Avolta AG (OTCPK:DUFRY) Q2 2024 Earnings Conference Call July 30, 2024 8:30 AM ET
Company Participants
Xavier Rossinyol – Chief Executive Officer
Yves Gerster – Chief Financial Officer
Conference Call Participants
Chandni Hirani – Barclays
Manjari Dhar – RBC
Joern Iffert – UBS
Jon Cox – Kepler Cheuvreux
Yvonne Chow – Nan Fung Trinity
Operator
Ladies and gentlemen, welcome to the Avolta’s Q2 Results 2024 Conference Call and Live Webcast. I am Moira [ph], the Chorus Call operator. I would like to remind you that all participants will be in a listen-only mode and the conference is being recorded. The presentation will be followed by a Q&A session. [Operator Instructions] The conference must not be recorded for publication or broadcast.
At this time, it’s my pleasure to hand over to Mr. Xavier Rossinyol, CEO of Avolta. Please go ahead, sir.
Xavier Rossinyol
Thank you very much. Good morning, good afternoon, good evening. Thank you very much for being on this first half 2024 Avolta results presentation. I’m here with Yves Gerster, our CFO. We will first have a presentation and then an open Q&A. We are going to use the presentation we have put in our website this morning. I will be referring to the pages we are going to use.
So we will start in Page 4 with some of the highlights. First, we are presenting a very strong set of first half results. Once more and now it’s 6 quarters in a row, we are presenting results that are in line or ahead of expectations, are in line or ahead of our own outlook. We have grew the first quarter and the second quarter an 11% year-on-year, with an organic of 7.1%. EBITDA has grown more than that, almost 16%, thanks to the expansion of the EBITDA margin by 40 basis points on the top range of our outlook, reaching already 9% for the first half of the year. Taking into consideration our seasonality, this is a very good result.
Even more expansion on the equity free cash flow. We can see that not only the top line goes well but the synergies and the cost discipline is reflecting in the EBITDA and in the equity-free cash flow, growing that number more than 30% versus the same period of 2023.
The key business development it’s also going very well. We have in this page and it has been published during the semester, the several renewals and new signing of contracts across the board. At the same time, we keep finalizing the active portfolio management and exiting the less or the least profitable concessions we have. That’s why the combined number of wins and losses and exits is close to neutral. But with the timeline and the signings of ’24, ’25 and ’26, we believe that number will, of course, remain on the positive side over the near future.
And the last idea on the highlight, we’re not only performing well on the short-term but we are step-by-step building this new company, the foundations of continuing this good performance over the next few years. I’ll deep dive in that in a few minutes but we are transforming the physical stores. We are transforming the digital engagement with customers and we are even exploring new ways of using the data that we have not done so far.
Flipping now to Page 5, we have a little bit more details on the figures. We have reached CHF6.3 billion on the first 6 months of the year, 7% organic, 11% reported. July and the expectations for the summer remain very strong. Quarter 1, of course, benefited from Easter that was moved from quarter 2 to quarter 1 in 2024. But if you eliminate this factor, the progression has been very stable. The comparables in the summer are, of course, more challenging. Last year, July was the highest ever. But despite that, we keep seeing very good performance at the beginning of the summer.
I already mentioned the expansion on the EBITDA margin, a combination of the synergies that will be fully implemented in 2024 as announced and also a general cost discipline, because this is a clear priority on our strategy which also converts into a higher equity-free cash flow.
Yves will explain in more details the different elements of that equity-free cash flow. Also, net profit, core net profit after minorities has reached CHF182 million which is also an extraordinary result. It’s 47% more than the same period of last year. We continue deleveraging, reaching already 2.35x which is clearly in line with our continuous focus on deleveraging. Again, Yves will explain more in a few minutes.
Moving now to the next Page, we have some data on the regional split, on the category split and on the segment split. We typically don’t discuss that but I think it’s very important to use this data to see how diversified is our business, particularly into the business lines. Almost 1/3 in each of the key businesses, duty-free, duty-paid and F&B. That allows, together with the geographical split, to be very resilient, very predictable and very constant on the performance.
By region, some of the headlines, EMEA had the growth like-for-like close to 10% which is pretty strong, taking into consideration that Europe has lacked some of the highest spenders for geopolitical reasons and also has been suffering some of the countries the effects of the Middle East conflict. Despite that, the behavior of consumers remain very strong because, as we said several times, if they go — if one place is not open for holidays, they go to another place. And overall, our EMEA activity is extremely strong and growing. Also, it’s pretty extraordinary that we have some of the main shops in Spain under refurbishment.
North America, also a very strong performance with a like-for-like of more than 6%, working very well, both the F&B, the duty-paid and a little bit better even the duty-free. As you know, the North American business is more domestic than the rest. It’s a very stable business and it’s more on F&B and duty-paid than duty-free. Duty-free, it’s starting getting more and more traction because some of the Asian passengers that were lacking last year are starting coming. Not the Chinese but other Asian nationalities.
Latin America, also very strong performance. Once you take into consideration that Argentina was particularly strong last year, due to a very particular situation of the exchange rate. Now Argentina is back to the traditional level of sales. If you discount this factor, the region is growing more than 10%. And the reason is because Mexico, the Caribbean is remaining very strong. They are holiday places. And on top of that, now we have Brazil picking up with the recovery of the traffic and the consumption in the country. So overall, also a very strong performance. Even if we had, of course, as is the season, some effects on hurricanes and other aspects but we don’t explain those because one year is one thing, another year is another thing. But they’re still very stable.
