Investor Update

Dec 2, 2020

Slides

Thank you, and good evening, everybody. It's an interesting day. Actually, it's a good day for Chewy, I think. I'm, you know, remote sitting in Germany, and the team is sitting, everywhere, and we are meeting virtually since days and weeks. And it's the nature of this crisis, which is a huge crisis and the biggest crisis tourism has ever seen, that we are not sitting together. And therefore, I need to say right now that I want to talk about Page number three. And while you might be guided to three, just want to say that the whole Truly finance team is sitting here with Birgit Koenigs and Matthias Kieb and all the team in Hannover and Brussels and also Peter Krueger. Peter will be talking after me as he is has been our lead and architect of the deal negotiating with the related parties. Now let me open for a moment. And as you know, we started into the crisis very strongly. And before the crisis, we had good very good booking numbers and almost year on year increases, and then revenue went down to almost zero in the quarter starting April. We recovered a little bit and had roughly 2,000,000 customers after July. And now it's very volatile again, and you see that on Page five, issue which is included into the package for your information. Today, I don't want to talk about anyhow about trading and the year end results. That is something we will talk about next week as we will close our books for the year end only by next week. But this today, I would like to talk about the support package, which we have been negotiating. Now the support package, which actually has been signed today by all relevant parties, is a huge indication of confidence into our business and into our company as such. It is actually a package which is a multilateral package amongst different parties. And let me highlight a couple of them. The first one is, of course, the capital increase with subscription rights of approximately €500,000,000 I mean, that is something which we would have thought was not possible just a week ago. But with the increased share price due to all the COVID news and the vaccine COVID news, I mean, has made it possible and we negotiated last minute and we are backed with by four banks. And also that's also interesting and very good, led by the Molerschow family. And if at all possible, they are striving to increase their share in our company. And I think that is an enormous sign of confidence. And without that, I think or let's say, based on that, it's a very good basis to go ahead. Also, the state will be participating, so WSS, with a convertible into shares. They are trying or they are striving to do a silent participation. That is a capital increase. Again, I think it's important because these two components, the first one, the subscription rights as well as the convertible into shares, these two components strengthen our share capital and it's not that. So that's also something which is strongly contributing to balance sheet repairs in the future and for the future of the company. Also, state guarantees have been negotiating, and these are actually not cash money but to free up restricted cash and collateral in the company, which, of course, based on the situation we have been in, has increased over time. And it's restricted cash, of course, cash in the company. Now we can work with that cash again. And again, it's more fresh money. Therefore, it doesn't need to be repaid. So and on top of that comes another tranches of debt instruments. And I would say the situation, Abe, is that we can say today the liquidity has been taken care of for the company now. And also, the balance sheet repair is very well underway, much better than I would have thought. Maturities are not pushed out, first maturities to the '2, so it's a lot of time. And also, I think the business, if at all, with the vaccines and the good news on the first licensing of vaccine in The U. K. Today is another piece of it as well as rapid test as the major antigen test as a major method for travel, not closing borders, no quarantine, but antigen tests actually are leading now the way. So we believe we are strongly positioned to benefit from any market recovery, which I think we are seeing or will be seeing in due course. I'm pretty sure that the existing package, which actually now is in place after very hard work, I have to say, we are very well positioned to resume our growth trajectory. With that said, that's my introductory remark. And I think I should be handing over right now Birgit right and Peter right to you, Peter, to explain what actually is part of the package and how it all plays out. Yes. To Peter, yes. Okay. Peter, please. Great. Thank you very much, Fritz. So have a very good afternoon also from my side, and welcome, everybody. Best page to look at is Page six. So here we have illustrated the deal components again. As Fritz said, it's a package deal consisting of €1,800,000,000 It's including and based on the support of our shareholders as of today, the support from our major shareholder, Alexey Monashof. It's also supported by a syndicate of banks on the debt and also on the capital increase side. And of course, as Ritz said, there's also an element of government support and participation in the company. Now let's look at the single deal components. The first one we described as WSF. That's the shortcut for the economic stabilization fund in Germany. So similar to a structure that you may have seen in the