitability, we were able to deliver positive EBITDA in the final quarter and slightly above break-even EBITDA for the second half. Compared to the first half, you can see that the higher revenue has driven material improvements in second half labour costs, concession fees and overheads as a percentage of sales. Now turning to cash flow. We continue to manage cash flow tightly, generating net free cash flow of around 83 million over the second half, so slightly ahead of the 60 to 80 million range indicated in September. As you can see from the chart, the working capital inflow in H2 was exceptionally strong at 150 million. Around half of this was delivered by the strengthening of sales during the half. helped by opening additional units, with the other half largely down to our continued tight management of short-term liquidity, including agreeing further payment deferrals and extended payment terms with clients and suppliers, and continuing to accrue for rent liabilities where waiver negotiations remain ongoing. Cumulatively, since the start of the pandemic, we estimate that these deferred liabilities amount to around £150 million. And as we've said previously, we've been very disciplined with our CapEx program, limiting CapEx to 25 million in the first half, but stepping this up to 44 million in the second half in line with the gradual recovery in passenger numbers. Moving on to net debt. Net debt at the end of September was 308 million. down from 692 million at the start of the year, benefiting from the 451 million of net proceeds raised from the rights issue in the spring. Under IFRS 16, net debt increases to around 1.48 billion due to the lease liability of 1.2 billion for the minimum guaranteed rents. So looking at liquidity. Following the rights issue in April, we had pro forma liquidity at the half year of just over £850 million. With the benefit of the net free cash flow generation in the second half, that available liquidity has increased to £935 million at September 2021, with cash on the balance sheet of £774 million and further undrawn committed facilities of £161 million. This includes the Bank of England CCFF of 300 million, which will be repaid in February 2022. But excluding that, we still have over 600 million of available liquidity. So to summarize, following a resilient first half performance in very challenging trading conditions, we've seen a good performance in the second half of the year with revenue steadily recovering and with positive second half EBITDA and cash generation. as a result of which we ended last financial year with over 900 million of available liquidity and with net debt just above 300 million. For the new financial year, although we've seen a strong sales recovery continue into the first quarter, we remain cautious about the near-term outlook, with some uncertainty around potential travel restrictions in Europe over the winter, as well as any impact from the new COVID variant. We continue to expect profit conversion to be closer to the upper end of the 25 to 30% range during the current year. Looking further forward, we continue to expect a recovery in like-for-like revenue by 2024, with our pipeline expected to add a further 15% to 2019 revenue levels by that time. And by then, we would expect EBITDA margins to be back at a similar level to 2019. I'll now pass to Jonathan to cover the business review. Thank you, Miles.

