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Edited Transcript of SSPG.L earnings conference call or presentation 21-Nov-18 8:30am GMT

Full Year 2018 SSP Group PLC Earnings Presentation

London Nov 30, 2018 (Thomson StreetEvents) -- Edited Transcript of SSP Group PLC earnings conference call or presentation Wednesday, November 21, 2018 at 8:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Jonathan Davies

SSP Group plc - CFO & Executive Director

* Kate E. Swann

SSP Group plc - CEO & Executive Director

* Simon Smith

SSP Group plc - CEO of SSP UK & Ireland and Director

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Conference Call Participants

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* Jamie David William Rollo

Morgan Stanley, Research Division - MD

* Patrick Duncan Coffey

Barclays Bank PLC, Research Division - Director

* Timothy Ramskill

Crédit Suisse AG, Research Division - Research Analyst

* Timothy William Barrett

Numis Securities Limited, Research Division - Leisure Analyst

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Presentation

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Kate E. Swann, SSP Group plc - CEO & Executive Director [1]

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Okay. Morning, all. Welcome to our annual results presentation for the year ended 30th of September. I'm Kate Swann, CEO of SSP. And joining me today is Jonathan Davies, our group CFO. On the front row, you have Vagn Sørensen, our Chairman; and Simon Smith, the CEO of the U.K.

I'm going to start with the group highlights for the year. Jonathan is then going to take you through the financials, and we'll finish with a review of the business, updating you on the progress that we've made. We have plenty of time for questions after that.

So if I start with the highlights then for the year. We saw another really pleasing performance in the full year. Profit's up 19.8% at actual rate, 22.7% at constant currency. Like-for-like sales are up 2.8%, and net new space was, again, very strong, up 5.1%. Total sales, therefore, grew 9.5% on the year.

We continue to make good progress on operating margin, which was up 70 basis points year-on-year underlying. This was good in a year where we saw such strong net gains, albeit some of those net gains are in locations where we haven't started the rebuilding or refitting, therefore we got limited preopening costs.

Our strategic initiatives are delivering both growth and efficiency. And you can see our clear focus on value creation coming through in the numbers. Earnings per share for the year was strong at 25.1p, up 23.6% on the year. Cash generation was also good, and we invested a record amount in CapEx in the year, some GBP 144 million. We're proposing a full-year dividend of 10.2p, up 26% on the year and maintaining a payout ratio of 40% this year. Top end of the range, remember that we guided to IPO. In addition, we are proposing a special dividend of GBP 150 million, reflecting our confidence in the prospects of the business and our desire to maintain an efficient balance sheet.

It's also been a strong year for us in terms of new contract wins, and those wins underpin our medium-term pipeline. So from a group point of view, our business is performing very well, and we continually -- we continue to execute the strategy that we outlined at IPO. We remain as excited as ever about the prospects for our growing business and the many opportunities that we have going forward.

So with that set of highlights, I'll hand over to Jonathan to take you through the financials.

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Jonathan Davies, SSP Group plc - CFO & Executive Director [2]

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Good morning. So as Kate's just shown you, we've delivered a good set of full-year results. Overall sales increased by 9.5% on a constant currency basis with reported sales up 7.8% as the strengthening of sterling against most of our major currencies resulted in a negative translation effect of 1.7%. If the current FX rates were to remain as they are throughout 2019, we'd expect to see a positive impact of about 1% next year.

Operating profit was up 23% on a constant currency basis to GBP 195 million and up 20% at actual FX rates. The profit performance was driven by the good like-for-like sales, further operating efficiencies and strong performances from our businesses in North America and the Rest of the World where TFS, our joint venture in India, delivered excellent results. Profit before tax and the EPS were both up 24% year-on-year. Net debt ended at GBP 335 million, leaving leverage at about 1.1x EBITDA, broadly in line with last year, but, of course, that was after paying the special dividend of GBP 100 million earlier in the year.

So if we turn to sales, like-for-like sales for the full year was 2.8%. Taking into account the timing of Easter, which fell into the first half of this year compared to the second half last year, the underlying performance was very similar throughout the year. Like-for-like sales in the ex-air sector continued to be stronger than in the rail sector, very much in line with recent trends. Like-for-like sales growth in the new financial year broadly reflects these trends. And against the backdrop of ongoing economic and political uncertainty, we continue to plan cautiously anticipating like-for-like sales to be in the region of 2% to 3% for the next year.

So turning to regional performance. Like-for-like sales in the U.K. at about 1% was slightly weaker than in recent years, but were affected by the collapse of the Monarch Airline, about this time last year we saw a reduction in capacity at Ryanair as well as the redevelopments and closures at a number of the big London stations. In Continental Europe, like-for-like sales were up about 1.5% with air stronger than rail. The slightly lower like-for-like sales in the second half in Continental Europe really reflected the strike action that we saw in France during the spring and early summer.

