Dufry AG (OTCPK:DUFRY) Q2 2022 Results Conference Call August 9, 2022 8:30 AM ET
Company Participants
Xavier Rossinyol – CEO
Yves Gerster – CFO
Conference Call Participants
Manjari Dhar – RBC
Rebecca McClellan – Santander
Jon Cox – Kepler Cheuvreux
Jörn Iffert – UBS
Gian-Marco Werro – ZKB
Alex Apostolidis – Barings
Ali Naqvi – HSBC
Xavier Rossinyol
Good afternoon, Good morning. Thank you for joining today’s call where we are presenting the first half year 2022 results for Dufry. I’m here with our CFO, Yves Gerster. We will present together the key results. I’ll be moving right away to Slide number 4.
The half-year results signals a continued rebound from the pandemic, which is reflected on all relevant lines of the P&L and also the cash flow statement. Let me summarize the financial performance in 3 KPIs. Firstly, we have seen significant recovery of the revenue over last month with a turnover of CHF 2.9 billion, reflecting already a 75.5% of 2019 levels in constant exchange rate. This turnover reflects an organic growth of 147.2% versus 2021. Secondly, for me, one of the key highlights of today, Dufry is reintroducing EBITDA as a KPI to measure our operating profitability.
The metrics follow the former pre-IFRS 16 standard. Yves will elaborate on this in detail on his part of the presentation. But this reintroduced metric, which we call core EBITDA, which reflects fully the concession fees as their expense and cash out amount for CHF 227 million. With an EBITDA margin for the first half of 7.8%, only slightly below the 8.5% we had for the first half of 2019 despite CHF 1.2 billion less sales. Thirdly, our equity free cash flow is well above 2019 levels. However, — and here, it’s very important to consider some timing shifts in working capital and CapEx. A more normalized level — and Yves will explain the details — will be in the area of CHF 30 million to CHF 50 million for the first half, which is still a very positive result, considering the lower turnover level versus 2019. Moving now to Slide number 5. As you know, I was appointed CEO of Dufry in February, and I took office in June 1. It has been a lot of work and a great pleasure to work with the entire team, not only in head office and not only on the senior management, but across entire organization to prepare a strategic plan structured around serving our main stakeholder, the traveler.
This newer strategic plan will ensure we are optimally positioned to fully benefit and fully capitalize the emerging opportunities in our industry. The best example of delivering on this newer strategy is our recent announcement combined — of combination with Autogrill, a global leader in travel, food, and beverage. As we explained in detail, in July 1, combining travel retail and travel food and beverage will create a new integrated physical and digital global travel experience player. We are reimagining the traditional boundaries of our industry, focusing on the traveler. Let me now get into a little bit more detail on the key business metrics of our performance.
For that, I will move to Slide number 6. The air travel sector is still recovering from the pandemic. We all know that. For 2022, across the board, forecast providers are seeing passenger numbers, ending for the full year between 17% and 27% down of the 2019 normalized figures. ACI predicts it will take until 2024 for the industry to see the growth at the level we saw in 2019.
Expectations for 2023 have also come down only slightly but come down on the most recent weeks. For example, Air forecast now is predicting 2023 passengers at minus 15% versus 2019. To give an indication, for Dufry on our scope of business, the figures relevant traffic for the first half of 2022 at around 70%, 7-0 percent of 2019 year-to-date numbers. Moving to Slide 7. As I have mentioned at the beginning of the presentation, we have seen a strong rebound in organic growth during the first half of the year.
And the recovery trend has continued during the most recent months, reaching 91% of 2019 levels in July at constant currency is slightly a little bit less in the first few days of August, which is, of course, a very limited number of days. Going to Slide number 8 on retail space. At end of June, we have managed to open a little bit more than 2,000 of our stores globally, about 90% of our sales capacity and of course, faster in the Americas and EMEA, alongside with the air travel trends and slower in Asia-Pacific. As the industry bounces back, we have been expanding our retail space, having opened around 7,000 square meters on the first half of 2022, and we have refurbished also slightly above 13,000 square meters. We have also won several new contracts and extended others.
The details are on the press release. I just want to mention one, we have extended our largest single location, Heathrow Airport, and we thank the airport for their trust, and now is running until 2029. Moving to Slide number 9. The regional mix mirrors the continued normalization of the travel, including the interregional and international routes across all the regions with the exception well known by everybody of Asia-Pacific. Looking at formats, duty paid share increased slightly versus 2019 due to the faster recovery of the domestic U.S. business and the intra-European traffic. The airport remains our largest channel with 91% of the sales and going forward, the announced combination with Autogrill will bring even greater diversification on the several metrics I just mentioned. Last, looking at product categories, we can see that convenience and food and beverage have higher share versus 2019. Again, the strength of the domestic U.S. traffic is a key explanation for that.
Moving now to Slide number 10. Looking at the regional performance in a little bit more detail. As you can see in the graphics, we are seeing strong rebounds globally, particularly in the Americas and EMEA, much less in Asia-Pacific. But even in the Asia-Pacific, we see that places like Australia, Bali, Cambodia have started reopening and the sales follow that reopening. While other countries, in particular, China keep the zero-COVID approach and the restrictive measures affecting not only the respective countries but also the influence, for example, of the Chinese traveler across Asia-Pacific.
