Dufry AG

SIX:DUFN

Earnings Call Transcript 2019-Q1

[Operator]

Ladies and gentlemen, welcome to the Dufry's First Quarter 2019 Results Presentation Conference Call and Live Webcast. I am Sandra, the conference call operator. [Operator Instructions] And the conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my please to hand over to Mr. Julián Diaz, CEO of Dufry. Please go ahead, sir.

[Julián Díaz González, CEO & Director]

Thank you, operator. Good afternoon, and thank you for participating in Q1 results call. Presenting the results here today are myself, Julián Díaz, CEO; and Yves Gerster, for the first time, new CFO. As in previous calls, we are going to use the presentation disclosed today on our website.Let's move to Slide #3. You can see the topics for today's call. I will first review our operations performance in the preview. Then Yves will first present the implications of IFRS 16 implementation, done as of 1st of January this year, and also present the KPIs, which we have aligned with IFRS 16 and that which we'll be using going forward. He will then continue with the presentation of Q1 2019 financials. To conclude, I will return for an operational data and our performance so far in 2019.Let's continue with the Slide #5. As a preliminary remark to this first quarter results, which saw a positive start into the 2019 business year and an organic growth of 2%, I would like to remind that we have been implemented, for the first time this year, the IFRS 16 accounting standard, which impacts both our balance sheet and P&L. And thus, reduces the comparability with the related previous year periods. However, it is very important to note that IFRS 16 will not impact our economic performance and will not change our strategy and the way we run our business.We continue with Slide #6, with the highlights Q1. Dufry deliver in 2019 first quarter, a turnover growth of 3.4%, reaching CHF 1.882 billion, of which, organic growth contributed 2% despite the shift of Easter holidays in the second quarter, excluding Brazil and South America, organic growth increased by 6 -- 5.6%. We also continued to expand our gross profit margin, which grew by 40 basis points, reaching 60.3% compared with 59.9% in previous year.The following 2 KPIs are new, and have been introduced in the context of the first time implementation of IFRS 16 as 1st of January this year.Thus, not comparable to previous years, the impact of IFRS 16 implementation and the details of the new KPIs adopted will be explained by our CFO, Yves Gerster. The first new KPI is adjusted operating profit, which reached CHF 46 million in the first quarter 2019. And the second is adjusted net profit, which amounted to minus CHF 8.8 million. As you know, Dufry's business has always had a pronounced seasonality for cash and profit generation during Q1.In the first quarter 2019, our adjusted operating free cash flow reach CHF 159.3 million compared with CHF 164.7 million in 2019. And the equity free cash flow came at minus CHF 123 million compared with CHF 103 million in 2018. As mentioned, the first and fourth quarter are the less important for cash generation.Let's move now to Slide 7. Moving on to the operational developments, we continued to grow our retail space by opening 9,100 square meters of retail space across 86 shops, which include new shop openings and space increases in existing locations. We are also continuing to execute on our refurbishment plan with a renewal of 14,400 square meters across 27 locations. At the end of March, we have already a portfolio of 18,800 of signed contracts to be opened along 2019 and begin in 2020.I would like also to mention the new organization, which we announced in mid-January this year. Everything is now on place, and we created the new division in Europe and Africa by combining the former divisions, U.K. and Central Europe with Southern Europe and Africa. This will allow us to accelerate our custom focus and the commercial decision process. In order to be closer to the market by consolidating the collaboration of 2 institutions or align of managing the commercial side, the global platforms and the commercial departments in the divisions.I would also like to confirm the continuation of the dividend policy in this first -- in this cost -- in this first Q1. Also, shareholders have approved the dividend payment of CHF 4 per share at the AGM held last week. As compared with last year, the dividend has increased by 6.7%.If we move now to Slide 8, we will comment on the organic growth. We have continued to improve in positive territory with the turnaround trends seen in the first -- in the fourth quarter 2018. Organic growth reached 2% and saw a positive development of all divisions. Except for South America, where the situation in Brazil and Argentina remains challenging, especially we are talking about countries where Argentinians and the Brazilians are the important ones in South America. Excluding South America, the group organic growth reached 5.6% increase.As you can see in the bottom chart, Europe and Africa has further improved by doubling their performance as compared with last year. Asia Pacific and Middle East have continued with a double-digit growth from top of the double-digit growth last year. Despite, obviously, the high comparable. And as mentioned, South America remains challenging both because of the changing economic environment and the high comparable that this region reached last year. If we move to Slide 9, we comment division by division.Organic growth in division Europe and Africa improved by 2.4% with doubles the performance in Q1 2019. This has been driven by: first, a positive contribution from the U.K. in general also by its new cruise business; and second, by an improvement seen in Spain, where we have implemented several commercial initiatives announced during 2018; and third, by the group performance in several other countries, such as Turkey, Italy and most of African operations.In Slide #10, division Asia Pacific and Middle East. We are reporting an ongoing high double-digit growth of 17.3%. By this -- obviously, duty-free new concessions, MTR that I announced a couple of times last year and also the new duty-free shop at Perth Airport. Within this division, Eastern Europe reported a single-digit organic growth. The Middle East saw a slightly lower performance due to the high comparables of the previous year, while Asia, as a whole, showed a good performance with positive contribution coming also from Cambodia, China and Indonesia, besides, obviously, the aforementioned performance of Hong Kong and Australia.In page -- Slide #11, North America delivered a resilient performance, which improved to 5.3% as compared with the fourth quarter 2018, but it stayed below the Q1 2018, where we have seen a high single-digit performance. The main factor here were the ongoing healthy performance of the duty-paid operations, while we show sign of the duty-free locations being impacted by the lower spend of Chinese passengers, especially in Canada. If we move to Slide 12, Central and South America. The overall performance of the division has remained at the same level of fourth quarter 2018. Reporting a negative organic growth of minus 10.8% and until -- and is still impacted by both the high comparables of the previous year and the changing economic environment. On the opposite, Central America has post global performance mainly supported by our operations in Mexico and the Caribbean as well by the ongoing high double-digit growth from the cruise business supported by the start of operations on more new ships. In Page #13, I will now look the passenger growth. Both chart and table continue to show a very positive picture in this, the global performance in passenger numbers in the first quarter 2019 has continued with a healthy increase of 5.4%. As we can see, from the outlook chart on the right, also expectation continue at levels about 5% for the next 2 years. With respect to openings and closings. In Slide #14. In the first quarter 2019, we have continued with our expansion of retail space by opening a total of 9,100 square meters of new retail space. The main highlights of the openings were, 4 stores in Casablanca, covering 430 square meters; a new shop in Helsinki, 310 square meter; 6 new stores in China, we have total of 330 square meters; 17 shops in Russia with 960 square meters of retail space; 14 shops across several locations in North America and a total surface of 1,890 square meters; and finally 17 new stores ships on bought 6 new ships with space of 1,230 square meters.Looking at the refurbishments, we have been quite [indiscernible] on the renovation of our operations, as we have been renovating some important stores with considerable sizes in the first quarter 2019 for a total of 14,400 square meters. The most important one are listed here. These 2 areas of discussion, gross retail space open and shops refurbished are really the basic key pillars for developing organic growth.If we move to Page 15. Talking about new space signed. Among the new space signed, until March 2019, we have a portfolio of 18,800 square meters to be opened during 2019 and '20. The most relevant ones are as follows: further expansion in our cruise division with operations in 16 new ships; a new store in St. Petersburg with over 900 square meters; 18 shops in Boston, totaling 1,100 square meters; 7 stores in Indianapolis with 600 square meters; and 3 new stores in Nassau across 500 square meters.Moreover, we have an important project pipelines. 35,500 square meters, we are currently, obviously, negotiating or participating in tenders. These potential opportunities are well distributed across several divisions such Europe and Africa, Asia Pacific, Middle East and Central and South America.If we move to Page 16, resolutions of the AGM. On the Slide 16, I would also like to give you a summary of some of the main resolutions approved by shareholders meeting on Annual General Meeting in 2019. First, our shareholders have approved the cancellation of 3,304,541 shares both in the share buyback program. Please note that this cancellation has a total accretive effect of 6.5%. And second, the AGM has approved the payment of a dividend of CHF 4 increased from CHF 3.75 last year. The increase of 6.7% has been decided based on the strong equity free cash flow we have generated in 2019. It was also an important decision the appointment of a new member of the Board, Mr. Luis Maroto, CEO of Amadeus, that will contribute a significant know-how about the travel market and the IT develop in the travel market over the past years by Amadeus.I will now pass the floor to our CFO, Yves Gerster, for this comments -- for his comments on the implementation of IFRS 16 and the financial statements Q1 2019.

