Avolta Ag Unsp/Adr

Welcome to the Evolta's Q2 Results 2024 conference call and live webcast. I am Moira, the chorus call operator. I would like to remind you that all participants will be in listen-only mode and the conference has been recorded. The presentation is followed by a Q&A session. You can register for questions at any time by pressing star and 1 on your telephone. Webcast viewers may submit their questions in writing via the relative field. For operator assistance, please press star and 0. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Mr. Xavier Rossignol, CEO of Avolta. Please go ahead, sir.

Thank you very much. Good morning, good afternoon, good evening. Thank you very much for being on this first half 2024 Avolta results presentation. I'm here with Yves Gester, our CFO. we will first have a presentation and then an open Q&A. We are going to use the presentation we have put in our website this morning. I will be referring to the pages we are going to use. So we will start in page four with some of the highlights. First, we are presenting a very strong set of first half results. Once more, and now it's six quarters in a row, we are presenting results that are in line or ahead of expectations, and in line or ahead of our own outlook. We have grew The first quarter and the second quarter, an 11% year-on-year with an organic of 7.1%. EBITDA has grown more than that, almost 16%, thanks to the expansion of the EBITDA margin by 40 basis points on the top range of our outlook, reaching already 9% for the first half of the year. Taking into consideration our seasonality, this is a very good result. Even more expansion on the equity-free cash flow. We can see that not only the top line goes well, but the synergies and the cost discipline is reflecting in the EBITDA and in the equity-free cash flow, growing that number more than 30% versus the same period of 2023. The key business development is also going very well. We have in this page, and it has been published during the semester, the several renewals and new signing of contracts across the board. At the same time, we keep finalizing the active portfolio management and exiting the less or the least profitable concessions we have. That's why the combined number of wins and losses and exits is close to neutral. But with the timeline and the signings of 24, 25, and 26, we believe that number will, of course, remain on the positive side over the near future. And the last idea on the highlights. We are not only performing well on the short term, but we are growing. step by step building this new company, the foundations of continuing this good performance over the next few years. I'll deep dive in that in a few minutes, but we are transforming the physical stores. We are transforming the digital engagement with customers and we are even exploring new ways of using the data that we have not done so far. Flipping now to page five, we have a little bit more details on the figures. We have reached 6.3 billion on the first six months of the year. 7% organic, 11% reported. July and the expectations for the summer remain very strong. Quarter one, of course, benefited from Easter that was moved from quarter two to quarter one in 2024. But if you eliminate this factor, the progression has been very stable. The comparables in the summer are, of course, more challenging. Last year, July was the highest ever. But despite that, we keep seeing very good performance at the beginning of the summer. I already mentioned the expansion on the EBITDA margin, a combination of the synergies that will be fully implemented in 2024 as announced, and also a general cost discipline because this is a clear priority on our strategy, which also converts into a higher equity free cash flow. Yves will explain in more details the different elements of that equity free cash flow. Also, net profit, core net profit after minorities has reached 182 million, which is also an extraordinary result. It's 47% more than the same period of last year. We continue deleveraging, reaching already 2.35%. which is clearly in line with our continuous focus on deleveraging. Again, if we'll explain more in a few minutes. Moving now to the next page, we have some data on the regional split, on the category split, and on the segment split. We typically don't discuss that, but I think it's very important to use this data to see how diversified is our business, particularly into the business lines. Almost a third in each of the key businesses, duty-free, duty-paid, and F&B. That allows, together with the geographical split, to be very resilient, very predictable, and very constant on the performance. By region, some of the headlines, EMEA had the growth like for like close to 10%, which is pretty strong taking into consideration that Europe has lacked some of the highest spenders for geopolitical reasons. and also has been suffering some of the countries, the effects of the Middle East conflict. Despite that, the behavior of consumers remain very strong because, as we said several times, if one place is not open for holidays, they go to another place. And overall, our EMEA activity is extremely strong and growing. Also, it's pretty extraordinary that we have some of the main shops in Spain under refurbishment. north america also a very strong performance with a like for like of more than six percent working very well both the fmb the duty paid and a little bit better even the duty free as you know the north american business is more domestic than the rest it's a very stable business and it's more on fmb and duty paid than duty free duty free It's starting getting more and more traction because some of the Asian