Like-for-like in North America was up 4% and was stronger in the second half as we reached the anniversary of the loss of passengers in a small number of our airports last year during the second half. So we've now hit the anniversary of those. In the Rest of the World, like-for-like was very strong, up 10%, driven by the passenger growth in the region, especially in India. And we saw the continuing recovery in Egypt and a good performance from Hong Kong where we benefited from the closure of some competitor units, which will reverse this year.

Overall net gains were 5.1% with a strong contribution from the new openings in the second half of the previous year. Net gains in Continental Europe were higher than usual at 3%, mainly due to the new contracts at Marseille, Düsseldorf and Vienna. North America had another very strong year with net gains of 19%, where we benefited from the full year effect of some of the openings in the prior year, notably at Chicago Midway and JFK Terminal 7. And the Rest of the World, again, had a good year with net gains up 7%, most of this coming from the Asia Pacific region and, in particular, India. Now looking into 2019, the pipeline's encouraging, as Kate said, and our expectation is for net gains to be in the region of 3% for the year.

So turning to profit. As I said, overall group operating profit increased by 23% to GBP 195 million, with strong performances from North America and the Rest of the World. In the U.K, we still saw profit growth of 9%, a good result given the weaker like-for-like and the ongoing inflation in food and labor costs. In Continental Europe, profit was up 4%, held back by the strikes in France in the second half, as I've mentioned, and mobilization costs at some of the big sites like Marseille and Oslo Airports.

Next year, we'll see further preopening costs at some of our big new contracts. For example, at Montparnasse station and the Starbucks units in the NS rail business in the Netherlands. The exceptional results in North America, where operating profit more than doubled, were driven by a strong contribution from the new contracts at Chicago, JFK Terminal 7 and at LaGuardia where we've been operating a significant number of outlets ahead of their rebranding program. So we've seen fairly limited closure periods, preopening costs and Capital investments. However, next year, we will see the full impact of all of these.

In the Rest of the World, we've also delivered very good operating profit growth, up 77%. Here, we've also benefited from some one-off factors, most notably in India, where we've had the benefit of an additional 2 months post acquisition and we've seen the reversal of the integration costs that we saw last year after we bought the business.

So looking at the overall group P&L. Operating margin increased by 70 basis points, excluding the acquisition impact of TFS in India. Gross margin was up 90 basis points or 40 basis points after adjusting for the stronger sales in the air sector, which typically has higher gross margins, but also higher concession fees compared with the rail sector. Concession fees rose by some -- sorry, labor ratios improved by 20 basis points, helped by further progress on our wide-ranging set of operational efficiency initiatives, and this helped to offset the ongoing labor inflation that we've seen in a number of markets.

Concession fees rose by 70 basis points or 40 basis points after adjusting for the impact of the stronger air sales, and this is very consistent with recent trends. The improvement in overheads of 20 basis points was driven principally by ongoing efficiency initiatives, especially with regard to energy usage, but also by lower preopening costs both in North America and the Rest of the World. You can see that depreciation was also 20 basis points lower, which is mainly a benefit from the deferral of the rebranding in North America that I've spoken about. Clearly, it will rise next year as we invest in the rebranding of these units, and therefore, we expect the group depreciation charge to revert to more normal levels.

So looking forward to 2019, we expect to make further progress on operating margin of around 20 basis points, driven by the ongoing efficiency programs, but net of the higher depreciation charge and the higher preopening costs, particularly in North America and Continental Europe. So if we look further down the P&L, you can see that net profit was up 23% to GBP 118 million. Net financing costs were down GBP 2 million, as expected, benefiting from the Amend and Extend of our debt facilities that we carried out last October.

The tax charge represented an effective tax rate of 22% of underlying profit, as we'd indicated at the start of the year. You can see there was a step up in the noncontrolling interests to GBP 25.5 million. That largely reflects the strong increase in profit at TFS and the growth in our joint ventures in North America. Next year, we expect the noncontrolling interests to rise by about GBP 2 million or GBP 3 million, the lower rate of growth reflecting increased profit contribution from those same regions, but net of the fact that we will acquire a bigger stake of the TFS business in India during the year.

So that led underlying earnings per share at 25.1p, up 24% year-on-year, and we're proposing a dividend of 10.2p a year, up 26%. So looking at cash. Cash flow was healthy over the year. We generated GBP 79 million of free cash flow, which was about GBP 10 million below last year, but that was after investing GBP 144 million in capital projects, an additional GBP 29 million year-on-year and a further GBP 19 million in the acquisition of the Stockheim business in Germany. We generated a further GBP 13 million of cash from improved negative working capital in the year, helped by the new opening program, but also by our continued good disciplines around cash management.

The higher CapEx is really just a reflection of the strong net contract gains of 5% that I've talked about. And as we look forward to next year, we expect CapEx to be at a broadly similar level to last year, and that's really a result of the expected net gains of around 3%, which I've mentioned and the further rebranding programs in North America.

