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Edited Transcript of HUD.N earnings conference call or presentation 4-Nov-19 9:30pm GMT

Q3 2019 Hudson Ltd Earnings Call

Nov 21, 2019 (Thomson StreetEvents) -- Edited Transcript of Hudson Ltd earnings conference call or presentation Monday, November 4, 2019 at 9:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Adrian Bartella

Hudson Ltd. - CFO

* Deborah Belevan

Hudson Ltd. - VP of IR

* Roger Fordyce

Hudson Ltd. - CEO & Director

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Conference Call Participants

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* Christopher Prykull

Goldman Sachs Group Inc., Research Division - Equity Analyst

* Kimberly Conroy Greenberger

Morgan Stanley, Research Division - MD

* Lavesh Hemnani

Crédit Suisse AG, Research Division - Research Analyst

* Marisa Sullivan

BofA Merrill Lynch, Research Division - Research Analyst

* Michael Lasser

UBS Investment Bank, Research Division - MD and Equity Research Analyst of Consumer Hardlines

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Presentation

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Operator [1]

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Good afternoon, everyone, and welcome to the Hudson Group 2019 Third Quarter Results Conference Call. (Operator Instructions)

Please also note, today's event is being recorded. At this time, I'd like turn the conference call over to Deborah Belevan, VP of Investor Relations. Ma'am, you may begin.

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Deborah Belevan, Hudson Ltd. - VP of IR [2]

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Thank you, operator, good afternoon, everyone. Thanks for joining us. Today, after market close, we released our third quarter results. You can find a copy of our press release and the presentation on our website at investors.hudsongroup.com, along with our interim report. On today's call, we will have Roger Fordyce, our CEO; and Adrian Bartella, our CFO.

Please note that management may make forward-looking statements regarding our beliefs and expectations to the company's future business prospects and results. These statements are subject to risks and uncertainties that could cause actual results to differ materially from these statements. Although we believe these expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will be realized. We urge everyone to review the safe harbor statements provided in our earnings release as well as the risk factors contained in our 2018 annual report on Form 20-F, which is available on the SEC's website.

During today's call, we will refer to both IFRS and non-IFRS financial measures of the company's operating and financial results. For information regarding our non-IFRS financial measures and reconciliations to the most directly comparable IFRS measures, please refer to the earnings release.

And with that, I'll turn the call over to Roger.

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Roger Fordyce, Hudson Ltd. - CEO & Director [3]

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Thank you, Debbie, and good afternoon, everyone. Thanks for joining us to review our third quarter results. Our third quarter was a challenging period as macroeconomic pressures continue to weigh on our duty-free business with the ongoing weakening of Chinese passenger trends that have impacted our business over the last 4 quarters. In addition, we faced travel disruptions has softened result in our duty-paid business, including a prolonged defect from Hurricane Dorian in September, which interrupted an unusually large number of flights and the continued grounding of the Max 737, which has reduced capacity and removed thousands of flights from the system.

While these headwinds resulted in slight declines to organic and like-for-like net sales for the first time in a decade, we continued to drive efficiencies in the business with yet another quarter of strong gross margin performance. It is worth noting that these weather impacts and groundings are examples of short-term disruptions that we can experience from time to time. They are temporary in nature.

We also will anniversary the weakening Chinese tourism trend next quarter, which should ease organic growth and like-for-like comparisons. More importantly, our industry continues to exhibit extremely attractive long-term growth fundamentals such as: growing passenger traffic; substantial capital investment and expanding efforts; significant barriers to entry and attractive customer demographics. We continue to make significant progress on our long-term growth initiatives to best position ourselves to capitalize on these opportunities, including expanding into food and beverage and adding new and unique concepts, all of which fuel our confidence in our long-term business outlook. And to that point, we also completed 2 strategic acquisitions in the past month that not only expand our presence but also enhance our capabilities, which I'll discuss shortly.

But first, turning to new business highlights for the third quarter. We are excited to announce a new duty-free win in Newark Terminal B, which includes over 8,000 square feet of duty-free and specialty retail shopping space. We also extended our duty-free contract in Seattle in August as well as expanded our footprint in that market with a new contract win for up to 3 additional stores, adding to an already sizable presence in that market.

