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Edited Transcript of SSPG.L earnings conference call or presentation 15-May-19 8:00am GMT

Half Year 2019 SSP Group PLC Earnings Presentation

London May 24, 2019 (Thomson StreetEvents) -- Edited Transcript of SSP Group PLC earnings conference call or presentation Wednesday, May 15, 2019 at 8:00:00am 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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* Anna Elizabeth Barnfather

Liberum Capital Limited, Research Division - Research Analyst

* Nigel Andrew Parson

Canaccord Genuity Limited, Research Division - 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. Good morning, everybody. Welcome to our half year results for the period ending 31st of March, 2019. I'm Kate Swann, CEO of SSP. Joining me today, we've got Jonathan Davies, CFO; and Simon Smith, CEO Designate; as well as Vagn Sørensen, Chairman.

I'm going to start with the few opening comments and group highlights. Jonathan will then take you through the financials and finally then I'll finish with a review of the business, updating you on the progress we've made in the half. There'll be plenty of time for questions after that.

So kicking off then with the highlights. We saw a good performance in the half with profits up 14.6% at constant currency, 13.2% at actual exchange rates. Total sales, including acquisitions were good up 6.8%, like-for-likes were up 2% towards the lower end of our expected range, however, we were pleased with that, considering the disruption that we saw in quarter 2 and the move of Easter from half 1 to half 2 year-on-year. Net new space was strong, up 4.1%, and we now expect it to be between 4% and 5% for the full year.

We made further good progress on operating margin ahead of our plan, which was up 30 basis points in the half. This is a very strong performance given the substantial amount of development activity that we had in half 1. Unusually, we mobile -- mobilize more big new contract than we had planned in the half, like the German MSAs, Netherlands rail, et cetera, with the associated preopening costs.

Earnings per share for the half was strong at 6.7p up 19.6% on the year, and we've announced an interim dividend of 5.8p, up 20.8% on the year. And last month remember we completed the special dividend of GBP 150 million that we announced last year. Looking forward, our medium-term pipeline looks very good, and we had a strong half in terms of new contract wins, which Simon will come on to.

So from a group point of view, we've had a very good first half. Half 2 has started well, and we expect to see further good progress in the full year. So if I now hand you 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 has already shown you, we delivered a good set of first half results. Overall, sales increased by 6.8% on a constant-currency basis, with like-for-like sales of 2%, net gains of 4.1% and the further 0.7% from acquisitions. Overall, reported sales growth was 7.1% with the weakening of sterling against many of our major currencies, providing a slight benefit to reported sales. However, looking forward, if we were to see the current FX rates maintained over the rest of the year, we'd expect a slight negative impacts on full year sales of around about 0.5%. Operating profit was up 14.5% on a constant-currency basis to GBP 62.5 million and up 13% of actual FX rates, with a good flow through to EPS, which was up nearly 20%.

Net debt increased as planned to GBP 430-odd million up a GBP 140 million year-on-year, reflecting the high usage of cash in the first half, which I'll come back to, and of course, paying the GBP 100 million special dividend last year. Now looking at the like-for-like sales. Like-for-like in the first half was 2%. The slightly lower like-for-like in the second quarter of 1.5% was largely driven by Continental Europe, where we saw a full quarter's effects of the Gilets Jaunes protest in France and it was also affected by the timing of Easter, which as Kate said, this year fell into the third quarter rather than the second quarter. Excluding these factors, like-for-like in the second quarter would have been above 2%. Like-for-like sales in the Air sector were fairly strong whereas trading in most of our U.K. and European rail operations continued to be softer, in line with our recent trends.

Looking forward, with the ongoing level of economic uncertainty and disruption, we continue to plan cautiously, anticipating like-for-like sales in the full year of around 2%.