Asia-Pacific, where we have done the biggest restructuring of the portfolio but when you do like-for-like, it’s also growing 13% which is particularly impressive, taking into consideration that on the locations that rely mostly on Chinese passengers, that’s not the case. Chinese are traveling less internationally and they are consuming less than last year. Despite this factor and thanks to the diversification, we’ve been able to more than compensate that effect in other parts of the portfolio. That’s why, on a like-for-like, all the regions report a positive growth.
If we go now to Page 8, I’m going to use a few slides to give a little bit of a strategic update. The first page is well known but I’m not sure it’s always taken into full consideration. We are in an industry where the number of potential customers increase 3%, 3.5% per year. But the cumulative effect of this means that in 15 years, you double the number of potential customers. And those are customers that are in front of our stores, in front of our shops or restaurants.
And on that basis, if we go now to Page 9, we have a very clear strategy which we have explained many times but I think it’s good to remind it. Pillar number 1 is the focus on the consumer. Those passengers that are already in front or even sometimes inside our stores have an average consumption, an average penetration of 25%. So there are many passengers that happen to be there, they are not finding what they want or on the way they want. And that’s why we are investing a lot of time and effort and I explained some cases in a few minutes and how to attract those. And that could include the hybrids, better use of data, the entertainment.
The second pillar which maybe we didn’t mention in the last few calls, is the constant and continuous operating improvement. And that’s why the growth in sales, it’s projected into more growth of results and cash flow, because we keep a very strong discipline. And we are learning a lot. And we are learning how to be more efficient in the cost, how to be more efficient on the CapEx. And over time, I think that will keep reflecting in an expansion of margins and cash flow.
The geographical diversification. I think the behavior of Europe, to give an example, it shows that the strategy of having a wide network on the different regions is very important, because nobody can predict exactly the geopolitics or the economical situation of every single country and population. But if you have a wide network of countries, you can compensate those effects. Europe is very clear, North America is very clear, Latin America is very clear. And over time, with expansion we expect in Asia, also in Asia. The geographical expansion properly done, it gives you predictability and visibility on the results. And of course, we keep committed to our social aspects of the activity. And we keep investing in reflecting our activities into the communities where we are.
If we go to the next page, in one slide, what means this strong market and this clear strategy? It means that Avolta is unique. Avolta is uniquely positioned from a competitive point of view.
For 3 clear reasons and they are not opinion based, they are factual. Number 1, we have the widest network in the industry. A number of locations, a number of countries, a number of stores. And that is reflected also on the size of our concession portfolio. And very importantly, that that portfolio is in duty-free, duty-paid and F&B. So we can cope with any movement in the market and we can benefit from any new trend better than anybody else.
Second, our scale, we are the largest. That is undisputed. And that means also, gives us advantages on the relationship with the brands. And if we combine innovation to that, we can attract more and more value from them. And the third undisputed fact is that we are — we have access to more data than anybody else.
Now, what you could claim is, well, this is factually true. How are you going to take advantage of that? And that’s what we are doing. And that’s why the numbers are what they are and we can continue doing. But our basis makes us unique.
What are we doing? A couple of slides on that. So if we go to next slide, Slide 11, we are acting in our portfolio in 2 things. On the physical stores, restaurants and shops, with a concept we call Flex. Flexible stores, local stores, entertainment and the X-factor. And we are advancing progressively on the digital engagement end-to-end with the consumers.
On the first pillar, physical stores. This Flex which is a bunch of initiatives but is packaging 4 ideas to simplify the explanation. Flexible. All our newest stores or restaurants are within a standard skeleton which means we can change the shelves, we can change the concept. We can even have F&B concept that could be personalized to events with practically no cost. The message is very simple. We try to fast, to be fast in adapting to consumer needs without having to make a big investment on changing the shop or the store.
Local, it’s clear that there is an increased presence of local products, local brands and local sense of place. And we’re emphasizing that in more and more stores. If you choose the right products and you choose the right brands, this is an upside on the sales of the shop. Because you still sell the global brands but on top of that you have a new segment of sales.
Entertainment, that has been on the table for quite a while and we are getting traction into that. It’s not only the number of activations we do on the stores, it’s that we do it systematically and we measure them. That’s something that was not the case in the past. Now, we know what works and what doesn’t work. And then it’s easier to extend. And with the proper entertainment you can change the flow of a store. And that now, thanks to the smart cameras, we know we can change the flow in the store. And with that, you can impact sales.
And the last one is x-factor that includes several things. One, the hybrids. We receive from time-to-time some skeptical questions about hybrid concepts. We estimate the hybrid market will be between 10% and 20% of the overall market over the next few years. But it’s going faster than we initially anticipated.
To give you a data point, on the tenders that they have been issued this year in U.S., 25% of them included hybrid concepts. Specifically, you can offer F&B, you can offer retail and you can offer hybrids, with an average of 20% of the space allocated to dose hybrids. And it’s not rocket science that we have a competitive advantage there, because there are less players that are capable of doing advanced hybrids. Smarter stores, we will reach 100 stores this year that will represent a significant part of our sales. And as I said, it’s not only important to have the cameras and the software. It’s to use it to improve the layout, the assortment, the pricing, where you place the people.
