Avolta, a global player operating in 73 countries, posted strong third-quarter results, continuing its streak of meeting or beating expectations for the seventh consecutive quarter. CEO Xavier Rossinyol announced year-to-date revenues of €10.1 billion, a 6.8% like-for-like growth, and an improved EBITDA margin of 9.9%.
The company's equity free cash flow saw a significant surge of 46% to €445 million. Avolta's commitment to its "Destination 2027" strategy, focusing on consumer engagement and operational excellence, was evident in the launch of Club Avolta, a loyalty program that has already boosted sales.
The company, with a ticker not provided, is also planning selective acquisitions in the Asia-Pacific region to spur growth and aims to maintain a disciplined approach to dividends, with a promise to return excess cash to shareholders.
Key Takeaways
- Avolta's year-to-date revenues reached €10.1 billion, with a 6.8% like-for-like growth.
- EBITDA margin improved by 40 basis points to 9.9%; equity free cash flow surged 46% to €445 million.
- The company plans selective acquisitions in Asia-Pacific and is committed to its "Destination 2027" strategy.
- A new loyalty program, Club Avolta, has increased sales by 6.3%.
- Management aims for a midterm organic growth of 5% to 7% and improved EBITDA margins and equity free cash flow.
Company Outlook
- Avolta targets organic growth of 5% to 7% in the medium term.
- The company plans to distribute one-third of equity free cash flow as dividends.
- A net debt to EBITDA ratio of 1.5 to 2x is the aim, with share buybacks planned when within this range.
Bearish Highlights
- Challenges from recent hurricanes have been noted.
- Chinese tourists are spending less per capita than before the pandemic.
Bullish Highlights
- Strong growth in EMEA and Asia-Pacific regions.
- Renewal rate for tenders is around 90%, with an expectation of reaching 95% for the year.
Misses
- Retail segment performance is slightly weaker compared to the food and beverage sector.
Q&A Highlights
- Management emphasized the importance of understanding consumer profiles and enhancing customer experience.
- The company is actively promoting the Club Avolta loyalty program, targeting frequent travelers.
- Share buybacks are expected when net debt to EBITDA falls between 1.5x and 2x.
Despite facing challenges such as hurricanes and lower spending by Chinese travelers, Avolta has maintained strong performance across its diverse regions, with notable growth in EMEA, Latin America, and the U.S.
The company continues to innovate with the implementation of self-checkout systems and the promotion of its loyalty program, Club Avolta. With a focus on disciplined investment and shareholder returns, Avolta is poised to continue its trajectory of growth and profitability.
Management's commitment to transparent communication with investors aims to align the share price with the company's intrinsic value, and the recent credit rating upgrades underscore the company's financial stability.
Avolta's strategic priorities include maintaining operational excellence, exploring selective acquisitions, and returning excess cash to shareholders through dividends and share buybacks.
InvestingPro Insights
Avolta's strong performance and strategic initiatives are further supported by data from InvestingPro. The company, which operates under the ticker DUFRY (OTC:DUFRY), has shown impressive financial metrics that align with its reported results and future outlook.
InvestingPro data reveals that Avolta's revenue for the last twelve months as of Q2 2024 stood at 14.95 billion USD, with a notable revenue growth of 37.31% over the same period. This robust growth is consistent with the company's reported year-to-date revenues and its targeted organic growth of 5% to 7% in the medium term.
The company's gross profit margin of 62.31% for the last twelve months as of Q2 2024 underscores its operational efficiency, which is reflected in the improved EBITDA margin mentioned in the earnings report. This efficiency is further emphasized by an InvestingPro Tip indicating that Avolta has "impressive gross profit margins."
Another InvestingPro Tip suggests that Avolta is "trading at a low P/E ratio relative to near-term earnings growth," with a PEG ratio of 0.54 for the last twelve months as of Q2 2024. This could indicate that the stock is potentially undervalued considering its growth prospects, which aligns with management's efforts to align the share price with the company's intrinsic value.
For investors seeking more comprehensive analysis, InvestingPro offers additional tips and insights. Currently, there are 9 more InvestingPro Tips available for Avolta, providing a deeper understanding of the company's financial health and market position.