[Yves Gerster, CFO & Group Treasurer]

Thanks, Julián. Good afternoon. Before we get started, let me quickly introduce myself. I have been with Dufry for 13 years now in different positions within finance. Most recently, as Director of Treasury and Shared Service Centers. I have taken over the CFO position from Andrea Schneider on April 1, and I'm very pleased to be with you here today. Having said this, let's move on to Slide 18 and the introduction of IFRS 16.As you know, we adopted IFRS 16 in January 2019. The new standard brings profound changes to our financials, especially as part of the leases are now capitalized.As a consequence of the changes, we have adapted the set of KPIs we used to measure the performance of the business. It is important to note the new IFRS standard has no economic impact on Dufry. This is evidenced especially in our cash flow statements, which remains largely unchanged. If we move to Slide 19. Here is summary of the main impacts on our financials. The starting point is the balance sheet, where a lease lability and the right of used assets are recognized. In the case of Dufry, only the fixed minimum annual guarantees are capitalized. In the income statement, we see the consequence of this. Concession fees, which formally were part of selling expenses, are now reflected in 2 separate lines: lease expenses, which contained the valuable component of the concession expenses; and depreciation of right of used assets. As an additional effect, there is an interest charge on the lease lability. So the cash flow, as already mentioned, this remains largely unchanged.On Slide 20, as summary of some very important aspects you need to keep in mind. First, the amount capitalized on the balance sheet do not say anything about the quality or profitability of the concession portfolio. Contracts with very different economics and risk profile may have a similar impact on the balance sheet. Also, Dufry is seeking for long-term contracts. The second very important point is the so-called frontloading effect. Due to the lease interest charge, net earnings are affected negatively at the beginning of a contract and positively in the second half. Third important point. Over time, the balance sheet positions as well as the P&L will develop quite dynamically. Renewals and new contracts, which contain fixed lease components, will lead to additional capitalizations. As we will see later, the amended KPIs were designed to deal with this issue. Last but not least, it's not too much to repeat that a new standard has no economic impact on the group.Let's move now to Slide 21 and explore our KPIs. As mentioned, we align our KPIs with IFRS 16. As an example, EBITDA is no longer a meaningful KPI anymore, as it doesn't include all concession-related expenses. On the next slide, I will guide you through the amended and new KPIs on a step-by-step basis.On Slide 22, we see our first KPI, adjusted operating profit. Our adjusted EBIT, as you prefer. The only adjustment here is the PPA amortization. This should be a concept known to you as we always added this back to our profits. We like this KPI, as it provides for a good operating profit metric using the current elements of the income statements.Moving to Slide #23. Next is adjusted net profit and adjusted earnings per share. We have done some additional adjustments due to IFRS 16. However, still very close to the former KPI, cash EPS. Moving to the Slide 24, the cash flow KPIs. As mentioned, the impacts of IFRS 16 on the cash flow is very small. Therefore, the cash flow became, by far, the best way to measure the performance of the business.This is a new KPI. As mentioned before, in the way IFRS 16 works, part of the concession payments are now reported as cash flow from financing activities. By adding lease payments, as shown in the table on the right, we have a very good view on the cash generation by operation. The beauty about our adjusted operating cash flow, it is a good proxy to the former EBITDA. We will see that also later when we are talking about financial covenants.Then finally, on Slide 25, we have the equity free cash flow. Here, we have no changes as IFRS 16 has no impact on it. This concludes the KPI that we will be using going forward. Let's then move on to Slide 26. IFRS 16 also resulted in a change in our covenant calculation. Adjusted operating cash flow replaces EBITDA as a denominator. Net debt continues to be defined the old way, i.e, not considering lease labilities. With the new calculation, the covenant increased slightly, which is reflected on the bottom-right chart. We therefore, increased the threshold from 4x to 4.5x to maintain the headroom under the covenant. Again, this is purely due to the calculation and does not reflect the change in risk profile of the company. So that was a quick introduction of IFRS 16 and our KPIs. As you know, tomorrow, we will have -- we will be holding our Capital Markets Day in Zurich, when I will go through that in more details. If you are not able to attend the event, the presentation will be available and feel free to reach out to the IR team to schedule a call. The team is delighted to answer any questions you may have to IFRS 16, the new KPIs, and obviously also to -- all the questions or comments you may have. Let's move now directly to Slide 28 to discuss the Q1 financials.Julián already commented on organic growth. So let me just emphasize 2 messages here. First, we are pleased with the continued improvement of organic growth in the first quarter, despite the shift of Easter to April this year. Secondly, that we achieved this despite the challenging conditions in South America. Looking at the currencies, challenging environment in some of the key currencies especially, due to the Argentinian pesos and Brazilian real. On Slide 29, we have the FX impact on turnover. We had a positive FX impact in the first quarter, a result of the strengthening of the U.S. dollar versus the Swiss franc. As you can see on the bottom-left chart, the