We are also advancing on the cross-promotions and the cross-sell between the different activities. And the places where we have retail and F&B or at least 1 of the 2 types of retail and F&B each material. And for that, we don’t need any tender, we don’t need any new contract. We already have the footprint. The only thing we need to do is the commercial activities to benefit one activity from the other. And we see at least a 1/3 of our footprint that could benefit from cross promotion. So many of the things I said are possible only thanks to the merger. Others could be done a stand-alone but some of them are thanks to the merger. So, we repeat that the merger has been successful, not only on the capacity to generate cost synergies but also on the capacity to position us over time to keep adding new business.
If we move to the second page on the implementation, it’s the end-to-end digital engagement. And I want first to give a bit of data and then to go to some details. This year, there is 8.7 billion people going through airports. So this is airline traffic, of which we are exposed to a fourth, 2.3 billion which means also that following my earlier slide that in 20 years, in 15 years, we are going to have 5 billion potential customers going through our location. Of that, about 25% buys on our stores. So today, we have 500 million of customers. And a fraction of that are loyal customers. Of course, the loyal customers are frequent flyers. So those are a fraction. But the expenditure that you can get from those loyal customers is higher than the average. That’s why we believe that we need to get information from the passengers, from the clients and from the loyal clients. In each of them with more granularity but for all of them data.
Where are we on this process of using the data? We’re in early stages. So this is not something that will transform the company on the next 6 or 12 months but has the potential to bring the company to another level 3, 4, 5 years from now. So for the next few years, we will keep developing what I mentioned before. But for afterwards, we will use more and more of that data. That data has the potential to improve the way we use assortment pricing, the physical stores, the layout, also optimization of cost because we are finding out, for example, with the smarter stores that sometimes we don’t have the people in the right place or the right number of people. So you can optimize cost, you can optimize working capital. But you can also generate potentially over time, new lines of business, thanks to using this data. Great market, clear strategy, deployment of that strategy on all key matters. And as a conclusion of that and that’s my last slide, Page 13, we confirm the outlook. Because the outlook is not just a bunch of numbers. The outlook is the consequence of all the things I just explained.
I’m going to repeat the numbers, even if everybody knows them, an organic growth of 5% to 7% per year, with an expansion of EBITDA margin of 20 to 40 basis points, with an equity free cash flow increasing 100 and 150 basis points per year. Probably this year, all those metrics will be on the top range and a very clear capital allocation. We continue with the target to keep the leveraging until we reach 1.5x to 2x net debt to EBITDA. And we will use 1/3 of the yearly equity cash flow to dividend which, of course, as the equity cash flow increases, also the dividend will increase and 2/3 either to strategic growth or deleverage.
Now, I hand over to Yves. Thank you very much.
Yves Gerster
Thank you very much, Xavi and good morning or good afternoon to everybody on the line. Let me start directly with the profit and loss statement on Slide number 15, with a comment on the 2 first line on turnover and gross profit margin. So turnover came in at 11% plus reported which represents an organic growth of 7.1% versus the same period of last year. The gross profit margin improved by 110 basis points. And those 2 lines together represent where we as a company stand at the moment in the industry.
Turnover growth and at the same time, relevant margin improvement can only be achieved thanks to the strong demand by our customers on one hand side. And secondly and that’s even more important, by our initiatives on the Travel Retail revolution which start to get grip, be it on the digital side or on the more conservative traditional site, including everything Xavi has mentioned before in regard to the strategic update, be it the Flex model or the digital initiatives.
Looking at the cost side of the profit and loss statement, starting with concession fees, they’re in line with the performance of last year with 25%. Personnel expenses is slightly higher as a percentage over turnover but that’s related to some effects of last year where we had some lacks in the hiring of the people still in the first quarter of the year and some minor effects on the 6 and 6 and 6 plus 5 months comparison between the acquisition of a combination with Autogrill last year versus this year.
On general expenses, there is no material difference between last year and this year. And that yields in EBITDA margin of 9%, bang in line with the improvement of the outlook we provide of the 40 basis points, the higher end of the guidance of 20 to 40 basis points per year we target in the medium-term. Below EBITDA, the different lines do not bear any surprises. They are very well managed and ultimately yield a profit, a net profit to equity which is significantly higher than last year and any year before, also on a comparable basis. So it’s the strongest half year, first half year, the group has ever reported, also on a pro forma combined basis.
If we move on to the next slide with the cash flow statement. So the cash flow statement or the cash flow in general, first and foremost, has been supported by the strong operational improvement, starting with the EBITDA. On net working capital and with net working capital, I basically mean the first 2 lines of the cash flow statement, there is also no surprise that’s roughly in line with the performance of last year.
On CapEx, we have seen a slightly lower number as a percentage of turnover of what our medium-term guidance represents. So it’s the 3.5%, we are slightly behind the 4%. We do still expect the 4% to be there in the medium-term. Otherwise, the cash flow statement does not bear any surprises. The equity free cash flow came in at CHF313.5 million, a very strong result. And also here, the strongest we have seen ever in the company for the first half of the year.
What is also important to note here are the couple of lines below the equity free cash flow? We have started again to pay dividend. So that’s the CHF104 million of dividends we have paid in the second quarter. Secondly, we have bought some treasury shares. And thirdly, we had an FX difference and that’s a pure translation impact to transfer or translate the debt in foreign currencies into Swiss francs. And all of that together results in a change of net debt which is slightly negative for the first half.