market at Lufthansa. And this comprises of two hybrids. So in specific terms, these are two silent participations. We call it hybrid to simplify. We talk about a net commitment of €700,000,000 in detail. And in the appendix, you will find more details on the deal structure. The gross amount equates to €900,000,000 But given we've been able to commit to a capital increase of €500,000,000 over the last couple of days, the net exposure of WSS is reduced automatically to €700,000,000 while the remainder of 200,000,000 provides a backup facility for TUI in case there would be a shortfall of the capital increase in excess of €300,000,000 Now if you look at the single hybrids, the first hybrid is a €420,000,000 hybrid. It has a conversion option into TOE shares, but only up to a maximum of 25% plus one share. The conversion price is €1 So this is a straight convertible. If you look at the second component, we talk about €480,000,000 gross and €200,000,000 'eighteen net. So that's the €200,000,000 knock off from the higher capital increase than originally anticipated, which equates to €280,000,000 hybrid. This is a straight hybrid instrument subordinated, which also receives IFRS equity credit. And as you can see from the chart, this part of the deal, this is the leading agreement, leading framework agreement for the entire deal. It's also important to mention that all of the deal components, of course, have to materialize for the entire deal to come alive. But we have, as Fritz said earlier, we have committed all of the deal components as of today. And therefore, there's a very high level of transaction certainty. Now if you look on the very right hand side at the top, the deal also comprises a €200,000,000 additional revolving credit facility supported by KfW. It's largely at the same terms of our existing RCF lines that you received from KfW already. The main difference here, this will be a secured line, while the other lines we had so far were all unsecured. As part of the agreement with KfW, we've also managed to prolong our maturity that was coming due in at April 1 one and have moved this maturity of €500,000,000 alongside the deal now and pushed it out to a maturity date of July '2. So next year, there will be no maturities at TUI. We have been able, as part of this year, and I'll come to it in a minute, as regards to the bond, to actually move out all of our maturities until July '2. Now the third element you can see here is described as a state guarantee. So the idea here is to receive state guarantees that should enable to unlock cash collateral. You may have seen and noticed that over the recent months, we have accumulated quite substantial cash collateral positions with some of our suppliers. Now on the back of the state guarantee, the idea is to unlock and free up that cash. So while the guarantee itself is a noncash instrument, it will enable to unlock liquidity and therefore strengthen our liquidity position. As you also can see here, and I have to mention that the state guarantee is per se committed from the government. There is an alternative embedded in the term sheet that actually provides us with the flexibility to have an increase in hybrid two in case the final state guarantee will not materialize in time. So this commitment needs to be signed and agreed as part of the subsequent documentation. And therefore, just in case to have a safety net, there is also a clause in the WSF term sheet that the hybrid tool will be increased by €400,000,000 as a potential bridge and forward in case the state guarantees will not materialize. Now the last component, but a very important component is a €500,000,000 capital increase. So here the whole idea is to reduce our nominal value of our shares from €2.56 to €1 and then issue 500,000,000 new shares at €1 net. The issue price will be €1.07 to also account for the transaction costs, but the net proceeds to TUI will be 500,000,000 shares at €1 This is a capital increase with subscription rights. So all of our shareholders are invited to participate. We think it's a quite attractive offer. This entire amount is 100 underwritten by our largest shareholder, UniFirm, and the remainder by a syndicate of four banks, and you can see the name of the four banks on that page. Two of them are our corporate brokers, as you know. The proceeds from this transaction, the €500,000,000 €300,000,000 out of these proceeds will have to be used to repay our senior bonds outstanding that are maturing in October year. And as you're aware, based on the amended bond documentation, this is a mandatory prepayment of the bond. At the moment, we receive the €500,000,000 proceeds. Now let's have a quick look at this year from three perspectives. You may have noticed in various statements that I've seen so far ahead of the call, I noticed there three different numbers in the system. One is €2,300,000,000 the other one is €1,800,000,000 and the third one is €1,500,000,000 And I'm sure you're questioning how all of these numbers relate. So let me just give you a very brief description. So €1,800,000,000 is the total package, as you can see on this page. It's consisting of €700,000,000 hybrids, 400,000,000 guarantees, 400,000,000 RCF, 500,000,000 capital increase. Now the additional 2 point the additional €500,000,000 to get to a €2,300,000,000 number, this is the prolongation of the maturity of the existing RCF line, which is not fresh money to but which is actually moving out the maturity and then