passengers that were lacking last year are starting coming. Not the Chinese, but other Asian nationalities. Latin America, also very strong performance. Once you take into consideration that Argentina was particularly strong last year due to a very particular situation of the exchange rate. Now Argentina is back to the traditional level of sales. If you discount this factor, the region is growing more than 10%. And the reason is because Mexico, the Caribbean is remaining very strong. They are holiday places. And on top of that, now we have Brazil picking up with the recovery of the traffic and the consumption in the country. So overall, also a very strong performance. Even if we had, of course, as is the season, some effects on hurricanes and other aspects, but we don't explain those because one year is one thing, another year is another thing. But they're still very stable. Asia-Pacific, where we have done the biggest restructuring of the portfolio, but when you do like for like, it's also growing 13%. which is particularly impressive taking into consideration that on the locations that rely mostly on Chinese passengers, that's not the case. Chinese are traveling less internationally, and they are consuming less than last year. Despite this factor, and thanks to the diversification, we've been able to more than compensate that effect in other parts of the portfolio. That's why, on a like-for-like, all the regions report a positive growth. If we go now to page eight, I'm gonna use a few slides to give a little bit of a strategic update. The first page is well known, but I'm not sure it's always taken into full consideration. We are in an industry where the number of potential customers increase three, three and a half percent per year. But the cumulative effect of this means that in 15 years, you double the number of potential customers. And those are customers that are in front of our stores, in front of our shops or restaurants. And on that basis, if we go now to page nine, we have a very clear strategy which we have explained many times, but I think it's good to remind it. Pillar number one is the focus on the consumer. Those passengers that are already in front or even sometimes inside our stores have an average consumption, an average penetration of 25%. So there are many passengers that happen to be there, they are not finding what they want there. or on the way they want it. And that's why we are investing a lot of time and effort, and I explain some cases in a few minutes, and how to attract those. And that could include the hybrids, better use of data, the entertainment. The second pillar, which maybe we didn't mention in the last few calls, is the constant and continuous operating improvement. And that's why the growth in sales, it's projected into more growth of results and cash flow, because we keep a very strong discipline. And we are learning a lot. And we are learning how to be more efficient in the cost, how to be more efficient on the capex. And over time, I think that will keep reflecting in an expansion of margins and cash flow. The geographical diversification. I think the behavior of Europe, to give an example, it shows that the strategy of having a wide network on the different regions is very important. Because nobody can predict exactly the geopolitics or the economical situation of every single country and population. But if you have a wide network of countries, you can compensate those effects. Europe is very clear, North America is very clear, Latin America is very clear. And over time, with expansion we expect in Asia, also in Asia. The geographical expansion properly done, it gives you predictability and visibility on the results. And of course, we keep committed to our social aspects of the activity. And we keep investing in reflecting our activities into the communities where we are. If we go to next speech, In one slide, what means this strong market and this clear strategy? It means that Avolta is unique. Avolta is uniquely positioned from a competitive point of view for three clear reasons. And they're not opinion-based, they're factual. Number one, we have the widest network in the industry. on number of locations, on number of countries, on number of stores. And that is reflected also on the size of our concession portfolio. And very importantly, that that portfolio is in duty-free, duty-paid, and F&B. So we can cope with any movement in the market, and we can benefit from any new trend better than anybody else. Second, our scale. We are the largest. That is undisputed. And that means also gives us advantages on the relationship with the brands. And if we combine innovation to that, we can attract more and more value from them. And the third undisputed fact is that we have access to more data than anybody else. Now, What you could claim is, well, this is factually true, how are you gonna take advantage of that? And that's what we are doing, and that's why the numbers are what they are, and we can continue doing. But our basis makes us unique. What are we doing? A couple of slides on that. So if we go to next slide, slide 11, we are acting in our portfolio in two things. On the physical stores, restaurant and shops, with a concept we call flex. Flexible stores, local stores, entertainment, and the X factor. And we are advancing progressively on the digital engagement end-to-end with the consumers. On the first pillar, physical stores. This flex, which is a bunch of initiatives, but is packaging four ideas to simplify the explanation. All our newest stores or restaurants are with a standard skeleton, which means we can change the shelves, we can change the concept, we can even have a F&B