Moving on to the next slide with the balance sheet. So there is nothing specific to report on the balance sheet. Some of the lines have been impacted by FX translation impact. This is again a pure translation impact. So, nothing to worry about that. And on the other hand, we have seen a slight increase in inventory. This basically follows the normal seasonal pattern we see in our industry. So we are purchasing ahead of the peak season in summer and therefore, slightly higher inventory position than at the end of last year.
Moving on to the next slide with the net debt and the leverage. So as I’ve already mentioned before, net debt slightly increased. Those effects are, on the one hand side, the improvement due to the cash flow generation. So that’s a positive contribution. And on the other side, we had the dividend payment and the FX impact on net debt as well as the treasury share purchase.
Looking at leverage, disregarding the slight increase of net debt, we were able to reduce the leverage even further. We currently stand at 2.35x, coming from 2.6x by the end of last year. So quite an improvement, again, especially taking into account that net debt slightly increased. Obviously, that’s thanks to the operational improvement, the increase in EBITDA which is the second part of the quotation for the leverage.
What is also important to note here is, again and to repeat once more but Xavi has already mentioned it, the leverage target which we have for the medium term which is 1.5x to 2x. And we are on the trajectory to reach that target and further deleverage the organization.
Moving on to the next slide with the maturity profile. A couple of comments here. First one, you still see there in 2024, a small portion of a maturity. That’s the second leg of the debt of the bond. So as a reminder, we have refinanced that bond already in Q2. What is here is the remaining maturity from a cash flow perspective later this year. But what is important to note, the refinancing has been completed in that regard. So it’s just from a repayment perspective that this is to come up in October.
Having said that, a couple of other points which I like about the current maturity profile. First, the maturity profile itself with an average duration remaining lifetime of the debt of around 3.5 years. Secondly, the split of product. We have a good split between bonds and bank financing. Thirdly, the split of different currencies. So we are refinancing in line with the exposure we have from an operational perspective to the different currencies. And lastly but probably most importantly, we have done ahead of COVID a shift into fixed rate coupon debt. We have enlarged the amount of exposure to bonds. And thanks to that, the expenses of — interest expenses during COVID did not increase massively. We profit from that perspective and still today, have around 70% of our debt on the fixed rate coupon and the remaining part on the floating rates.
We have some maturities, maturities which come up. And as always, I repeat the same thing I always said, we will refinance those maturities significantly ahead of maturity which, for us, typically means between 12 to 18 months ahead.
Moving on to the next slide which is my last slide. So look, just as a quick wrap up, what is this all about. So on one hand side, we, as an organization, we profit from the secular growth in our industry, together, combined with the strategy Xavi has mentioned before. We have a very disciplined cost structure where we are focusing on cost discipline and also cash flow generation. We are very resilient in regard to our diversification, be it in regard to products, geographical diversification, financial discipline when it comes to projects, etcetera.
And last but not least, all of that will lead to increase over time on shareholder value with increased performance, increased profitability and ultimately improvement in the cash flow generation in line with the Destination 2027 and the outlook we have provided.
And with having said that, I hand over back to Xavi.
Xavier Rossinyol
Thank you very much, Yves. Last slide, a few key messages. Another quarter of excellent performance and that’s 6 in a row. Second, some structural uniqueness based on the size of our portfolio, on number of locations, number of countries on scale and on access to data which is the guarantee if you want, or at least the basis of an excellent execution in the next quarters and years to come.
Now in a nutshell, what is Avolta? Avolta benefits in a unique way of people traveling, because it doesn’t matter if you fly in an airline, A or airline B. It doesn’t matter where you go. It doesn’t matter if you go with your family or by yourself. It doesn’t matter if it’s business or pleasure. It doesn’t matter if it’s a 2-hour flight or it’s a 10-year hours flight. In all those cases, you depart or you arrive to an airport or other channels like the motorways and the cruise liners but mostly at the airport and we are there. And we have what you need, F&B, duty-free or duty paid.
If on top of that basis, we improve the way we do things, that’s on top. But we are very unique because of our size and the capacity to offer the 3 key segments in the airport experience.
Thank you very much for your attention. And now we go to the Q&A.
Question-and-Answer Session
Operator
The first question is from Hirani Chandni from Barclays.
Chandni Hirani
Just firstly, on your organic growth of 7% in H1. Do you think that there is any pressure on the delivery on the upper end of the guidance expectation given that comps kind of get tougher from here on? This is a general trend flagged by other companies in the travel sector. So what gives you the level of confidence that you have? And I guess you’ve also got the added pressure of the current issues that you’re seeing in Hong Kong, Macau and Argentina which maybe then you don’t expect will continue into H2. So that’s the first question. Second question is, can you give us any more comments on current trading, maybe that would help. Where was July tracking so far?
And then finally, you mentioned can finally, you mentioned the business development is going well which is great to hear. But at the same time, you’ve obviously said that you’re still exiting contracts which aren’t profitable. Can you confirm that you said earlier in the presentation that this exits kind of optimization process ends this year? And so should we actually start to see those benefits of new units come through next year? And what would the range of that net new concessions be without these exits?