Full transcript - Avolta AG DRC (DUFRY) Q3 2024:
Xavier Rossinyol: Good afternoon good morning, everybody and thank you for attending this presentation of the results of Avolta. I’m here with Yves Gerster, our CFO, and we’re going to go through the presentation that was in our website this morning. Starting right away with Page #4. We have presented in quarter three and year-to-date 9 months, another set of very strong results. It’s the seventh consecutive quarter. We are in line or ahead of our own outlook. We are reporting €10.1 billion of cumulated revenues since the beginning of the year with a very strong organic growth and very strong like-for-like. If we look at the like-for-like we report for the first 9 months is 6.8%. And if we eliminate one strong effect we had, that is Argentina, our like-for-like growth would have been 8%. The Argentina, it’s a very simple effect. There are two exchange rates in Argentina. And last year, the difference between the two was very big. And the difference between the two in 2024 has been much smaller. So the price comparison in the country has changed, making a material change. Argentina is now back to historical sales after an extraordinary year in 2023. Beyond the revenues, we have a very strong EBITDA margin with a 40 basis points increase versus the same period of last year, reaching 9.9%. The equity free cash flow is ahead of our own outlook and expectations and reached €445 million on the first 9 months, which is a growth of 46% versus last year. If we go now to Page 5, a few indications. The company remains very strong on diversification. You can see that on the different graphics. We are in 73 countries. We are also extremely balanced on the business lines. We have almost one-third in Duty Free, one-third in duty paid and one-third in Food and Beverage. The channels, it remains stable, around 80%, 82% is airports and the other 20% are complementary channels. We believe that a stable outlook to go forward and also a very balanced category mix. By regions, like-for-like, all the regions grew on reported organic growth, we had a very strong growth in EMEA and Asia Pacific, a very strong growth also in North America, and we had reported negative in LATAM. But if you correct the Argentina effect, LATAM was also in line with the rest of the group with a 7% like-for-like growth. If we go to the quarter, we also see a growth that is clearly in our outlook. If we take into consideration that the Argentina effect is 1.3% effect on the growth, the reported organic growth of 5.7% would have been 7% because the effect of Argentina was the strongest in the third quarter of last year. So again, very strong performance across all the regions. Also on new awards, as is at the bottom of the page, it has been a nice first 9 months of the year. We have for this year, as a reminder, still the consequences of the portfolio optimization. So the net wins and losses is going to still be slightly negative, but because of the portfolio optimization. If we look at the wins are clearly much bigger than the losses of contracts. Now I hand over to Yves. I’ll come back in a few minutes. Thank you.
Yves Gerster: Thank you very much, Xavier, and good morning and good afternoon to everybody on the line. Let me directly start with the EBITDA and the cash flow. Before we go there, initial statement. Look, the Q3, but also the 9 months this year were very strong quarters and the year-to-date performance in all regard. Xavier has already mentioned the top line in details. Let’s now look at the profitability and the cash flow. EBITDA came in, in excess of CHF1 billion, reflecting an improvement versus the last year performance of 40 basis points year-to-date and if you look at the third quarter only by 60 basis points. We have achieved that on one hand side by very strong demand from our customers, which remains unbroken with a very clear trend, improvements in regard to the productivity and a very strict and tight cost control on all levels of the P&L. If you look at cash flow, equity free cash flow came in at €445 million for the 9 months. That’s a significant improvement versus last year. We feel extremely comfortable with that. There’s just one point I want to mention in regard to the fourth quarter, and you see that at the bottom right-hand side. The fourth quarter historically is typically negative in line with the seasonality of our business. Moving on to the next slide. with the financial net debt and the leverage. The group has achieved in Q3 2024, a leverage of 2.16%. That’s the lowest level in more than 14 years. The last time we have reported that was back in 2010. So it’s a very clear trend and the deleveraging profile over the last 2 years, reaching 2.16% in Q3. The target leverage of 1.5x to 2x, we have provided as a target band in our medium-term outlook. The maturity profile is extended. We were able to refinance this year in Q4, actually in October, our RCF – from 2027 maturity to ‘29, an extension of 2 years. And on top of that, reduced the margin by generating a cost savings of around CHF10 million. Moving on to the next slide with the strategic update. And with that, I hand over back to Xavier.
Xavier Rossinyol: Thank you, Yves. If we go to the next slide, this slide is well known, is Destination 2027, our long-term strategy remains unchanged. In a nutshell, means we focus more on consumer, both on the physical stores and on the digital engagement. We work. We also have a very targeted geographical expansion and we are extremely disciplined on the operational excellence. We are delivering on all of those. On the last one, on the operational excellence and the operational efficiency, I think the cash flow generation year-to-date is a clear example. It’s another quarter of progressing on the efficiency of the company. On the other two, I’ll go now first to the next slide. On the consumer centricity and on the focus on extracting value from the merger between the retail and the food and beverage. The hybrid concepts. There has been a lot of questions. We are developing the hybrid concepts in a very healthy manner. We have 34 open stores that are hybrid, another 40 to come in the next couple of quarters. So we will reach 100 points of sale on hybrid very soon. But equally or more interesting, the market is clearly moving into that direction. USA included this year, 2024, 25% of the tenders included a hybrid proposal. We are in the front run of this trend, which we expect to keep growing not only in the U.S. but in the rest of the markets. I have a couple of examples of hybrid concepts in this slide. One is the Hungry club. This is a street food developed with one top chef in Spain. And this concept is inside the duty-free store we are doing in several Spanish airports, driving new people and new passengers into the store. And at the bottom, there is another one, which is the Real Madrid Cafe, also in Spain, the first one in Madrid that is a concept where links retail because it’s also in the duty-free store. It sells merchandising. It is a food and beverage concept and it’s linked with a sports brand. And all that, again, drives another type of passengers and enhances our offering to people that otherwise might not be entering the duty-free store. So it’s only one example, but it’s very clear we are advancing on extracting revenue synergies from the merger we did between Dufry and Autogrill. But it’s not only – if we go to the next slide, it’s not only evolving on the physical network, but it’s also evolving on the digital transformation. We launched last