Overall, these figures are very encouraging, especially when you see that North America, Central America, the Mediterranean, Eastern Europe and Middle East are all already outperforming 2019 revenues. Moving to Slide 11. Going now region by region and all the numbers I’m going to mention are at constant currency. Starting with EMEA. We have a good start of the summer with relatively higher sales volumes in May, June, and even more in July.
The main driver of this is the traditional holiday destinations to mention a few, Turkey, Greece, in general, Southern Europe, and also the Middle East. In July, the sales rebounded to 98% of 2019 levels. Of course, this is not the same across the region with a more business-related has been behind that and the more touristic destination being even ahead of that. Another consideration is that currently, we are experiencing flight and airport disruptions and capacity cuts due to the staff shortage across the continent, the European continent. And we think that will continue for the months to come.
The Americas, our best-performing region in the first half reached already 82% of 2019 levels and a growth of 97% versus 2021. The Americas has shown to be the most resilient region in the world, driven by the U.S. strong domestic passengers and now with increasing on the intra-regional and the Transatlantic travel. Also with Canada contributing. Tourists traveling to Mexico, Central America, the Caribbean Islands, Dominican Republic to name a few, are playing an important role to that.
In Asia-Pacific, as I already said, is significantly behind the other regions with a growth versus last year of only 5% and a turnover that is only 16% of 2019 figures. We all know this is due to the restrictive COVID measures, which will continue and make this region to recover far later than the rest of the world. Now moving to Slide 12. The performance of the first 6 months, we have been turbulent months for the airline industry but we have to focus on a very cautious manner for the second half of the year. There is a lack of visibility on the geopolitical context.
The COVID-19 restrictions, and as I just mentioned, continue in several parts of the world. The macroeconomic situation remains unclear, especially towards the last part of the year. Airport disruptions might continue into later in the year, given a challenging labor market and also supply chain constraints that might affect our business. We are, as we have shown on the first half of the year, very closely monitoring the global travel situation. And we decide case by case on the opening of shops on the signing of new contracts, on expenditure and on investment.
Therefore, we remain cautiously optimistic. We see a strong summer, but we remain cautious quarter of the year. We will try to make sure that we maximize cash flow generation, depending on the speed of the recovery. Now I will hand over to Yves to go through the financial section.
I’ll come back in a few minutes.
Yves Gerster
Thank you, Xavier, and good afternoon to everybody on the line. First of all, before we have a closer look at the financials, I would like to notify you of a change in the financial reporting. As you know, Dufry is heavily affected by the lease accounting standard, IFRS 16. The implementation of the standard back in 2019 significantly increased the complexity of our financial reporting. As a consequence, the most relevant KPI, EBITDA was suddenly not a meaningful KPI anymore.
Over the last month, we collected feedback from many stakeholders and also for some advisers on alternative ways to show our financial information in a meaningful and also transparent way, which also allows for straightforward comparison with other companies and peers in general. The result of the analysis is what we present to you today. On top of our formal IFRS results, we will present an additional P&L with new KPIs called Core. The new P&L, in essence, follows the former IAS 17 accounting standard, as Xavier has mentioned at the beginning, which was replaced by the new IFRS 16 standard in 2019. Those core figures exclude the impact resulting from IFRS 16 lease accounting standard.
On top, we will continue, as you know, to also correct the acquisition-related adjustments. A couple of points which are very important to note, there are no further amendments to the numbers. We only changed the way we present our performance by including concession fees and related payments in our operational activities as those are core to our operational business. Core number represents the whole group. There is no part which is carved out.
We hope you find this helpful. I will now take you through the key elements of the group’s financial performance during the first half of 2022. Moving on to Slide number 15. We saw turnover of CHF 2.9 billion for the first half of 2022. This represents turnover growth of 146.2% on 2021.
Gross profit margin came in at 60.9%, which is above 2019 levels. Here, it is important to note that we had some tailwind due to the recovery pattern. We expect gross profit margin to normalize again as we continue on the recovery trajectory. Concession expenses were still supported by some macro reliefs. And personnel expenses of CHF 440 million reflects the result of our continued cost control initiative on one side, but also the challenging labor market in many locations we operate.
What I want to say with this is that you need to expect some increases over time here as we currently cannot hire as fast and as many new colleagues as we need to. Other expenses net came in at CHF 253 million. Also have seen some lower spending due to phasing. On our new metric, EBITDA, we realized CHF 227 million, reaching a 7.8% EBITDA margin for the first half of 2022. Depreciation and amortization is now lower due to impairments done and lower CapEx spend during the pandemic.
With the normalization of our trading, we also start to incur income taxes again. Our net profit amounts to CHF 76 million and profit to equity holders to CHF 43 million. Moving on to Slide number 16. When implementing IFRS 16 back in 2019, I told you that the good news is, and actually was the only good news about IFRS 16, that it has no impact on cash flow. Now that we show you again a pre-IFRS 16 P&L, I’m very happy to repeat that statement.
This has no impact at all on cash flow. The only difference is the starting point. The cash flow now starts with core EBITDA. You will see that we implement an additional KPI on top of the existing one, which is cash flow before financing. This KPI reflects the operational performance from a cash flow perspective.