So today we're still in the recovery and rebuild stage, which means that right now we're focusing on reopening units and doing so as closely in line with the recovery and passenger numbers as we can. Throughout the pandemic, we've sought to align the number of units and opening hours with passengers to maximise the volumes through each outlet and to optimise our commercial performance. However, encouraged by the ongoing recovery, we've started to focus increasingly on new business, both mobilising the pipeline of new outlets that we've won but not yet built, and also gearing up to look for new opportunities. So firstly, an update on the recovery and the key priorities by division. In the UK, we've seen a steady recovery in the rail sector, driven by a return of commuter traffic and the late but strong pickup in air following the easing of restrictions in July, which has continued well into the autumn. So for the UK team, it's been all about reopening during the second half, Back in March, we had only around 30 units open in the UK, so you can see we faced a huge task to reopen the best part of 400 outlets over six months, many of which have been closed for over a year. Whilst the shortage of labour in the hospitality sector has been a challenge, it's not had any material impact on us, and we've been able to open all the outlets necessary to meet the increasing demand, given the passenger number recovery. In continental Europe, the shutdown of travel wasn't as extreme as rail travel held up better than in the UK and the motorway traffic was less impacted by COVID. Following the launch of the EU COVID passport in July, we saw a strong recovery in leisure traffic in air, much as predicted. As in the UK, this has continued well into the autumn rather than following the usual seasonal trend. Looking at the latest sales for Spain, for example, which are almost back to 2019 levels, you can see the evidence of the demand for winter sub. The good news is that because of the more extensive furlough schemes in most European countries, we've been able to bring back existing staff as we reopened the business, so we haven't faced any of the same recruitment pressures. Now turning to North America, The US has led the recovery, although Canada is now catching up after a slow start, and it's been very much driven by leisure and domestic travel. We've been able to open around 240 outlets to date, around 70% of the total estate on the back of the recovery, albeit the pace of reopening has been slightly constrained by the availability of labor, which has been common across the hospitality sector. As we look forward, our real focus in North America will be on the building program. As we've nearly 50 new outlets to open that we've already won but not yet built, these will in due course add over 100 million to the sales line. And finally, in the rest of the world, it continues to be a very mixed picture. For example, in Egypt, passenger numbers and sales are now well ahead of 2019 levels. Whereas in Thailand, we're only just emerging from an almost total lockdown in late summer when we closed all of our units. Across the region, the exposure to international long haul passengers means that it's likely to be the slowest to recover as we've always anticipated with airports like Hong Kong and Singapore still operating at low volumes. Nevertheless, the large domestic markets such as India and Australia are now starting to recover, helped by the accelerating pace of vaccine rollout. Now let me turn to our strategy. Our strategy for delivering sustainable growth for shareholders remains unchanged and will now benefit from some of the learnings from the pandemic. As ever, it's based on delivering top-line growth, both from like-for-like sales and net new space, alongside a programme of ongoing efficiency initiatives, whilst delivering high returns on every pound of capital investment. Our financial model has been proven over many years, and we have a very strong track record of driving shareholder returns prior to COVID. On top of this, We continue to reinvest in and strengthen key areas of the business, our customer proposition, especially our own brands, our technology, our people, and our sustainability strategy. And embedding sustainability right across the business is central to our strategy. To remind you, our sustainability framework is based on three pillars, supporting and protecting our colleagues and community, serving our customers responsibly, and protecting our environment. And we've developed an ambitious program of activities against each of these pillars and set ourselves new and challenging targets against each. You can see some of our targets here, but to highlight just a couple, we committed to sourcing our food products and ingredients responsibly, and we've extended the range of products that will be 100% sustainably sourced by 2025 to cover palm oil, fish, tea and coffee, all very important commodities for SSP and more will follow. To minimise our impact on the environment, we're committing that all packaging from our own brand products will be recyclable, reusable or compostable by 2025. And finally, we are committing to achieving net zero carbon emissions by 2040. And within the next 12 months, we will be publishing science-based targets for scope one, two and three emissions consistent with the one and a half degree global warming scenario. Now as a food business, it's important that we take a lead in providing healthier options. Supporting healthier lifestyle choices is an important area of focus. And you can see here some of the brands where we're bringing a much wider range of health and wellness items into our ranges. either through our own brands like Soul & Grain in the UK or Harven in the Nordics, or through our third-party brands like Naked and Exki in France or Freshie in the US. And in addition to this, we're seeking to better communicate the nutritional attributes of our menus. So for example, in the US, we have wellness-focused points of sale which signpost which products are vegetarian, vegan, or low-calorie, as you can see in the middle panel here. Now, moving back to the other strategic levers, firstly, I'd like to touch on the top line and the recovery in like-for-like sales. As we set out before, we expect that the recovery in our sector will be led by leisure and domestic travel, and we believe that SSP is well-placed to benefit from this recovery. That's because our business is strongly weighted to leisure travel, around 60% of the underlying passengers, and domestic travel, also about 60%. We've been encouraged by the speed of the recovery to date, which over the first quarter has been very closely in line with the base case we set out at the right issue. In-air, helped by the strong and extended holiday season, sales have recovered to 62% of pre-COVID levels in the first quarter to date. And in rail, the recovery has been even more rapid, up to 71% in the first quarter, led by continental Europe, but with the UK not far behind. Whilst there remains some near-term