impact would have been more positive if it wasn't for the euro and pound sterling going in the other direction. Let's now move to the income statement on Slide 30. Okay. So there are a number of things to understand in this slide. Let me walk you through that step-by-step. The first element I want to focus is the second last column called comparable. This is very important because given we have not restated 2018 figures, the Q1 '18 reported and Q1 '19 reported are not directly comparable for the most part. For this reason, we have pro forma adjusted Q1 '18 in order to provide you with a better comparison with Q1 '19. The adjustments provide you with an indication of the magnitude of IFRS 16 would have on Q1 '18. Again, it's important to keep in mind, it's just a pro forma calculation. Before going into details on the P&L, let me repeat again. The best way to measure the performance of the company for the first quarter is to look at the cash flow. Having said this, we can now go into the most important changes. I will use the reference we have in the last column, called note, to guide you through. Note 1, this reflects one of the biggest changes. Only concessions or part of concessions, which are not capitalized, are shown here as expense in Q1 2019 and Q1 '18 pro forma. On top, as we are bridging from the former selling expense line, some expenses related to concessions -- not related to concessions, like credit card fees or packaging, et cetera, were moved to the line called other expenses. Moving to Note 2. Other expenses has only a small impact from IFRS 16. The biggest impact in the line is from reclassifications. On top of the portion that came from selling expenses, the former order operational result line is reflected here. Note 3. Here, we show the new account depreciation of right of use. Note 4. This reflects the new interest charge on the lease liability. Finally, Note 5 and 6 are the consequence of all the items above in both taxes and minorities.Moving on to Slide 31. Let's focus now on the 2 income statement KPIs we will use going forward to measure the performance of the business. As I already explained, the concept before, let me go directly to the analysis. As you can see in the top table, adjusted operating profit reached CHF 46 million from CHF 80 million the year before. So again, Q1 '18 is just as an indicative pro forma calculation, so take it as a pinch of salt. On the positive side, gross profit expanded by 50 -- CHF 45.7 million as a combination of turnover growth and gross margin expansions.On the other hand, personal expenses increased by close to CHF 23 million. Most of the changes can be attributable to our North American business, where we see from the increase in minimum wages, and additionally, this quarter, a one-off expense related to changes in the management's team. Expenses also increased in lease expenses and depreciation of right of use. As explained before, these 2 line will vary dynamically going forward as a result of new contracts and renewals. Moving to the table below, where we showed the adjusted net profit and the adjusted earnings per share. Here, we have most of the items relative in line with last year, so I will not comment on those. The only point I would like to highlight is the accretive effect of the share buyback program executed last year. If we go now to Slide 32, where we have a summary of the cash flow. Let me repeat once more because it's really important, going forward, the cash flow is the best way to measure the performance of the business. Besides the main KPI you see on top, it is important to remind you about the seasonality of the business. Adjusted operating cash flow is very seasonable, always Q1 being the lower point. This seasonality is also reflected in the equity cash flow with Q1 and Q4 typically being negative. Just to clarify once more. Equity free cash flow is expected to be in the range of CHF 350 million to CHF 400 million. This is also valid for this year. For the medium-term, we expect equity free cash flow to grow in line with the top line. Let's move now to Slide 33. Here we have our typical cash flow summary, as you are used to see it in our presentation. The only difference here is the second line, lease payments. As mentioned before, IFRS 16 requires us to reflect lease payments and cash flow from financing activities. But as lease payments, in our case, are clearly related to the operations, we added back to the operating cash flow. The first big mover here is cash flow -- is net working capital. I will talk about that on the next slide.Next, we have the income tax, which was close to CHF 0 in Q1 '19. This is the result of the tax refund received in the period. If it wasn't for this, income tax would've been similar to last year.All the rest is pretty much straightforward. Moving to Slide 34. On top chart, we see the core net working capital evolution, which is higher in Q1 '19 compared to Q1 '18. There are 3 main reasons for the change: first, the shift of Easter to April; second, the continued weak trading in South America; and third, the new operations we have opened in the last few quarters.CapEx in Q1 stood at 3.1% over turnover, fully in line with our guidance of 3% to 3.5% over turnover. If we now move to Slide 35. Slide 35 displays our balance sheet in the summarized way we like to show it. The big change here, as you can see, is the addition of the right of use on the asset side and lease liability on the liability side.Going to Slide 36. I wanted to focus on the 2 chart at the bottom. As mentioned before, we have redefined our main covenant. The left chart shows the evolution of the former concept, and on the right side, the new one. You can see clearly that we continue to have a comfortable headroom in the new definition. If we now move to Slide 37, all remains pretty unchanged here. We remain having a well-balanced maturity profile, with no maturity before 2022. Okay. This concludes my part of the presentation. Julián, back to you.