month, at the beginning of this month, actually, Club Avolta. Club Avolta is a new loyalty program. I’ll explain the details in a minute, but before we have a short video to show. Please video on. [Video Presentation] Unfortunately, I’m told that the quality of the sound was not too good on the webcast. I apologize for that. For those that are interested, the video will be in our website, so you can download it or watch it anytime you want. So I’ll go to the next slide. In any case, it’s very interesting because it’s reality. So today, what Club Avolta has achieved, it is the first ever program in the travel environment that is accepted in 5,000 points of sale in 73 countries in duty-free, in convenience and in F&B. Today, in any of our points of sale, you can use Club Avolta. It gives you commercial advantages that could be discounts, could be specific products, could be collectibles. It will allow to give personalized offering because it allows us to better understand the needs and the wishes of those members. It will offer services at the airport. We will offer the possibility to link it to your frequent flyer program, and that’s already working and possible with, for example, Avios. It will give you the possibility to give back on several projects we are engaging. And it’s working. We launched it 3, 4 weeks ago and already the key numbers on engagement, subscription, download of apps, it’s all increasing 40s, 50s percent. But even more important, on the last few weeks, the sales under Club Avolta program have reached 6.3%, which is triple what we used to have with the separate loyalty programs we had across the board. So the start couldn’t be better. We are super enthusiastic about this start. Of course, it requires a lot of recurrent work, but it’s not only that it can drive more sales, it’s even more interesting. On the sales we’re already having, we are getting much more information. And this is a clear step on the digital and data transformation we announced a couple of years ago. It’s a tangible example, still a lot to come, and we are working, as I explained in other cases, in other occasions in many other initiatives on the digital. As a group, we clearly focus on the existing revenues, driving organic growth. We focus on the efficiency of the existing platform. But at the same time, we are identifying these transformative initiatives, mainly linked to the digital transformation that can generate a different type of company. And if I may say, over the years, even a different type of industry, it’s a huge opportunity for the incoming quarters and the incoming years. If we move to the next slide, here is another example of delivering. This is delivering on the geographical strategy. We made very clear that our focus is organic growth, but we also said that from time to time, we can address inorganic selective acquisitions. This acquisition, which is subject to final regulatory approval, so we expect the closing to happen at the end of this year, beginning of next year. It’s a small company, 250 million revenues, but it’s a perfect fit for our development in Asia-Pacific. Proportionately to Asia, it’s relatively sizable. It was financed or will be financed 100% by cash, and it delivers another step into the Asia-Pacific growth. It’s a business we know very well because we were already having some activities on the same area. And therefore, also there are clear synergies we can address. So, again, another of the strategic pillars where we are delivering. If we go now to Page 15, and I think I want to make a clear emphasis on this page. This page is more than a capital allocation policy of the company. This is the way we think about the company. And there are three very clear ideas. Idea number one, we believe in the growth of this business. This is an industry that grows and it’s an industry where we can grow faster than the passengers because of the commercial and the digital transformation. And we are going to invest in the existing network. We are going to invest and we are investing in the digital transformation. We are going to invest on the business development to expand our network. We will complement this organic growth with very financially disciplined, selective M&A of small and medium size to complement the portfolio. This is not new. This is what we have said, but I want to emphasize that this is the number one priority on the company, profitable growth. Second message, Second message, we keep an extremely strict discipline on the balance sheet management. And we stick to what we already have said of targeting to be on a leverage net debt to EBITDA of between 1.5 and 2x. Profitable growth, disciplined balance sheet and very focused return on shareholders. We will use cash to grow, but we also understand that the excess cash is for the shareholders. On a yearly dividend already announced and already approved and that will continue of one-third of the equity free cash flow. And as the equity free cash flow grows every year, also that recurring dividend will grow. And what we are adding now that maybe was not clear enough, if after that dividend, there is still excess cash, that cash will go back to the shareholders, either as an extraordinary dividend or as a share buyback. And we are starting with that already using the treasury shares we have. But this is not a one-off. This is part of our policy going forward. So that means that every year that there is excess cash, there will be an extraordinary distribution to the shareholders, not because we cannot grow, but just because after the growth, and thanks to our powerful cash flow generation, they might be enough to finance growth and to contribute a higher retribution to shareholders. With that, I hand back to Yves again.
Yves Gerster: Thank you, Xavi. And look related to what Xavi just said, let me quickly remind you about our midterm outlook, which remains unchanged. We are committed in the medium term on an organic growth of 5% to 7%, annual improvement of the EBITDA margin of 20 to 40 basis points and an equity free cash flow improvement of 100 to 150 basis points as a percentage over EBITDA. Now you’re already familiar with that. As I’ve just mentioned, this remains unchanged. What I do believe is important is if we quickly look at the short-term outlook. Given where we stand at the moment on the equity free cash flow conversion, the 150 basis points are potentially a little bit light for this year. So, we are convinced that this year, we will see something which is slightly beyond that. And the good news in that regard is that we will take that for the medium term and for the years beyond as a new basis the next years. If we move on to the next slides, with the cancellation of the treasure shares. Look, Xavi has mentioned it when he explained capital allocation just before the handover. The cancellation of the treasury shares which we plan for later this year is the initial step in returning cash to the shareholder. We do plan to cancel and will cancel this year 4% of our shares, those amount to about 6.1 million shares, we are firmly doing that based on the strong capital and balance sheet we have at the moment. We have reached a leverage, as I’ve explained before of 2.1x already in September this year with the overall target band of 1.2. So, we are basically in line with that band. We are doing that given our strong operational improvement and the firm outlook we have as management in the future of the business and to maintain an efficient capital structure of the company. Having said that, I hand over back to Xavi.