making another €500,000,000 available to TUI until July '2 and therefore providing us more headroom for liquidity for a longer period in time. Now the €1,500,000,000 is actually the 1,800,000,000.0 liquidity we receive net of the repayment of the €300,000,000 of bonds, which leads to a net liquidity increase by €1,500,000,000 So that's liquidity perspective. You could also look at this transaction from a financing perspective, right? And as I already mentioned, from a financing perspective, it's important to point out again that there is no maturities in 'twenty one, next maturity only in July '2. So therefore, there's an embedded kicker on the financing side in the sense of no maturities. And the third perspective you could take on this deal is clearly from a balance sheet support or repayment perspective. So here again, based on the €1,800,000,000 you can see €500,000,000 is equity raising from private investors. There is this €420,000,000 hybrid risk conversion rights. So depending on the assumption of conversion or not, this could convert into equity. And therefore, you can think of a €920,000,000 equity, nonrefundable equity portion from a redemption perspective. You have the 400,000,000 of guarantees. Again, the guarantees is noncash, so they don't have to be repaid. They have to potentially be replaced, which will be possible based on a rating increase of two. So therefore, this is likely amount that has not to be refinanced or repaid in cash. And so the only remaining two elements that will have to be repaid in cash for sure is the €200,000,000 RCF of KfW plus the €280,000,000 of WS hybrid. But only if, and that's important to point out again, only if we draw on these amounts. Right? So first of all, we have to draw these amounts, and then, of course, we have to repay. But if we don't draw on these amounts, then we don't have to repay. So therefore, you can see also from a redemption and an equity strengthening perspective, this year ticks a lot of boxes. And we are very we are happy that we actually received a combination of private and public money combined in a deal package that is addressing a lot of our financing requirements. Now moving on to Page seven. This is a snapshot of the time line. So this is telling you what is ahead of us. Obviously, today, December 2, we signed the agreements, all of the agreements on the previous page as part of the package, so the entire deal package is secured. We will also publish our full year results next week on the December 10. And then you can see that we will fairly soon thereafter send out an invitation for an extraordinary general meeting. This is required for three main reasons. First, to have a resolution by the shareholders on the capital reduction from €256 to €1 nominal value plus to get a resolution for the €500,000,000 capital increase plus to have a resolution on the €420,000,000 hybrid one. Now this will be a virtual external meeting, which will take place in January, as you can see. And then shortly thereafter, we're planning to launch the rights issue, which according to German standards, as you will be aware, is foreseeing a two weeks subscription offer period. So during the subscription offer period, investors can choose to participate in the capital increase, and then the settlement will follow shortly after the last day of the subscription offer period. So that's the summary on the deal, on the time line. And with that, I would hand back to you, Fritz. Hello, operator. Can I check if you're still on the line? Sorry. Because I can't hear anything. Yes. I can confirm you are still on the line. Fritz, I think your line may be unmuted. Your line may be muted. Could you please unmute? Oh, sorry. So I did my my final remarks and muted. This is actually, you know, typical for all these electronic communication. I hope you can hear me now. You know, I I the the thing I said, I think the whole package is strategically not only addressing liquidity, it also addresses balance sheet. It addresses all the basic needs to be even stronger after the crisis. And all the pent up demand we see when we open corridors, I mean, show that tourism will be intact. And when you look at Page number nine, maybe to close with that, I think our business model is strong and is very relevant. And we will be in a very good market position returning to profitable growth after the crisis. And with that, I would like to open for questions. Thank And the first question comes from the line of Stuart Gordon from Berenberg. Please go ahead. Yes. Good afternoon. Couple of questions, please. First one is can you give us any form of guidance given all the moving parts? I appreciate results next week on debt service costs for 2021 post the transaction. Secondly, does the liquidity you mentioned, is that before or after the fees being paid for this deal, which looked to be quite significant? And the third question is, I think you have the choice of making interest on the hybrid one payment in kind. How will that work? Will it result in more shares being available to convert or will it simply accrue and at some point in the future you'll need to pay cash? Thanks. Do you want to take that Peter or Matthias or David? Sure. I'm happy to. On the first point debt service cost, think this is indeed something we have to discuss next week. As we said, this announcement today is not about our financials and which we present to you in detail next week. Now in terms of liquidity, you can see in our statement