[Julián Díaz González, CEO & Director]

Thank you, Yves. I now move to the Slide 39 for conclusion and trading update. In the first quarter of 2019, we have seen a positive start despite all the difficulties we have gone through in South America. We have increased organic growth by 2%. I think it is important to remark the improve of sales performance in Spain and also the contribution of 2 very successful activities in Hong Kong and in Australia.Performance today in April, and considering that's only part of the Easter period has been accrued here. This day -- the Catholic part is 2.4%. That is still to be accrued during the first 2 weeks of May, the Orthodox Easter. But only with this, what we have confirmed, is that the company is accelerating the increase in organic growth, 2.4%.We also would like to confirm our midterm average organic growth guidance 3 -- between 3% and 4%. And regarding the equity free cash flow, as I am going to repeat what I said during the call -- within the last call -- presentation is in 2019, our target is to reach between 304 -- CHF 350 million and CHF 400 million, increasing in line with the turnover of the company. And also usually depending on the circumstances, but I think in terms of the target I want to be very clear just in case there is a misunderstanding.We confirm also our current dividend policy for the year 2019. This completes our presentation. And we can now move on to the Q&A session.

[Operator]

[Operator Instructions] The first question comes from Jörn Iffert of -- from UBS.

[Jörn Iffert, Director and Analyst]

The first one would be please on the gross profit margin expansion, which was healthy for the quarter. And it seems majority of this is coming from North America. Can you help us a bit understand gross profit margin trends in the other regions? Second question would be please on the category sales. You had a good boost in tobacco, wine and confectionery, but cosmetics, for example, was down. Is there a change in -- structural change? Or it's just a snapshot for the quarter? And this will yes, change the next couple of quarters again? So this would also be helpful to understand. And then please -- and the last question on the concession fees. Again, up, if I calculated correct, around 130, 140 basis points, even adjusting for the new accounting year-over-year, is this annualizing then in Q3 once the new contract is annualized? Or shall we get used to a higher concession fee increase over cycle versus your guidance of 20 to 30 basis points?

[Julián Díaz González, CEO & Director]

Thank you very much for the question, Jörn. This is Julián speaking. Regarding the gross profit margin, I see North America, obviously, during this quarter performed very well. But all the divisions performed well except one.And we are expecting that during 2019 again, we are going to see an increase of gross profit margin in most of the divisions. The reasons are, as I mentioned before, the continued activities starting with the brands, especially in the brand plans, the increase of advertising or compensations regarding disclosure of the brands. And also the negotiation processes with the local brands. As you know, I mentioned that still we have not developed this part of the development of the gross profit margin. Regarding the category mix, it's just a mix. Depending, obviously, on the circumstances because some of the operations that we have started during the last quarter of 2018 are performing better in other categories, especially liquor and tobacco. And the mix now is changing a bit. But the performance in terms of 2019, I don't think that a part of cosmetics will be impacted in the negative side. And finally, the concession fees that you may calculate but is very difficult because there are also, in the depreciation line is -- as you know, it’s a discounted cash flow of the max. The reality is that it has been as -- always announced. We are expecting this year between 20 and 30 basis points in the full year of increasing the line of concession fees, and it's probably a bit deeper, the result here, because the lowest quarter and the new operations started, but when the new operations will be normalized in 12 months, I think the 20, 30 basis points is a good reference in terms of growth of concession fees in 2019.

[Jörn Iffert, Director and Analyst]

And if I may quickly have a short follow-up just to clarify. On the cash flow, you had the tax present from Spain and though the cash flow was down, if I adjust for the tax present, maybe, CHF 40 million, CHF 50 million versus Q1 '18. I assume, this is only coming from Easter predominantly. That Easter there -- there's a time shift? Or any other structured things that we need to consider?

[Yves Gerster, CFO & Group Treasurer]

So there's -- this one-off tax payments. No, that's a one-off event. So it's basically related to a tax payment we have done in earlier year, if I remember correctly, 2, 3 years ago. And that's basically, the refunds because that our -- tax has been paid in excess of what is actually required. But we knew that this is coming at some point.

[Jörn Iffert, Director and Analyst]

But the cash flow was weaker year-over-year in Q1. This has to do with Easter timing, I assume and as well capital movement?