So turning to net debt. Net debt was GBP 335 million at the end of the year, with leverage at 1.1x EBITDA compared to 1x at the end of last year, but that was after returning GBP 146 million of cash to shareholders. With leverage remaining well below our target range, we've taken the opportunity, once again, to review balance sheet efficiency and our use of cash. As we've said to you before, our priorities for the use of cash are to do what creates most value for our shareholders.

We'll continue to take advantage of all the structural growth opportunities in our market and to invest in organic growth and acquisitions where those will deliver returns above our hurdle rate and where they fit with our strategy. However, maintaining balance sheet efficiency is clearly an important part of our strategy and, as we've said previously, that would equate to leverage between 1.5x and 2x EBITDA. So with that in mind and having reviewed our medium-term capital requirements, we're planning to return more cash to shareholders through another special dividend of GBP 150 million, which we proposed to pay next April along with the share consolidation.

So to summarize. We've had a very good year with robust like-for-like sales growth, strong net contract gains and operating margin growth, which is converted through to EPS. We expect to make further good progress next year, and the pipeline looks healthy, and we expect to deliver further margin growth of around about 20 basis points. Cash generation has been strong, and we've announced a 26% increase in the ordinary dividend as well as GBP 150 million special dividend for next year. Both of these moves reflect our confidence in the future growth and the cash generation of the business.

I'll now pass back to Kate. Thank you.

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Kate E. Swann, SSP Group plc - CEO & Executive Director [3]

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So it's always worth pointing out at the outset why -- some of the fundamentals that make SSP an exciting business. The business continues to deliver good like-for-likes, very strong net gains, and margin expansion as well as healthy cash generation. This reinforces the attractiveness of the markets that we operate in and our position in those market. We are as excited about SSP now as we were at IPO, more in fact, when you look at the opportunities we have going forward to continue to drive great performance. So let's start by looking at regional development this year then.

So Jonathan's talked to you about the regional performance. I wanted to touch on the shape of the business and how it's changed over the last 4 years or so. We've added over GBP 700 million of revenue, compound annual growth rate around 9%. And you can see from the chart, the business has moved from a primarily U.K. and European one to one with a better balance across the 4 regions. All regions have consistently grown their revenue.

The U.K. now accounts for 31% of revenue, down from 40%, delivering steady top-line growth and good profit growth and cash flow growth. Whilst our ambitions on net gains have always been fairly modest in the U.K., by consistently adding new brands, we've been able to deliver net gains ahead of our expectations. And using the U.K. as a testbed for our strategic initiatives has worked well and led to the ongoing opportunities that you see rolling out around the world, for example, technology.

The Continental European division now accounts for 38% of SSP revenue. Again, whilst our net gains expectations are also modest here, we've made good progress, again, ahead of our expectations, in countries like France, where we've seen substantial new business, for example, in Marseille Airport last year and, coming up at Montparnasse rail station. And we're now seeing important new business wins as well in countries like Germany and the Netherlands.

North America, as you know, is a fast-growing part of our business, now representing 17% of our revenue, up from only 9% 4 years ago. We've been really pleased with our performance here. And whilst we still have a small share there, that share is growing nicely. And looking at our new business pipeline, it's likely to continue to grow.

And finally, Rest of the World, which represents 14% of our revenue. Key focus for this division is capitalizing on the strong like-for-like growth that we see, as well as winning profitable new business in both our existing countries and new countries. And we see good opportunities in some of those new countries. We continue to expand our infrastructure to enable us to do this.

Moving on then to look at the performance by channel. Again, if you look over the past 4 years, you can see we've capitalized on the strong growth in air passengers, globally really, in particular, in North America and the Rest of the World, which are predominantly air-based businesses. You can see that around 2/3 of our business is now air versus only 1/2 4 years ago. And although we've seen some short-term softness in rail, looking at external market forecasts, passenger numbers are forecast to grow in both of our key channels, albeit air is likely to grow faster.

We're encouraged by new rail openings in Rest of the World, and we now have business in Hong Kong, India and Taiwan for the first time this year. And we're pleased with the progress we're making. So over the last 4 years, we've successfully grown our business, we've improved our geographic balance and we've shifted towards the faster-growing air channel. We expect those shifts, by both geography and channel, to continue as we focus on our strategy and the 5 levers that we use to drive our business.

Now we continue to focus on these 5 levers to drive sustainable value for our shareholders, and we've made good progress in all areas this year. So if I take you through starting with the first. As you've heard, like-for-like sales were up 2.8%, a little bit ahead of our plan. And we're pleased with the total full-year sales. Whilst PAX numbers can, obviously, be impacted by events outside of our control, our broad and broadening geographic spread gives us some protection against that. Medium term trends, as I said, in the travel market are good. We've got many strategic initiatives, as you can see on the right of the slide, that help to drive our like-for-likes. And I'll talk you through a couple of examples that we've worked on this year.