concept that could be personalized to events with practically no cost. The message is very simple. We try to be fast in adapting to consumer needs without having to make a big investment on changing the shop or the store. Local. It's clear that there is an increased presence of local products, local brands, and local sense of place, and we emphasizing that in more and more stores. If you choose the right products and you choose the right brands, this is an upside on the sales of the shop, because you still sell the global brands, but on top of that, you have a new segment of sales. Entertainment. That has been on the table for quite a while, and we are getting traction into that. It's not only the number of activations we do on the stores, it's that we do it systematically, and we measured them. That's something that was not the case in the past. Now we know what works and what doesn't work, and then it's easier to extend. And with the proper entertainment, you can change the flow of a store. And that now, thanks to the smart cameras, we know we can change the flow in the store. And with that, you can impact sales. And the last one is that includes several things. One, the hybrids. We receive from time to time some skeptical questions about hybrid concepts. We estimate the hybrid market will be between 10 and 20% of the overall market over the next few years, but it's going faster than we initially anticipated. To give you a data point, on the tenders, that they have been issued this year in U.S., 25% of them included hybrid concepts. Specifically, you can offer F&B, you can offer retail, and you can offer hybrids, with an average of 20% of the space allocated to those hybrids. And it's not rocket science that we have a competitive advantage there because there are less players that are capable of doing advanced hybrids. Smart stores, we will reach 100 stores this year that will represent a significant part of our sales. And as I said, it's not only important to have the cameras and the software, it's to use it to improve the layouts, the assortment, the pricing, where you place the people. We are also advancing on the cross promotions and the cross sell between the different activities. And the places where we have retail and F&B, or at least one of the two types of retail and F&B, it's material. And for that we don't need any tender, we don't need any new contract. we already have the footprint. The only thing we need to do is the commercial activities to benefit one activity from the other. And we see at least a third of our footprint that could benefit from cross promotion. So many of the things I said are possible only thanks to the merger. Others could be done standalone, but some of them are thanks to the merger. So we repeat that the merger has been successful not only on the capacity to generate cost synergies, but also on the capacity to position us over time to keep adding new business. If we move to the second page on the implementation is the end-to-end digital engagement. And I want first to give a bit of data. And then to go to some details. This year, there is 8.7 billion people going through airports. So this is airline traffic, of which we are exposed to a fourth, 2.3 billion. Which means also that, following my earlier slide, that in 20 years, in 15 years, we are going to have 5 billion people potential customers going through our location. Of that, about 25% buys on our store. So today, we have 500 million of customers. And a fraction of that are loyal customers. Of course, the loyal customers are frequent flyers, so those are a fraction. But the expenditure that you can get from those loyal customers is higher than the average. That's why we believe that we need to get information from the passengers, from the clients, and from the loyal clients. In each of them, with more granularity, but for all of them, data. Where are we on this process of using the data? We are in early stages. So this is not something that will transform the company on the next six or 12 months, but has the potential to bring the company to another level three, four, five years from now. So for the next few years, we will keep developing what I mentioned before. But for afterwards, we will use more and more of that data. That data has the potential to improve the way We use assortment pricing, the physical stores, the layouts, also optimization of cost because we are finding out, for example, with the smartest stores that sometimes we don't have the people on the right place or the right number of people. So you can optimize cost. You can optimize working capital. But you can also generate potentially over time new lines of business thanks to using this data. Great market, clear strategy, deployment of that strategy on all key matters. And as a conclusion of that, and that's my last slide, page 13, we confirm the outlook. Because the outlook is not just a bunch of numbers. The outlook is the consequence of all the things I just explained. I'm going to repeat the numbers, even if everybody knows them. An organic growth of 5% to 7% per year, with an expansion of EBITDA margin of 20 to 40 basis points, with an equity-free cash flow increasing 100 and 150 basis points per year. Probably this year, all those metrics will be on the top range, and a very clear capital allocation. We continue with the target to keep the leveraging until we reach 1.5 to 2 times net debt to EBITDA. And we will use one-third of the yearly equity cash flow to dividend, which, of course, as the equity cash flow increases, also the dividend will increase, and two-thirds either to strategic growth or deleverage. Now I hand over to Yves. Thank you very much.