Xavier Rossinyol: Thank you, Yves. We go to Page 19, and that’s the last one. Just a few final messages. Number one, we have a clear strategy, and we strongly believe as a team that, that strategy is working and will continue to work. Second, we are delivering quarter after quarter, 7 quarters delivering clearly inside or on the top of our outlook range. We started quarter 4 this year with quite a few challenges. We are used to hurricanes, but the size of some of those, particularly in the U.S., have been off the charts. Despite that, the underlying trends have been continuing strong in October. And our experience shows that if you have more hurricanes in October, November or December, the months can change, but still, we are convinced of our outlook not only for 2024, – as Yves just said, probably even ahead of the outlook in the cash flow, but we remain committed to this outlook for the incoming years. And the last message. We are convinced of the importance of not only having a company that generates cash, a company that is absolutely focused on the return on investment. And I can tell you, we are beyond focus. It’s also important that this is reflected in the value to shareholders. And shareholders look at the value per share in one way or in another. And this management and the Board is committed to keep increasing those measures per share. And that implies two things. increase the results and also be very disciplined on the number of shares, starting, as we said, decreasing that number of shares. We choose this way to do this share buyback through treasury shares that we received the feedback. It was a bit unusual. So, our commitment is that future share buybacks, and as I said, it will be as long as we have excess cash, it will be done in a transparent upfront manner, being announced in due time and for everybody to understand what we are doing in a clear manner. With that, we are now thanking you for your attention. As I always say, we thank you even more if you stop in our stores and in our restaurants and buy something. I hope everybody that is listening downloads the app and becomes a club of Volta member, you will not regret it. You will really enjoy it. And with that, we open the Q&A for everybody. Thank you.
Operator: [Operator Instructions] The first question is from Harry Gowers from JPMorgan. Please go ahead.
Harry Gowers: Yeah. Good afternoon both. Thanks for taking my questions. I’ve got three questions, if I can. The first one is just on the Q3 group like-for-like growth. Maybe you could give us an indication in terms of the split volume versus spend per passenger or any rough color on that? And was that to the Q2 result? And then the second one, I’m interested if you could give us a bit more color on Slide 10 on the hybrid developments. I mean, firstly, the comment on 25% of U.S. tenders with hybrid concepts in 2024. Maybe you could give us some color on what your win rate has been on those? And then just on the 34 stores up and running, anything you could provide us in terms of like financial metrics or performance so far on those stores? And then just final one is just following up on your point on the equity free cash flow conversion. Did you mention that you could do 150 basis points of incremental conversion each year beyond this or was it just you were saying the base for cash will be higher from this year given the higher conversion rate this year? Thanks a lot.
Xavier Rossinyol: Thank you for your questions. On the like-for-like, it remains a pretty similar to what we mentioned on the first half. Of course, if you look at every country, every quarter, every week even, there are changes. But the trends remain pretty much unchanged with a few exceptions I’m going to mention. That is two-thirds of our growth come from a number of passengers and one-third comes from spend per passenger, it could be ticket or conversion rate. The few exceptions I mentioned of course, the weighted average is affected by high consumers, low spend consumers. And we’ve been the numbers, I don’t think are only strong. They are very strong when you take into consideration, and I mentioned that, that this summer, again, we were lacking the highest spenders that come from Russia, that come from China and Europe. Also small numbers, but Israeli passengers are very high expenditure. All those have been missing this summer in EMEA. And still, you can see the strong numbers of EMEA. But in general terms, 2/3, 1/3, I think, is the right question. I’m not going to answer specifically, but I’m going to give a hint on the second question. On average, on tenders in the U.S. for convenience and F&B, you have around 4 bidders. In hybrids, you have an average of 2. I hope that more or less answers your question. On the financial metrics on the hybrids, look, that’s a very interesting question, and it’s not easy to answer, and I’ll tell you why. It depends on where that hybrid is. If it’s a place where it replaces or let’s imagine at the end of a terminal that a hybrid is adding one of the 2 products or replacing 2 separate shops. There, you can have a spend per passenger that is higher because the consumer before had to decide to go one or to the place and they can go to both. When that hybrid is to drive more conversion into a big store, you need to measure the effect on the store, on the bigger store, not specifically because maybe per square meter, that space doesn’t sell more than what you had before. But it’s driving a new type of passengers and the overall store benefits from that. This 2 years ago, would have been a bit of a guessing. Now thanks to the camera analytics we have been implementing, we can start analyzing in full detail what I’m telling you. We can see if these hybrids are driving or not people to areas, we can analyze, we cannot identify faces, but we can analyze profiles and avatars to see if it’s attracting a new type of profile of people. It’s only the beginning because sometimes you do something, then you analyze it and you realize that was not exactly the way you had to do it. And so for example, I’m going to give an example. I know somebody is not going to like. We don’t know yet if a football crew Barcelona cafe will work better than a Real Madrid cafe. But these are the type of things that the more we do and the more data we know, the better we will know to that. But one thing, it’s clear. Trying new things, trying the hybrids is helping the business development and is helping on providing differentiation, excitement on the story. And everything in retail and in F&B, it’s about customer experience. We are still a lot to learn, but definitely, we have more tools today than we had before to make passengers happier. And I think the last question is for you, Yves.
Yves Gerster: Thank you very much. So look, Harry, thank you very much for the question. On the last point about equity free cash flow, it’s the latter what you mentioned. So basically, it’s 2 points there. For 2024, if we take based on last year, 150 basis points improvement in the equity free cash flow conversion, that will be a little bit light. So I feel comfortable for this year specifically to be slightly above 150 basis points improvement, point number one. Point number two, I’m happy to take that or we are happy to take that as a basis for the future. And from that basis onwards, improve in the medium term, the equity free cash flow on that new basis by 100 to 150 basis points.