While looking at the divisional performance, firstly like-for-like sales. In the U.K. like-for-like was up 1.4% with stronger growth in air. Rail remains soft with ongoing disruption at a number of the major London stations from redevelopment. In Continental Europe, like-for-like sales were down 0.8%, largely reflecting the impact of the Gilets Jaunes protest in France and major developments at a number of our big airports, notably Copenhagen, Malaga and Las Palmas. Like-for-like in North America was strong at 5.5% helped by increasing passenger numbers and strong performances from many of our newly rebranded units. And in the Rest of the World, like-for-like was, again, very strong, 6.5%. Although, worth noting towards the end of the first half, we did see some impact from the ongoing suspension of flights from Jet Airways, mainly hitting India.

Net gains overall were 4.1%, benefited from unusual growth in the U.K. and Continental Europe moved us around 3%. In Continental Europe, as Kate has already said, we've mobilized some very large contracts in the first half, with some of them opening ahead of schedule, including the MSA or some of the MSAs in Germany. Net gains in North America was strong at 9%, reflecting the new units in Seattle, Los Angeles and LaGuardia and in the Rest of the World, they were up 4%, with good contributions from the new contracts in India and in -- at Cebu in the Philippines. Following the strong first half and looking ahead at the pipeline, we now are anticipating net gains of between 4% and 5% for the year compared to our previous guidance of 3%.

Now turning to profit. In the U.K. operating profit increased by 17% with a margin of 110 basis points. This performance against the backdrop of fairly modest like-for-like was driven by our ongoing program with efficiency initiatives. In Continental Europe, operating profit was 15% lower than last year, but excluding the impact of higher depreciation costs, which arose through our significant development program, EBITDA was down just 4%. The lower EBITDA basically reflects the impacts of preopening costs that came with the new contracts and redevelopments as well as, of course, the protest in France.

Operating profit increased by over 50% in North America that benefited from a lower depreciation charge as a consequence of last year's impairment of assets in Houston airports, but excluding this EBITDA was still up about 9% year-on-year. In the Rest of the World operating profit grew by 16%, driven by the healthy like-for-like sales growth.

Now looking at the group P&L. Operating margin increased by 30 basis points to 5%, and if you look down the P&L, you can see that gross margin was up 90 basis points or 80 basis points if we adjust for the stronger sales growth in air relative to rail, air typically having higher gross margins, but of course, also higher concession fees than rail.

The 20 basis points deterioration in the labor ratios largely reflects the short-term impact of preopening costs, which is a reflection of the scale of the new opening program in the first half. Concession fees rose by 80 basis points or 70 basis points adjusting for the air and rail sales mix. Here again, the higher year-on-year increase compared to recent trends is a result of the scale of the new opening program compared to last year, with a number of major contracts still in their mobilization phase during the first half. We would expect the underlying increase in concession fees to revert to more normal levels for the full year.

Looking forward, our expectation is for the operating margin improvement to be around 30 to 40 basis points in the full year, so ahead of our previous guidance of 20 basis points. So looking to the bottom of the P&L. Net profit was up 16% to GBP 31.2 million. Net financing costs were, as expected, slightly higher than last year with just over GBP 10 million, reflecting the higher level of net debt in the business as a consequence of the increasing capital and last year's special dividend.

The tax charge represented an effective tax rate of about 22% as we indicated in November. Non-controlling interest of GBP 11 million were at a similar level to last year, largely reflecting the slightly lower profit growth in some of our joint ventures in North America, largely due to redevelopments and preopening costs.

For the full year, we expect non-controlling interest to be approximately GBP 28 million. So overall, this left EPS at 6.7p a share, up 20% year-on-year, and we're proposing the first half dividend of 5.8p up 21%.

So turning to cash. Free cash outflow in the first half was just over GBP 75 million, which was higher than last year, mainly due to the seasonal working capital outflow and the timing of capital investments. So let me take each in turn. The working capital outflow of GBP 36 million was mainly a consequence of the later timing of Easter and compares with the unusual outturn last year where we saw almost no cash usage in the first half. Now that was due to the timing of Easter, which last year fell exactly at the end of the first half. So we saw the benefits of the sales uplift, and we also saw some material rent pavements fall into the second half. Over the full year, we're still anticipating a cash inflow from an increase in our negative working capital as usual. CapEx was GBP 108 million, so up GBP 47 million year-on-year and that reflects the first-half waiting of our capital program this year compared to the last year.