As you know,, we've been trialing self-order functionality in some of our quick service restaurants in the U.K. and the U.S. Now this initiative started primarily being aimed at improving our labor efficiency where labor costs are high and recruitment is difficult. But we've been really encouraged to see that customer acceptance of self-order has been really good, up to 40% of all transactions now in units with self-order kiosks.

So the initial results have driven the labor efficiencies that we've wanted, but they've also resulted in improvements to total transaction numbers as customers seek the benefits of shorter queues and improved transaction times, both of which are critical in travel. We're now in the process of rolling out self-order kiosks to all [available] Burger King units and testing whether we can replicate those results in our remaining QSR estate. It's still early days for us using technology in this way, but we're very excited about the medium-term opportunities.

A second example is coffee machines. You're going to get a lesson on coffee machines now. Brace yourselves. Now for our type of business, there are typically 4 types of coffee machine available. Traditionally, SSP has used Barista machines, irrespective of format, so whether coffee was a big part of the mix or a small part of the mix. Now Barista machine require the most skill to make good coffee. In the hands of an experienced Barista, you can get a great cup of coffee. Semiautomatic machines, however, have improved dramatically and now produce excellent coffee. And some of our really big brand partners use semiautomatic machines. People like Starbucks, Pret, LEON, all use semiautomatic. They need less labor and less skilled labor.

Automatic machines require virtually no labor or skill and self-serve machines do what they say on the till. So we trialed all 4 types of machine in various unit from our stand-alone bars, our coffee shop, sandwich format, table service restaurants, et cetera. Now the Barista machines maximized sales in our coffee-led outlets. However, we saw a sales uplift in our non-coffee-led format by using the semiautomatic machines, based on faster service and a more consistent cup of good coffee. We found self-service machines were great where there's no other alternative. So we now have a clear plan in the U.K. to drive coffee sales using 3 types of machines. We'll roll that out in the U.K. this year, whilst investigating the opportunities in other regions.

So moving on then to our second lever, growing new space. We saw another very strong performance here with net gains, as Jonathan said, up 5.1%. And it's been a very busy year for us in both existing and new markets. I know I make this point every time, and Jamie rolls his eyes at me every time -- not just you, Jamie. But please do remember the net gains number can have a material impact on the P&L, driven by variables like the opening time in the year, the location and the type of unit. And I say that every time because it's really true, and with net gains that kind of size, it can have a big impact.

We, as you know, continue to take a very disciplined approach to new business, being focused, as always, on getting good returns. Looking forward, we've got a really strong pipeline of openings in the next year, underpinned by some of the contract wins we've had this year. So we've won a lot of new contracts this year, and you can see some of the bigger ones on the slide. Some of these opened partway through last year. For example, Greece, we opened those for the summer season. Some of them we'll open this year like Charleroi in Brussels, and some we'll open further out than that like Bahrain.

Overall, you can see that much of our new business is driven by North America and Asia, as planned. In India, we continue to win further business in the second half, taking our total wins for the year to 70 units, albeit some of these units are very small at this stage. We were particularly pleased to win the entire food and beverage and retail business in Goa where we're seeing some very encouraging performance and where we just opened, very recently, the first few units. We've also had some substantial wins in Europe like, as I said, in Montparnasse station in Paris where we won 30 units. In Germany, we've won a further 22 motorway service area units. And in rail stations across the Netherlands, we've won a total of 29 Starbucks units.

So if I pick a couple of example to demonstrate the activity this year. The first one is Cebu. Now we first talked about our first win in the Philippines at Cebu last year. If you remember SSP won for a combination of local and international expertise, retail and F&B experience and a compelling brand lineup. Now in July just gone, we opened 9 units in the newly built Terminal 2, that's the international terminal, with about 4 million PAX a year.

The new terminal opened pretty much on time, which is unusual for a completely new terminal. As you can see on the slide, we opened with a mix of international and local brands like Burger King and Bonchon, as well as a number of our own brands like Ritazza and Nippon Ramen. Early trading has been excellent and ahead of our business case. The renovation of Terminal 1 is now happening, and we expect to open a further 15 units at Cebu by the end of calendar '19.

Another interesting one to talk about. We're really excited to have entered the South American market, winning our first 2 contract, one in Sao Paulo, one in Rio de Janeiro in Brazil. Now Brazil is a huge market, 198 million PAX annually approx. Sao Paulo and Rio having a 40 million and 16 million PAX respectively. We've won 6 units in each. We're partnering with Duty Free Americas who already operate some of the Duty Free in Brazil and a number of other countries in the region. We were selected for our international expertise, our strong brand lineup, including a number of our own brands, as well as our partner brands like O’Learys sports bar and Jamie's Deli. Operations in Brazil are likely to begin mid-2019, and we're really excited about the opportunity to demonstrate our credentials in a completely new geography for us.