we're talking about €2,500,000,000 of liquidity as of November. This is after a pro form a repayment of €300,000,000 bond. So the gross liquidity would be 2,800,000.0 And we can also confirm to you that the net proceeds to TUI will be €500,000,000 of the share offering. So the delta between €1 and 1.7 is fees that will be retained by the underwriting banks. So in terms of fees, you have to acknowledge one thing here, Stuart, which is a underwriting is quite a long time here from the bank's perspective. So typically, in the German market, underwritings will happen from start of subscription period. Here, the banks are underwriting already from the announcement today. So therefore, it's a much longer time period. We have to go through an EGM process. So therefore, the fees are a little bit higher, as you noticed. But the net proceeds to TUI will be the €500,000,000 under the equity offering. The payment in kind under Hybrid one, that's absolutely in the discretion of TUI. The mechanism is accrued interest. And as you said, these will be cash effective later, but we have the option to keep the cash interest cost for the company low over the next couple of years. So as long as we have the hybrid outstanding and therefore can accrue all of these interests from a cash perspective. Okay. Thanks very much. And just to be clear on those fees, on the 1.07, that's all the fees. That includes lawyers' fees, other bank fees associated to the other financing, any fees that are payable to the state for the financing. That's the $1.07 covers it all? Correct. Thank you. The next question comes from the line of James Aynley from Citi. Please go ahead. Yes. Good evening, everybody. Thank you for taking my questions. The first question is, if I've understood you correctly, you're not going to disclose the coupon on the hybrid. Second, just want to be clear about how many shares we think that could be outstanding. Are we saying that base of $589,000,000 plus the $5.00 9,000,000 for the capital increase? And then if the hybrid is converted, it would be up to 25% of that in large share capital. So ultimately, €1,460,000,000 shares. Confirm that, please. And then based on what you've told us, that looks to me like it's you've been running at some cash burn at around GBP 500,000,000 a month for the last two months. Again, please, can you just confirm my math is correct on that? I Can I really please ask that we talk about the numbers like next week? It's I mean, it's in a week from here and that we really keep the questions on the current government package. Okay. Exactly. Thanks. Which brings it down to two out of three questions, James. Right? So the first question on the hybrid, I mean, we have not disclosed the terms, but to give you a brief guidance. So this is single mid digit at the beginning, but there's, of course, a ratchet over time. And over time, this will accrete to more double digit numbers, which also puts up an incentive for the company to repay the hybrid at one point in time. Then the calculation you did on the dilution is absolutely correct. So $519,000,000 shares now plus another 500,000,000 new shares under the equity offering makes it to $1,090,000,000 euros And then if you calculate a 25% participation of the government, then this would be this would equate to another $360,000,000 shares at €1 So the total shares outstanding would be $14.50 if the hybrid one is converted into 25 plus one. Yes. Thank you. And sorry, Isohn, just that last question on liquidity. I was really just trying to reconcile what you told us that the current liquidity of the business, assuming repayment of the corporate bond is CHF2.5 billion. If you've raised the CHF1.5 billion, therefore, net, at CHF 2,000,000,000 of liquidity at the September, that would imply that from what you've told us today that you've burned through about 1,000,000,000 of cash in the last two months. So I was really just trying to reconcile those numbers and make sure I'd understood that maths correctly? Yes. Let's discuss these numbers next week, James, right? Because I understand your question, but sorry, but part of your calculation is relating to the current and latest trading, and we cannot disclose these numbers now in this blackout period. So please let's focus on this question again next week. Okay. Yes, you can. Thank you. Thank you for that, James. Your next question comes from the line of Jaafar Mestari from Exane BNP Paribas. Please go ahead. Hi, good afternoon. First question, please, just on where investors should have expected this deal to land. I just want to refer to the first October where there were press reports that you could look at the capital increase between SEK 1,000,000,000 and SEK 1,500,000,000.0. And you issued a public response stating that any capital raise would be significantly lower than SEK 1,000,000,000 to SEK 1,500,000,000.0. So I appreciate that many things have changed since early October. A couple of the green dots on your chart turn red or yellow. But my question is, if I take the equity raise today plus the two hybrids together, I could be saying, well, there's €1,200,000,000 in equity here. So my question is, which of the hybrids would you consider to be equity in a base case scenario? I'm not talking about the potential dilution, but is your hope that the hybrid one will be repaid when you're in a position to do a complete refinancing? On Slide 11, you say you can terminate it by 2E once the loans and the other hybrid have