Looking at the performance on the half year 2022, you will note that the equity-free cash flow came in at CHF 196.7 million. This is obviously an amazing result, but we need to be cautious here. The result is affected by some one-offs, which you need to keep in mind. We’re also anticipating cash flow performance on one hand side, but also for the full year and going forward. Firstly, the change in net working capital came in at CHF 88.6 million versus minus CHF 16.8 million in the normalized year 2019.
So it’s a difference of around CHF 100 million. This is also related to the positive momentum of the recovery in the first 6 months and is expected to normalize over the second half of the year. Secondly, CapEx was influenced by some delays of projects. Here, please bear in mind that in the first quarter of this year, the discussion on the Omicron variant was still very prominent in addition to the geopolitical tension we have seen. We have decided to be cautious in respect to CapEx, and we expect to see higher spend in the second half of the year with around, give or take 3% of CapEx over turnover for the full year 2022.
On a more normalized basis, equity-free cash flow, therefore, is in the neighborhood of around CHF 30 million to CHF 50 million for the first half. Just to be very clear on that. This is still a very impressive result. Moving on to Slide number 17. As you know, our cash flow is a very seasonable pattern with Q1 and Q4 typically being negative and Q3 being the strongest quarter.
In addition to a strong bounce back in sales revenue, our half-year strong cash flow was supported by MAG reliefs’ impact and lower CapEx and also working capital inflows, as I already mentioned. We have seen an increase in trade payables while only moderate building up inventory. We have further seen increases in payables for income tax, concessions and freight, all related to the recovery pattern. We do anticipate some higher payments in the second half of 2020. Moving on to the next slide, Slide number 18.
We emerged from the pandemic with a well-balanced debt profile below pre-crisis level. This is due to the successful refinancing we have done back in 2021. Let me start on that slide on the right side with the chart there showing the debt profile. Our [ DUC ] profile holds a 78% versus 22% balance of fixed versus floating interest rate, which is important, especially now in an inflationary environment. Please bear in mind that especially the long maturities between 2026 and 2028 have fixed coupons at very attractive terms.
For the maturities in ‘24, 3 points are important. Firstly, the RCF is entirely undrawn. Secondly, the group currently shows an available liquidity of around CHF 2.2 billion, which decreases the refinancing risk. As mentioned previously, we will refinance these tranches significantly ahead of maturity. Now moving to the left chart.
Since I can remember and in time with the company, we have always shown the leverage covenant. During the pandemic, we had a covenant holiday and it, therefore, temporarily was not a meaningful KPI anymore. The covenant holiday still lasts and we will only test for the first time the covenant again in September 2023. Nevertheless, we wanted to show you the progress we are doing in this area. As you can clearly see on the chart on the left, the trend gives us sufficient comfort that we reach the threshold before the first testing date in September 2023.
Also, please bear in mind that the planned combination with Autogrill will accelerate the deleveraging by almost 1 full turn.
With that said, I now hand over back to Xavier.
Xavier Rossinyol
Thank you, Yves. Now I’m moving to Slide 20. As you know, over the last 4 months, we have been working on a new strategy, not on a strategic review, a full new strategy, which we will present on our Capital Markets Day on September 6 in London. This strategy is based in 3 key pillars: number one, delivery, a travel experience revolution by bringing together travel retail and travel food and beverage in one offering, an offering that has more contact points with travelers and provides a seamless and personalized experience, both in physical stores and digital. The combined entity will have an exposure to 2.3 billion passengers per year.
Second pillar, diversifying our geographical presence with a high focus on the attractive and resilient U.S. market where Autogrill materially helps. Our focused strategy for Asia-Pacific and the Chinese traveler. I will elaborate more on this in September, but we want to follow the Chinese passenger, the Chinese traveler, maybe not so much in China, but when they fly abroad. And for the rest of the world, our focus will be organic business development.
Third pillar, foster our culture of continuous operational improvements, getting all our business activities to drive efficiencies and cost savings on a recurrent manner to generate sustainable cash flow while investing in innovation and growth. We are incorporating ESG across all the pillars to make it an inherent part of our day-to-day business. And of course, we can only deliver this by empowering our already excellent teams and reinforcing them when needed. Together, all that would allow us to be in a position to generate sustainable long-term value for our stakeholders, including landlords, brand partners, and finally, our shareholders. Moving to Slide 21.
Just a quick refresh on what we pointed out in our presentation of the combination with Autogrill. Combining travel retail and food and beverage will create a new integrated physical and digital global travel experience. We moved from travel retail to travel experience, rematching the boundaries of our industry and focusing on what the traveler wants and the traveler needs. This global leader in travel experience will be led by a highly motivated and united team with the top talent of the 2 organizations. A team that also have long-standing relationship with our key brands in retail or food and beverage and with the airport partners and the other channels, landlords.
All this gives a high strategic value of the deal. Also, the transaction is a clear increase of the diversification and adds new growth opportunities. Importantly, we will significantly strengthen our presence in the U.S. market, which has proven, as I mentioned before, highly resilient even during the pandemic. And we will open up new opportunities in other key geographies, including Middle East, Africa, Latin America, and Asia-Pacific, thanks to bring together in one, the 2 offerings that the 2 companies are offering today. The new combined group will also benefit from cost synergies driven by the economies of scale and the operational improvements.