So if I move on to our brand portfolio. SSP, as you know, has a compelling and comprehensive brand portfolio with over 500 brands globally, and we continue to strengthen that as new brands and new trends always bring us opportunities. We're really pleased this year, however, with some of the developments that we're progressing with our big international brand partners, like a completely new Marks & Spencer's format called Food To Go, which is a stand-alone airside concept. And the first unit is going to open in Birmingham first half of next calendar year. This will be the first ever, ever, ever globally airside M&S unit. So you can imagine how excited we are. There has never been Marks & Spencer airside. I know, go figure.

We've also added some strong new names to our portfolio right across the globe this year. We continue to work with high-profile chefs. This year, we've added Hermanos Torres with whom we opened a new fine dining concept in Barcelona last month. We also continue to develop our own brands. We're really pleased with the performance of our new retail format, Urban Express, that you might have seen at London Bridge. The customer response has been great, and we're well ahead of our expected financials. We've also been successful franchising some of our own brands for High Street usage. We now have, for example, 30 Millie’s franchises open, including our first 2 in India, 2 opened last year in Delhi. We launched those with the Millie’s brand ambassador, Parineeti Chopra. She's the big Bollywood star with over 16 million Instagram followers. I'm sure many of you are her followers. Yes, it's huge success and quite excited about the prospects for Millie’s in India.

Moving on then to gross margin. So as you've seen, gross margin improved by a further 90 basis points, 40 basis points underlying. Our procurement disciplines continuing to improve, and we've made further advances in the year in waste and loss management. And I'll talk you through a good example of the sorts of things we've been doing in waste and loss.

So what you can see here is some analytic data, which I'll explain. If you remember, a couple of years back, we outsourced our back-of-house finance. And we began trialing with the same company, outsourcing our waste and loss analytics centrally, so centrally providing that data. We have significantly improved our analytical capability. We've seen around a 200% increase in the number of unusual transactions identified for further investigation, and we've also seen around a 25% higher resolution rate. So we're spotting more issues, and we are resolving more of them. And the provision of accurate and timely analytics to the operational teams is driving a much improved focus on waste and loss management. This is now being trialed -- rolled out worldwide.

Moving on then to our fourth lever, running an efficient and effective business. Again, we've made good progress here with labor cost improving, as you heard, 20 basis points and other costs also by 20 basis points. And that's despite the impact of material cost inflation in a number of countries. We expect labor and cost inflation to continue to be challenging. So it's important that we continue to have initiatives where we work smarter.

A good example this year has been reviewing our equipment catalog to consider the lifetime cost of a piece of equipment rather than just the capital outlay. We've employed specialist mechanical and electrical engineers to revisit all of our equipment specifications, from dishwashers to fridges, grills to hobs, for example. We have an equipment catalog of around 700 recommended items, and we've changed the recommendation on around 20% of those based primarily on a reduction in energy usage, reducing the lifetime cost of ownership.

A couple of examples on here are the Synergy Grill. This is a more efficient gas grill where energy consumption is reduced by 2/3, and the grill is easier to maintain and quicker to clean. Second example is under-the-counter refrigeration. Now we use all different sorts of refrigeration, from massive walk-in fridges to small countertop ones. We've moved on under-the-counter fridges from upright design to an under-counter drawer design, which uses about half of the energy as well as saving us on our maintenance costs. The new recommended equipment catalog is going to be used, obviously, for all new unit, but in some cases, the paybacks are so good that we will replace what we currently have.

So finally, wrapping up then. The group delivered a strong financial performance in the year with turnover up 9.5%, driven by very strong net gains performance. Profit was up 22.7% and EPS was up 23.6%. Cash flow was robust. We've increased the dividend by 26% and are proposing to pay a second special dividend, GBP 150 million.

You will have seen the announcement on succession this morning. So before finishing, I thought I'd say a couple of words on SSP's performance since IPO and its future ahead. So since floating the group, we've delivered a strong financial performance, growing our turnover from GBP 1.8 billion to almost GBP 2.6 billion, margin improving around 300 basis points and EPS up from 13p to 25p. In addition, we've returned over GBP 200 million of cash to shareholders with a further GBP 175 million planned.

Pleased as I am with that performance, I am even more excited about the opportunities looking forward. SSP operates in the highly attractive and growing food travel market. We are doing well, but the opportunities that lie ahead of us are very substantial. We've done a lot of work in the business over the last few years to embed management processes, enabling us to drive efficiencies, and we see many, many more opportunities here. We've got an excellent management team with considerable experience, and I am confident that this team will continue to deliver.