Harry Gowers: Okay. Thank you.
Xavier Rossinyol: Thank you.
Operator: The next question is from Manjari Dhar from RBC. Please go ahead.
Manjari Dhar: Good afternoon. It’s Manjari Dhar from RBC. Congratulations on another strong set of results. I just had three as well, if I might. I wondered if maybe you could give some color on the tender win rate or the renewal rate and how that perhaps compares to Evolved historically and how you see landlord relationships evolving? And then secondly, on Club Avolta, it seems like it has some very strong metrics so far. I wondered if you guys are doing anything different in terms of the way you advertise this new loyalty club or how you train staff in stores to maybe push that or highlight it to consumers. And then finally, perhaps one for Yves on CapEx, I think you’ve spoken before that CapEx this year might be a little below the 4% sales level. I wondered if you could give some color on whether that’s timing or phasing and whether we should expect a catch-up next year? Thank you.
Xavier Rossinyol: Thank you very much for your questions. The line was not perfect. So I hope I will answer what you asked. If not, please tell us. So first, thank you for your congratulations. Second, on the renewal rate, we are right now around 90%. A few years, like this year is probably going to be 95%. Some years, it could be 88%. But I think renewing around 85% to 95% of the tenders, it’s a very good metric. I do not want to renew 100% because if you renew 100%, it means sometimes you’re pushing the terms and conditions beyond what it would be reasonable. For us, we’re big. We rather have a slight effect on sales than an effect on cash flow. Cash flow generation, return on investment is paramount. On the wins, it depends on the markets, but we are having more wins than losses, and that’s what really matters. But a reminder, we decided actively to clean the existing portfolio from structurally lose making or low profitability activities. In this industry, when you decide that, you cannot do it overnight. And sometimes, you need to wait for the expiry of the contract. Sometimes you need to negotiate with the airport or the landlord and exit. So this year, and it’s the second year, we still have to do that decrease of the portfolio. But if you take out what we are voluntarily doing, the wins and losses is slightly positive. It’s also true that because of our size, to have a very material percentage of new wins and net wins and losses, it’s difficult. For some smaller competitors, it’s easier to show big growth there. But I think I feel very comfortable not only on the wins, but also on the healthy that’s the key point, on the healthy returns on those. On Club Avolta, I didn’t really understand the question. I think you asked if we are doing something different for the engagement. And of course, yes, we are doing. So first, as we don’t have all our points of sale name of Volta, and we are not going to have that because we have many F&B concepts. We have many retail concepts. But what we see like you could have in a credit card at the counters, very clear messaging Club Avolta is accepted here. When we can, because physically, it’s not always the case, when we can, we are advertising that in our screens, in our communication with the passengers. We have also trained our sales force. So there is a big push by our people and our physical stores to promote the existence of Club Avolta. The app is very slick. And we are seeing people surprised of having the same loyalty being applied to food and to retail. And I think that, it’s a question of time of keep growing the numbers of members, keeping the engagement with those members and to prove over time to them that being members of Club Avolta, it does really make sense. One message very clear. Club Avolta is for frequent flyers and frequent travelers. If you travel once every 2 years, you’re not going to be a member of Club Avolta because it doesn’t make sense for you. But we estimate that in key locations, frequent flyers could 10%, 15% even 20%. So you can make the math. We have exposure this year to 2.3 billion people, 500 million customers, 10%, 20% of that is very sizable. Also, the data we obtain is very valuable for brands, and we can also, thanks to that, interact in a different way and provide better advantages for the customer and if the sales increase also benefits the airport. So the 3 key members of the ecosystem can benefit from a successful use of the Club Avolta and the data behind. And I think the last one was for you.
Yves Gerster: Yes. So look, on the CapEx, there, Xavi has mentioned it when going through the capital allocation policy is 4%. That’s our medium-term guidance, which does not mean that there will be years where it’s probably a little bit lower or a little bit higher. I mean that certainly can happen depending on the projects which are ongoing. Look, having said that, as in any other line, we obviously try to optimize that, but the guidance for the time being is 4%. What we can say on top is on the equity free cash flow, what I’ve mentioned before. So look, we are fully focused on the equity free cash flow and the cash generation of the organization. And as I’ve mentioned for this year, we probably are a little bit beyond the target of 100 to 150 basis points improvement, and we take that as a new basis. But look, on the CapEx specifically, the 4% is what we currently guide for.
Manjari Dhar: Thanks. Thank you.
Xavier Rossinyol: Thank you.
Operator: The next question is from Natasha Bonnet from Morgan Stanley. Please go ahead
Natasha Bannet: Hi, this is Natasha Bonnet from Morgan Stanley. Thank you for taking my questions. I’ve got three. The first is, could you please provide some more color on exit rates in September, but also current trading in October just by region to confirm the growth rates are below Q3? And then any color on spending per passenger and average basket size you’ve seen? My second question would be that growth has slowed from 7% organic in H1 to 5.7% in Q3 and likely slowing further in Q4. So, it looks like you might end the year at closer to 6% organically, which is in the middle of your range. So what gives you confidence on the range for the midterm? Should we be modeling the lower end of the range given this year should still have benefited from travel recovery tailwinds? And then my third question, so you announced that potentially doing share buybacks in the medium term. At what level of leverage could we expect you to return share buybacks? Thank you very much.