been redeemed. So is that a realistic base case? Or should we be looking at fully diluted share count, please? Yes. It's a very good question, Jafar, right? So let me answer it in the following way. So while a lot of the operational color coding on Page five has turned red, A lot of the financing options have turned green in the last couple of weeks, which is very good news for TOE. So also sends a strong signal from investors trusting in their performance and the ability of the company to recover. Now as regards to your calculation, you can indeed take the view of €1,200,000,000 of equity if you look at it from, let's say, conversion perspective. If you add the IFRS equity credit of hybrid number two, then you indeed end up with the €1,200,000,000 So that is, I think, a good perspective. On the dilution, we I mean, this is ultimately a decision the government has to take, so we cannot comment from the company side whether the government is intending to convert its convertible into shares. Having said that, I mean, you can also see that this hybrid is a deeply in the money hybrid, right? So there's maybe some economic incentive. There may also be some political incentive to do so. So as a fair guidance, I think you should look at a probability weighted fully diluted basis, if that makes sense. Thank you. That makes a lot of sense. And then just to clarify, is that 500,000,000 plus €420,000,000 is that what you consider to be significantly lower than the press reports? Or is this because you've had to upsize since your thinking in early October? Yes. As I said, Shafar, I think the optionality from the TUI side in terms of financing instruments becoming available has increased significantly, right? I mean, you've also maybe tracked our CDS development. So also the CDS has come down significantly also today on back of the announcement. And as regards equity, I mean, you take a look of €500,000,000 capital increase plus €420,000,000 of hybrid, that brings you alone to 800,000,000 to €920,000,000 which is ballpark in the area of €1,000,000,000 And then if you add the hybrid two, as you say, you get to 1,200,000,000.0 which is again ballpark to the numbers you quoted before. Thank you very much. And if I'm allowed a last one, a second question, on ultimately what's the ideal financing structure for this business at the moment, something that's really helpful in your emergency financing, in the KfW financing is that it's basically just on the same terms as your RCF. And it'd be beautiful if you could have as big an RCF as you wanted. But realistically, once you turn to the commercial banking markets to refinance this package in due time, do you think you can obtain an RCF for the group that's bigger than SEK 1,500,000,000.0, which is what you have pre COVID? Or will you have to refinance some of that in longer term debt instruments and then that may not be optimal? Yes. If I take that question, so far, I think it may be a combination of both, right? Clearly, both is an option. Time will tell, right? I mean, the market is always right. Let's look at the developments of our CVS of the company, of the business in the next six to eight months. But you're also making a good point, of course. I mean, while we have a maturity of $722,000,000 which seems very far away, of course, we have to look at the refinancing of our financing instruments a lot earlier. And of course, we will keep you updated and posted on our thinking there. And as I said, it may be a combination of both depending on prevailing market conditions. And I think, Peter, I think it gives us also the time to look at our balance sheet structure in general. And I mean that is equally important when you look at the balance sheet. I think it's important. And we have enough means, I think, to M and A or other instruments to actually take the actions which are needed. All right. Thank you very much. The next question comes from the line of Nicolas Gourdain from Alexcor. Please go ahead. Yes. Hello. Good evening. I just wanted to understand a little bit better the conversion rights of the participation, number one. I mean because obviously, it says that there are termination rights that you guys have if you can repay all the other loans. But is there still sort of a right for the German government to negatively convert at any point if they sort of desire to do so? And let's say, their financial incentive is to do so, if the share price is higher than €1 substantially higher as we sort of can sort of as it is now at the very least, I can imagine it will be quite higher. Yes. I mean, I think as you said, right, I mean, €420,000,000 So basically, the way to look at hybrid one is that it's capped by two data points. One is the €4.2 The other data point is 25% plus bond share. So the government cannot go higher than that at any time. So these two caps will apply. You can see that the conversion rights subscription price, which is actually the same net price as for the capital increase. And as you pointed out, I mean, this is an American style option, right? So it's fully convertible up on the decision of the government to do so. So therefore, the conversion rights are with the government. And I think what you were saying before is that there is, I mean, certainly a political incentive to convert, I suppose, a financial incentive to convert it to the share prices, two, three, four basically, right? Because it's obviously German taxpayers' money. Yes. Mean, I said before, we cannot