uncertainty, our medium-term expectations are unchanged. That is, we expect passenger numbers to be back to broadly pre-COVID levels in air and back to around 90% to 95% in rail by 2024. And this would leave our overall like-for-like revenues back at 2019 levels by 2024, as we set out in our base case and as Myles said earlier. Now, moving on to business development, we have a significant opportunity to expand the footprint of the business over the next few years. And there are four key components to this. Our first priority is on renewals and extensions. Historically, these have generated the best returns on investment and during COVID, we've been successful in renewing and extending contracts generally on favourable terms and with downside protection. Our second priority is to mobilise the material pipeline of new outlets that we've already won, mainly pre-COVID, and are now looking to build and open. As of today, this pipeline is a further 200 units representing an estimated 275 million of annualized incremental sales. And we have an additional 150 million of annualized sales to come from the outlets that we've already opened, but have yet to trade for a full year or at normal levels of sales. Now, on top of this, there's a very sizeable new space opportunity over the next few years coming from the backlog in tenders and transport infrastructure investments, which are now restarting. And finally, as we've said before, we're already seeing a number of competitors not reopening certain units or electing to withdraw from the travel sector completely as a consequence of the pandemic, which will present further opportunities. So just to illustrate some of these, firstly, an important recent renewal. We announced in November that we'd secured a six-year extension at Savannah Bhumi Airport in Bangkok, where we currently have 29 outlets. We've also run an additional five, taking our overall operation there to 34 units across both the international and domestic terminals. Nearly everything here is going to be a new build. and we're commencing the reinvestment programme now as Thailand starts to reopen. And during 2021, we've renewed and extended important contracts all around the world, including at our airports in Bristol, at Nantes in France, Arlanda in Sweden, Changi in Singapore, Goa in India, and Minneapolis and DFW in the US. Now looking at the secured pipeline of additional units, We have 200 additional units with signed contracts, which should contribute around 275 million of annualized net contract gains by 2024. Note, this doesn't include the recently announced joint venture with Aeroport de Paris, X-Team, which we won't consolidate and therefore won't include in our reporting sales, as is the case with our current joint venture with them. You can see here that over a third of the sales will be in North America, which has been one of the main sources of growth prior to COVID. The rest are fairly evenly spread across the other regions and include a healthy pipeline of new outlets in the rail sector in the UK and continental Europe. And we expect to invest in the region of 100 million in building this pipeline. So looking at some of the recent new business wins, Today, we've announced an agreement with Malaysian airports to operate a total of 29 units over a seven-year term, mainly in Kuala Lumpur, but also in Kuching. This adds to the deal we signed earlier in the year to operate six lounges in these airports. This will see us introduce new brands like Jamie Oliver and Hard Rock Cafe into Malaysia, alongside well-known fast food brands such as Subway and Coffee Bean and Tea Leaf. And just last month, we announced a new joint venture with Aeroport de Paris that I've already mentioned to operate the food and beverage in both Charles de Gaulle and Orly airports. This new joint venture will take on contracts from existing operators as they expire over the next 10 years. So over the life of the deal, it will take our business from about 45 units today to over 100 units, giving us all of the food and beverage across both airports. And as we've said throughout the pandemic, we expect to see opportunities arise where competitors don't reopen. It's still very early days, but we are now starting to take advantage of some of these opportunities, albeit selectively and only where the locations and rent deals are attractive. But we've already secured new outlets in a number of situations around the world, as you can see from the chart, and we anticipate more to come. And finally, turning to efficiency. Commercial and operational efficiency has always been at the heart of SSP, and it's been an important driver of our consistent margin enhancement over many years. As we look forward, we are now resuming our focus on a wide range of programmes to drive further efficiency into the business, building on the learnings and actions we've taken during the pandemic. Over the last 18 months, we've described at length how we've reduced our cost base and found ways to make the business model more flexible and efficient at low volumes. Suffice to say, there's a long list of COVID learnings which we'll be looking to embed in the business going forward. And many of the wider programme of projects that have been paused during COVID are now restarting, such as in production automation and the use of energy efficient equipment. Clearly, there are a number of inflationary pressures in the market currently, both on labour and in the supply chain, particularly in the UK and North America. However, we are confident in our ability to mitigate these pressures and to deliver margins back at pre-COVID levels in the medium term. So to summarise. We've delivered a good performance in our second half with positive EBITDA, strong cash generation and liquidity underpinned by a strong recovery in the travel sector, albeit we face an increased level of near-term uncertainty. However, throughout the pandemic, we've demonstrated our ability to open and close outlets and to manage our cost base and cash very tightly in the face of extreme volatility in travel. Looking forward, we have a material pipeline of secured new contracts to mobilize over the next two to three years, and we see significant further new business opportunities. Despite the ongoing impact of COVID, we've continued to invest in our business and in our customer offer, our technology, our people, and sustainability to strengthen the capability of the organization. The business and financial model is proven, and as the market recovers, we'll be strongly placed to grow the business and use the financial capacity at our disposal. Our medium-term expectations remain unchanged, which are for a return to pre-COVID-like-to-like sales and margins by 2024. And in closing, I would just like to remind you that next time we report in the spring, we'll have a new chief executive in place, Patrick Coveney. I'm delighted by his appointment and very much looking forward to his arrival in March, which will allow me to return to doing my day job. And now I would like to open up for Q&A.