This combination also deleverages the business while increases the cash flow and is cash flow accretive since year 1. All of what I just mentioned will help to accelerate our growth while improving our profitability in the mid and long term as well as increasing or accelerating our deleveraging. We are convinced as a team that this combination creates sustainable value for our shareholders with the reinforcement of the longest strategic shareholder basis. As you know, we have already long-term strategic investors and shareholders in our current base. Now we will add [indiscernible] as a key long-term strategic partner.
And very important, we will do all that remaining committed to our ESG principles. It is an exciting prospect for all in Dufry and Autogrill. And I have to say that since we announced the transaction in July 11, we have received a lot of positive reinforcement from employees, from brands, more importantly, from airports, and also from investors. Moving to Slide 22. The timeline for the closing of the transaction remains as announced.
The next important milestone will be our upcoming Extraordinary General Meeting of Shareholders at the end of this month. The Board of Directors and we, as management, ask the full support for this combination, which we believe creates high value for the group, both strategic and financial. After that, we continue proceeding with the regulatory filings in parallel, and we are expecting to close the first stage of the transaction as announced on quarter 1, 2023, which will automatically trigger the mandatory takeover offer and all steps as formally announced with a full closing expected on the first half of 2023. Moving to Slide 23. Capital Markets Day.
We will provide more detailed information on the long-term strategy and the key pillars of our upcoming — in our upcoming Capital Markets Day in London. As a small appetizer to use a culinary term, a small short video [indiscernible] of the event. Video on, please. [Presentation]
Xavier Rossinyol
Looking forward to see you in London either physically or virtually because the event will be fully broadcast. To conclude in Slide 24, we are happy with the performance of the business over the first half of the year. Even with the continued disruptions in the travel industry, the demand by our customers have remained very strong. Sales, EBITDA, cash flow have all been very strong. We, nevertheless, remain cautious in respect to the future and continue with our tight cost and cash control.
Introduction of the new KPI core EBITDA will bring back higher transparency on the actual performance of our business and the reality of our concession contract. We remain confident about the long-term prospects of our industry and our ability to redefine the travel experience for our customers while driving our financial performance and generating value for all our stakeholders, in particular, airports brands and shareholders. The transformational combination with Autogrill will be part of this value creation. And as I said, we are progressing as expected. Thank you very much for your attention.
And now we are going to open the floor for questions.
Question-and-Answer Session
Operator
The first question is from Dhar, Manjari from RBC.
Manjari Dhar
It’s Manjari Dhar from RBC here. I was just wondering, what are you seeing at the minute in terms of customer spend per passenger and basket sizes? I presume that you’re seeing some kind of normalization there. And where do you think that they will settle longer term relative to pre-pandemic levels? And then secondly, could you perhaps give a little more color on what gross margin drivers you foresee for the second half?
Xavier Rossinyol
Thank you for your question and interest. The customer spend per head remains strong, but yes, there is a certain slowdown when the profile of passengers normalize. So the more passengers, the more we see going to normalized levels. Where they will settle, I don’t know. The main aim of the new strategic plan is precisely to focus on maximizing the spend per head today, next year, and 5 years from now.
So for that, we need to adapt the offering. We need to adapt the pricing, we need to adapt the shops, the digital experience. Your last question was?
Yves Gerster
The second one was around the gross profit margin and the outlook on the gross profit margin in the more medium term. I can take it. So look, to your second question about the gross profit margin, I mean, it’s probably threefold. First, we had the — we had significantly lower requirements for promotional activities and discounts. We basically have seen that the consumer was looking for was a high appetite for purchasing.
And therefore, those promotional activities were not required. Secondly, we had some benefits from Brexit, which also helped us on the margin. And lastly, as we have communicated many, many times last year, we have had the pressure from the wholesale from Hainan or from China. And that has changed because we have changed our supply chain. So that was an effect we only had last year.
It’s not to be compared with 2019, but that also helped us on the gross profit margin. In the more medium term, we assume that the gross profit margin will normalize again in the sense that the consumer appetite will also normalize over time. And therefore, the promotional activity will increase again, and we will see the normalization there. And also, you should not forget there is potentially going forward some pressure in respect to inflation.
Operator
The next question is from Rebecca McClellan from Santander.
Rebecca McClellan
Can you hear me? Can you hear me?
Yves Gerster
Yes, we can hear you.
Rebecca McClellan
A couple of questions for me. Could you — firstly, could you quantify what level of Macrolease was in the first half? And are you expecting further Macrolease into 2018 in 2023? And then secondly, is there any way of giving us an idea of what is 2Q versus 1Q EBITDA margin was? And if you look at look at the incremental EBITDA 2019 on the incremental revenues versus 2022, it looks like about a 10% EBITDA margin. Is that the level of margin that you’re currently seeing with sales where they are?
Xavier Rossinyol
The first question is MAG reliefs in 2023.
Yves Gerster
Looking in respect to the MAG reliefs, what we have seen so far and what is reflected is around 150 million in the numbers so far. So that’s for the MAG reliefs. And for the second one on EBITDA, can you repeat that question again? I was not sure if I understood it acoustically.
Rebecca McClellan
Just curious as to how the EBITDA margin has trended for the 2Q and 1Q given the extent of the turnover recovery that you’ve seen. And if you’re looking at 2019 and you’re backing out the increment in comparison to 2022, it so does suggest that, that could be about a 10% margin. Is that a fair estimate?