Xavier Rossinyol
Look, the way you need to read is that the organic growth you have seen on the first half is despite missing higher spenders in Europe, despite the Argentina more difficult comparables. So it shows that has been very strong. There has been some comments this morning, I mean, let’s remember, first question was higher than second quarter but Easter moved from one quarter to the other. We still don’t have the final numbers of July. But what we have seen so far is that the trends we saw in June continue roughly in July. You have 1 or 2 small effects, particularly the CrowdStrike that took us a bit of sales but that was 2 days. And then so the trends continue not everywhere. I want to be very clear on that.
As you pointed out, the Chinese consumption, Hong Kong, Macau and in general, everywhere where Chinese passengers go is not only not improving, it’s worsening from last year. But what Avolta provides is yes, we have that but our network makes us more resilient, because we use other better than last year performance. So these 6%, 7%, 8%, you see is the average. If you just take the best performance, we are at 10%, 12% but then, of course, they are the worst performance. That’s why we believe that looking at our portfolio. The growth on the summer compared to summer last year, of course, is more challenging, because it was a record historic summer. But probably the ratio you will see in the last quarter is going to be a little bit better. Overall, we believe the second half will continue on the same trend. 0.5% more or less is not so relevant, because it still indicates the big numbers.
Business development; look, I didn’t say this year. I think and if I said this year, I said soon. What is happening is obviously we did the analysis of the non-performing portfolio and we give a push. There are still a few things that we might exit next year but let’s say, the voluntary exits will decrease over the next 12, 18 months and then the net wins will be more obvious. We have been reluctant to give a number, because that number doesn’t depend on us but it depends on the behavior of the market. And I want to say something that for me is fundamental. The danger and we have seen that in other people, that you give a target and then you feel committed to that target and you might be signing unprofitable contracts.
We want to grow, yes. But our commitment is to cash flow generation. So we are not going to rush into a contract to show 0.5 point more of new concessions if that is going to negatively affect the cash flow. First, cash flow discipline and then new concessions. But if things are going the way they are going, next year and the following year particularly, it should add some additional positive. I think that’s all the questions.
Operator
The next question is from Dhar Manjari from RBC.
Manjari Dhar
Congratulations on another good quarter. I just had 3 if I may. The first was on the U.S. consumer. I wondered if you could give any color on what sort of spending behavior you’re seeing out of the U.S. consumer? And whether you’re seeing any signs of potential weakness amongst that demographic. And then secondly, perhaps a couple for Yves. I wondered if you could give some more color on CapEx and whether that lower rate as a percentage of sales is to do with phasing and we should expect a pickup in the second half? Or could CapEx for this year come in slightly lower than the 4% mid-term target?
And then secondly, I wonder if you could give some color on how we should be thinking about personnel costs in H2? Should we be expecting sort of that increase to fade off significantly? Or are there any additional costs related to restructuring or layoff costs that we should be considering?
Xavier Rossinyol
I will take the first. Look, the U.S. when you take into consideration a few aspects, actually is performing extremely well. In the U.S. you have some airports materially affected by the lack of aircrafts. There are some airlines and that’s public information that they have had difficulties, because of the issues on certain manufacture of aircraft. And despite that, we are delivering a like-for-like of 6.8%. We don’t see weakening of the consumer. And doesn’t mean we always reflect 100% what happens in the economy, because as I always say, when somebody is traveling by playing, it’s already somebody that might not be in the worst situation of the general population. Because it’s that person is already spending and already has a reason to travel either leisure or business.
So they might be less affected by any macroeconomic situation. That’s why the consumer tends to be more resilient when they travel than maybe on their general expenditure. So we have not seen. And I’ve been receiving this question, I think, for 4 or 5 quarters. And I kept seeing, I know everybody wants to see a massive slowdown everywhere but it’s not happening. It doesn’t mean there are no specific issues here and there. But the overall, the trend on consumption remains strong.
Yves Gerster
So on the other 2 questions, let me start with CapEx. First, on the CapEx, we have — or let me — 2 messages there. On one hand side, yes, we have only spent around 3.5% in the first half of the year. And I do expect to see a certain catch up in the second half of the year. Will we reach the 4% of the medium-term guidance this year? Yes or no, we will see. But look, the medium-term guidance of 4%, I believe, is still the right number. Again, it’s a medium-term guidance, in specific years, we can deviate slightly, be it a little bit below or a little bit above that number. And the key reason for that is an obvious one.
Look, CapEx typically is not evenly distributed over the years. The invoice don’t come in evenly. And also the payment may happen before or after year end closing. And look, this kind of shift you simply have in the cash flow statement. It’s not that this is planned to descend ahead. But look, again, to summarize, yes, we do expect the gap to be closed or partially closed in the second half of the year. Point number 1.
Point number 2 on the personnel expenses. So look there, the half year was a little bit of a one-off in the sense that it was elevated in the second half of the year. I do expect to see a normalization of that picture. And from that perspective, I don’t expect to see any relevant one-offs or continuation of the trend of the first half to go into the second half of the year.
Operator
The next question is from Joern Iffert from UBS.
Joern Iffert
Just 3 pretty basic ones, if I may. The first one is, can you confirm that food and beverage is growing really stronger versus the classical retail business, or is this a misperception? I would take them one-by-one, if it’s okay.