I'm delighted with the appointment of Simon Smith to the role of CEO. I've worked with him for nearly 15 years, taught him everything he knows, so my expectations are a mile high. I am one of your biggest shareholders, just saying. As well as running the U.K, Simon took up, a couple of years back, an international role and has been responsible for the integration and development of our Indian joint venture, which you know has performed extremely strongly.

I'm delighted Simon will continue to be supported by Jonathan, who has supported me so excellently for at least 95% of the time, other 5% I wanted to kill him, in my time at SSP. Now I can see Simon and Jonathan making a very happy little club, I have to say. Quite effective, too. You've got youth and vigor, age and experience. You can decide which way around that is.

One of them slightly grumpy till they've had their bacon roll in the morning, but they work extremely well together and have been instrumental with me, obviously, in both developing the strategy and delivering it. Now, sadly, for both of them, I'm not going anywhere just yet. So here, for the next 6 months, absolutely focused on getting on with running the business, told Simon to keep his sticky little mitts off, obviously, working very closely with the 2 of them to ensure a really smooth transition.

So with that bit, that Sarah made me say, back to the data. New financial year started really well. Our pipeline, as you've seen, is really encouraging. And as always and built into SSP's DNA is a relentless focus on delivering long-term, sustainable shareholder value. Thank you.

Happy to take any questions. You'll find the microphone on the side of your seat. You have to press the gray button and the red light will come on. If you could let us know who you are and where you're from. Jamie, do you want to kick off?

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Questions and Answers

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Jamie David William Rollo, Morgan Stanley, Research Division - MD [1]

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Jamie Rollo from Morgan Stanley. Three questions, please. First just on the U.K. Could you please break down the 0.8% like-for-likes into, sort of, volume and price? I guess, volume must have been negative? But again as a further break down of that, rail and air, would be helpful. I'm just wondering how much longer you can do such strong margin growth with negative like-for-like volumes. Secondly on the CapEx guidance for GBP 140 million, same as last year, you're expecting only 3% net new, not 5%. I'm sure you're being conservative. But if you could just talk a bit about that, and also help us break down the CapEx number between what's going into new contracts versus existing maintenance. And finally, Kate, if we look at the recent announcement from Elior with the Areas separation, should we read your move off away from SSP as that being less likely to happen, particularly as we see that very strong growth in North America and Rest of World where their exposure is quite small?

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Kate E. Swann, SSP Group plc - CEO & Executive Director [2]

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Okay, sure. I'll kick off with the first one. You can perhaps add some other detail. It's worth saying, just looking at the U.K. like-for-likes last year, it was an interesting year for the U.K. We had a number of issues to deal with. We had the Monarch problems, which in a couple of our -- I mean we don't have much business in Gatwick and Heathrow. Most of ours is in the regionals, which was impacted by Monarch. We also had some well-documented supply challenges with both Palmer & Harvey and then Conviviality going under, and then we had an unusually warm summer. So I would say, not a typical year for the U.K. In terms of the specifics, I'll let Jonathan answer that.

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Jonathan Davies, SSP Group plc - CFO & Executive Director [3]

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Well, the splits -- I think you're right, Jamie. We think there's about 2% price increase, which is a reflection of some of the inflationary pressures that we mentioned in the presentation, both principally on the labor line, but still also on the cost of goods line. So that would imply that, in aggregate, we saw a slight loss of volume. But again, that wouldn't surprise you, given what you've seen elsewhere in the sort of High Street and the consumer markets in the U.K. So I think against that backdrop, it's still a pretty solid performance. As we've said previously, the rail sales in the U.K. are softer, so we're broadly flat, but, of course, it's the big part of our U.K. business. So you've got a few points of like-for-like on there, but in the round, they come to about 1%. But as Kate said, the key point is that we still got, as we look for structural growth, it just happens to have been an unusually challenging year, which you'll have seen by looking elsewhere. So the next question is about the CapEx. So in terms of CapEx, so it's pretty straightforward, really. So if you, sort of, unpick the net gains, we've seen a big contribution this last year in the 5% from those big American contracts, in particular, where we got the benefit of the stuff was opened in the back end of '17, and we got the full-year effect this year. But in many cases, we've not yet put the capital into the rebranding program. And indeed we've seen some more situations. So we saw Chicago Midway and JFK Terminal 7 last year, which we've talked about before. We've also seen a similar situation at LaGuardia in New York. So we've got, basically, a better bit on the sales line ahead of taking the preopening cost and seeing the capital investment.

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Kate E. Swann, SSP Group plc - CEO & Executive Director [4]

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Just to be super clear on that. What you cannot read into those numbers is the new business that we're opening is more capital intensive. It's...

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Jonathan Davies, SSP Group plc - CFO & Executive Director [5]

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So it's pretty simple, really. If you look at the U.S, the bulk of the investment is going into those projects we'll hit this coming year. If you strip that out in the rest of the business, the level of CapEx that's going into the net contract gains is slightly down, and the 2 pretty much offset each other.