Thank you. If you wish to ask a question, please press star followed by one on your telephone keypad. If you change your mind and wish to remove your question, please press star followed by two. When preparing to ask your question, please ensure that your phone is unmuted locally. to confirm that star followed by one to ask a question. The first telephone question today is from the line of Jamie Rollo from Morgan Stanley. Please go ahead.

Thanks. Good morning, everyone. Three questions, please. The first thing is just on the outlook for 2022, you sort of talked down the base case at the end of September. I think you were sort of looking for something in the high 60% range of 2019 revenue and given the first nine weeks are sort of close to that, were it not for Omicron, do you think you might be now closer to that base case scenario? Secondly, the sort of 2024 target of like-flight revenues back to 2019, I mean, by then that'll be sort of five years of inflationary-led pricing. which sort of implies perhaps only a 90% volume recovery. And yet you're expecting 100% recovery in air and 90 to 95% in rail. So, I mean, is there something else in there in terms of structural headwinds we're not factoring in? And could you talk about what your sort of pricing expectations are? And then finally, you mentioned the new CEO. Is there anything sort of different we should be expecting when he joins or really is the company sort of just, you know, running itself? and cheekily to lose two CEOs to EQT. Is that just a coincidence? Thank you.

Okay. I'd like your last question, Jamie. Let me start at the top. So you refer to the fact that in September at the pre-close announcement, we did talk about planning conservatively. which is what we've always done. And we said that we might be planning for sales to be something up to 10% below the base case. But stress, that's a planning assumption. It's to keep the cost base low. And I think you're absolutely correct. I mean, based on what we've seen over the first nine weeks, which is bang in line with the base case, as it was in the second half of last year. I think if it weren't for the current level of uncertainty, I think we might be saying, yeah, we're bang on track for the base case and we'll plan accordingly. So in a sense, I can give no more guidance than that. If it wasn't for the very recent news flow, we'd be saying we're actually ahead of our planning assumptions. In terms of the like for likes by 2024, again, you make a very good point based on our assumptions around the passenger recovery. If we saw normal levels of inflation over a sort of four or five year period, yes, we would be slightly ahead of the aggregate like for like sales. In our assumptions around the rights issue and our forecasts for the base case, we assumed a more modest level of price increases and therefore some margin compression when you look to cost inflation versus price inflation over that period. But fundamentally, you're right, if we were to see pricing at higher levels than we've assumed, you might see like-for-like revenues slightly above that. But again, it's a long way off, and there are clearly a number of moving parts to be addressed in the interim. And finally, a word on Patrick. Well, clearly, you will in due course have to ask him for his own thoughts. But I think he is joining a business which he recognises has got a very good business model and strategy. So as he commented in the recent announcement, I don't think he's really looking to make huge strategic changes. I think that he will clearly add something to the business, particularly with his experience in the food production sector. So I'm sure he will add things to our own brands and to our supply chain management. But I think that's for him to comment on in due course. But I stress, I don't think we're really anticipating any major changes. strategic change and it's clearly not a coincidence that we've lost two chief executives to EQT. We have a long heritage with EQT and there was clearly a direct interaction between Simon and our previous CEO, which I'm sure you're probably aware of Jamie.