Xavier Rossinyol: Thank you for your question. So when we look at sales per month, which depends, for example, on things like the number of weekends, the number of holidays, some of which move across the calendar, I always prevent on doing that. For example, August was in relative terms, a much better month than July. So July was not indicating a trend. It was just that some weekends move from one month to the other. October, what we do is to look at the full detail. So if you look at the sales on the states that were affected by Helen the countries that were affected by Milton, you will have lower sales in October than in September. But all those, we believe that they are anomalies that we need to identify. Also, it’s not helpful that the delivery of Boeing (NYSE:BA) continues to be an issue. So there are a lot of small things that affect one area, but maybe not others. The beauty of Avolta is that you might have a quarter, a month where a region is weaker, but then you have a region that is stronger. So for example, I haven’t received questions on the amazing performance of EMEA in quarter 3 and year-to-date. And maybe there will be a slowdown in a country in 1 month and then a stronger country. That’s why I think what is relevant is the outlook we give for the year, the outlook we give for the quarter. So we believe that quarter four is going to be similar to quarter three. If you look month per month, it could be one different from the other. Per region, we see strength in EMEA. EMEA, of course, summer is stronger because of the tourist destination. We see strength in Latin America with the exception I mentioned of the hurricanes and Argentina. We see strength in the U.S. with some specific airports affected by the circumstances I mentioned. But the top airports that are not affected, they keep continuing with very strong performance. If I look for segments, a little bit more in F&B and a little bit less in retail, but 6 months ago was a little bit different. And APAC continues with a similar trend, which again is pretty extraordinary if you take into account on the like-for-like, the Chinese that are still performing below 2023, which means that in other nationalities, we are compensating. So, we feel comfortable that without the exceptions, the performance is strong across the board. What was the second question, well, I think – on the spending per passenger and basket, Look, again, it depends on the locations. But on average, leaving aside the one-offs I mentioned, we are having an increase on the spend per passenger. And that comes two-thirds from passengers, one-third from our own improvements. Share buyback mid-term, I think it was clear. So, share buyback is based or extraordinary dividends is based on excess cash with 1.5x to 2x net debt to EBITDA. So, when we have invested in the business, and we are in that range of net debt to EBITDA of between 1.5x and 2x, you should expect that the excess cash goes back to the shareholders.
Operator: The next question is from Gian Marco Werro from ZKB. Please go ahead.
Gian Marco Werro: Good afternoon everyone. Three questions from my side, please. The first one, you just mentioned different profiles and also the spending per passenger and the behavior of spending per passenger. So, I would like to touch on the Chinese tourists. They are partially back in Europe, more in Italy, for example. So, from those tourists that you serve, do you see some changed consumer patterns also versus pre-pandemic patterns for Chinese tourists specifically? And the second question is, how do you continue with the self check-out systems, especially in the U.S., I would wonder. And then the third question, you also are collaborating with Alibaba (NYSE:BABA) and also launching some small mobile applications in Asia. What are your experiences with those launches? Thank you.
Xavier Rossinyol: Thank you for your questions, very interesting. Look, Chinese travelers are not at the level they used to be on expenditure per passenger. They consume less in certain categories when they travel because the dynamic of the internal Chinese market has changed. So, if you compare Chinese with 2019, like some people is doing, not us, the numbers are worse, and it will continue to be worse maybe for many years or forever. What is interesting is if you compare the Chinese passengers on the current base and you think that is the new normal, it’s a very interesting constituency because from the new normal, what you have is increasing number of passengers. And that will continue for the long-term because of the size of the country. And of course, like any other country in the world, it will have cycles in the economy. But over time, Chinese passengers will be very interesting, but not at the level per passenger that they used to be, not in Europe, not in Asia, not even in China. Hainan is not an exception to that. And I am linking it now to your other question on Alibaba, the expenditure is lower. What happens is that despite that, and Europe is a good example, but I could give you also some examples in Asia. Despite not having Chinese consuming what it used to be, Italy, and typically don’t mention, but typically, I don’t mention countries, but Italy is growing more than 15% on retail this year. And you don’t have the Chinese consuming what they used to use, because you have Indians and you have Americans and you have other nationalities. So, we think its key for the long-term growth of the company to the exposure to as many nationalities, as many profiles of customers as possible. Alibaba is key on that understanding of the Chinese passengers that we can use in Asia and abroad. Self-checkouts, yes, we continue with a plan, both on self-checkout and in self-ordering kiosks, where we still see potential also self-ordering iPads, etcetera. We believe that our people should be adding value to the passengers instead of doing a type of administrative job. So, we want the passengers to have a faster checkout in the U.S., but also abroad. I mean all our new shops include a big line of self-checkouts that complements the traditional checkouts. That allows us either to optimize cost or recycle people into more added value functions. I think with that, I answer all your questions.
Gian Marco Werro: Thank you. Thank you, Xavier.
Xavier Rossinyol: Thank you.
Operator: The next question is from Isacco Brambilla from Mediobanca (OTC:MDIBY). Please go ahead.
Isacco Brambilla: Hi. Good afternoon everybody. Thanks for taking my questions. I have two. The first one is on the consumer environment in North America and Europe. If you can comment a bit on what are you seeing in this specific context? And connected to that, looking at 2025, if you can give us a sense of which are the moving parts that may drive Avolta towards the upper or the lower part of the mid-term guidance on like-for-like next year [ph]? Second question is mostly related to modeling purposes. Considering Free Duty, if I am not wrong, you have not disclosed the amount paid for the acquisition. Again, just for modeling purposes, would it be fair to assume NAV sales multiple, say, between 0.5x and 1x paid?
