Dufry AG
Q4 2021 Earnings Call Transcript

Published: 8 Mar 2022

Julian Gonzalez:

Hello, good afternoon, good morning, depending where you are. Thank you for participating and welcome to Dufry's Full Year 2021 Results Presentation. It's a very great pleasure to see physically all of you here. I think the last time was in 2020, at the beginning of the pandemic, with the masks and with not very happy faces. I hope that today, the situation is a bit different. But it's very important that we start physical meetings, step-by-step and we feed the people again and we obviously consider these reopening face. Today, we have part of the presentation is Mr. Juan Carlos Torres, Chairman of the Board of Directors with as always, Yves Gerster, CFO. He is also a good friend in Xavier Rossinyol, Dufry's Designate CEO and myself trying to obviously present what happened in 2021. We are going to start with our introductory remarks done by your Chairman, Juan Carlos Torres. Please?
Juan Torres:

Thank you, and welcome to everyone. As we disclosed recently, we have announced the succession plan for our current CEO, Julian, who is here with us. The Designated CEO is Xavier Rossinyol. He will take over the role of CEO in June 1 of this year. Xavier was Dufry's CFO from 2004 to 2012, and the COO of our Asia and Eastern operations from 2012 to 2015. When he left our company to become the CEO of Gate Gourmet, one of the leading companies worldwide leading company of the airline catering. Xavier tenure as the CEO with Gate Gourmet was extremely successful, growing the company from revenues of CHF2.9 billion to CHF6 point billion in 2019. And while he was public, the share price went from 30 Swiss francs in early 2015 to 53 in late 2016. I was terminally happy that he has agreed to return to us with a wealth of additional experience in the industry and public markets plus the 11 years that he spend with us in Dufry. I also would like to express to Julian, our internal gratitude -- eternal not internal eternal gratitude from both the Dufry Board and myself, for the outstanding job that he has done for our company. Under his leadership, and people forget these, Dufry went from being a company, a small company bustle of our system, some of you remember that. From 600 million in revenues Swiss francs to 9 billion in 2019. And has recent from being the number seven among the duty free companies to be recognized and the number one Dufry company in the world and one of the leaders in the industry. This coordinating accomplishment is Dufry's '21 results, as you will see now. Julian has transformed Dufry into a more competitive, efficient and profitable company during the worst possible historical period for this industry. His departure is a very hard thing for me personally, since I’ve been working with Julian since 1992 in different duty free adventures and in different continents. Julian will be in leave from -- after he stepped down as a CEO for nine months, and he will be available to collaborate with Xavier as needed. From all of us Julian from all the Dufry's stakeholders, thank you.
Julian Gonzalez:

Thanks. After this, obviously kind words and nice words. Thank you very much Juan Carlos, Mr. Chairman, and thank you to obviously, all the members of the Board and the Management team over the years. For these close collaboration that we have work all together and all aligned with the same objectives. But let's continue with the presentation and we are going to use in previous times, the document that disclose this morning in our website. Let's move to page number three. And let's coming on the agenda, the agenda in previous times, we'll try to get to recovered ideas about 2021, mainly group highlights, then we will go through the business performance, we'll move from the business performance to the financial performance, and we will try to provide obviously within the limitations of the situation and I would look for the year 2022. If we move now, to page number five, a group highlight. We are going to start with the financial highlights. Financial highlights speak for themselves. I think this year, we have been able altogether all the stakeholders in the business, to align the company and to move the company to a set of financial statements and information that will be shared with all of you that really shows what is the value of this company where the resilience of this company is. We have modified operationally the company. We have a strange the financial structure of the company. And finally, what is the outcome if a company that with CHF5 billion less sales in 2021 compared with 2019 has been able to reach breakeven equity free cash flow level and a positive adjusted operating profit of CHF374 million. I think the most important headlines are already reflected in this slide. Organic growth increased by 53.2% compared with 2020. Providing confidence in the overall recovery. I think this is the critical point. What happened in '21 is something that is very important for the future is every time that restrictions or limitations to traveling especially quarantines are released, the situation improves very quickly. Last year, the main drivers or the main regions that drove the business were especially regions in America, US, Central America, Caribbean, South America and EMEA. And alone the year also we have seen reopenings and an impact, positive impact from South America. But really what is still and an ongoing problem is Asia, Asia Pacific has been quite stable in the negative side because most of the countries are obviously subject to restrictions and limitations specially quarantines when you need to travel. I think in terms of the operating results, as I just mentioned, we have reached adjusted operating profit margin of 9.6%. Adjusted operating profit in value CHF374 million is a very good sign that from the operational point of view, the company has been able and navigate through the most important crisis with good results some positive results in the operational level. Dufry continued -- and that's the reason to obviously happen that the company continued with a very strict cost control and cash management control. In terms of expenses, and we will come in on that later on. We have reached CHF1,078 million of MAG reliefs and negotiations reliefs with landlords in general. Personnel expenses CHF607 million operational expenses CHF254 million. Significantly ahead of the first disclosure information that we did last year in March 2021, when we started the year. Positive equity free cash flow during the second part of the year. We have reached with this level of sales CHF242 million that is very similar CHF243 million was in 2019 compared with a record year in equity free cash flow generation. Three, obviously, aspects that are giving me the impression that the company is better prepare and stronger than before for the reopening phase. Underpin the decreasing cash flow competition, I think is the opportunity and the flexible cost structure of the company. This company has shown opposite to obviously previews probably understandings, that the cost structure is very flexible and can be adapted to the reality of the business very fast. In 2020, was in six months, in 2021, I think was along the year. If we move to page Six, Slide Six and comment on the business highlights. At the end of 2021, we are very close to being fully opening again. In December, we had opened around 88% of the total sales capacity. By March this year, in a few days, we will reach 93% of the capacity already reopen, in terms of sales possibilities. The opening strategy proven to be good and resilience and we are going to continue with that, in terms of openings and closings. We are reopening basically shop-by-shop case base in the performance of each of the locations and basically taking into consideration of the number of passengers going through the different ports and locations where we are operating. The last 24-months has demonstrated the importance of the strong relationships we have with a trusted partner. Dufry is well recognize and I am going to mention different aspects of what happened in 2020 '21 by landlords, suppliers, shareholders, lending banks, another business plan, thank you to all of them. Because this happens, -- because the support of all these stakeholders in the business. The number one is resilient, gross profit margin, I think it's very important to comment on that. Obviously, in depending on the reported gross profit margin impacted temporarily due to the mix of the income we had last year, especially the wholesale activities that are being financed. We have increased the retail gross profit margin by 120 basis points compared with 2019. Good support by supplier, minimum annual guarantee, so already commented many times but let me comment one thing. In 2020 and in 2021 we have renegotiated, we commented on in the past, because many questions arise that in the past were regarding what happened is the minimum annual guarantees are obviously between the company. We told at that time and we are confirming today, that the partnership with the Landlords exists. And today we have accumulated 1.6 billion renegotiated minimum annual guarantees in two years 2020 and 2021. In terms of access to financial facilities, we have reached close to 3 billion equity and debt funds. The renewed covenant waiver two times the last time has been announced it one or two weeks ago and reducing the net debt to CHF3,079 million same level of net debt even before the crisis. Also, in my opinion relevant in terms of business highlights. We have renewals and renewed contract in 2021. Included the UK, Teesside and Cardiff, Martinique, French Guyana, Jamaica, Porto Alegre, Brazil, Dominican Republic et cetera, with a total of 9,800 square meters of commercial space. In order to really provide a bit of light regarding what happened in the company, we have put on the right side of this slide. Two things, is delivered obviously of the business basically, in commercial and in operations. In commercial is very relevant to say that we have learned a lot along the process of pandemic, we have investigated new assortments. In fact, most of these assortments are already ongoing already display in the shops. Shops that are displaying today more sustainable products, more local products and wellbeing product. Also we have developed the new what we identify as the new store of the future. And finally, and I think this is in my opinion even more relevant, we have developed a global marketing digitalization aspect that is starting with Alibaba and the mini application that we have opened in one of their platforms will continue in the future obviously providing opportunities to our customers worldwide and specifically Asian customers. In terms of operations, I think there are two aspects, we have started 17 initiatives, initiatives focused in improving the efficiency of all the shops that covers all the steps in the operation in one shop every day. And the second one is we have started also a program. So far 50 airports are collaborating, and will be for all the landlord not only for airport, where we have created the regular base relationship with these airports for exchanging information and progestin if there are things that we need to correct, what initiatives we should implement. Let's move to page number seven. We have provided turnover scenario since the beginning of the year, and related costs and cash flow sensitivities in 2020 as well as in 2021. I obviously would like to come in again, the uncertainty still is very high, provide specific information at this stage of the development of certain aspects that we are going to comment later on is very difficult, but it was also very difficult in 2020 and 2021. Through 2021 we were able to organize our initial estimates based on the agreements we achieved with the landlords. At the beginning of the year we will commenting on 300 around 300 million, we have finished the year and full year in CHF1,078 million. It’s not by chance, it’s a proven and completely ongoing process of negotiating with Airport. In terms of personnel expenses, and operational expenses is something similar. We have started with around CHF600 million and we have finished around CHF900 million, CHF842 million. On the right side of this slide probably is good to comment that the consequence of these negotiation processes and these reorganizations were the proof of the projected equity free cash flow at the beginning of the year around 450 million to the minus 33 million that we finished in 2021. In page number nine -- I think in page number eight sorry. I think we not only progress with the financial KPIs but also we have progressed a lot with the non-financial KPIs. I would like to emphasize the full focus that we communicated to the market. Focus in customer, focus in trusted partner, focus in employees experience, focus in environmental. In the first one regarding customer focus, we have also launched our new sustainable product identification initiative I commented on that one minute ago. Across 128 airports with 171 shops globally helping our customers to shop these type of products recently. In regards to VAT to us as a trusted partner. A comprehensive review of bluefish remuneration framework was conducted with the outcome in regard to increase transparency and overall set up display it in our remuneration report. Regarding the employees’ experience we have evolved or diversity and inclusion engagement by setting dedicated responsibilities in the group security committee. Finally, on protected environment, we move to the next page, page number nine. On the environmental side, we have defined the science based targets to achieve by 2025 and neutrality in terms of climate impact. In terms of the scope number three, we have two targets, one is covered 50% of the product procurement through a science based target commitment -- committing with suppliers by 2027 and reduce carbon footprint of our upstream logics by 2030 and reaching 20%. If we move to page 11. Let's come in on organic growth and evolution of cells and tumor when in 2021. Organic growth for full year has a comment on stood at plus 53.2% versus 2020. Important is also the acceleration in Q4. In Q4, the average growth in organic compared with 2020 was 179%. The turnover progress is clearly visible. And we are progressing towards achieving 2019 levels, especially in November 2021. For Q4 2021, Dufry reached already 67% of 2019 sales level. Full year performance and obviously supported by specific regions in the second part of the year, Americas, especially U.S., Central America, Caribbean, South America during the last part of the year and EMEA during the summer, and the extended summer. South America is a very interesting case because around September, October last year, they started to accelerate. Things that is happening today is step by step and it does really they are reopening and increasing sales. Asia Pacific was still largely impacted by the respected government, it said, Oh COVID case, this is something that has no change it and we are in the level, obviously, of the play of the pandemic or during the pandemic level of sales. If we move now to page or Slide 12. And coming on turnover and organic growth by region. Looking at the regional performance, this performing where America especially the US, Central America and Caribbean. The region reached 73% of 2018 turnover levels in Q4 2021. Intra-regional travel from the US to Central America as well as the opening of the Latin roads on November were supportive. South America started to trend upwards, especially in Argentina, Colombia and Ecuador, in line with vaccination progress and the reopening of the countries in the region. EMEA, so a significant step up in July and gradual improvement over since. Best performing at the Mediterranean, including Turkey, Greece, Eastern Europe, Russia, Middle East and Africa. Especially benefited from leisure travelers, mainly with obviously a flexible offers because finally what we have seen the airlines and tour operators required that the flexible offers intensive traveling. Also were good performance, France, Italy, Spain and Switzerland. The UK so again as well reopening after the most important restrictions were lifted. Departure destination with inbound travel to the UK benefited from new regulation related to Brexit as you all know and we commented on this specific point, all the countries with destination in the European Union with destinations UK now are able to sell in duty free the whole assortment of products. In terms of Asia Pacific still largely impacted by the respective government said okay approach. I am not going to comment on that any longer because if the same every time. Let's move to page 13, net sales by region and sector, very interesting what happened here. Split up the net sales by region similar than in 2020, as recovery pattern has continued exactly the same. Performance was driven by domestic and inter regional travel with among convenience stores, food and beverage and other duty-paid settings, the leaving of this recovery. Asia Pacific still impacted. But it is especially important to comment that there are three locations which significant a step-by-step recovery. One is Macau, the other one is domestic in China and the third one is the reopening of Australia. Distribution centers were temporarily impacted in a positive way because we move all the wholesale activity to Hainan to the distribution centers. In 2022 the situation will be different because we have allocated the responsibility of buying the merchandise for Hainan in our subsidiary in Hainan with Alibaba. We move now to page 14 and we comment on performance by Channel. Airports continue to be prevalent channel 84% of share. Another proof point that the resuming of traveling is happening very fast. Dufry benefit also from the other channels, other channels is the wholesale activity that obviously is mentioned it in the chart on the left part. Whereas ferries returned strongly in UK to Europe and North of Europe. The situation with the cruise lines still is very, very small. We have reopened for cruise lines, but the occupancy has been still very low. The cruise lines companies are expecting to resume throughout 2022 more broadly. If we continue with explanation performance by category on page 15. Food and beverage and confectionery continued to obviously drive the best through 2019. And in 2020 happened the same scene, because we reopen first the convenient part and the duty-paid part. Expected especially during the first part of 2022 expected trend is confirmed. Luxury will obviously lower share compared with 2019 but increase step-by-step and increase not only depending on the reopening because still there are several shops within these 10% of the business that is still closed down that are operating this type of product. If we move to page -- to the next page, page 18. Let's comment on the square meter space development and square meter development. Total number of square meters by the end of the year. Commercial square meters 470,000; we opened 9,800 new ones. Gross and we have -- for this around 19,250. In regard to opportunities, I think I commented on several before we weren't in many jurisdictions and many countries. Our highlights on refurbishments our new openings and renovations in Rio de Galeão shopping mega store in Brazil. The extensive already signed up Milan Linate internationally for and they completely renew it in Brookstone concept in the US. With the opening of our first full seated restaurant in the US with the name Plum Market, we are really moving forward as we have commented on many times in the food and beverage market in the US. I think we have explained in the past about the equity story, we've had some and we are continuing to move forward in order to deliver more growth in the US. Also relevant to comment, had some non-stop fully data like concept with Amazon. These stores were purely run in the US in line with Dufry's digitalization efforts and the strategy. We have also and is very relevant for the future pipeline total square meters of 38,700 in line with other opportunities that we commented on this number that has been moving from 35,000 to 45,000. One comment regarding Mova Mall. Mova Mall in finance has been a tremendous success and information is public. I think in Hainan, the government disclosure everything is the second most important operation after the obviously the historical one in terms of sales per square meter. And in terms of sales is improving this year around 50% onset. I remind everybody that we don't consolidate because we cannot invest in Henan yet as falling international operator. But we have a different agreement as I explain it during past calls. Let's move now -- let me handle to Yves for commenting on the financial summary.
Yves Gerster:

Thank you, Julian. And welcome to everyone in the room and also on the line from my side as well. It's really great to be back and have the physical full year presentation back again with in-person meeting. Also I've met most of you already during the physical Roadshow we have had in the second half of the year 2021. Normalization and strong recovery we have also seen in our financial performance during 2021. Starting with our income statement with the key KPIs at the bottom of the page 18. Our operating results and our net results have substantially improved compared to the year 2020. Adjusted operating profit stood at CHF374.9 million. An improvement of close to CHF2 billion versus the previous year. Also, our net result with adjusted net profit and adjusted net earnings per share already generated positive results again. The strong results reflect the successful cost control executed throughout the year, including the management of personal expenses, other expenses and concession fees. Julian already commented on personal expenses and other expenses, so let me give some additional details on the accounting treatment of the waivers of minimum annual guarantee or short MAG we have achieved throughout 2021. Dufry reflected CHF1,77.8 million of MAG reliefs in 2021. Of the total amount, an amount of CHF847.1 million were accounted as MAG relief under the P&L line lease expenses. There of CHF27.3 million Swiss francs have already been accounted and considered as MAG waivers and communicated to the market in 2020. The remaining part refers to lease modifications in accordance with requirements of IFRS. Those leads to a lower depreciation of right of use of CHF92.7 million to lower lease interest of CHF47.9 million and lower variable concessions of CHF33.7 million in 2021. An amount of CHF85.1 million Swiss francs for benefiting future years. Turning to depreciation and amortization, as the next line impacted accounting wise. There are four effects impacting our 2021 D&A line. The first one is impairments done in the year before in 2020, which have a lower D&A already in 2021. The second effect is a partial reversal of the 2020 impairments done to MAG reliefs achieved in 2021. The third effect, it's almost mechanically required to generate an additional impairment in 2021, which will lower D&A from 2022 onwards. And lastly, the recognition from IFRS 16 of some of the contracts related to change in the agreements. I do not want to linger on this topic, as we are mostly talking about the timing shift of switch between lease expenses, depreciation and amortization of right of use and lease interest. The overall impact on our net results over time, i.e. over several years will be zero. So again, it's a timing shift, rather than anything else. Our financial expenses benefited from significant lower lease interest, partially offset by some transaction related costs. Please recall that we have executed a comprehensive refinancing of around CHF1.6 billion early in 2021. Income taxes and minorities increase due to higher profit before taxes and net profit respectively, which we achieved during 2021. The overall net result as adjusted net profits attributable to equity holders turned positive and reached meaningfully improved CHF23.4 million for the full year 2021. Turning out to slide 18, and the closer look to the gross profit margin. Gross profit margin stood at 56.5% for the full year 2021. This is an increase of 270 basis points compared to 2020 and in line with our expectations. As communicated we expect gross profit to recover in line with the business recovery. Most notably, our retail margin already provided to be very resilient in 2021. The retail margin saw an increase of 120 basis points compared to 2019. This was due to a strong demand of returning travelers, and it was further supported by the higher share of duty free for inbound customers in the UK. The negative margin impacts during 2021 was mainly related to the temporary supply of our high non-collaboration in China through our Hong Kong based distribution center. This effect will subside in 2022. Moving to Slide 19. Slide 19 visualizes the tight cash control and cost control we have executed throughout 2020 and also 2021. Total cost savings amounted to CHF1,919.7 million. At the beginning of 2021 we have provided sensitivity for concessions, personal expenses and other expenses to the market based on the visibility we had at that moment in time. We upgraded our estimate throughout the year and we have progress on the agreements with our landlords and continued to manage the reopening in a considerable way. On concession waivers, please remember, this is reflecting relief signs, and the chief during 2021, but partially also related to previous year and accounted for partially in future years, as commented before. On personal expenses, our location-by-location reopening approach proved successful. This also includes weekly profitability driven assessments on opening times and stuff requirements. On top of that, we managed a broad rollout of self-checkout systems, particularly in the US. We also saw some direct and indirect government support throughout the year, which has come to an end now. The reopening approach and also benefiting other expenses on top of the centralization of those accounts. Turning to the -- from P&L to the cash flow on Slide 21. For me, this is one of the highlights of the year. For the year '21, we report an equity free cash flow of minus CHF33.4 million only. As you can see on the left side of the chart turnover increased by about CHF1.3 billion compared to the previous year. On the far right of the chart, you can see the corresponding increase of equity free cash flow by close to CHF1 billion. This reflects a 73.4% conversion rate on incremental turnover. This solid results is primarily based on the efficient cost and cash flow management, as well as working capital movements in line with the recovery trajectory, but also some facing effects, I will touch on, on the next slide. Moving on to slide 23. With -- I have already mentioned, equity free cash flow for the full year '21 stood at minus CHF33.4 million. However, an outflow was largely related to the first quarter of 2021. From May to October, Dufry generated positive monthly cash flows. Equity free cash flow for the second half of '21 amounted to CHF241.7 million, the same level as pre crisis in the second half of 2019. Even in a normal cash negative fourth quarter, we have seen only limited outflows. Our 2021 quarterly equity free cash flow evolution provided a clear picture in regard to the normal seasonality of our business, and working capital movements throughout the year. We discussed this already many many times, quarter one and four are typically impacted by the lower passenger numbers and demand. In addition, and as expressed now several times, we sourced the merchandise for the high season i.e. quarter three and four at the beginning of the year, whereas concession fees payments for the higher summer season are typically paid with a delay of a couple of months. During the fourth quarter '21, we have some facing effects with CapEx and tax related cash outs of around CHF50 Swiss francs moving from '21 to '22. The facing effect will be reflected in our cash flow assumption for the current year. For '22, you can expect a similar cash flow pattern as in 2021, with negative equity free cash flow in quarter one and four, particularly negative in quarter one in line with normal pattern. This will be followed by improved months throughout the year depending on turnover. Moving on to the next Slide. As in 2020, and also in 2021 we are not in a position to provide guidance for the current year. We see continued improvements and an encouraging trend in general, but the visibility on the short term trajectory is still very low. On the one hand, I'm referring here to government responses and international alignment regarding the COVID related health crisis. On the other hand, we are also monitoring very carefully the developments around the war in Ukraine. While our hopes are with our Ukrainian people, and especially our colleagues in Odessa and their families, we do not have visibility regarding the future developments in that regard. To increase transparency and support the market to assess potential developments, we are continuing to provide equity free cash flow sensitivities for potential turnover scenarios. As highlighted on Slide 23, in the minus 35% turnover scenario versus 2019, monthly average cash consumption would be around CHF10 million. Assuming a minus 40% top line compared to 2019, monthly average cash consumption would be around CHF20 million. In other words, equity free cash flow for 2022 is expected to be in the area of minus CHF122 minus CHF240 million for the full year 2022. Please recall that 2021 equity free cash flow performance was influenced by around CHF50 million shifting in capex and income tax. Additionally, 2021 contained tax government support schemes in the area of around CHF100 million, which are considered to be zero going forward. As mentioned on the previous slide, cash flow will not follow an even pattern. In line with normal business's operations, please expect a negative outflow for Q1, which will be followed by improvements during the rest of the year, especially during Q2, and Q3. Moving on to slide 24. With the net debt evolution. We have significantly decreased our net position during the year. To be explicit by CHF264 million versus 2020. With a net debt position of CHF3,080 million as of December 2021, we are now below pre crisis level as of December 2019. During the first half of 2021, we have successfully executed a comprehensive refinancing of overall CHF1.6 billion. This allows us to balance our net debt profile in regard to maturities and interest rate. Relevant maturities are only coming up in 2024. Our interest rates are fixed for about 80% of our drawn debt facilities. Important to mention to 1.3 billion euro RCF continues to be fully undrawn. We also reached a very solid liquidity position at the year-end of CHF2,243 million. Moving on to slide 25. To continue, we have some flexibility throughout the short term recovery, we agreed with our group of lending banks to extend the covenant holiday for an additional four quarter until an including June '23. The next testing will now take place in September 2023 with an increased threshold of five times on the leverage covenant. For March 2024 and onwards, the testing will be again at the threshold of 4.5 times. Our substantially improved results and fully financial position as of December 2021 make me confident for the year ahead. I am professionally and also personally looking forward to participating in shaping the short term recovery and the mid-term growth opportunities. With this, I'm handing over back to Julian for the closing remarks.
Julian Gonzalez:

Thank you, Yves. I suggest that we move now towards Slide 27 and commenting on the outlook and also, obviously these two slides that are here. Significant progress started in June 2021 when we consider the revolution of sales. With obviously, brother reopening vaccination campaigns, we saw more countries and more often people traveling. In our recovery since we prolonged especially summer season. As you will know the reopening in most of the countries in Europe started late around July, when the season normally starts or beginning of May. But the summer season was longer and the termination was delayed. I would like to remark again that especially driven by the reopening of trust and lengthy roads, we had a significant improvement and good results in US. And then gradually in South America. The peak in terms of recovery sales compared with 2019 was in November 2021. Driven by the vaccination campaigns and the reopening of countries. Best performing areas were Central America and Caribbean, including Dominican Republic, Mexico, Jamaica, Aruba, Bahamas, Bonaire all performing very close to even above 2019. In December, Central America and Caribbean reach already levels of around 92% of 2019. North America stood at 83% with the holidays, and opening of the trust and lengthy route benefited through December. With, especially Europe, Middle East, and Africa, Mediterranean region performing best and stands at 87% of 2019 sales and showing high demand elasticity. The emergence of Omicron variant had an impact in January, and first half of February, but sales were trending upwards again already, especially during the last two weeks of February reaching levels similar to November 2021. In January, restricted traveling measures temporarily, as I said, impacted America, and Europe, Middle East and Africa, with Asia Pacific unchanged in low levels due to the obviously the COVID set of policy that I mentioned many times. But I think it's important to obviously comment on February, February started with the same trends. But during the last two weeks of February, the situation improves in America and EMEA, reaching levels similar to the highest achieved during the pandemic in November 2024. Now, it's too early to assess the full impact of the current political turmoil in Ukraine. But the impact has been very limited so far. And during the last two weeks, the situation has not been significantly different than before. If we move to page 28. The current range in relation with passenger numbers in 2022 is between 69% and 83% of 2019 levels Put it in a different way minus 17% minus 31% versus 2019 number of passengers. The recovery expected depending on the source in 2024 or in 2023 depending on the institution. As in the past two years, we are not providing we will share from if guidance in the current volatile environment. Now may even more difficult to project anything, especially when these more ongoing in Ukraine. We see a strong demand for the resuming of traveling and travel retail as interim fall out, so the travel retail business will benefit from that. But I think obviously, the Easter -- the next Easter period of holidays is one obviously the test. The elasticity of the month has proven to be high during the last month. And we are taking confidence especially in the middle long time. If we move to page 29. And we'll comment about the reopening I already comment on that but by the end of 2021 we reopen 88% of total sales capacity by the end of March is around 93% of total sales capacity. Most of these closed down sales capacity is located in Asia Pacific. If we move to page number 30. Is an update of one of the slides that we have projected during previews conference calls and so the evolution of customer behavior and motivations for going to travel retail shopping? We have resumed with our in-person interview in around 9,300 interviewers and really that still gifting and attractive value proposition our main driver for purchases in travel retail around 30% and 29%. Both increasing versus 2019. And we are accounting for with the offering for the simple increasing range of local as increasing sustainable products as I mentioned before. Passengers currently traveling tend to be younger, more so travelers and more leisure and visiting family and friends oriented. However, we already see significant progress in intra-regional and intercontinental travel as well as in the resuming of the business traveling. With our high flexible commercial offer, I think we can provide the best alternative to current demands and drive recovery accordingly. Let's move to the page number 31 as a brief conclusion. I think in terms of what happened in 2021 we have commented with a lot of detail but in effect number one is organic growth increased by 53% compared with 2020. I think the strong trend that we have seen in the summer has been maintained until December and with a new variant of Omicron, we had more or less 30 days, between middle of December to middle of January, with an impact, not huge impact but an impact in the recovery of the sales. But we have seen during the last week, two weeks of February, a significant recovery. Substantial, I think, with what happened last year in terms of cost control and utilization of cash, is we reach CHF374 million of adjusted operating profits. And the tight cost control the CHF1.9 billion repeating during the presentation several times is really a huge increase compared what we were expecting at the beginning of the year. And we thank all the stakeholders that in the business that supported us to achieve this impressive figure. In terms of equity free cash flow, the numbers are already there was really two in the second part of the year, similar than in 2019, same period. And the full year minus 33 million was the total equity free cash flow for the year 2021. I think from my side is everything is here. But I would like to give the opportunity to Xavier Rossinyol, that we have here and provide some insights about what he's thinking about what you are doing now. Xavier?
Xavier Rossinyol:

Thank you, Julian, can you hear me? Well, I'm extremely happy to be back at Dufry. I thank the Board of Directors for the appointment and the trust ton me. Thank you Julian for the transition we already started, I know it's going to be very smooth. And I can assure you, I feel a strong responsibility to follow on your amazing legacy, we will work on the new phase always based on that. I'm looking forward to work with the entire Dufry team. Not only the board and the senior management, but every single team member. I truly believe the people in Dufry is the true strength of the company. I'm looking forward to engage in some cases, reengage with investors’ community and the analyst community. And just a few flashes. Everything we're going to do going forward, we're going to do it together as a team. We are going to hopefully define a new cycle of success. Success define as one value creation for shareholders. Two, value creation for customers. And three value creation for the communities where we are in. We will work for the long term. Of course, any modern company needs to focus on the short term, to have a long term, but our focus will be at least on a cycle of five years. We will build on the strengths the company has. But we will not be shy to change what needs to be changed to address the challenges we have as a company as in the industry. Thank you very much. And I'm really looking forward to work with everybody. Thank you.
Julian Gonzalez:

Thank you Xavier. And now the service the next step, the Q&A. We can obviously welcome questions we have in the room. And obviously we then will continue with the audience through the conference call. We have one question here in the room?
Simone Lechipre:

Yes, good afternoon, Simone from Stifel. Two question please. First of all, looking at the recent geopolitical events, and any potential impact. I guess the way I would ask the question is, what was your top line scenario for 2022 before the start of the conflict. And some of these to look into '22 if you could share with us any details on the moving parts between the top line and free cash flow so gross profit margin OpEx and also working capital? Thank you.
Julian Gonzalez:

In respect to the first question. So we have taken the geopolitical situation which we currently see around Ukrainian conflict into consideration for 2022. So this is reflected there. Obviously we had to slightly adjust our expectations in that regard compared to what we have considered one or two weeks ago. I think that's normal. However, the impact we are considering is not overly huge. In respect to the second question around two scenarios. Today on the correctly, you're referring to the scenarios we have shown and the bridge between the top line assumptions and the cash flow was that the question. So look there in respect to the different scenarios, in respect to personal expenses, you can assume something similar than what we have seen before between 17% and 18%. In respect to the OpEx depending on the two scenarios, it's around 8% to 8.5%. In respect to the cash flow statement there, you can assume that the situation is more or less unchanged in respect to interest paid. And in respect to CapEx, you can assume that our normal guidance of around 3% hold through also for the two scenarios we have provided. In respect to concession fees in the minus 35% scenario, you can assume around 32% and the minus 40% a little bit higher than that.
Simone Lechipre:

On working capital, any…
Julian Gonzalez:

On working capital it's the same thing as we have discussed before. So as we go along with the recovery, we assume that we can again recover the networking capital as a result of the increase of the receivables mainly. And then on top of that, what you have seen is also this shift from the procurement in Hainan, obviously also have certain effects.
Julian Gonzalez:

Questions in the room? Yes.
Unidentified Analyst:

Hello, Andrea Martel from NCC . I was wondering, could you tell us a bit more about what's happening with two three in the Ukraine, how many people you have there, what you do to people?
Julian Gonzalez:

In Ukraine, we have a small operation in Odessa is two shops. One is a duty free shop, 450 square meters. The other one, is a duty paid of 40 square meters. That are all the total number of employees we have in Ukraine is 34 35. I think it's 35. We have provided with resources before the attack. And now we are in the process because it's very complex today to support them from the financial point of view. And if there is somebody interested to leave the country, that is not everybody, because we have people with the intention they have, we will try to facilitate the daily for the country. So far is what happened.
Yves Gerster:

And so look if I can potentially also out on that. I just had a discussion with one of my colleagues on the way coming here. We know exactly from every single colleague we have in Ukraine, what their intention is, if they want to leave the country or not, where they are and what their preferences and the key needs they have at this moment in time.
Julian Gonzalez:

Any other questions here in the room?
Operator:

For questions, please dial 058-310-5000. . The first question comes from the line of Edouard Aubin from Morgan Stanley, please go ahead.
Edouard Aubin:

Yes, hi, guys. So three questions for me. The first one is on nationalities. So if we go pre COVID 2019, I think Russians, and if I remember correctly, Chinese nationals were amongst the highest standard per capita. And what I have in mind, which is I wanted to call somebody with U.S. stories that Chinese nationals are about 6% of your sales and Russian about 4%. So if you could confirm that and also, while the shopping more maybe higher gross margin can takeaways for you guys? So that's question number one. Question number two on the cost cutting program, which I think is the CHF400 million by 2023, if I remember correctly. If you could just give us a quick update, if you're on track sorry, and what about the cost inflation offset through these benefits? And then lastly, if you were kind enough in the previous conference call to data, some 2023 just a sensitivity, estimate for your equity free cash flow versus what sales could be? And I think, you had talked about in a scenario where your sales would be 5% in '23 versus 2019, 5% below, you would be close in terms of equity free cash flow, which was around 320. Do you confirm that I know it's, there are lot of moving past these days, but if you can give us an update on the sensitivity for next year as well? Thank you very much.
Julian Gonzalez:

Thank you for your questions, as always, regarding the plane per passenger, the most important nationalities confirmed were Chinese. The second most important were the Russians. The total impact of Russian sales in 2019, was 2%. And the total impact of Russian destinations, including Russia, is 3.5%, actually it’s a bit higher than three but lower than 3.5%. In terms of gross profit margin is basically not impacted at all because these customers were very similar in terms of behavior than the standard mix of passengers we had if we take into consideration the gross profit margin. So in respect to the cost cutting initiative, what we have communicated before in half year in Q3, there is nothing new or to be added to that. So whatever we said at that moment in time, still hold through in respect to amounts drop through to cash flow, and also in respect to the caveat in respect to inflation, et cetera, you have to take into account income tax, et cetera. So nothing new to be reported in that regard. In respect to 2023, that's a difficult one. So look it's obviously relatively difficult with the current geopolitical environment and situation we are in to comment on that again, but it's basically what we mentioned before, so it depends on a lot of variables, networking, capital, et cetera. But more or less, you can still take the same assumption. But look, it's difficult to say from today's perspective.
Edouard Aubin:

Okay, thank you. And Julian best of luck, by the way.
Julian Gonzalez:

Thank you very much.
Operator:

The next question comes from the line of Jorn Iffert from UBS. Please go ahead.
Jorn Iffert:

Hello, everybody, and thanks for taking my questions. First of all, Julian all the best to you, but I'm sure we remain in discussions and conversations. And then a couple of questions, if I may. Number one, is to follow-up here, what you just mentioned was a slightly and cost savings and the rate of cash conversion, I think you pointed out the last conference call will be around 200 million. Since then, we have seen harsh inflation on the wages in the US and all sorts of input costs. So just to be sure the 200 million cash conversion out of the 400 million cost saving is still something you should look for. The second question would be pleased incrementally on the equity free cash flow in 2021. And this was supported by MAG savings of how much in the cash in the cash statement? And also for 2022 equity free cash flow scenarios, what is the incremental MAG savings and you're assuming here? And the last question, if I may, on Spain, the 10 those coming up end of the year. May I ask how you think about this? I mean, do you would you prolong at the current terms or not? Just to have a little bit of idea where you're heading to. Thanks a lot.
Julian Gonzalez:

I’ll take the first one. So in respect to the cost savings and the drop through to cash flow and sort of what you stated you're on is correct. So that's what we said. And that's what's still hold through. In respect to the inflation. I also repeat what I said before, it depends on how much of the inflation we will see on the cost side, we will translate or transfer to our customers. On one hand side in our business historically, that is relatively easy to do. And we have discussed that in length. And there are a couple of reasons for that. But then on the other hand, it also depends on how much we want to transfer travel customer. So look, that's something we are assessing and see on as we go along. And depending on what results then in the best and optimal outcome from a cash flow perspective is most probably what we are going to do. In respect to question number two and three on the MAG savings from a cash flow perspective, if I understood correctly, the answer to the second one is CHF800 million. So that's what you see in 2021. And it's 200 million for the next year. And in respect to Spain. The only thing I've seen is clear and has been disclosed by Aena, they are prepared in a possible tender for all the commercial activities including the duty free. We are interested to participate. The answer is depending on the conditions that will be writing down in the tender and depending how the vendor is going to implement it. In principle, we have a we are the incumbents in Spain and I think we have a lot of experience and a significant competitive advantage for participating by being one of the best offers for sure. What is the intention of ionizing unit to China, I don't have a clue? I think what I know is what I hear and read in the newspaper.
Operator:

Next question comes from the line of Dhar Manjari from RBC. Please go ahead.
Dhar Manjari:

Hi, thank you for taking my questions. I just had two. Firstly, what are you seeing in terms of spend for passenger trends capturing conversion rates? Have they started to normalize at all? And secondary, could you update us on anything you're trialing in terms of data usage or loyalty schemes? And any plans for rolling up? Any of those are in 2022? Thank you.
Julian Gonzalez:

Sorry, I couldn't understand the second part of the question. Can you repeat it?
Dhar Manjari:

Could you give us an update on anything, any trials that you're putting in place in terms of digitalization and data usage or potential loyalty schemes?
Julian Gonzalez:

Okay, thank you very much. Regarding the spend per passenger, what we have seen since the pandemic started and even saw time before is an increase on a spend per passenger when you compare, like for like, in the sense that you compare duty free with duty free, and with the same blended. What is the -- what is important here is that the trend, since the moment the pandemic started, spend per passenger is growing. And in 2021, it was exactly the same case. Regarding the digitalization, I think probably the more relevant I already mentioned, is a mini application that we have developed together with Alibaba. And this application is today in Alipay. We are obviously very confident that the development of our loyalty program the name, today's rate, basically connected with the development with Alibaba will be a significant opportunity for Dufry. But still, obviously, there are not Asian passengers traveling the situation with AliPay and the opportunities to test our subject to these type of travelers. And I prefer that we delay the answer until we know exactly what and how much is the efficiency of this agreement with Alibaba and what we have done?
Dhar Manjari:

Great, thank you.
Operator:

Next question comes from the line of Mestari Jaafar, from BNP Paribas Exane, please go ahead.
Mestari Jaafar:

Hi, good afternoon everyone, and I just had one on trying to understand your framework for the full year '22 scenario. So back in January consensus had 722 revenues approximately 25%, below '19. And I think at the time, you said, this looks consistent with industry forecasts. So if I start with that minus 25, your comments just now on 2% plus 3.5% exposure to Russia and to Russian travelers. Let's say maybe, until we know better, this should just be assumed zero. So the discussion starts at minus 30. And then from that minus 30 you seem to be working with another five points or another 10 points of extra deterioration from the current geopolitical situation. What does that include? Potential commodity price hikes, falling disruptions, potential inflation, hitting customers, potential inflation hitting your own operating costs, just wanted to know more about the framework here, I noticed not formal guidance. But curious how you pick this scenario range?
Julian Gonzalez:

Thank you. Sure. Thank you very much for the question. So look, as you have just pointed out, it's not the guidance, and I think we are very clear on that. It's different scenarios. We want to show the sensitivity on the cash flow, depending on the turnover regenerate. And you have also rightly pointed out that our exposure to Russians is around 3.5% to 4%. But having said that, for us with the current visibility we have it's unclear on what the impact of that crisis will be. And we are also unclear for us what the recovery path and due to the health crisis, will be exactly and how fast that will happen. So from that perspective, we thought it's cautious to show those two scenarios to give you the sensitivity on how the P&L and the cash flow could like in a scenario where we generate either 5 or 5.5 billion turnover or to minus 35% from the minus 40% correspondingly to the 2019 turnover.
Mestari Jaafar:

I mean, I appreciate not everything is super detailed at this stage. But for example if we just read the newspapers, if some of the worst case scenarios that are being mentioned, oil as $150 materialized would you say get out feedbacks minus 40, or would some of those worst case scenarios require a much wider range.
Julian Gonzalez:

Sorry, can you repeat the first part of the question again, I didn't understand correctly.
Mestari Jaafar:

Just wanted to understand if you had baked in that range, some of the really worst case scenarios that can come up if we listen to the media, for example, very, very significant rises in oil prices to $150. Would that be something that you would say? Yes, absolutely this is within our range of 35 to 40? Or would you say, well, actually, no, that would be worse?
Julian Gonzalez:

So look, as mentioned before, we have taken into account some assumption respect to the current crisis around Ukraine, as well as the current health crisis. So I wouldn't call it a worst case scenario or anything like that. Again, it's two different scenarios which we are providing to the market to get to sensitivity around costs and ultimately cash flow, we would expect to generate in those specific two scenarios, but it's not the boundary or guidance sort of worst or best case scenario in any regard.
Mestari Jaafar:

Thank you.
Operator:

The next question comes from the line of Volker Bosse from Baader Bank. Please go ahead.
Volker Bosse:

Thanks for taking my question. Good afternoon, Julian, Yves, and Xavier. One question from my side is regarding Asia Pacific. Revenue is still down there so could you please provide us a bit more detail you mentioned Corona as rising in the region, Corona comes to an end hopefully. So, what is your prediction for '22 with the affect for how chains are evolving? Perhaps also, general improvement rental what's your expectation?
Julian Gonzalez:

Okay, well regarding Asia Pacific is that restrictions, still in place in many countries are avoiding obviously, most of the people traveling internationally as you know our main activity in Asia Pacific is international travelers. What we are expecting is obviously, today very is based on uncertainty. And I am going to comment on this basis is, we believe that in 2022 is now going to be a significant recovery in the Asian market especially because the question mark regarding the reopening in China. For the rest other countries are already moving ahead, for example, Australia that I commented on during the presentation, we have activity today in Cambodia, as gradually improving. We have activity also in Macau significant -- reaching significant level of sales 2019. But it's still during 2022 I think we should not really base the recovery in Asia, especially until the end of the year.
Operator:

The next question comes from Marco Werro Gian from ZKB. Please go ahead.
Gian Marco Werro:

Thank you Gian Marco Werro, ZKB. Three questions from my side please. First one on Hainan, we read also and hear from you that there the business really booming. So can you give us maybe an intention or also range about your expectations as a share of results and associates for 2022 to stay as a part based on this JV with Alibaba? That would be very helpful. Thank you. And then the second question is in relation to your US business, there can you give us an update in relation to your food offering that you want to expand also your partnership or your setup with plum market for example, where do we stand there? And then third question, besides the whole oil topic we already heard, how about a wage inflation in the West? Do you see some meaningful momentum there and how can you counterbalance that? Thank you.
Julian Gonzalez:

Regarding Hainan, I commented on in the past, due to the restriction from the legal point of view Dufry is not able or cannot invest in travel retail duty free activities. This is the first starting point. The second, we have a joint venture company 51% owned by Alibaba, 49% by Dufry. We have been at the beginning of this relationship supporting AVH. The license holder is a Chinese local company in Hainan, owned by the government in the province to supply obviously, the merchandise needed for the opening phase, we have also advised participate in the design of the shop. And we also advise and participate in the first step of training and establishing the company as a retail company. In the near future and I would say during the next two years, we should not expect any income from Hainan in the P&L. Because finally, what we are with a current legislation able to do is a supply agreement with obviously the limitations that most of the supplies will be move during 2022 to the joint venture company in Hainan, with Alibaba, and then management fees, inter companies, these dividends that will come from the joint venture company and these management fees coming also from these given the two company will be relevant probably, in my opinion in two years. Because this is the way obviously you're starting the business there. From the sales point of view, the operation is really blooming. This year is official information or a disclosure in January increase the marketing trend by 53%, or something similar compared with previous year. What is the impact in Dufry, Dufry has a huge opportunity, because obviously, first of all, we need to be sure that we participate in the channel travel retail duty-free channel, by the year 2025? As you know, there is a possibility that by the year 2025 international companies will invest in this business in Hainan, because is expected in during this new policy started by the government two years ago, what they call the bounded zone or the bounded area. And I think Dufry should be there from the strategic point of view. In terms of the US and the food and beverage. This is something that we commented in the past, at the time that we went with Hudson lifted and is still valid. The best way to grow in the US is to really invest in food and beverage for Dufry. We are the leaders in a travel retail duty-paid and duty-free. And the assumption is for accelerating growth, we need to invest in two different businesses, one is food and the other one is management of concessions. The second one is a longer term strategy. The food and beverage is something that we can increase and improve daily because there are tenders and RFP some proposals that we can participate. In fact, we have one or two of these and I mentioned one that happened over the past weeks. The opportunity is facing in one obviously in 2020 -- in 2019, before the pandemic. 65% of the business in U.S. is food and beverage. Within the remaining part 35% most important part, almost two-thirds is duty paid. And we are the leaders in duty-paid. And the remaining part is the smallest part is duty -free. And we are the leaders in duty-free too. The idea here is how to continue the growth in the US that is a very profitable market for us is stepping forward in the food and beverage business. And the third one, I don't remember is the question?
Gian Marco Werro:

Inflation wage inflation.
Julian Gonzalez:

Okay. In the US what we have seen is obviously depending on the state and depending on the location, but we have seen, especially four or five months ago a significant inflection in salaries per hour. As you know, we are very flexible there with salaries per hour. And that can go from 10% to 20% per hour. The impact in the P&L so far is not yet relevant because we have been also efficient in terms of cost savings. And the impact in the P&L is not remarkable in the sense to say something today. But the question mark is how this is going to impact when the full set of operation will be reopened. Today, I think it's a trend that the salaries, say personal expenses or labor expenses will increase in the US.
Gian Marco Werro:

Thank you so much. All the best to you Julian and I wish you many joyful also laser flights going forward. Thank you.
Julian Gonzalez:

Thank you very much. I hope that we can celebrate it together. Any other questions from the participants via conference call.
Operator:

The next question come from the line of Prateek Phatak from BlackRock, please go ahead.
Prateek Phatak:

Hi. Thanks for the call, and the opportunity. So I just wanted to confirm on what you said earlier regarding the Russian exposure to Russia. So it's like 2% to the national and 3% to the region as a whole. So total 5% exposure to Russia, Ukraine I believe?
Julian Gonzalez:

Let me repeat it. I think probably, it's better to repeat. This portion in 2019 the mix of the share of the impact of Russian nationalities sales were around 2%. The impact of Russian destinations that could be with other people. And I think this information is also interesting. It's very -- it's between 3% and 3.5% less around 3.5% of total sales.
Prateek Phatak:

Understood. Got it.
Operator:

The next question comes from Rebecca McClellan from Santander. Please go ahead.
Rebecca McClellan:

Hi, can you hear me?
Julian Gonzalez:

Yes, loud and clear.
Rebecca McClellan:

Good morning, good afternoon everyone, and Julian, all the very best to you and Xavier, welcome. I look forward to working with you in the future. And just three small questions. Firstly, if you back out the hotel or the high end and drag, what would you expect more or less the 2022 gross margin to come out at? Secondly, if you were to take a revenue scenario of down 30%, or even down 25% from 2019? What would your equity free cash flow on a monthly basis be and I am just trying to understand where the leverage in that might be? And certainly more generally, what is the environment to tenders at the moment? How competitive is it is versus pre COVID? Thank you.
Julian Gonzalez:

So for the first one, the gross profit margin impact by Hainan. So in 2021 is around 3.3% of the group's gross profit margin. Going forward, as you know, we have changed to the supply chain approach there. So that effects will not be there anymore in 2022 and going forward. Maybe a little bit in '22 at the beginning of the year, because there's phasing out in that regard. Then the second one, the revenue, did I understood correctly that you mentioned an additional 20% to 30% reduction or 20% or 30% reduction compared to 2019?
Rebecca McClellan:

The later, are you down into
Julian Gonzalez:

percent compared to 2019? So yes, absolutely. Look in that regards, what you can assume give or take is that in the minus 30% scenario, we will probably be around breakeven, and in the minus 20% scenario, probably around higher double digit amounts, million Swiss francs positive.
Rebecca McClellan:

Does that mean ?
Julian Gonzalez:

Can you say it again, Rebecca?
Rebecca McClellan:

Does that mean 10s of double i.e. 60 70 or 80?
Julian Gonzalez:

Yes, exactly.
Rebecca McClellan:

Okay, then. 3.3 to the 2021 number. So we're looking at 59 and a bit?
Julian Gonzalez:

Yes. So what I said is in 2021, the impact were 3.3% that will not be there anymore going forward. But maybe in Q1 2022 there is still some rest, which needs to fade out. But yes, this is exactly what I mean.
Xavier Rossinyol:

And Rebecca regarding the environment and competition in the new environment. I think it's difficult to say what is the final conclusion of the outcome of the pandemic. But there are two aspects that probably are relevant. We have been able more than any other competitor to expand the business. We have expanded in 2021, around 2% of its total commercial space through mainly direct negotiations. I think the second part of the answer is there are initiatives by landlords in general not only in a post asking a strong company from the financial point of view, to really start discussions for new spaces. Is more often now that the negotiation process one on one happened in their size, yes, we have started and we have 30,000 square meters of commercial space where most of the square meters that we are today are under negotiation. But what is going to happen after all these periods of time, it's difficult to confirm but those are facts that probably will help you to understand what the situation is.
Operator:

Your next question comes from the line of Alex Apostolidis from Barings. Please go ahead.
Alexandros Apostolidis:

Hi, good afternoon. Two questions for me. So we discussed the 10% to 20% increase in salaries per hour in North America, I just want to get a sense of what you're seeing in other regions, specifically Europe. And just a second question, just in terms of your cost of goods sold, what sort of inflation are you seeing there? Currently, you can give a specific guidance on that. That'd be very helpful. And that was all thanks.
Yves Gerster:

Okay. In terms of labor costs, I think, obviously, we have seen increases in several countries. But the reality is also that the translation effect is mitigated in some of them due to the currency that we are reporting a significant part. In general, what if repeated, I think probably is the best prospect is depending on the scenario, around 16% 16.5% the personal expenses will be recorded, and especially during 2022. To tell that globally this is going to change. It's very difficult today to tell specifics, but I think it has been very clear about that. In terms of cost of goods sold, there is obviously a trend where we have been asked by suppliers and other partners of cost increases most of these costs due to the circumstances and analyzing also the pricing strategy, compared market by market has been assimilated. And the gross profit margin is not really impacted due to the cost increases. And we don't expect this in 2022.
Operator:

Your next question comes from the line of Paul Brennan from GoldenTree. Please go ahead.
Paul Brennan:

Good afternoon. And thank you for the call. My question is just in relation to the cash flow scenarios, in the footnote that the scenarios are based on MAG relief agreed on as of February 2022. So I'm just wondering, is there upside to these scenarios, if you agree, further MAG relief and the remaining part of the year and kind of how should I compare it to what happened in 2021, when I think you said you started off the year with 300 million a migration and ended up with closer to 2 billion? Thanks.
Julian Gonzalez:

Thank you very much for the question. So look, as always, there is certain potential for additional relief, but I would not model too much in there. So look, we have obviously already negotiated a lot. And as you can see, in the scenarios, we expect a certain recovery. And therefore I wouldn't go significantly beyond what we have completed already there.
Paul Brennan:

Got it. I think you said around 32% of revenue for concessions in '22. And I think it was more like 30% in '21. Correct me if I'm wrong there. But your concession costs are going up, even though your revenue is recovering. So is it I guess is it harder to get to MAG reliefs or maybe something else impacting those figures that I might be missing?
Julian Gonzalez:

Okay, again, as we have stated and as we have done it last year, and also the year before, what we are considering for our scenarios is only what has been achieved so far. And what has been achieved as MAG relief, as you can also see in the last part of the deck is around 380 to 400 million Swiss francs. And that is what is considered and that is reflected in the concession fee assumption of 32% for the minus 35% scenario.
Operator:

The last question comes from the line of Matthew Garland from Deutsche Bank. Please go ahead.
Matthew Garland:

Thank you for taking my questions. I just had two quick questions. Firstly, in terms of the partnership that you have with Starbucks, what is your expectation around the impact, I guess of that, in FY '22? And what are the opportunities that you see over the next few years from that? And then in terms of the retail gross margin, obviously, you've seen quite a significant increase there from 2019 levels. How should we think about it sort of on a normalized 2023 basis, given probably more normal discounting and things like that? And what's the sort of upside you see from that kind of 60% level? Thank you.
Julian Gonzalez:

Can you please repeat the first question I couldn't understand it?
Matthew Garland:

So in terms of first question, it was around -- I believe that you had some sense into kind of an agreement with Starbucks for a number of locations. So I guess, what would you say? Is that in FY '22 and going forward?
Julian Gonzalez:

First of all, that is not an agreement between Hudson and Starbucks. What that is an agreement is for two specific locations, we now have a national wide agreement with the Starbucks and the situation depending on the number of units that will be available or tenders where we can present it together there is not today there is not a significant impact, or will not be a significant impact into in Qatar or in Dufry due to this agreement.
Yves Gerster:

And look, it remains in respect to the gross profit margin your second question. So there are two effects. As mentioned previously, on one hand side, we see a high demand and above spending, because we believe that what we see currently during the recovery phase our customers which have an above average spending power. So this effect may obviously, buffer rise as we go along with the recovery. And we see a more kind of like a normalized pattern, again. In respect to the second effect, which leads to additional gross profit margin that's coming from Brexit and the Brexit impact, with additional marching of people arriving in the UK. So that's most likely to stay. So in respect to the gross profit margin, the way you probably should think about it is what we have mentioned also in the past is that there will be a recovery back to gross profit margin we have seen immediately before the crisis, and then some optimization here and there a little tiny bit depending on negotiations, we have as we communicated before the crisis, but more or less a normalization to the levels we have seen before the crisis. Thank you.
Julian Gonzalez:

Any other questions from the audience or from the participants in the call?
Operator:

There are no further question from the phone.
Julian Gonzalez:

Okay, I think we, in this case, we'll finishing here. Thank you very much for obviously participating in both physical and conference call. Great pleasure to meet physically, all the people in the room again. And I guess that my last participation in the court will be in the first quarter, third quarter report, and I will obviously meet you there. Thank you very much.
Operator:

Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call and thank you for participating in the conference. You may now disconnect your lines. Goodbye.

Dufry AG Q4 2021 Earnings Call Transcript

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Q4 2021 Earnings Call Transcript