Xavier Rossinyol
I don’t know where that comes from. It depends on the regions. You have one activity growing stronger than the other. But it’s not a general trend, depends market by market and it depends on the profile. So you have, for example, a bit of a stronger F&B in North America than duty paid but duty-free is growing more than both of the other, even if it’s our smallest part of the business. In Asia, probably also F&B is growing more than retail but for the reasons we know, I mean, the effect on the Chinese consumption. But in Europe, for example, we are having — which is expected because of the summer season, a stronger retail than a stronger F&B. But in all the cases, I’m talking about the small differences. We have growth in all of them. All regions grow both F&B and retail, a little bit more or less, depending more on the profile of the customers than on the underlying business.
Joern Iffert
And the next question is, there is some new X-ray machineries at some airports and securitization has changed. The rollout is much, much, much, slower than anticipated, maybe 1 or 2 years ago but you can actually bring your drinks to the after security areas. Is this something where in the regions, airports, is this is materializing? Do you see an impact on your water sales or soft drink sales, or not really?
Xavier Rossinyol
Not really. And actually, the initial feedback from the different operations where this has been implemented is actually the contrary. There is plenty of research that the most stressful part of an airport journey is the security control. It’s uncertain. You don’t know how long it will take. Even if objectively, sometimes doesn’t take too long, psychologically, you feel exhausted. It feels it takes forever. You don’t know after security control, if you don’t know the airport, if it will take 5 minutes or 20 minutes to go to the gate, sometimes you don’t even know the gate. So it’s a very stressful situation.
If you count passengers on that, when they go to the other side of the security control, they are more relaxed. Typically, they have a little bit more time and that benefits our commercial activities. We have seen no negative. I cannot give you proof, quantitative proof yet that there is an automatic uplift. But in general, the perception of our local teams is that it will be no impact or a slightly positive impact.
Joern Iffert
Okay. And next question would be, please, on the share buyback. What was it CHF129 million or so. Let’s look up in the slides. How do you think about this going forward? I mean, is this a kind of hidden share buyback you want to continue? You purchase up to 10% of your outstanding shares. What do you want to do with the shares? Is it going for M&A currency, whether you’re going to flow to the market at some point in time again? So yes, an update would be appreciated.
Yves Gerster
Sure. Look, we have decided to buy some shares on one hand side for the long-term incentive plan. As you know, the compensation of the executive management but also part of the senior management of the group or actually the senior management of the group is compensated by some long-term incentive plan, the PSU plan. And that’s one aspect. And the other aspect is just for general corporate purposes, so that we can use those shares for any kind of corporate purposes going forward.
Operator
The next question is from Jon Cox from Kepler Cheuvreux.
Jon Cox
It’s Jon with Kepler here. Just back to that share buyback and the management incentive scheme. Is this now we should expect something like that annually from you, that sort of figure? Or was this just something extraordinary because maybe a new scheme is being launched and we won’t see much of that again for a couple of years? Second question, just going back to what Xavier was saying about we think now on costs and CapEx we can do things better. Wondering if you could just give us an idea of this continuous improvement. Do you target 20 basis points or something per year which isn’t necessarily going to run to the bottom line but is that something you’re looking at?
As an add on that, if you do CapEx more efficiently, then you don’t need to do 4% anymore? Or would you just take advantage of the fact that you can do it more efficiently but you would CapEx redesign more shops at a faster pace than maybe you do normally. And I guess the last one on the margin structure of H1. Europe was the main driver but also that central services line was a lot better. I’m just wondering if there’s something changed there, what was behind that, the fact that that contributed I think 30-odd million more than it did a year ago.
Xavier Rossinyol
On the first question, just to — I mean, as Yves said very well, some of the shares we bought are for the incentive plan, some of them are for general corporate purposes. So they are not all for the management incentive plan. Actually, not the large part is not for that. And therefore, you should not expect something like that every year. It’s a little bit of we found it was a good moment to buy those shares, because we believe the share price is in a very good moment.
On the cost and cash flow improvements, it’s a very interesting question, because when you establish a discipline in the organization of constant monitoring, constant measurement, zero-based budgeting, combining 2 businesses that have never been combined before, if you keep the right discipline, you keep improving ways of improving your business. In the synergies calculation, it was never, for example, the local warehouses at airport level, because the assumption is that at local level, retail and F&B have different needs. The reality is that when you go deep enough between convenience store and F&B, actually the warehouse can be combined. You have 2 in an airport, you need 1, immediate savings, on the warehouse, on the people, on the logistic cost.
Flexible stores; flexible stores will allow us that some of the upgrading of stores we do on a regular basis and that’s part of the yearly CapEx, it could be reduced. We are monitoring now the effect of all the things we do. So, we know and that’s factual, that when you do a full refurbishment of a store, you get the highest uplift in sales. The new generation of stores we have implemented over the last year could give you 20% uplift on the spend per passenger. But you have to have a big one-off CapEx and also a few months of refurbishment. We will continue to do that when it makes sense but we also realize that there are activities that you make the investment once, for example, on the software of a smart store, or on designing a new entertainment. Then, of course, the execution costs are several. So, we are learning supply chain. We are reviewing the overall supply chain. So, we continue finding ways of improving our business.
I know you always like to see, okay, you gave these expectations, can it be better? But if you think for a minute, 20 to 40 basis points of improvement on the EBITDA every year requires finding some of the things I’m saying. Maybe we are finding them a little bit faster than we anticipated but it’s part of our long term outlook and both on cost and CapEx.