As we discussed last quarter, this year has been lighter in terms of new retail RFPs being issued. Last year, there was several large projects, including Boston Logan, Salt Lake City, Indianapolis and Philadelphia. In fact, 2019 has seen roughly half the square footage that was issued in 2018. Again, this is the nature of our industry and illustrates the ebbs and flows that come with airport RFPs.

Looking out to next year, we see a robust pipeline that is much more in line with 2018. In addition, our 2 key acquisitions that we just announced will further strengthen our ability to compete for and win RFPs.

Subsequent to quarter end, we had a number of exciting new store openings. In Vancouver, we just opened over first Joe & The Juice Hudson combo store as part of our new brand partnership announced earlier this year. We are proud to partner with Joe & The Juice to deliver their first store in Canada. This adds another great brand to our portfolio of food and beverage concepts, and we will continue to look for similar brand partnerships to keep our portfolio fresh and responsive to the evolving tastes and preferences of our customers.

We also opened our first 6 stores at Indianapolis International Airport, including FAO Schwarz, Tumi, Hudson, our proprietary book concept, Ink by Hudson, Vineyard Vines and Pitstop by Hudson.

Pitstop, a themed travel convenience store, is inspired by the Indianapolis motor speedway and features an auto racing theme, complete with polished chrome finishes, checkered pattern entry and a sleek racing strip displaying the store name. This is just another example of Hudson's ability to localize its travel convenience stores and give travelers a sense of place wherever their travels may take them.

Regarding M&A activity, last week, we announced the acquisition of food and beverage operator, OHM Concession Group, which is a pivotal step in accelerating Hudson's expansion beyond retail and into the food and beverage service. OHM is a well-respected operator with a long history of successfully developing and operating concept and restaurants in some of the country's busiest airports. Their portfolio of concepts includes a mix of quick-serve take-out, casual dining, bars, cafes and full-service restaurants, including popular brands like Chick-fil-A, Wolfgang Puck, Einstein Bagels, Jamba Juice as well as several proprietary full-service restaurants. OHM currently operates about 60 stores in 13 airports, some of which we already operate in and others which are new markets for us. With these new markets, not only do we have the opportunity to expand our presence, but we can also demonstrate our operational excellence and potentially seek retail opportunities in the airports when they come up.

Adding OHM to our portfolio, which already includes roughly 50 quick-serve and casual and coffee outlets, enables us to broaden and strengthen our presence in the food and beverage arena. It also gives us the capabilities needed to participate in the robust pipeline of food and beverage opportunities that we see on the horizon while increasing our likelihood of success in winning these contracts.

Over the coming months, we will be integrating OHM into the Hudson family. OHM's CEO, Milan Patel, will remain as our business partner. He and his team bring valuable expertise in food and beverage operations and will be instrumental in integrating OHM's operations with Hudson.

We will be acquiring a controlling stake for $50 million at a highly attractive mid-single-digit multiple. We expect the deal to close in late fourth quarter or early first quarter 2020, subject to customary closing conditions, and contribute $50 million up to $70 million to the top line sales next year, depending on timing. Once everything is fully integrated, we expect OHM to add $80 million to $90 million on sales on a full year basis in 2021.

Early in October, we also announced a deal to acquire the assets of 34 Brookstone stores located in airports and the right to be the exclusive airport retailer for this brand for total consideration of $7 million. In addition to operating the current Brookstone stores, we plan to add more locations as the opportunities arise through new RFPs or existing contracts. We also plan to sell Brookstone products in all of our travel convenience stores, part of a broader strategy to strengthen and grow this brand. Brookstone is a well-known and trusted by travelers, and we're excited to include them in our already diverse portfolio of concepts.

Right now, we are operating these stores under a temporary agreement as we are working through the closing conditions, and we expect to fully consolidate the business by the beginning of next year. We expect Brookstone to add roughly $25 million to $30 million to top line sales on an annual basis for 2020 and anticipate productivity to be generally in line with our other specialty retail concepts.

Both of these acquisitions are consistent with our long-term strategy to not only broaden our market share in North American airports but also to expand the portfolio of concepts we offer, making us the leading operator of choice for landlords that are looking to deliver their passengers a unique and dynamic shopping and dining experience along their journeys. Our ultimate goal is to be able to serve all customers' needs and desires throughout their travels while maintaining our reputation of operational excellence and best-in-class customer service as well as a track record of driving profitable growth. We believe each of these acquisitions will help us to accomplish this mission. We look forward to updating you on the integration process in the coming quarters.