Xavier Rossinyol
Well, I think I would be careful — I think I understand why you’re asking, and I — we have to be careful on how we answer because sales are not normalized. Sales are not normalized also across the regions. There was a question on the gross profit margin. But as we see — we saw we have more duty paid today than the one we had in 2019. APAC is practically nowhere.
Also in Europe, the sales are higher in Southern Europe versus Northern Europe or the big hubs like Madrid, Barcelona, London. So the mix of sales is different. So that’s the first consideration. That also means the mix of EBITDA profitability is different across the regions and the subregions. And third, we do not have a normalized level of expense.
We have to give you an idea about 2,500 open positions across the board, particularly in regions like the U.K. or North America. Also, A lot of the recovery on the global function has not happened yet because we are very cautious to rehire before we see that the recovery is solid. So I don’t have the numbers now in front of me. We can give it to you later on per quarter. But I will not — I will encourage not to drive — to draw too many conclusions on the profitability of the second quarter that obviously has been much better than in quarter 1. But this is still on a non-comparable non-normalized manner.
Operator
The next question is from Jon Cox from Kepler.
Jon Cox
Jon with Kepler Cheuvreux here. A couple of questions. First one on the old metric you had this adjusted operating cash flow, which was the proxy for the pre-IFRS 16 EBITDA, that looks different from — for the core EBITDA figure, which itself looks different from the old EBITDA figures. I understand there’s some bits moving around in there. Some other operating income basically is included at the core EBITDA level rather than below the line.
Just wondering if you can either tell us what that adjusted operating cash flow figure was. And the reason why I ask, and maybe you could help me here, is really on the net debt EBITDA covenants because, obviously, that is a basis for all of your lending and borrowing — and just wondering what are you going to do? Are you going to persuade the banks to go to core EBITDA or you still have this adjusted operating cash flow? And obviously, if you do — it would be great if you could still give us that so we have some idea about how much borrowing potential we have. Second question is sort of linked to it.
At the moment, you can clearly see the shareholders in Autogrill look like they think they’re going to get a better deal with shares from Dufry with what’s happening with the Dufry share price over the last few weeks, now above implied above that EUR 633 minimum cash bid for minorities. This probably means that most of those minorities are going to take equity when it comes to the deal. And then I’m just wondering, when I start doing the analysis on your net debt EBITDA with Autogrill, et cetera, et cetera, for me, you could probably finance all of those minorities with the debt. And clearly, with a view to the whole deal being accretive to shares, I’m just wondering have you thought about how you will tackle that because I think you obviously want to use debt, but if everybody wants shares, would you then be doing some sort of buyback, and what do you think about that? Just to help us with our modeling as we try and plug in Autogrill and the mandatory convertible and also think about what the minorities may get either be paid for in debt or in new equity?
Xavier Rossinyol
Before Yves explains the details of your first question, I just want to say that we have made an effort together with the auditors because this figure is going to be audited, that the core EBITDA includes as many things as possible to have it as much as possible, a very clean and recurrent figure going forward. That’s why it includes basically more expenses than in the past. And the details…
Yves Gerster
Good. So look, on the details, as you know, and as we have communicated and we implemented adjusted operating cash flow, it is actually in a normal situation, a very good proxy to EBITDA. And we have provided historical information in the past when we implemented IFRS 16 at 2 subsequent Dufry Capital Markets Day. The adjusted operating cash flow is slightly lower than the former EBITDA. Now in principle, it should be even closer together.
Now as you pointed rightly out, that was not the case for the last 2 years. And the reason for that is specifically due to the MAG reliefs we have received during the pandemic situation. There, what you see are certain swings in the net working capital, which are stronger than a normalized situation, and therefore, the adjusted operating cash flow, which is before changes of net working capital showed some additional swings in that regard there. But in a normalized year, adjusted operating cash flow and EBITDA should be with some minor deviations actually be extremely close together.
Xavier Rossinyol
On your second question, first, it’s obvious that the closing of the first size or the first part of the transaction with Autogrill will only be quarter 1, 2023. Only then we will launch a mandatory tender offer. So any consideration on where the share price will be probably it’s too early to anticipate. What you said from a technical point of view is correct, if that would be the figures in quarter 2, 2023. Following your line of argumentation, when we said that this transaction was equity-free cash flow accretive on the first year before transaction costs, it is accretive even with 100% share issuance for the minorities.
Of course, it is more accretive if as we disclose, it will be 50-50 between equity and debt. For now, everything is in the frames that we expected. We always said when we announced that it could be that it’s 100% equity and that it could be a combination of equity and debt, 50-50 approximately if everybody will take cash. That has not changed. And that — for this time, this is the expected deal.
No other features should be expected to come on the structure of the deal because we will do it as planned.
Jon Cox
Well, I wanted to just push you a little bit because clearly, you’ve stated this — the net debt EBITDA goal below 3x. You could — if you did issue equity, you’re going to be well below that figure. And I’m just wondering what your thoughts are on buybacks because, clearly, the attraction for investors on the transaction is you will be suddenly throwing off a lot of free cash. And what are you thinking about the use of those proceeds in the future, whether it’s more M&A or are you open to buybacks in the future?