We are not ready yet to say that the structural CapEx will be less than 4%, because it’s too early for that. But if things continue the way that we see now, maybe next year, we can say that the structural CapEx is a little bit less. For the time being, it’s only half a year. It has been a very good first half a year after an extraordinary year 2023. So, the basis is very good but I’d rather keep going quarter-by-quarter, improving the business, than maybe now going to much higher expectations. We keep the outlook but every quarter we feel more comfortable with that outlook, because we keep improving the business. I hope it’s fair enough.
On the CHF30 million on Central, I mean, look, the allocation by segments, you also have the savings on the synergies on the Head Office and the share services, where, as we said, the synergies are coming from Head Office and supporting functions are coming also from regional Head Office and also from the U.S. So, you see sometimes on a quarterly basis, you cannot follow exactly but it’s basically the consequence of the delivery on the synergies.
Operator
The next question is from Ali Naqvi from HSBC.
Ali Naqvi
Two for you, Yves. Just in terms of the margin and cash progression, H1 into H2, could you just remind us of how this moves from H1 to H2 historically? I mean, do you expect a large increase in costs relative to the level of growth that you’re expecting? And then, therefore, you’ve got it to the top end of the range. Is there any reason why you couldn’t potentially beat that? Secondly, just on the leverage target, I mean, how do you think about, as a Board, whether you do a special dividend or a buyback, what sort of quantum would this start to enter your mind? Is it when you get to 1.9x net debt to EBITDA, or do you need to be below that and make it more material?
And then, Xavi, just in terms of concession fees, they fell slightly in the first half. Anything to call out there? And could you just give us an idea on whether the returns or concession rates for new contracts are any better or worse versus pre-COVID?
Yves Gerster
Let’s look if we start with the first 2 ones. So, on the cash flow and the margins for the second half and the first half, look, we have seen and our business is seasonal in regard to the EBITDA margin on one hand side but then also in regard to the cash flow.
In regard to the cash flow, typically the first quarter is very negative and you have also seen that this year Q2 and Q3 are typically the strongest quarters, so Q3 clearly the strongest, Q2 a little bit behind. Now, we have seen an extraordinary strong first half year. I think the performance was extremely good. Then Q4 typically is flattish to slightly negative. And when you look at the history of the organization, be it performer combined or also on a standalone basis, it always follows more or less that pattern.
So, look, in regard to the outlook, we stick to what we said. In regard to the top line, in regard to the margin improvement and also the cash flow conversion, Xavi was very explicit about that on his last slide when speaking about the strategy and we’ll continue with that messaging also going forward.
In regard to the leverage target, look also there, what we said is 1.5x to 2x. We fundamentally believe that the lower leverage will compare to what the company had before COVID is clearly healthy and the target. But we also at the same time believe that a too low leverage, let’s put it in a net asset position, is not necessarily or definitely not efficient for the industry we are operating in. So a certain level of leverage to maintain that seems to be the right way to go.
Now, if we get into the leverage target band of 1.5x to 2x, we will need to see on what we do with potential excess cash generation. I mean, one of the things we have already mentioned, we believe in a further consolidation of the industry. We believe in further M&A opportunities in line with the way Xavi has outlined it, with a very disciplined cost discipline. So we are not buying market share, we are here to generate cash flow but within those boundaries there will be further small and mid-sized bolt-on acquisition.
And as a consequence, also the deleverage potentially, the trajectory is a little bit flatter if those kind of M&As indeed happen as we go along with the deleveraging. And look, once the time is right, we can talk about other measures but I think at the moment with the 2.3x and with the potential for the bolt-ons, it’s probably a little bit too early to talk about it.
Xavier Rossinyol
Your last question on the concession fees. Look, this is the consequence of several things. Number 1, it’s more rational behavior both of airports and operators. We said, we expected that to happen and it’s happening. Less max, more max per passenger, even no max whatsoever. Second is our own active portfolio management. Exiting unprofitable or deficient activities. Bidding, as I said earlier on, I’d rather not win a place if it’s going to come with negative cash flow. So our discipline in bidding and exiting is also helping. And also now, because we have retail and F&B, we can also be more selective where we grow.
So I’ve been reluctant to give a number on concession fees because it depends on so many things, the weighted average, etcetera. But I do see definitely less pressure than the one that was before COVID. And that, of course, that is helpful on maintaining and increasing the margins over time.
Operator
The next question is from Yvonne Chow from Nan Fung Trinity.
Yvonne Chow
I must miss this but can you remind me, I think you mentioned that the gross margin uplift year-on-year is due to mixed effects. Can you elaborate a little bit on that? What sort of mixed effects was that? And then, I mean, you basically overall, I think, how many quarters you’ve been basically on guidance, I’m just wondering what sort of things are holding you back from being more positive on your guidance overall for this year as well as medium term? Should we expect for this year that you should be beating all your guidance in the — you should be arranging top end of all the guidance in the margin cash flow conversion? Is that what we should be expecting?
Xavier Rossinyol
Look, the line was not perfect so hopefully we are going to answer, I’m going to take the second one on the evolution of the gross profit margin if we’ll take it but if your question is we didn’t say we will not achieve the outlook we said, we will achieve the outlook and we will achieve the top part of the outlook. So we were very reassuring that things are going as expected. Some people ask could you do better and my answer is always the same. We will try it. Our aim is to beat the outlook but our outlook is our outlook because you can not only expect the things you will do you also have to give some room for things that could happen in the market.