Xavier Rossinyol: Thank you for the questions. Let me start with the European consumer. The European consumer, of course, travels for many reasons, but in big numbers during summer for holidays, the holiday summer. And that depends on – so the profile of British have been very good. In other countries, a little bit less good also depending on the conditions of their economies. But one thing that is pretty clear is that when somebody decides to travel, it’s not somebody that is unemployed or in difficult circumstances. It’s somebody that has money to spend. It’s paying a ticket, a flight ticket, it’s paying a hotel. And they typically on a holiday mood, they spend more. That’s why it’s very clear that the expenditure per passenger on Europeans in holiday destinations in Europe has been very strong. The same thing with North Americans, we are seeing a very strong North America international tourist. In the local market, look, U.S. local market, despite our numbers being, I think super good, but they are particularly good when you take into consideration some of the circumstances. Apart from the ones that I already mentioned of the tropical storms, hurricanes, we have a material number of aircrafts that have not been delivered, which has produced certain disturbances in certain airlines. And I am not going to mention anybody in particular, but you can – you know there are airlines that have disclosed they had had a very challenging capacity issues. You see that the number of capacity, it is being reduced because airlines are focusing on yield. But despite all that, our numbers year-to-date and also in the quarter, they are very strong, which shows that we have a very resilient business model and that we are doing things in the proper way. On free duty, now we need to consult because your numbers are way off. But I don’t know if we can say anything. It’s much lower than what you said of 0.5x to 1x, but I don’t know if we – because we have some confidentiality, I don’t know if we can disclose more than that.
Yves Gerster: Well, your indication of 0.5x to 1x would indicate a three-digit amount, and I think already that is wrong. It’s below that.
Xavier Rossinyol: Let me put it this way.
Operator: The next question is from Tim Barrett from Deutsche Bank. Please go ahead.
Tim Barrett: Hi. Thanks. I just had two things left, please. First question is about net new business looking into next year. Are there any big renewals we should be aware of, or do you think that number could get into a small positive on net? And second question, to go back to Slide 6, I just wanted to check what you are saying there. The chart on the right is Q4 free cash. Are you saying that you expect it to be somewhere between minus €39 million and zero this year? Thanks very much.
Yves Gerster: So, let me quickly start with the second one. So, what we have showed you there on the equity free cash flow seasonality and the example we showed you is the historical equity free cash flow for the last quarter. So, in €29 million, it was minus €39 million. Last year was an exceptional year, was positive. But even if you go further back, Q4 typically is slightly negative. And I think that’s the message. We don’t want to give you granularity. Year-to-date, we have done €445 million. So, for the full year modeling purpose, you need to assume a small negative amount. That’s typically what happens in the last quarter.
Xavier Rossinyol: Two things, first, I realize I didn’t answer a question in the earlier and it was not on purpose. It was what are the moving parts for 2025. I think look, to be fair, we have an outlook, 5% to 7% on – and we feel comfortable with that outlook. And now it’s too early to say if we will be at the bottom and the top. I would say that’s why we give a range. But we feel confident 2025 should be a reasonable year. On net new businesses for 2025, look, there are no material concessions for renewal. There are many, but not material individually. And as we said, when we finish the portfolio optimization, we should be slightly positive. And 2025 should be neutral to a slightly positive. Thank you.
Tim Barrett: Thanks for that.
Operator: The next question is from Chandni Hirani from Barclays. Please go ahead.
Chandni Hirani: Hi. I have got one question left, if I may, please. Do you think on a group level, you expect your concession fees to stop increasing or kind of increase slower than your peers as you move towards more hybrid tenders, because you mentioned you get to – you tend to see two operators bidding instead of four or five for non-hybrid tenders, so wondering if that translates to kind of better negotiation power or better economics. Thank you.
Xavier Rossinyol: This is almost a PhD question. Look, let me answer your question in two ways. Number one, I do expect concession fees to remain roughly at current levels. It doesn’t mean exactly to the last decimal. So, it could be because it’s also weighted average by regions and type of business. So, it could be slightly higher or slightly lower, but not materially changing. And probably if that changes also other lines of the P&L changes because of the mix of business. So, overall, we believe that the concession fee and the other aspects of the P&L will move in a way that we can still generate this 20 basis points to 40 basis points of improvement on the EBITDA margin that we have in our outlook.
Chandni Hirani: Okay.
Xavier Rossinyol: Thank you.
Operator: The next question is a follow-up from Ali Naqvi from HSBC. Please go ahead.
Ali Naqvi: Hi. Sorry. Thanks for taking the question. Just on your EBITDA margin [ph] progression, I mean, could you just talk about what the longer term potential is there in terms of driving self-help for the business? So, if for example, you miss on organic growth, is there still potential for you to make it up from cost savings, self-help, or anything else to drive margin progression? And then secondly, on the hybrids, what does the return profile look like of a hybrid contract? I appreciate you mentioned it depends on the type of hybrid contract. But in general, are they as returns accretive as your existing base, lower, higher? And how much of your overall contracts or group could become hybrid contracts? And then finally, in relation to returns and the buyback, you have been very clear on how you are thinking about the buyback. But is there any scenario where if you look at your share price and valuation where you would consider moving that up the list of priorities given where your share price is? Thank you.