In summary, the third quarter challenges notwithstanding, we believe we are well positioned to succeed long term. The fundamentals of our business remain strong, and I'm confident that once we work through these temporary disruptions and get back to a normalized business environment, we will be back on track to delivering results more in line with our long-term goals.

I'll now turn it over to Adrian to review our third quarter results in more detail.

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Adrian Bartella, Hudson Ltd. - CFO [4]

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Thank you, Roger. Before we discuss our financial results for the quarter, I wanted to highlight 2 accounting items. First, as a reminder, as of January 1, 2019, we have applied the new lease accounting standard, IFRS 16. This new accounting standard relates to capitalization of leases, which impacts our income statement and balance sheet. Second, we have also the time line to certain lease contracts adjustments related to the adoption of the new lease accounting standard when necessary in the first and second quarters of this year. Essentially, certain payments were recognized as lead expense when, in fact, they should have been capitalized. As a result, we have had to restate our first half results to correct the classification, which has a net positive impact to net profit attributable to the equity holders of the parent of $200,000 in Q1 and $3.7 million in Q2. We believe the adjustments are not material toward KPIs and have no impact on our key performance measure, EBITDA. You can see further details in our interim reports that was filed at the same time as our release this afternoon.

Now turning to the results of the quarter. Our organic growth was down slightly, driven primarily by continued pressure in our duty-free business. Despite softer top line, we continued to strengthen our gross margin during the third quarter, which I will discuss later on the call.

Our turnover decreased 0.7% to $523 million compared to third quarter of 2018. Adjusted EBITDA decreased $1.1 million to $75.1 million. Adjusted net profit attributable to equity holders of the parent decreased $4.2 million to $23.7 million. Adjusted EPS attributable to equity holder of the parent was $0.26, down from $0.30 in the third quarter of 2018. Excluding the impact of the new lease accounting standard, IFRS 16, our adjusted net profit to equity holders of the parent was $24.6 million or $0.26 per share.

Organic sales, which is a contribution -- a combination of like-for-like sales and net new business, was down 1% during the third quarter compared to a difficult comparison of 6.5% growth in the third quarter of 2018. Looking at 2 components of organic growth, we saw the trends over the last few quarters become more pronounced than Q3 2019.

Like-for-like sales on a constant currency basis declined 1.1% compared to an increase of 3.3% in Q3 2018. This was primarily driven by weaker duty-free sales as a result of slowing Chinese passenger spend and currency pressure, resulting in duty-free like-for-like decline of 8% at the constant currency basis. This was offset slightly by 1.7% constant currency growth in duty-paid, driven primarily by our food and beverage and electronics categories.

The deceleration due to paid like-for-like growth during the quarter was largely due to travel disruption from Hurricane Dorian and the continued Max 737 groundings. We remain actively focused on growing our core duty-paid portion of our business with particular emphasizes on food and beverage, which our OHM acquisition will support.

Regarding the second component of organic growth in net new business, as Roger mentioned earlier, the pipeline in 2019 was not as robust as 2018. As such, the total combination of net new business was flat in Q3 as compared to 3.2% in the third quarter of 2018.

For the third quarter, our gross margin continued to improve, up approximately 80 basis points to 64.5%. Key drivers of this upside were pricing, improved vendor terms and continued mix shift to higher margin category, specifically food and beverage, which grew 5% year-over-year.

Lease expense, formerly called selling expense, were $40.1 million in Q3, down from $115.5 million in the prior year due to adoption if IFRS 16, requiring the capitalization of fixed concession fees and other rent payments.

Beginning January 1, 2019, lease expenses are only comprised of lease payments that are viable in nature. Excluding the impact of IFRS 16, we experienced slight leverage on the lease expense line.

Personnel expense rose 3.6% to $109.2 million for the third quarter of this year, and this increase was primarily driven by wage increases. Other expenses, which are formerly called general expenses, were $40.3 million in the third quarter, 0.7% increase as compared to last year.

Turning to our balance sheet. You can see the line items that are impacted by the adoption of IFRS 16, primary capitalizing the right-of-use asset and according to the lease obligation. As of September 30, 2019, our adjusted net debt position, excluding lease obligations, was $260 million, resulting in adjusted net debt leverage of 0.9x compared to 1x in Q2 and 1.3x at year-end.