Xavier Rossinyol
Well, first, I have to confess, I’m not particularly prepared for this question because we are still going out of the crisis. We’re still rebuilding the business. It’s very encouraging that somebody in the investor community is already thinking about so much cash flow generation that we can do share buybacks. And at this stage, the discussion with the Board is very clear. We need to; one, rebuild the business; second, defend the key contracts that are for tender or expiry over the next 24 months; third, doing that on generating as much cash flow as possible, but at the same time, putting the basis — and that’s the idea of the new strategic plan — putting the basis not for having 1 quarter or 2 quarters or 6 good quarters, but to have sustainable cash flow generation over the next 5, 10 years.
Rebuilding the business, doing it cautiously, and building the basis for the long term. In this stage, we can come back to you later in the year, maybe next year when we have had that discussion with the shareholders — sorry, with the Board of Directors. But right now, we have not discussed any share buyback specifically.
Operator
The next question is from Jörn Iffert from UBS.
Jörn Iffert
The first one would be please on the shop concepts over the next couple of years, one of our key target is to increase the conversion of consumers buying your shops. This was tried in the last couple of years already. So what are the really the key 1 or 2 things you want to make different now to attract a better conversion? The second question is, please — it circles back to the big picture of 400 million SG&A savings announced 2.5 years ago. Focusing on the personnel cost line, with all this wage inflation happening, is it fair to assume that actually, when you return to 2019 sales level that the personal cost line in absolute terms will be quite similar, given the wage inflation offsetting the SG&A savings there?
And the last question, if I may ask, you said you want to follow the Chinese consumer more outside China. How is the Hainan operation developing at the moment? And are you thinking about to prolong it or to exit it? So just an update here, please?
Xavier Rossinyol
Thank you. On the shop concept, we are changing even the starting thinking point. Instead of thinking how the shop will look like or what is the standard layout or what our brands want or that we like, we start on data research on the consumer of that given airport, that given terminal. And we do what we call customization of the store. The store will be adopted on everything from layout, assortment, dynamic pricing, digital engagement, thinking about the type and the profile of consumer and traveler of that specific location.
So if I may say, of course, we build on all the capabilities we have, but the full approach is different. Attracting new consumers that are not potentially interested in the old assortment, this is an absolutely key. We believe that with this new approach, we can increase both conversion and spend per ticket and at the end of the day, the spend per head. But this is not something we can expect to happen overnight. This is a process.
The process is starting already after this summer. And it will be building with examples with trials, we are identifying the places. We will have more smarter shops where we can read better how customers and not customers interact with our stores. Also sales force, also technology, et cetera, et cetera, self-checkout, autonomous checkout. So everything is being rethinked and everything is approaching a different way.
Of course, all the good ideas and all the good initiatives of the past will be used, and we will build on top but the approach is different. I’ll leave the second question for [Yves] on the Chinese. Look, the Chinese traveler is no material today in the globe. But we believe that when the country reopens and that could be in a few months, it could be in a year time, the Chinese traveler will be once more very relevant globally. We definitely want to deliver value to those travelers anywhere where they are.
And that could be across Asia-Pacific, could be in Europe, it could be in America, and it could be in China. But we cannot forget that China has certain regulatory restrictions that we need to follow. Hainan remains a key bet of our long-term strategy in China. We keep committed that it is a market that is changing and adapting very quickly. As you know, there was very limited number of license.
More licenses were given only to Chinese companies. But the reality is that the market has remained extremely consolidated in one of those license holders. And the rest of the license holders and as you know, we partnered with one of them, have had so far limited success to penetrate the market. So let me be clear, Hainan, China, and the Chinese travelers are a long-term bet. This is not something you do overnight.
The business is going well, but it’s still very limited in volume for the overall group, number one. And number two, as Yves explained earlier on, we do not consolidate those cells anymore. So we get a management fee. But the joint venture with Alibaba and the learning we are having, it’s going to be unsure over time, a very clear strategic move the company did for the long term.
Yves Gerster
On the second question, Jörn. So look there, as I’ve mentioned before when talking about the P&L, we currently have a certain — we currently don’t have visibility on what the future will bring and how the situation will evolve in respect to pressure on the personnel expense line due to inflation. This is twofolded in principle. At the moment, for us, as I have mentioned, we cannot hire as many people as we need to. And those we can hire, obviously, because of the current restrictions in the labor market come [ not in for cheap ].
How long this situation will last, we don’t know from today’s perspective. The second point is that in respect to the existing staff, the pressure in respect to salary increases to adopt to the inflation will come in with a certain delay. So by how much that will be, from today’s perspective, we don’t know. So unfortunately, I don’t have a crystal ball and I cannot give any guidance in that regard.
Operator
The next question is from Gian-Marco Werro from ZKB.
Gian-Marco Werro
Three questions from my side, please. First one is quite an easy one. I would say for Yves as a follow-up from Jörn’s question about the future of your corners will now be the core EBITDA be key or what, I guess, if I look at your Slide 18 in the presentation, the adjusted operating cash flow will going forward be key for your covenant? Then second question in relation to CapEx and also the new store concepts that you plan to implement, there, can you already give us a sense about how much you want to invest for each new store concept from a CapEx perspective so that we just get a bit more sales there? And did you maybe already do some budgeting about how much you want to spend every year going forward to refurbish and to reach this new hybrid store concepts?