[Yves Gerster, CFO & Group Treasurer]

Well, the Easter pays an -- plays an effects, yes. As I've stated before, the net working capital was partially affected by that. And obviously, also some other effects. That's correct.

[Operator]

The next question comes from Jon Cox, Kepler Cheuvreux.

[Jon Cox]

It is quite good to see organic sales accelerating, and obviously, gross margin gains coming through. But of course, a couple of buts. On the adjusted operating profit margin for the year compared to what you've given us now for 2018, i.e, the CHF 738 million on the revenue for the year, should we assume that margin then will be flat? Obviously, it was down in Q1 amid that concession fee inflation and other bits and pieces going on. So the first question is, is that margin -- everybody's going to move to looking at the adjusted EBIT margin, I'm sure. Should we expect a flat margin year-on-year compared to that CHF 738 million we see on Slide 22? Second question, I'm going to ask the same about the adjusted EPS. Now you've given us a CHF 750 million figure for post-IFRS 16 adjusted for 2018, holding all other things equal, I guess we should assume that will go up this year, at least in line with revenue if you have a flat margin at the adjusted operating profit level. That's the second question. Third one, just on Latin America, I seem to remember you saying in Q4 that Brazil was showing signs of improvement. Today you seem to be saying, no, Brazil was going backwards again, Brazil and Argentina are still struggling. Just wondered if you could give us a bit more granularity on that because obviously, Brazil is an important market for you. And then I'm going to finish off, if I can, with the free cash flow question. Basically, as you once said, it's a CHF 50 million deficit more or less in the -- in Q1. You seem to be still saying CHF 350 million to CHF 400 million. A couple of -- can I get some clarification? Some people out there seem to think you were giving guidance of whatever your equity free cash flow was last year plus your sales growth. I seem to remember you saying it was going to be between CHF 350 million and CHF 400 million. Or if you can just give us guidance on that? And then as part of that, are you relatively confident the equity free cash flow will be higher this year than it was last year? So a lot of questions. I'm very sorry. Obviously, it is all new for us with this IFRS 16, but that would be very useful if you could just clarify those points.

[Yves Gerster, CFO & Group Treasurer]

So let's start with the first one. Thank you very much for your questions. On the adjusted operating profit. There, what you can assume is flattish performance during the year 2019, so it's basically similar to what we have commented before in the past on ...

[Jon Cox]

Sorry, that's margin or absolute? You're talking about margin, I guess.

[Yves Gerster, CFO & Group Treasurer]

I'm talking about margin. Yes.

[Jon Cox]

Yes. great.

[Yves Gerster, CFO & Group Treasurer]

Then to your last question first, on the equity free cash flow. There our guidance for the medium-term remains the same. We're talking about, for this year, it's CHF 350 million to CHF 400 million of equity free cash flow. And we expect this to grow in line with the top line going forward. So it's nothing changed to what we have stated before.

[Jon Cox]

Okay. And then on that free cash flow, now obviously, just to come back to Jörn's question. You're CHF 50 million light in Q1 this year, almost if you exclude that one-off from the Spain repayment, et cetera. Are you confident that equity free cash flow this year will be higher than it was last year? Or you're saying, no, no, we want to strictly say between CHF 350 million and CHF 400 million, that's the guidance.

[Yves Gerster, CFO & Group Treasurer]

Yes. So that's the guidance. So we will stick to that. I'm not saying it's higher or lower, it's between CHF 350 million and CHF 400 million, and the cash flow statement of Q1 is not changing my expectation in that perspective.

[Operator]

The next question comes from the line of Paul Bonnet, Bank of America.

[Julián Díaz González, CEO & Director]

Have you answered everything?

[Yves Gerster, CFO & Group Treasurer]

No. not everything.

[Julián Díaz González, CEO & Director]

Okay. Just a moment. Yes, the question regarding Latin America performance. Jon, at the time that we held the conference -- the last conference call in Brazil, so you know, a slight, and I said this word -- a slight improvement in terms of sales. During the quarter, it's exactly the same than the previous quarter, both Argentina and Brazil are performing at the same level than during the last quarter 2018. What I have seen again in May, and I don't want to comment on the -- very strongly about it because maybe in the future, you would tell me about Brazil again. If the Brazil is improving again compared with the first quarter -- the performance. And this is something that is happening during the last 2 or 3 weeks. Next question?

[Paul Jacques Philippe Bonnet, Associate]

Can I ask my question?

[Julián Díaz González, CEO & Director]

Yes, please go ahead.

[Paul Jacques Philippe Bonnet, Associate]

Sorry, guys. Yves, welcome again to the team. I have a couple of questions on my side. So I know you've done the pro forma numbers and everything, but my question would be on the margin. So obviously, the question on the concession fee increase has been asked, but if I just put everything into a brief summary calculation, I see margins -- EBITDA margins down around 140 bps year-on-year. And even if I was to look just because of the 70 bps last quarter increase plus 130 to 140 increase in concession fees based on the pro forma numbers and the 40 bps increasing gross margin, obviously. And this is also reflected in the adjusted operating profit coming down almost 40% year-on-year. Would you still guide to what flattish margins for the full year? Is my first question. Then the second question is in terms of the current trading, you mentioned that when our 2.4% organic growth in April, which is an improvement, but I went back to the call transcripts of last year, and you were saying that Easter has generally a positive 70 to 80 bps impact. So because Easter fell in April this year, is it actually on a comparable basis almost a slowdown versus last year? It's the second question, or at least not an acceleration? And then I would say as well, I have noticed that you have other financial income that have increased by CHF 13 million. And what's the driver of that? And then may be finally on Aena, if you can give us an update because I've seen that thing turned it to maybe breakdown the contracts more or something? So if you could give us an update on that based on what they said on their earnings call. That would be much appreciated.