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Jamie David William Rollo, Morgan Stanley, Research Division - MD [6]

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What's the maintenance number on here?

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Jonathan Davies, SSP Group plc - CFO & Executive Director [7]

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Again, as we've said before, the typical -- the pure maintenance in the business is around about the GBP 20 million mark as it's been historically. And clearly, there's always a material quarter, which is about the ongoing renewals. So in terms of the pure maintenance of the business, there's typically another GBP 60 million, GBP 70 million or so, which is associated with the ongoing renewal program. Therefore, clearly, the overall CapEx flexes with the net gains. But as Kate said earlier, the timing is not absolutely synchronized and, particularly, that's unusual this year because of North America.

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Kate E. Swann, SSP Group plc - CEO & Executive Director [8]

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And on the last question, does my going mean anything is any more or less likely, no, absolutely not. As you know, we operate on a completely rational basis. We will have a look at anything that makes financial sense. So we'll do it. If it doesn't create any value, we won't.

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Jamie David William Rollo, Morgan Stanley, Research Division - MD [9]

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Even with the big push in Europe NSA's, that wouldn't be a deal breaker that for the future?

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Kate E. Swann, SSP Group plc - CEO & Executive Director [10]

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If we thought we could create value, we can create value. Do I think it's likely in that scenario? I w speculate. Yes?

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Timothy Ramskill, Crédit Suisse AG, Research Division - Research Analyst [11]

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Tim Ramskill from Crédit Suisse. Three questions as well for me, please. Can we just talk a little bit about, within net contract gains, what your execution has been like in terms of renewals? You talked about it there, but how has that evolved over the course of the last 5 years? Second question around labor, which, I guess, again, you've touched on. It's clearly very critical focus for people. Can you just tell us a little bit about your labor turnover and also what your mix of labor is like, between, sort of, permanent and term and how you've managed that? And then final question on U.K. rail. I guess, some of the U.K. rail franchise operators have, sort of, questioned the challenges in that market, talking about people working from home. You talk about structural growth there. Do you have any concerns that anything's changed over the course of recent years?

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Kate E. Swann, SSP Group plc - CEO & Executive Director [12]

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In terms of renewals, our renewals performance has been broadly the same ever since I started and broadly the same before that. We think that's a good performance because, remember, our contract and our market are virtually all air and rails. And they're more attractive contract. So we're pleased with our renewal rate, and it hasn't changed. We are, however, not interested in renewing business that's not going to make us any money. In terms of labor and what we're seeing in labor, shall I let Simon answer that? Microphone button.

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Simon Smith, SSP Group plc - CEO of SSP UK & Ireland and Director [13]

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Is that working?

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Kate E. Swann, SSP Group plc - CEO & Executive Director [14]

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Yes.

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Simon Smith, SSP Group plc - CEO of SSP UK & Ireland and Director [15]

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Hello? We haven't seen any material deterioration in our turnover. Our turnover is pretty much in line with our competitors, the likes of Costa and Starbucks, and we get some of their data. We work very hard to both recruit and retain our people in the business, and we'll continue to do that.

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Jonathan Davies, SSP Group plc - CFO & Executive Director [16]

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And in terms of your question about the mix of permanent and temporary, I mean we -- by and large, we are employing full-time contracted staff. We have very little reliance around the world on temporary labor.

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Kate E. Swann, SSP Group plc - CEO & Executive Director [17]

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And U.K. rail, Jonathan?

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Jonathan Davies, SSP Group plc - CFO & Executive Director [18]

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So general trends in the U.K. rail market. Clearly there, it's well written about that working from home is a rising phenomenon, particularly in the London market. Do we think it's very material in terms of what we see? Not really. Certainly, most of the reliable external forecasts, such as there are any, are still forecasting passenger growth in all our major markets, and that includes the U.K, typically in the region of 1.5% to 2% per annum, because, clearly, there is still structural growth and investment in the sector. So, yes, it's not helpful, clearly, but I don't think, from our perspective, it's a material factor, certainly as we're seeing it yet.

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Kate E. Swann, SSP Group plc - CEO & Executive Director [19]

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And our planning assumptions on rail, again, from IPO, we've always been fairly cautious in terms of the like-for-likes that we expect out of rail, always expecting air to grow faster. That hasn't changed. Patrick?

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Patrick Duncan Coffey, Barclays Bank PLC, Research Division - Director [20]

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It's Patrick Coffey from Barclays. Two for me, please. First one, Kate, if you did decide to stay for another 6 years, where do you think the biggest area of cost efficiencies would come from? And could you talk about kind of the U.K. supply chain and within that homes, please? And then maybe one for Simon, if I may. U.K. margins are now 11.2%, up from 5.6% in 2014. Accepting D&A to sales is lower in the U.K. than elsewhere, do you think under your reign as CEO in the future, you could reach double-digit EBIT margins for the group in, say, 5 years?