Cash flow from operating activities for the 9 months ended September 30, 2019 were $409 million compared to $197 million in the prior year period. The sharp increase in this cash flow line was mainly driven by the reclassification of lease payments moving from operating to financing cash flows as a result of the new lease accounting standard, IFRS 16.

Capital expenditure decreased to $46.1 million in the first 9 months of the year from $52.4 million down in the same period last year, primarily due to the timing of new projects.

Given the trends that continue to impact our duty-free business and the continued Max 737 groundings down in the upcoming busy holiday travel season, we are cautiously monitoring the rest of this year. We also expect to close the previously discussed New Orleans stores in early November. As such, we now expect organic growth for the year to be flat or very slightly positive.

We will provide commentary on 2020 on our Q4 call, but as Roger mentioned, we are expecting a stronger pipe on RFPs next year as we should be able to compete more aggressively for food and beverage opportunities, given the acquisition of OHM. However, the timing between winning an RFP and when the stores come online and begin to impact revenues is difficult to predict.

In addition, we will have the headwind from New Orleans store closures for most of 2020, and we will lap them in early November next year.

While we continue to evaluate our cost structure to identify opportunities to enhance margins, we expect our gross margin to be slightly up and EBITDA margin to be slightly down for the year. Nevertheless, we are optimistic that once we move past these headwinds, we can return to a normalized rate of organic net sales growth.

In summary, despite a continued softness in duty-free business, we are generally pleased with the underlying trends in our duty-paid operation. This makes up the majority of our business and has an attractive revenue growth and margin profile. We remain focused on driving growth in food and beverage, both in our retail stores as well as food and beverage service concessions as we integrate OHM into our business. Continuous expansion into food and beverage concession will not only further diversify our business but also position us to capture significant whitespace opportunities. Given the growth opportunities, coupled with the resilience of our business and distinct operating advantages and industry-leading position, we are well-positioned to continue driving growth.

I will now turn it back over to the operator to open it up to the Q&A.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question today comes from Michael Lasser from UBS.

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Michael Lasser, UBS Investment Bank, Research Division - MD and Equity Research Analyst of Consumer Hardlines [2]

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First on the duty-paid comp or like-for-like sales and the fact that it does continue to decelerate on a 2-year stack basis. So decelerating on a 1 year and your comparisons are getting easier. I know you attributed a lot of that to the weather with Dorian and 737 Max. Is it possible that there are other factors going on such as market share losses to other providers in the airport? And how do you track that?

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Roger Fordyce, Hudson Ltd. - CEO & Director [3]

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I'm not sure that it's heavily related to market share. Obviously, we talked about net new business being a component of our overall organic sales. I think the big impact for this quarter really was related to the 737 Max. As we ran into our peak summer travel months, capacity obviously tightened significantly as we normally face heavier travel during the July and August months. And given the fact that the 737 Max grounding has impacted specific airlines, we saw a significant impact in those terminals during the month. And while the reporting has been sparse to date, we've seen a number of those terminals where they have been impacted by the groundings as much as 4% to 8% decline in passenger growth for those periods of time. So we do think that this is heavily weighted to the tightness of capacity during those peak months and the fact that so many of these aircraft were taken out and the passenger growth and additional capacity that normally happens during that period of time couldn't occur.

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Michael Lasser, UBS Investment Bank, Research Division - MD and Equity Research Analyst of Consumer Hardlines [4]

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And this is a follow-up to that. Is there a way for you to size the impact of those 2 factors? Because it would seem like they're getting worse from quarter-to-quarter. And that's despite the fact that industries have more time to adjust to the 737 issues. And in this most recent period, there were some tough hurricane issues in the year-ago period, and Dorian seemed to be a little bit less disruptive than what happened in the year-ago period.

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Roger Fordyce, Hudson Ltd. - CEO & Director [5]

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Yes. Well, 2 things. I'll just -- the Hurricane Dorian issue was really one of the unique nature of how slow it moved. It sat around almost for literally days creating that thread along the Florida and the South East Coast of the U.S. and discouraged people, literally, from flying into, not to mention the number of days that those airports were closed, the storm eventually did move up the East Coast. And you're absolutely right, some of that is related to -- related timing of when, in fact, that happened. Dorian happened to fall in September, impacting our third quarter results.