[Yves Gerster, CFO & Group Treasurer]

Yes. So look on the pro forma calculation you mentioned at the beginning of your first question actually, so look, as mentioned before, concession fees and EBITDA, it's actually gone as a concept, so we are not looking at that anymore. The adjusted operating profit, again, I expect a flattish development in respect to marching over the course of 2019. Then let me quickly do the last question first because -- before I hand over to Julián for the second one. Other financial income, this -- you need to look at basically net, so you need to look at the income and the expenses net. There are a number of interest optimizations we are doing, which result in a interesting comp, but if you look at the figure next and you get a pretty good understanding of our financing costs.

[Julián Díaz González, CEO & Director]

From my side, for -- regarding the Easter period, I have obviously comment on that. This year, the complete Catholic Easter was performing -- including this, was performing 2.4% at the level of organic growth. This is still missed there due to the seasonality. One important part of the Easter period, that is the Orthodox Easter, that happened during the first days of May. As a consequence, what you are seeing there is not the full effect of the Easter period for Dufry, it's only the Catholic part. Imagine for one moment that we are talking about Russia, we are talking about Greece, we are talking about Turkey there. In specific destinations, and origins impacted by this shift. But in any case, the 2.4% is including an important part of the Easter period. Regarding Aena. I don't know exactly what, obviously, their intentions are. But I know one thing for sure, they are today developing with us. As I mentioned before, 5 test in order to understand if there is a new business model after 7 years of contract. Of course, the business model has to be changed. In order to drive more sales and as a consequence more income for the April and obviously, better profitability for Dufry. And the only thing I can say is the test already started in beginning of the year. In my view, are very successful. And I think part of what is happening in the Spanish performance is due to these specific tests.And I hope that during the next months, the tests would be complete, and we will be both -- party in the position to negotiate a possible extension or a possible new relationship. I don't want to guess on what is the next step. The reality is that today we have a contract that will be terminated in October 2020. The second thing -- second part is we are developing a project for understanding if there is a different way of operating the airport that were planned 7 years ago. And the third one is I know that Aena is very willing to understand new formulas of collaboration with Dufry. I think that those are the facts. The rest is there are intentions to do. And a split of the concession is something that, in my view, with Dufry it has not been on the table.

[Paul Jacques Philippe Bonnet, Associate]

Understood. Maybe just one very quick follow-up question on that. On the earnings call, I think the CEO of Aena mentioned that in terms of profits, in terms of EBITDA, estimated EBITDA, of the contracts between CHF 30 million and CHF 50 million from the past.But I would say in terms of earnings, the CEO of Aena seems to be saying that you were positive. Can you give us a magnitude of the earnings that you make in Spain, just so we know what is at risk or not?

[Julián Díaz González, CEO & Director]

Historically, I have been repeating one thing. We are in the concession business. In these locations, extra concession. And the incumbent, in our case, is -- we are incumbents in Spain. We have, obviously, the advantage of knowing the business and performing as, obviously, the best way possible. If I disclosure specific about concessions, then any competitor if there is attender will be able to compete with us. For this reason, we don't disclosure any specific of any concession worldwide. It's a competition. You should know, it's a financial, this is a competition. I'm not going to create a competitive advantage to all the competitors even there is attendant...

[Operator]

We have now a question from the line of Daria Fomina, Goldman Sachs.

[Daria Fomina, Equity Analyst]

I actually have two follow-ups in the questions that were asked before. I'm sorry if I'm being slow here. So this last question is on the concession fees. So you mentioned that adjusted for the new accounting, they're going to come down in the second half of the year after the new contract win is annualized. Back to the 20 to 30 basis points growth year-on-year, does that imply that the actual full year growth will be stronger than that? Because clearly, the first quarter is higher.And then my second question is the question that was just asked on Easter, right? So I -- my impression from the same conference call last year was that the Easter impact is bigger. Can you just clarify and say what was the contribution of this Catholic Easter in April data? And also on the Russian Easter, and I speak as a Russian person, right? It's not a public holiday, so I would assume that most of it -- most of the Easter benefit actually comes from the Catholic side of it, while you have a seasonally always strong May in Russia it's the -- as it's a week off in the region. If you answer those 2 questions that will be very helpful.

[Julián Díaz González, CEO & Director]

No. Great. Great. Sorry. I will repeat probably -- some seem that I already explained, but the Russian matter, let me try again. It's with the concession fees the question was about more than the underlying concession fees because what you are seeing in the P&L is obviously -- it's a combination between the lease payments and the depreciation of the discounted cash flow obviously, the mark and on the formula. What I said is concession fees, as we repeat in the past, will increase between 20 and 30 basis points per year. The impact during the first quarter is higher because the quarter is lower, and there are new operations, and I mentioned, the operations that we have opened during the last quarter of 2018, that are impacting more in the lowest quarter than in the highest quarter, basically because some of this contract started to operate during October and November last year. What I said is when this contract will be annualized in terms of comparing the performance, this 20, 30 basis points are still valid, but I am talking about underlying concession fees. Regarding the Easter period, in general, Easter represent between 60 and 100 basis points of increase compared with previous -- with the similar -- obviously, with the previous year. In this case, it's 40 basis points because still there is -- there the possibility, and I haven't seen the total numbers regarding the Orthodox Carnival that another increase due to the Easter period will be accrued in May and not in -- sorry, in April. That is the information I have provided. But I am still in the same thing. When Easter happens, it's between 60 and 100 basis points of increase compared with the previous year. This is normally the formula. This year, I have commented on 40 basis points. And in the next call, we will talk, obviously, about May and June.