I hope that answers the questions. Yeah, it does. Actually, just to follow up, what sort of average price increases are you putting through right now if it's possible to generalize?

Difficult to generalize given the sort of breadth of the business, but typically relatively low compared to previous history in the face of reduced demand.

Okay, thanks a lot.

Okay, thanks Jamie. Next question is from Tim Barrett from Numis. Please go ahead.

Hi, morning all of you. Can I ask one thing on the P&L and a cash flow question? I'm interested in the guidance on drop through to profits of over 30% level. Can you talk around the sensitivities on minimum annual guarantees? and how that might play out and any sensitivity around your guidance and I guess the same on overheads and then on the cash flow just trying to work out what you're signaling with the 150 million capex really obviously that's bullish for mobilization but unlikely to be funded through operating cash flow at current levels of consensus so you know you're comfortable funding it through the balance sheet, but to what extent? Thanks very much.

Okay. Morning, Tim. Thank you. So in terms of the drop through, I think the key message really in guiding to the sort of higher range of our historical guidance of 25 to 30% is that as sales recovery recover, the gap narrows as it were compared to 2019 levels in terms of profit. And as we've said before, we will lose some of the government support that's protected the P&L. I stress that government support isn't furlough, which clearly covers the costs of holding people in employment, but it is sort of direct grant support, things like the waiver of business rates in the UK, which you've seen, which is why we think, compared to the 22% we saw last year, we think that the drop-through will move up Our assumption around minimum guarantees is pretty consistent, so we are assuming that we continue to get broadly two-thirds of our minimum guarantees waived, and as Miles indicated earlier on, some of those are still ongoing dialogues, which hopefully may be resolved successfully, which would be clearly beneficial in terms of the guidance we've given. In terms of the capex, again, it's a very fair question. There is a balancing act to be made between investing in growth slightly ahead of the recovery whilst it will not be entirely funded out of organic cash flow. As we said all along, we will monitor the situation closely What we've said today is that we anticipate investing more in CapEx in new business as we look forwards, consistent with the encouraging recovery. Now, if we were to see that store for a period of time, we'd probably be more cautious. And indeed, many of the agreements that we've that we have with our clients for investment are predicated on us recovering to certain levels of passenger numbers again. So in a sense there's a sort of self-correcting mechanism in many of our contracts, including some of the new ones we've announced today.

I hope that makes sense.

As a reminder, if you'd like to ask a question, please press star followed by one on your telephone keypad. Next question is from Ali Naqvi from HSBC. Please go ahead.

Hi, good morning. I just wanted to follow up on the CapEx point. Could you just give us an idea of how you think CapEx is going to phase as you reach up to the 15% of sales growth by 2024? I mean, obviously, you've also commented on utilizing your headroom. How does that look in terms of on a cash phasing basis longer term? And then second question, on the competitor withdrawals, you've always been reluctant to say whether this comes at lower ends or better terms, but is there any actual tangible benefit that you're seeing from these competitor exits and could you quantify it?