And going back to the 737 Max, and you remember, the grounding started sometime around May. And as the period of time moves through into July and August, that's when the capacities get tighter and tighter. And then they start to ease as the year goes on until we hit the holiday periods of travel once again. And again, we've seen the airlines that have been significantly impacted by the 737 Max groundings reporting a significant decline in their capacity during those periods. It somewhat confirms what we're seeing in the terminals of those airlines predominate.

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Michael Lasser, UBS Investment Bank, Research Division - MD and Equity Research Analyst of Consumer Hardlines [6]

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And then my follow-up question is on the outlook for 2020, I recognize that you probably don't want to provide a lot of detailed guidance, there is a unique amount of moving pieces as we head into next year. You have about $100 million of sales contribution from new deals that you'll close on through acquisition. And yet, it does seem like you're forecasting the company's softer organic trends will continue for at least the near term. So as we frame our models for next year, how should we think about incorporating the puts and takes that you've outlined, particularly on the margin side as we look towards 2020?

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Adrian Bartella, Hudson Ltd. - CFO [7]

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So on the -- you're right, on the acquisition, we certainly contributed to the top line growth, and the extent of the contribution will depend on when we finally close those and when we will receive the necessary consent and governmental approvals. So this is an upside. As I mentioned in my script, based on downside, the closure of New Orleans appears to happen early November. And next year, we will have to comp again sales that we saw with New Orleans. So those are the 2 biggest factors. I mean we don't want to go more in details about 2020. We will provide more color in our next call.

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Operator [8]

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Our next question comes from Marisa Sullivan from Bank of America.

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Marisa Sullivan, BofA Merrill Lynch, Research Division - Research Analyst [9]

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Just wanted to talk a little bit on kind of thinking about 2020. I know that you're going to be cycling the -- and I guess, even 4Q, you're going to be cycling the Chinese tourism, the onset of the weakening and as we're getting to 3Q. But it seems like the duty-free like-for-like slowdown has continued to intensify. And I just wanted to get your thoughts on how we should think about the pressures on the duty-free business as you start to lap some of these initial headwinds.

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Adrian Bartella, Hudson Ltd. - CFO [10]

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Marissa, so yes, as you've seen in our presentation there, the softness in duty-free started Q4 in 2018. So Q4 2019, we'll probably have benchmark how the duty-free may evolve during next year. So now it's too early to provide any specific guidance. We don't know yet. We will -- we're observing the trends in Q4. And I think at the end of Q4, we'll know more how the duty-free may evolve during 2020.

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Marisa Sullivan, BofA Merrill Lynch, Research Division - Research Analyst [11]

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Got you. And then in terms of just pivoting to the acquisitions you made, can you help us think through what the typical time frame is for when you -- when a contract -- when you start to realize the revenues? And then also, is there anything about the win rate in food and beverage that's different? Any other differences in the bid process? And can you give a little bit more color on the food and beverage pipeline as you see it in 2020?

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Roger Fordyce, Hudson Ltd. - CEO & Director [12]

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Sure. Marissa, so I think 2 issues. One is I think in regards to the food and beverage pipeline and as we look at win rates and anticipations, clearly, we're relatively new to the game with the OHM acquisition and the experience as well as it gets us. We do know that our success rate will take us a number -- probably a few years to kind of get to the rate of where we are at the retail level. But we do anticipate with both the OHM acquisition, the experiential levels, kind of the brand portfolio as well as some of the key players involved in that organization that will significantly enhance where we are in comparison to where we are today.

I think from a point of view of timing, the timing as Adrian had mentioned earlier, is always subject to a contract-by-contract situation. It's difficult for us to determine from the point of view of even when an RFP comes out when it potentially can be awarded. And of course, the timing of when the stores actually open in the business commences can vary. We're anticipating, for example, the latest Newark B duty-free win to be sometime late second quarter, early third quarter to start. Now that tends to be a relatively quick turnaround. Sometimes like Salt Lake City, it was announced, I believe, at the end of 2018 or early 2019 and won't actually open up the new terminal until midyear next year. So the cycle and the timing really varies contract by contract fairly significantly.

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Marisa Sullivan, BofA Merrill Lynch, Research Division - Research Analyst [13]

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Got you. And then just 1 other follow-up. Can you help us just think about the margin structure in -- for these acquisition on an EBITDA basis?