[Operator]

The next question comes from line of Rebecca McClellan, Santander.

[Rebecca Anne McClellan, Equity Analyst]

I'm Rebecca McClellan, Santander. I've got 3 questions, please, Julián and Yves. Firstly, can you sort of talk about your views on the minimum wage pressures in the U.S. When they're potentially going to annualize it and if you see that as a pressure going through 2019? My second question is on sort of current used space is contributing quite nicely to organic growth. My understanding of that was largely coming from cruise and MTR, and is it fair to say that there lower -- with turns of lower margin businesses are at this stage in their last cycle? And then my third question is just about the time you spend per passenger in North America. So I think you mentioned that you were still seeing some weakness there. Could you sort of comment please?

[Julián Díaz González, CEO & Director]

Thank you for the questions, Rebecca. Regarding the first question on the minimum wage. We have seen this increase of minimum wages along 2018 and especially during the second part of 2018. And I think, to be sure that we all understand, the annulation will be starting in June 2019. Regarding the new space, most of the new space -- not most, I mean important part of new space is due to the cruise business and MTR. But also we have, obviously, important new shops in St. Petersburg and also in Perth. It's true that -- and I mentioned that the margins in the cruise business and the MTR business are lower than the average in the company. This is something that I already explained in the past. The only thing to add to this explanation is that the returns due to the type of business we are talking about are very similar compared with April retail environment. Regarding the spend per passenger in South America. It still is impacted. I think the problem in Argentina is different than the problem in Brazil. Let's say the problem for Argentinians is different than the problem for Brazilians. In terms of the problem with -- for Argentinians, is the huge devaluation that happened compared with the Argentinian peso last year. And this is impacting the operations, not only in Argentina, also in Brazil, because an important part of the customers even that the #1 customer are in Brazil -- are Brazilians, and the #2 are Argentinians. And it's obvious that it's impacting because depreciation of price. As you know we nominate the prices in U.S. dollars. What is happening with the spend per passenger? In both cases, it still is week. And still, we have an issue regarding the impact of Argentinians and Brazilians in all the operations worldwide where we have this type of customers. My feeling, looking at what is happening, and I mentioned this before is that the case -- the Brazilian case, it will be faster in terms of recovery. And that we are going to see from now on, and I hope that it's not going to turn around again -- and is light and positive increase during the next months especially, during July and August that are also good months in Brazil. Regarding Argentina. I don't think that in 2019 we are going to see a recovery in Argentina. But obviously, the comparable will be better as soon as, obviously, the devaluation of last year is comparable with the devaluation this year. That will happen again from July, August probably. The best -- or the best -- sorry, the most, obviously, way -- the best way of explaining is that in Argentina last year during the last quarter, we have a significant hit because the devaluation started in September. Gradually, we are going to see probably a recovery, but it's because the company was going to be better.

[Rebecca Anne McClellan, Equity Analyst]

Okay. And sorry, also could you just comment on Chinese spend per passenger in North America, working and particularly, you made a comment about Canada.

[Julián Díaz González, CEO & Director]

The subject that was mentioned in the press release is regarding the Chinese passengers in North America. The Chinese passengers, especially in Canada, have been changing from the profile point of view. I think, the evolution of the Chinese traveling is going to be significant because by 2020, it's expected that 200 million Chinese will travel. And the profile -- the average profile of these passengers is not the same than in the past where we used to see only high-level Chinese passengers traveling, buying whiskey bottles of EUR 30,000 or Cognac also for USD 25,000.Now we have a more -- I wouldn't say mass market, but I -- still the spend per passenger with the Chinese is higher than with any other different nationality. But in 2019, what we have seen in Canada, especially, is the increase of this different profile Chinese passengers. And the main subject regarding the drop in spend per passenger in North America is in duty free -- and I'm talking about duty-free is Chinese passengers. And the main reason is the change of profile.

[Operator]

The next questions comes from the line of Edouard Aubin from Morgan Stanley.

[Edouard Aubin, Head of Luxury Goods]

So Edou Aubin from Morgan Stanley. So I have two questions. One on Thailand, and another one the -- sorry to come back on the sales growth. But if we look at Thailand, I think the press is reporting that you guys are bidding for Bangkok Airport, which is a very big airport. So if you could confirm that's the case? And who you might be partnering with? And regarding Thailand, obviously, you have upside and downside, but we had example in the past of -- in Asia due to the very competitive nature of this bidding process of some for your competitors incurring losses. So assuring this bidding, can you please reassure us that the terms could be structured positively, if possible? And just on the sales growth. I mean Julian you've been in this business for many, many, many years. When I -- -- if we step back, and I look at your like-for-like sales growth, which has been basically negative for the past 3, 4 quarters, I understand, obviously, there is an impact of LATAM, but structurally, as the price gap between duty-free retail and high-street retail, not narrow now to such an extent that attractiveness of the duty-free is no longer very significant for passengers. I'm just wondering if that's -- that might not be a structural issue for the industry and the lack of gross basically, given that the world economy is relatively strong -- has been relatively strong over the past few quarters?