For the full year, we are anticipating capital in the region of GBP 160 million about GBP 50 million higher than our previous guidance, reflecting the higher expectations for net gains, which I've talked about.

And if we look at net debt. Net debt, as I said earlier, increased to GBP 433 million up nearly GBP 100 million in the first half, reflecting our operating cash usage and the final dividend. Leverage increased as expected to about 1.4x EBITDA at the half year compared to 1.1x last year, and by the end of the year, we'd expect leverage to be at a similar level around 1.4x as a result of strong cash generation in the second half and that's net of the special dividend that we just paid of GBP 150 million.

So to summarize, we're seeing robust like-for-like sales growth at 2%, despite some challenges in a number of markets as I said we're planning cautiously, anticipating a similar result for the full year. Following the strong net gains in the first half of 4%, we're now expecting net gains of between 4% and 5% for the full year. We drove another period of good operating profit growth up 15% on a constant-currency basis, and we've delivered a 30 basis points margin improvement, despite a number of headwinds and the significant investment program. And we're expecting a 30 to 40 basis point improvement for the full year. EPS was up 20%, and we've declared an interim dividend up 21%.

Now I'll pass to Simon, who will take you through the business review. Thank you.

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Simon Smith, SSP Group plc - CEO of SSP UK & Ireland and Director [3]

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Thank you, Jonathan. So having been in the business 5 years, I'm delighted to be taking over at the time when the fundamentals of the business are in really good shape. Many of you have seen this slide before, but I would like to highlight that we are in a market enjoying structural growth, the travel market is growing faster than global GDP and the investment behind the F&B offering is growing fast to sale, particularly in places like North America and the Rest of the World. Importantly, we have a proven strategy for succeeding in this market and building sustainable shareholder value. I will take you through the strategy and our current initiatives in more detail. So let’s start by updating you on our regional developments. So Jonathan has talked to you through the regional performance, but I wanted to touch on the shape of the business and how it continues to develop. You can see from the chart that the business has moved, from a primarily U.K. and European one to one with a better balance across the globe. We have seen consistent revenue growth across all 4 regions. The U.K. now accounts for 31% of the business, down from 39% from 5 years ago. The U.K. delivers steady top line and good profit and cash flow growth. Using the U.K. as a testbed for our strategic initiatives has worked well, and we see ongoing opportunities to do this, for example, in our supply chain and with new technology. The Continental Europe regions now account for 36% of SSP and whilst on net gains the expectations are modest, we've had a particularly good progress in the half, in countries like France, Germany and the Netherlands.

North America is a fast growing part of our business, now representing 18% of total SSP revenue up from 10% 5 years ago. We have a small share but that share is growing. The new business pipeline over the next few years suggests that, that growth will continue. And finally, the Rest of World, which covers Asia Pacific, Middle East, Eastern Europe and India. The region now represents 15% of SSP revenue and like North America, the key focus for this division is winning profitable new business. So we have successfully grown our business and continued our strategy and geographic diversification. We've also continued our emphasis on the faster growing channels. Looking at the performance by channel over the past 5 year, we've capitalized on the strong growth in air passengers travel globally, but in particular in North America and the Rest of World, which are predominantly air-based businesses. As you can see, the business is now around 2/3 there versus half, 5 years ago. And we expect this shift, by geography and channel, to continue as we focus on delivering our strategy and on the 5 key levers we use to drive our business.

These 5 levers aim to drive sustainable value for our shareholders. We are focused on these levers since IPO, and we have many more opportunities in each of the areas. So we will continue to use these as a framework for our focus on value-creation initiatives. We've made really good progress in all key areas this half, and I will take you through a couple of examples of the work that we've been doing. Group like-for-like sales were up 2% in the half, a lot of passenger numbers, which have a key impact on our sales, can be impacted by events outside of our control. Our broad and broadening geographic spread gives us some protection against this, and the work we have done to create a flexible cost base, allows us to manage the variability that we see in sales. Underlying trends in our market place remain very encouraging. We have many strategic initiatives to help drive like-for-like sales as you can see on this slide. And I will take you through a couple of -- that we've been working on in the first half.