And of course, fair point if this is a question which might be way too early, of course. And then the third question in relation to your sustainable cost-cutting targets. I remember just CHF 400 million that you mentioned earlier. Can you give us an update if this CHF 400 million is still valid? Also with the CHF 200 million impact on the equity-free cash flow, are you still targeting for that, or is now inflation maybe working against this target.
Yves Gerster
Let me start on the covenants. So look, as I’ve mentioned before, in principle going forward on a normalized situation, we believe that the 2 numbers, i.e., the adjusted operating cash flow and the new core EBITDA should be extremely close together. So from a covenant calculation perspective, it doesn’t make a difference at the end if you use one or the other number. Having said that, we are in discussions with the required stakeholders, obviously, the banks, and we will tackle that question when we extend the maturity or do the refinancing of the 2024 maturities in the next quarters. To the second question, I hand over to Xavier…
Xavier Rossinyol
Yes. On the CapEx, look, we don’t have specific numbers per year on investment, neither on the existing stores that will become more intelligent stores or the hybrid concept with the merger with Autogrill. What I can tell you is that our expectations is that the CapEx on sales will remain roughly for the retail on this 3% that we used to have, 3%, 2.9%, 3.2% on that range. And for F&B, if you look at the Autogrill numbers, that ratio is higher, and we all know it’s in the range of 4% — sorry, of 5%, 5.5%.
And then the combined CapEx on sales will depend on where the different mix of sales comes. So the increased CapEx because of the digitalization acceleration of the smarter shops, it could be slightly higher, but not more than 20, 25 basis points than the historical one. Then when it comes in, it will depend on the recovery, it will depend also on the opportunities with airports. Since we announced the deal, we had quite a few interested parties, airports asking to have more detail on these hybrid concepts, not only on stores, but also in terminals and even on airports because they believe it’s like we believe, is the right way going forward to maximize the value and the dwell time use of the passengers. On the specific cost savings target as I was very clear in July 11 and the roadshow that follow, I do not talk about that.
I will not engage on answers about the specific lines of cost savings because I think it’s completely the wrong approach. How can I talk about cost savings if I don’t know where the sales will be? This does not make any sense. Where the recovery will be? It’s a recovery coming more from one region or another region from one channel or another channel.
How do you consider one line of cost? For example, I might increase personnel costs to improve the service to passengers and that increases the chances to renew a contract without increase on the concession fee. So one line span actually produces a savings.
So what I think is important is to focus on the sustainability of the profitability and the free cash flow generation, not on a specific line cost. Not because I don’t want a disclosure, simply because I think brings the whole organization and the whole investors community to the wrong approach. We talk about lines instead of talking about optimizing long-term the business. So we don’t refer to cost savings on lines. We refer to how the business is going to be generating sustainable EBITDA margin and sustainable free cash flow 1 year, 3 years, 5 years, 10 years from now, and that is our focus.
And let’s remember the relationship between concession fees, CapEx, and duration of the contract that is different from the different lines of business. Concession fees remain something we need to be extremely vigilant.
After the clear MAG releases during the crisis, we need to see where the market is going to be going forward. And we need to see if this part of the cost savings in other lines might have to be reinvested at least partially in concession fees. So again, we want to talk about keeping and increasing the sustainable profitability of the group, but we are not going to discuss any more specific line savings because we believe it’s not the right approach for the company. And I say that with all due respect because, of course, in the middle of the crisis probably was the only thing management could talk about because there was nothing else to talk. But now we are getting into a normalized manner of the business, and we need to talk about the business itself, not a small part of the business. I hope it’s fine with you. Thank you.
Operator
The next question is from Alex Apostolidis from Barings.
Alex Apostolidis
Just a couple of questions. The first on revenue per passenger. Can you talk a bit about how that compares in H1 ‘22 versus H1 2019? The second question just has to do with personnel inflation. So given the 2,500 vacancies that you have, what has that done to cost per staff?
I know you mentioned it’s going to be later in the year where we’ll see the full effect, but can you give us a sense of what sort of inflation you’re seeing there? The third has to do with other expenses. So those seem to be up versus 2019. Is that just temporary phasing or is there something else going on there? And the last question just has to do with debt maturities and dealing with those. Given you have those upcoming, do you plan on dealing with those all at the same time or kind of a more staggered approach? And that’s all I had. Appreciate your time.
Xavier Rossinyol
First half of the year, spend per head has been in general terms, ahead of the first half year of 2019, but again, we have to be careful to draw immediate reaction if this is permanent or this is also motivated by a lower number of passengers and also a different geographical mix. So it’s too early for us to point out where the pump head is going to end up when once we have a more normalized situation. In general, what we have seen is that when the levels of sales reach more normalized measures, the spend per head also normalizes to more historical measures. Personal inflation is very difficult to say because depends very much on the regions, but what you can expect is like in any other retail, the type of inflation we are seeing or we’re going to see on the labor line is similar to the inflation you see in the country, in some cases, maybe a little bit less because it will come a little bit later on the negotiation with the unions. In some cases, it’s even in line or slightly higher than that.
What I think is very important, and that’s the message to the different operations across the group is that we try to minimize the effect of those inflationary costs, which partially can go to pricing but maybe not fully. So part of the synergies and the optimization we generated over the last 2 years are helping to do that. In some more difficult markets like the U.S., we are accelerating very much the self-checkout, for example, as a way to cope with the lack of personnel and inflation cost. And they are working so far, very well, so well that we are having a plan to massively accelerate the implementation of self-checkouts in the U.S. for convenience store where they work very well.