[Julián Díaz González, CEO & Director]

Thank you. Regarding Thailand, we have not decided yet if we are going to present our proposal. We are evaluating the project. And the only thing I can say is that whatever proposal we are going to present, if any, it will be with one thing that I think Dufry has been well known in the past -- is financial discipline. I think Thailand is a very important market, and we are considering our final strategic move participating in this standard. But it's not decided yet. And it obviously, will depend on the final conclusion with our partners. I cannot disclosure of the partner because we have a confidentiality agreement where we are not allowed to disclosure the panel until the presentation of the tender documentation. Regarding the sales growth. I think it's a very important question. The like-for-like that you have seen, is a like-for-like that is impacted by one specific region in the past where South America and Spain, and this year, it's only South America. What is the subject with like-for-like? Like-for-like is the way to express the same square meter sales compared one year to the other year. The impact due to the like-for-like drop in South America is significant. And I can tell you the number, excluding the South America business, like-for-like in the company increased during the first quarter 2019 by 2%. I think that the business is still in a very good position. I am talking about travel retail in order to compete with other types of channels, for example, and you know the information. There are 2 channels today that are forecasted as the winners in the evolution of travel retail. And then when the evolution of retail. One is online retail, that from today to the year 2021 is expected to grow to reach 10% of a total retail sales worldwide around 16%. And the second one is travel retail. That is 6.7%. What is the positioning? And I think this is also very relevant regarding the pricing policy. Pricing is a very important subject in travel retail. As probably you know, Ming Yuan said, it's an independent institution and company, disclosure very specific information about this subject. Today pricing or pricing sensitivity is the fourth -- is a number four issue when travel retail is welcoming customers in the south; number one is the value of your brands; number two is the service; number three is the opportunity to experience and have experience in the subs; and number four is pricing or related with pricing. This is public information. You can check it. In my view, we are in a huge position, in a very good position in order to compete with any high district pricing development. And the like-for-like, as I mentioned to you, excluding South America, is confirming that. The travel retail is facilitating the customers to experience to find the best brands and also to find the most suitable prices because as you know, the prices in each location are not nominated based in the country -- are nominated in the country of origin of the passengers in order to facilitate the like-for-like growth. And I am not convinced because this is -- you cannot guess what is going to happen with this type of evolution. But I think travel retail will report positive like-for-likes in the future due to this competitive advantage. This is my opinion. Regarding the -- in duty-free and duty-paid the prices are narrowing compared with previous years or previous obviously, times. Yes, it's true, it's true.I think I may agree with that because the reality is that the -- especially, the currency volatility and the currency fluctuation in South America, so it's that is when you compare the pricing -- the savings that we have in South America 1.5 years ago with no devaluation -- no high devaluation, no fluctuation was around 45% -- 40%, 45%, now we are 20%, 25%. Is that a deterioration of the perception? Maybe could be understood like that, but I think it still is a very good saving. And I hope that as soon as the countries have recover, the situation will also cover.

[Operator]

The next question comes from the line of Gian Werro, MainFirst.

[Gian Marco Werro, Analyst]

Just also a housekeeping question in relation to your net working capital increase, which you mentioned was affected by the concessions as well as South America. But also that Easter timing, so can you mention the -- or quantify the effect of Easter timing on the increase in net working capital, please?

[Yves Gerster, CFO & Group Treasurer]

Well, we cannot quantify that. But look, I mean it's obvious that due to the Easter, which is just like starting in Q2 this year, you can assume that there was a significant amount of goods, which have been purchased towards the end of the last quarter and that obviously, has an effect on the net working capital. I cannot be more specific on the magnitude of that.

[Operator]

We have a follow-up question from the line of Jon Cox, Kepler Cheuvreux.

[Jon Cox]

Actually just coming back to one of the questions which maybe you missed, but the cash EPS adjusted for IFRS 16. I'm just wondering if you would expect that to be higher this year compared to last year. That's the first question. And actually you can see there's a lot of questions about the timing of Easter and the impact. Can you give us any color on organic sales growth in the first couple of weeks of May? I know it's very, very early, and it's very, very tentative, but can you give us any -- have you seen actually an increase from this 2.5% we saw in April? Or is it still running around the same level?

[Yves Gerster, CFO & Group Treasurer]

So. Okay. Let me quickly start with the cash EPS. So look, Jon, as you know, we cannot give any guidance on that and also not on 2019.

[Julián Díaz González, CEO & Director]

From my side, I think, what we have seen in May, as I would start, but I cannot give you daily sales volume because it's going to be very complex. And in next call, you will call me -- you will tell me, Julián, you told in the conference call that during the first days of May -- I cannot do it, Jon. I'm sorry. I like to explain how the things are going, but not in weekly basis.

[Operator]

We have a follow-up question from the line Paul Bonnet, Bank of America Merrill Lynch.

[Paul Jacques Philippe Bonnet, Associate]

The cash flow in the second quarter last year, you had some pull forward or something like this, could you give us kind of your -- not your expectations for the second quarter. But obviously, it's a lot more important, can you quantify the impact of that pull forward that you had last year?

[Yves Gerster, CFO & Group Treasurer]

Pull forward, can you be...

[Julián Díaz González, CEO & Director]

The language, cultural [indiscernible]

[Yves Gerster, CFO & Group Treasurer]

Paul, we didn't catch the full question probably. Can you start with your question once more because it got cut off. I think the first half was cut off.

[Paul Jacques Philippe Bonnet, Associate]

Of course. Sorry. Yes. basically, I think the cash flow was unexpectedly strong in the second quarter last year. I just don't know if you can remember some of the granularity and give us some details around that? And why -- what you would expect for this year?

[Yves Gerster, CFO & Group Treasurer]

Well, I will need to come back to you on that. I don't remember what was the specific thing which affected Q2 last year, what you are mentioning. So let me review that and come back to you.

[Operator]

There are no further questions, sir.

[Julián Díaz González, CEO & Director]

Okay. Thank you for participating in the call and I see you later.