So we've talked before about the importance of speed and convenience in our sector, as our customers continue to be time-poor and demand more choices over how they interact with us. Travel customer needs are often very different to the high street customer needs in F&B.

So we've been working with ordering and purchasing technology for a couple of years now to help improve our customer experience. We have self-scan tills now rolled out into 34 M&S units as well as trials and Whistlestop stop in Urban Express. This allows us to increase our speed at checkout and generate high volumes as fewer people walk away.

We also have over 200 self-order kiosks now rolled out in our QSR restaurants globally. These mean shorter queues and less congestion during busy time for our customers.

And this half, our new mobile ordering pilot began in the Grain Loft, Manchester; Bar 11, Newcastle; and Brunel Bar, Bristol. You don't need an app. You simply hold the camera on your phone over the QR code on the table, and then you order and pay on your phone. We've seen that we can serve more of our customers more quickly, especially at peak times, and we can, of course, deploy our labor to the kitchen or the bar rather than to take customers orders.

In the second half, we'll be trialing an adaptive versions technology in our table service restaurants in the U.S. All of these initiatives not only save time and increase convenience for our customers, but they save labor for us as well, which is increasingly important in high-labor-cost countries.

Moving on then to look at our second lever, growing profitable new space. We saw a very strong performance this half with net gains at 4.1%. It's been a busy first half for us, both in existing and new markets, and the pipeline over the next couple of years looks very healthy. We continue to take a disciplined approach to new business, being very focused on getting good returns. Our renewal rate continues to be good, and I'll show you in a couple of slides time, our recent wins means that our pipeline for 2020 and beyond looks encouraging. But before I go and then talk about that, I wanted to update you on North America and how we see our prospects there going forward.

SSP has delivered strong growth in this region. We've grown from 204 units to 325 units, a 60% growth, and our revenue has increased 203%. This growth has enabled us to showcase what we can offer, and we are established as a credible, award-winning operator, which demonstrates the momentum we have in our business. The F&B market in North America is large and has consistently grown, driven by a number of structural drivers: growing passenger numbers; airports continuing to increase the space that they give to F&B, especially air sides; and a continuing desire by airports operators to improve the competition to drive up the quality of the food and beverage offer.

SSP share is still small and the potential for growth is large as we only are present in 25 of the top 80 airports and in many of those only have relatively small number of units.

And we believe this momentum will continue as the pipeline of North American business remains strong. You can see on the map the contract wins in the U.S. that are yet to open, and some of those that we won in previous years. However, 48 of these contract wins happened in the first half this year. One of the strongest halves we have seen in terms of new business wins.

This continues to demonstrate that our approach using local brands and tenders like Harry & Izzy's Indianapolis airport; The Dirty Apron of Vancouver airport; and Pago, Salt Lake, is successful, and our strategy is working well. We continue to see further growth going forward in North America and further strengthened our business development team in order to capitalize on this opportunity.

In addition to those wins in the first half in the U.S. that I've just talked about, you can see from the map that we've had a strong first half in other geographies as well. We see further good progress in India as well as another big win through JV with ADP in Paris. We announced or move into Brazil, 6 months ago, and we're very pleased with our progress. We've also won a further contract in Salvador, which will take our total units in Brazil to 19, and the first of these opened a month ago.

So let's move onto our third lever, gross margin. During the first half, gross margin improved by a further 90 basis points, despite seeing some increase in food inflation, and it's important we continue to have plenty of initiatives to offset this inflation going forward. We're making good progress on procurement and further progress on waste and loss. So I'll talk you through the progress we've made on one of the initiatives that we've just started to look at, and that is our supply chain.