Traditional duty-free is a bit different, but for convenience, it’s working very well. I think the last 2 is for you.
Yves Gerster
So in respect to the debt maturity profile, there, it depends very much on the situation over the next couple of months. We are just finalizing the discussion with the relevant external stakeholders. And there, what we typically do, and we’ll also do it this time is we take into account all relevant factors, be it the appetite by the different debt provider, be it bondholder and/or the banks. The market in general, our rating, but also then time it together with the envisaged transaction of Autogrill. And then depending on all those factors, we will execute it at the right moment in time and with the right portions in that sense. Next question.
Operator
The next question is from [Ahmadu Somaiya] from BNP Paribas.
Unidentified Analyst
Can you hear me?
Xavier Rossinyol
Very well.
Unidentified Analyst
Okay. Great. Yes. So it’s [Somaiya] from BNP Paribas. So my question is, you touched upon the delays and capacity constraints across Europe in different airports, but are you able to quantify the effect this has on your performance?
Xavier Rossinyol
It’s extremely difficult because to quantify what you’re missing is very difficult. In some key airports, we have identified that maybe the disruptions and the limitation of number of passengers have 2 to 5 basis points of effect, but that’s very, very difficult to quantify. So for the group, I cannot tell you. It’s negatively affecting us. In some locations materially, especially when there are caps to passengers, places like — well, you know all some of the big European airports. In other places, as you know, the situation is more normalized.
Operator
The next question is from Ali Naqvi from HSBC.
Ali Naqvi
Just on the core EBITDA by segment, what are the sort of delta to get back to pre-pandemic margins? Is it just the case of seeing that sales recovery? Or is there something else need to happen to get to that pre-pandemic margin on a region-by-region basis? Secondly, for the current estate as it stands, what would you expect the full-year lease expense to be if sales were to normalize? And what would that grow at going forward? And finally, are you seeing any changes in competition makeup? Are you seeing more or less essentially tendering activity or competition in a post-core world? And are the landlords restarting their tendering activity in earnest now that people are traveling?
Xavier Rossinyol
Thank you for your questions, which are all related and probably touch to the most — one of the most important strategic answer is where the concession will evolve. Concession fees, minimum guarantees, duration, competition, et cetera. To be fair, it’s very difficult to properly answer these questions because the post-pandemic is 2 reason. I mean, we have had some tenders. In some cases, competition was more limited than in the past.
Most of the tenders that we had over the last 24 months have actually been extended without tendering not only to us also to competition. So the market has been very quiet with airports assuming that tendering when the sales are far from normal is not probably the best situation. Tenders are restarting. There are a few at the very late of this year and during next year, and that will give us a hint where the market settles. I think from a strategic point of view, what we need to do is to assume that potentially the past pressure on concession fees will continue. And therefore, as an organization, if we want to keep the profitability, we need to generate either more spend per head or an optimized efficiency in other lines to overcome that. I might be wrong. And if I’m wrong, that will be all good news because we will still invest on improving sales and other lines of the margin, and that will be adding to the margin. But I think the only prudent way as management is to expect that the pressure on concession fees, maybe not immediately, maybe after a while, when the recovery comes back, it will come back too. You almost — with your question, you answered the core EBITDA per vision to go back to all — it’s the key point is to see if we were and how we recover sales and the concession fees.
And I think with that, I already answered. Competition in general again, all the companies, what I see are extremely cautious. So it looks like there might be less appetite than in the past, especially for the minimum guarantees that in any case, they all had to be renegotiated during the pandemic. So hopefully, but it’s more a hope that an expectation at this stage, the minimum guarantees will lose importance going forward. But as I said, probably too early to make a true strong statement on that.
Operator
You also had a couple of questions on the live chat, but there’s only one, I think, which is remaining. The others you have answered. This is the — can we make any indication on the long-term targets for the company?
Xavier Rossinyol
The long term?
Operator
Targets — long-term target for the company.
Xavier Rossinyol
It’s funny that you read this question because, as you know, we are not ready at this stage on giving guidance or target. And it’s not lack of transparency or lack of which, I think there are too many elements changing right now. I think what the first half of the year results show that this management team is extremely focused on delivering the best possible results given the external circumstances. What it could happen, it’s a strange effect. If the recovery doesn’t come, we keep squeezing cost and CapEx and generating good or extremely good equity-free cash flow.
If recovery comes, we need to rebuild the CapEx, we need to rebuild the working capital, so we could have for a certain period of time, a negative effect on the equity free cash flow. But it will be only done to generate sustainable cash flow on the long term. And what I would like, if possible, to have not only sustainable but good, predictable equity cash flow or free cash flow before financing. If that was the last question, I thank you to all of you for your attention. And I don’t want to be like one of those artists that always thank their family, et cetera, but I truly want to thank the whole team, not only the management team but the shop floor.
If we are here today with these results, it’s because the people at the shop floor sometimes with very difficult circumstances with more limited personnel that it would be ideal, they keep pushing for the business, they keep believing on the business. So to you, team members, thank you very much for your effort, and for everybody else, thank you for your interest and for your attention on this call in the middle of the heat of the summer. So, thank you very much. Have a wonderful afternoon.
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