Thank you very much, Xavi. And good morning or good afternoon to everybody on the line. Let me start directly with the profit and loss statement on slide number 15. with a comment on the two first line on turnover and cross-profit margin. So turnover came in at 11% plus reported, which represents an organic growth of 7.1% versus the same period of last year. The cross-profit margin improved by 110 basis points. And those two lines together represent where we as a company stand at the moment in the industry. Turnover growth and at the same time, relevant margin improvement can only be achieved thanks to the strong demand by our customers on one hand side. And secondly, and that's even more important, by our initiatives on the travel retail revolution, which start to get grip, be it on the digital side or on the more conservative traditional side, including everything Xavi has mentioned before in regard to the strategic update. be it the flex model or the digital initiatives. Looking at the cost side of the profit and loss statement, starting with concession fees, they're in line with the performance of last year with 25%. Personal expenses is slightly higher as a percentage over turnover, but that's related to some effects of last year where we had some lacks in the hiring of the people still in the first quarter of the year and some minor effects on the six plus six and six plus five months comparison between the acquisition of and combination with AutoGrid last year versus this year. On general expenses, there is no material difference between last year and this year. And that yields in an EBITDA margin of 9%, bang in line with the improvements of the outlook we provide of the 40 basis points, the higher end of the guidance of 20 to 40 basis points per year we target in the medium term. Below EBITDA, the different lines do not bear any surprises. They are very well managed and ultimately yield a profit, a net profit to equity, which is significantly higher than last year and any year before, also on a comparable basis. So it's the strongest half year, first half year the group has ever reported, also on a pro forma combined basis. If we move on to the next slide with the cash flow statement. So the cash flow statements or the cash flow in general, first and foremost has been supported by the strong operational improvement, starting with the ABTA. On network and capital, and with network and capital, I basically mean the first two lines of the cash flow statement. There's also no surprise that's roughly in line with the performance of last year. On CapEx, we have seen a slightly lower number as a percentage of turnover of what our medium term guidance represent. So it's a 3.5%. We are slightly behind the 4%. We do still expect the 4% to be there in the medium term. Otherwise, the cash flow statement does not bear any surprises. The equity-free cash flow came in at 313.5 million Swiss francs, a very strong result, and also here the strongest we have seen ever in the company for the first half of the year. What is also important to note here are the couple of lines below the equity-free cash flow. We have started again to pay dividend. So that's the 104 million of dividend we have paid in the second quarter. Secondly, we have bought some treasury shares. And thirdly, we had a FX difference, and that's a pure translation impact to transfer or translate the debt in foreign currencies into Swiss francs. And all of that together results in a change of net debt, which is slightly negative for the first half. Moving on to the next slide with the balance sheet. So there is nothing specific to report on the balance sheet. Some of the lines have been impacted by FX translation impact. This is, again, a pure translation impact. So nothing to worry about that. And on the other hand, we have seen a slight increase in inventory. This basically follows the normal seasonable pattern we see in our industry. So we are purchasing ahead of the peak season in summer and therefore slightly higher inventory position than at the end of last year. Moving on to the next slide. with the net debt and the leverage. So as I've already mentioned before, net debt slightly increased. Those effects are on one hand side, the improvement due to the cash flow generation. So that's a positive contribution. And on the other side, we had the dividend payment and the FX impact on net debt, as well as the treasury share purchase. Looking at leverage, disregarding the slight increase of net debt, we were able to reduce the leverage even further. We currently stand at 2.35 times, coming from 2.6 times by the end of last year. So quite an improvement, again, especially taking into account that net debt slightly increased. Obviously, that's thanks to the operational improvement, the increase in EBITDA, which is the second part of the quotation for the leverage. What is also important to note here is, again, and to repeat once more, but Xavi has already mentioned it, the leverage target, which we have for the medium term, which is 1.5 to 2 times. And we are on the trajectory to reach that target and further deleverage the organization. Moving on to the next slide with the maturity profile, a couple of comments here. first one you still see there in 2024 a small portion of a maturity that's the second leg of the debt of the bond so as a reminder we have refinanced that bond already in q2 what is here is the remaining maturity from a cash flow perspective later this year but what is important to note the refinancing has been completed in that regard so it's just from a repayment perspective that this is to come up in october Having said that, a couple of other points which I like about the current maturity profile. First, the maturity profile itself with an average duration remaining lifetime of the debt of around three and a half year. Secondly, the split of product. We have a good split between bonds and bank financing. Thirdly, the split of different currencies. So we are refinancing in line with the exposure we have from an operational perspective to the different currencies. And lastly, but probably most importantly, we have done ahead of COVID a shift into fixed rate coupon debt. We have enlarged the amount of exposure to bonds. And thanks to that, the expenses of interest expenses during COVID did not increase massively. We profit from that perspective and still today have around 70% of our debt on the fixed rate coupon and the remaining part on the floating rates. We have some maturities which come up. And as always, I repeat the same thing I always said, we will refinance those maturities significantly ahead of maturity, which for us typically means between 12 to 18 months ahead. Moving on to the next slide, which is my last slide. So look, just as a quick wrap up, what this is all about. So on one hand side, we as an organization, We profit from the secular growth in our industry together combined with the strategy Javi has mentioned before. We have a very disciplined cost structure where we are focusing on cost discipline and also cash flow generation. We are very resilient in regard to our diversification, be it in regard to products, geographical diversification, financial discipline when it comes to projects, etc., And last but not least, all of that will lead to increase over time on shareholder value with increased performance, increased profitability and ultimately improvement in the cash flow generation in line with the destination 2027 and the outlook we have provided. And with having said that, I hand over back to Xavi.