Our supply chain is a complex one, and we've taken the opportunity to review the end-to-end process. We've identified a number of opportunities, some of which are fairly straightforward to take, and delivery frequency is one of those. As part of the analytical phase of the work, we discovered that we have a huge number of deliveries into some of our sites. These deliveries are clearly inefficient for our suppliers and very time- and labor-consuming for us. So we've begun a process of negotiating with our key suppliers and brand partners to increase the volume per drop and reduce the frequency. A good example is Starbucks where we have jointly developed a new delivery plan. The cost-saving benefits have been shared with our partners, so it's genuinely a win-win situation, and we have developed a standard methodology to work out the optimum number of deliveries. And we're now rolling this out in the U.K. and filing the same methodology globally.

Moving on then to our final lever, operating efficiency. Again, we've made good progress here with the total operating efficiency improving by 30 basis points in the half, which was a pleasing result. Labor cost increased by 20 basis points in the half, while other costs improved by 50 basis points. We have a number of efficiency programs underway that we expect to see deliver good benefits as we anticipate the cost pressures will continue in a number of countries like the U.K. and the U.S., in particular.

A good example of one of our efficiency programs is our outsourcing program. Over the last couple of years, we've successfully outsourced areas like back-office finance and waste-to-loss analytics. We began to look at the opportunities in the area of design and architects drawings. This is a very substantial, multi-million-pound cost for us as we open so many units each year and rebrand or refurbish countless others.

Across the group, we had multiple approaches to this and many, many suppliers, and the design work stretches from the very basic refurb of 500-square-foot kiosks to a unit -- to a new unit designed from scratch, that can be multi-floor and up to 5,000 square feet. So we this established the design agency based in India to deliver the drawings for our low-complexity schemes in the first instance. This went live in March of this year, and on the first 20 schemes in the U.K., we've delivered savings of around 40%.

So we're making good progress on our operating efficiency right across the board. So in the last few slides, I try to give you a flavor of just some of the initiatives across the group, which are helping us to drive value in the business. Looking forward, I'm often asked where I see the most opportunity in the next phase of SSP's developments. The short answer to that is everywhere. With almost 5 years focused on driving commercial excellence in the U.K., identifying multiple opportunities and range and mix optimization to procurement, waste and loss, I feel well placed to drive commercial excellence across all of our geographies.

There is much to do. For example, in North America, we are only just starting to look hard at range, mix and ingredient to optimization. Having a small share in the huge and growing travel -- global-travel, food and beverage markets is attractive. I can see enormous scope for further disciplined expansion in North America and rest of world, and of course, delivering returns will continue to be our core KPI.

With the ongoing backdrop of food and significant labor inflation, we need to find even more ways to offset cost inflation, and I see good potential in using technology and automation. There are opportunities everywhere from the front of house, driving sales mix and pricing; to the back of house, in food production and service. All of which will help produce skilled labor costs.

And on the operational side, we have much more to do in labor scheduling as well as areas like maintenance and inventory, which costs the group tens of millions of pounds every year and with only really scratched the surface here and, again, the opportunity across all our countries.

So in finishing, there is much to go for, and I look forward to sharing our progress on that journey over the next many years.

And with that, I hand back to Kate to conclude.

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

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So finally last slide, wrapping up then, and as I said at the outset, against the backdrop of significant development activity for us as well as quite a bit of external disruption, we've had a really good first half, which is a great illustration of the flexibility of our business model and the ability of our team to manage well in changing circumstances.

Our financial performance in the first half was, again, strong with constant currency operating profit up 14.6%, solid like-for-like sales of 2% and net new openings ahead of plan 4.1%. We continue to make good progress on both gross margin and efficiencies, driven by our very many strategic initiatives, and our net margin continues to grow strongly, up a further 30 basis points in the half, which is ahead of plan. And we expect further progress for the full year, and as Simon has said, we see many more opportunities here.

EPS growth was strong up 19.6% to 6.7p, and we've announced the interim dividend as you've heard of 5.8p, up 20.8% on the year. This together with the payment of the special dividend of GBP 150 million reflects the board's confidence in the prospect of the business looking forward. The second half has started well, and we expect to make further good progress in the full year.

Looking forward, the business is in great shape with excellent momentum, and it's a great time for Simon to be taking over and leading SSP. The pipeline, as you've heard, is really encouraging and supported by our excellent management teams right around the world. I know SSP will continue to deliver because as always and built into our DNA is a relentless focus on delivering long-term sustainable value for our shareholders. Thank you.