So let me tackle the first one on CapEx. Again, really refer you to some degree to the answer I just gave to Tim, which is that we would anticipate that the phasing of our investment really matches the recovery, so it's difficult to know. I think within the guidance that we've given today, which is that we could spend up to £150 million in 2022 on CapEx, There's an assumption that we're mobilizing sort of just over a third of that pipeline and that would require something like 40 to 50 million of capex. But again, I stress we will retain flexibility around that. But there is an assumption here that that capex is invested generally over the next couple of years, perhaps some into the third year. In terms of competitor withdrawals, again, difficult to generalize. Clearly, in some cases we would hope to benefit, in some cases we will benefit from being able to utilize some of the assets that are in place. So we'd hope to get good returns on some of these because there's plenty of existing equipment, furniture, et cetera, for us to reuse, even where we might have to rebadge the unit and put a new fascia in place. And clearly, in certain circumstances, we will have renegotiated lower rent. So in some situations, we've got competitors who have, frankly, paid what we would argue were fairly high rents pre-COVID. are now withdrawing, and we've taken the opportunity to step in, but on the condition that we have more downside protection and lower rents. And again, we've talked before about some of the withdrawals from the airport market, for example, in the UK, which are in the public domain, for example, by the restaurant group. Got it. Thank you.

Okay.

I hope that answers the question, Ali.

Next question is from the line of Paul Ruddy from Good Body. Please go ahead.

Hi, good morning, guys. Just a couple of quick ones, kind of a follow-up on rent. Just in relation to the contract you're renegotiating with passenger protection on the mag side, are they, say, in a normalised environment if you get back to 2019 levels of sales, would you expect a similar percentage of rent or do the commercial terms change at all? The second question then is probably a derivative of that again. It's just, I suppose, the risk of airport operators in particular trying to recover lost revenues in the coming years. You know, you're pretty confident that your existing contracts protect you from that risk or is there anything you can kind of see right now that would concern you? And the final question is just how do you stand today on the length of contracts? I think it was about 55% of your contracts had a lifespan of less than five years at the time of the prospectus. What's that number today?

Okay, well, I'll let Miles perhaps tackle the first one on rent and I'll take the next couple.

Hi, Paul. Yeah, I think the expectation would be a similar level, frankly, by 2024. I think we think the market will sort of normalise by then in line with the recovery in sales and passenger numbers. But I think the downside protection will remain is probably the other point to make. So there is protection going forward against the volatility we've obviously seen over the last couple of years. OK, thanks.

And I think with regard to your question about is there sort of any, which I think you're asking, is there any exposure as we look towards the end of contracts with clients? I mean, I stress that what we have done in most situations over the last 18 months is negotiate waivers of minimum guarantees. So generally we're paying the concession fee if we haven't renegotiated the concession fee, the MAG is waived either across the lifetime of the contract or sometimes or more normally for a shorter period. but there's no way in which that is recovered over the latter part of the contract, so there's no exposure to worry about. Clearly, if there were a mechanism where payment were deferred but had to be reimbursed later, we'd have to book that in the P&L anyway, so what you see is that we've got genuine waivers and clearly in our reported numbers, we have to have signed contracts to support the rent that we book in the P&L. In terms of the length of contract, our latest analysis shows that the average length of contract is essentially unchanged or not materially changed. What we've done is over the COVID period, we've had a good level of success in extending contracts, but often those are for shorter periods of time. So they haven't really, changed the average contract length in our portfolio, albeit I should stress that the examples that I gave earlier in the presentation around renewables are full-term extensions, but those are contracts that have reached the point of expiring. But there's nothing really changed since the data that you would have seen previously, which on average contracts are in the region of 10 years And therefore, there's on average, you know, a sort of five-year remaining term if you think about the contract runoff profile. I hope that makes sense, Paul.

Yeah, that's really clear. Thanks very much, guys. Thanks.

Thank you. This concludes our question and answer session. I would like to turn the conference back over to Jonathan Davies for closing remarks. Please go ahead.

Thank you. Well, all that remains for me to say is to thank you for joining us today. I hope you feel these are again a solid set of results in the circumstances and I think demonstrate the resilience of the business and indeed the speed of recovery as we see restrictions in travel eased and we see passengers come back and I think we've seen that very strongly in the first quarter and again I think the other takeaway I hope from this is that the new business activity whilst still at somewhat reduced levels is gearing up and I think that the prospects as we come come out of the pandemic and we see a recovery, the prospects are still very strong for the growth of the business. So with that, I'll close the call and thank you for joining us.