speak on behalf of the government. But for your models, I mean, I think it's prudent to assume a probability weighted dilution from that instrument. That's my personal And the 25.1% limit, is it for both the convertibles, meaning this one and the one from the previous package as well, which I think has 7%, percent? Aggregates. It's aggregation. The addition of two fifty six million or something. It's aggregate. Aggregate of both, okay. But obviously, the other one is a higher strike price. So in a way, it's more likely to be converted than the other one, I suppose. Yes. The first one, Peter, you go ahead, please. Yeah. In the first one, while you mentioned it, right, in the first one, there's a dilution protection that takes down the strike price from €256 to €1 as well if there's a capital reduction to €1 So there's also a right from the government to convert the €150,000,000 bond plus warrants I mean, the warrants into two equity. But the total shareholding of the estate will not be above 25,000,000 plus 1,000,000 And just a last question on my end would be And maybe the first one, I think, Peter, also can be traded, right? I mean that's so there might be a dilution, but not by the state, if I recall it correctly, right? Yes, that's true. But you're right, Fritz. I mean, the important point is both together cannot lead to a higher shareholding than 25%. And just the last question is, it's so we have this report from the largest shareholder even in excess of its position. I guess you have two other sort of large non institutional shareholders, let's say. Is there an indication of if they are also going to support the right issue? Yeah. Can I maybe I'll take that? I mean, of course, we have a lot of discussion. And at the end of the day, the good thing is everybody believes in the future and the company. Now when you look at Rio, for example, there are because they have 3.1%, there are better ways for them to support the company than potentially buy shares or not. I mean, when you look at, for example, our trading agreements we have with our hotels and commitment agreements with our hotels, I mean, the important point is liquidity. And of course, when you just calculate it, you see that I mean, Rio is a shareholder in the company for about thirty years or so. I mean, they are staying around for such a long time. They don't need to do a commitment. I'm not here to say they would or wouldn't. But when you look at our commercial deals right now, payment hotel payments and so on, these companies are strongly behind the TUI company itself. Thank you very much. The next question comes from the line of Christian Niedelcu from UBS. Please go ahead. Hi, thank you very much for taking my questions and thank you for the presentation. Just two questions left from my side. Firstly, on the sort of the guaranteed credit facility, 400,000,000, understand well you've explained it that it sort of replaces some restricted cash. But could you elaborate a bit more on this restricted cash? Is it part of it to the regulators, part of it, I think you mentioned to your suppliers? So any more color? And is it €400,000,000 of restricted cash as of today? Or you expect it is lower today, but we expect that to increase? And my second and last question, if I may. This deal definitely shows up the liquidity position. And on my estimates, at the December, you'll have probably €2,000,000,000 of liquidity, which is actually a little bit better than the €1,800,000,000 of liquidity that you had in December 2019. But I guess my question is, could you elaborate on the company plans in terms of actually reducing your gross leverage from here going onwards? Do you still have in place that 2.25 to three turns gross leverage target? And if you can elaborate a little bit on the means and timeline of bringing the gross leverage towards whatever the current targets are. Thank you very much. On the gross leverage, we keep our target, that is for sure, so 2.25 to three times. But in terms of more color to that and numbers, I suggest again, sorry for that, that we take that question like next week when we will be able to go into a bit more detail. And then on the collaterals, these are like cash collaterals from, let's say, also credit card companies, but also travel bonds. And this is has to do actually with, yes, just the current situation that we are in. But this package really offers the opportunity to unlock the cash flow. So that is actually great news. Understood. Thank you. Just to be clear, so the liquidity number that you present in the slides today, that excludes any sort of restricted cash. So that is separated from that liquidity number. Is my understanding correct? So yes, that is correct. So when we talk about liquidity, that means there is no restricted cash in that number. The next question comes from the line of Michele Fiumara from Helicon. Please go ahead. I'm sorry, my questions have been answered. Thank you. There are no further questions in the queue. So I'll hand back over to your host for any closing remarks. So thank you, everybody. I think this day is a great day for the company. We have worked hard in order to get this financing in place, which addresses not only liquidity but also the balance cost and address the balance sheet as well. And let's keep fingers crossed for year end trading. And I'm very happy that we will talk just a week from now about year end and other trading updates. Thank you very much, and have a great evening.