Xavier Rossinyol: Thank you very much. It’s a very interesting question, your first question, and the answer is yes. Our focus on growing organically is very strong, but you cannot control every year, natural disasters, potentially a slowdown on the number of passengers. We are still committed to our outlook, but if for whatever external circumstances, the outlook on revenues will not be achieved, the outlook on EBITDA and equity free cash flow could be achieved, thanks to our focus on operational excellence and in cost optimization. Hybrid returns, if you look market-by-market, it will be similar or slightly higher than the ones existing market-by-market. What percentage could be, if you ask me 10 years from now, probably will be 20% to 25% of the market. But I am unable because it doesn’t depend only on us, but also depends on the relationship with the airport. So, I cannot predict in which speed this is going to happen. This is based on an analysis we did on spaces, potential and interest. We believe that could be a very good number of what passengers will like to see. But the speed on when we reach that, it could be faster or slower depending on how the airports move. Look, the share buyback is the consequence of what I said earlier. Clear strategy, focus on investing on the current business, being very disciplined on the balance sheet and as a consequence of that, increased return through extraordinary dividends or share buybacks. Your question today needs to fit on this. And I think that’s what I can tell you and what I would like to tell you. Still already, already it’s a very strong statement, I believe, what we have done today on how we are going to manage cash and excess cash. I think that’s a very good point. And let’s take it from here. Let’s keep doing it. Let’s keep delivering. Like we deliver on the strategy, we deliver on the outlook. Let us deliver on the existing capital allocation that we have reinforced today and see how the share price, the more and more this is embedded in the understanding of investors, it comes into a proper valuation of the share price.
Ali Naqvi: Thank you.
Xavier Rossinyol: Thank you.
Operator: The first question from the webcast is from Ivan Chung from Nan Fung Trinity asking. Could you please give some colors on the current trading and your expectations for Q4 on top line, also colors on the top line outlook for 2025?
Xavier Rossinyol: Look, I think the best we can do on these questions is to reinforce our outlook for ‘24 and beyond. That is 5% to 7% growth organically. We believe this year will be on the upper part. It could be a little bit higher, a little bit lower, but still strong. And the same stage for going forward between 5% and 7% if there is no extraordinary effects.
Operator: The next question is from Santiago Domingo from Magallanes Value Investors. Congrats for your results. You have shown a good set of results over the last quarters, but your share price has almost not reacted. What is the market missing? What are the main push-backs from investors? Thank you.
Xavier Rossinyol: It’s a very good question. Look, I think we are, in many aspects, a new company. We are a company that is not only retail, not only F&B, but the combination. It’s a company that has a very strong commitment and is pioneering on the digital transformation, which takes some time to fully understand and fully believe on it because you need to see how that transformation we are doing and how this merger, it translates into actual outperformance. On the other side, and that’s why we are trying to be as clear as possible. Today, we understand some investors have concerns on not – not on the performance of the company, but how that performance is reflected in returns for the shareholders. And there, we have taken a few steps. Number one, it’s a commitment to be extremely disciplined on organic and particularly on inorganic growth. We know we have issued a lot of shares in the past, we want to be very disciplined and not only focusing on mid and small sized acquisitions, which we have opportunities there to finance them with cash and to be very disciplined on that aspect. Not only that, but even to amortize or to share buyback if we have excess cash, so decreasing the number of shares. If you increase, the cash flow as we are doing. And you decrease even if it’s step-by-step the number of shares, you will have a clear additional return for shareholders. We are convinced that when these messages of the strategy, of the performance and of the returns is fully shared in the market, that will be reflected on the share price. But we also understand it’s a lot of things we are saying. And sometimes maybe we have not communicated them perfectly, we are trying to be as clear as possible today. And going forward, we believe that when all this is into the investors’ mind, the share price will follow the intrinsic valuation of the company. And I am very happy if you want through our IR, Rebecca, if you have specific topics where you think we could do better to take those into consideration. But I think we are going on the right path as a company. We need to make sure the market understands that, that path is a long-term commitment by this management and this Board of Directors.
Operator: The next question is from [indiscernible] from CVC Credit Partners LLC. Route to investment-grade rating, what is the expectation?
Yves Gerster: Thank you very much for the question. Look, we have received a number of rating upgrades over the last close to 2 years, Standard & Poor’s 2 or S&P Global, as it is called now, and from Moody’s, the same. We are now in the BB, mid-BB, upper-BB space area, relatively close to investment grade. As we have received four rating upgrades over the last 2 years to assume an imminent next step, I think it’s probably a little bit too early. We need to go first through that whole range of the BB+ and the BB area with S&P and Moody’s. So, that’s point number one. Point number two, in that regard, look, we feel comfortable where we are at the moment. As Xavier has mentioned during the capital allocation, we believe in further investment into growth. We believe there are more opportunities out there, and that has a priority for us in the sense that we feel comfortable where we are at the moment in the BB+, BB flat area from a rating perspective. We will continue to invest into the company rather than going beyond the leverage of 1.5, which we gave as a lower boundary of our leverage area. And from that perspective, yes, it would be great to become investment grade, but for us, it has not a priority in that sense. Priority really has the growth, and the performance and the cash flow generation of the organization.
Operator: There are no more questions at this time. Would you like to add any further comments?
Xavier Rossinyol: No. Just thanking you for your job and thanking everybody for your attention and the questions. And we will keep working the entire team and keep delivering strong results going forward. Thank you very much.
Yves Gerster: Thank you.
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