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Kate E. Swann, SSP Group plc - CEO & Executive Director [21]

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Okay. In terms of where the cost efficiencies are going to come, as you know, we operate a process whereby, over a three-year period, we look at what we call value-creating opportunities, big initiatives that are going to either deliver in the first year, we need to work on in the first year in order to deliver in the second year or bigger ones that we think have got themes for a number of years. So at any one time, we're probably running 200 odd initiatives. Some of those will be specific to a country. Some of those will be much bigger, and we think will have a role across many. Some of the ones I'm excited about. The technology piece I think is really exciting and the opportunity to take labor out by the use of technology. We talked a little bit about QSR in the presentation. We will be trialing, in the next 6 months, so we'll probably talk to you about it at the half year, some app-based solutions for ordering in bars and table service, et cetera. So quite excited about that. Just started a piece of work on our supply chain, which has been one of those things that you know when you lift the lid, you're going to find all sorts of stuff, but it's complicated. So we've started to lift the lid on that. Quite excited. We have a very complicated, nonstandardized one man, his dog, a bit of sticky bag of plastic, couple of bikes kind of solution. Remember, we operate in 35-odd countries around the word, some of those are very small. So those are the 2 areas I'm quite excited about. But I get equally excited about the smaller initiatives that are worth a couple of hundred thousand pounds. The CEOs say I get irrationally excited about those, but we still have plenty of what you would think of as fairly low hanging fruit. I'll let Simon talk about the...

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Simon Smith, SSP Group plc - CEO of SSP UK & Ireland and Director [22]

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She do get irrationally excited. I've been trained well, so I'm not going to be giving any forecasts out on margin, but we have loads and loads of opportunities. As you know, we run more than 50 brands in the U.K. And it's very important to me, both in my current role and in my future role, that we'll continue to extract value across all those brands.

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Kate E. Swann, SSP Group plc - CEO & Executive Director [23]

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I think one is contingent on the other, for the next 6 months.

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Simon Smith, SSP Group plc - CEO of SSP UK & Ireland and Director [24]

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You're probably right. So we'll continue to do what we've done over the last 5 years.

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Kate E. Swann, SSP Group plc - CEO & Executive Director [25]

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When you look at the ones I talked about, I talked about coffee machines. And you would think, my God, have they not got the coffee machines? It's so basic and straightforward. In the U.K., why have they not done that? But we have lots of examples of things as straightforward as just let us look at some of the new coffee machines, shall we? And see what that would mean for labor and service times, et cetera. We've got plenty like that. Any more questions? Yes, Tim.

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Timothy William Barrett, Numis Securities Limited, Research Division - Leisure Analyst [26]

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Tim Barrett from Numis. Two things, please, just very related to that last question. The 80 basis points increase in the U.K. margin still looks pretty outstanding in the labor environment. Was the labor sales ratio up or down in that market? And what did you do there? And then Page 24, I think, shows 267 contract signings, and you're still talking about deceleration in net new business wins. You've talked about it a bit, but can you just cover that off, please?

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Kate E. Swann, SSP Group plc - CEO & Executive Director [27]

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Yes, I'll let Jonathan do the first, and I'll cover off the second.

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Jonathan Davies, SSP Group plc - CFO & Executive Director [28]

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So I mean I think you make a good point, and it's something I pointed to in the presentation earlier. It's still a very good performance in the U.K., particularly against the backdrop of low like-for-like sales and, therefore, not really a lot of benefit from operating leverage we should anticipate with high like-for-like sales growth. So, yes, the answer is we did make further modest improvements in our labor issues in the year. But it's definitely more challenging than it was a couple of years back. Again, there would be no surprises in that.

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Kate E. Swann, SSP Group plc - CEO & Executive Director [29]

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And on the contracts, there are a lot of moving parts. So remember, the net gains number is a number -- the sales we get from anything new that we've opened, not one opened, because its actual sales, less the sales from anything that we've closed, be that for refurbishment or whatever. So what you see on the big map slide is all of the new contracts that we have won. Some of those opened last year. Some of those actually opened last year and then were closed in the year that we're in because we haven't refurbed them yet. So as Jonathan said, that was the benefit that we got. We took them over almost overnight, exactly as they were. We will then shut them this year, refurb them and then reopen them. You've got on that map as well contracts that there is not a chance in hell we will open this year. Some of them probably won't open next year. So we try to give you an idea of the sort of business that we've won and some of the things that we think you might be more interested in, but you can't equate that directly to the net gains number because of all of those moving parts. Am I pleased with the business that we've won? Do I think net gains would be good for us this year? Yes and yes.

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Kate E. Swann, SSP Group plc - CEO & Executive Director [30]

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Any more questions? Thank you very much indeed. Have a good day.

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Jonathan Davies, SSP Group plc - CFO & Executive Director [31]

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Thank you.