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Adrian Bartella, Hudson Ltd. - CFO [14]

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So Brookstone is slightly below our EBITDA margin and OHM would be slightly above.

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Operator [15]

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Our next question comes from Kimberly Greenberger from Morgan Stanley.

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Kimberly Conroy Greenberger, Morgan Stanley, Research Division - MD [16]

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Roger, I wanted to just start with the acquisition of OHM. I'm wondering, are there RFPs that you will now be able to compete for that prior to the acquisition of a food and beverage capability that you were not able to compete for? Or does the acquisition simply make your current bidding process more competitive, but you're able to bid for the same kinds of -- or you're able to participate in the same RFPs as previously?

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Roger Fordyce, Hudson Ltd. - CEO & Director [17]

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So as we've continuously discussed, I think it does put us in a very, very different situation. We were primarily focusing on quick-serve restaurants, cafes and possibly a lounge or so prior. Now with the broader capabilities, landscape, we will be able to look at more casual sit down dining, a much broader range of opportunities that we may not have looked at before. So we are excited about the opportunity of looking at a much broader range of RFPs going into 2020.

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Kimberly Conroy Greenberger, Morgan Stanley, Research Division - MD [18]

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Okay. Wonderful. And then if you look at the -- I think you and Adrian have talked about the timing lag between RFP to the awarding of the contract, to the eventual opening of the concessions. And you said it varies greatly by contract. Is there any kind of a range that you might be able to give us? Is it not less than 6 months but typically not greater than 12 months? Or any sort of guidance or just helping us to understand the process that we're all not quite as familiar with as you are.

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Roger Fordyce, Hudson Ltd. - CEO & Director [19]

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I would say on average, probably around to 1 year, slightly below 1 year in average. Yes, it can be as short as 6 months, I would guess as long as 18 months on the outside. So I guess if you want to look at an average, about 12 months, somewhere in that window.

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Kimberly Conroy Greenberger, Morgan Stanley, Research Division - MD [20]

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Okay. Great. With maybe a range of 6 to 18 months.

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Roger Fordyce, Hudson Ltd. - CEO & Director [21]

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18 months, yes, that would be right.

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Kimberly Conroy Greenberger, Morgan Stanley, Research Division - MD [22]

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Great. Okay. And then I just wanted to ask, there are a lot of sort of puts and takes that are pressuring the top line growth. And I'm wondering, when do you think you get back to sort of a more normalized level of like-for-like sales growth? Is there a way to sort of help us understand what the glide path might look like over the next 1 to 2 years?

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Roger Fordyce, Hudson Ltd. - CEO & Director [23]

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It's difficult to predict exactly when things are going to "normalize" as we stated on the call earlier. I think the timing that we see, the 737 Max right now is Boeing has reported and I can only go by the public reports that come out, they are indicating that they're hopeful that the certification will be accomplished before the end of the year. Most of the key airlines that had been impacted by the groundings are reporting that they are adding these -- those planes back into their schedules in January, quite a few of them in February. So we're hoping that all those -- that the timing that's being reported right now publicly, in fact, does occur because that's one of the significant impacts that we're seeing impacting the duty-paid right now and could help to bring that back on track.

On the side of the duty-free, I mean, it's really, really difficult to tell. There's been a lot of media reports about various things going on between the trade talks and other international issues and what's going on in Hong Kong right now. Obviously, the time line of that is difficult for us to perceive. And then how quickly we get back into the normal course of business is difficult to predict at this point.

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Operator [24]

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Our next question comes from Seth Sigman from Crédit Suisse.

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Lavesh Hemnani, Crédit Suisse AG, Research Division - Research Analyst [25]

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This is Lavesh Hemnani on for Seth Sigman. Firstly, on store growth, should we think about these acquisitions being incremental to organic store growth next year? And if -- are there any capacity constraints that would limit the growth outside of these acquisitions?

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Roger Fordyce, Hudson Ltd. - CEO & Director [26]

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So I don't see any reason why there would be any limitations of growth outside of those acquisitions. I mean it's our goal that, in fact, that they help to expedite or enhance our opportunities. On the Brookstone situation, obviously, it's a great brand to have in our portfolio. We see upside opportunity of potentially gaining some new real estate or enhancing our RFP wins on the duty-paid side of the business.