We're now happy to take Q&A.

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Questions and Answers

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

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(Operator Instructions) Any questions. Yes.

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Timothy William Barrett, Numis Securities Limited, Research Division - Leisure Analyst [2]

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Tim Barrett from Numis. Can I ask 2 things? Firstly, Page 24, you're showing over 100 signings in the half. It feels very consistent with what you've been doing. Any reason why 4% to 5% isn't the new normal for net contract gains, please?

And then a second question on France. I was trying to find out what percentage of revenues France now is, and what's the trend of the exit rate on that as you move into to the second half?

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

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So I'll -- Simon pick up the first; and Jonathan could do second.

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Simon Smith, SSP Group plc - CEO of SSP UK & Ireland and Director [4]

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So you're right that our pipeline looks encouraging, and in the short term, that's very positive. We're not changing our long-term guidance of 1%. Because as we said consistently, we're not in control of when big tenders come out. So some years you can have a particularly strong result and other years could be quieter. It's fair to say, the last couple of years have been really positive, particularly in North America, but I don't want to get over -- carried away with it. And as you probably get know, I'd rather take a cautious approach rather than an optimistic approach.

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

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Tim, what was the second part of your question on France, the run rate?

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Timothy William Barrett, Numis Securities Limited, Research Division - Leisure Analyst [6]

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(inaudible) the process look into the second half, I'm not familiar with where we are on that?

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

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Sure. So first of all, we don't disclose the size of France. It's a material part of the Continental European division, but it's well below 10% of the Group. As we've pointed out, if we haven't seen those protests as well as Easter, timing change would've been north of 2% in the second quarter, but that gives you an indication of the sort of impact it's had. So material, but not that significant. Right now, the impact of the gilets jaune protest has been very much diminished. But even within the last couple of weeks, there have been 1 or 2 flare ups. And given the sort of backdrop of the political environment in France, it's quite a brave man to say...

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

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Yes.

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Jonathan Davies, SSP Group plc - CFO & Executive Director [9]

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We're not going to see a recurrence. But right now, we think it will have a very, very [meldish]drag in the second half.

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

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Any more questions? Yes.

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Anna Elizabeth Barnfather, Liberum Capital Limited, Research Division - Research Analyst [11]

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It's Anna Barnfather from Liberum. Just 2 questions, specifically on the U.K. Just could you give us some more granular detail on the patterns of trading? I mentioned it's a little bit hard to read at the moment, so any guidance you can give us would be great?

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

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Sure.

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

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Sure. Yes, no problem. So like-for-likes in the first half, as you've see, we're at about 1.4%, which we're quite pleased with, and it's -- we're actually seeing very similar trends in the first half to that, that we've seen over the last year or so. So steady growth in air and flattish like-for-likes in rail.

So at the moment, it is following a fairly steady part. Our net gain were particularly pleasing in the half, and this is due to a number of large, new M&S sites that we opened, particularly some of our London rail stations.

But overall, it's a good solid steady performance, and obviously, as you see from the results, we continue to make good progress on our initiatives to prove the profitability of the business.

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

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Any more. They're well practiced.

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Timothy William Barrett, Numis Securities Limited, Research Division - Leisure Analyst [15]

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I'll have another go. At the page -- on the margin, so page 9, I think, Jonathan, you reverenced concession fees being back to a more normal trend. Henceforth, can you just remind us what that is? And while we're on that slide, gross margin outlook, obviously, you'd several years of very good gains, and what's that going to look like going forward.

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

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So I think if you look back over history, you've seen something like a 30- to 40-basis-point increase in the rent line year-on-year. And frankly, as you know, because you follow this for a long time, that goes back over nearly 10 years.

So that's the sort of run rate, which we would expect to be coming back to in the second half. So I'd say, this is really all about the impacts of the mobilization of some very big, new contracts where we'll sometimes be taking -- to taking rent costs ahead of all the units being fully opened. So...