So we confirm our outlook for the long-term, for the mid-term and for this year even on the top of the range of the outlook and we feel comfortable with that, I think that’s a very strong statement particularly when you see what is happening in other places. On the gross profit margin, I’m not sure, I think you asked, why is improving 110% basis point.
Yves Gerster
So look, basically the gross profit margin the improvement is twofold as I have explained in my speech on one hand side, it’s thanks to the high demand from our customers. So they do want to purchase they do want to travel and as a consequence we see that improvement in the gross profit margin point number 1. Point number 2 is all the initiatives Xavi has mentioned before, where we as a company have done progress on our travel experience revolution initiative and on our strategy destination 2027 in general, with a lot of different initiatives as explained by Xavi be it entertainment in the stores, the flexibility of our stores new product range, more sustainable products, entertainment and all the digital initiatives.
Operator
Next question is from Casper Lund [ph].
Unidentified Analyst
Congratulations on a good quarter and a good first half in your business. I have 2 questions. One is on capital allocation and the other is more broadly on shareholder value. Some people have asked on your share purchases in the first half and I wanted to elaborate a little bit on that. You have a strong balance sheet now. You have access to, frankly, very cheap debt. I think that the yield on your bonds is around 4.5%. And you mentioned yourself earlier in the call that it was a good time to buy some shares in the quarter, principally for the Treasury.
I wanted to understand a little bit better what’s behind the current capital allocation and more specifically what’s holding you back from frankly buying back more shares and canceling them given the discrepancy between your high credit ratings and your less, how should I say, less attractive equity rating? That’s my first question. I wanted to understand a little bit what’s holding you back and what’s behind the current capital allocation.
The second and related is broader on shareholder value creation. Share price has been a bit mixed the last year, 3, 5 years, maybe even further. And I was thinking that maybe Switzerland isn’t the right market for you to be listed in. You have a very diversified, very profitable business which actually has very little to do with Switzerland. Would you or the Board consider listing somewhere else, potentially in the U.S., where there seems to be greater appreciation of businesses such as yours? Those would be my 2 questions.
Xavier Rossinyol
Point number 1, rest assured that both management and board of directors focus a lot on shareholder value creation. We take that very seriously. Number 1, to create value always is to do a good performance. The company needs to generate good growth and good generation of cash flow. That’s the basis of everything. And that’s where management has been focused.
We need to remember that we came back. We just came out 2 years ago from a big crisis. We did the big merger next year. Management is new. I joined 2 years ago. We put a new strategy 18 months ago. So management and Board aligned that we had to put a solid basis for this new merge entity and this new strategy. And the focus was to build a long-term, solid and profitable business. And on that context, it was felt that the best capital allocation policy was, number 1, to deleverage. Number 2, to pay a regular dividend to compensate directly with cash shareholders on a yearly basis and number 3, to potentially keep growing the business.
This capital allocation policy has less than a year but the Board and the management keeps looking at what happens in the market, what happens with the share price, so nothing by definition needs to be ruled out.
So we are monitoring the situation. At this time, the only thing I can say is what is official. The capital allocation policy we explained is the existing one and is the one we stick for, for the reasons I just said a minute ago. In the near future, in the long-term future, things might change. But at this stage, this is what we stick to.
On the listing location, I think this company requires a little bit of stability. A lot of changes have happened, as I said. The merger, the exit of the COVID crisis, new management, new strategy. And I think a stable frame is positive. But again, in due time, the Board might take a decision that might be different. But for the time being, it’s very clear.
Our outlook, our capital allocation and the existing listing locations is what is the frame of Avolta today. We will keep focusing on delivering higher cash flow and higher profitability over the next 3 to 5 years. And we will keep monitoring the best way to generate value for the shareholders.
Operator
We now have a question from the webcast. As an Hazenage Arben [ph] asks, have you seen any meaningful changes in SPP and promotional activity?
Xavier Rossinyol
SPP on a comparable basis, so taking different, the weighted average of the different activities, seasonality, etcetera, keeps growing across the Board with a few exceptions, like Chinese. Chinese are not increasing the spend per passenger. Actually, they are decreasing. But over the wide portfolio, we are increasing. So we keep seeing increase in passengers but also increase in spend per passenger for each of the relevant constituencies.
And this is the result, we believe, of the actions we do on the new stores, on the new commercial initiatives, on the entertainment, etcetera, etcetera, that we explained earlier on.
Operator
The next question from the webcast is from Timothy Malfet asking, hello, could you please repeat when the Melbourne effect will disappear?
Yves Gerster
Sure. The Melbourne effect annualized by the end of May 2024. So it expired 2023, end of May and it lapsed in May 2024.
Operator
There are no more questions at this time.
Xavier Rossinyol
Thank you very much everybody. I hope it was useful. Definitely was useful to us. And as I just want to say a couple of final things. First, thank you to all the team members of Avolta. It’s thanks to you that we are able to deliver the type of results we deliver today.
And the second thing, I don’t know if you’re going to buy shares or not but please, when you travel, buy in our shops and buy in our restaurants. Thank you very much. Have a nice day.