On the food side, as we've been reporting, it is our expectation with the full scale and capabilities of OHM to pursue most of the RFPs that are out there, enhancing our capabilities of winning on the food and beverage side.

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Lavesh Hemnani, Crédit Suisse AG, Research Division - Research Analyst [27]

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Got it. And just following up a question on margins. I mean can you tell us how to think about just synergies from the acquisitions? And how do we think about just the profitability of their existing 50 food and beverage store footprint versus the 60 that have been acquired?

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Adrian Bartella, Hudson Ltd. - CFO [28]

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I mean those are the key synergy we expect to generate these acquisitions as top line synergies to win new food and beverage RFPs and grow the top line. On the cost side, there may be some overlapping synergies between our food and beverage operations and acquisitions.

Generally, as I mentioned earlier, the OHM acquisition, EBITDA margin slightly higher than our Hudson margins on EBITDA should be accretive. The P&L structure is slightly different. The gross profit margin is a bit higher. Personnel expense is also a bit higher. But overall, on an EBITDA margin perspective, this acquisition is slightly higher than the Hudson existing business.

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Operator [29]

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(Operator Instructions) Our next question comes from Christopher Prykull from Goldman Sachs.

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Christopher Prykull, Goldman Sachs Group Inc., Research Division - Equity Analyst [30]

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I just had a follow-up to the last one on the OHM deal. So it looks like you paid $50 million. You said a mid-single-digit multiple. So if you apply 6x to that, you get about 8 and change of EBITDA on $60 million of year 1 sales, so like almost a 14% EBITDA margin. I guess, a, is that the right way to think about it? And then b, in terms of the 2021 sales going up to, call it, $85 million once fully integrated. If you just hold that margin, you get to like almost $12 million of EBITDA or a fully synergized multiple of 4 and changes? Am I way off? Or is that in the ballpark?

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Adrian Bartella, Hudson Ltd. - CFO [31]

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Yes. I mean the right way to look at it is to take the sales for 2021. It should abate for the valuations. Those sales are generated with contract early secured. So this is the right base. The $50 million controlling stake is actually for 80%. So you may have to gross it up. So they are 100% enterprise value at around [$62 million]. And if you do the math, you'll probably cover some multiple based on 2020 pro forma EBITDA of 5.5x.

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Christopher Prykull, Goldman Sachs Group Inc., Research Division - Equity Analyst [32]

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Perfect. That's excellent. And then I understand the strategic rationale for M&A. It seems like a pretty reasonable multiple for the OHM deal, at least relative to where your stock is trading. But maybe update us on your thoughts of share buyback given where your own shares are trading currently?

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Adrian Bartella, Hudson Ltd. - CFO [33]

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So there's no change in our plans at the moment. We -- as we have mentioned earlier, we want to focus on the growth, organic growth and M&A growth. And those 2 acquisitions are the first, I mean, the first and second step in the direction. We will -- before we consider buybacks or dividends, we want to explore any other potential opportunities to enhance and support the top line growth.

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Christopher Prykull, Goldman Sachs Group Inc., Research Division - Equity Analyst [34]

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Got it. And then on the New Orleans contract that will eventually go away in November. It sounds like -- any sense for what the headwind from those stores will be on that new store growth line?

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Roger Fordyce, Hudson Ltd. - CEO & Director [35]

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That's kind of challenging right now to know as we're still working through a series of RFPs that have already been submitted in other new business. So it's really difficult at this point to kind of forecast how that's going to impact our total net new business until we understand the win rates and other stuff that we win during the latter part of this year going into next year.

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Adrian Bartella, Hudson Ltd. - CFO [36]

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Yes. So we don't disclose performance by contract. But if you want to get a rough idea, you probably could take the average revenue per store and then use the number of stores we currently have in New Orleans and prorate it for 2 months to get an idea for the headwinds for this year.

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Operator [37]

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And ladies and gentlemen, at this time, I'm showing no additional questions. I'd like to turn the conference call back over to Deborah Beleven for closing remarks.

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Deborah Belevan, Hudson Ltd. - VP of IR [38]

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Thanks, operator, and thank you, everyone, for joining us this evening. Just a reminder, the replay of the webcast will be available on our website. Thanks again. Bye.

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Operator [39]

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Ladies and gentlemen, that does conclude today's conference call. We do thank you for attending. You may now disconnect your lines.