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

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So with the full year, no change to our view, just the shape.

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

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And with regard to gross margin, I -- we would hope that we will continue to perform strongly in the way that you've seen in recent years and indeed in the first half. So again, no real change to guidance. Clearly, that is offsetting the impact to concession fees to some degree and is, as I said, a function of the sales mix between air and rail.

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

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I think as Simons said, it's one of the areas that we've done really well in the U.K. And a lot's of the expertise that Simon brings from that, I see landing in the other countries.

Yes.

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Nigel Andrew Parson, Canaccord Genuity Limited, Research Division - Analyst [20]

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Nigel Parson from Canaccord. I've 2 unrelated questions if I may. Could you just talk to us a bit about the threat of tighter restrictions of alcohol sales in U.K. airports?

And secondly, could you just give us an update on the Chicago's, and what's happening in those 2 big airports?

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

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Again, so if you take the first one, Jonathan, you do the second.

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

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So you're referring to some of the recent news around whether they may or may not be banned before 10 o'clock in the morning. Yes. So obviously, we are pretty used to dealing with different laws, regulation changes right across the globe. We trade in 35 countries. So we very quickly can adapt our processes, should we need to. I mean it's fair to say that some of our best-selling products in our bars are actually cooked breakfast, burgers rather -- coffee, rather than alcohol before 10 o'clock in the morning.

I think we have a very good and well-regulated industry, and I actually think the number of issues that arise are tiny. I don't know if you've looked at the data, but it's sort of 1 in every 700,000 passengers traveling. So I'm hoping that the outcome of that is sensible. But as I said, we are well versed in changing our business as and when the need arises.

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Jonathan Davies, SSP Group plc - CFO & Executive Director [23]

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And with regard to Chicago Midway, I think the headlines are that the redevelopment program that is happening ever more slowly than we first anticipated, which is going back a couple of years now. So we've done a handful of rebrands, and those are clearly helping the like-for-like sales as I mentioned earlier. But we still only -- the early stages of that program. So we'll know more destruction coming with that, and we've now got about 5 subtenants open.

So if you remember, there's always an early benefit from running some units ourselves, which ultimately would go to subtenants. And again, we're not fully through that program. But that's -- we've already handed a number of units across to them at this stage. So it will continue to be a feature of what we talk to you about over the next 12 months, I expect.

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Kate E. Swann, SSP Group plc - CEO & Executive Director [24]

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Yes, Anna.

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Anna Elizabeth Barnfather, Liberum Capital Limited, Research Division - Research Analyst [25]

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So another one for me, please. Could you talk about the concession fees a little bit more? Is there any change in this of minimum guarantee levels versus the contingent levels or any regional variations that we should think about as you expand more in North American investment...

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Kate E. Swann, SSP Group plc - CEO & Executive Director [26]

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I'll let Jonathan pick the detail off of that. But the answer is basically, no. No change at all. You've seen the first half be a bit higher in terms of concession fees' increase as Jonathan explained. That's all phasing because we built so much stuff in the first half.

Do you want to pick anything else up?

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Jonathan Davies, SSP Group plc - CFO & Executive Director [27]

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I mean, I think that - most of you know it's sort of embedded within our rents' structures. There are minimum guarantees. So the important message is that, by and large, we're paying a sales-based concession fee. We're not paying fixed rents.

I think you may be pointing to data that you can all see in the reporting accounts, which shows that the minimum guarantee commitments looking forward have risen slightly. That's really a function of the level of new business that we've added over the last year or 2. And again, that's quite visible. And clearly, as we look forward, we'll be giving more disclosure on that when we start reporting under IFRS 16 as we move forward. But structurally, not really much changed, in truth.

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Kate E. Swann, SSP Group plc - CEO & Executive Director [28]

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If that is it, thank you, very much indeed.

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Simon Smith, SSP Group plc - CEO of SSP UK & Ireland and Director [29]

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Thank you very much.

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Jonathan Davies, SSP Group plc - CFO & Executive Director [30]

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Thank you.

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Operator [31]

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This presentation has now ended.